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Investor Alert – Use caution when considering buying binary options

Alert.

An investor alert issued by the Financial and Consumer Services Commission is cautioning New Brunswickers about a new kind of investment in the binary options market.

Binary options are similar to bets on whether the value of an asset will increase or decrease in a fixed (and often very short) period of time.

“New Brunswick residents should be extremely cautious if considering the purchase of binary options,” said Jake van der Laan, director of enforcement with the FCNB. “These securities are primarily offered by offshore firms that may not be registered with or regulated by FCNB.”

Investors face two possible outcomes when the option matures:

  • they receive a pre-determined cash payout (often called the “premium”) if the value of the asset increased during the relevant period; or
  • they may only receive a small percentage of the principal back or lose their entire investment if the value decreased.

This is why binary options are sometimes referred to as “all-or-nothing” options.

Binary options fall within the definition of a “derivative” under the New Brunswick Securities Act and parties selling these to New Brunswick residents must be registered.  People should be very cautious with binary options trading.  Buying them may put any money invested at significant risk.

“Before making any purchases of these options, or any other investment, consider what you can and cannot afford to lose,” said van der Laan. “Be realistic in your expectations and verify all information before you part with your hard-earned money.”

Binary options are typically offered through online advertisements, emails and social media and over the telephone. Persons or companies selling them to New Brunswickers are required to be registered with FCNB. Residents can use the Registration Search Tool to check if that person or company is registered.

Facts to keep in mind:

  • Binary options are typically traded within extremely small time frames, which increase risk significantly. Even very knowledgeable investors may find it difficult to predict whether the stock price of a public company will go up or down in the next 10 minutes.
  • Binary options trade with such speed that wins and losses happen very quickly.
  • Promises on certain binary option websites that “even if you lose the trade, you don’t lose money” are false. The disclaimers written in small print on the same websites clearly state that you can lose all or a portion of your money.
  • Binary options are often traded in the currency markets, also known as foreign exchange or “forex”, which is high risk.
  • Many of the trading platforms operate from servers in the U.S. and overseas (Cyprus, for example), which means the money goes outside of Canada, often through a wire transfer. This makes it virtually impossible to get your money back.

New Brunswickers who have been approached by any companies offering these types of investments are encouraged to contact FCNB immediately.

This alert was based on an investor caution issued by the Alberta Securities Commission.

The Financial and Consumer Services Commission (FCNB) provides protection to consumers and investors from unfair, improper or fraudulent practices. The commission brings together regulatory authorities for securities, insurance, pensions, consumer affairs, co-operatives, credit unions, caisses populaires, and loan and trust companies. It is an arm’s-length Crown Corporation self-funded by the fees and assessments paid by the regulated sectors.