Binary options are a fantastically simple investment tool, but numerous issues have held them back since their inception. Are there signs however, that some of those barriers are soon to be removed? I want to explain what is holding binaries back right now – and what might develop during 2016 to help move these simple tools, from relative financial obscurity, into the mainstream.
First, the issues.
Binary options have a poor reputation. The key point here however, is that the product itself – the ‘binary option‘ instrument – is not the problem. The poor reputation has been created by irresponsible marketing and short sighted brokers, looking to take advantage of a new financial innovation – before it gets fully regulated.
This is not a new phenomenon. New financial products are often seized upon by unscrupulous operators and binary options were no different. Binary options are a simple, but high risk / high reward investment. Websites offering “$2000 a day” while clients sit on their backsides letting automated signals do all the work are horrendously irresponsible. These funnels are a misleading way to market binary options. Binaries are an investment tool, and each investment needs to be researched and planned just like any other. They are not a “get rich quick” scheme and should not be marketed as such.
Likewise, unregulated brokers had a short sighted ‘business model’ of taking clients money, and either losing it for them (“account managers” placing trades on their behalf), or refusing to pay withdrawals when clients asked for their money back. Some of the activity was bordering on the criminal. We have managed to help some people who have been on the wrong end of this sort of thing – if you have, get in touch.
Regulators bear teeth
Regulation was another issue. Unregulated firms were free to operate, and those firms that were regulated where rarely monitored as they should have been. This area has improved however, in two ways. Firstly, CySec – the regulator covering most firms, began to deliver some serious blows to brokers not adhering to regulations. They are finally making some sensible demands of the firms under their stewardship and are dishing out meaningful punishments where required. The second improvement comes in the form of better regulation across Europe – other bodies are now stepping up their efforts to get involved.
The future of binary options
So what is likely to change and how? One change is the scale of firms getting involved in binary options. Both IG and CMC now offer binary options. Both are mainstream CFD brokers, illustrating the slow acceptance of the financial sector that these instruments are genuine, and popular trading products.
Another move forward is in regulation. Again, some brokers now getting involved in binaries, are already regulated by strong European regulators, because they already offer other mainstream products. Binary options might remain a grey area, but these firms have to comply with regulations concerning contracts for difference or traditional options – so binaries customers benefit from the same rules and regulations.
The more robust regulation brings us on to Brexit. The European union has been busy discussing MiFID II – a range of rules and regulations for the financial sector that would be implemented across Europe, replacing the existing MiFID rules – which do not reference binaries. The update was going to include new rules on short term trading, and also include binary options. Due in early 2016, the rules were delayed to give firms more time to comply. How does Brexit fit in? Well, if the UK decide to leave Europe, they are unlikely to adopt MiFID II and regulation of binary options will remain with the UK Gambling Commission. At present, they have not shown a great desire to clean up the sector – maybe that will change. On the other hand, if the UK “Remains“, they will adopt MiFID II and regulation of binary options will finally fall to the Financial Conduct Authority. This will be another big step towards moving binaries into the financial mainstream. It is worth remembering however, that as I mentioned above – some firms now offering binaries are already regulated by the FCA because of the additional financial products they offer.
The next generation of broker
The “next generation” might sound rather grand, but some of the brokers likely to join the market in the coming months will provide a huge leap forward. A new trading platform, coming soon, provides the “next level” of binaries investing and is light years ahead of what is currently on offer. More products, better pricing, absolute transparency and a focus on the clients are just some of the improvements. I have seen a demo of these offerings and they are a game changer, plain and simple. The model is based on trading volume, not counter-party risk. That means they want traders trading, and they do not mind if they are profitable – long term. We will of course be listing and reviewing these brands – and the binary options sector will be given a real shake up. Hopefully, a big enough shake to move them out of the shadows, into the light of the financial mainstream. Watch this space!