Last week the Cyprus financial regulator CySEC issued new directives for Binary Options Brokers that could lead to many of them to exit the European regulator. The new directive calls for a dramatic increase in price and market transparency. This will mean that the Binary Options Brokers will need to dramatically alter their trading platforms to accommodate the new directive. This also could mean that it could take away any edge that might have been previously abused by many of these Binary Options Brokers.
One of the biggest changes that will need to take effect is that the source of the underlying asset price will need to be displayed in real time. So, for example, if the binary option is the S&P 500 it will need to display the price source which would be the CME Futures contract. The underlying asset price will need to be in line with the Binary Option which will not allow for any delays or price manipulation on the part of these brokers.
Binary Options Required to Have a Bid and Ask
Another new directive is that the Binary Options Brokers will now be required to post a bid and ask for the binary option. They must also provide a clear explanation as to why the bid and ask are priced the way they are. This will be a dramatic change since a majority of the platforms usually are based on selecting a market direction and then placing a trade based on that direction. CySEC is also putting allot more control in the hands of the client as they will be allowed to cancel an order within 3 seconds if they feel they did not receive a fair price.
CySEC Requiring Big Changes From Software Providers
The larger question here is how many of these Binary Options Brokers and software providers will respond to the new directives. For some, it might make more sense to abandon the CySEC regulations and move off shore or to another regulated jurisdiction. Finding another regulated jurisdiction is easier said than done. CySEC was one of the few jurisdictions that had specific regulations on Binary Options and that allows Binary Options Brokers to hold a license. It appears that the bad habits of these one-time off shore brokers die hard and that the volume of complaints finally caught up with many of them.
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.