Columnist

Binary options trading growing in the UK

The growth of the Internet has enabled the trend towards online platforms to flourish and has altered the way investors view traditional trading. Since 2008, digital platforms have provided exchange trading of binary options to their customers. This has allowed investors to gain a better understanding of this increasingly popular trading strategy, leading to an explosion of interest in binary options as of late. But what are binary options and why should UK investors be paying attention to this rapidly emerging market?

Understanding Binary Options

Binary options are traded over the counter (OTC) and provide access to securities, indices, commodities and foreign exchange. In simple terms, if the underlying asset reaches the strike price at maturity, a percentage of money invested is paid as a fixed payout. If you, the trader, estimate that the market will rise, you would buy a call option, and if the market price is higher than the strike price at maturity, you receive a fixed payout. If you estimate that the market will fall, on the other hand, and the market price is lower than the strike price at maturity, then, again, you receive the fixed payout. It is this fixed payout system that makes binaries so attractive to investors. The flip side is that if the marker prediction is wrong, all the money placed on the trade is lost. For this reason, binary options are regarded by some – primarily novice investors – as potentially risky.

However, while any investment can involve risk, according to an official of Anyoption, one of the leading online platforms for binary options trading, “a little education goes a long way when trading binary options; taking the time to learn some basics will pay off in the end”. This is true of any investor but especially so of beginners. The truth is that binary options are very effective investment tools if you know how to work with them. Therefore, it is critical that you take the time to inform yourself before making your first investment.

Finally, keep in mind that even experienced investors need help from time to time; having a competent and reliable broker who is able to answer questions, provide market advice, and generally facilitate smoother trading can be just as critical to your success.

Trading Binary Options in the UK

Trading binary options in the UK is legal. To be on the safe side, however, you should always check if there are exceptions in your local laws to make sure you aren’t engaging in illegal trading. As a UK trader, you can either apply for a UK binary options trading licence or for an EU licence that is compatible with the UK trading system. Either way, if you are a licensed trader, you are legally allowed to trade binary options through online platforms, which offer you a variety of underlying assets with a fixed return. Don’t forget, though, that the return cannot be liquidated before maturity; on the other hand, it can be rolled over to a longer maturity at an extra cost, so traders do have options. Moreover, online platforms offer 24/7 access to trading, which allows licensed traders to trade with a large number of global assets.

Binary Options Regulations in the UK

The Financial Services Authority (FSA) was traditionally responsible for the regulation of binary options in the UK. In April 2013, two new authorities were approved by the UK Government, the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC). The new authorities are separately responsible for the formulation of new regulations and their enforcement so that the UK financial market operates more efficiently.

The regulation of the binary options in the UK is a tool to deter fraud and make brokers accountable for any false trading, which serves to enhance investor confidence in the binary options market. That said, you should not neglect the risk involved when brokers are not chosen wisely. Always check that the platform you are trading on is regulated by the proper authorities in the country you are trading in. A legitimate website will have this information in plain view for traders to see. The aforementioned Anyoption website, for example, lists all of its respective regulatory bodies (FCA, amongst others) on the front page. Always look for regulatory bodies when engaging in Binary Options trading.

Bottom Line

Τhe ongoing recession in the European Union has motivated UK investors to look for alternative ways to invest, and binary options trading has gained immediate popularity, mostly as a result of its simplicity of execution and fixed returns. Although there is some risk related to the correct prediction of the future direction of the market, binary options are nevertheless considered a safe and potentially very lucrative investment by UK and mainland European investors.

This was posted in Bdaily's Members' News section by Charlotte Walker .