Binary options industry has been struggling with keeping their reputation intact in the past year, mostly because of a lot of bad publicity, a great increase in scams and increased activity by local regulators wishing to provide higher levels of customer protection for their citizens. From Israeli ISA, and European ESMA to FBI and big brokers – it seems that everyone is ready for a change in the binary trading industry.
And while several top brokers switched their focus from binary options to forex and CFDs, regulators are looking for ways to prevent binary brokers from operating and advertising in their territories. Despite all these difficulties, there is still a solid number of regulated binary brokers that put a lot of effort into both delivering a good trading experience and complying with the regulatory framework. Such brokers are ASIC regulated HighLow, GSC licensed MarketsWorld and MGA regulated Binary.com.
Still, end of 2017 was marked by significant changes that will affect the landscape of online trading industry for years to come.
Israel Bans Binary Options Trading
After a long time of “will they, won’t they”, Israel banned binary options companies from their territories in October 2017. The new law was passed unanimously 53:0, despite hard efforts by the lobbyists and binary companies (that were also interrupting Knesset sessions), probably due to international pressure to prevent binary companies from offering trading service not only to Israeli but international customers as well. Remember, an earlier version of this law was banning binary brokers only from offering binary options to Israeli citizens, and not international customers which caused a lot of dissatisfaction in international media outlets and among regulators. According to the new law, all companies are given a 3-month transitional period to cease all their binary activities in Israel which was indicating how 2018 will start without any binary activities in Israeli territories. Everyone who fails to comply is facing a 2-year prison sentence. In 2017, it was estimated how binary industry in Israel is worth between 5 and 10 billion USD.
FBI Raids SpotOption Offices
However, the mission of cleaning up Israeli reputation is not finished yet. In January 2018, offices of one of the biggest software providers, SpotOption, were raided by the FBI. Only four days later SpotOption announced they are dissolving all their binary actions completely. The popular software provider claims how this decision is final, and that no such operations will be taken aboard in order to escape strict Israeli regulatory framework. SpotOption’s CEO Peter Pini made a statement how they won’t be selling their binary trading technology to other company either, as they are Israeli company and wish to continue operating in their homeland, no matter the regulatory requirements. He also mentioned how there are plenty of other binary platform providers binary options brokers can turn to.
ESMA – Looking for Solutions in the European Union
Binary options regulators within the European Union had no unified approach towards this type of financial trading. While some regulators like CySEC granted licenses, the Belgium FSMA banned binary options completely. The European Securities and Markets Authority (ESMA) took an important step in December 2017, when they invited to comment on their paper regarding binary and CFDs regulation, all with the goal of greater customer protection.
Their main concern are aggressive marketing methods used by unregulated companies to pressure clients to deposit more and more while downplaying the risk involved.
ESMA acknowledged binary options in 2013 when they released the first Q&A document that was supposed to help NCAs (national competent authorities) to navigate the new product on the market. Now, ESMA is seeking evidence from stakeholders on the impact of the possible measure that could include the prohibition of advertising, distribution, and sale of binary options. This is supported by the Regulation (EU) n. 600/2014 (MiFIR).
ESMA Explains: What is the Difference between Binary Options and CFDs?
In their latest paper, ESMA also dedicated some time and space to defining the main differences between binary options and CFDs. Even though there are brokers that offer both, there are great differences that are not visible at the first glance. ESMA believes that this can easily confuse traders, especially in case additional unethical practices are involved.
The CFD definition according to ESMA:
A CFD is a derivative other than an option, future, swap or forward rate agreement, the
purpose of which is to give the holder a long or short exposure to fluctuations in the price,
level or value of an underlying, irrespective of whether it is traded on a trading venue, and
that must be settled in cash or may be settled in cash at the option of one of the parties
other than by reason of default or other termination event
The main characteristic of CFDs trading:
- leverage – a feature that can increase the potential risk involved, especially if used aggressive marketing techniques.
Main risks of CFDs trading:
- no understanding of leverage
- often aggressive marketing, especially with scam brokers
- great encouragement of traders by business owners and their employees
The binary options definition according to ESMA:
It is a derivative that must or may be settled in cash at the option of one of the parties
other than by reason of default or other termination event.
The main characteristics of binary options trading:
- expiry times that the payout is depended on
- limited payment to the fixed amount in the case when all conditions are fulfilled
- zero payment when a single condition has not been met
The risks of binary options trading:
- high risk levels of negative returns
- short expiry times, meaning short duration of trades that evokes addictive behavior
- lack of transparent information
- aggressive marketing techniques, usually by scam brokers
One of the main differences that is important to understand, especially for new traders is that CFDs don’t have an expiry time. This means that traders can buy and sell contracts as they prefer. In case they believe that a certain trade won’t end up to their advantage, they can easily sell it. Of course, this may cause a minor loss due to the difference in ask and bid price, but these losses are still smaller than in case the trader waited longer. In binary options, traders must wait for the trade to expire, even if they feel that it might not be profitable after all. Even though some binary brokers offer sell option that can be used before the expiry time runs out, it is usually a very expensive solution.
Binary Options Advertising Ban
In 2017, Apple announced how all binary trading related apps will be removed from their App Store. The next company to announce similar step was Facebook, and now financial regulators, led by Canadian authorities, are pushing the same ban towards Google. Google spokesperson Roni Levin responded how their company already bans all scam, misleading and false advertising, but no concrete measurements towards banning binary options marketing activities were announced.
What is the Future of Binary Options?
Our website will remain dedicated to providing objective and balanced reviews to traders all over the world. Due to regulatory changes, we expect that our audience’s focus will switch towards other popular products like CFDs trading, forex, and crypto trading. For this reason, we already implemented new sections to our website, with a hope they will, once again, help traders understand the world of trading better, and find a broker that suits their needs.
Some brokers like ETXcapital, decided to stop offering binary trading due to ESMA’s regulations. They are switching their focus towards spreads, forex and crypto trading. They believe how binary options will be prohibited soon, so they see this as prevention measure.
We are also keeping up with the latest trends in the trading industry and are putting a lot of effort into reviewing popular forex robots (like FXMasterBot) and crypto trading robots like CryptoRobot365, CryptoCode, and EthereumCode.
We are a network of 20 affiliate websites with a clear mission of promoting only safe online trading websites whether they are CFD, forex, crypto or binary oriented.