Binary Options Trading in the UK: Past, Present and Future
The United Kingdom occupies a very special position in global finance. London is regarded as probably the world’s most important financial trading hub, as it forms the connecting interface between markets in the Americas and Europe. The UK time zone is exquisitely positioned between those of New York and Tokyo/Sydney. This makes it possible for traders within the London zone to cash in on market moving news in various parts of the world.
For such a progressive jurisdiction in terms of financial market activity, how has binary options in the UK fared?
Binary Options trading in United Kingdom
The UK is regarded as one of the well regulated trading areas. However, the story of the binary options trading in the UK has been one of a market in transition and searching for identity. In the years preceding 2015, binary options have traditionally been viewed as a form of gambling. Unlike in the US where online gambling is prohibited by law, the betting/gambling industry in the United Kingdom is a thriving one, generating and astonishing £12.6bn in total gambling yield, according to the UK Gambling Commission. Of this figure, online gambling has emerged as the largest gambling sector in the UK. Binary options was tucked away somewhere within the covers of UK online gambling, with unintended consequences for participants in the UK binary options industry.
Gambling and financial trading are not the same. They do not employ the same methodologies, techniques and tools. Gambling does not require the same level of sophistication as financial market trading. Contracts are much more complex in the financial markets. Leaving binary options trading in the hands of the UK Gambling Commission, without the level of protection that a financial market regulator could have offered, exposed many participants to the activities of a few unscrupulous brokers.
However, all that looks to change now, as legislation is being considered to move binary options oversight away from the UK Gambling Commission and into the strict hands of the Financial Conduct Authority (FCA).
Currency Pairs & Spread
UK binary options brokers will be able to trade on several major, minor and exotic currency pairs on their platforms.
There are locally based binary options companies in the UK. Each of these brokers use proprietary technology to offer unique platforms with unique trade types to UK binary options traders. Those who use offshore brokers will be confronted with turnkey platforms developed by companies such as SpotOption, Tech Financials, Tradolgic, Hello Binary and O-Systems.
Deposit and withdrawal options
What deposits and withdrawal are available to binary options traders in United Kingdom?
- Cards: Credit/debit cards issued by MasterCard, VISA, Maestro, Solo and Electron are accepted on UK binary options broker platforms. Some prepaid cards such as those issued by Payoneer, Skrill, ePayments and other payment providers are also accepted.
- For binary options traders in the United Kingdom, local bank account transfers are permitted on the platforms of local UK binary options brokers.
- Digital wallets such as Skrill and Neteller are available for traders to make deposits and withdraw profits from their binary options platforms.
- PayPal: Only UK-based binary options brokers will provide PayPal as a funding or withdrawal option for UK binary options traders. PayPal does not extend its services to offshore brokers.
Please note: UK binary options traders may see some changes to the methods by which they can withdraw or deposit funds to their accounts when the Brexit negotiations are fully exhausted.
Legality & Regulations
There are very compelling reasons to move the responsibility of overseeing the binary options market as well as brokers operating in that space, from the Gambling Commission to the Financial Conduct Authority (FCA).
Unlike what obtains for gambling operators, specific requirements are demanded of financial market companies from the FCA. These are as follows:
- A wide range of suitability checks to ensure that the right financial products are being sold to the right consumers.
- Segregation of funds of traders from the brokerage’s money. This requires brokers to place trading funds belonging to their clients in specialized bank accounts; away from their operational funds. This requirement was put to the test when Alpari UK filed for insolvency in the days following the de-pegging of the Swiss Franc from the Euro by the Swiss National Bank.
- A robust process of dispute resolution.
- Monthly reporting and monitoring of order flows.
- Contributions to a special compensation fund known as the Financial Services Compensation Scheme.
It is all about consumer protection. In simple language, moving the regulation of binary options to the FCA will ensure higher operational standards for UK binary options brokers and improve trader protection.
Here are the frequently asked questions surrounding UK binary options brokers and binary options trading in the UK.
- Are binary options legal in the United Kingdom?
Answer: The trading of binary options is legal in United Kingdom.
- Is it safe to trade binary options in United Kingdom?
Answer: It is safe to trade binary options in the United Kingdom, even under present regulatory circumstances. However, the transfer of regulatory oversight to the FCA is expected to make the safety profile of binary options trading in the UK comparable with that of the forex and spread bet markets.
- As a United Kingdom citizen, am I allowed to trade binary options with offshore brokers?
Answer: There is presently no restriction as to where traders in the United Kingdom can ply their trade. They can work with UK-based binary options brokers or they can trade with offshore brokers.
- Do United Kingdom binary options traders have to pay tax on the proceeds of binary options trading?
Presently, the HMRC regards binary options as a form of gambling or speculative activity, which under present laws, is not subject to capital gains tax or income tax. If proposed law changes are effected, and binary options are considered financial assets to be regulated by the FCA, then they may become subject to capital gains tax.
- Are United Kingdom binary options traders allowed to use digital wallets?
Answer: A number of digital wallets are available to local UK binary options traders to conduct transactions on their binary options platforms.
- Is it possible for binary options traders in United Kingdom to transact on binary options platforms using PayPal?
Answer: PayPal’s UK operations enable traders in the UK to conduct transactions on the platforms of UK binary options brokers using PayPal. This service cannot be used with offshore brokers.
Best Binary Options Brokers in United Kingdom
There are a number of UK binary options brokers who maintain a physical presence in the country. Some of these are foreign companies who have decided to be closer to their UK clients by getting an operational license and setting up shop within the UK. Some companies are 100% homegrown.
There are also some offshore binary options brokers who market their products to UK prospects. Many of these companies are based in Malta and Cyprus. Changes to operational rules by regulators in Japan and Australia mean that UK binary options brokers can only extend their services into those countries if they have licensing from the FFAJ or ASIC, and have a physical office in those countries.