Table of contents:
- 1 What are the most popular regulators for Binary Options Brokers?
- 2 Can I trade with the appropriate regulation without fear of losses?
- 3 Why do so many binary options brokers choose Cyprus as their headquarters?
- 4 Why do CySEC-regulated brokers no longer offer bonus promotions?
- 5 What is the problem with brokers outside the EU?
- 6 Why is it important that client funds are kept in separate accounts?
- 7 What rights do I have with a reputable broker?
- 8 How can binary options trading become a success?
Due to the Binary Options regulation, the security of the traders should be improved and fraud should be prevented. Each broker is regulated in the country of his branch by the financial supervisory authority responsible for that country. If additional branches are opened in other countries, the broker must usually register with the financial supervisory authority there and be regulated by it. It is therefore an advantage for customers if the broker of their choice has a branch in their own country.
A regulatory authority grants the broker a license, with which he can legally offer Binary Options in many countries. In order to be granted this license, the broker must meet certain requirements, for example, there must be sufficient liquidity to guarantee payouts to customers at all times. The customers’ funds must be kept separate from the Broker’s assets so that they cannot be misappropriated and can be reliably repaid to the customers even if the Broker becomes insolvent.
Good regulation, therefore, offers customers a high level of security and ensures that they do not have to fear fraud, but can concentrate fully on trading.
What are the most popular regulators for Binary Options Brokers?
Nowadays, Binary Options Brokers are based all over the world. They are acting internationally and accept clients from a lot of different countries. I recommend only use regulated brokers which have to follow investment rules and keep the client’s funds safe.
The most popular regulations for Binary Options:
- CFTC (US)
- CySEC (Cyprus)
- FCA (UK)
- MFSA (Malta)
- International Financial Commission (International)
Can I trade with the appropriate regulation without fear of losses?
Even the best regulator cannot eliminate all risks. It is true that the risk of Binary Options fraud is significantly reduced with good regulation. However, dubious behavior on the part of the provider cannot be completely ruled out because, as in all other industries, there are unfortunately always resourceful fraudsters who discover new loopholes.
However, fraud with a seriously regulated broker is actually very unlikely and would also be quickly noticed and prevented. That is why the professionals for binary options usually trust the EU regulators and make deposits with the appropriately regulated brokers. However, it can’t hurt to listen to the experiences of other customers. A broker who has had numerous satisfied regular customers for years is much less likely to behave in a dubious manner than a newcomer to the industry.
However, all risks cannot be eliminated by regulation, because the nature of Binary Options alone carries a very high risk of loss, which has nothing to do with the seriousness of the broker but is due to the high variance of the financial product. Thus, even with the best regulation, good risk management must not be sacrificed if trading in binary options is to be taken seriously. Even for professional traders, there is always the risk of losing the entire stake at any time.
Why do so many binary options brokers choose Cyprus as their headquarters?
Checking a bit among the different Binary Options providers, you will soon find that a particularly large number of them are supervised by the Cypriot regulatory authority CySEC. This is because the island of Cyprus offers particularly good conditions for online brokers, but also for their customers.
Cyprus is a member of the European Union. As a result, CySEC operates according to the strict and uniform EU regulations, which are considered to be particularly safe. Here, not only a separate administration of customer funds and company assets is carried out, but usually also additional deposit protection and many other security measures to enable customers to trade Binary Options securely.
At the same time, Cyprus is considered a European tax haven for financial services providers. These have to pay particularly low taxes here and thus make more profit. Therefore, Cypriot brokers often have lower fees than their competitors from other countries, which in turn has a positive effect on the profit of the customers.
Why do CySEC-regulated brokers no longer offer bonus promotions?
Money market bonus promotions are very popular with many traders, as they can receive additional credit or other bonuses. Mostly a deposit is required for such a bonus, but there are also several bonus programs where the receipt of a bonus is linked to a corresponding trading volume.
Since December 2016, brokers regulated by the Cypriot CySEC are no longer allowed to offer bonus promotions. This may initially be seen as a negative move, as it appears to take away a benefit from the traders. The problem with almost all bonus promotions, however, is that they encourage traders to engage in trading behavior that is not the best strategy for that client. With a deposit bonus offered, clients statistically deposit more money or make more frequent deposits to get the extra bonus balance. If a bonus is linked to a certain trading volume, it is likely that customers will trade more than usual to receive this bonus. Bonus promotions are therefore obviously designed to encourage the client to trade more. Many clients trade beyond their means, exposing themselves and their capital to high risk.
Brokers with no CySEC regulation still offer a bonus
In addition, such offers may be put Binary Options in a bad light. CySec has therefore decided to prohibit bonus actions in the license terms. At first glance, this may seem like a disadvantage for the customers, who now no longer have the possibility to receive special payments on their trading account. If you take a closer look at the situation, you can see that the costs for the bonus payments must come from somewhere.
Instead of high bonus payments, brokers could also reduce the cost of actual trading and allow traders to achieve higher average profits. This is exactly what will happen with the discontinuation of bonus promotions, as brokers compete with each other for clients and try to outperform each other with the best trading conditions. In fact, the prohibition of bonus offers is actually an advantage for the clients, because the trading conditions become more transparent and the actual costs and payout rates can be calculated more easily.
What is the problem with brokers outside the EU?
Naturally, not all brokers who do not have EU regulations are automatically dubious. There are many good providers even in more distant countries, but the problem is that non-EU regulation offers customers much less security.
Check out the best regulated Binary Options Brokers:
If conflicts arise between the broker and the customer, legal action is very difficult and the broker can often evade legal proceedings. Only very few bounced customers have so far been successful in claiming the money due to them in court if the broker was not registered in the EU. Therefore, only in exceptional cases should you register with a broker who works with a less secure license for EU residents.
This exceptional case can be, for example, if it is a provider with an excellent reputation and years of experience without any incidents, who also offers significantly better conditions than the other available brokers. Such a case, however, really only occurs very rarely. There is a wide range of EU regulated brokers, so every trader should be able to find a suitable provider with whom he can trade binary options with maximum security and unquestionable regulation.
Why is it important that client funds are kept in separate accounts?
Clear separation of clients’ corporate assets and account balances ensures that clients’ funds are not used by the broker for his own purposes, but only as a wager on binary options. Thus, it clearly remains the property of the trader, which is particularly important if the broker should ever get into financial difficulties or even have to declare insolvency.
Due to the clear separation, the client’s money can also be paid out under these circumstances, as it is not the property of the broker and therefore does not fall to the insolvency estate and thus to the creditors. Serious brokers can always indicate at which banks the accounts with the customer funds are kept
What rights do I have with a reputable broker?
Serious brokers do not only look after their own profit but also take care to protect the customer and his finances. This also includes sufficient information about the dangers involved in trading Binary Options. Regardless of whether the broker for Binary Options is regulated by CySEC or another financial authority is responsible for him, according to the legal regulations for trading with derivatives in Germany, a clear warning of the risk of loss in binary options must be displayed on the broker’s website and also in any advertising for him. This is to ensure that customers do not approach trading with false ideas and are also sufficiently informed about the risks.
As a trader with a reputable provider, customers also have rights. If you should have the feeling that the broker does not sufficiently respect your rights as a trader despite serious regulation, you can either contact consumer protection or the regulatory authority directly. Here, customer accusations are taken seriously and examined.
However, you have no right to a secure profit. Binary Options are a highly speculative business where, despite serious regulation, there is always the threat of losing the entire investment.
How can binary options trading become a success?
Binary Options are not a safe form of investment for money that is still earmarked for other purposes or needed for living. It is a highly speculative financial product with significant fluctuations in profits and losses. Even if the trader carries out a correct price analysis and observes the corresponding trading signals, it can lead to high losses and also to a total loss of the entire deposit. Therefore, only so much money should be deposited that a total loss does not have a significant impact on the client’s finances and can be easily absorbed. Even though possible bonus payments, you should never be encouraged to deposit more than you actually intended.
If you decide to trade Binary Options, look for a broker with good trading conditions, and secure EU regulation. Beginners should avoid brokers that are regulated exclusively outside the European Union, as there is a higher risk.
To find out whether the broker is reputable and suitable for you personally, read the General Terms and Conditions carefully and completely. Critics of binary options often criticize the fact that there are sections in the terms and conditions that should not be permitted under EU law. Therefore, if there is the slightest doubt, you should wait with registration and either get rid of it or choose another provider. The reviews of other customers of the broker of your choice can also be helpful when it comes to assessing whether a provider is trustworthy.
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