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Who Regulates Binary Options Brokers


We are getting a lot of questions regarding of the industry and we thought it would be a good idea to explain a little about what’s happening in the world of in terms of regulation. The fact is, at present, no regulatory body is regulating binary options specifically. There are a number of bodies that allow binary options trading and there is no regulator that disallows it explicitly. Some brokers are scamming traders into believing that they are regulated when in fact no regulator directly regulates binary options. So unless it’s a forex in the UK, that also offers binary, no one is even remotely close to being truly regulated. That said, we will explore why there so many brokers out there offering binary options trading without regulation. Let’s take a look across the entire globe, country by country and see what’s allowed and what’s not

In the US, binary options trading is available in a number of ways:

  1. CBOE is a regulated exchange in the US that makes available direct investment in a very finite number of binary options (S&P 500 Index (SPX) and the CBOE Volatility Index (VIX)). Problem is, no trader really wants these other than banks, large hedge funds, or institutional/professional traders who need to hedge other risk. This isn’t trading on forex or on stocks like available at the binary options brokers. So this is sort of useless to 99.999% of the world
  2. Nadex – this is a strange occurrence where the US government allowed a simple binary options broker (it’s just an arm of IG, a forex company) to become an “exchange”. But it’s not highly recommended as it’s not regulated in the classic sense of things and oversight is only really on the assets themselves, not on the consumers.
  3. Vanilla Options – of course, traders can go in and build there own binary options using vanilla options. It’s cheaper but very difficult and also requires a deep understanding of vanilla options. Most people, even pro traders, won’t bother doing this. But it’s regulated. But not much else

In Europe

  1. Vanilla options, as explained above are also allowed and available
  2. Retail binary options are also allowed although regulation will be coming from CYSEC and later all of MIFID in early 2013 (more on this below)
  3. Binary options as a financial product are not yet regulated anywhere in Europe.

In the UK

  1. Vanilla Options – available and legal here as well. No issue creating your own binary options and as such, no legal issue trading binary options with retail brokers
  2. Retail brokers are actually regulated by the FSA and automatically gain coverage for binary options. So no legal issue trading with a binary options company in the UK, operating in the UK, or regulated by the UK. Perfectly fine. Most of the FSA regulated brokers however, like IG and GFT are far more expensive but sometimes offer a wider range of products to trade – but not as robust of a trading platform as those found on our top 5 for example.
  3. Binary options as a financial product are not yet regulated in the UK

Elsewhere

  1. There is regulation in Japan, Singapore, and Hong Kong but nothing barring the use or the trading of binary options.
  2. In the Middle East and Africa there is NO regulation. There are some who claim that binary options do not comply with Sharia law, and some go so far as to call it a gambling product. However we don’t see why or how this could be the case considering the fact that vanilla options ARE allowed and are even available to trade at some of the exchanges in the Middle East. Seeing as how binary options are built based on Vanilla options, this argument makes no sense to us at all. Furthermore, if this were a gambling product, it would be banned by ISPs in the Middle East, yet it’s not. So, logic and reasoning lead us to believe that it’s just nay sayers creating false hype around binary options. It’s legal, allowed, and some binary options companies have even gotten a Fatwa allowing it on all levels.
  3. In Australia - ASIC does not directly regulate binary options. ASIC covers binary options completely and it’s allowed there as both an ASIC regulated company or for Australians wishing to trade with a non-ASIC regulated broker. Thing is, just as in the above examples, there is no direct regulation on binary options here as well.
  4. Binary options as a financial product are not yet regulated anywhere else… yet.

 

Now to CYSEC. The Cypriots who have welcomed in a huge number of forex companies in the last 5 years realized the potential of binary options and opened there doors to the industry. The regulating body will be imposing direct regulation of the financial product and the industry at large starting in early 2013. This will mean vast changes to many already functioning at the moment including many in our top 5. Thing is, NONE of these brokers are regulated yet. NONE of them will know if the regulator approves them or not until sometime in early 2013. So if any broker, on this list or otherwise claims to be regulated by CYSEC or MIFID, they are lying. We received a number of complaints that broker claimed to be regulated and this would be a scam. If these brokers are scamming traders and making them believe that they are regulated, that’s not a fair practice.

We hope that this is not the case but there’s no way to confirm this one way or the other. We have heard that they are in the process of moving to Cyprus, but again, working in Cyprus and being regulated are two very distinct things. We recommend traders simply realize that:

  1. Trading Binary Options is LEGAL everywhere
  2. Trading Binary Options with a Non-Regulated broker is the only real way to trade binary options at the moment
  3. Regulation will be coming but it might mean changes to the way you trade.
  4. We will keep you posted with more news on the subject as it becomes available.

 

 

 

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4 comments

  1. ftsetrader

    Very interesting article David. It certainly seems for the most part there is a grey area surrounding binary options regulation. Please note however, the FSA does NOT regulate binary options. FSA regulated brokers do not automatically gain coverage for binary options.

    Also, what is the regulation you mention in Singapore and Hong Kong?

    Posted on January 29, 2013
    • leemore

      That is true
      However, the FSA sees binary options as a financial instrument and covers it after a very small bit of paperwork. Really nothing at all.
      As for Hong Kong and Singapore; each have their own financial regulatory body. Singapore’s is very strict and as far as I know does not regulate binary options at all at the moment

      Posted on January 30, 2013
  2. bostarman

    Hi David, really insightful article, I am relatively new to Binarys having traded forex historically and I have focused heavily on which broker I use (through their regulation) as there seem to be so many iffy operations out there, I notice you haven’t covered the GsC Regulator based in the Isle of Man UK – there are a couple of brokers operating from here and am interested to know your thoughts as I am currently using one of them?
    Thanks in advance :)

    Posted on May 8, 2013
    • David Fielfer

      I am not really familiar with anyone with such a regulation.
      Can you name some?
      Maybe I should review them

      Posted on May 8, 2013

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