Binary Options Trading Regulation.
Despite the popularity of binary options trading during the last few years, many investors are still hesitant to invest in this market because of issues and concerns regarding the regulations and security pertaining to the market instrument. This heightened sense of consciousness is partly due to the level of trust that traders put in financial markets. In the light of different financial scandals and crises that happened in the world, primarily in the US — the most tightly regulated market in the world, we really can’t blame the investors for being too careful. Nevertheless, many negative perceptions in the market about binary options trading are largely due to the lack of understanding on the way this market instrument works.
In binary options trading, a way to avoid scams is to use brokers who follow the rules set by the regulatory bodies of the countries in which they operate. When trading in a regulated environment, traders can have peace of mind knowing that their money is better protected. On platforms, however, client money is not necessarily kept in a trust account as required by government financial regulation, but transactions are not monitored by third parties to ensure fair play, which could be a plus. Only brokers who adhere to regulatory standards and are properly accredited, however, abide by fair practice rules and consider the client’s best interest. The risk of loss is still present, but in a regulated setting, this loss is more likely a result of trading errors than of shady dealings with an unscrupulous broker.
Binary Options Regulations per Country.
The regulatory requirements for binary options brokers differ from one country to the other. This phenomenon is natural response to the market, as each country is governed by its own laws. Generally speaking, regulatory protocols in Forex, options, futures, and stock markets require brokers to have a minimum capital base to be able to cater to transactions. For the binary options market, however, small amounts of initial investments can be made. In addition to this, trading binary options also has the inherent nature of usability; binary options brokers provide platforms, so that a wider target of investors can participate. Combining these two characteristics of binary options may look very attractive, but it can create what some may call a grey area on the true nature of the market. Therefore, authorities working under the FCA in the UK, the CFTC in the US, and the ASIC in Australia, advise traders, as well as brokers, to be vigilant.
Understanding the regulations of different countries is an important consideration when starting to trade binary options. On the one hand, each country has its own financial regulator who is responsible for regulating the activities of different forms of trading. On the other hand, all countries adhere to the global trading environment when it comes to various underlying aspects such as price trends, foreign exchange rates, regional and country economic reports, and global resources. In helping you become aware of the different regulations of each country, we present this short list of regulating bodies per country:
United States – U.S. Commodity Futures Trading Commission (CFTC) – http://www.cftc.gov United Kingdom – Financial Conduct Authority (FCA) – http://www.fsa.gov.uk Cyprus – Cyprus Securities and Exchange Commission (CySEC) – http://www.cysec.gov.cy/ Canada – Investment Industry Regulatory Organization of Canada (IIROC) – http://www.iiroc.ca/ Australia – Australian Securities and Investments Commission (ASIC) – http://www.asic.gov.au/ France – Banque de France (BDF) – http://www.acpr..fr/ Czech Republic – Czech National Bank (CNB) – http://www.cnb.cz/en/ Germany – Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin) – http://www.bafin.de/EN/ Japan – Financial Services Agency (FSA) – http://www.fsa.go.jp/en/ Italy – Commissione Nazionale per le Societ_ e la Borsa (CONSOB) – http://www.consob.it/ Singapore – Monetary Authority of Singapore – http://www.mas.gov.sg/
Issues with Regulation.
Different countries face various issues when classifying binary options trading, specifically whether to regard it as a financial instrument or as a form of gambling. In the end, they have considered some binary options brokers as legitimate financial brokers who are subject to regulation. In other words, governments have given binary options brokers the choice to open up and be regulated, so that brokers can be considered as credible, or keep their operations a secret, and be considered as gambling entities and perhaps be subject to their disadvantages, such as higher taxes.
To implement this mandate, countries have taken steps.
Cyprus was the first country to reclassify binary options as financial instruments in May, 2012, making it the first EU to be a regulator of binary options as financial instruments in the Markets in Financial Instruments Directive (MiFID).
Malta’s Financial Services Authority announced in March 2013 that binary options regulation would be transferred away from Malta’s Lottery and Gaming Authority. Three months later, the Financial Services Authority confirmed their view of binary options as falling under the scope of the MiFID, making it the second to do so.
In 2013, however, issues started to come out as CySEC battled but prevailed over disreputable binary options brokers, as it intensively implemented programs that communicate with traders and prevent them from taking the risk of using unregulated financial services. In September 2013, CySEC sent out a press release warning investors against TraderXP, stating that the binary options broker is unlicensed. A month later, a same press release came out warning investors against NRG Capital (CY). More binary options brokers were sanctioned by the group, including Cedar Finance, PlanetOption, LBinary, ZoomTrader, OptionBravo, and ChargeXP.
Binary Options Regulation in the US.
A portion of binary options brokers are subject to oversight by the CFTC. Much of the binary options market operates through trading platforms that do not necessarily comply with applicable US regulatory requirements. Because the number of trading platforms that offer the opportunity to purchase and trade binary options has surged in recent years, an increase in the number of complaints about fraudulent promotion schemes involving binary options trading platforms is also evident.
We recall that regulation is on a basis. A company regulated in Cyprus does not necessarily mean that it can operate legally in the US. An example for this case is when Banc De Binary has been charged with several offenses by the CFTC and SEC, including “fraudulent schemes involving binary options and their trading platforms”. Within the European Union, the company is regulated by CySEC. Trading with US customers for this broker has ceased, however, as a result of an injunction last August 1, 2013. Since then, Banc De Binary has refused to appear in US courts to be deposed. CySEC announced in April, 2014 that they had fined Banc De Binary 10,000 Euros after it had "concealed material information in its request for authorization CIF submitted to the commission in August 2012, namely, concealed the existence of close links between it and another company".
The CFTC and SEC have received numerous complaints of fraud associated with websites that offer an opportunity to buy or trade binary options through trading platforms. The complaints fall into at least three categories: refusal to credit customer accounts or reimburse funds to customers; identity theft; and manipulation of software to generate losing trades. These complaints may have been avoided with stricter diligence in knowing the reputability of a chosen binary options broker.
Gaming or Financial Instruments?
At the heart of regulation is the distinction between binary options trading as a gaming activity or as a financial or investment activity. The way that binary options are regulated has a lot to do with how they are viewed. In many countries, binary options are now considered as financial instruments that are subject to stricter rules. In other countries, binary options are regulated as gambling, where the protection is a little less stringent.
As traders decide the binary options trading broker to use, they consider the country where please click the following page broker is located and look up the regulation involved. They feel even more comfortable using a broker that is registered with an organization that views binary options as financial instruments. Some may say that more rules may mean less freedom, but they also mean better security.