Regulation of the Binary Options Market29 Apr 2013, 08:00
Unlike other financial markets, the binary options one is not yet regulated. Many traders avoid it for this reason. However, you need to understand what regulation means and then to decide whether you can enter the binary options market or not. It is important to know how regulation has affected other financial markets and why it is in effect.
Regulation of financial markets was developed in order to control and monitor the activities of the companies offering services on these markets. It is a form of making sure that these companies only use fair play and good practices. Otherwise said, regulation is also a form of protection for traders who are this way safe from fraudulent and dishonest practices. Regulation is in fact a set of rules which companies on a certain market need to obey.
It is not easy to come up with rules for companies operating at an international scale. This is the reason why many companies in the financial sector only have to comply with the national legislation of the country in which they perform their main operations. They are supposed to report to various institutions in these countries which monitor their activity and make sure traders are treated honestly. Companies in the financial sector have to keep segregated accounts for their clients in order for their funds to be protected. Segregated accounts are not yet compulsory on the binary options market.
In fact, the binary options market is not at all regulated for now. Brokers only comply with the national laws in the countries where they are headquartered. This means that if you want to enter the binary options market you need to pay close attention to the broker you choose. You need to make sure that the company dealing with your trades is reliable and can be trusted with your funds. In order to minimize your risks, you can choose a broker from one of the countries with strict regulations in the financial field.
Apparently, efforts are being made in order to regulate the binary options market. It is not going to be an easy transition, but it will sure provide a stable and safer environment for traders. The first institution which made a step in the correct direction is the CYSEC. Brokers operating in Cyprus would have to obey stricter rules and to obtain a license for continuing their activity. Numerous forex and binary options brokers are currently working from Cyprus.
SpotOption, a top provider of binary options trading platforms is already making changes which will help brokers comply with the new regulations. Fortunately, the competition among brokers is high, so they will all move towards the new status in order to keep their client.
It might take some time until the binary options market becomes fully regulated. Meanwhile, you need to make sure that you are working with a broker which has a good reputation on the market.