There is a lot of uncertainty about whether binary options brokers are regulated or not. When binary options just began to attract the attention of traders, the industry was not regulated. This left much room for abuse and manipulation of those who did not have a good understanding of how binary options work. As a result, many traders complained about being scammed by brokers. As a result of the growing number of complaints regarding binary options scamming, steps were taken to have the industry regulated. However, it must be noted that binary options regulation is not mandatory. It is a voluntary decision.
So the short answer to the question about whether or not binary options brokers are regulated is “only those who choose to be regulated.” There are numerous reasons why a binary options broker would choose to be regulated. Regulation provides traders with a higher level of investor confidence especially pertaining to scamming. This means that traders feel more comfortable transacting business with regulated brokers since all regulated brokers must agree to abide by certain operating practices. What this does for brokers who choose regulation, is that it gives them a competitive advantage in the market. Regulated brokers tend to get more business than unregulated ones.
Regulated binary options brokers are required to separate the funds of traders from their own funds which minimizes the likelihood of scamming. Also, traders who transact business with regulated brokers are legally protected in the event that they feel cheated by a broker. Traders who do business with regulated brokers can feel secure that they are doing business with a reputable business and that the identity of those brokers can be verified if necessary.
Binary options regulation came into existence in May 2012 when the Cyprus Securities Exchange Commission (CySEC) began to offer regulatory services to brokers. Today, CySEC is the most popular regulator and it currently provides oversight to over 20 brokers. Note however, that this is a relatively small percentage of all brokers given that there are several hundred binary options brokers currently in existence. Therefore, the majority of brokers are still unregulated.
One may wonder why a broker would choose not to be regulated when the benefits to them are clear. Some of the reasons why a broker may not choose to be regulated include the cost of regulation as well as inability to obtain a license. Since regulated brokers must abide by certain practices, they must have the systems in place to properly fulfil these requirements. It may mean that brokers would have to spend money to ensure compliance of their operations. Many brokers are not prepared to make this investment. On the other hand, the final decision for regulation rests with the regulator. It is the regulator who ultimately decides to extend a licence or not. So even though a broker may apply for regulation, if the regulator is not satisfied with the broker’s application, no license will be issued.
It will take some time before regulation of the binary options industry becomes standard practice. However, steady progress is being made as more and more brokers come to appreciate the benefits of regulation. In the meantime, traders have the option of choosing to do business with regulated brokers which will give them a greater level of protection against scamming. Those traders who choose to do business with unregulated brokers should realize that they are more likely to be scammed. Brokers who wish to have a competitive advantage in the marketplace should seek regulation. The Cyprus Securities Exchange Commission remains the most popular binary options broker regulator.