We Knew It Was Coming, And We Don’t Care
The ESMA followed through with its plans to ban binary options within the EU. The regulator, acting the interests of consumers, have issued a blanket ban on all brokers, trading and options with a limited time frame and all-or-nothing payout. According to the press release, the ESMA concluded that there posed a significant risk to public safety that needed to be addressed and we applaud them on the efforts. They want to protect unwitting investors from getting scammed by one of the many frauds that have plagued binary options. Too bad they didn’t do something about it sooner, maybe they could have saved a fun way to trade.
- According to data used by the ESMA to make their decision roughly 80% of all CFD and binary options trading accounts lose money. Losses range from $1000 up to $30,0000 on average.
The Alternative – CFD Trading
Regardless, we don’t really care about the ban because of one thing, even good binary options pale when compared to CFD trading. Any trader who can make money consistently with binary options knows they could make even more money with a CFD. Binary options limit the risk but they also limit the gains, not taking into consideration the trouble with expiry. Choosing the right expiry for a binary options is very difficult. Traders using CFDs can employ stop-losses to limit risk and make open-ended profits provided the asset keeps moving in the direction of choice.
Traders should be aware that the ESMA’s new regulations include restrictions on CFD trading. They have curtailed marketing of CFDs to help control out-of-control marketers and their get-rich-quick schemes. Hopefully it works but I’m sure the marketers will come up with some new way to get the suckers. The ESMA has also put a limit on the amount of leverage you can use, no more than 30X, as well as requiring negative-account and margin-call protections to limit the amount of losses a trader is allowed to rack up.
Regardless, CFDs remain the better choice, and for now, the only choice for traders looking to trade with a broker based in Europe. Another option, no pun intended, are ladder-style options like what you find at NADEX and IGMarkets and some other brokers. I hope to see the ESMA back off the binary options ban once the scams and fraud have died down but I’m not holding my breath.