How to Do Background Check on Binary Options Broker
If you are thinking about investing in binary options, you probably have already discovered that the industry is replete with scams. There are also quite a few companies that may not be out to steal your money, but which are incompetent enough that they could cost you anyway. For this reason, it is vital to conduct a thorough background check on any binary broker you are thinking of registering with. How can you do that? Here are the steps we recommend.
1. Check if the broker is registered, and with which authorities.
Your first step is to figure out whether you are dealing with a regulated or unregulated broker. While not all unregulated brokers are low in quality, a broker, which is regulated, has some government oversight. That can be very useful if you should ever find yourself in a dispute with the company.
Here are some agencies that regulate binary options brokers around the globe:
- Cyprus Securities and Exchange Commission (CySEC): This is the agency that regulates the vast majority of binary options brokers. Its regulations are fairly lax, but it at least provides a level of oversight.
- Isle of Man Gambling Supervision Commission (GSC): The GSC is the agency on the Isle of Man that regulates binary options brokers, online casinos, and so forth.
- Malta Gaming Authority (MGA): This independent Malta regulatory board supervises a wide range of gaming companies (much like the GSC).
- US Securities and Exchange Commission (SEC): This US agency has oversight of domestic stock and options exchanges. The SEC does not hold a favourable view of most binary brokers.
- US Commodity Futures Trading Commission (CFTC): The CFTC is in charge of overseeing options and futures markets in conjunction with the SEC. Once in a great while, the CFTC licenses a binary options broker, but this is incredibly rare.
Note that you may also stumble across some other “regulators” which are not true regulatory boards. A couple examples are:
- The Financial Commission
- Financial Market Relations Regulation Center (FMRRC)
These are independent organizations and are not affiliated with any government body. They claim to offer dispute resolution. The quality of those services is virtually unknown at this point since these organizations are not
So on the whole, you can ignore “licenses” like the FMRRC, and stick with looking for licenses from established, official regulators like CySEC, the CFTC, or the MGA or GSC.
How can you find out whether a broker is licensed? Most of the time, this information is prominently displayed somewhere near the top of the homepage, but if it is not, check the following:
- The very bottom of the homepage.
- The terms and conditions page.
It is also highly recommend going to the regulator’s page and
2. Identify the actual name of the company that owns the site.
Another important step in conducting your background check is to know exactly whom you are dealing with. This can be a challenge, as many binary options companies operate under layers of different trade names.
The best thing to do is check the terms and conditions page to see what company name is listed there. It may still be a subsidiary, but it at least gives you a name you can Google. From there, you can see what comes up. You can also look up registration information for the site itself to see if that provides you with further clues as to the identity of the company.
You may sometimes find other hints as well. For example, you might notice something familiar in a site’s branding, and realize you saw similar branding on another site. It could be that the two are owned by the same company. Look up the names of both sites in the same search query, and you could find your answer.
3. Search the web for fraud advisories on the company.
While you are looking up a binary options company, be especially alert to any fraud advisories you see. The most important notices are those that have been issued by formal regulatory bodies. You should however also pay attention to claims of fraud reported by customers. Just keep in mind these reports are not always accurate.
4. Read reviews from traders and
third-party sites to learn more about the broker’s general reputation.
On that note, reading reviews can be very informative. There are two main types of reviews you will find:
- Reviews that were penned by customers who have traded on a site.
- Those that were created by third party sites which conduct research on binary options brokers.
In both cases, you need to try and figure out the reviewer’s agenda before you can gauge the truthfulness of their words. Not all reviewers are objective — in fact, most are not.
Sometimes a trader, who has lost money through their own fault, will, for example, get angry and look for a way to blame a broker. This does not mean the broker really scammed them. It just means they are angry. Other bad reviews may sometimes be left by competitors.
Of course, sometimes, negative reviews are true. This becomes more likely if you find patterns across reviews left by many people.
You also need to be cautious in judging the truthfulness of positive reviews. Glowing reviews may sometimes be fake or left by affiliates who are hoping you will click through and make them a quick buck. Not all affiliates are misleading however; some research carefully brokers in advance and only collaborate with companies that they believe objectively to be offering solid services.
5. Read the broker’s terms and conditions carefully.
If you have completed all the steps above and so far everything checks out with a broker which interests you, it is time to turn to the terms and conditions page on the broker’s site.
Lots of traders never do this. They check the box when they register, but they never even click through to take a glance. If they do, they skim up and down (at best), and then continue on.
But it is very, very important to read this page. The terms and conditions are a legal agreement, and they tell you what you can expect from the broker in terms of the following:
- Fees, withdrawal thresholds and limits for deposits, withdrawals, trading, inactivity, and more.
- Identity verification procedures.
- Technical support. If there is a technical error on the platform, will the broker cover your losses or will you pay for the broker’s mistake?
- Bonus policies. What are the turnover requirements to claim a bonus? Can you withdraw the bonus? When can you withdraw the money you have won with the bonus? What about the money you originally deposited? Are there situations where you could end up forfeiting all your winnings (e.g., if you attempt to withdraw before you meet the turnover requirements)?
- Security. The terms and conditions page should lay out clearly what the company is doing to protect your privacy and your bankroll.
Quite often, negative reviews for brokers result when traders sign up for sites without reading their terms in full. Then something goes wrong — they lose money through a software glitch or they cannot withdraw their bonus money because they have not met the turnover requirement — and then they blame the broker.
But traders in this situation have no one to blame but themselves for the hassles they are dealing with. It is up to you to decide what kinds of terms and conditions are acceptable to you, but you should always know what you are signing up for before you jump on board with any broker.
I should also point out that even though it is totally up to you what terms you accept, you should try to stick with brokers that offer terms that are favorable. If you lose money through a software “glitch,” the broker may have legally covered itself through its terms page, but that does not change the fact that you have lost money. Real, unintentional glitches do sometimes happen, but this is also a common scam that shady brokers sometimes perpetuate on purpose.
If the terms and conditions page you read offers you favorable terms of service, you can at least feel reassured that the company likely has your best interests at heart. If on the other hand the terms leave plenty of room for shady practices (software errors, ridiculous fees, elaborate restrictions on withdrawals, etc.), which could drain your wallet, you should go elsewhere.
6. Contact the broker’s customer service team to see how they handle questions and concerns — especially regarding regulation.
There is one more step I recommend to complete your binary options broker background check, and that is to contact the customer service team via telephone or live chat.
Come up with a few simple questions to ask. See how the agent handles them (assuming someone responds to you at all). How long does it take them to reply? How thorough and knowledgeable are the answers? Is the agent kind and helpful?
A lot of binary options brokers are really weak in the customer service department, so if you do find one which offers excellent customer service, that is a great sign you are dealing with a quality broker.
It takes time to research a broker’s background, but it is necessary if you want to trade with a safe, reputable company.
Researching binary options brokers does take effort, but running a comprehensive background check is important if you want to protect your money and your identity when you are trading online. Not sure where to begin in your search for the right broker? Check out our list of top suggested binary options brokers. We have conducted thorough background checks on all the sites that we recommend.