Why You Must Trade With Regulated Binary Options Brokers
Regulation of binary options brokers has been one of the hot topics discussed about by both the observers as well as the players in the market right from the year 2008 when binary trading was introduced for the very first time. Typically, regulation refers to binary options brokers obtaining a license from the financial regulatory authority in the country in which they have established their operations.
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Following the introduction of the online binary options trading, a number of platform providers have come into existence with a view to take advantage of the opportunity. Some of the brokers turned out to be unreliable as they duped innocent traders and ran off with their hard earned money. This called for the introduction of stringent regulatory measures to ensure sufficient protection to the traders.
In the US, the Securities and Exchange Commission (SEC) formed the regulatory framework and bestowed the responsibility of implementing the same on the Commodities and Futures Exchange Commission (CFTC) when binary options started to evolve as a new investment instrument. As of now, Amex offers Fixed Return Options on stocks and Exchange-traded Funds, the CBOE offers binary options on indices and the Nadex offers binary options on a variety of assets, including commodities, indices and currencies.
The financial regulators in Europe are all MiFID members, meaning a binary options broker that has been authorized by the FCA in UK is considered to be authorized by Germany’s BaFIN, France’s AMF, etc. The Cyprus Securities and Exchange Commission (CySEC) regulates a number of binary option brokers that have headquarters in the country.
In Malta, the government transferred the responsibility of overseeing the operations of the binary options brokers from the Malta Lottery and Gaming Commission to the Malta Financial Services Authority (MFSA). This was implemented after MiFID revised its guidelines and recognized binary options as a financial investment instrument.
Japan’s FFAJ has also introduced sweeping changes for regulating the binary options market, specifying as to what trade types brokers can provide to binary options traders.
Benefits of Trading Binary Options With Regulated Brokers
#1: The financial authority in a country stipulates a set of conditions to be complied with by the binary options brokers if they want to provide a trading platform and promote subscriptions to their website. Regulated brokers are those who have agreed to comply with these stipulations. On the other hand, the authorities keep monitoring their operations on a regular basis. Generally, such brokers would not resort to any kind of malpractices or involve in activities that lead to duping their customers.
In many countries, traders are being encouraged by the concerned regulatory authorities to work with licensed websites or regulated binary trading platforms providers. The reason being the risk of working with potential scammers reduces to a great extent. In addition, the governments will also be benefitted because the taxes generated through binary options trading platform providers get channeled back to the coffers of the respective nation.
#2: Regulated brokers have to maintain a minimum capital base (of course, it can vary from one country to another) as specified by the regulatory authority. To give an example, a binary options broker that provides trading platform in Malta should comply with the minimum capital base requirement of 730,000 Euros as stipulated by the Malta Financial Services Authority. This is to ensure the financial stability of the binary options broker.
#3: It is mandatory for binary trading platform providers to keep the funds deposited by traders and the funds they require for their day-to-day operations in two separate bank accounts. This is to make sure that investors’ funds are protected to some extent from detrimental effects like bankruptcy. In the UK, regulated brokers are required to report compliance to this rule on a monthly basis.
#4: Binary options brokers whose operations are being monitored by governmental authorities tend to become more authentic in their dealings. This is because a regulated broker is expected to be transparent and adhere to certain norms.
#5: A licensed binary option broker often ensures payments on time to the traders, irrespective of whether their financial condition is good or not. Investors can take up the matter with regulatory authorities, if the broker fails to make payments as promised. Traders working with brokers that are not regulated cannot get their problems sorted out by anyone.
However, all of the non-regulated binary options brokers cannot be arbitrarily classified as either cheats or scammers. The binary market continues to be largely unregulated even now and there are a few brokers who conduct business in an ethical manner though they do not fall under the purview of a regulatory agency. Many investors are choosing to work with such brokers because of their reputation in the market and are enjoying a great deal of benefits as well.
Regulation may be helpful in protecting the interests of binary options traders, but it can cause problems for people located especially in the USA. In particular, CySEC is very strict about this. The regulator does not allow regulated binary brokers to offer their services to any USA or Canadian customers. Technically speaking, the regulations prevent US traders from accessing only options in commodities and currencies. However, CFTC’s harsh dealing in the past even with some of the legitimate companies has forced to be cautious. Moreover, deciding only to work with regulated brokers prevents traders from accessing options on certain assets that perform better and some of great trading features offered by non-regulated brokers.
Summarizing, the regulation of binary options brokers has been initiated only a few years back. Licenses have been issued to some of the brokers in some countries and authorities are in the process of issuing licenses to many others in many countries. Taking into consideration the scandals and financial crisis witnessed by the world over the last decade, traders cannot be criticized if they are trying to a little too careful by opting to work only with regulated brokers.