It wasn’t that long ago that in the United States Introducing Brokers were not required to be licensed and did not fall under regulatory oversite. Prior to 2008 when there was an overhaul to Forex Regulations Introducing Brokers, Affiliates and Money Managers were not required to be licensed. The end result was constant abuse by these groups and violations of rules. Money Managers would “guarantee” returns and would not present any disclaimers about the products they were offering. Eventually, the NFA (National Futures Association) saw that these groups that interact with clients need to be licensed and need to have the same oversight that Forex Brokers have.
A similar situation might be happening with Binary Option Affiliates now. We have all seen these so called review sites that list 5 binary options brokers and score them based on “customer reviews”. In some cases, the reviews are fake and the ranking is usually based on the highest payout for the binary option affiliates. Now some of these sites have claimed to be authorities about different regulators and are providing advice without being licensed to do so. One thing that regulators do not like is when regulation is used to market and promote a broker. That was the case when the website toptenbinarybrokers was cited for offering investment services in Australia without being licensed to do so. ASIC (Australian Securities Investment Commission) the Australian regulator noted the site since they had used .au in the web address. They also noted that the site failed to disclose that they are compensated for introductions and referrals.
Binary Option Affiliates play an important role in helping to guide and educate the public about trading and brokers. They are well compensated for their introductions as some Binary Options Brokers will pay up to $700 for an introduced account. There is an obvious conflict of interest here as the affiliate is going to try and direct their clients to the highest paying broker and not the one which offers the best service or has the best reputation. It might be some time before we see a Binary Options Broker that is regulated the affiliates that introduce the clients fall under the same regulation. At the very least they should disclose any compensation they receive and they should provide the same disclaimers that are used by the brokers as well.
Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.