Country Guide Overview
Online trading is subject to various rules and regulations around the world. When seeing a commercial about online trading, typically one can assume he/she can trade binary options with that broker. However, there are different rules for trading binary options in countries around the world. Moreover, in some parts of the world, binary trading is strictly forbidden.
The binary options industry exploded lately. Due to either lack of consistent regulation, or lack of proper trading education, people were drawn to put their money in trading these options. It sounds fancy to tell people you trade the financial markets.
What is Binary Trading?
In reality, this is a difficult job. If not, this is the most difficult job in the world. As a trader, one needs to constantly keep up with the latest fundamental developments around the world.
Moreover, to take a trade, a trading strategy must exist. Hence, updating the charts is a constant and time-consuming job. On top of this, good trades don’t appear every time you’re in front of the screens. Hence, chances favor that only some of your trades will end up being profitable. However, it doesn’t mean trading is only for losers. With the proper preparation and dedication, anything can be done.
In binary trading, traders must choose both the direction of a financial product (currency pair, index, commodity, individual stock, etc.) and the option’s expiration date. The expiration date refers to a future point in time when the price of the underlying security gets compared with the option’s striking price. By striking price, we refer to the price the option was bought at. If the trader bought a call option and the price at the expiration date is higher than the striking price, the option is profitable. As such, the binary options broker pays the trader a premium or a rate of return on his/her investment.
On the other hand, if the trader bought a put option, he/she expects the price for that instrument to move lower. If that is the case at the expiration date, even by the minimum distance, the option expires in the money.
This is binary options trading. Traders must choose the direction the market goes, set an expiration date, and the broker pays them a minimum 70% rate of return if their analysis is correct.
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Binary Options Regulation
To the surprise of many, the binary options industry is poorly regulated. If you want to search for a binary options brokers list by country and search for regulated brokers, the result will be surprising. Few brokers are regulated.
What does this mean? When a broker is regulated, it must follow a set of rules set by the financial authority. Special agencies like CFTC (Commodity Futures Trading Commission’s) in the United States, FSA (Financial Services Authority) in the United Kingdom or CySEC (Cyprus Securities and Exchange Commission) in Cyprus, oversee financial investing when trading binary options.
It should be mentioned here that, due to the financial crisis in 2008, the FSA in the United Kingdom was abolished and the financial responsibilities split between two agencies: FCA (Financial Conduct Authority) and PRA (Prudential Regulation Authority). However, no matter the regulatory body, the aim is to protect the customers. As a rule of thumb, brokers based in Europe, for example, are under the CySEC supervision.
In 2013, it ruled that all brokers dealing with binary options and working in the Cyprus jurisdiction must have a CIF license. Because conditions in Cyprus were/still are relaxed ones, to this day CySEC is the favorite destination for binary options brokers that want to operate in Europe. As a matter of fact, if a binary options broker wants to expand in Europe, the best and easiest way to do that is to get a license from CySEC. With this, European gates become open. In the country where the industry is regulated, the state collects taxes. Therefore, when the law is enforced, binary options brokers must follow clear rules when conducting business.
Binary Options Trading in Europe
There is no such thing as best countries with highest binary options reserves. First, binary options cannot be quantified. Second, trading binary options is subject to multiple laws and regulatory bodies.
To put this into perspective, let’s come back to the CySEC in Cyprus. Any company that wants to operate in Europe goes to Cyprus for a license. This is valid not only for binary options brokers but also for Forex brokers. Theoretically, a binary options license from CySEC should be enough to trade binary options throughout Europe. However, the reality differs. This is because local legislation in some European countries forbids binary options trading.
Take France, for example. While trading Forex and CFD (Contracts for Difference) markets is regulated by L’Autorite des Marche Financiere (AMF), trading binary options is illegal. In other words, binary options brokers cannot operate in France. Moreover, even advertising is forbidden. Belgium and the Netherlands started to go on the same path since the middle of 2016. There are many reasons to banning binary options, with the most important one being the scams behind various brokers.
Binary Options Trading in the United Kingdom
While the United Kingdom is (still) part of the European Union, binary options brokers that operate in the Kingdom must follow different rules. The Forex and CFD businesses in the UK are supervised by the FCA. In other words, if you are a broker that wants to sell your services in the UK, you must apply for an FCA license.
From a customer’s point of view, this is not a bad thing. From a broker’s point of view, this is an additional cost. Let me give you an example here. When the SNB (Swiss National Bank) dropped the peg on the EURCHF pair (for years, the Swiss central bank held the pair artificially pegged to the 1.2 level), mayhem followed.
Retail traders, as well as many Forex brokers, were taken by surprise. Some, like the Alpari broker in the UK, went broke.
However, the broker operated under the FCA authority. As such, the regulatory body intervened and within days, customers were noticed that everything is under control and their trading balances will be returned. In a matter of a few weeks, every trader received the money back. This is what a regulatory body does. When it comes to binary options trading, in the United Kingdom the situation is different. The thing is that binary options trading is considered to be gambling, and not investing.
As such, the FCA has no power over binary options brokers. These, in turn, get regulated by the UK Gambling Commission.
Binary Options in the United States
The United States is one of the best countries to trade binary options. Brokers that operate here must obey the SEC (Securities and Exchange Commission) and CFTC rules. As a broker, if you have a license under the CFTC regulation, you can open your business to the US customers. For other brokers in the States, things are a bit more complicated. They can sell their product to traders OTHER than US residents. This makes trading binary options legal, but brokers simply cannot operate everywhere.
Binary options trading is extremely popular in the United States. Both federal law and state law allows it. It may seem like an easy task, but conditions are one of the toughest, if not the toughest in the world. Plus, it is more expensive for a broker to obtain a license from the SEC than, for example, CySEC. Licenses are given, but they can be suspended too. This happens if the broker gets into fraudulent activity and do not represent the interest of its clients in fairness.
Forex brokers in the States deal with the NFA (National Future Association) while trading CFD’s is illegal. However, similar products are allowed through various other financial instruments. Again, it is just about semantics. Binary trading allowed countries to tax both companies and potential profits the customers made. From this point of view, it is like gambling: it generates a lot of money for the national budget.
Other Regions and Jurisdictions
As mentioned earlier, to operate in a country or region, brokers must obtain a license from the regulatory body. However, there’s a catch. Regulators do not offer a license to anyone that applies for it. Only competent companies will be awarded one. But this doesn’t mean binary trading online is illegal. Only that is not regulated.
As a matter of fact, in most of, many of the countries binary trading is not regulated. This doesn’t make it illegal though. It only means that there’s no specific law to either allow it or prohibit it.
Take Canada, for example. There is no regulation whatsoever. There is no law stating that binary options trading is illegal, and this makes the whole industry look like a scam one. Because of its many territories and provinces, Canada is not the ideal destination to incorporate a binary options broker.
The list can go on with specific regions and countries in the world, but we covered the most important ones.
Binary options trading is legal in most of the countries. Traders must be able to make a difference between a legal activity and regulation. Regulated brokers offer safety for their clients. The regulatory body allows them to operate in a specific country/region/jurisdiction only if the broker follows strict rules of conduct.
If not, they cannot operate. Moreover, once a license approved, it can be suspended at any time. This is viewed as a proactive measure destined to keep brokers on constant alert to respect the guidelines drawn by their regulators.
In some countries, binary options trading is viewed as gambling. Yet, it is legal to trade binary options, only that the financial authority or the regulator body is different. In other countries, binary options trading is viewed as normal and regular investing. As a broker, all you need is to get a license and make sure you follow the rules set by the financial authority. Other parts of the world have no legislation regarding binary options trading. This makes it very difficult to operate in these regions.
Finally, some countries strictly forbid their citizens to trade these products.
Make sure you know the restrictions in your region before applying for opening a binary options trading account.