Whether you’re still learning about the wide world of trading, or you’re well on your way to being ready to step into the market, there is always plenty more to learn and that can certainly be said for the world of binary options and their regulation. The rules and regulations surrounding binary options all over the world are constantly changing and fluctuating, and keeping up with new surrounding the topic can be difficult if you aren’t confident in your knowledge, which is where we come in to help. Binary options are a great way to get into the trading industry with limited experience or knowledge, but what exactly are binary options, and what kind of regulations are they facing around the globe?
What Are Binary Options?
In simple terms, binary options are a simple kind of ‘option’ in trading that comes with fixed risks and fixed rewards. The payoff from these options comes with only two possible final results: the fixed money amount of the asset you have chosen or nothing at all. In other kinds of trading, there may be a wider range of payoff possibilities, but in the case of binary options, the process is extremely simple. This quick and simple trade is perfect for beginners without being boring, so newbies looking to try their hand in the trading industry could benefit from binary options.
Binary options can also come with pretty speedy pay-outs, which is ideal for those looking to make some quick cash, or who prefer instant – or near-instant – gratification. While it’s unlikely that newbies taking part in binary options trading are going to be living with six figures in their bank accounts any time soon, this simple way of trading can give you the knowledge you may need to break into further trading in the future. However, proper prediction and a constant following of relevant news and updates is still just as important with binary options as with any other trading. Regulations are constantly changing and being introduced, but why do we need regulation on binary options?
Why Do We Need Regulations On Binary Options?
When it comes to understanding why we need regulation on binary options, it is paramount to grasp that regardless of whether a company is regulated or unregulated, it does not dictate whether it is legal or illegal. But why regulate at all? There are numerous reasons why we have these regulations in place, and the first reason being perhaps the most important of all. Many people get into binary trading through online binary trading sites as it is possible to trade on the market with minimal trading experience.
To be able to function correctly, any market or economy needs a basic set of rules. Without these rules, the transactions, trader rights and general safeguarding would cease to exist in the same way it does currently. Rules and regulations are there to be followed, and while they may not be written by lawmakers, they often carry the weight of a law regardless. In other words, regulations are brought in to ensure that companies are handling their business fairly, and can even protect the best binary options brokers from the misadventures of others.
In some cases, regulations are brought when unrest is created within a market. It’s hardly a secret that some companies appear to ‘forget’ fair business rules, but regulations can help to ensure that other’s don’t pay the price for inappropriate action from other businesses or traders. In short, regulations ensure a better service, a fairer market, a much safer environment in which to trade, and a better set of guidelines to help the trading industry and all of its components can progress forward rather than decline.
Regulators Across The Globe
Despite binary options trading being a global market, each and every trader within these markets is limited by the regulations that their home country provides. These regulations are brought in by the relevant regulatory body, and this will differ from country to country. As a starting point, here are just a few of the biggest countries in binary options trading and the relevant regulatory authority:
If there’s one country with the most active binary options industry watchdogs, it’s Cyprus. The Cyprus Securities and Exchange Commission (CySEC) is the main regulatory body for all things binary in Cyprus, and as a result is one to watch regardless of whether you live there or not. Brokers in Cyprus tend to choose regulation by CySEC due to its cheaper nature and the fact that the regulations that they put across aren’t nearly as strict as some other regulators. There is plenty of controversy surrounding CySEC and whether they are leaving too many loopholes for brokers to slip through, but regardless of this, CySEC are still actively doing their job.
Binary options brokers in the UK answer to the Financial Conduct Authority, as with every other financial institution within the country. The FCA is undoubtedly one of the strictest and most feared of all regulators, with conditions that are miles ahead of CySEC. If your binary options trader has been regulated by the FCA, then chances are they’re going to be completely safe, and certainly worth putting some level of trust into.
United States Of America
The Financial Industry Regulatory Authority (FINRA) regulates brokers through its complaints programme, from which it is them empowered to take action against any that are not acting within reasonable regulation. Fines and suspensions are common actions taken against binary options brokers, but due to the fact that brokers can only be penalised through a complaint’s system, you have to rely on there being a complaint in the past.
So What Can We Expect To See?
The changes in regulation in the binary options markets over the past few years or so have proven enough that there’s no telling what could happen next. However, what we can say for certain is that improvements are constantly being made.
Take the UK, for example. Back in 2015, binary options trading fell into the ‘gaming’ category of the FCA, however after new regulations were brought in, it was then considered a ‘financial instrument’. Today, the FCA is far stricter on the regulations surrounding binary options trading. All firms and brokers are regulated by the FCA, binary options are subject to regulations related to investment products, and eligible consumers are even given access to the Financial Services Compensation Scheme.
Meanwhile, the USA can regulate binary options brokers through complaints, but there is still a long way to go in regards to bringing in effective, constant regulation. The USA may be stricter than most in regards to people’s money, but not all assets are available to trade either. As a result, this can place limitations on just what some consumers and binary options traders can actually do even when keeping to regulation.
The future of binary options regulations is one yet to be seen, but don’t let the uncertainty stop you from dipping your toes into the trading world. While binary options trading may not be a fool proof way to build up your wealth in your 20’s, it’s certainly a great way to dip into the trading industry. This quick, simple and safe way of trading will differ from country to country depending on the regulations you’re living under, but hopefully this guide has helped you find out everything you wanted or needed to know about binary options trading and the regulations surrounding it.