Binary options regulation and why you need to know this

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Binary options regulation and why you need to know this

Why binary options trader needs to know about binary options regulation. Simply because he knows which broker to choose to avoid future problems. It is also one of few most discussed topics by traders in binary options niche. Slowly, people around the world are recognizing the benfits of binary options but still for most people, it is shady and blurry. The exponential growth of brokers on one side and information given to potential customers does no good for the industry and the brokers aswell. Therefore it is not surprising that people are confused when they want information that would be clear. That is why we need to go over binary options regulation.

WHAT YOU WILL LEARN:

  • What is regulation?
  • Why is regulation needed?
  • How it is with regulation in binary options?

To make it more clear, regulation for now is an advantage and definitely not a must. If we take a look at bigger brother of binary options, forex industry. It took years to establish the regulations and same is here. Nothing comes over night but if you are in the right trend, it can make you some great profit although its normal to be suspicious of something new. Today, we can already start seeing few regulated binary options brokers and more will come.

WHY IS REGULATION NEEDED?

For those of you who do not know what regulation is we have to first know that does not mean some company who is not regulated is doing illegal business. But if they are regulated it is better since certain rules are there to apply such for safeguarding. So the main reason to regulate is just to make sure the company is doing their business by the law and to protect this same company from other companies who are not regulated.
Rules and regulations are also here for some people who forget what is fair and the rest must apply to them now. They are essential part of everything even to modern society to make sure of safety of those who are involved directly. For traders it is needed to protect them from abusing and to mantain standards that are safe, to avoid frauds. In positive world this just ensures better service to go forward.

REGULATIONS IN BINARY OPTIONS

Since this industry is relatively new and fresh it needs to adjust first. For example if we check on few examples such as United Kingdom where binary options are considered gaming while in others it is considered gambling. It was the same with forex trading before regulation came in. Why this happens is because every country has different legal deffinitons, even if we talk about the same industry. Most strict is US market, following Europe and then Asia.

Most of companies are located as you saw in tax shelter countries such as Cyprus. Reason for that is, they have low to none taxes and also regulations that are processed in Cyprus are affecting all Europe which is good. On the other hand, it will take some more time that regulation comes to United States and trading binary options will be more safe and available to everyone.

If you see a broker and it is not regulated, it does not mean it is a fraud! It is only advantage which should be taken by every binary options broker at the end since that means that the money traders depost is in safe place and is monitored by third party, so everything is fair.

FINALE

To conclude all this, it is better for you as a trader to work with a binary options broker which is regulated. Since it simply means that you will sleep better at nights because you will know that your money is at safer place.

Binary Options Regulation – Everything You Need to Know

I’ve decided to open another series of articles with an article about regulation matters, not because I think it’s the most important thing a trader should look for in a broker (and it’s not), but because I think that’s the most discussed issue by most binary options traders. Update: Now, three years after I first wrote this article, regulation has become a very important part of each trader’s process of choosing a broker. One of the first questions a new trader asks is whether the broker is regulated or not and if Yes, then by whom. The industry has transformed a lot since 2020 and I am glad to see that traders are a lot more careful with their money and pay attention to the companies they are doing business with.

Potential traders from all around the globe are beginning to understand the fine benefits of Binary Options, but somehow the whole binary options industry still seems quite blur for most people. The increasing growth of binary options brokers is defiantly not synchronized with the amounts of information given by these brokers about their product. Therefore, it’s not a big surprise to see so many confused people just longing for some clear information, for something to hold on before depositing their hard earned money. From my experience, all these worries and lack of information leads to one simple phrase pronounced by these fuzzy traders: “Binary Options Regulation”.

Regulation is an advantage, not a must. Just take a look at the small and un-important Forex industry (hope you all realize I use cynical, those of you who don’t know the Forex industry should do some learning before beginning with Binary Options…). The biggest Forex brokers are now valued by billions, but at the beginning, they weren’t so different from today’s binary options brokers. It’s important and advised to be suspicious towards new trends, but be reminded that sometimes pointing your finger at the right trend at the right time could make you great profits. It took quite some time before the Forex industry became fully regulated, similarly, it will take more time for the binary options industry to claim full regulation. In today’s market, traders could find a few already regulated Binary options brokers (or on process), our readers could find most of these brokers on our trusted binary options brokers list.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Trustful Broker. Recommended Only For Experienced Traders!

Update (November 2020): As I was saying three years ago, more time needs to pass until the binary options industry will become fully regulated, like the Forex industry (an unregulated Forex broker is a rare bird these days). But the industry has made significant advances and most brokers are looking to get a license from one of the main regulators across the globe. And speaking of that, the main player is now the Cyprus Securities and Exchange Commission (CySEC); their increased activity is due to the fact that most binary options brokers choose to operate out of Cyprus, so they have to get regulated by a Cypriot authority. You can read this in-depth and recently updated article about CySEC Regulation but keep in mind that other regulatory agencies are stepping in and start paying more attention to the binary options industry. The British Financial Conduct Authority (FCA) recently took some steps towards regulating binary options in the United Kingdom (Article coming soon), but also other regulatory agencies around the world are doing the same. However, I believe the best thing is that brokers now want to become regulated and this is mostly because traders demand to invest with licensed firms. In other words, unregulated brokers will soon start to lose clients who will close their accounts and join regulated companies. To keep you informed about regulation around the world we’ve recently added all regulators information which will also show you how to file an official complaint against your brokerage in case of misconduct.

Why do we Need Regulation in Binary Options?

First, for those of us who have absolutely no idea what’s regulation is all about: if a company is regulated or not regulated, it doesn’t mean it conducts legal business or illegal business if not regulated. So why regulate at all? For several reasons. First, despite the free markets liberal overlook, markets and economies can’t function properly without a basic set of rules to ensure physical rights, underpin transactions, and antitrust laws for safeguard fair competition. Rules and regulations carry the weight of law but are not written by lawmakers. Instead, they’re issued mostly by bureaucrats who rely on information and advice from experts to form the basis of the new standard. Therefore, the main reason behind regulation is to ensure that the company is handling its business in light of the law, and to protect the company from other companies who do not apply to rules of regulation.

Second. In many cases, rules and regulations are implemented because some people have forgotten the fair business rules and now the rest must pay the price. The rules are essential requirements to ensure the safety of those directly involved plus the greater good of all related population. Regulation is necessary to mitigate broader market failures in competitive industries. For us as clients, regulation is needed to ensure the protection of consumers from abuse, to introduce and maintain safety standards, and to protect individuals from scams and frauds. In a perfect world, laws, rules, and regulations ensure a better product or service, better distribution, safer environment and, in general, better guidelines with which to move forward to progress.

Regulation and Binary Options

The field of Binary Options is relatively breached, both since it’s quite fresh and the different definitions of binary options trading in different countries. In the U.K. for example, Binary Options falls into the “gaming” category (however, new FCA sets of rules will be soon implemented and by mid-2020 binary options are likely to be officially considered “financial instruments” – article coming soon) while in other countries Binary options trading is “gambling”. Same goes to Forex, before regulation. The reason for that is that different states have different definitions, legal definitions, for the same industry. That’s why Binary Options is not available in all countries. In the U.S, which is stricter than other countries when it comes to people’s money, not all assets are available to trade. Some brokers don’t even allow U.S traders to deposit. On the other hand, both Europe and the U.K do allow all traders to trade all assets. Asian markets are even less strict.

The first countries to issue legal statues to Binary Options platforms and Brokers where, as always, the tax shelters countries: BVI and Cyprus. Many internet gambling and trading website companies are located in those countries, mostly in Cyprus due to its physical and legal linkage to Europe. That’s the reason why most Binary Options brokers are also located in those countries, and of course, the low to zero taxes. Moreover, most regulation processed in Cyprus effects European citizens also. The Cypriot regulators have already begun processing binary options brokers appeals to regulation, inside information told me that it’s only a matter of a couple of months before the first brokers would be officially regulated by the Cypriot regulators. *Update: Now after more than three years, we can safely say the CySEC is the main regulator of the binary options industry and that other regulators across the globe are also working towards a safer trading environment. Some of the most important authorities are the Italian Commissione Nazionale per le Società e la Borsa (CONSOB) and the French Autorité des Marchés Financiers (AMF) but of course, others are starting to participate actively. As for the U.S. – it’ll take time, but some steps are being taken by the Financial Industry Regulatory Authority (FINRA). E.U regulation is only good for Europe, regulated brokers would have problems working with American customers. Hopefully, the U.S. would follow the European footsteps soon, so that trading will be safer and available to anyone. We’re working on a comprehensive guide to U.S. regulation so stay tuned if you want to know how Binary Options are evolving and changing in order to enter the U.S. market through the front door.

When a broker is not regulated, it doesn’t mean it’s a scam! The main reason why regulation is an advantage (and of course should be the main goal of the binary options industry in the end) is that when a broker is regulated it means the deposited money in kept in a safe account and monitored by a third party to ensure fair-play. Since the Binary Options industry is quite fresh (the first brokers only opened for business on 2008), most brokers don’t have the longed regulation. Nowadays, we can see many countries, From Northern America to the Far East and Australia and back to Europe, begin to understand the risks for the growing number of traders and benefits for their own economy and therefore be allowing slowly but with caution some regulation. The way I see it, Australia is currently the most advanced country in terms of regulation, but sadly those regulations do not apply in the US also, for example.

Each and every country have their own laws and restrictions, for example, many tax shelter countries with an increasing economic growth (especially in the financial markets) such as Cyprus or the British Virgin Islands are now allowing regulation for some binary options brokers under their own restrictions which also applies to other countries.

Full regulation all around the world still has some way to go, meanwhile, we advise our readers to stick with the popular under regulation or on process binary options brokers since they’re considered by most experts as safer and better-trusted brokers.

Regulators Across the Globe

Many of you are familiar with the Cyprus Securities and Exchange Commission (CySEC), mostly because the majority of binary options brokers are located in Cyprus and thus, regulated by CySEC. A broker located in the United Kingdom has to become regulated by a British authority, one located in Australia looks for regulation from an Australian regulator and so on. Some brokers even look for multiple regulations (i.e.: they are from Cyprus but want to operate in the UK so they get regulation from a British watchdog) but we cannot take their word for it and we have to be able to check if they are really regulated. For that, we need to know how to contact the regulators and how to complain in case of misconduct from the part of our broker. So, let’s meet the main regulatory agencies around the world:

Cyprus: Cyprus Securities and Exchange Commission (CySEC). We start with the CySEC because it’s the most active watchdog for the binary options industry. A lot of brokers choose to get regulated by the CySEC because it’s relatively cheap and the conditions are not as severe or restrictive as with other regulators. Some argue that the CySEC goes too easy on brokers that misbehave but warnings and fines have been issued, which shows they are doing their job. Sometimes they should step in more decisively but that’s just an opinion and overall, trading with a CySEC regulated broker is better than with an unregulated one. For more info about CYSEC, we recommend reading this CySec Binary Options Regulation article and if you have to file a complaint, follow this link. If compensation is sought, you are advised to submit your complaint to the Financial Ombudsman of the Republic of Cyprus.

United Kingdom: Financial Conduct Authority (FCA). This is one of the more “feared” regulators and their conditions are a lot tougher than CySEC’s. A binary options broker regulated by the FCA offers a higher degree of trust and is generally regarded as the safer choice, mostly because it’s harder to receive an FCA license and most brokers go for the easier option (CySEC). We’ve recently added a full article about the Binary Options FCA Regulation and we invite you to read it for more complex information. To learn how to file a complaint with the FCA, follow this link. If you are still not happy with the way the issue was handled, contact the British Financial Ombudsman Service and file a complaint with them as well.

United States: Financial Industry Regulatory Authority (FINRA). Through its Complaint Program, FINRA investigates the activity of brokerages and is empowered to take action against them, including fines and suspensions. FINRA operates one of the largest dispute resolution forums in the industry and assists in the resolution of problems that may arise between investors and brokerage firms. To file a complaint with the FINRA, use this link and to check your broker’s license or certification, use their BrokerCheck tool available here. If you are a senior investor and have concerns about your brokerage or investment, you’ll be happy to hear that recently FINRA have set up a Help Line for Seniors – HELPS. A toll free number is listed and further information about how to proceed so make sure you follow the link above. Other U.S. watchdogs include the Securities and Exchange Commission (SEC), the US Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). There’s a lot to say CFTC, so visit this CFTC Binary Options review.

France: Autorité des Marchés Financiers (AMF). The French watchdog ensures the protection of investors and the proper functioning of the financial markets so if you are having a problem with your financial intermediary, make sure you contact the AMF Ombudsman’s Office. Another authority you can turn to is the Banque de France ACPR so make sure you contact them as well if your problem is not solved.

We will continue with a list of links to other regulatory authorities from different parts of the world:

Complain, Don’t Let them Get Away With It!

We’ve given you the map but you have to do the work. Now you know where to complain, but you need to fill all forms and send all the required documents. Go to the respective regulators’ websites using the links above and explain the issue with as much detail as possible. Also, note that most brokerages keep records of your trades, emails and phone conversations so make sure what you are claiming is true and that you can prove it. You can be involved in several scenarios:

1: If your brokerage is using aggressive sales tactics, make sure you record a few of the conversations (or take screenshots of your emails) before contacting the regulatory authority. During the conversations, explain in a clear manner to the broker’s representative that you are not interested in the service they are offering. Warn them that you are going to complain to the authorities if they don’t stop bothering you.

2: If you are not able to withdraw or you have been scammed, gather all proof of this before contacting the regulators. Make sure the required identification documents are sent to your brokerage (in conformity with Anti-Money Laundering procedures) and that you are not in breach of the brokerage’s Terms and Conditions. If you haven’t read the T&Cs and agreed blindly, the regulatory body will not be able to help you much, unless the T&Cs are illegal according to local laws.

3: If Bonus problems arise and your investment money is tied to the brokerage until a certain trading volume is reached, first inform the brokerage of CySEC’s circular CI144-2020-02. That document makes it clear that an investor can withdraw the initial investment (not the bonus) but if you are dealing with a broker that is not regulated by CySEC you will need to contact their respective regulatory agency and file a complaint.

4: If your account manager performed trades on your account without being instructed to do so in writing, you need to gather all proof and present it to the authority that regulates their activity. This is a grave breech of your privacy and means the brokerage/account manager has access to your password and consequently to your money. In some countries, it’s illegal for individuals to even offer investment advice if they don’t have the required certifications (Investment Advisor/Consultant), so investing your money directly, without your approval is an even greater issue, which can attract serious legal action.

5: If you can’t get a hold of your broker, make sure you’ve tried all the possible ways and only then contact the regulatory authority, inquiring about the status of the brokerage. Firms have to stay in constant communications with their regulators (procedures differ depending on the regulatory agency) so the watchdog will be able to shine some light on the situation. If not, at least they will have a better chance than you to get a hold of the brokerage.

6: If the brokerage is manipulating price, you need to record your trading platform using screen capture software (preferably video). You should be able to prove everything you claim, so as soon as you start suspecting that quotes are manipulated, start gathering all sorts of evidence and only then contact the regulatory agency.

Regulation = More Chances of Getting your Money Back

There could be other scenarios but they all have the same guidelines: gather all the evidence you can, back up everything you say and explain in detail the situation to the regulatory authority. Maybe I don’t need to say it but do not swear and please use formal tone. Regulators are there to help but they are not your beer buddies, so act accordingly. Everything I’ve talked above applies to a regulated brokerage. It’s your job to check if the brokerage you want to invest with is regulated by a major authority but this shouldn’t be too hard because usually, brokerages make it easy for their clients to find out if they are regulated. In other words, you will find a “Regulation” tab on the broker’s website, where they display all the agencies that regulate their activity. However, if you’ve fallen in a non-regulated broker scam, your best chances are to contact your bank and credit card provider and ask for a chargeback or any other way of getting your money back. Of course, we strongly recommend investing only with regulated brokerages because as you can see, you have a plethora of methods to get your money back and to have your problem solved.

What You Need To Know About Binary Options Outside the U.S

What Do You Need To Know About Binary Options Outside the U.S?

Binary options let traders profit from price fluctuations in multiple global markets, but it’s important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.

Binary options traded outside the U.S. are also structured differently than those available on U.S. exchanges. They offer a viable alternative when speculating or hedging but only if the trader fully understands the two potential and opposing outcomes.

The Financial Industry Regulatory Authority (FINRA) summed up regulator skepticism about these exotic instruments, advising investors “to be particularly wary of non-U.S. companies that offer binary options trading platforms. These include trading applications with names that often imply an easy path to riches.” 

Key Takeaways

  • Binary options have a clear expiration date, time, and strike price.
  • Traders profit from price fluctuations in multiple global markets using binary options, though those traded outside the U.S. are structured differently than those available on U.S. exchanges.
  • Non-U.S. binary options typically have a fixed payout and risk, and are offered by individual brokers rather than directly on an exchange.
  • While typical high-low binary options are the most common type of binary option, international brokers typically offer several other types of binaries as well.

Binary options outside the U.S. are an alternative for speculating or hedging but come with advantages and disadvantages. The positives include a known risk and reward, no commissions, innumerable strike prices, and expiry dates. Negatives include non-ownership of the traded asset, little regulatory oversight, and a winning payout that is usually less than the loss on losing trades.

Understanding Binary Options Outside the U.S

What Are Binary Options?

Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange.

These options have a clearly stated expiration date, time, and strike price. If a trader wagers correctly on the market’s direction and price at the time of expiration, they are paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.

The binary options trader buys a call when bullish on a stock, index, commodity, or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time.

The broker discloses the strike price, expiration date, payout, and risk when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.

Binary Options Outside the US

Foreign Versus U.S. Binary Options

Non-U.S. binary options typically have a fixed payout and risk and are offered by individual brokers rather than directly on an exchange. These brokers profit from the difference between what they pay out on winning trades and what they collect on losing trades. While there are exceptions, these instruments are supposed to be held until expiration in an “all-or-nothing” payout structure.

Foreign brokers are not legally allowed to solicit U.S. residents unless registered with a U.S. regulatory body such as the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).

The Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents in 2008.   The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Chicago-based Nadex also runs a binary options exchange for U.S. residents, subject to oversight by the CFTC.

These options can be traded at any time, with the rate fluctuating between one and 100, based on the current probability of the position finishing in or out of the money. There is full transparency at all times and the trader can take the profit or loss they see on their screen prior to expiration.

They can also enter as the rate fluctuates, taking advantage of varying risk-to-reward scenarios, or hold until expiration and close the position with the maximum gain or loss documented at the time of entry. Each trade requires a willing buyer and seller because U.S. binary options trade through an exchange, which makes money through a fee that matches counter-parties.

High-Low Binary Option Example

Your analysis indicates the Standard & Poor’s 500 index will rally for the rest of the trading day and you to buy an index call option. It’s currently trading at 1,800 so you’re wagering the index’s price at expiration will be above that number. Since binary options are available for many time frames—from minutes to months away—you choose an expiration time or date that supports your analysis.

You choose an option that expires in 30 minutes, paying out 70% plus your original stake if the S&P 500 is above 1,800 at that time or you lose the entire stake if the S&P 500 is below 1,800. Minimum and maximum investments vary from broker to broker.

Say you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiration determines whether you make or lose money. The price at expiration may be the last quoted price, or the (bid + ask)/2. Each binary options broker outlines their own expiration price rules.

In this case, assume the last quote on the S&P 500 before expiration was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. If the price finished below 1,800, you would lose your original $100 investment.

If the price expires exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although brokers may have different rules. The profit and/or original investment is automatically added to the trader’s account when the position is closed.

Other Types of Binary Options

The example above is for a typical high-low binary option—the most common type of binary option—outside the U.S. International brokers will typically offer several other types of binaries as well.

These include “one-touch” options, where the traded instrument needs to touch the strike price just once before expiration to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before the expiration date/time.

Meanwhile, a “range” binary option allows traders to select a price range the asset will trade within until expiration. A payout is received if price stays within the range, while the investment is lost if it exits the range.

As competition in the binary options space heats up, brokers are offering additional products that boast 50% to 500% payouts. While product structures and requirements may change, the risk and reward is always known at the trade’s outset, allowing the trader to potentially make more on a position than they lose. Of course, an option offering a 500% payout will be structured in such a way that the probability of winning the payout is very low.

Unlike their U.S. counterparts, some foreign brokers allow traders to exit positions before expiration, but most do not. Exiting a trade before expiration typically results in a lower payout (specified by broker) or small loss, but the trader won’t lose their entire investment.

The Upside and Downside

Risk and reward are known in advance, offering a major advantage. There are only two outcomes: win a fixed amount or lose a fixed amount, and there are generally no commissions or fees. They’re simple to use and there’s only one decision to make: Is the underlying asset going up or down?

In addition, there are also no liquidity concerns because the trader doesn’t own the underlying asset and brokers can offer innumerable strike prices and expiration times/dates, which is an attractive feature. The trader can also access multiple asset classes anytime a market is open somewhere in the world.

On the downside, the reward is always less than the risk when playing high-low binary options. As a result, the trader must be right a high percentage of the time to cover inevitable losses.

While payout and risk fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades cost the trader more than they can make on winning trades. Other types of binary options may provide payouts where the reward is potentially greater than the risk but the percentage of winning trades will be lower.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Trustful Broker. Recommended Only For Experienced Traders!

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