There are two types of binary options brokers – regulated and unregulated. The difference between the two is the fact that one must answer to regulatory authorities, while the other does not. There can certainly be some comfort which comes from knowing that the broker you have chosen is indeed regulated, but what about the others? Are they poor choices? Understanding why a broker is, or is not regulated can help you to make an educated decision in regard to brokerage selection.
The primary reason for a broker not being regulated is location. Although binary options have been traded online since 2008, there are still many locations in which there is no regulatory system for a broker to turn to. The Cyprus Securities and Exchange Commission, or CySec, is the most well-known regulatory authority in the industry at this time. However, only brokers who have their headquarters located within Cyprus will be able to seek regulated status from CySec.
What of the others? There may or may not be some type of authority that they can report to. For example, brokers who are located in the United Kingdom may be regulated by the FCA (Financial Conduct Authority). Again, everything hinges on location, and whether or not there is an authority which monitors the activity of binary options brokers. There are some brokers who wish to be regulated, but will not be able to do so until the proper system is put in place.
Regulation brings with a some level of security, as it brings with it strict rules in regard to the handling and management of funds. With most brokers having their headquarters in Cyprus, most will find no problem in locating a broker that must adhere to these rules. However, CySec rules are such that U.S. traders cannot register and trade with these brokers. This means that U.S. (and often Canadian) traders will need to examine other options.
Although the options available to U.S. traders are much smaller in number, there are several reliable brokers to choose from. Among the best ways to determine reliability is to look at the number of years that the company has been in operation. Any broker who is not paying out money as agreed will not be able to remain in business. Those who have been in operation for a period of at least one year should be a solid choice.
This is not to say that younger brokers cannot be considered. The industry is booming, with new brokerages entering into the business almost daily. Since the length of time the business has been in operation not being the best indicator of reliability, traders will need to check out other variables such as reviews, and online comments coming from the traders who are (or have) traded with them. It is also wise to contact their customer service department to learn exactly where funds are held and how they are managed.
There is no denying the peace of mind that comes with trading with a regulated broker. However, there are other reliable options to choose from. The bottom line is that each trader needs to do their homework when selecting a broker. Binary options scams are relatively rare today, but this does not mean that they are completely out of the question. When making a selection, ask questions and gather some background information. These actions should provide you with the information required to make an informed decision.