Binary options regulations tend to be quite complicated – or at least they seem complicated when you first come across them. In reality the regulations are not as complicated as they seem and in fact once you understand the specifics of binary options it is easy to understand the regulations as well.
What are binary options?
Binary options are a form of trading that is very similar to options trading. If you want a detailed explanation there is a great and comprehensive article on binary options that can be found here. But to keep the explanation simple a binary option is like a bet on the outcome of something (Typically the price of shares or commodities). And the wager on this bet is an all or nothing wager – if you “win” you get a fixed monetary prize or a fixed asset and if you lose you get nothing. This is where they differ from options with which you can win or lose a variable amount.
As an example, you could use a binary option to bet that Google shares would be below a certain price by next Friday. If they were below that price on Friday then you would win the wager, if they went above that price then you would lose and get nothing.
Are binary options regulated?
Up until recently there were no regulations for binary options trading. These trades tended to take place outside of the known trading platforms and were not regulated in any way. This was good in some cases because it allowed for a lot of flexibility with this form of trading and so a lot of money could be made if you were on the winning side of the trade. However, of course there were also some pitfalls with having an unregulated trading platform, in particular it made it very easy for some companies to abuse the trading system and as a result there were a lot of scams that took place within the binary options trading space.
However, recently, to combat these problems with binary options trading there have been some regulatory bodies introduced. At the time of writing there are many regulators that manage binary options trading and ensure that everything is done as per guidelines. For example, in Europe binary options are now regulated by a company called CySEC. This company are the most noted binary options regulator. There are also regulators in other countries – for example in Belgium there is a well-known regulator called FSMA. There are also many other regulatory bodies that have been set up in various countries around the world with the aim of regulating the binary options trading market.
What does this mean for binary options trading?
This is fantastic news for binary options trading. Of course it does mean that the rules are a little bit tighter now and that there are many more guidelines that have to be followed. As with any regulation this means that the system is a little bit more rigid and you can no longer just do anything that you want in this marketplace. But what it does mean is that binary options are a lot safer, it is easier to trade in them without worrying about being ripped off. As a result, there are far fewer scams going on in this industry now and as a result this has allowed the binary options trading market to grow considerably.