ESMA Regulation: Binary Options banned from Europe
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 France. It’s an independent financial institution of the European Union.
They regularly discuss new rules which focus mainly on improving investor protection and supporting a steady money market.
ESMA’s main aims are:
1.) Investor Protection – to ensure that investor’s rights are in place and that they’re protected against fraud and scams.
2.) Financial Stability – by building up the financial system against financial imbalances so that economic growth is supported.
Each ESMA regulation aims to protect traders against fraud, illegal activities and high risk products.
The authority benefits the financial service industry, investors, the economy and marketable securities.
The new ESMA regulation
One of the first actions the authority took was in January 2018 against fraudsters dealing in the Binary Options trading market.
Then in March 2018, ESMA regulation had to intervene again 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 completely banned in Europe starting from July 2018. The ban only applies to Europe and the United Kingdom, they have not been banned internationally.
Binary Options are a financial trading market where the returns on investments are very high but also the risk is very high.
A Binary Option is basically a game of win/lose where the chances to win may seem 50/50, but in reality they are less. In fact, you have a very high risk of losing your money.
Due to the fact that most of the Binary Option companies are considered fraudulent through the new ESMA legislation, Binary Options will be banned.
With Binary Options, the chances of getting cheated are very high. This is why traders should look for better trading alternatives.
Binary Options are not really financial products, rather they’re a form of pure gambling where you have to bet on a yes or no situation quickly.
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. This means that currencies are bought and sold worldwide. It’s the largest and the most liquid market in the world.
The Forex market is considered better than Binary Options for many people for the following reasons:
- You can control the trade time for as long as you want, there is no minimum or maximum time limit.
- You can limit your risk by applying stop-loss orders. These will automatically close your trade at your selected price, so you decide the maximum loss you can risk.
- Forex is a large liquidity market, so cannot be manipulated in the way Binary Option prices can.
The other trading product is CFDs. CFD stands for Contract For Difference. A CFD will mimic the real life price movement of an asset, for example a stock or commodity.
With CFDs you don’t trade an asset, rather you make a profit with the difference of the cost value price and sale value of that asset.
CFDs are better than Binary Options for the following reasons:
- There is wider access to the Global Markets which helps when 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 make a profit.
After comparing Forex and CFDs against Binary Options, it’s clear to see that they’re more reliable trading products.
If you decide to trade in Forex and CFD’s always use a regulated broker to protect yourself against fake companies that are not regulated. It’s these fake companies and the ones which deal in Binary Options that have made a huge profit by fooling investors.
That’s why these ESMA regulations are really aimed at helping investors against the frauds and scams involved in Binary Options. With ESMA banning the trading of them in July 2018, hopefully a lot more people will be safe against the threat of fraud.
However, for the ban to remain valid, the ESMA regulation must be renewed every 3 months. This is for legal purposes.
So if you’re planning to invest your money in a financial trading market, make sure you’re fully aware of any new legal changes or rulings. By staying aware of any changes you can plan your future trades with confidence.
With these current changes we’d recommend choosing a safer trading product such as Forex and CFDs, but only with regulated brokers. These remain two good options.
To learn more about Forex and CFDs trading please follow this link https://tradingonlineguide.com/what-is-forex-trading/
ESMA Regulation Renewal
As we’ve mentioned, the new ESMA regulation must be renewed every 3 months to stay valid.
July 2018 is when the binary option ban will happen, but there’s no news yet about a renewal. This could mean that there’s a small chance 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.
2021 Update on Binary Option Regulation
As of November 2019, ESMA has continued to uphold the ban on binary options for the European market. When the renewal date came round the matter was carefully renewed and discussed by the authority.
ESMA again cited their concern of investor protection as being the main reason behind the ongoing ban.
The renewal terms will again be discussed every 3 months. However, it’s unlikely that the ban will be overturned in 2020. Mainly because there’s 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.
Author of this article and founder of Tradingonlineguide.com
My aim is to help you increase your trading knowledge with helpful content. I come from an economic background and have a strong passion for forex trading. With more than 6 years in the online trading world, I want to share my financial knowledge so that anyone can develop their investment skills.
In my spare time I enjoy cooking and travelling.
Here you can learn more about our review methodology.