When binary options started, it was made available only for wealthy business people and specific companies. But in 2008, it was publicly introduced as a tradable asset.
After this announcement, binary options became very popular. Many people started showing interest in it. And why not? After all, it is one of the few trading markers that can offer a better payout.
Many times, binary options brokers have even won a payout as huge as 95%. But the amount of payout a person can win also depends on their market knowledge and ability to make accurate predictions.
While this trading market is highly profitable, there also lies a risk of losing vast amounts of money. That’s because it’s an all-or-nothing trading environment. That means if speculations are incorrect, you lose a tremendous amount of money. But if you have correctly analyzed the market, you will win.
Since the risk of binary options trading cannot be overlooked and the number of fake trading platforms has increased, ESMA banned trading. ESMA, i.e., European Securities and Marketing Authority, has temporarily stopped options sales and distribution.
But what does this ban say? How will the binary options trading be affected after the ban? And most importantly, how can one avoid this ban and trade binary options again? This post answers all these questions.
What is the Binary Option ESMA ban?
The ban on binary options trading has been placed by ESMA, which is a supranational European organization. It looks after the financial market. Also, it increases the inventor’s protection as it plays a vital role in the financial system’s safety.
This particular organization has banned binary options trading in the European Union on 2nd July 2018. This ban came into existence since there was an increase in European traders showing interest in this trading.
On one end where there was an increase in binary options trading in the European region, a larger group of people of the same region understood nothing about it. Besides this, people were also having a hard time learning how withdrawals and deposits are made. They were not able to analyze the market properly, which made them lose their money.
Thus, after analyzing the entire trading scenario, ESMA banned the sales and distribution of binary options for three months. The initial ban was placed on 2nd October 2018, but ESMA extended it after renewing some policies.
Is there an extension on ban?
As already mentioned, the binary options trading ban has been extended. But it was not done just once. In fact, a couple of times, this ban has been imposed. Here’s a complete list of ban extensions.
- The initial ban came into effect from 2nd July 2018 to 2nd October 2018.
- After that, the ban was renewed and further extended from October to 1st January 2019.
- The very same year, another extension was made from January and lasted till 1st April 2019.
- At last, on 18th February 2019, European Securities and Marketing Authority placed a serious ban on binary options trading.
Effect of Binary Options ban
Ever since the ESMA has banned binary options trading, the traders of this market have been facing quite a few challenges. ESMA has indeed placed this ban to protect its region from the binary options trading scams and losses. But this act has also risked the financial freedom of the European traders.
The good news is that traders with professional status can trade binary options assets and use higher leverage. It has put the traders in a black and white situation. This condition says that while the people of the European region cannot sell, buy, and trade the asset, there is a certain amount of relaxation.
This relaxation excludes certain kinds of binary options assets from the ban. But despite the relaxation, traders can’t make enough money from options trading. If traders implement the new rules, they are likely to go bankrupt.
Below are two exceptions to the binary options ban by ESMA.
The first exception clearly says that “for binary options, the lower value of two predetermined amounts should be equal to the total payment made by the client. This payment also includes transaction fees, commission, and other relevant costs.”
What does it mean? This condition loosely says that traders can win a whole payout or get it as the worst outcome. Reaping a considerable benefit from this condition is like spotting a unicorn because both are extremely difficult to do.
This exception is described in three statements. The first condition says that the expiry time of binary options trading assets must be three months from the day of trading. The second condition is a prospectus drawn up and approved under the Prospectus Directive (2003/71/EC). It was made available to the public.
At last, the third condition says the binary options trading market cannot put the provider to the market risk while trading. Also, the provider and its supporting bodies will neither gain nor lose from the binary option. It, however, excludes additional related charges, transaction fees, or previously disclosed commissions.
So, if you live in the European region and want to trade binary options, you must stick to these two exceptions.
Ways to avoid the ban
There is another good news waiting for European traders. It’s that they can avoid the binary options ban and can trade freely. But for doing that, they are required to follow one of the four ways mentioned below.
One of the easiest ways to avoid the ban is by trading with an unregulated broker. That’s because certain unregulated brokers still accept EU traders. But it’s generally advised to avoid trading with such brokers because you are likely to lose the money.
Most of the unregulated brokers can possibly scam traders. In such a situation, when you are scammed, you can do nothing. That’s because the scam is done outside the law, and the ban has no control over it.
Register yourself as a professional broker
If you are a professional trader, you can freely trade binary options assets. For doing this, you need trading capital (500k) and trading experience (2 years). After that, you can get yourself registered with the European Union.
After your status as a professional trader gets approved, you are no longer eligible to follow the binary options trading ban laws. Thus, you can trade freely. But while doing so, you are in charge of the financial risk arising from binary options trading.
As a professional trader, you can even trade forex and CFDs without any worry.
If you don’t have the required capital or experience to become a professional broker, this step is for you. After the ban, registered and legally regulated trading brokers have created certain assets that fill the gap created by ESMA. So, you can trade them.
The thing to remember here is that these alternative products are not binaries. However, they possess certain traits of binaries. Some popular options are knock-outs by IG and FX Options by IQ Option.
Even when you are trading alternative products, you must do it carefully. That’s because the European Securities and Marketing Authority is keeping an eye on it. So, if they find anything shady, they might ban trading of these alternative products as well.
If you are not interested in trading alternative products, you can search for non-EU trading platform branches. The branches of these trading platforms can be anywhere other than Europe. It can be in Malaysia, Australia, or some other place.
The catch here is that only you can initiate a request for trading with such platforms as a trader. The European Securities and Marketing Authority has all the right to reprimand a company that is promoting itself.
After approval, you then get access to binary options trading. Even when you are trading with non-EU branches, you still need a European broker. By following the required rules, you can save yourself from legal troubles.
The future of CFD
Along with placing a ban and giving certain exceptions, the ESMA has made a few changes to the CFD market. This organizing body has reduced the leverage commonly used in the binary options market.
- 30:1 for significant currency pairs.
- 5:1 for individual equities and other reference values.
- 20:1 for non-major currency pairs, gold, and indices.
- 2:1 for cryptocurrencies.
- 10:1 for commodities other than significant indices and gold.
After analyzing the risks, the European Securities and Marketing Authority banned the sales and distribution of binary options. This ban has protected several people from losing their money in binary options trading.
But this ban has also put the financial freedom of specific binary options traders to risk. That’s why this organization has further revised its ban rules, giving certain relaxation to the traders.
While the revised laws have made it difficult for the traders to earn a huge payout from the trading, it’s the only way to enter the market.