The city watchdog the Financial Conduct Authority (FCA) has confirmed its decision to ban binary options.
In a statement released on 29 March, the regulator announced that the selling, distributing or marketing of binary option to retail investors will no longer be allowed.
Binary options allow ‘investors’ to take a bet on which way the price for a financial asset or market will go. Betting the correct way sees the investor rewarded a fixed amount while the price going to wrong way sees them lose the amount initially staked.
Binary options are more akin to gambling than investing or trading financial products, according to the FCA,
As Christopher Woolard, executive director of strategy & competition at the FCA, notes: “Binary options are gambling products dressed up as financial instruments.
"By confirming our ban today we are ensuring that investors don’t lose money from an inherently flawed product.”
Until recently binary options were classed as high-risk gambling products and regulated by the Gambling Commission. In 2018 they were taken under the purview of the FCA.
The ban on binary options, the FCA says, will save retail investors up to £17 million per year. The regulator also points out that those seeking binary option services also often fell victim to fraud by unauthorised entities claiming to offer these products.
Binary options trading has seen a boom in growth in recent years, in part fuelled by advertising on social media by both legitimate and illegitimate companies. At the start of 2018 most major social media platforms banned the advertising of binary options.
The FCA also points out that with the sale and marketing of binary options to retail investors, any firm advertising products is doing so without FCA authorisation and is likely a scam.
The FCA’s rules are permanent and come into force on 2 April 2019. The FCA had said it was considering such a ban in December 2018.
This article first appeared on our sister website Money Observer