You web browser may not be properly supported. To use this site and all its features we recommend using the latest versions of Chrome, Safari or Firefox

We are continuing to serve clients during the COVID-19 pandemic More Info.


“Binary options” are the new buzzwords in trading. Slick new apps are being developed and marketed to Australians to trade in these exotic, complex sounding options. But is it all too good to be true?

We're currently seeing a host of binary options apps being marketed through social media. They appear to promise easy access to the world of options trading, promoting the prospect of success. They call on investors who are ‘ready’ to earn large profits.

The reality is that there is a dark side to binary options trading. We have been contacted by everyday consumers that have lost thousands to overseas companies through trading in binary options. We are concerned that in some cases, these losses may have been incurred without investors fully appreciating the risks.

In other cases, we've been contacted by people who have sent money to questionable online brokers; who initially promise success but then appear to lead their clients to significant losses.

Some of these ‘brokers’ appear to be little more than sophisticated scammers.

The binary options trades sold by online brokers often encourage investors to predict the movement of a commodity, index or exchange rate, for example, the price of gold or the $US to $AUD exchange rate. Investors try to predict how the market will move. If the investor guesses correctly, the investor usually takes a fixed monetary amount, usually expressed as a percentage gain on their original investment. If the investor guesses incorrectly, the investor usually loses all of their invested money.

To provide an example, an investor purchases an option which will pay out if the Australian dollar will exceed 75 US cents by 11 am the following day. The investor purchases the option for $100. If the investor guesses correctly, he or she will receive a percentage (say 25%) of the invested amount, and will have their capital returned ($100 + $25 = $125). If the investor guesses incorrectly, the option will expire, and the investor will lose their $100.

From the example above, a feature of concern with some online binary options platforms is that the total potential upside (i.e. a profit of $25.00) is less than the total potential downside (a loss of $100). In many cases the payout structure is on average weighted in favour of the seller. The total amount you could expect to receive if you guess correctly is less than the amount you will lose if the option expires.

In other words, the house always wins.

Some binary options are legitimately sold in regulated exchanges and can be used by sophisticated investors and traders as a part of a complex options trading strategy. Other binary options are sold on the internet to consumers who may not understand the risks involved in this form of trading.

The US Securities and Exchange Commission has warned US based investors that that it has received complaints of fraud against websites that offer binary options trading. In February 2015, ASIC raised concerns about an unlicensed binary options trader from Belize directly marketing to Australian retail investors. The trader did not have a license to operate in Australia. It appears that traders based in Cyprus continue to advertise in Australia.

Consumers should be warned that if you trade on-line with an overseas broker, Australia’s consumer protection financial regulation laws may not protect you.

Australian corporate law will only usually regulate entities that have a license to deal in or give financial product advice to investors in Australia.

Even if a binary options trader is licensed in Australia, it is important for investors to understand these risks involved in this form of trading. If you are considering trading in binary options, spend some time think through the risks as well as the potential upside. Also consider the risks of dealing with an overseas online trader. Buyers beware!

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

Thank you for your feedback.

Related blog posts

Consumer and the Law
Banking Royal Commission legislation introduced

On 28 November 2019, the Government introduced legislation in line with the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The legislation is designed to provide further protections for consumers and small businesses and is set to be passed in early 2020. Below is an overview of the proposed legislation. Click here for a recap of the Banking Royal Commission from our Head of Class Actions, Ben Hardwick. Under the proposed legislation, mortgage brokers will be required to act in the best interests of consumers when providing credit assistance. That means where there is a conflict of interest between the consumer’s...

Gavel and weights two people talking resized
Financial Negligence
The Australian Financial Complaints Authority’s powers are being expanded for 12 months: Do you …

The Australian Financial Complaints Authority (AFCA) is responsible for providing consumers and small businesses with free and independent dispute resolution for financial complaints. AFCA considers complaints in relation to: These complaints were previously handled by the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. The usual time limit for making a complaint to AFCA is 6 years from the date you became aware of the financial loss.[1] However, when a complaint has already been through the financial firm’s internal dispute resolution process, the time limit is reduced to 2 years from the date you receive response from the...

Finance Planning People Documents Resized
Financial Negligence
Online scams and the Financial Ombudsmen service

As our population ages, our vulnerable elderly people are increasingly falling victim to elder abuse perpetrated by adult children, family members, friends and carers. But older Australians are also increasingly preyed upon by fraudsters. The Financial Ombudsman Service (FOS) has recently published two determinations which consider whether the older person’s bank is liable for “allowing” them to transfer funds. In the first case (Case number 431342, 2 December 2016), the Applicant transferred $123,019 from his bank account to a fraudster who kept the funds. The Applicant claimed the bank should compensate him for his loss. FOS found, however, that the bank did not cause or contribute...

We're here to help

Start your online claim check now. Or, if you have a question, get in touch with our team.