Ban – How To Avoid The ESMA Ban On Binary Options
A ban on binary options has been in place since 2nd July 2018 in Europe. The European regulator, ESMA placed a temporary ban on binaries and have maintained it ever since. EU Traders can avoid the ban, however, and continue trading. So what are the options for traders impacted by the ban?
Binary Ban Explained
The European Securities and Markets Authority (ESMA) implemented a ban on binary options in July 2018. They were convinced that this measure would protect consumers and resolve the deluge of complaints they had received over the previous decade.
The number of frauds linked to binary options was huge, and rather than prosecute the scams, ESMA decided instead to simply halt the supply and marketing of binary options “to retail traders”.
The ban was originally implemented temporarily, for three months. It also coincided with restrictions on CFD and Forex trading in Europe.
Since the original ruling, both the ban on binary options and the related restrictions have been extended:
- From 1st July 2018 to the 1st of October
- Then from October to the 1st January 2019
- And again from January to 1st April 2019.
- On February the 18th 2019, ESMA confirmed they would extend the ban again, this time to 1st June 2019
During this period, very little in the way of research has been done by ESMA, to see how effective the ban has been. For example, the original scams were already breaking the law – so have they adhered to the ban? The simple answer to that is “no”. They have however, branched out into cryptocurrencies – another area where regulators are years behind.
The official text on each extension has been exactly the same, bar the dates. This suggests very little thought has gone into the extensions and they are a simple ‘cut-and-paste’ press release.
With that said, it seems certain that the ban will remain in place, restricting the availability of binary trading to traders in the EU. So what can traders do?
How To Avoid The Ban
Traders actually have a few choices when it comes to trading from within the EU. There are positives and negatives to all of them, but it is possible for traders to carry on, and that is the important thing.
Firstly, trading with an unregulated broker that still accepts EU traders is to be avoided at all costs. One side-effect of the ban is that many consumers have been inadvertently ‘pushed’ towards unregulated firms. This is not a safe route. Here are some methods to continue trading in a safe, legal way.
Many reputable brokers have created new products to fill the gap left by the ban. IQ Option created FX Options and IG offer Knock-outs for example. While these are not strictly ‘binaries’, they share many traits and similar strategies will work on both.
Brands are looking at new products all the time, so look out for marketing information.
One less well known choice for traders, is to move their account to a regulated arm of their existing broker. That is right, you might be able to carry on with your existing broker…
There are two key points here. Firstly, this is only possible where the broker has multiple regulated brands, in other words, separate brands in each jurisdiction (or off-shore). For example. Some brands have different registered companies, regulated separately – “XXX Europe Ltd” for example, but with “XXX Malaysia Ltd” as well.
It is possible for you to request an account with the Non-EU or off-shore branch of the business. ESMA allow this to happen – but brands are not allowed to market the possibility. The request has to come from the trader, and not be prompted by the firm themselves or marketing sources.
Use A Professional Account
This choice will only be available to certain traders. Basically, if a trader registers as a professional, they are saying they are experienced enough to trade high risk / high reward products like binaries, and acknowledge that in doing so, they give up regulatory protection. (Note ESMA specifically reference “retail traders” in their ban – not professional traders.)
To register as professional, traders must prove a certain level of trading experience (2 years in a financial service role for example). They must also prove a certain level of trading capital (500k) – though this can be spread between multiple accounts.
In addition to opening up binary options again, registering as a professional will also mean traders can trade CFDs and Forex with much higher levels of leverage. The trade off is that professional traders lose regulatory protection.
So there we have it. The binary options ban does not have to mean the end of you trading binaries. If the ban stops uninformed traders getting their fingers burnt – but experienced traders can carry on using them, then the industry, while smaller, will be better off long term.