Binary Options Guide: Industry Regulations

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Welcome back to our Binary Options Guide! In this instalment we'll be discussing the industry regulations of binary options because as most seasoned speculators will know, wherever there is a burgeoning financial industry there tends to be an undercurrent of shady dealings and poor regulations. This is not to say that speculating on binary options is guaranteed to lose you money- far from it- but there are steps to be taken to ensure you aren't one of the unlucky few.




Are Binary Options Legal?

Gavel Smashing Two Red Dice

The judge rules: Legal!

As Daisy explains in her Binary Options Guide: An Introduction, binary options are perfectly legal providing the site you use has the relevant licences for the country where the company operates. This is because on non-regulated platforms, client money is not necessarily kept in a trust account, as required by government financial regulation, and transactions are not monitored by third parties in order to ensure fair play.

It is therefore in ever reader's interest to choose a platform which is regulated, as the UK gambling commission warns “an unlicensed operator is likely to be acting illegally, […] they will not abide by any code of conduct and have no incentive to deal fairly with you. Unlicensed operators are likely to use false names, addresses and contact numbers – they can disappear with your money and without a trace, making recovery impossible.”


How To Avoid Scams

Know the company you're dealing with

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Don't get scammed by mystery silhouettes

A salesperson representing a binary options broker is likely to be a little bias when it comes to investing money with their site, and as such you'd be wise not to take their word as gospel when choosing your binary options site. Instead, do your own research online.

Look up the company in question and find out all the basic information such as the physical address and name of the underlying company. Many scam brokers will conceal this information for obvious reasons: if their outfit is a scam, they would rather you didn't come knocking on their door for your money back. Its important to find out whether a broke has a physical headquarters too, rather than just a virtual office or a rented P.O. box, as a company with physical headquarters is much easier to track down and thus far less likely to be a scam.
Look up a company's URL with easywhois. If they relate to this site in any way its possible they are using some form of protection. Always be suspicious of sites wishing to conceal their true identity!

Are they regulated?

Always ensure your broker is regulated

Always ensure your broker is regulated

Always ensure that the broker you are dealing with is regulated by a major regulatory body- if you are a citizen of an EU state then it is essential the company is regulated by a body within the EU itself. A table of these regulatory bodies can be found further on in the article.

If a financial company is regulated, it must abide by fair-practice rules and have the best interests of its clients in mind when doing business. Furthermore, the funds of a regulated company and those of its clients have to be kept in separate or trust accounts. This means that in the event of a company/broker going bankrupt your money is safe and sometimes partially or fully insured. A regulated broker is also constantly monitored by the regulatory authority so that a high level of professionalism is maintained.

What Rules Must a UK Binary Options Broker Follow?

There are various different things a binary options broker must do to ensure it is operating within the remit of the laws which govern a given country:

  • Rules are rules for a reason!

    Rules are rules for a reason!

    As previously stated, binary options betting operators are currently regulated by the Gambling Commission. This is likely to change in the future, as regulation of such products transfers to the Financial Conduct Authority. For the time being, however, any binary options operator that is based in Great Britain, or has key equipment in Great Britain, must hold an operating licence from the Gambling Commission in order to trade.

  • There are a number of licensed operators offering this type of product. Those operators are required to make it clear, on their websites, that they are licensed by the Commission, whether or not they hold other licences from other regulators.
  • Binary options operators that are based overseas do not need a Gambling Commission licence to market to UK customers. Reputable operators will, however, be licensed in the jurisdiction in which they are based.
  • UK based binary options traders must not hold customer's money themselves, but rather keep the money in a trust account to ensure that there's no foul play involved.
  • Brokers must present accurate information about the services they provide and the market information they display so as to ensure customers are speculating on true data.

Consider the Bonus Conditions

woman views bonus screen on desktop computer

Bonuses aren't always what they promise!

Almost all binary options brokers will grant you a cash bonus depending on the amount you choose to deposit with them. This incentive can go as high as 100% of your initial deposit and might sound great at first, but it is vital for you to understand why it is given to you: it's to make the whole thing more appealing and to induce you to deposit more.

Another, less obvious reason is to tie your money to their platform by imposing a trade volume requirement before any funds can be withdrawn from your account. In other words, you will be obligated to trade 20, 30 or even 40 times the amount of your initial deposit (plus any bonus) before you are able to withdraw any of your money- this is very similar to a playthrough requirement for online casinos. The volume requirement differs from broker to broker: anything above 20x the deposit-plus-bonus should be considered too high. Always read the broker’s specific bonus conditions.

Read the Terms and Conditions

Always read the T's and C's!

Always read the T's and C's!

It may sound tedious, but if you value your money you will read the entire Terms and Conditions document and you will need to accept all terms and conditions before you can open an account. Once accepting these tricky T's & C's there's no going back. Brokers will often have a higher minimum deposit than you wish to trade with; when speculating or gambling in any format set aside a bankroll that you can afford to play with. This money should be dedicated purely to your pursuit of choice and should not affect your living standard if it is lost.

The broker may also impose an inactivity fee of 30% or more and you may be asked to pay some of the broker's expenses such as the cost of providing your account statements. Free demos are often not as free as they sound- many sites require you to make a real-money deposit to use a virtual-money account, as if you choose to withdraw your money without playing a commission charge may be applied to your withdrawal.

Be aware of these conditions before you open an account. Another broker may impose less-demanding terms, so shopping around brokers is just as valuable as shopping around for an iPad. You must also be aware of the fact that information available on a broker’s website is mainly promotional and meant to sugar-coat things. Unfortunately, such information can easily be ignored or even deleted by the broker at his convenience. Acquire a hard copy of all terms and conditions before you sign anything.

Learn from the experience of others

Perhaps the most important aspect of speculating online: take your time and visit specialized websites such as ours, which are highly informed regarding the ins and outs of the business and will provide you with unbiased reviews of binary options brokers. The key word here is “unbiased,” because there is a multitude of websites which offer positive reviews in return for money.

It’s a reality of the Internet which we cannot deny or change, but we can avoid it. Online you can read reviews and interact with other people who have shared their experience with a specific broker. If a broker scammed people before, you will almost certainly hear about it on a review website, so take your time and do your research.

The Gambling Commission said that players should look out for warning signs, noting “if something sounds too good to be true, it probably is. […] There is no such thing as a risk-free transaction involving binary options, any more than there is a risk-free bet,” the Gambling Commission explained. “Likewise, you should be cautious before placing money with an operator who promises unrealistic returns.”


European Union Regulatory Bodies

This table outlines the most common countries in which binary options brokers are based and the corresponding regulatory body. The list is not exhaustive however, so if you plan on investing with a company registered in a different country to these make sure you look up the relevant regulatory bodies and research companies to make sure they haven't been blacklisted.

CyprusThe governing body for all Binary Options trading sites offering services to Cyprus based traders is the Cyprus Securities and Exchange Commission (CySEC). A great majority of brokers are registered in Cyprus because CySEC offers a comprehensive complaints process.
Czech RepublicThe governing body for all Binary Options trading sites offering services to Czech Republic based traders is the Česká Národní Banka (CNB).
FranceThe governing body for all Binary Options trading sites offering services to France based traders is the Autorité des Marchés Financiers (AMF).
GermanyThe governing body for all Binary Options trading sites offering services to Germany based traders is the Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin).
GreeceThe governing body for all Binary Options trading sites offering services to Greece based traders is the Hellenic Capital Market Commission (HCMC).
ItalyThe governing body for all Binary Options trading sites offering services to Italy based traders is the Commissione Nazionale per le Società e la Borsa (CONSOB).
IrelandThe governing body for all Binary Options trading sites offering services to Ireland based traders is the Central Bank of Ireland (Banc Ceannais na hÉireann).
LuxembourgThe governing body for all Binary Options trading sites offering services to Luxembourg based traders is the Commission de Surveillance du Secteur Financier (CSSF).
MaltaThe governing body for all Binary Options trading sites offering services to Malta based traders is the Malta Financial Services Authority (MFSA). This is another country home to a great number of brokers, much for the same reason as brokers register in Cyprus, Malta offer an efficient set of regulations compliant with European law.
NetherlandsThe governing body for all Binary Options trading sites offering services to Netherlands based traders is the De Autoriteit Financiële Markten (AFM).
SpainThe governing body for all Binary Options trading sites offering services to Spain based traders is the Comisión Nacional del Mercado de Valores (CNMV).
United KingdomThe governing body for all Binary Options trading sites offering services to United Kingdom based traders is the Financial Conduct Authority (FCA).

Industry News and Developments

One of the great debates outlined in Daisy's introduction to binary options is the notion of trading versus betting; are binary options a form of gambling or financial speculation? The answer being that these terms are largely interchangeable- Duncan explored the possibility that the regulation of the binary options market may change hands from the UK gambling commission to the FCA (Financial conduct authority).

the-future-sign-on-ipadThis would bring the UK in line with other European Regulatory bodies providing the same services, and when we consider that binary options ‘bets' hinge upon the changing value of assets this makes perfect sense.

Furthermore, by applying industry knowledge gained through fundamental and technical analysis, traders may develop successful market strategies which certainly cannot be done playing mobile slots! In May of 2012, the Cyprus Securities and Exchange Commission (CySEC) announced a policy change regarding the classification of binary options as financial instruments.

The result meant that binary options platforms operating in Cyprus- a popular choice amongst brokers- will have to be CySEC regulated within six months of the date of the announcement. CySEC was the first EU MiFID-member regulator to treat binary options as financial instruments.

In March 2013 Malta's Financial Services Authority followed suit and announced that binary options regulation would be assumed under the Markets in Financial Instruments Directive (MiFID). Malta thus became the second EU jurisdiction to regulate binary options as a financial instrument and brokers much now gain a category 3 Investment Services licence and conform to MiFID's minimum capital requirements.
Prior to this announcement it had been possible for firms to operate from the jurisdiction provided the firm had a valid Lottery and Gaming Authority licence.



Our conclusions about the industry of binary options suggest that as the phenomenon grows, more and more countries are seeking to regulate brokers through financial markets as opposed to gambling authorities. This is a good development for potential clients as companies are held to greater standards of ethical behavior and customer service. A lot of responsibility is still left in the hands of the customer to do thorough research before depositing money, but with our guide in hand you're sure to make the smart moves!


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About Martina

Martina recently joined Droid Slots as a writer, regularly contributing to the ‘Reviews’ and ‘Interviews’ sections of the website, as well as trying her hand at the comic strips.A features journalist by training, she always strives for accuracy, objectivity and depth in her content, so you can rest assured her reviews are brutally honest, the interviews offer valuable industry insider scoop and the occasional guide is as comprehensive as possible. There will be no ‘fluff’ or prettying things up – just valuable content that will help you enjoy online casino gaming even more.

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