Binary Options Trading Regulation Rule Changes
Many traders have questions in regard to binary options trading regulations. Up to this point, most brokers have continued to operate under the radar, avoiding the rules associated with regular regulation. However, the ever increasing popularity of binary options has brought with it the need to re-evaluate the governing laws as they apply to the brokers.
The legitimacy of binary options trading has been difficult to establish due to two factors. For one, lack of regulation immediately causes many to shy away from binary options. Secondly, some brokers have been charged with malpractice. Some of these charges stem from a potential manipulation of the trading platform in order to increase profits. Should these problems go on unaddressed, binary options trading as a whole would suffer.
Global regulation is not easy to accomplish. This problem is also noted in other operations of a financial nature. Global brokers offering services such as forex trading often find themselves only needing to adhere to local regulations which can vary greatly depending on location. For this reason, some choose to base their operation in a country that offers less rules and restrictions. This can of course create problems.
To further add to problems, binary options fall under the classification of OTC (over the counter) transactions and have thus been labeled as a financial product. This has been deemed necessary as binary options traders do not actually invest in underlying assets. The predictive nature of binary options causes this financial instrument to fall under betting rules and regulations in some areas, tarnishing the image of this method of trading.
Solutions to these problems are now being put into action. In May of 2012, the Cyprus Securities and Exchange Commission made the decision to require that Cyrus based binary options brokers would have to adhere to the Investment Services And Activities and Regulated Market Law. This means that if a broker wishes to continue to conduct business out of Cyprus, a Cyprus Investment Firm license must be obtained.
In order to operate within the European union while being able to take advantage of tax breaks a less strict laws, many brokers established headquarters in Cyprus. Some of these brokers are currently considered to be the largest in the industry. With these binary options brokers being the least likely to fold, expect to see them adhere to the new requirements in order to continue operation. Popular platform providers SpotOption and Tradologic have already begun making changes that would allow binary options brokers in Cyprus to adhere to regulation.
These changes will certainly work to the benefit of the trader. Though the changes do not address all problems, they are a move in the right direction. With many major binary options brokers taking action soon after the Cyprus Securities and Exchange Commission announcement was made, it is entirely possible that traders are already partnered with a broker that is adhering to the new rules and regulations. Future changes that would benefit the industry are being discussed and will hopefully come into play in the next year or two.