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.
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.