Trading of binary options is considered to be the worst kind of securities trading among financial regulators. In fact, some regulators don’t even consider binary options as a security, and that it is instead a form of gambling. Canada has now banned binary options trading once and for all, joining the ranks of countries like Israel, France and the Netherlands.
Why has Canada banned binary options?
There have been increasing cases of fraud committed in the binary options industry throughout the world, and Canada has faced the same issue. According to the Canadian Securities Administrators (CSA) chair, binary options had become the leading type of investment fraud in the country. Back in March, the CSA had issued a warning to all Canadians, but they had still not banned binary options trading.
Even before that, the CSA had created a Binary Options Task Force to try and deal with the problem. This task force had created a website that would act as a resource to warn Canadians against trading binary options. Furthermore, they coordinated their efforts with online advertisers and mobile app companies to prevent advertisements luring Canadians to trade binary options.
Nevertheless, trading of binary options continued despite their efforts, adding further to the number of complaints to the CSA. According to the resource website provided, there had been no binary options broker licensed to operate in Canada. They were all unlicensed operators who would solicit Canadians with promises of great profits but only swindle them off their money.
It is true that most binary options brokers are pure scams as other financial regulators have discovered. Unlike brokers that offer Forex trading, binary brokers will have complicated structures to make themselves hard to track and thus impossible to be prosecuted. Furthermore, dealing with an offshore broker is always a bad option because it is difficult to persecute them, even if they are licensed and regulated.
Worse still, some of these binary options brokers were extremely ruthless and not even doing any trading at all. The broker would often deny any withdrawal requests or use the credit card information provided to make illegal withdrawals. This is why the institution finally banned binary options as a final measure.
How will the ban work and what will be the effect?
It is important to note that the banned binary options are those with a period shorter than 30 days. There are very short period binary options, going as low as 1 minute. The CSA equated such binary options with get-rich-quick schemes which the brokers use to lure in Canadians. The financial watchdog hopes that, by limiting the types of binary options available, they are going to reduce the chances of price manipulation and let people go for more legitimate services like invest money in Forex or stocks.
Besides, the brokers will not be able to dangle the promise of quick profit to potential clients. Therefore, only informed investors are going to be interested in the trade. There is also the idea that traders will be able to tell good binary options brokers from the bad considering whether they follow the regulations. The thinking is, one would not trade with a broker who clearly violated the laws.
To achieve this effort, the CSA will work with online advertisers to prevent further ads, tech companies that create mobile apps and even credit companies to deny transfer requests. However, other similar bans in other regions have not been successful, and this one may not be as effective either. For now, though, we just have to wait and watch what happens next.