TradeThunder

Binary Options, Is it a Scam?The Times of Israel has recently published 2 scathing articles condemning the binary options industry as being largely a scam, run mostly by Israelis in Tel Aviv and its surroundings. The title of the first article, published on March 23rd, 2016, is “The Wolves of Tel Aviv: Israel’s Vast, Amoral, Binary Options Scam exposed”. The choice of the wording on the article’s title is far more telling that the information revealed within its body.

The article only manages to present some skewed information that is in no way hidden, nor has it ever been hidden from the public. However, the comparison to the wolf of Wall Street is far more interesting. This is due to the fact that what the author claims is a scam, is really only an absence of regulation that many organizations across the globe exploit to their advantage, as opposed to a targeted operation run by a single organization to scam people out of their money.

Here is where the author’s words started deviating from the cold, objective journalistic work that an issue like this one elicits. The fact of the matter is that binary options are a legitimate financial instrument, even in the US. Legitimate binary options brokers exist, and not all the industry is trying to scam people out of their money. Moreover, there are many other legitimate organizations that provide services to the industry, which should not be regarded as ‘wolves’ either. To have a fully-fledged industry full of wolves is troubling. But in this case the accusation cannot withstand the test of rationality.

Brokers like NADEX for example, are fully regulated by the CFTC in the US. There are countless other brokers that are regulated elsewhere, like in Australia and even in Germany. Nevertheless the most troubling misrepresentation in the article, is the assertion that authorities need to do more to stop the scammers. If history serves at all as a reminder of how regulators and governments can get it terribly wrong, we only have to go back to the huge economic melt-down of 2008-09.

Thanks to the work of various governments and regulatory bodies, the biggest and most prestigious investment banks in the world, came up with what became the most notorious scam in the history of finance. That scam came to be known as the subprime mortgage crisis, and it put millions out of jobs all around the world. The most striking difference between that scam and the alleged binary options one, is that all the dealing was done away from the eyes of the public, and without the consent of the stakeholders.

Protected by laws and regulations, banks like the defunct Lehman Brothers, packaged subprime mortgage loans into toxic derivative packages and sold them to everyone else. Soon pension funds, sovereign investment funds, and governments were buying all kinds of toxic assets. Their portfolios couldn’t withstand the ensuing crash, and the world’s economy has never recovered. The only ones who call all the people who were involved in that scam wolves, are labelled fringe socialists, or libertarians, or any other kind of belittling label that sticks.

That is why this latest article that attempts to ‘blow the whistle’ on a whole industry, should be taken with a grain of salt. Any investment is risky, and investors everywhere have to do their due diligence; they have to understand who they trust with their funds. The public must also understand the distinction between a legitimate financial instrument, and the companies that enable trading on the basis of said instrument. However, when any publication cries wolf, it doesn’t matter if the proverbial predator sits in Tel Aviv, London, New York, Washington DC or Brussels. Authors run the risk of losing the attention of their audience due to false accusations.

 

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