Binary options trading is the new kid on the block, gaining the attention of regulators only recently as it is now being offered by many brokers, both old and new to the industry.
Unlike spot forex trading, which is overseen by the CFTC, NFA, or other foreign regulatory agencies, there aren’t a lot of regulators overseeing binary options trading at the moment.
Of course, with binary options gaining popularity, the ball is starting to roll on creating regulations for this relatively new way to trade.
Cyprus Securities and Exchange Commission (CySEC) was the first regulatory body to consider binary options trading as a financial instrument back in May 2012.
In the U.S., one of the top binary options broker, Banc de Binary, made an initiative to seek regulation from the CFTC for its operations. Other binary options brokers are expected to follow suit.
Across the globe, other regulatory agencies are also starting to keep a closer eye on binary options trading. The Japanese Financial Services Authority is drafting its regulations for Japan, the largest market for the product.
Over in Malta, the Maltese Financial Services Authority (MFSA) is making arrangements to take charge of regulating binary options brokers in the country.
In line with this, brokers will undergo an application procedure and a strict due diligence process to secure its license to operate.
Among the possible application requirements are that binary options brokers fall under the Investment Services Category 3 license and will be subject to a minimum capital requirement of €730,000.If you’re planning to open a binary options account, make sure you do so with a regulated broker.
Regulated brokers are usually held to higher operating standards, and if you do have issues (e.g., trade execution, withdrawing funds, etc.), you have a higher power to help you resolve those issues with the broker.
Although unregulated brokers shouldn’t automatically be viewed as scammers, trading with them could entail risks such as a lack of guarantees that the firm’s operating funds are kept separate from client funds. Plus, there will be no one to hear your case and take action on your behalf if you have an issue.