Regulation is a normal feature in most financial trading markets. Regulation is a process through which financial transactions are tracked by regulatory authorities. It is also the creation of rules and regulations that protect the parties dealing in such financial transactions and defines the borders within which the participants may operate. This ensures fair play and makes the traders and brokers responsible for the decisions that they take with regard to the market.
While some countries have proper regulations for the binary options market, some countries are yet to fully grasp the extent and intensity of this market, thereby relying on laws that do not cover loopholes in this market. Typically, traders are advised to deal with brokers from countries that have much stricter regulations so as to safe guard themselves from fraud and scams.
The main problem with the binary options market is that the brokers are resident in numerous countries all over the world, making it virtually impossible to have a single regulatory authority. As such, the broker is normally subject to the financial regulations of his or her country despite dealing with clients from all over the globe. While this is not a problem in itself, it poses a risk to the trader, especially those who do not understand the regulatory laws in the broker’s country. For instance, a broker may set up shop in Cyprus where there are low tax rates, thus falling under the authority of the Cyprus Securities and Exchange Commission. Other countries like the UK, offer more than one classification of the binary options, thereby creating a loophole in the market. While creating the loophole, it allows the traders and brokers to make more money than in some other countries, which is more lucrative. All in all, aside from taxation policies, very few countries have specific legislation that relates to the binary option market.
Problems faced in creating regulation
Over the counter platforms- over the counter platforms create a one on one relationship between the trader and the broker thus excluding a third party; the third party is usually the regulatory authority. This makes it much harder to track the transactions by different people.
Various broker locations – the availability of brokers all over the world creates a humongous pool of brokers who cannot be placed under one regulation. The operation of different regulations in different locations creates a blip in the regulatory infrastructure.
Multiple legal classifications – in countries like the UK, binary options trading can be categorised under different systems. In essence, the possibility of classifications is endless, making it much harder to anticipate different classifications that are created in different regions.
Resistance – one of the main reasons that proper regulation cannot be passed is that there is resistance from within the market. The forces of those who are benefiting from the situation as it is keep subverting the process of creating proper regulation.
However, countries like Cyprus, through the Cyprus Securities and Exchange Commission are taking bold steps in creating specific legislation that deals with the binary options market. This regulation is set to provide a benchmark on the possibility of creating binary options regulations in different regions across the world.