The Monetary Authority of Singapore (MAS) on Tuesday (Mar 14) warned investors on the risks of trading binary options with unregulated platforms, after an increase in the number of complaints from investors who suffered losses from such investments.
A binary option is a type of option contract that references an underlying instrument such as stocks, commodities, currencies and interest rates. Unregulated platform providers often use marketing catchphrases such as “trading with zero risk”, “trading amounts of as little as $1” and “profit payout of 500% per trade”, to entice investors to invest.
“Contrary to promises of low investment risks with exceptionally high returns, binary options are in fact, speculative and risky investment instruments,” the central bank said.
“There is a high chance of the investor losing his entire investment amount, whether the investor deals with a regulated or unregulated entity. Further, an investor is always exposed to investment risk, whether a product is regulated or not.”
Many of the unregulated binary options trading platforms are fraudulent and based outside Singapore, MAS said, adding that investors who trade with these platforms are unlikely to recover any money lost and will not have access to avenues for dispute resolution.
"Before making any investment decisions, investors should think carefully about the claims being made about the products offered – if the touted ease of making significant profits sounds too good to be true, it probably is," the central bank said.
Last December, Singapore police warned of a “sharp rise” in scams involving online trading in binary options, with more than 30 reports lodged by investors who had lost more than S$1 million to unregulated binary option investments.