ESMA Updated the MiFID Guidelines
Last month the ESMA updated the MiFID guidelines regarding bonuses in binary options and forex trading. This is an important step towards strengthening of the framework for binary options regulation and does so in an important way – it makes trading more fair towards traders and less like gambling.
Up until now it has been a regular practice among brokers and binary options bonuses have been one of the main marketing techniques for brokers, making things easier for their employees working at call centers all over the world and giving marketers a huge incentive to use in their marketing campaigns targeting clients with a “gambler” like mentality.
Traders with the gambler like mentality are more willing to deposit a large sum of money once they learn about the %100 bonus incentive, they are also more likely to make a lot of risky and un-managed trades which will erase their account balance, including their own deposit, in a matter of days, just because they now have doubled the balance in their accounts without even making any trades yet.
In Europe this practice will have to change now as the ESMA has updated the MiFID guidelines and has pretty much made it a clear fact that giving out bonuses is seen as poor and indecent practice and unfair towards clients that are new in the trading arena. It’s nice to get a big deposit bonus but it also changes the trader psychology and makes the trader more likely to loose everything, in this already high risk type of trading.
Should Brokers Stop Using Bonuses?
Yes – definitely.
If they don’t, they will probably receive a fine by their regulator within a matter of months.
Are Brokers Still Using Bonuses?
It looks like most of the binary options brokers that are not regulated will probably keep using bonuses as a way to recruit masses of investors with a gambler-like mentality. On the other hand it also looks like most of the regulated brokers will be sticking to the new guidelines and implement them within a few months. We will probably be seeing some of the EU regulated brokers that are still using bonuses throughout next year, getting fined by EU regulators, for still using bonuses instead of implementing the new guidelines and adhering to the regulatory framework that is being setup by regulators around the world.
Should Traders Take a Bonus When Offered?
If you decide to trade with a broker that is not regulated, or a broker that is regulated but still offers you a bonus, you should probably stay away from the bonus as it probably will make you unable to trade in small, calculated amounts. Bonuses can turn a calculated non-risk taking investor into a full blown gambler – and you don’t want to trade binary options as if you were gambling. Remember that gamblers loose everything %99 percent of the time!
If you are offered a bonus by a regulated broker, you should know that it is not legit anymore for a broker to offer a bonus! Although most regulated brokers have not implemented this yet, we will be seeing most of them move towards the bonus-free environment and also we will probably be seeing brokers that still give bonuses, getting fines and having their license suspended in the future.
Remember – If you want to invest in binary options, you should only trade with licensed, regulated and reputable brokers such as NADEX or StockPair and you should also stay away from large un-calculated and un-managed trading strategies that are more like gambling then like trading. If you have the “gamblers itch” you should probably stay away from trading all-together. Trading can never make a profit when it is being managed by a trader that has a gambler-psychology.