In short, binary options are trading instruments which allow investors to bet on whether the underlying asset will either rise in value or fall. This means, investors don’t buy or sell the underlying asset, rather they bet on its fluctuating price. This is the reason why this type of investment vehicle is called binary. There are only two options that investors choose from.
So, why are binary options so popular and compelling in the first place? First of all, they offer great diversity and investors can literally bet on any financial product. Traders can purchase binary options at any time of the day. Additionally, the time frame for binary options expiration can be from 1 minute to 365 days. This trading instrument is also very simple to use since it does not involve any complex pricing or calculations.
Why is binary options trading so popular?
If binary options sound like a fantastic way to win big on Forex market, being easy, accessible, and diverse, then why was 2016 its worst year ever? The future of binary options trading may become less certain. Many changes are expected to happen in 2017. Some traders even wonder if binary options will “survive” this shift.
Shift in the regulation
The reason for the 2016 crisis on the binary options trading market is that CySEC (the Cyprus Securities and Exchange Commission) had left way too many loopholes with its lax regulations. The result is that many brokerages had refused to pay deposits and winnings to its clients. With Cypriot watchdog tightening the rules, and CySEC following suit, many brokerages have seen a loss of traction. This resulted in clients closing accounts. On top of all that, the European Securities Markets Authority (ESMA) would put additional pressure on Cyprus watchdog.
As CySEC would fail to regulate the binary options market for many years, currently, the over-regulation process may change the binary options trading irreversibly. The possibilities are that either binary options will survive the “onslaught” of tighter rules, or it may transform into a better regulated, updated trading instrument from 2017 onwards.
It seems that innovation and transformation can be the key. Some innovative companies have seen where this is going and are now focusing their attention on exchanges and gaming.
What are the alternatives?
Exchange traded binary options are very similar to the investment instruments in Japan and the U.S. The main challenge is that clients will have to be trained to know how to best operate with these new products. This would mean more investment on the side of the companies, more customer support, and trained service staff. The learning curve is there, and traders will need to go through it first to be able to comfortably operate the new product.
Other companies are introducing the concept of gaming. Instead of making trading a boring and tedious task to do, gaming can help attract new clients. If they dream about a house, the platform can use this as a basis for the game, where investment and trading is a part of chasing the dream house.
Summing it all up
In the end, no one can predict with certainty what the future of binary options will be. Obviously, companies change and re-brand, trying to accommodate their services to the new regulations. This may push the industry to re-evaluate its approach and avoid using certain lax rules for their own sole benefit.