Do you want to earn tens of thousands of shekels a month even though you have no college education, extensive work experience or rare talent? If the answer is yes then Israel's binary options industry might make you an offer you can't refuse. Israel's binary options industry is a kind of high-risk securities industry that is more akin to a casino. It is becoming clear that Israel's hidden binary options industry comprises two thirds of the market for these securities and their derivatives and yields NIS 1 billion in profits and has become a major export industry.
Binary options concern the change in the trend, in other words whether something rises or falls over a pre-determined period of time, whether it is a stock, currency or commodity. The option promises the investor pre-determined returns and thus cancels the significance of the gap between the rate at which the deal is implemented and the rate when the option expires. The option is called binary because there are two possible results for investors: profit (according to the returns set ahead of time and when the forecasted trend materializes) or complete loss, with the entire investment going down the drain if the forecasted trend does not materialize. It's either 0 or 1.
This export industry is flourishing very well in Israel but is under threat from the Israel Securities Authority, which wants to prohibit the marketing of these options overseas from Israel. This large industry, which is even larger than dozens of companies such as marketing and app services, website design, business analysts, software professionals, communications providers and more. Estimates are that most of the money reaching Israel is foreign capital including from Arab countries.
Over the past few months, we have received a huge number of complaints about the practices of some of the companies in this industry in Israel. As a word of warning to potential clients of binary options company, we bring a shocking testimony from a financial professional who recently participated in a training course for one of these companies.
"Israel is a global center for online binary options trading but in recent years this industry, which targets customers overseas, has been subject to major criticism and charges ranging from immorality to fraud. As somebody involved in the financial markets for almost a decade, I didn't understand what all the fuss was about. Somebody comes along and invests money in a risky financial instrument - and loses. So what? This is a routine matter not only at binary options companies but even at banks, investment houses, brokers etc. However, the disturbing testimonies of investors who have lost their money, the growing attention of the world's media to the subject and bad name associated with the employees of these companies persuaded me to check out the matter more in depth. So I went and worked for a binary options company, and what I discovered has left me speechless."
"On the internet there are many dozens of job offers for customer portfolio managers in the binary options industry with massive salaries of NIS 20,000-70,000 per month. I sent my CV to several companies and within 20 minutes I already had my first job offer - not as a customer portfolio manager but as a salesperson because I didn't have the experience. Even though I have nearly 10 years of experience in the foreign currency market, I have consulted to large companies in Israel and executed deals totaling tens of billions of dollars. But none of this made any special impression on the human resources coordinator. Only later did it really become apparent to me that I didn't have the required experience and talents - a high level of ability to deceive, to defraud, and demonstrating a lack of sympathy verging on sadism."
"After two more companies rejected me on the count of 'lack of experience,' I received an invitation to be interviewed for the desired position as a customer portfolio manager. The interview was conducted in English where they also decided that I was lacking in experience but they explained to me that they were talking about an investment in which the client chose the financial asset and bet on whether the price would go up or down within a predetermined period of time. If their bet was right, then they would earn returns of 70-81% on the amount invested. If they were wrong then they would lose the entire sum that they had bet. If the client loses then the company profits and vice-versa. To those who work hard and stick with it, it would be no problem to reach a monthly salary of NIS 50,000 or more. There are even agents who earn more than NIS 100,000 per month."
"Somewhat besotted by the large numbers thrown into the air, I took a quick tour around the sales floor where dozens of young people are selling trading options to customers in Singapore, Australia, Canada, UK, France and many other countries. On a big board were written the deposits chalked up by each of the customer portfolio managers. Despite my lack of experience, they told me after the tour I was taking, somebody would be in touch about a course that would soon be starting. After the process of induction for my previous job had simply been a day's worth of tests, three interviews and a polygraph test, this was indeed a refreshing change."
The aim: To earn money
Six of us started the course. Two new immigrants, a former air hostess, a young man returning from his post-army travels, a former travel agent, and me. The ages, not including me, ranged from 22 to 35. 'Your aim' they made clear to us is simply to earn money. Nobody here cares how you feel, if you've argued with your boyfriend or girlfriend, if you're having a bad day, or if you are depressed. You always need to remember you aim, and put everything else aside and earn money."
"In order to put wind into our sails and stimulate our appetites, we were told about the monthly bonuses based the dollar deposits of our clients. If we succeeding in bagging up to $50,000 - 2%; $50,000-$100,000 - 4% (on the entire amount); and so on up to a ceiling of above $250,000 - 10%. Simple arithmetic told us that on deposits of $300,000 ('certainly possible') we would earn a bonus of $30,000 on top of our basic salary of NIS 6,000."
"After we were impressed by the potential for profit, we moved onto the core of the course - impersonation and fraud. Firstly we asked to choose a stage name. I adopted the very pleasant sounding name of Lucas Anthony. Next they instructed us to tell the clients that we had eight years of experience in the markets and we were asked to build for ourselves an image. The third instruction we received was to say that we were working in Sofia, Bulgaria and we were severely warned against saying we were based in Israel. The next statement summed up the entire doctrine of the stock market in one sentence - nobody has a clue whether a financial asset, and it doesn't matter what financial asset, will rise or fall in any particular time period in the future."
"That insight was in fact the reason for the regulator to prohibit capital market companies from committing to any kind of positive returns and requiring them to put in any ad the sentence: returns that have been achieved in the past do not indicate returns that will be achieved in the future."
"From this insight, another conclusion also arises: if the odds in every deal are 50-50 and the customer loses 100% of a deal that fails and will earn an average of 75% on a deal that succeeds, profit expectations are -12.5%. So far, I admit I was not shocked. Customers invest and lose. That's the way gambling sites operate worldwide and there is nothing exceptional in that. Whoever gambles, does so, and places their bets."
"If someone comes along and tells you that he knows where the ball is going to land in the next spin of the roulette wheel, you'll look at him in amazement. If he asked for your money so that you'll invest it according to what he is advising you, you'd probably give him a look that says 'how stupid do you think that I am?' But the capital market doesn't work like that. The value of financial advisors is in their ability to adjust the level of risk to a certain investor and prevent him from behaving rashly. They certainly don't know what the future holds. Nevertheless, some of the population at large sees capital market professionals as prophets. The fact that they get it wrong time after time does not change anything. The reasons for this are many but here is not the time to delve into them."
"Even if we assume there is some value in the predictions of consultants, I think everyone would agree that the forecasts issued by six people coming to take course has no value for sure. However, that did not prevent the course instructors from explaining that what would let us reach NIS 50,000 or more per month was our ability to offer advice. Firstly, we were told that we should read one of the financial websites and find an asset (index/share/commodity/currency) that is in the headlines. Secondly, we should quote to the client why the asset is in the headlines. Thirdly, we should recommend to the client to behave in any way we see correct. For example, we can say that the price of the asset will continue rising or decide that the reason influencing it had been short term and that the price of the asset will fall."
"The moment that we reached the opinion how the financial asset can be expected to behave, we should repeat certain basic statements. The folder provided for us gave the following example:"
"Demand for oil rose during the summer months. In the US fuel consumption peaks between June and August. Put simply ………. We really want to take advantage of this opportunity. Oil prices have jumped by more than 1% since Thursday, and these peaks are our promised land, we can execute an investment so that we will clearly be in the money. You'll earn 75% within two weeks. You'll receive very high returns. The only thing required from you is to deposit $5,000 for two weeks and to wait until the due date of the deal. You'll take back $8,750 and the idea will be to invest them again to increase the account and achieve higher returns in July. That's the best indicator that I can give you, to be frank it is a golden opportunity to profit from a central asset. The indicators are so strong that the company is even prepared to offer insurance on this option. Everybody is currently trading in oil. Let's do it!"
"And there were other pearls."
"I tell you in what to trade and when to trade in order to enlarge your account as much as possible and to make your investment grow as much as possible. I don't want you to trade alone, I'm here to help you and if you listen to my instructions, you will see results in the very near future."
"Today I've got very strong indications on gold. The company is so confident and sure on the deal that it is ready to credit your account with a bonus in the event of a loss. The indications are so very strong that I recommend that you seize the opportunity with both hands. You simply have nothing to lose. It's as simple as it sounds."
"When I wondered out loud if the customers really are convinced by these ridiculous speeches, the course instructors gave the following incisive answer, 'yes there really are people that stupid in the world.'"
The lie of insurance
One of the allegations against the binary options industry is that it is a gamble, since we are talking about the very short term over which the investor is required to guess if the price of an asset will rise or fall. But during the course the instructor stressed again and again that we must recommend deals over the longest possible period and under no circumstances for a period of less than two weeks. The reason is simple: if the customer buys an option that expires in another sixty seconds and loses, the company may have profited but the dissatisfied customer will immediately leave the company. The aim is for the customer to lose, something which will happen anyway, but to squeeze him as much as possible."
"When a customer strikes a deal for two weeks, the portfolio managers have the option of talking with 'the investor.'" This gives a possibility for talks about one-time opportunities in the Daks index, platinum, the Swiss franc, oil or whatever. The customer of course can be told that the reason for longer term deals is that we are dealing with investments and not gambling."
"There is no risk management here. The instruction is to conduct two deals each of which is for half the amount always deposited for two assets from the same group. For example in gold and silver, or the euro and the dollar etc. In this way, we can offer the client 'one time opportunities' that spring up in another asset in the group, for example in the shares of Apple and Samsung. At this stage the naive customer may be convinced that he is about to become a millionaire. He is prepared to deposit amounts of between thousands of dollars and even tens of thousands of dollars for every 'opportunity' and we will satisfy him. If he does hesitate, then we can offer him insurance."
"The company, so we will tell the customer, is so sure that the deal will end up with a profit be it for dollars/oil/or Disney shares, that we are prepared to offer insurance that he will get any money he loses back."
"But the promised insurance, which is sent to the customer by email as part of the deal only after he has deposited his money, includes the condition that the moment the insurance is operated, the customer can only withdraw his $10,000 after implementing deals worth 40 times the $10,000. In other words, he will be forced to execute deals worth $400,000 before he can withdraw a single dollar from his account."
"Of course, the negative expectations about the deal will ensure that he loses all of his money long before he reaches that target. Thus the insurance serves the company more than it serves the customer because the moment it starts operating the customer cannot pull out his money. It was explained to us that the insurance helps persuade hesitant customers but we must offer it to all customers. The customer, we are told, only hears the "cannot lose." The contingency in the agreement, which anyway only reaches him after he has deposited his money, will not be an obstacle."
You've lost your money. So invest more
"After the theory, we went down to the sales floor in order to listen to the senior portfolio managers. I joined a young woman from Tel Aviv called Michal (her names has been changed). In her first call with Britney, I learned several things. Michal calls herself Stacey, she lives in Sofia, has a strong British accent and is raising two children. Britney lives in Canada, her husband is unemployed and her financial situation is awful.
"Stacey, understanding Britney's terrible financial situation, still thinks it is worth her investing $1,500 and give herself a bonus so that she can make a new start. She, Stacey, will help her out with this wonderful deal. Britney responds that she has no way of investing such a sum this month. Perhaps next month. 'How much can you invest?' Stacey asks, while busy writing on Whatsapp. Britney answers something like C$400. Stacey wonders if Britney could perhaps obtain a bridging loan of US$1,500, which within a short time would be worth US$2,625. Britney says no and Stacey decides to move on. She ends the conversation but not before she has rebuked Britney."
"More conversations take place with people in all parts of the world and each of the customers is offered a "one-time" deal, as part of which they will receive a bonus or insurance. For their part, they listen and nobody argues or suspects anything. On the second day of the course, when we were asked to talk about our experiences on the sales floor, one of the participants spoke about a customer who began crying because he'd lost all his money, but the conversation ended with the portfolio manager persuading him to invest a further $10,000 in order to get back his losses."
"I glanced around at my fellow course members. One shifted about uncomfortably, another looked indifferent and three others expressed genuine excitement. The former air hostess, enthusiastically burst out 'wow' with admiration. And me. I went home."
Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2016
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