Know Your Regulation And Legislation
Many binary options brokers are regulated by vital licensing bodies that exist to oversee the financial investing market. Proper regulation 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.
While 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.
In this guide, you will learn:
- Why and what legislation exists today
- The various international governing bodies
- How to find a broker that is fully licensed
What Trading Legislation Exists
Regulation of the industry is carried out by some important 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 essential to choose a broker wisely. Lots of different regulatory bodies exist, but the main ones operate in countries where financial services well 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 well protected, this extends to the binary options market.
When a broker is operating under the regulation of a recognised body, a trader can be confident.
The Financial Governing Bodies
Several governing bodies regulate the market in their respective countries. While some of these are specifically for the regulation of financial investing, some companies are subject to regulation by their country's central bank, which oversees all of the 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 is 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 stringent rules are surrounding binary options trading, and it is 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.
How Regulators Monitor Brokers
To be awarded a license from any of the essential licensing bodies a broker must meet a certain number of criteria. If they carry out any improper practices against a trader, then they risk a hefty 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. Claims will then get investigated and the appropriate action will then need undertaking by the regulator.
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.
While they do an excellent 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 essential 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 authority 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 via the following links:
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 critical to ensure that you choose your broker carefully.
Jacob has been an author for us since our launch in 2012. He has over forty years’ experience in the financial sector and has held a variety of positions within financial services corporations and venture capitalist organisations.