When trading binary options, reasonable traders strive for the greatest possible protection. Unfortunately, there are always questionable brokers among the providers, for example, do not reliably pay profits or use other unfair methods that cause losses for the client. When it comes to the question of the seriousness of a broker, experts often refer to regulation. But how do you identify a trustworthy broker based on the respective regulatory authority? After all, almost all providers are regulated today. Which is the best regulator? We aim to answer these and other questions about binary options regulation in the following text. When looking for a good online binary options broker, find out which providers you should and should not spend money on.
Why are brokers also regulated?
The purpose of binary options regulation is to improve the safety of traders and prevent fraud. Each broker is regulated by the competent financial supervisory authority in the country of its establishment. If more branches are opened in other countries, the broker usually has to register with the local financial regulator and is regulated by it. Thus, it is an advantage for the clients if the broker of their choice has a branch in their home country.
A regulatory authority grants a broker a license that allows him to legally provide binary options in several countries. To be granted this license, the broker must comply with certain requirements, for example, liquidity must be available to guarantee payments to clients at all times. Clients’ funds must be kept separate from the broker’s assets so that they cannot be misrepresented and can be repaid to clients even in the event of the broker’s bankruptcy.
Therefore good regulation provides a high level of protection for customers and ensures that they do not have to fear fraud, but can focus solely on trading.
Can I trade with proper regulation without fear of loss?
Even the best regulator cannot eliminate all risk. The truth is, with good regulation the risk of binary options fraud is greatly reduced. However, a frivolous behavior of the provider cannot be completely ruled out, because, as in all other areas, there are always cunning scammers who discover new loopholes. Fraud with a reputable regulated broker is actually very unlikely and would also quickly attract attention and be stopped. As a result, binary options professionals usually rely on EU regulators and pay appropriately regulated brokers. In addition, it can not hurt to listen to the experiences of other customers. For a broker who has been able to boast of many satisfied regular clients over the years, a suspicious behavior is much less than for a newcomer to the industry.
However, not all risk can be eliminated by regulation, as the very nature of binary options alone carries the 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 of regulation, good risk management should not be waived if serious binary options are to be dealt with. Even for professional traders, there is always a risk of losing the entire stake at any point in time.
Why do so many binary options brokers choose Cyprus as their registered office?
If you look around a bit at the various providers of binary options, you will quickly notice that many of them are overseen by the Cypriot regulator CySec. This is because the island of Cyprus offers particularly good conditions for online brokers, but also for their clients. Cyprus is a member of the European Union. As a result, CySec operates according to strict and uniform EU regulations, which are considered particularly secure. Here, not only is there a separate management of client funds and company assets, but usually still an additional deposit insurance and a number of other security measures enable the client to safely trade in binary options.
At the same time, Cyprus is considered a European tax haven for financial service providers. They have to pay additional taxes and thus make more profit. As a result, Cypriot brokers often have lower fees than their peers, which in turn has a positive effect on client profitability.
Why don’t CySec-regulated brokers do bonus promotions anymore?
Bonus promotions are very popular with many traders, because here they can get additional credits or other bonuses. Most often, such bonuses require a deposit, but there are also many bonus programs, in which the receipt of the bonus is attached to a corresponding trading volume.
Since December 2016, brokers regulated by Cyprus CySec are no longer allowed to offer bonus promotions. This may initially be considered a negative, but it looks as though traders will be discounted. However, the problem with almost all bonus promotions is that they encourage traders to engage in trading behavior that does not meet the best strategy for this client. In the case of an offered deposit bonus, customers statistically pay more money or make deposits more often to receive additional bonus credits. If a bonus is tied to a specific trading volume, it is likely that clients will trade more than usual to receive this bonus. Bonus promotions clearly work to encourage customers to do more. Many clients are trading beyond their means and are exposing themselves and their capital to high levels of risk.
In addition, binary options in such proposals in bad light. Therefore CySec has decided to prohibit bonus promotion in the terms of the license. At first glance, this may seem like a loss for clients who no longer have the opportunity to receive exclusive payments on their trading account. Looking more closely at the situation, one realizes that the cost of the bonus must be coming from somewhere. Instead of high bonuses, brokers can also reduce actual trading costs and give traders higher average profits. With the bonus promotions off, it will be just as brokers compete with each other for clients and try to outdo each other on better trading conditions. In fact, banning bonus offers is actually an advantage for clients, as trading conditions become more transparent and the actual cost and payout ratio easier to calculate.
What’s the problem with brokers outside the EU?
Of course, all brokers that do not have EU regulation are automatically suspect. Also abroad, there are many good providers, but the problem is that customers are offered very little protection with non-EU regulation. If there are conflicts between the broker and the client, the legal process is very onerous and brokers can often avoid a process. Due to the broker not being registered in the EU only very few hurt clients have so far been able to claim funds. Therefore, you should only in exceptional cases register with a broker who operates with a less secure license for EU residents. For example, this may be given the exceptional case if the provider has an excellent reputation and many years of experience without incidents, offering significantly better conditions than other available brokers. Such a case is really rare. The selection of EU-regulated brokers is large, so that here almost every trader will find a suitable provider, where he can operate with maximum security and a clear regulation binary options.
Why is it important to manage client funds on segregated accounts?
The clear separation of client assets and account balances ensures that the client’s capital is not used by the broker for its own purposes, but serves solely as a bet on binary options. Thus, it clearly remains the property of the trader, which is especially important if the broker should run into financial difficulties or even file for bankruptcy. In these circumstances also the clear alienation of the client may be paid, as they are not the property of the broker and therefore do not fall to the insolvency estate and thus creditors. Reputable brokers may indicate at any time which accounts are managed with client funds
What are my rights with a reputable broker?
Reputable brokers not only focus on their own profits, but also protect the client and his finances. It also contains ample information about the dangers of trading in binary options. Is the broker for Brian Options regulated by BaFin, or another tax authority responsible for or according to legal provisions for trading derivatives in Germany on the broker’s website, and any advertising for it has a clear warning of the risk of loss? Can be seen in options. This is to ensure that customers do not approach the business with misconceptions and are adequately informed about the risks involved.
As a merchant of a reputable provider, customers have rights too. If you feel that the broker does not pay enough attention to your rights as a trader despite valid regulation, you can approach consumer protection or directly to the regulator. Here customer’s allegations are taken seriously and investigated.
However, you have no right to secure benefits. Binary options is a highly speculative business that, despite legitimate regulation, is always under threat of losing the entire investment.
How to be successful in binary options trading?
Binary options are not a safe investment for money that is needed for other purposes or for life. It is a highly speculative financial product with significant fluctuations in profits and losses. Even if the trader does a correct price analysis and observes the relevant trading signals, it can lead to high losses and even total loss of the entire deposit. Therefore, only so much money should be paid, that the total loss does not affect the customer’s finances significantly and can be easily mitigated. Even with potential bonuses, you should never be encouraged to pay more than you’re willing to.
If you decide to trade binary options, look for a broker with good trading conditions and secure EU regulation. Especially beginners should avoid brokers that are specifically regulated outside the EU, as there is an increased risk here.
Read the terms and conditions carefully and completely to find out if the broker is reputable and suitable for you personally. Critics of binary options often complain that the terms and conditions contain sections that should not be permitted under EU law. Therefore, for the slightest doubt, you should wait with the registration and either finish it or choose another provider. Also, reviews of other clients of the broker can be helpful in assessing whether the provider is trustworthy or not.