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Home » Binary Options in the UK: Guide for UK Option Traders

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
Expert Option LogoVFSC$1095%500+
  • High/Low
  • One Touch
  • Dynamic
  • American
  • CFDs
Live Chat
24Option LogoCySec$25088%*65
  • High / Low
  • One Touch
  • No Touch
  • Boundaries
  • High Yield
Live Chat

*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.

Which UK Brokers to Choose

When it comes to choosing a Binary Options broker in the UK, you need to make certain that you have ticked the right boxes before you can comfortably trade with one. There have been a number of UK residents who have fallen victim to illicit brokers because they did not do the adequate due diligence before investing. It is also really important that you find the broker that is right for you and your trading style. Below are some steps you can take when selecting a broker.

  • Regulation: This is a stamp of approval that gives you certainty that the broker is indeed honest and that your funds are safe. It is also a way for you to filter out all of the binary option scams that are floating out on the internet. Make sure that you get the broker’s licence number and ask them to give you more information about the holding company. Cross reference this with a number of online sources to make sure that the broker’s claims are indeed honest.
  • Technology: The broker’s platform is your tool to trade. Hence, you need to make certain that you have found a broker that has a platform that works well for your skill level. Some brokers such as IQ Option have extremely functional and resourceful platforms. These allow for more strategies to be implemented and technical tools to be used. Other platforms such as ETX Binary are more simple and better suited for traders who want a plain vanilla offering.
  • Support: Lack of support is something that most traders find annoying. This could be in the form of customer support when it comes to admin questions or educational support for learning resources. Some brokers are better than others and you need to decide how important this is to you. Is it a deal breaker? Are you comfortable enough only having live chat or do you want a direct phone line in to the brokers?
  • Payoffs & Pricing: This is something that can directly impact on your trading returns. The higher the payoff the more likely your trades are to end up in the money and the more likely positive gains are in the long run. Generally, any payoff that is less than 75% should be avoided as the risk and return is not justified. This is something that should be clearly advertised on the brokers website.

Once you have found the broker that you would like to use then you can start off. It is probably wiser to use a binary options demo account to make sure that trading these instruments is indeed for you. These are free and allow you as much time and demo funds as you like. Only when you are fully comfortable with the broker’s platform and all the other levels of support then you can move onto opening a live account. Make sure that you only ever invest as much as you can afford and have an effective money management strategy in place.