Binary Options Regulation

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Trading or investing can be one of the best activities to do if you are trying to better your finances. However, with the amount of analysis involved and the wide range of options open to traders and investors, the average person can easily become overwhelmed and confused about the whole situation.

Binary options might be the right choice for you if you are looking for a much simpler approach to financial markets. Throughout this article we’ll be explaining exactly what binary options are, what an OTC broker is and why it is important, what regulation is, and why regulation is important.

What Are Binary Options?

In the traditional sense, an “option” contract would allow an investor to buy or sell an asset over a given period of time at a price that was pre-decided. The investor would have no obligation to buy or sell the asset during the life of the contract, he/she would simply have the option to do so, hence the name.

Whenever someone mentions “options” today, they usually mean binary options. These are slightly different than the traditional contracts mentioned above; binary option trades/investments are executed through a broker and will allow you to make one of two predictions: the asset will increase in value, or the asset will decrease in value.

A binary option trade will have an expiration date, which can range anywhere from 1 minute to 24 hours. Once the expiration date has been reached, the trade will be executed; for example, if you predicted that the value of the asset would increase then in order for your trade to be successful, the value would need to be greater now than it was 24 hours ago.

What Is an OTC Broker & Why Is It Important?

A broker is an essential requirement for binary options, simply because a broker will enable you to open and close trades. Choosing the right broker could be the difference between winning and losing a trade; in addition to this, it’s wise to choose a reliable broker who is going to have your best interests at heart.

If you are looking for the most reliable brokers, then choose an Over-The-Counter (OTC) broker—also known as a No Dealing Desk (NDD) broker—these are brokers that don’t take the other side of your trade, instead they connect you with the rest of the market.

Choosing a broker that doesn’t operate on an OTC basis means that the broker could be taking the other side of your trades. This is either done because of risk management, or because the broker is too small to meet exchange listing requirements.

It’s important to choose an OTC broker because they are generally more reliable and prove that they are a safe and secure company with your best interests at heart.

What Is Regulation?

For those of you who aren’t familiar with regulation, it simply means that the broker agrees to conform to certain rules and regulations set out by a regulatory body. This will lead to a vast amount of benefits which we’ll discuss more in the next section.

Binary options regulation was first implemented in 2012 by the Cyprus Securities and Exchange Commission (CySEC), which is where many brokers are based. Other countries started to follow shortly after.

Before opening an account with a broker, it’s always wise to ensure that the broker is properly regulated. Here are the regulatory bodies for several countries:

  • Cyprus – Cyprus Securities and Exchange Commission (CySEC)
  • United States – Commodity Futures Trading Commission (CFTC)
  • United Kingdom – Financial Conduct Authority (FCA)
  • Japan – Financial Services Agency (FSA)

Why a Regulated Broker Is Important

It’s important to do your research on brokers before you get started with binary options, this is simply to ensure that your funds are kept safe and secure. If you’re looking for the best security, you should always choose a regulated broker.

Regulated brokers are held to much higher operating standards, can provide you with more safety and security with regards to your funds, and there is always someone you can turn to if you are having problems; this is why it’s so important to choose a regulated broker.

Unregulated brokers aren’t necessarily always scammers, but there usually isn’t any security in place for your funds. In addition to this, you won’t be able to get help from a regulatory body if you have problems with an unregulated broker.