Binary Options Regulation – Is it True?

Introduction to Binary Options Regulation

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.

 

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”.

 

Let’s make it clear- 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 putting 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.

 

 

How and why do we need Regulation?

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 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 its 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, while in others 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 began processing binary options brokers appeals to regulation, inside information told me that its only a matter of a couple of months before the first brokers would be officially regulated by the Cypriot regulators, as for the U.S. – it’ll take time, and that’s bad news for Americans – E.U regulation is only good for Europe, regulated brokers would have problems working with American costumers. Hopefully the U.S. would follow the European footsteps soon, so that trading will be safer and available to anyone.

 

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 because 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, beginning to understand the risks for the growing number of traders and benefits for their own economy and therefore 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 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 long way to go, meanwhile, we advice 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.

 

 

CySec Binary Options Regulation – The near future of regulation in europe. Read More.

 

 

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6 Responses to “Binary Options Regulation – Is it True?”

  1. Steve says:

    Martin, I rarely respond to articles that give an opinion. But, I feel that this article can really hurt people and therefore I thought I should respond. I have been a full time trader for almost 8yrs. I live in the USA and have been researching Binary option brokers for a while. I have contacted virtually all of them around the globe. After asking very specific questions and then verifing there responses, there is no question in my mind that the vast majority of them are absolute scams. First of all, it’s no coincidence that the majority of brokers are based in Cyprus and the British Virgin Islands. Both of these Countries are a scammer’s paradise and a trader’s nightmare. There is little if any regulation and enforcement. One of the questions I asked is whether they were registered with US regulators. (That would mean the CBOT and SEC). Responses that I received were that “they were registered with the authorities and were working with US authorities so that when they start regulating binary option brokers they will be ready.” I called the SEC and CBOT; both said these companies were NOT registered. One broker went as far as saying that their North American Office was based in New York City and therefore had to meet US regulations. Again, I checked and they are not registered. Also, I am from New York and I know the address they use is a Mail Drop address that anyone can pay to use. I also noticed that all the so called experts giving advice on binary brokers are affiliates. So, they could not care less if it’s a scam. As long as they get there commission. My advice is that if the broker is not in a highly regulated country stay away and keep your funds safe.
    Good luck and good trading.
    Steve

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    • Mike says:

      @Steve – If you have been a trader for the past 8 years and researching the binary options market for a while you should know the following:

      1) Binary options have been traded for a number of years in the banks as knock in and knock out options, in effect creating what is more commonly referred to as Range Binary Options.

      2) The only way an entity offering binary options trading in the US is if they are registered as an exchange and there is only one in the US.

      3) Most Binary Options provider are actually whitelabels of a larger company. There are about 3 of them. There needs to be a difference made between a binary optiosn whitelable like 90% of what you see on the internet and an actaully binary options broker which would allow you to buy but also sell your option with very limited restrictions.

      4) I half agree with you on the Cyprus, BVI and all other jurisdictions alike. The reasons why Cyprus is a populr location for FOrex brokers and Binary Options providers is that there are low cost entries, access to EU regulation and Binary Options are now fully regulated. Yet you are right on the enforcement issue.
      There are legitimate, non-scam businesses in Cyprus and the BVI but becauce of the overwhleming amount of problems with non stable one it gives a bad name to the industry as a whole, just like in FX 10 years ago.

      5)The only way to deal with a legitimate company is to talk to them, ask them all your questions, make sure they do their due diligence when opening your accunt. and FX broker will ask you for 2 IDs for examples. What are their trading policy, etc.

      Bottom line, wherever a broker or operator is, regulated or not, it doesn’t really matter; if they want to scam you they will all you need to do is look at MFGlobal and PFG. A good trader is an informed trader

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  2. Daniel says:

    Hi i sent mailpreviously to the supplied email adress of BOTS but got no response. I have visual material of how a binary option broker manipulate the data in their favour and would like to share this.If bots are interested please let me know.

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  3. Mark says:

    I am A US resident and want to find a legit broker to trade Binary Options with, does anyone know of the safest and best brokers to go with? I have been looking at Traderush and Cedar Finance but I am unsure of how safe they really are for a US resident to be trading with them. I particularly want to trade currencies with Binary options but have heard rumors about it being illegal and restricted for US residents is this true?

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  4. Guai Shiba says:

    I have experimented with sites like traderush before. While they are not directly scams, one does need to be very very careful here and I think the odds of one successfully making a profit would be slim. As a matter of opinion I can’t help but feel if one does win, then it has more to do with luck then anything else.

    However, specifically to address one of the concerns for residents in the US – please not of foreign transaction fees when moving money to trading accounts. Since the trading platforms are often based in countries such as Cyprus (for tax relevant reasons and such), a foreign transaction fee is often levied whenever transferring money to (and from) US bank accounts to the trading platform accounts.

    Refer to this video for a more detailed discussion on this:
    http://www.youtube.com/watch?v=B_NjTuoDWd4

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  5. DEAN says:

    Everyone criticize traders and binary but no one recommends a trader. Why is this? Anyone can cheat and do but I would think there would be some honest traders out there. Its gambling and I would think everyone playing would know that. How many times do you win at a casino?

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