by ForexNewsNow Team on July 20th, 2017

Will binary brokers go for gambling regulation?

Binary options have been under attack this past year, with most of the major financial regulators tightening oversight and legislations in the industry. This year has been no different either, and it seems the onslaught is bound to continue. With all this going on, the binary options brokers have to consider their alternatives if they are going to survive.

Why is the binary options industry under attack?

We all know that trading in any financial market carries risk, in fact, all brokers are supposed to be upfront about this information. Despite the risk, there is a lot of potential for high rewards, which is why hundreds of thousands of people still participate. Binary options became popular after the 2008 financial crisis because they were easier to understand than most markets.

Since then, the industry grew without any major problems, and that’s when the problems started. Unscrupulous brokers were drawn to the robust industry, and since the industry is widely unregulated, they had a good time swindling their clients. After thousands of complaints by aggrieved clients, the financial regulators finally took notice and began going after the binary options industry.

binary brokers go for gambling regulation

How has the binary options industry been attacked?

In the US, only one broker, Nadex, is regulated and allowed to offer binary options to US residents. That tight there is a huge blow to a very large market. The Israeli Securities Authority (FSA) noticed that a lot of binary options brokers were based there, and they are passing a law that prohibits binary options trading. It turns out that many binary brokers based outside Israel used Israeli subsidiaries because of lower workers fees.

Many other financial regulators are now issuing warnings against trading binary options and other over-the-counter markets, urging people to stay away.

The most recent bruise to the industry came last month during the iFX EXPO event in Cyprus. CySEC mentioned that they would consider banning binary options, which, being the most popular broker, could spell doom for the industry.

Could gambling regulations work?

Yes, the experts from CasinoCrunch website point out that the gambling regulations could work out for binary brokers if the financial regulators were to stop licensing it. At the moment, the few financial regulators who license binary brokers consider binary options to be a financial instrument. If this view was to change, as it seems to be, then binary brokers could just change binary options trading into gambling.

In fact, the Financial Conduct Authority in the UK does not license binary brokers. Instead, the UK Gambling Commission does the licensing and regulation. According to the Gambling Commission website, the institution does not consider binary options as a financial instrument but rather as a bet on the direction of the financial markets.

The truth is that binary options trading is indeed a lot like gambling because the traders don’t actually own any of the products in the markets. The only problem is the binary brokers themselves refusing to label binary options as a form of gambling or betting. However, if the regulations on binary options keep getting tougher, you can be sure the binary brokers will change the narrative. Besides, they will have no other option but to go for gambling regulation.

By ForexNewsNow Team

This is a general account of the ForexNewsNow Team. It is used to published exclusive content carefully crafted by our experts as well as it is used to bring you the most recent industry highlights from our guest contributors that wish to remain anonymous.

Comments (1 comment(s))

bogdan

Unfortunately, gambling regulation could definitely work. Remember when BetOnMarkets (Binary.com) had a gambling regulator (until like two years ago). Yes, this casino industry will continue to thrive, despite this setback. They will always choose the most permissive regulation, and when none will be left, they will go gambling. Unfortunately the damage done that started in about 2008 will not be killed, will just be transferred to the gambling regulators. Because this industry doesn't want to adapt. From the very re-imagination of it in 2008, with AnyOption if I'm correct, they came up with the gambling model of "options" and they're never gonna give up. The binary options industry is the only case I can find where competition lead to client service ruin, where instead of taking over and improving over the BetOnMarkets model, somebody came with this idea "why not transform binary options in bets". Instead of acting as an interface between the institutional realm that has really good exotic options offering but only for their privileged kind (just visit any and you get the message that if you're retail scum you must leave) and the retail that could possibly use these advanced exotics for easier trading, generating more trades than normally possible while using a structuring approach, the industry still clings to the gambling model. Because there are too many gambling addicts out there, people who have never seen anything better in 10 years of "click up or down" marketing and who cannot even imagine what binary options should even be and how much they could trade while carving out their own payout structure. The policy of regulatory bodies to consider that exotics are more complex than vanillas and should not be marketed to retail, along with the lack of financial education on the public side, couple very well with the brokers intent to trade against customers, while having far better house edge than any roulette table. I proposed myself a trading platform model few years ago, that would be using real exotic options while keeping simplicity and addictiveness while being true to what exotic options are in finance books, but it's certainly not as juicy as trading against customers...