Binary Industry Interview
With the binary options industry in a key stage of it’s development, we have sought the opinions of some fellow professionals in the binary sector – to see what they think of the current state of the industry, and what they might like, and expect, to see in the coming months and years.
We recently caught up with Toby Robinson, who maintains the broker comparison service at BinaryOptions.co.uk, to see how he expects binaries to develop in the future.
Hi Toby, How do you feel about binary options at present?
Firstly, I think the product itself has been tarnished unfairly. There is no doubt that the actions of irresponsible brokers and marketers have left many sections of the media writing off binary options entirely. I think that is a shame, as they remain a simple to grasp investment vehicle – but at the same time offer seasoned investors a chance to trade based on expected value.
I remain optimistic that the reputation of the product can be restored, but it needs considered regulation. At the moment, there seems to be small pockets of progress, and slow improvements – but nothing that will turn opinion around for mainstream investors.
For example, the most recent regulatory changes from CySec still focus on changing the product – they should be looking to target fraudulent firms first. The product is fine.
What would you like to see happen in the industry?
I would like to see a respected regulator really grasp the nettle – define binary options absolutely, and then start to work with brokers to improve the opinions of the wider public. The regulation should not be too onerous – there is built in risk management for broker and trader within a binary option anyway. The focus should purely be on the safety of client funds and the transparency of pricing.
For those working in the industry, the benefits of a regulated, respected market are obvious. Unfortunately everyone is being dragged back by the actions of some brokers and their marketing tactics.
So that is what you would like to see…but what do you expect to happen?
I think some of the dishonest operators will be flushed out – but the question will be what happens after that. Without some well informed policies the door is always open for them to start afresh under a new name.
I also see binary options growing though – they remain a simple way for anyone to speculate on the movement of an underlying asset’s value. So I still expect overall growth in the number of trades made, and volume. Almost everyone has an opinion on the oil price, or which way the dollar is heading, or how the new iPhone might affect Apple’s stock value. There will never be a shortage of financial news that triggers people’s desire to make a prediction and back their knowledge with an investment.
Brokers being flushed out – like Banc de Binary?
Yes, exactly. They will not be the last. I am hoping that other brokers using similar methods will see that the model is unsustainable (not to mention the moral issues). There are numerous good brokers seeing trader retention soar – traders are active over months and years. That can only happen where the trader is well looked after and offered a great platform to invest on.
If I was a broker, I would want traders coming back time after time – not disgruntled traders threatening legal action. The short sighted activities of the likes of Banc de Binary have hurt the industry and were almost certainly counter productive anyway. The risk is that without the proper regulation in place, they could come back under a new name and do the same things.
I hope their demise is a lesson for any similar operation to get their house in order.
What will drive an increase in binary options trader activity?
I personally think we are beginning to see a separation in some of the brands, in terms of what sort of ‘market’ they are appealing to. A split is starting to emerge where a broker leans more towards a ‘gaming’ market, or serious investors. Differences can be quite subtle, but certainly some platforms are starting to look more casino-like. So pulsing screens, large countdowns and a look and feel that compels the user to trade often.
Others will offer high level software integration, advanced charting and flexible trade setups, giving the user much greater control over the exact terms of their trade. This suits the investor who is keen to get the timing of any trade correct, and might be trading larger sums, but less often.
This targeting of particular groups has helped certain brands grow, and trade volume increase. I think the split will get more pronounced. Certainly mainstream financial brokers have already moved into binary options (perhaps calling it something slightly different) and I can see some gaming operators now coming in too.
I’ve never personally got too bogged down with the “Are binaries gambling?” debate – they can be used to gamble, they can also be used to invest. The most important point being traders can use them exactly as they please! Pinning down whether someone has invested or taken a punt is really not important to anyone else.
We also might see binary options renamed, or relabelled as something else – but the product as we know it now, will continue to exist. IG Index for example, have renamed their binaries to “Digital 100s” – but it is the same product as it was before. I am not sure who they are trying to fool, but the name is not hugely important in the grander scheme of things.
So the real issue is how the product is sold?
Exactly. They are a high risk, high reward investment and should not be dressed up as anything else. There is so much misinformation that potential users of binaries are left confused. The truth is, they are not a ‘get rich quick’ tool, nor do they guarantee profit. They are a trading tool like any other, and need to be respected as such.
I think once the wider public understand what they are, the financial snobbery towards binaries will ebb away. They are high risk in that an entire investment can be lost – but the risk is fixed. This allows users to control that risk via suitable money management. Compare that fixed risk to a CFD taken out with leverage and it should be easy for people to see that leverage and trading on credit presents a much greater risk than any binary option ever could. A fixed risk / fixed payout option might suit both broker and trader much better.
Thanks for you thoughts Toby.
Toby Robinson writes for and maintains the UK focused broker comparison website, BinaryOptions.co.uk