Binary options

Find out how binary options work and what our concerns are.

Update: From 2 July 2018 the sale, marketing and distribution of binary options by firms to retail consumers has been banned in the UK and across Europe.  

If you’re approached by a firm claiming to offer binary options products, it’s probably a scam.

What are binary options?

Binary options are a form of fixed-odds betting. Typically, a trade involves predicting whether an event will happen or not (for example, will the price of a particular share or asset go up) and the outcome is either yes or no.

If the investor is correct, they ‘win’ and should see a return on their investment; if they’re wrong, they lose their full investment.

Concerns about binary option trading

Binary option consumers typically lose money, and these losses can be significant.

A key risk of the product is the fact that they are typically priced in a similar manner to fixed odds bets, since their value is determined by the probability of an event happening. Investors are offered higher returns for lower probability events and lower returns for higher probability events. For investors to make a profit from trading they need to ‘beat the odds’ on a regular basis, which a majority of investors do not.

This feature, along with the short duration of trades, can cause addictive behaviour typically associated with gambling.

Regulation of binary options in the UK

From 2 July 2018, the European Securities and Markets Authority (ESMA) has banned firms from selling binary options to retail consumers across the EU, including the UK. The ban is for an initial three-month period however, ESMA will renew this ban, with limited exceptions, from 2 October 2018 for a further three months.

All types of binary options can still be offered to professional clients, including elective professional clients. A firm should not treat you as a professional client in relation to binary options unless you have requested this and can meet specific criteria.

The FCA expects to consult on whether to permanently prohibit binary options being offered to retail consumers in Q4 2018.

Prior to 3 January 2018, binary options were regulated by the UK’s Gambling Commission. If you want to make a complaint against a binary option firm relating to a bet made before 3 January 2018, you should register your complaint with the dispute resolution body of the firm. For more information, visit the Gambling Commission's website.

Binary option scams

UK consumers have been targeted by binary options investment scams, which commonly promise higher than average returns for bets that never occur and manipulate software to distort prices and payouts. They also commonly refuse to return client funds and break all contact with customers.

Fraudulent binary option traders often advertise on social media – the advertisements link to websites that are well-designed and professional looking. 

You should only deal with financial services firms that are authorised by us. As the sale of binary options is now banned, any firm offering binary options services is probably unauthorised or a scam.

You can check if a firm is authorised by the FCA by checking the FCA Register of financial services firms. For more information on these types of scams, see our ScamSmart pages.