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Binary Options Regulation
While binary trading has become extremely popular during the last decade, many traders are still hesitant to make investments in this market as a result of fears relating to binary options regulation and the security encompassing options trading. This elevated feeling of concern is to some extent due to the level of trust that traders have with regards to the financial markets.
Indeed, there have been a number of binary option scams that have tripped up a large number of traders and left them with a sour feeling in their mouth. Even if a broker is well known and appears to have a strong online reputation, traders are naturally concerned about the legal protections afforded to them in a worst case scenario event.
At the trading club, our members regularly keep up to date with the most important regulatory changes in the industry from broker rules to trader rights.
At present, one of the preferred locations for binary options brokers to become regulated for EU coverage is in the Republic of Cyprus. Due to the fact that Cyprus is among the lesser developed financial systems in Europe, many people have a tendency to think of Cyprus as a location which has with little or no financial regulation system in place. To these individuals, this is the primary reason as to why a binary options broker would base their operation in Cyprus, in an effort to steer clear of regulation. In truth, one of the main reasons as to why many brokers choose Cyprus is lower tax rates. In Cyprus, the tax rate on corporate profits is 10%. Compare this to the United Kingdom rate of 24% and the reasoning for selecting Cyprus becomes even more clear.
For even more insight, consider the United States, where tax rates are even higher than they are in the United Kingdom. US-based companies can be taxed at rates up to 35%. When you take into consideration the simple fact that the vast majority of the binary options market is found in Europe, it seems to make sense that brokers would choose to be based in Cyprus. Furthermore, many traders notice that most binary options brokers are not willing to accept traders who reside in the United States. In doing this, they are able to avoid being taxed by US tax regulators.
What is Cysec?
CySEC (Cyprus Securities and Exchange Commission) was set up under the Securities and Exchange Commission Law. The objective of this supervisory authority is to make certain that binary options regulations are in place in order to safeguard investors as they participate in securities and binary options trading. The mission of the CySEC is to issue licenses to qualifying investment firms, brokers and other agencies within the investment market. CySEC is also in charge of removing a firm’s operating license in the event of misconduct.
CySEC additionally oversees the operations and financial dealings of the Cyprus Stock Exchange, along with those of other participants in the investment market. The commission works to make sure that the all agencies that fall under its supervision are following the laws. When necessary, CySEC will investigate trader reports to make certain that binary options traders are protected and will also investigate on the part of regulatory agencies in other countries. Brokers that are found not to be in compliance with the required laws are subjected to disciplinary measures and can lose their license.
Under CySEC rules, any binary option broker is required to hold all investors funds inside of a trust account. What this means is that the funds that a trader deposits with a regulated binary options broker are held independently from the brokers’ business funds.
As a result, traders can be confident that their funds are protected from scams, theft or the negative effects of bankruptcy. CySEC binary options regulations do require licensed brokers to secure a third-party who will work to keep them accountable. This helps to make certain that brokers are holding to the required laws and regulations.
In accordance with CySEC requirements, licensed binary options brokers are obligated to exercise the maximum level of openness by allowing public and regulative authorities to look into their operations. This is extremely important because it helps to protect traders from dishonest brokers and it requires brokers to implement best business practices. Last but not least, binary options brokers that are regulated by CySEC are instructed to offer legitimate assets and to hold to industry requirements for the trading of binary options. In contrast, it is not uncommon for unregulated brokers to offer illegitimate assets for trading.
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While some might claim that financial regulation standards in countries such as the United Kingdom and Germany are better than those of Cyprus, this is often due to the fact that many people have no clear comprehension of how the Eurozone marketplace functions. As part of the regulatory framework of the financial trading markets within the Eurozone, the EU parliament has put forth the Markets in Financial Instruments Directive, or MiFID. The MiFID was designed to enhance consumer security and to help combine the different financial markets into one single market. It is important to note that Cyprus is in complete compliance of MiFID guidelines.
MiFID went into effect in November of 2007 and since that time has been the foundation of the European Commission’s Financial Services Action Plan. Commission actions drastically changed the way in which EU financial services market segments operated. The MiFID set forth measures that transformed and improved upon the organization and operations of investment firms, assisting with cross-border binary options trading while creating tactical opportunities. CySEC closely monitors binary option brokers to ensure that they remain in compliance with MiFID.
Why is a Cysec Regulated Broker Safe?
In regards to legal protections against scam investment companies, Cyprus actually maintains higher standards in fiduciary responsibilities than the United Kingdom, which does not yet operate in complete compliance of the MiFID. The OTC markets have always primarily been self-regulated, which is why there is very minimal binary options regulation in existence. Only recently has the regulatory platform to manage binary options been drafted out. Cyprus was among the first Eurozone members to have adopted legal classification for binary options. With this legal definition, regulatory authorities such as CySEC have become empowered to take action under the financial regulatory structure.
Traders might be astonished to discover that binary options are actually not classified as “financial options” under the United Kingdom Financial Services Act. As an alternative, traders are likely find UK-based binary options brokers being regulated by the UK Gaming Commission which classifies binary options trades as “bets”. In the United Kingdom, betting debts cannot be enforced within the courts, as they are referred to as “debts of honour”. Visualize a scenario where a trader attempts to file suit against a UK-based binary options broker for this type of debt.
Some binary options brokers, after receiving their license to be regulated by CySEC in Cyprus, will go on to register in other countries such as the United Kingdom or Germany. Some regulated brokers have taken their CySEC license and registered with BaFIN in France, or the FCA in this United Kingdom. For example, IQ Option has a CySec licence as well as a Consob one from the Italian regulators. These actions only service to create an added position of registration. A brokerage is not required to register with multiple EU regulators in order to conduct business throughout the EU. Even so, it is always important for traders to verify that their chosen binary option brokers do hold a license and that the license remains valid.
Binary Options Regulation – Everything You Need to Know
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. Update: Now, three years after I first wrote this article, regulation has become a very important part of each trader’s process of choosing a broker. One of the first questions a new trader asks is whether the broker is regulated or not and if Yes, then by whom. The industry has transformed a lot since 2020 and I am glad to see that traders are a lot more careful with their money and pay attention to the companies they are doing business with.
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”.
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 pointing 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.
Update (November 2020): As I was saying three years ago, more time needs to pass until the binary options industry will become fully regulated, like the Forex industry (an unregulated Forex broker is a rare bird these days). But the industry has made significant advances and most brokers are looking to get a license from one of the main regulators across the globe. And speaking of that, the main player is now the Cyprus Securities and Exchange Commission (CySEC); their increased activity is due to the fact that most binary options brokers choose to operate out of Cyprus, so they have to get regulated by a Cypriot authority. You can read this in-depth and recently updated article about CySEC Regulation but keep in mind that other regulatory agencies are stepping in and start paying more attention to the binary options industry. The British Financial Conduct Authority (FCA) recently took some steps towards regulating binary options in the United Kingdom (Article coming soon), but also other regulatory agencies around the world are doing the same. However, I believe the best thing is that brokers now want to become regulated and this is mostly because traders demand to invest with licensed firms. In other words, unregulated brokers will soon start to lose clients who will close their accounts and join regulated companies. To keep you informed about regulation around the world we’ve recently added all regulators information which will also show you how to file an official complaint against your brokerage in case of misconduct.
Why do we Need Regulation in Binary Options?
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 the 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 it’s 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 (however, new FCA sets of rules will be soon implemented and by mid-2020 binary options are likely to be officially considered “financial instruments” – article coming soon) while in other 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 begun processing binary options brokers appeals to regulation, inside information told me that it’s only a matter of a couple of months before the first brokers would be officially regulated by the Cypriot regulators. *Update: Now after more than three years, we can safely say the CySEC is the main regulator of the binary options industry and that other regulators across the globe are also working towards a safer trading environment. Some of the most important authorities are the Italian Commissione Nazionale per le Società e la Borsa (CONSOB) and the French Autorité des Marchés Financiers (AMF) but of course, others are starting to participate actively. As for the U.S. – it’ll take time, but some steps are being taken by the Financial Industry Regulatory Authority (FINRA). E.U regulation is only good for Europe, regulated brokers would have problems working with American customers. Hopefully, the U.S. would follow the European footsteps soon, so that trading will be safer and available to anyone. We’re working on a comprehensive guide to U.S. regulation so stay tuned if you want to know how Binary Options are evolving and changing in order to enter the U.S. market through the front door.
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 that 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, begin to understand the risks for the growing number of traders and benefits for their own economy and therefore be 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 the 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 some way to go, meanwhile, we advise 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.
Regulators Across the Globe
Many of you are familiar with the Cyprus Securities and Exchange Commission (CySEC), mostly because the majority of binary options brokers are located in Cyprus and thus, regulated by CySEC. A broker located in the United Kingdom has to become regulated by a British authority, one located in Australia looks for regulation from an Australian regulator and so on. Some brokers even look for multiple regulations (i.e.: they are from Cyprus but want to operate in the UK so they get regulation from a British watchdog) but we cannot take their word for it and we have to be able to check if they are really regulated. For that, we need to know how to contact the regulators and how to complain in case of misconduct from the part of our broker. So, let’s meet the main regulatory agencies around the world:
Cyprus: Cyprus Securities and Exchange Commission (CySEC). We start with the CySEC because it’s the most active watchdog for the binary options industry. A lot of brokers choose to get regulated by the CySEC because it’s relatively cheap and the conditions are not as severe or restrictive as with other regulators. Some argue that the CySEC goes too easy on brokers that misbehave but warnings and fines have been issued, which shows they are doing their job. Sometimes they should step in more decisively but that’s just an opinion and overall, trading with a CySEC regulated broker is better than with an unregulated one. For more info about CYSEC, we recommend reading this CySec Binary Options Regulation article and if you have to file a complaint, follow this link. If compensation is sought, you are advised to submit your complaint to the Financial Ombudsman of the Republic of Cyprus.
United Kingdom: Financial Conduct Authority (FCA). This is one of the more “feared” regulators and their conditions are a lot tougher than CySEC’s. A binary options broker regulated by the FCA offers a higher degree of trust and is generally regarded as the safer choice, mostly because it’s harder to receive an FCA license and most brokers go for the easier option (CySEC). We’ve recently added a full article about the Binary Options FCA Regulation and we invite you to read it for more complex information. To learn how to file a complaint with the FCA, follow this link. If you are still not happy with the way the issue was handled, contact the British Financial Ombudsman Service and file a complaint with them as well.
United States: Financial Industry Regulatory Authority (FINRA). Through its Complaint Program, FINRA investigates the activity of brokerages and is empowered to take action against them, including fines and suspensions. FINRA operates one of the largest dispute resolution forums in the industry and assists in the resolution of problems that may arise between investors and brokerage firms. To file a complaint with the FINRA, use this link and to check your broker’s license or certification, use their BrokerCheck tool available here. If you are a senior investor and have concerns about your brokerage or investment, you’ll be happy to hear that recently FINRA have set up a Help Line for Seniors – HELPS. A toll free number is listed and further information about how to proceed so make sure you follow the link above. Other U.S. watchdogs include the Securities and Exchange Commission (SEC), the US Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). There’s a lot to say CFTC, so visit this CFTC Binary Options review.
France: Autorité des Marchés Financiers (AMF). The French watchdog ensures the protection of investors and the proper functioning of the financial markets so if you are having a problem with your financial intermediary, make sure you contact the AMF Ombudsman’s Office. Another authority you can turn to is the Banque de France ACPR so make sure you contact them as well if your problem is not solved.
We will continue with a list of links to other regulatory authorities from different parts of the world:
Complain, Don’t Let them Get Away With It!
We’ve given you the map but you have to do the work. Now you know where to complain, but you need to fill all forms and send all the required documents. Go to the respective regulators’ websites using the links above and explain the issue with as much detail as possible. Also, note that most brokerages keep records of your trades, emails and phone conversations so make sure what you are claiming is true and that you can prove it. You can be involved in several scenarios:
1: If your brokerage is using aggressive sales tactics, make sure you record a few of the conversations (or take screenshots of your emails) before contacting the regulatory authority. During the conversations, explain in a clear manner to the broker’s representative that you are not interested in the service they are offering. Warn them that you are going to complain to the authorities if they don’t stop bothering you.
2: If you are not able to withdraw or you have been scammed, gather all proof of this before contacting the regulators. Make sure the required identification documents are sent to your brokerage (in conformity with Anti-Money Laundering procedures) and that you are not in breach of the brokerage’s Terms and Conditions. If you haven’t read the T&Cs and agreed blindly, the regulatory body will not be able to help you much, unless the T&Cs are illegal according to local laws.
3: If Bonus problems arise and your investment money is tied to the brokerage until a certain trading volume is reached, first inform the brokerage of CySEC’s circular CI144-2020-02. That document makes it clear that an investor can withdraw the initial investment (not the bonus) but if you are dealing with a broker that is not regulated by CySEC you will need to contact their respective regulatory agency and file a complaint.
4: If your account manager performed trades on your account without being instructed to do so in writing, you need to gather all proof and present it to the authority that regulates their activity. This is a grave breech of your privacy and means the brokerage/account manager has access to your password and consequently to your money. In some countries, it’s illegal for individuals to even offer investment advice if they don’t have the required certifications (Investment Advisor/Consultant), so investing your money directly, without your approval is an even greater issue, which can attract serious legal action.
5: If you can’t get a hold of your broker, make sure you’ve tried all the possible ways and only then contact the regulatory authority, inquiring about the status of the brokerage. Firms have to stay in constant communications with their regulators (procedures differ depending on the regulatory agency) so the watchdog will be able to shine some light on the situation. If not, at least they will have a better chance than you to get a hold of the brokerage.
6: If the brokerage is manipulating price, you need to record your trading platform using screen capture software (preferably video). You should be able to prove everything you claim, so as soon as you start suspecting that quotes are manipulated, start gathering all sorts of evidence and only then contact the regulatory agency.
Regulation = More Chances of Getting your Money Back
There could be other scenarios but they all have the same guidelines: gather all the evidence you can, back up everything you say and explain in detail the situation to the regulatory authority. Maybe I don’t need to say it but do not swear and please use formal tone. Regulators are there to help but they are not your beer buddies, so act accordingly. Everything I’ve talked above applies to a regulated brokerage. It’s your job to check if the brokerage you want to invest with is regulated by a major authority but this shouldn’t be too hard because usually, brokerages make it easy for their clients to find out if they are regulated. In other words, you will find a “Regulation” tab on the broker’s website, where they display all the agencies that regulate their activity. However, if you’ve fallen in a non-regulated broker scam, your best chances are to contact your bank and credit card provider and ask for a chargeback or any other way of getting your money back. Of course, we strongly recommend investing only with regulated brokerages because as you can see, you have a plethora of methods to get your money back and to have your problem solved.
Binary Options CySec Regulation: Everything You Need to Know
Cyprus Securities and Exchange Commission – Regulating Binary Options
BOTS.com team decided to investigate the CySec regulation and to provide you with a detailed report about the upcoming Cypriot regulation. If you don’t have any idea what regulation is all about, please visit this link (Regulation and Binary Options) to learn more before reading this new article.
All You Need to Know About CySec Regulation
After almost three years waiting, 2020 is expected to be crucial for binary options trading; the first licenses would be granted by the Cypriot regulators to a few leading brokers. Not all brokers would be regulated of course, just a few leading companies which already began process of regulation. Seems like Binary Options is will soon be a safer place for new and veteran traders as well. So what can we expect from the CySec Regulation? Read below!
*Update (November 2020): A lot has happened since regulation was just an optimistic thought. Nowadays a brokerage without at least a CySEC regulation is often viewed as too risky and most traders stay away from such companies. The Cyprus Securities and Exchange Commission (CySEC) is the go-to watchdog for almost all brokerages who want to establish themselves as trustworthy financial entities and leaders in the Binary Options industry.
CySEC is ruling in terms of regulation, and the minimum qualification for a broker these days is a CySEC license. It’s a two way sword however, as some voiced concerns that the Cypriot regulators are making it easy for brokers to get regulated. It is true they are not the most fearsome regulatory authority and they mostly issue warnings about brokers, but we’ve also seen fines given). However, if your broker is regulated, you benefit from a higher degree of transparency because at least you know the name of the company that owns the website/brokerage, they have to declare their address and you can file complaints against them with the CySEC. Long gone are the days when all you knew about your brokerage was their URL (web address) and a phone number. Long gone are the days when your broker simply disappeared in thin air and you had no idea where to start looking for them.
What do the CySec Regulators require from Binary Options Brokers?
- Completed application form as provided by the CySEC
- Company legal documents (certificate of incorporation, Memorandum and Articles of Association, etc)
- Certificates of the registered office in Cyprus (confirming there is a registered company in the Republic of Cyprus)
- Clean criminal records and Certificates of Good Standing for the shareholders with special participation, the Board of Directors and employees of the company
- Two-year business plan
- Financial statements for the past three years
Conditions for granting a license:
- Minimum issued share capital
- Efficiency of the company’s internal control mechanism (to be described in the procedures manual)
- Company’s structure and organisation designed to minimise the risk of conflict of interest between the client and the company or between the clients
- Suitability of the company’s shareholders and directors
- Company’s technical and financial resources
*Update April 2020: The CySEC has recently decided to turn up the heat on binary options brokers. Well, it’s a thing they should have done a long time ago but as they say in Cyprus: better late than never. Basically, these new rules are focused on transparency in the field of binary options and will make it easier for the investor (you and me) to see what they are buying, how is the price of an option created, who is the quote provider, how is the expiry price calculated (mathematical equation) and many other things like that. Next we are going to list the most important ones but we will also give you a link to the official CySEC webpage so that you can read the full document.
The following contains quotes from Circular No. C126 issued by the Cyprus Securities and Exchange Commission, April 14, 2020. To read the full document follow this link.
- Information on the identification of the underlying asset of the binary option
Providing clients with sufficient information before buying the binary option regarding the identification and the type of the underlying asset of the binary option, including the trading venue [e.g. WTI Crude Oil (Dec 15) NYMEX]. This information is fully integrated and clearly displayed at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.
- Information regarding bid and ask prices of the underlying asset of the binary option – Strike price of the binary option
- Providing to clients a continuous (per second) and smooth presentation of the flow of the bid/ask prices of the underlying asset of the binary option throughout the lifetime of the asset, such as those taken by the feed provider.
- Disclosure of the bid/ask prices of the underlying asset of binary option in a prominent way in the trading platform. For example, disclosure of the bid/ask prices on the area where the exercise price is presented, in which clients may buy the binary option.
iii. Adequate explanation/description of the bid/ask, and strike, prices in a prominent way in the trading platform (e.g. via a pop-up message). In particular, with regard to the explanation of the strike price, the methodology used to calculate it, whether it differs/deviates from (bid + Ask)/2 and under what circumstances/conditions this duration is possible.
- In case where bid/ask prices are not available for certain underlying assets (e.g. index DAX and FTSE 100), presenting the last price of the underlying asset and clearly indicating the trading venue.
- Publication of the feed provider details, e.g. in the pop-up where the bid/ask price is explained/described.
- Information on the bid/ask, and/or last, prices, at the expiry of the binary option – Expiry price of the binary option
- Providing to clients the bid/ask, and/or last, prices at the expiry of the binary option.
- Adequate explanation of the expiry price of the binary option and the methodology used to determine the expiry price. In particular, among others: Reference to the relevant mathematical equation for the calculation of the expiry price [i.e. (bid + ask / 2), (last + bid + ask / 3)]; explanation of the prices which constitute the expiry price; explanation of any rounding of the expiry price of the binary option; reference to the feed provider details.
iii. Maintaining historical records with the bid/ask, and/or last, prices at the expiry of the binary option, which they are accessible by clients for the trades they executed.
- The above information is concentrated in a prominent way in the trading platform. This information is fully integrated at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.
- Explanation of the graphs presented to clients
The graphs presented in the trading platforms are accurate, clear and understandable to the average investor as to the describing illustrations. For example, when the buyout, or average bid/ask, prices are presented, a clear reference to the price presented and explanation of the graph.
- Information on the availability of the binary option
- Possibility of entering buy orders of binary option (call and put), at any time and for any binary option that is available.
- In the case of unavailability of purchasing a binary option (call and put), clear and visible information on this fact, as well as the circumstances/conditions under which this product is not available, before clients attempt to enter a buy order.
- Buyout option of the binary option from a CIF
In case clients are provided with the possibility of the option of a buyout of the binary option from the CIF, full and accurate explanation of the buyout methodology.
- Cancellation option of the transaction in a binary option
Providing clients an option to cancel their transaction in binary options, within a reasonable time after its execution, indicating any applicable conditions. The length of this option is not less than three seconds after the purchase of the binary option
- Provision of services in relation to binary options that have investment features
Provision of services in relation to binary options that are constituted and traded in a manner similar to other derivatives and ‘traditional’ financial instruments included in the Law.
Binary options with duration of 30 seconds are not considered to fall under the above.
CySEC requires CIFs (Cypriot Investment Firms) to comply to these new rules “…immediately and not later than three (3) months from the date of this circular”. I believe this also marks the start of a new era for binary options and sets the stage for a more professional, transparent and serious approach to binary trading. Finally we will get explanations regarding our expiry prices, we will get clear and accurate charts and we will know how the price of an option is calculated. Great! Polish your trading skills because binary options are taking over the mainstream trading world.
What are the Benefits of CySec Regulations?
For us, the Traders
When a company is regulated, it definitely means it’s safer and more trustworthy than most other unregulated companies. Nevertheless, as I said before, it doesn’t mean that the unregulated company is unsafe. When a company wants to get regulated it must provide almost all of its financial reports and internal information to the authorities, making all financial reports transparent. Businessmen and companies are never too eager to show the public their financial reports, especially when the company is not a public company. Besides total transparency, the company is required to prove that it’s financially strong enough to withstand all obligations to other parties and to sign an agreement with the authorities.
A website can disappear in hours or even minutes, with all your money. If all you know about your broker is a web address, what are you going to do in the eventuality of a scam? You cannot go to the Police or any other authority saying “I got scammed by someone I don’t know. I have sent them money without knowing their name or their address” because they’ll probably laugh in your face. Well, maybe they won’t laugh but they won’t be able to help without even basic information like “What is the name of the company”. All this has changed once brokers “embraced” the CySEC regulation. Now you know who you’re speaking to and to where you send your money. Considering all this, it is definitely safer to trade with regulated brokers.
For the Brokers
As I mentioned above, no businessmen desire to disclose private financial information and no company wants to reveal its financial situation to the competitors. However, that’s just the way it is. If you don’t want to get regulated, it’s ok, but be aware that your reputation will surely have to suffer and in time, certain legal action could be taken against your company (that’s a possible side effect, but I don’t see something like that happening in the field of Binary Options Trading). Anyhow, regulation could increase competition, increase the reputation of the field and increase safety of transactions, hence, a regulated broker would enjoy better reputation among clients than an unregulated one and of course, a regulated field like binary options could very well attract more crowd. In fact, that is the main advantage of regulation for brokers: more clients. It’s a well known fact that the binary options industry is plagued by scammers and unprofessional companies. This fact translated into a bad reputation for binary options in general and people soon became afraid to invest so the “good guys” had to suffer because of the “bad guys”. Now that CySEC regulation is in full effect, clients are starting to come back to binary options as they feel more confident about the overall environment. Of course this benefits the brokers that choose to become regulated because now most clients choose regulated brokers over unregulated ones.
For more Information about the Cyprus Regulation, Check out CySec official website in this link.
***BinaryOptionsthatSuck.com expects the first Regulation licenses’ to be issued on 2020. Our team will keep monitoring. Please join BinaryOptionsthatSuck.com newsletter to stay updated with the latest development. *Update (November 2020): First licenses were issued and many brokers kept applying for regulation, with new ones joining this safer and more professional environment every day. It has to be said that now, at the end of 2020 the binary options industry is a lot safer than when we first wrote this article.
Many Thanks to Bots.com Team and fellow traders for their detailed research and hard efforts acquiring this information. Finding real and reliable information on Binary Options regulation is a tough job, without the help of my team and readers I couldn’t have written this article. Thanks again and keep up the great job providing such comprehensive information and reviews about BO.
Well it’s a lot of things here to explain. The vanilla options are about buying or delivering an underlying asset at a given price (the strike). The price, or the premium of the option is the price of the operation itself: “how much would you pay to buy at expiry a given underlying at a given price ? or how much would you pay to sell it a given price?” . And for the seller would be “how much would you like to get to assume the risk to deliver the buyer an underlying at a price which you may not like, or to buy from the buyer this underlying at a price you may not like at the expiry” ? While binary options are more straightforward. I call them “bets with a market value”, and are divided into expiry, or european binaries, and touchies, or american binaries. But actually whatever can be defined as a bet is a binary option, such as Obama vs Romney or the end of the world on Dec 21. An expiry option sounds like “What’s the chance for this to finish higher than X at expiry?” while a touch sounds like “What’s the chance for this to touch X until expiry?”. The most interesting by far are the touchies, because the price at expiry is only once, but it can take many paths until it gets there. Consequently, the reverse of an Expires Higher option is the Expires Lower, but the reverse of a One Touch is the No Touch. Another special class is the Double Touch, which requires the market to blast two touch levels , one higher, one lower. Its opposite is “No Double Touch”, which requires the market to not blast both touch levels. 99% of the websites consider erroneously that the opposite of a Double Touch is a Double No Touch, which requires that the market touches none of the two margins, but this one is the opposite of an Either/Or touch, which requires that the market hits at least one of the touch levels.
Now the most important topic is the implied volatility, also known as volatility in any option-related topic that does not refer historical volatility. Historical volatility is the standard deviation measured on the underlying. Implied volatility is that volatility number which equates the option price. So if someone tell you that this “13000 March Call” for DJIA is X, the implied volatility is the volatility which, placed into the model, gives you the same price as the requested one.
Vega in particular is the sensitivity of the option to changes in implied volatility. For instance for a One Touch option vega is a bell-shaped price-volatility function, with the tip of the bell more skewed towards the touch as the implied volatility is higher. This is for the One Touch. The expiries have a different curve. I can’t really see them too separate. To me, at least when I trade binaries, I feel both as a unique parameter. As I trade 5-minute options, for me is pretty simple to see the volatility, as prices jump suddenly after important market movement has happened or when important market movement has to come. For instance, when macroeconomic releases coincide with the opening of the american markets.
Theta is simpler to understand. One Touch options have a continuous decaying theta, as they are in the money only in the event of a touch. No touch options have a continuous growing theta, as they are out of the money only in the event of a touch. Expiry options have a positive or negative theta. If the market is on the winning side, theta is positive, if the market is on the losing side, theta is negative. These options look very much like a soccer match. Say you bought a bet that A team bets B team. Score is now 1-0 for the A team. As the match is going on and time passes by, the value of this option is slowly going up, because the time left for team A to not win is less and less. The buyer of an option that B team wins is in the symmetric position, as he sees the option diminishing every minute, as there is less and less time for the B team to equalize the score. Theta gain/decay accelerates as time to expiry passes by. Needless to say, if the score is equal, both options are losing, so both thetas are going down.
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