Recently, the ASC has received calls from investors in Alberta asking for information about what’s known as the binary options market.
Binary options are essentially “bets” as to whether the value of an asset will increase or decrease in a fixed (and often very short) period of time. Investors face only a few possible outcomes when the option matures: they receive a pre-determined cash payout (often called the “premium”) if the value of the asset increased over the relevant period; or they may only receive a small percentage of the principal back or even lose their entire investment if the value decreased. This is why binary options are sometimes referred to as “all or nothing” options.
Alberta residents should exercise a high level of caution when considering a purchase of binary options. These securities are primarily offered by offshore firms, and are therefore not registered with or regulated by the ASC. If you buy them, you will not have the benefit of the protection of Alberta securities laws, such as disclosure requirements. Purchasing these options may put any money “invested” at significant risk.
Binary options are typically offered through online ads, emails and social media, and also over the telephone. Persons or companies offering the sale of such options to Albertans are required to be registered with the ASC, so be sure to use the National Registration Search to check if that person or company is registered.
Facts to be aware of:
- Binary options are typically traded within extremely small time frames, which increases 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; in almost every case, it’s just a guess.
- 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.” Alberta residents who do not meet accredited investor requirements cannot trade forex.
- Many of the trading platforms operate from servers in the U.S. and overseas (e.g. Cyprus), which means you are sending your funds outside of Canada, often through a wire transfer. This makes it difficult - if not impossible - for local regulators to assist you if a dispute arises.
Before you trade in binary options, consider what you can and cannot afford to lose. Please contact the ASC Public Information Office if you have questions: 1-877-355-4488 or firstname.lastname@example.org.