Binary Options in the UK

Guide for UK Option Traders
Binary Options in the UK

When it comes to traders using Binary Options in the UK, it is not exactly quite clear as to the regulatory and broker landscape.

Indeed, it was always quite muddy when it came to brokers in the UK, Europe and how the rules from countries such as Cyprus applied to the UK. This was made even more complicated by the recent exit from the EU on the Brexit Vote.

Although Trading Binary options in the UK can be done and through a number of brokers, only certain brokers are legally allowed to be offering their services to UK clients.

As a UK based trading community, the Binary Trading club knows the ins and outs of the regulators environment.

BrokerRegulatorMinimum DepositMax ReturnTotal AssetsOption TypesDemo AccountJurisdictionSupportBroker Site
ETX LogoFCA$25085%*63
  • High / Low
  • One Touch
  • Meta Charts
  • Ladder
YesLondonEmail
Live Chat
Signup
IQOption LogoCySec/CONSOB$1091%*500+
  • High/Low
  • One Touch
  • Dynamic
  • American
  • CFDs
YesCyprusEmail
Live Chat
Signup
24Option LogoCySec$25088%*65
  • High / Low
  • One Touch
  • No Touch
  • Boundaries
  • High Yield
YesCyprusPhone
Email
Live Chat
Signup

*Profit to be credited in case of correct prediction

UK Financial Regulations

UK Binary Options Regulations

The main regulator in the UK is the Financial Conduct Authority (FCA). They are involved with making and enforcing a number of the rules which dictate how financial services firms offer their services to clients in the UK.

The FCA currently regulates CFD and Forex brokers and these brokers would need to get a licence in order to be able to provide these services and claim compliance. The regulations are quite extensive for brokers including background checks on the directors, 500k in the bank account in reserve and a minimum number of staff. This is mainly as a result of the leveraged nature of those instruments.

Indeed, given how strict the FCA is when it comes to Forex and CFD providers, many of the largest online traders have decided that they would like to make the UK their base including IG and FXCM.

However, when it comes to Binary Options in the UK, the picture is slightly different.

UK Binary Options Regulations

The FCA currently does not provide regulations around Binary Options. They treat the instrument as an Over the Counter (OTC). Over the Counter is how Binary Options are traded by the big investment banks (self-regulating).

This of course leaves many Retail binary options brokers who offer their services to the UK client base wide open. However, given something called MiFid (Markets in Financial Instruments Directive), brokers regulated in Cyprus have been able to provide their services for Binary Options in the UK.

This is because the MiFid directive allows financial intuitions that are regulated by an authority in an EEA (European Economic Area) member state to provide their services in to the citizens of another member state. This is termed financial “passporting” and has been used by a number of financial institutions across the continent.

As a result of tax savings and the relatively low cost of doing business, a number of brokers have chosen to use Cyprus as their EU country of choice. This means that the broker would have been regulated by CySec (Cyprus Securities and Exchange Commission).

However, with the UK choosing to leave the EU in June of 2016, this has also thrown MiFid regulations into some level of uncertainty. This is because the MiFid agreement was only to be implemented in the EEA of which it is uncertain that the UK will remain a member.
There are, however, a number of different brokers who have decided that they would still like to have some UK based regulation of their services. The other route that is sometimes taken is for the UK Binary Options broker to obtain a gambling license.

If the broker is to choose this route, then they would be listed as a gaming product or “fixed odds betting” rather than a financial product. Some brokers don’t approve of this for two reasons. Firstly, listing as gambling product rather than a financial one could tarnish the reputation of the instrument. Secondly, in the UK gambling debts are debts of honour which means that the broker has no right of recourse in the event of client losses and debts.

How Will this Change?

Options regulations Change

The current status quo is indeed not really here to last. More and more traders are aware of the fact that an FCA license is a great competitive advantage. It shows that the broker has some of the most stringent regulations in place for client protections.

Hence, there are a number of UK Binary Options brokers who have decided that they would like to apply for the FCA license irrespective of current Europe wide regulations.

Indeed even the FCA has decided that they need to get on top of the Binary Options regulations in the UK and have even suggested in a recent announcement that they are consulting with a number of different industries stakeholders about potentially regulating Binary Options in the UK.

This could be a good outcome for the entire industry as it allows traders to get a better sense of who they are dealing with. It could also give brokers more guidance around what would be allowed in the UK Binary Options industry and what would not be allowed. This is more certainty for the broker which is always welcome in the industry.

UK Trader’s Tax Obligations

Even though the UK regulations around Binary Options are not entirely clear cut at this stage, the Trader’s obligations around taxes and fees are. Any profits that are generated on Binary Options trading are taxed according to the Income tax requirements of HMRC.

This tax rate of course varies according to the income tax bracket that the client is already in. This can range from 20-50%. On the flip side though, losses that the trader incurs while trading Binary Options are of course tax deductible.

For most traders who are not trading full time, they will usually have to pay taxes through PAYE schemes (Pay as You Earn). If they are earning additional income from another source such as trading then they will need to pay tax on that if the income is above the allowance of £11k per annum. If the profits are greater than this in the year then the trader will need to “self-assess” and declare these profits.

Funding an Account

Funding Binary Options Account

For UK binary option traders who wanted to open an account with a broker, there are a number of ways in which they could fund the account. These include bank transfer, credit card, Neteller and Skrill. Skrill is a UK based payment processor and usually has strict merchant account regulations in place.

Some brokers may charge you fees for deposits and withdrawals (on top of the credit card charges). You will need to take the time to read their Terms & Conditions to make sure you understand all of the fees involved.
Most UK brokers will allow the trader to hold an account in GBP should they have funded in that currency.

Regulated brokers also have strict requirements in place from their payment providers with regards to money laundering and fraud regulations. This means that the trader will need to provide documentation such as proof of residency and identity. Traders may also not be able to fund the account or withdraw profits from a separate bank account.

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