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As the Sunday Times continues to go after the seedier binary options brokers, highlighting how a women lost £640k, we thought we’d put a quick guide together on how to not get scammed in binary options.

Understand what binary options are

This is important because there is so much misleading advertising for binary options.  Binary options are basically a up or down bet on the financial markets with odds worth less than evens. So if you bet £100 that the FTSE 100 will goup in the next minute. You could either win about £90 or lose £100 (depending on what broker you use).  This is pretty much like betting on red or black  at roulette in an online casino.

It’s pretty much the natural progression from results hungry traders. Everyone wants to play the markets and binary option is a pretty high risk/high reward way of doing it quickly.  Unlike spread betting or CFD trading though your losses are capped at your stake.

Use an FCA regulated broker

Never go with an off shore broker.  Only use an FCA regulated binary options broker. Large mainstream brokers in the UK like ETX, IG, or Spreadex also offer binary options.  They are reputable companies that have good reputations.

You can check if a broker is regulated in the UK on the FCA or if you are an institutional trader you compare prime brokers here.

If you use a broker regulated in Cyprus your funds are not protected and the staff and “brokers” are not regulated.  This leads us on to…

Never take advice on trade from a broker

Binary Options are an execution only product – which means that you must make all your trading decisions yourself.  The brokers looking to scam you will phone up and offer advice on trade to put on.  They may as well we flogging dodgy dodgy double glazing and don’t care about you or your money. In fact, for some scam binary options brokers the more money the broker looses you the more commission he earns.  If a broker offer advice on binary options trading call the FCA and report them.You can ready more from the FCA website here.

Under no circumstances trade with money you cannot afford to lose.

This is normally (in one wording or another) written on any brokers website.  Most people lose money trading. The biggest hedge funds in the world don’t double their money every year, so why should you?  High risk investment products should account for at the very most 10% of your investment portfolio.  For binary options that should probably be around 0.01%.

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