Binary Trading Regulation And Legislation
Many binary options brokers are regulated by key licensing bodies that exist to oversee the financial investing market. This hasn't always been the case and it is since the introduction of trading in 2008, and due to its growing popularity, that regulation has become more of an important focus.
Whilst trading is not regulated everywhere this doesn't make it an illegal practice in those countries that don't have an official body to oversee it. Of course there are still some places in the world where any type of gambling is illegal and for some trading is considered gambling. In those countries that don't have any legislation the traders operate at their own risk.
When a broker is operating under the regulation of a recognised body, a trader can be confident that their money is in safe hands, then the only risk that they are taking is their own trading decisions. You need to ascertain whether the companies that you are considering have a license, and one that is from a recognised financial authority, then you can have greater peace of mind.
We examine the legislation that exists in the binary options industry in more detail including:
- Why and what legislation exists in today's global financial investment industry
- The various governing bodies and how they monitor their section of the market
- How to choose a great broker that is fully licensed by a recognised financial body
What Trading Legislation Exists
Regulation of the industry is carried out by a number of key licensing bodies in a handful of core countries such as the UK, US, Australia and Cyprus, however this regulation doesn't exist in every country.
In countries where there is no legislation it is important to choose a broker wisely. Lots of different regulatory bodies exist but the main ones operate in countries where financial services are heavily protected from scam brokers and even the reputable banks and financial institutes.
As far as possible these authorities try to protect the financial interests of the general public and ensure that people don't lose money through scam trading and unwise investment.
Since the financial crash of 2008 it has become more paramount to ensure that all forms of saving and investment are protected as far as possible, this extends to the binary options market.
The Financial Governing Bodies
There are several governing bodies that regulate the market in their respective countries. Whilst some of these are specifically for the regulation of financial investing, some companies are regulated by their country's central bank, which oversees all of financial interests.
The core licensing agencies, and ones that you are more likely to come across, are the CFTC in the US, CySEC in Cyprus, the FSA in the UK and ASIC in Australia. CySEC is one of the more recognised bodies and are responsible for regulating brokers across Cyprus and Europe. These EU based companies are allowed to trade in most of the EU unless there is legislation that prevents trading in a particular country.
In the US there are very strict rules surrounding binary options trading and it is actually illegal for companies outside of the US to solicit their services to its residents. For this reason many licensed companies across the world will not accept traders from the US.
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How Regulators Monitor Brokers
To be awarded a license from any of the key licensing bodies a broker must meet a certain number of criteria. If they carry out any indecent practices against a trader then they risk a large fine and they could have their license revoked.
If a trader experiences any form of bad practice then they are advised to submit a complaint to the licensing body via their website. The complaint can then be investigated and further action taken if necessary.
There have been examples in the past where brokers have been forced to return all of the money that traders have lost, however it is always wise to bear in mind that any form of trading is done so at your own risk and that only when malpractice is proven are you likely to see your money again.
Whilst they do a good job of overseeing those that are licensed, unfortunately they cannot protect you against illegal companies that operate scams under a variety of company names.
Choosing a Licensed Firm
It is quite straight forward to discover if the company that you are considering has a legitimate license. First of all they should have the details at the bottom of their website, or somewhere prominent, along with their licensing number.
Now it is important to exercise caution even if you see these details. Remember that anyone can add a logo and number to a website to create the right impression but another tip would be to check with the regulating body themselves. You can check which firms are regulated if you visit the website of the regulatory body that they display on their website.
A quick online search will also give you details that you need to make an informed decision. If they claim to be licensed, and you discover that they are not, then you can contact the relevant licensing body to report it.
You can also search for known binary scams and find information on common bad practices. Unfortunately, because of the number of scams that exist and those that exist to trick people out of their money it has become more important to ensure that you choose your broker carefully.
As a new trader it can be difficult when it comes to choosing who to trade with. Who should you trust and how do you know if your money is safe? By carrying out a few simple checks beforehand and referring to the online reviews that exist, you can make decisions based on facts and recommendations ensuring that you get more out of your trading experience.