Binary options laws and regulation in australia
As a financial regulator, the ASIC's job is to protect the interests of the investors and retail traders. This ensures accountability for any business, including binary options brokers, that wants to offer its services or have its business registered in the ASIC's jurisdiction. Among the many powers the ASIC has, the most important tasks are to register the companies and ensure transparency in the business operations.
This is done to build trust between the business and the consumer. Obviously, a binary options brokerage regulated by the ASIC has a higher level of trust among its consumers than an unregulated firm. As part of its efforts to educate investors, the ASIC offers a detailed guide for binary options trading.
The guide clearly states that binary options or digital options are high-risk instruments and often not suited for all investors.
At regular intervals, the financial regulator also issues press releases with latest actions taken, especially against unregulated binary options brokers. The regulator wants to ensure that only vetted and financially stable brokers are able to legally offer binary options trading in Australia. Among the many different financial regulators established in various jurisdictions across the world, the ASIC has become one of the leading regulators.
This is largely thanks to the due diligence done by the regulator regarding monitoring and regulating the binary options industry. ASIC-regulated brokers have the privilege of being monitored with audits and allowed to pursue other transparent business practices. Although the cost of obtaining the ASIC license is a bit high, at the end of the day, there is no price to pay for building customer trust.
ASIC-regulated brokers are also subject to various audits at regular intervals. Most importantly, the management and key stakeholders in the company need to have the adequate competency to offer their financial services. Client fund segregation is another important aspect that binary options brokers licensed by the ASIC must adhere to. This means that client funds are held in a separate custodian account. The funds are used purely for handling customer deposits and withdrawals.
This major risk is managed by being regulated, which requires proper segregation of funds. By being regulated and being forced to maintain custodian banking services for customer deposits and withdrawals, the regulated company will be able to refund, if not compensate, the traders.
While most traders often dismiss the chances of a binary broker going bust, there have been many instances in the past, especially with unregulated brokers established in off-shore jurisdictions. Trading binary options may appear to be simple but picking the short-term movements of a share price, currency, index or commodity is extremely difficult, even for professionals. Binary options are a high risk speculative investment which, unless you are following a market carefully, are really just a bet or gamble on an asset price movement.
Unlike other types of options, a binary option does not give the option holder the right to purchase or sell the underlying asset. When a binary option reaches its expiry, the holder receives a fixed cash payout if they have picked the price movement correctly. This is usually a percentage of the cost of the binary option contract. If you don't choose the price movement correctly, you lose your entire investment what you paid for the option. Binary options can be based on various products including shares, forex foreign exchange , economic events, commodities or market indexes.
There are unlimited variations of these two types of binaries, including combinations with plain vanilla options. Many structured products contain binary type rules where the interest on a deposit pays for the binary for an event to occur or not to occur. While binary options seem simple, picking short-term price movements of markets or asset prices is extremely difficult.
Before you consider investing in binary options, it is very important that you understand how the type of binary option you are using works and how it is priced. You'll also need to be comfortable with the fact that you are risking all of the money you invest. Most binary option providers operate through online platforms. Binary options are a financial product based on the underlying market or asset price moving in a certain way before the binary option expires.
If the statement proves true, the binary option will settle at If the statement proves false, the binary option will settle at 0. If you agree with the binary statement you buy the binary option in anticipation of it settling at If you disagree with the binary option statement you sell the binary, expecting it to settle at zero.
Until expiry, the binary option price will move between 0 and depending on how likely the outcome is. Once you acquire a binary option, there are no further decisions for you to make as to whether or not to exercise the binary option because binary options exercise automatically. Binary options traders must have an AFS licence.
If you are setting up an account, make sure you are dealing with a licensed operator before you hand over copies of your personal identification documents, such as a driver's licence.
Check operators are licensed on ASIC's professional registers. Richard visited the company's website and saw that they offered binary options on the shares of some large, well-known companies. He decided binary options were too risky for him and that he'd be better off focusing on his share portfolio.
Binary options are speculative, high risk products, where you can easily lose your entire investment. Once you buy a binary option contract you may not able to re-sell it before the expiry date.