Stock market speculation is now accessible to the general public. Since the appearance of binary options in 2008, more and more individuals are engaging in this practice to round out their ends of the month. In the face of this popularization of the activity, however, it must be recognized that the dangers of scams are increasing. Therefore, a regulatory system has had to be set up to offer safe trading platforms to investors. The details..
Online trading and scams: a reality
The web scam is a reality, which online traders simply cannot turn a blind eye to. Since the advent of the binary option in particular, scamming brokers don’t hesitate to use a strong hand to seduce investors. The general public is the primary target of these online scams, mainly beginners who are often ill-informed. These ill-intentioned brokers are, in fact, particularly clever and use attractive marketing arguments to attract traders. They exploit investors’ weak points in order to seduce them more easily. Most of the time, they promise large earning opportunities and give large welcome bonuses.
Their offers are usually the best on the market and are virtually unbeatable by other brokers. This is why these brokers continue to recruit traders, who unfortunately signal the beginning of a big loss by signing up with them. Indeed, bonuses such as profits obtained on the portal can never be withdrawn. Deposits will, of course, be simplified and, moreover, there will always be a minimum deposit to respect. But when it comes to withdrawing money, these scamming brokers will no longer respond to the trader’s request. The trader will then have wasted his money and his time on the trading platform for free. To make matters worse, the trader will be powerless in the face of this injustice.
Why a regulation of brokers?
As in any market, the establishment of rules is practically unavoidable in order to achieve good harmony. Regulation in binary options trading is aimed at ensuring that each player complies with standards, with the aim of creating order in the market. Thus, regulatory institutions have established criteria to be met by brokers. And when these conditions are met, they obtain a licence allowing them to operate legally on the market. Not all brokers are regulated, but those that are regulated simply cannot rip off traders because of the regulations they are subject to.
Securing investors’ funds is, among other things, one of the main points imposed on these brokers. All regulated online brokers are required to apply the principle of account segregation, which consists of separating customer accounts from the company’s operating accounts. This ensures that investors’ funds are always available, regardless of the broker’s financial situation. Moreover, a compensation system must also be applied, thus providing traders with a guarantee of compensation in the event of insolvency.
Still in terms of security, the implementation of a state-of-the-art security system is just as much part of the broker’s responsibilities. In particular, SSL encryption allows traders to invest securely on the portals, without the risk of fraud or identity theft. Furthermore, it is important to know that the regulation of a broker is the guarantee of a transparent investment for traders. All trading conditions are explicitly indicated on the portals, with no hidden costs. Even the risks incurred and loss warnings are mentioned on the platforms of regulated brokers, so that traders can make an informed decision.
The other advantage of a regulated broker is that in the event of a dispute, the trader can have recourse to the regulatory bodies. Unlike with scam brokers, where the investor has no say, it is perfectly possible to sue the broker and claim compensation for damages.
What are the regulatory institutions?
The regulatory bodies may be different depending on the country concerned, but a few names are virtually unavoidable. Particularly on the European market, the AMF or Autorité des Marchés Financiers is the reference institution in terms of regulation. The body applies strict regulations and all brokers who do not comply with the standards are sanctioned quickly. The AMF also has a blacklist, on which all unregulated brokers are registered, as well as those who have not followed the rules. This blacklist is updated every three months and can be consulted by traders directly on the institution’s website.
A license from CySEC, which is the Cyprus Financial Exchange Security Commission, is also a guarantee of reliability for online investors, as is the approval of the Banque de United Kingdom. The Markets in Financial Instruments Directive or MiFID also governs financial investments in the European market and many binary options brokers, such as AnyOption, are licensed.
In England, the FSA or Financial Services Authority mainly controls the activities of online brokers. The NFA or National Futures Association in the United States, the FINMA or Financial Market Supervisory Authority in Switzerland, or the JFSA or Financial Services Agency in Japan are, for example, other financial regulators. Depending on the country in which transactions are carried out, traders are therefore required to check the broker’s regulation with the relevant authorities, as only regulated brokers are sure to offer secure online trading.