Binary options, on the outside, are a viable yet risky way to make investments. The industry rose quickly since 2008 when the U.S. Securities and Exchange Commission (SEC) approved options trading. The industry existed prior to the SEC’s approval, but the industry was limited in reach.
High net value traders were the only ones allowed in the industry, and the SEC’s approval effectively allowed the industry to be offered to retail traders, too.
The problem is that the industry is complex and challenging, with many of the initial growing pains still in place today. Lack of oversight and control led to a lot of investors, often small investors, losing money from fly-by-night brokers.
Lack of internal industry changes might be the extinction of binary options, with more countries imposing bans on them.
Israel imposed a ban on the industry over the weekend through the approval by the cabinet of a bill that has yet to become law. The bill would disallow brokers to offer binary options trading to Israeli citizens. Brokers are fleeing the country to avoid penalties and fines they may face under the ban.
Why does it matter?
Israeli brokers stayed in Israel because of the country’s popularity for being a binary options hub. The ban doesn’t do much to Israeli citizens since brokers have been allowed to operate in the country, but they haven’t been allowed to offer binary options to citizens.
The initial ban, put in place a year ago, has intensified, with operators no longer allowed to conduct any activity in Israel.
Prior to this weekend’s approved bill, brokers could still solicit clients in other countries. This practice has changed, which is bound to have an immediate impact on the industry.
I believe consolidation will occur in the industry and many smaller brokers may abandon the business altogether.
Binary options brokers are known for exploiting their clients, and while there are many legitimate brokers, there are far too many scammers that harm the industry. Israel’s entire ban on the industry wiped out a multi-billion industry, with many other countries considering similar bans.
Pressure was put on Israel from regulators in Belgium, United States, Canada and France, which have all requested that something be done.
Belgium’s FMSA recently reported a 50% rise in complaints related to binary options, CFDs and Forex. One victim set up a website to help those victimized by these products to file chargebacks. The country is one of the first to implement enhanced investor protections to ban high-risk financial instruments.
The measures outline what many other European countries may follow as a framework. A complete ban may be in place in many countries by the end of 2017. But does the industry have any hope of surviving in the long-term?
This is the question on everyone’s mind.
Strict regulations would need to be put in place, but as many more countries implement bans on high risk financial instruments, the outlook looks bleak for the industry. Many companies have decided to move their operations and change to new investment options, which include diamonds among other metals.
New investment products are being born from binary option bans, but the question remains whether the new products will also be riddled with fraud