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
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
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.
- 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 Società 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
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
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
We recall that regulation is on a
The CFTC and SEC have received numerous complaints of fraud associated with websites that offer an opportunity to buy or trade binary options through
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 the 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.