From the 1st of July 2018, Binary Options will be banned in Europe because of the new ESMA regulation. ESMA (European Securities and Markets Authority Regulation) is located in Paris (France). It is an independent financial regulatory institution of the European Union which focuses on improving investor protection by promoting a steady money market.
It main aims are:
1.) Investor Protection – to examine that the investor’s rights are served properly, and they are kept safe from fraudulent activity and scams.
2.) Financial Stability – by building up the financial system against financial imbalances so that it can support growth in the economy.
ESMA regulation serves the main purpose of protecting the consumer against frauds, illegal activities and too risky products. It benefits the financial service industry, the investors and consumers, the economy, the public and marketable securities.
The New ESMA Regulations
In January 2018, the authority took action against the fraudsters dealing in the trading market of Binary Options. This was followed by March 2018 when ESMA regulation had to intervene and take a serious action against fraudulent companies. This has led to ESMA completely banning Binary Options companies that sell to individuals. Therefore, Binary Options will be banned in Europe with effect from July 2018.
Binary Option is a Financial Trading market where the returns on investments are very high but with a higher risk of losing money. In simple language, it is basically a game of win/lose where the chances to win may seem 50/50, but in reality they are less. Due to the fact most of the Binary Option companies are considered fraudulent through the new ESMA legislation, binary options will be banned.
In binary options, the chances of getting conned are very high, so traders should look for better trading alternatives. Binary Options are not really financial products, rather they are just a game of pure gambling where you have to bet on a yes or no situation.
There are far better options for investments in the financial trading market such as Forex and CFDs.
What are Forex and CFDs?
Forex which stands for Foreign Exchange, is a financial market where currencies are traded- (bought and sold), worldwide. It is the largest and the most liquid market in the world.
Forex market is considered better than Binary Options for many people for the following points:
- You can control the trade time from as long as you want, there is no minimum or maximum time limit.
- You can limit your risk by applying stop-loss orders which will exit you from the market at your predetermined price, i.e you can initially determine the maximum loss you risk to bear.
- Forex is a large liquidity market, so cannot be manipulated in the way Binary Option prices can.
CFDs – It stands for Contract For Difference. Here there is a contract between a broker and a client which mirrors the movement of an asset. With this you don’t trade an asset, rather you get paid for the difference in the price of cost value and sale value of that asset.
CFDs are better than Binary Options for the following reasons:
- There is a wider access to the Global Markets which helps in trading commodities like Silver, Gold, and Oil
- You can enter the price movement without depositing a huge fee.
- There is no time limit so you can hold on to your position for as long as you encounter profit.
After comparing Binary Options with Forex and CFDs, we can easily determine that the latter options are more reliable than the former.
Over the last few years, a lot of fake companies have been highlighted which deal in Binary Options and have made a huge profit by fooling the investors.
So these ESMA regulations are really aimed towards helping the consumers and investors against the frauds and scams involved in Binary Options by banning the trading of them from July 2018.
In order to remain valid the ESMA regulation must be renewed every 3 months in order to be kept legal and in place.
If you are looking forward to investing your time and money in a financial trading market, make sure you are fully aware of any new legal changes or rulings so you can plan your trading accordingly.
With these current changes we would recommend going for a safer trading route such as Forex and CFDs with regulated brokers. These remain two good options.
To learn more about Forex and CFDs trading please follow this link.
ESMA Regulation Renewal
As we have mentioned above, the new ESMA regulation should be renewed every 3 months to stay valid.
From July 2018 there is no news yet about a renewal, which means there could be a small possibility that binary options will be added on the market once again in the future.
In our opinion, this shouldn’t be the case. ESMA has been working on this project for many years and now that they’ve finally achieved their goal to ban the product from the market, it shouldn’t allow for a second introduction of it.
As of the 2nd of April 2019, ESMA has continued to uphold the ban on binary options for the European market by renewing the regulation for a further 3 months. It was carefully renewed and discussed by the authority, and they have cited their principal concern of investor protection being the main reason behind the ongoing ban.
The renewal terms will again be discussed after the 3 months have passed on July the 2nd, however it is unlikely that ban will be overturned as there has still been no progress offered by European binary companies on how to reduce the high-risk for users.
It will be interesting to see how any future regulation plays out, but for now binary option trading in Europe remains completely prohibited.