Binary options trading has quickly become one of the most lucrative types of investing. It is easy to understand, which makes it appealing to everyone: from students and housewives, nurses, teachers, accountants to business professionals. But many are wondering is regulation really necessary when it comes to trading or is it enough just to let the market do what it is supposed to, by following Adam Smith’s rule of the invisible hand.
When it comes to financial markets and any type of financial trading it is important to have some sort of rules and standards, as these markets are very attractive for scammers of all kinds. In the very beginning, binary options were unregulated. It is quite common that, when a new product appears, it takes some time for the state and regulatory bodies, to recognize their importance and impact.
Binary Options Regulation
One of the first brokers who noticed the importance of binary options was NADEX who allowed exchange binary trading, regulated by CFTC in 2009. In 2012, thanks to CySEC, binary trading became regulated in the European Union, as well. Soon after other regulators followed. Read more about binary trading regulating agencies.
Also, traders must keep in mind that binary options are regulated differently in different parts of the world. For example, while in the EU CySEC license is valid in every country, in the US only several exchanges can offer this type of service, while traditional binary brokers are banned from operating. This doesn’t mean that one way of regulation is better than the other. They are simply different. More on NADEX read here.
Traders, Brokers, and Regulators
In the past few years, binary options trading became more present in the media. Not only that brokers are publishing lists regarding scam brokers, unlicensed service providers etc., but traders are also becoming more and more aware of scams lurking around which makes them more careful.
When it comes to traders, binary options regulation simply provides them additional protection. They are not dependable on the broker only, but can also reach out to their regulator for advice in case something goes wrong. Read how to file a complaint with CySEC.
Regulated vs Unregulated Brokers
Regulated brokers are obligated to follow a strict set of rules regarding customer support, documentation, the product they are offering etc. Also, as license gives them more credibility, they also gain more profit and are more lucrative business partners to different sports clubs. Thanks to regulations, binary options are becoming a serious and respectable business.
Some analytics predict that in the future, just like in the forex industry, almost all brokers will be regulated. The license gives brokers a clear advantage when it comes to creating their image and brand, and opens new business opportunities.
Regulated Brokers and Traders
All traders who decide to deposit with CySEC regulated brokers have additional protection. They have to approve any bonuses added to their accounts, and their deposits are protected. Brokers are obligated to keep all deposits on separate accounts, but also to verify every trader and warn them about possible risks.
Binary trading with regulated brokers is much more transparent than with unregulated ones. Sometimes it may seem that unregulated brokers offer higher payouts or more attractive bonuses, but the question remains whether or not the broker is really honest and respected.
Of course, this doesn’t mean that all unregulated brokers are scams, but there are many that are. In the case of trading with an unregulated broker, even regulatory bodies are helpless, as a broker is not obliged to answer them or follow their instructions. This leaves traders and their funds unprotected.