There seems to be a war against binary options trading of late. At the moment, several Forex and financial regulators either completely banning the trade or, at least, discouraging it. The latest action comes from the Monetary Authority of Singapore (MAS) which issued a warning on the 14th of March.
In the warning, the MAS warned the public against trading binary options, whether with a regulated or unregulated broker. The statement informed Singapore residents that trading with the instrument could cause huge losses or even a complete loss of their investment. Right now, any trader who suspects fraudulent activities by their broker may contact the police and they shall assist to crack down on the suspected broker.
What’s causing the war against binary options?
In a statement by the MAS, they stated that the warning was spurred by:
- the rising number of traders complaining about fraudulent activities by brokers,
- the presence of numerous unregulated brokers, and
- brokers operating within the country that were not based in it, making regulation difficult
They also pointed out that binary options brokers were misrepresenting their industry by promising huge returns as high as 500%, allowing people to trade with very small deposits and guaranteeing that there was no risk. These are all legitimate reasons, because as we all know, binary options trading, just like trading any other financial instrument carries a huge risk.
However, the binary options industry is an over-the-counter market, so these regulators don’t really have any direct authority over the brokers’ actions, and this is the best they can do so far.
What impact does this have on the industry
Despite being only a warning and not actionable, the action will still have an impact on the industry. Keep in mind that the MAS has not completely shut down binary options, so the industry is still active. The main impact will be the reduction in new customers signing up with binary options brokers.
Binary options have a long history dating back some 40 years when they were introduced as a simpler way to trade commodities. Since the global financial crisis between 2007 and 2008, though, binary options suddenly became increasingly popular. Since then, the industry has grown tremendously and become almost as popular as the Forex trading industry.
Now, with the regulatory war against binary options going, you will see traders shifting to other trading instruments while reducing the number of new customers. You don’t run into a house with a fire alarm ringing, do you? This is exactly what the financial regulators are trying to do.
This warning by MAS is only the first shot at the binary options industry, and the next course of action may be the complete ban of the trade. Already, Israel has a bill aimed at banning binary options in the country, one which seems very likely to pass, while Netherlands prohibits advertising binary options. The war is already on, and we can assume the binary options industry is already bleeding. Some pundits believe that binary options may only be a fad and that the current war against binary options may finally put it down.