View source for Binary option

{{Short description|Financial exotic option with an all-or-nothing payoff}}
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A '''binary option''' is a [[finance|financial]] [[exotic option]] in which the payoff is either some fixed monetary amount or nothing at all.<ref name="Breeden, D. T. 1978">Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Business'', 621–651.</ref><ref name="Gatheral, J. 2006">Gatheral, J. (2006). ''The volatility surface: a practitioner's guide'' (Vol. 357). John Wiley & Sons.</ref> The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The former pays some fixed amount of cash if the option expires [[in-the-money]] while the latter pays the value of the underlying security. They are also called '''all-or-nothing options''', '''digital options''' (more common in forex/interest rate markets), and '''fixed return options''' ('''FROs''') (on the [[NYSE American]]).<ref name="Ipedia">[http://www.investopedia.com/terms/b/binary-option.asp Binary Option Definition] Investopedia. Retrieved 2013-06-30.</ref>

While binary options may be used in theoretical asset pricing, they are prone to [[fraud]] in their applications and hence banned by regulators in many jurisdictions as a form of [[gambling]].<ref name="Globes 12-15-16" /> Many binary option outlets have been exposed as fraudulent.<ref>{{Cite web |url=https://www.fbi.gov/news/stories/binary-options-fraud |title=Binary Options Fraud |website=Federal Bureau of Investigation |language=en-us |access-date=2017-05-30}}</ref> The U.S. [[Federal Bureau of Investigation|FBI]] is investigating binary option scams throughout the world, and the Israeli police have tied the industry to criminal syndicates.<ref name="FBI">{{cite news |last1=Weinglass |first1=Simona |authorlink=Simona Weinglass|title=FBI says it's investigating binary options fraud worldwide, invites victims to come forward |url=http://www.timesofisrael.com/fbi-says-its-investigating-binary-options-fraud-worldwide-invites-victims-to-come-forward/ |access-date=February 15, 2017 |work =[[The Times of Israel]] |date=February 15, 2017}}</ref><ref name="ToIidesofM"/><ref name=":1" /> The [[European Securities and Markets Authority]] (ESMA) has banned retail binary options trading.<ref name="esma.europa.eu">{{Cite web |url=https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors |title=ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors |website=www.esma.europa.eu|access-date=2019-03-21}}</ref> [[Australian Securities & Investments Commission]] (ASIC) considers binary options as a "high-risk" and "unpredictable" investment option, <ref>{{Cite news |url=http://www.ibtimes.com.au/binary-options-trading-australia-how-safe-it-1568192 |title=Binary Options Trading In Australia: How Safe Is It? |date=2018-05-14 |work=International Business Times AU |access-date=2018-05-22 |language=en}}</ref> and finally also banned binary options sale to retail investors in 2021.<ref name="asic.gov.au">{{cite web |url=https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-064mr-asic-bans-the-sale-of-binary-options-to-retail-clients|title=21-064MR ASIC bans the sale of binary options to retail clients |website=[[Australian Securities & Investments Commission]]|access-date=8 March 2022}}</ref>

The FBI estimates that the scammers steal US$10 billion annually worldwide.<ref name="TimesofI3417">{{cite news |last1 =Weinglass |first1=Simona |title=As Israel-based financial fraud soars, police swoop on 20 suspects as part of global, FBI-led sting |url= http://www.timesofisrael.com/as-israel-based-financial-fraud-soars-police-swoop-on-20-suspects-as-part-of-global-fbi-led-sting/ |access-date=March 4, 2017 |work=The Times of Israel |date=March 4, 2017}}</ref> The use of the names of famous and respectable people such as [[Richard Branson]] to encourage people to buy fake "investments" is frequent and increasing.<ref name=branson>{{cite news |url= https://www.theguardian.com/business/2017/may/17/richard-branson-virgin-says-scammers-are-using-his-name-to-dupe-investors |title=Richard Branson says scammers are using his name to dupe investors |work =The Guardian |date=18 May 2017  |author=Press Association |access-date= 18 May 2017}}</ref> Articles published in ''[[The Times of Israel]]'' newspaper explain the fraud in detail, using the experience of former insiders such as a job-seeker recruited by a fake binary options broker, who was told to "leave [his] conscience at the door".<ref name="israeltimes1"/><ref name="israeltimes2"/> Following an investigation by ''The Times of Israel'', [[Cabinet of Israel|Israel's cabinet]] approved a ban on the sale of binary options in June 2017,<ref>{{citation |title=Israel cabinet approves ban on sale of binary options |work =Reuters |author=Tova Cohen |date=June 18, 2017 |url=https://www.reuters.com/article/us-israel-binaryoptions-lawmaking-idUSKBN19906C |access-date=2017-07-15}}</ref> and a law banning the products was approved by the [[Knesset]] in October 2017.<ref name="AtLast">{{cite news |last1=Weinglass |first1=Simona |title=Israel bans binary options industry, finally closing vast, 10-year fraud |url=https://www.timesofisrael.com/israel-bans-entire-binary-options-industry-finally-closing-vast-10-year-fraud/ |access-date=October 24, 2017 |publisher=[[The Times of Israel]] |date=October 23, 2017}}</ref><ref name="Knesset ban 10-24-17">{{Cite news |url=https://www.haaretz.com/israel-news/business/1.818782 |title=Israel Bans Binary Options Industry That Defrauded Millions |last=Tomer |first=Uri |date=2017-10-24 |work=Haaretz |access-date=2017-10-24 |language=en}}</ref>

On January 30, 2018, [[Facebook]] banned advertisements for binary options trading as well as for [[cryptocurrencies]] and [[initial coin offering]]s (ICOs).<ref name="blomm13018">{{cite news |last1=Frier |first1=Sarah |last2=Verhage |first2=Jules |title=Facebook Bans Ads Associated With Cryptocurrencies |url=https://www.bloomberg.com/news/articles/2018-01-30/facebook-bans-ads-associated-with-bitcoin-cryptocurrencies |access-date=February 7, 2018 |work =Bloomberg |date=January 30, 2018}}</ref><ref name="FT013018">{{cite news |last1=Cornish |first1=Chloe |title=Facebook and regulators move to halt cryptocurrency scams |url=https://www.ft.com/content/9c1050ca-05f8-11e8-9650-9c0ad2d7c5b5 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/9c1050ca-05f8-11e8-9650-9c0ad2d7c5b5 |archive-date=2022-12-10 |url-access=subscription |access-date=February 7, 2018 |work =[[Financial Times]]|date=January 30, 2018}}</ref> [[Google]] and [[Twitter]] announced similar bans in the following weeks.<ref name="EU1">{{cite news |title=European Union bans binary options, strictly regulates CFDs |url=https://www.timesofisrael.com/european-union-bans-binary-options-strictly-regulates-cfds/ |last1=Weinglass |first1=Simona |date=March 28, 2018 |access-date=March 21, 2019 |publisher=The Times of Israel}}</ref>

==Function==

Binary options "are based on a simple 'yes' or 'no' proposition: Will an underlying asset be above a certain price at a certain time?"<ref name="investopedia-guide">{{cite web |last1=Mitchell |first1=Cory |title=A Guide To Trading Binary Options In The U.S. |url=https://www.investopedia.com/articles/active-trading/061114/guide-trading-binary-options-us.asp |website=Investopedia |access-date=4 May 2018 |date=11 June 2014}}</ref> Traders place wagers as to whether that will or will not happen. If a customer believes the price of an underlying asset will be above a certain price at a set time, the trader buys the binary option, but if he or she believes it will be below that price, they sell the option. In the U.S. exchanges, the price of a binary is always under $100.<ref name="investopedia-guide"/>

[[Investopedia]] described the binary options trading process in the U.S. thus:

<blockquote>[A] binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then you will pay $44.50, if you decide to sell right then you'll sell at $42.50.

Let's assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100 – $44.50 = $55.50 (less fees). This is called being "in the money". 

But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This is called being "out of the money". 

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss (compared to letting it expire out of the money).<ref name="investopedia-guide"/></blockquote>

In the U.S., every binary option settles at $100 or $0, $100 if the bet is correct, 0 if it is not.<ref name="investopedia-guide"/>

In the online binary options industry, where the contracts are sold by a broker to a customer in an [[Over-the-counter (finance)|OTC]] manner, a different option pricing model is used. Brokers sell binary options at a fixed price (e.g., $100) and offer some fixed percentage return in case of in-the-money settlement. Some brokers, also offer a sort of out-of-money reward to a losing customer. For example, with a win reward of 80%, out-of-money reward of 5%, and the option price of $100, two scenarios are possible. In-the-money settlement pays back the option price of $100 and the reward of $80. In case of loss, the option price is not returned but the out-of-money reward of $5 is granted to the customer.<ref>{{cite web |title=Broker's Edge Calculator |url=https://www.binarytrading.com/brokers-edge-calculator/ |website=BinaryTrading |access-date=4 May 2018}}</ref>

On non-regulated platforms, client money is not necessarily kept in a trust account, as required by government [[financial regulation]], and transactions are not monitored by third parties in order to ensure fair play.<ref>{{Cite web |url=https://www.fma.gv.at/download.php?d=2747 |title=FMA Focus Binary Options and CFDs |publisher=[[Financial Market Authority (Austria)]] |format=PDF |access-date=4 May 2018}}</ref>

Binary options are often considered a form of gambling rather than investment because of their negative cumulative payout (the brokers have an edge over the investor) and because they are advertised as requiring little or no knowledge of the markets. Gordon Pape, writing in [[Forbes]].com in 2010, called binary options websites "gambling sites, pure and simple", and said "this sort of thing can quickly become addictive... no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame".<ref name="Forbes" />

Pape observed that binary options are poor from a gambling standpoint as well because of the excessive "house edge". One online binary options site paid $71 for each successful $100 trade. "If you lose, you get back $15. Let's say you make 1,000 "trades" and win 545 of them. Your profit is $38,695. But your 455 losses will cost you $38,675. In other words, you must win 54.5% of the time just to break even".<ref name="Forbes">{{Cite news |last= Pape |first= Gordon |title= Don't Gamble On Binary Options |url= https://www.forbes.com/sites/investor/2010/07/27/dont-gamble-on-binary-options/ |work= Forbes.com  |date= 27 July 2010 |access-date= 4 May 2018 
|archive-url= https://web.archive.org/web/20130621142514/http://www.forbes.com/sites/investor/2010/07/27/dont-gamble-on-binary-options/print/ 
|archive-date=2013-06-21}}</ref>

The U.S. [[Commodity Futures Trading Commission]] warns that "some binary options Internet-based trading platforms may overstate the average return on investment by advertising a higher average return on investment than a customer should expect given the payout structure."<ref name="CFTC investor warning">{{cite web |url=https://www.cftc.gov/ConsumerProtection/FraudAwarenessPrevention/CFTCFraudAdvisories/fraudadv_binaryoptions.html |title=CFTC Fraud Advisories |website=www.cftc.gov |publisher=U.S. Commodity Futures Trading Commission |access-date= 4 May 2018}}</ref>

==Black–Scholes valuation==
In the [[Black–Scholes model]], the price of the option can be found by the formulas below.<ref>{{Cite book |last=Hull |first=John C. |year=2005 |title=Options, Futures and Other Derivatives |publisher=[[Prentice Hall]] |isbn=0-13-149908-4}}</ref> In fact, the [[Black–Scholes formula]] for the price of a vanilla [[call option]] (or [[put option]]) can be [[Black–Scholes#Interpretation|interpreted]] by decomposing a call option into an asset-or-nothing call option minus a cash-or-nothing call option, and similarly for a put – the binary options are easier to analyze, and correspond to the two terms in the Black–Scholes formula.

In these, ''S'' is the initial stock price, ''K'' denotes the [[strike price]], ''T'' is the time to maturity, ''q'' is the dividend rate, ''r'' is the [[risk-free interest rate]] and <math> \sigma </math> is the [[volatility (finance)|volatility]]. <math>\Phi</math> denotes the [[cumulative distribution function]] of the [[normal distribution]],
:<math> \Phi(x) = \frac{1}{\sqrt{2 \pi}} \int_{-\infty}^x e^{-z^2/2} dz. </math>
and,
:<math> d_1 = \frac{\ln\frac{S}{K} + (r-q+\sigma^{2}/2)T}{\sigma\sqrt{T}}. </math>
: <math> d_2 = d_1-\sigma\sqrt{T}. </math>

===Cash-or-nothing call===
This pays out one unit of cash if the spot is above the strike at maturity. Its value now is given by
:<math> C = e^{-rT}\Phi(d_2). \,</math>

===Cash-or-nothing put===
This pays out one unit of cash if the spot is below the strike at maturity. Its value now is given by
:<math> P = e^{-rT}\Phi(-d_2). \,</math>

===Asset-or-nothing call===
This pays out one unit of asset if the spot is above the strike at maturity. Its value now is given by
:<math> C = Se^{-qT}\Phi(d_1). \,</math>

===Asset-or-nothing put===
This pays out one unit of asset if the spot is below the strike at maturity. Its value now is given by:
:<math> P = Se^{-qT}\Phi(-d_1). \,</math>

===American style===
[[File:American binary put.png|thumb|American binary put with K = 100, r = 0.04, σ = 0.2, T = 1]]

An [[American option]] gives the holder the right to exercise at any point up to and including the expiry time <math>T</math>. That is, denoting by <math>K</math> the strike price, if <math>K\geq S</math> (resp. <math>K\leq S</math>), the corresponding American binary put (resp. call) is worth exactly one unit. Let
:<math> a=\frac{1}{\sigma}\ln(K/S)\text{, }\xi=\frac{r-q}{\sigma}-\frac{\sigma}{2}\text{, and }b=\sqrt{\xi^{2}+2r}. \,</math>
The price of a cash-or-nothing American binary put (resp. call) with strike <math>K<S</math> (resp. <math>K>S</math>) and time-to-expiry <math>T</math> is:
:<math> \frac{1}{2}e^{a\left(\xi-b\right)}\left\{ 1+\operatorname{sgn}(a)\operatorname{erf}\left(\frac{bT-a}{\sqrt{2T}}\right)+e^{2ab}\left[1-\operatorname{sgn}(a)\operatorname{erf}\left(\frac{bT+a}{\sqrt{2T}}\right)\right]\right\} \,</math>
where <math>\operatorname{erf}</math> denotes the [[error function]] and <math>\operatorname{sgn}</math> denotes the [[sign function]]. The above follows immediately from expressions for the Laplace transform of the distribution of the conditional first passage time of Brownian motion to a particular level.<ref>[http://parsiad.ca/post/closed-form-expressions-for-perpetual-and-finite-maturity-american-binary-options Closed-form expressions for perpetual and finite-maturity American binary options]{{Dead link|date=June 2019 |bot=InternetArchiveBot |fix-attempted=yes }}. parsiad.ca (2015-03-01). Retrieved on 2016-07-18.</ref>

===Foreign exchange===
{{Further|Foreign exchange derivative}}

If we denote by ''S'' the FOR/DOM exchange rate (i.e., 1 unit of foreign currency is worth S units of domestic currency) we can observe that paying out 1 unit of the domestic currency if the spot at maturity is above or below the strike is exactly like a cash-or nothing call and put respectively. Similarly, paying out 1 unit of the foreign currency if the spot at maturity is above or below the strike is exactly like an asset-or nothing call and put respectively.
Hence if we now take <math>r_{\mathrm{FOR}}</math>, the foreign interest rate, <math>r_{DOM}</math>, the domestic interest rate, and the rest as above, we get the following results.

In case of a digital call (this is a call FOR/put DOM) paying out one unit of the domestic currency we get as present value,
:<math> C = e^{-r_{\mathrm{DOM}} T}\Phi(d_2) \,</math>
In case of a digital put (this is a put FOR/call DOM) paying out one unit of the domestic currency we get as present value,
:<math> P = e^{-r_{\mathrm{DOM}}T}\Phi(-d_2) \,</math>
While in case of a digital call (this is a call FOR/put DOM) paying out one unit of the foreign currency we get as present value,
:<math> C = Se^{-r_{\mathrm{FOR}} T}\Phi(d_1) \,</math>
and in case of a digital put (this is a put FOR/call DOM) paying out one unit of the foreign currency we get as present value,
:<math> P = Se^{-r_{\mathrm{FOR}}T}\Phi(-d_1) \,</math>

===Skew===
In the standard Black–Scholes model, one can interpret the premium of the binary option in the risk-neutral world as the expected value = probability of being in-the-money * unit, discounted to the present value. The Black–Scholes model relies on symmetry of distribution and ignores the [[skewness]] of the distribution of the asset. Market makers adjust for such skewness by, instead of using a single standard deviation for the underlying asset <math>\sigma</math> across all strikes, incorporating a variable one <math>\sigma(K)</math> where volatility depends on strike price, thus incorporating the [[volatility skew]] into account. The skew matters because it affects the binary considerably more than the regular options.

A binary call option is, at long expirations, similar to a tight call spread using two vanilla options. One can model the value of a binary cash-or-nothing option, ''C'', at strike ''K'', as an infinitesimally tight spread, where <math>C_v</math> is a vanilla European call:<ref name="Breeden, D. T. 1978"/><ref name="Gatheral, J. 2006"/>
:<math> C = \lim_{\epsilon \to 0} \frac{C_v(K-\epsilon) - C_v(K)}{\epsilon} </math>
Thus, the value of a binary call is the negative of the [[derivative]] of the price of a vanilla call with respect to strike price:
:<math> C = -\frac{dC_v}{dK} </math>

When one takes volatility skew into account, <math>\sigma</math> is a function of <math>K</math>:
:<math> C = -\frac{dC_v(K,\sigma(K))}{dK} = -\frac{\partial C_v}{\partial K} - \frac{\partial C_v}{\partial \sigma} \frac{\partial \sigma}{\partial K}</math>

The first term is equal to the premium of the binary option ignoring skew:
:<math> -\frac{\partial C_v}{\partial K} = -\frac{\partial (S\Phi(d_1) - Ke^{-rT}\Phi(d_2))}{\partial K} = e^{-rT}\Phi(d_2) = C_{\mathrm{noskew}}</math>

<math>\frac{\partial C_v}{\partial \sigma}</math> is the [[Greeks (finance)|Vega]] of the vanilla call; <math>\frac{\partial \sigma}{\partial K}</math> is sometimes called the "skew slope" or just "skew". Skew is typically negative, so the value of a binary call is higher when taking skew into account.
:<math> C = C_{\mathrm{noskew}} - \mathrm{Vega}_v * \mathrm{Skew}</math>

===Relationship to vanilla options' Greeks===
Since a binary call is a mathematical derivative of a vanilla call with respect to strike, the price of a binary call has the same shape as the delta of a vanilla call, and the delta of a binary call has the same shape as the gamma of a vanilla call.

==Regulation and fraud==
{{further|Securities fraud}}

Many binary option "brokers" have been exposed as fraudulent operations.<ref name="SEC1"/> In those cases, there is no real [[brokerage]]; the customer is betting against the broker, who is acting as a [[Bucket shop (stock market)|bucket shop]]. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations; if a client has good reason to expect a payment, the operator will simply stop taking their phone calls.<ref name="israeltimes1">{{cite news | title=The wolves of Tel Aviv: Israel's vast, amoral binary options scam exposed |url= http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-amoral-binary-options-scam-exposed | date=March 23, 2016 | website=[[The Times of Israel]] | last=Weinglass | first=Simona |access-date=December 8, 2018}}</ref> Though binary options sometimes trade on [[Financial regulation|regulated]] [[Exchange (organized market)|exchange]], they are generally unregulated, trading on the Internet, and prone to fraud.<ref name="Ipedia"/> Most of the binary options brokers are registered in [[Saint Vincent and the Grenadines]] and offering their services globally.{{cn|date=May 2022}} The country's Financial Services Authority has issued a warning to the general public about unlicensed Forex and binary options trading provided by entities registered in Saint Vincent and the Grenadines.<ref>{{Cite web |date=2022-02-03 |title=UNLICENSED FOREX/BINARY OPTIONS – Financial Services Authority |url=https://svgfsa.com/unlicensed-forex-binary-options/ |access-date=2022-05-12 |website=svgfsa.com}}</ref>

=== European Union ===
On 23 March 2018, The [[European Securities and Markets Authority]], a [[European Union]] financial regulatory institution and [[European Supervisory Authority]] located in Paris, agreed to new temporary rules prohibiting the marketing, distribution or sale of binary options to retail clients.<ref name="esma.europa.eu"/>

=== Australia ===
The [[Australian Securities & Investments Commission]] (ASIC) warned Australian investors on 13 February 2015 against Opteck, an unlicensed binary option provider.<ref>{{cite web|url=http://asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-024mr-asic-warns-of-opteck-and-other-unlicensed-binary-option-providers/|title=15-024MR ASIC warns of Opteck and other unlicensed binary option providers|access-date=5 September 2016}}</ref> The ASIC later began a focused effort to control unlicensed derivative providers, including "review" websites, broker affiliates, and managed service providers related to binary option products.<ref>{{cite web|url=http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-218mr-asic-crackdown-on-unlicensed-retail-otc-derivative-providers/|title=16-218MR ASIC crackdown on unlicensed retail OTC derivative providers|access-date=5 September 2016}}</ref> ASIC finally released a ban on sale of binary options to retail clients in 2021.<ref name="asic.gov.au">{{cite web |url=https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-064mr-asic-bans-the-sale-of-binary-options-to-retail-clients|title=21-064MR ASIC bans the sale of binary options to retail clients |website=[[Australian Securities & Investments Commission]]|access-date=8 March 2022}}</ref>

=== Belgium ===
In August 2016, Belgium's [[Financial Services and Markets Authority]] banned binary options schemes, based on concerns about widespread fraud.<ref name="toi3">{{cite news|url=http://www.timesofisrael.com/in-european-first-belgium-bans-binary-options |title=In European first, Belgium bans binary options|date=August 13, 2016|work=The Times of Israel|author1=Weinglass, Simona}}</ref>

=== Canada ===
No firms are registered in Canada to offer or sell binary options, so no binary options trading is currently allowed. Provincial regulators have proposed a complete ban on all binary options trading include a ban on online advertising for binary options trading sites.<ref name="finpost">{{cite news| last1=Shecter|first1=Barbara|title=Canadian watchdogs move to ban binary options as fraudulent schemes fleece investors, steal identities|url=http://business.financialpost.com/news/fp-street/canadian-watchdogs-move-to-ban-binary-options-amid-losses-identity-theft|access-date=April 26, 2017|work =Financial Post|date=April 26, 2017}}</ref> A complete ban on binary options trading for options having an expiration less than 30 days was announced on September 28, 2017.<ref>{{cite news|title=Securities regulatory group announces ban on short-term binary options|url=http://www.cbc.ca/news/business/binary-options-ban-1.4311863|access-date=September 28, 2017|work =CBC News|date=September 28, 2017}}</ref>

=== Cyprus ===
On May 3, 2012, the [[Cyprus Securities and Exchange Commission]] (CySEC) announced a policy change regarding the classification of binary options as [[financial instrument]]s. The effect is that binary options platforms operating in Cyprus, where many of the platforms are now based, would have to be CySEC regulated within six months of the date of the announcement. CySEC was the first EU [[MiFID]]-member regulator to treat binary options as financial instruments.<ref>{{Cite news|url=http://www.cysec.gov.cy/Downloads/English/Announcements/2012/EPEY/Announcement%20%2005.03.2012%20regarding%20the%20supervision%20of%20Binary%20Options.pdf|title=regarding the supervision of Binary Options|date=3 May 2012|work=CySEC|access-date=4 June 2012|archive-url=https://web.archive.org/web/20120710013624/http://www.cysec.gov.cy/Downloads/English/Announcements/2012/EPEY/Announcement%20%2005.03.2012%20regarding%20the%20supervision%20of%20Binary%20Options.pdf|archive-date=2012-07-10|url-status=dead}}</ref>

In 2013, CySEC prevailed over the disreputable binary options brokers and communicated intensively with traders in order to prevent the risks of using unregulated financial services. On September 19, 2013, CySEC sent out a press release warning investors against binary options broker TraderXP, who was not and had never been licensed by CySEC.<ref>{{cite web|url=http://www.cysec.gov.cy/Downloads/Investors/%CE%A0%CF%81%CE%BF%CE%B5%CE%B9%CE%B4%CE%BF%CF%80%CE%BF%CE%B9%CE%AE%CF%83%CE%B5%CE%B9%CF%82%20-%20%CE%95_%CE%9A_/2013_/19%20September%202013%20regarding%20warning%20TRADERXP%20LTD.pdf|title=Warning|access-date=27 March 2014|archive-url=https://web.archive.org/web/20140407072836/http://www.cysec.gov.cy/Downloads/Investors/%CE%A0%CF%81%CE%BF%CE%B5%CE%B9%CE%B4%CE%BF%CF%80%CE%BF%CE%B9%CE%AE%CF%83%CE%B5%CE%B9%CF%82%20-%20%CE%95_%CE%9A_/2013_/19%20September%202013%20regarding%20warning%20TRADERXP%20LTD.pdf|archive-date=2014-04-07|url-status=dead}}</ref>
On October 18, 2013, CySEC released an investor warning about binary options broker NRGbinary and its parent company NRG Capital (CY) Ltd., stating that NRGbinary was not and had never been licensed by CySEC.<ref>{{cite web|url=http://www.cysec.gov.cy/Downloads/Investors/%CE%A0%CF%81%CE%BF%CE%B5%CE%B9%CE%B4%CE%BF%CF%80%CE%BF%CE%B9%CE%AE%CF%83%CE%B5%CE%B9%CF%82%20-%20%CE%95_%CE%9A_/2013_/Warning%2010.18.2013%20re%20NRG%20Capital%20CY%20LTD.pdf|title=Warning|access-date=27 March 2014|archive-url=https://web.archive.org/web/20140331035912/http://www.cysec.gov.cy/Downloads/Investors/%CE%A0%CF%81%CE%BF%CE%B5%CE%B9%CE%B4%CE%BF%CF%80%CE%BF%CE%B9%CE%AE%CF%83%CE%B5%CE%B9%CF%82%20-%20%CE%95_%CE%9A_/2013_/Warning%2010.18.2013%20re%20NRG%20Capital%20CY%20LTD.pdf|archive-date=2014-03-31|url-status=dead}}</ref>

CySEC also temporarily suspended the license of the Cedar Finance on December 19, 2013, because the potential violations referenced appeared to seriously endanger the interests of the company's customers and the proper functioning of capital markets, as described in the official issued press release. CySEC also issued a warning against binary option broker PlanetOption at the end of the year and another warning against binary option broker LBinary on January 10, 2014, pointing out that it was not regulated by the Commission and the Commission had not received any notification by any of its counterparts in other European countries to the effect of this firm being a regulated provider.

The Cyprus regulator imposed a penalty of €15,000 against ZoomTrader. OptionBravo and ChargeXP were also financially penalized. CySEC also indicated that it had voted to reject the ShortOption license application.<ref>{{cite web|url=http://www.bonusbinaryoptions.net/the-projects-of-the-cysec-regulator-in-terms-of-binary-options-in-2014|title=The projects of the CySEC regulator in terms of binary options in 2014|access-date=27 March 2014|archive-url=https://web.archive.org/web/20171015095137/http://www.bonusbinaryoptions.net/the-projects-of-the-cysec-regulator-in-terms-of-binary-options-in-2014|archive-date=15 October 2017|url-status=dead}}</ref>

In 2015, CySEC repeatedly fined Banc De Binary for several violations including the solicitation of U.S. clients.<ref>[http://www.financemagnates.com/forex/regulation-3/banc-de-binary-fined-e125000-cyprus-watchdog-soliciting-american-clients/ "Banc De Binary Fined €125,000 by Cyprus Watchdog for Soliciting American Clients"], Finance Magnates.</ref> In 2016, the regulator fined Banc De Binary Ltd once again for violation of its legislation. The broker has come to a settlement of €350,000.<ref>[http://www.financemagnates.com/binary-options/brokers-2/breaking-banc-de-binary-settles-with-cysec-to-pay-e350000/ "Banc De Binary Settles With CySEC to Pay €350,000"], Finance Magnates</ref>

=== France ===
In August 2016, France's [[Law on transparency, the fight against corruption and the modernization of economic life|''Sapin II'' bill on transparency]] was announced by the [[Autorité des marchés financiers (France)|Autorité des Marchés Financiers]] (AMF), seeking to outlaw all financial derivatives advertising. The AMF stated that it would ban the advertising of certain highly speculative and risky financial contracts to private individuals by electronic means.<ref>{{citation|type=press release|title=Ban on the advertising of forex products, binary options and some CFDs: AMF launches consultation on changes to its General Regulation|date=August 1, 2016|work=Autorité des Marchés Financiers|url=http://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-2016.html?docId=workspace%3A%2F%2FSpacesStore%2Fad42eecc-9720-49da-82a8-2ddcb72fbf1d|access-date=January 15, 2017|archive-url=https://web.archive.org/web/20190617015956/https://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-2016.html?docId=workspace%3A%2F%2FSpacesStore%2Fad42eecc-9720-49da-82a8-2ddcb72fbf1d|archive-date=June 17, 2019|url-status=dead}}</ref><ref>{{cite news |url=http://financefeeds.com/ig-group-officially-responds-french-fx-cfd-advertising-ban/ |title=IG Group officially responds to French FX and CFD advertising ban |work=Finance Feeds |date=9 January 2017 |author=Andrew Saks-McLeod |access-date=18 May 2017 |archive-date=3 September 2017 |archive-url=https://web.archive.org/web/20170903034136/https://financefeeds.com/ig-group-officially-responds-french-fx-cfd-advertising-ban/ |url-status=dead }}</ref> The document applies specifically to binary options, and to [[contracts for difference]] (CFDs), and financial contracts on currencies. The French regulator is determined to cooperate with the legal authorities to have illegal websites blocked.<ref>{{cite news|url=http://financefeeds.com/breaking-amf-toughens-stance-advertising-following-public-consultation/|title=AMF toughens its stance on advertising following public consultation|work=Finance Feeds|date=10 January 2017|author=Maria Nikolova|access-date=18 May 2017|archive-date=7 May 2017|archive-url=https://web.archive.org/web/20170507140401/http://financefeeds.com/breaking-amf-toughens-stance-advertising-following-public-consultation/|url-status=dead}}</ref> The law also prohibits all forms of sponsorship and partnership that results in direct or indirect advertising of the financial products it covers. This ban was seen by industry watchers as having an impact on sponsored sports such as European football clubs.<ref>{{citation|title=French football clubs rush to terminate binary options partnerships|quote=Under Article 77 of the Sapin II law, football teams have until the end of June this year to terminate all sponsorships|author=Maria Nikolova|work=Finance Feeds|url=http://financefeeds.com/french-football-clubs-rush-terminate-binary-options-partnerships/|access-date=2017-01-15|archive-date=2019-06-17|archive-url=https://web.archive.org/web/20190617015948/https://financefeeds.com/french-football-clubs-rush-terminate-binary-options-partnerships/|url-status=dead}}</ref>

The Cyprus-based company 24Option<ref>{{Cite web|url=https://cyprusregistry.com/companies/EE/41700|title=24OPTION - Cyprus Business Name - CyprusRegistry.com|website=cyprusregistry.com|access-date=2019-04-17}}</ref> was banned from trading in France by AMF earlier in 2016.<ref>{{citation|type=press release|title=L'Autorité des marchés financiers interdit à Rodeler Limited (" 24option ") de fournir des services sur le territoire français|trans-title=Autorité des Marchés Financiers halts Rodeler Limited ("24option") activities in France|date=July 29, 2016|publisher=Autorité des Marchés Financiers|url=http://www.amf-france.org/Actualites/Communiques-de-presse/AMF/annee-2016.html?docId=workspace%3A%2F%2FSpacesStore%2Ff35a247e-e20d-42c3-8b3d-b354794a2a70|access-date=January 15, 2017|archive-url=https://web.archive.org/web/20190617015955/https://www.amf-france.org/Actualites/Communiques-de-presse/AMF/annee-2016.html?docId=workspace%3A%2F%2FSpacesStore%2Ff35a247e-e20d-42c3-8b3d-b354794a2a70|archive-date=June 17, 2019|url-status=dead}}</ref> They had sponsored a well-known Irish [[mixed martial arts|mixed martial artist]], [[Conor McGregor]], who in turn promoted the company through social media.<ref>{{citation|title=Conor McGregor sponsor barred from operating in France|work=Irish Times|date=November 19, 2016|author=Barry O'Halloran|url=http://www.irishtimes.com/business/media-and-marketing/conor-mcgregor-sponsor-barred-from-operating-in-france-1.2874175}}</ref>

=== Germany ===

German [[Federal Financial Supervisory Authority]] (BaFin) has been regularly publishing investor warnings. On November 29, 2018, BaFin announced that it is planning to "prohibit the marketing, distribution and sale of binary options to retail clients at a national level".<ref>{{cite web|url=https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Pressemitteilung/2018/pm_181129_binaere_optionen_en.html | title=BaFin plans national prohibition of binary options for retail clients | date=November 29, 2018 | publisher= [[Federal Financial Supervisory Authority]] | access-date=December 8, 2018}}</ref>

=== Indonesia ===
According to the Commodity Futures Trading Regulatory Agency (CoFTRA) in Indonesia, also known as BAPPEBTI, binary options are considered a form of online gambling and is illegal in the country. The move to delegalize binary options stems from concerns that the public may be swayed by misleading advertisements, promotions, and offers to participate in fraudulent practices that operate under the guise of binary options trading.<ref>{{Cite web|last=Dirgantara|first=Hikma|date=2022-02-03|title=Bappebti Blokir 92 Entitas Binary Option di 2021, Termasuk Binomo, IQ Option|url=https://investasi.kontan.co.id/news/bappebti-blokir-92-entitas-binary-option-di-2021-termasuk-binomo-iq-option|access-date=2022-02-07|website=Kontan.co.id|language=id}}</ref> As of 2 February 2022, at least 92 binary options websites, including Binomo, [[IQ Option]], and Olymp Trade, have been classified as unlicensed operators and blocked by the Indonesian government.<ref>{{Cite web|date=2022-02-04|title=Indonesian regulators block illegal trading websites following complaints on social media|url=https://kr-asia.com/indonesian-regulators-block-illegal-trading-websites-following-complaints-on-social-media|access-date=2022-02-07|website=KrASIA|language=en}}</ref>

=== Israel ===
;Binary options trading
In March 2016 binary options trading within [[Israel]] was banned by the [[Israel Securities Authority]], on the grounds that such trading is essentially gambling and not a form of investment management. The ban was extended to overseas clients as well in October 2017.<ref name="AtLast"/><ref name="TOI061817">{{cite news|last1=Weinglass|first1=Simona|title=Israeli ministers approve bill to outlaw entire binary options industry|url=http://www.timesofisrael.com/israeli-ministers-approve-bill-to-outlaw-entire-binary-options-industry |access-date=June 19, 2017|website=[[The Times of Israel]] |date=June 18, 2017}}</ref><ref name="Globes 12-15-16">{{cite news| url= http://www.globes.co.il/en/article-binary-options-worth-125b-to-israel-gdp-in-2016-1001166968|title=Binary options worth $1.25b to Israel's GDP in 2016| date=15 December 2016|work=[[Globes (newspaper)|Globes]]|last1=Tsipori|first1=Tali|access-date=17 December 2016}}</ref> It was approved by the [[Knesset]] in October, despite strong opposition from the binary options industry.<ref name="Knesset ban 10-24-17"/>

;Fraud
In 2016 ''[[The Times of Israel]]'' ran several articles on binary options fraud. "The wolves of Tel Aviv: Israel's vast, amoral binary options scam exposed" revealed that the industry is a scam.<ref name="israeltimes1" /> A second article describes in detail how a binary options salesman fleeced clients. "According to one ex-employee of a firm that employs over 1,000 people in a high-rise office building in [[Tel Aviv]], losses are guaranteed because the 'dealing room' at the binary options firm controls the trading platform — like the crooked ownership of a rigged [[casino]] manipulating the [[roulette wheel]]".<ref name="israeltimes2">{{cite news | url =http://www.timesofisrael.com/ex-binary-options-salesman-heres-how-we-fleece-the-clients/ |title = Ex-binary options salesman: Here's how we fleece the clients | work =The Times of Israel |author1=Weinglass, Simona  |author2=Horovitz, David  |name-list-style=amp| date=April 7, 2016 }}</ref>

In July 2016 the Israeli binary option firms Vault Options and Global Trader 365 were ordered by the [[United States District Court for the Northern District of Illinois|U.S. District Court for the Northern District of Illinois]] to pay more than $4.5 million for unlawful off-exchange binary options trading, fraud, and registration violations. The companies were also banned permanently from operating in the United States or selling to U.S. residents.<ref>{{cite news|url=http://www.cftc.gov/PressRoom/PressReleases/pr7414-16|title= Federal Court Orders Israeli Web-based Firms, Vault Options, Ltd. and Global Trader 365, to Pay More than $4.5 Million for Unlawful Off-Exchange Binary Options Trading, Fraud, and Registration Violations|date=July 28, 2016|publisher=Commodities and Futures Trading Commission}}</ref>

In November 2016 the [[Israel Securities Authority]] carried out a raid on the [[Ramat Gan]] offices of binary option broker iTrader. The CEO and six other employees were charged with fraud, providing unlicensed investment advice, and obstruction of justice.<ref>{{cite news|url=http://www.timesofisrael.com/israeli-authorities-raid-binary-options-firm-arrest-ceo-salespeople |title=Israeli authorities raid binary options firm, arrest CEO, salespeople|date=November 12, 2016|work=The Times of Israel|author1=Weinglass, Simona|author2=Horovitz, David}}</ref>

On May 15, 2017, Eliran Saada, the owner of [[Express Target Marketing]], which has operated the binary options companies InsideOption and SecuredOptions, was arrested on suspicion of fraud, false accounting, forgery, [[extortion]], and [[blackmail]]. The case involves a Singaporean woman who claims to have lost over $500,000 to the firm.<ref name="TOI050517">{{cite news|last1=Weinglass|first1=Simona|title=Tel Aviv binary options boss nabbed for fraud, extortion; company raided, computers confiscated|url=http://www.timesofisrael.com/tel-aviv-binary-options-boss-nabbed-for-fraud-extortion-company-raided-computers-confiscated/|access-date=May 16, 2017|work=[[The Times of Israel]]|date=May 16, 2017}}</ref><ref name="Roy050517">{{cite news|last1=Cohen|first1=Tova|title=Israeli police arrest owner of binary options firm accused of fraud|url=https://www.reuters.com/article/israel-binaryoptions-idUSL8N1II24I|access-date=May 16, 2017|work=[[Reuters]]|date=May 16, 2017}}</ref>

In August 2017 [[Israel Police|Israeli police]] superintendent Rafi Biton said that the binary trading industry had "turned into a monster". He told the Israeli [[Knesset]] that criminal investigations had begun.<ref name=":1">{{Cite news|url=https://www.haaretz.com/israel-news/business/1.804915|title=In First, Israel Police Admit Crime Syndicates Are Behind Binary Options Industry|last=Appelberg|first=Shelly|date=2017-08-03|work=Haaretz|access-date=2017-10-24|language=en}}</ref>

In September 2017, the FBI arrested Lee Elbaz, CEO of binary options trading company Yukom Communications, upon her arrival in the United States. They arrested her for [[wire fraud]] and conspiracy to commit wire fraud.<ref name="Matts092417">{{cite news |last1=Staff|first1=Tori|title=FBI arrests Israeli binary options CEO as she disembarks El Al flight at JFK|url=https://www.timesofisrael.com/fbi-arrests-israeli-binary-options-ceo-as-she-disembarks-el-al-flight-at-jfk/|work =The Times of Israel|date=September 24, 2017|access-date=September 24, 2017}}</ref> In 2019, Lee Elbaz was found guilty and sentenced to 22 years in prison.<ref>{{cite news |title=Former CEO of Israeli Company Sentenced to 22 Years in Prison for Orchestrating Major International Binary Options Fraud Scheme|url=https://www.justice.gov/opa/pr/former-ceo-israeli-company-sentenced-22-years-prison-orchestrating-major-international-binary/|work =Department of Justice|date=December 19, 2019|access-date=August 19, 2022}}</ref>

In February 2019, the FBI arrested Austin Smith, founder of Wealth Recovery International, after his arrival in the United States. Smith was arrested for [[wire fraud]] due to his involvement as an employee of Binarybook.com.<ref>{{Cite web|url=https://www.timesofisrael.com/israeli-american-claiming-to-help-binary-options-victims-pleads-guilty-to-fraud/|title=Israeli-American claiming to help binary options victims pleads guilty to fraud|first=Simona|last=Weinglass|website=www.timesofisrael.com}}</ref>

===Malta===
In March 2013 the [[Malta Financial Services Authority]] (MFSA) announced that binary options regulation would be transferred away from Malta's Lottery and Gaming Authority.<ref>[http://www.financemagnates.com/forex/products/gaming-or-trading-that-is-the-question-mfsa-to-regulate-binary-options-as-a-financial-product "Gaming or Trading? That is the Question – MFSA To Regulate Binary Options as a Financial Product"], ''Finance Magnates''</ref> On 18 June 2013 MFSA confirmed that in their view binary options fell under the scope of the [[Markets in Financial Instruments Directive]] (MiFID), which made Malta the second [[European Union|EU]] jurisdiction to regulate binary options as a financial instrument. This required providers to obtain a category 3 Investment Services license and conform to MiFID's [[minimum capital requirement]]s; firms could previously operate from the jurisdiction with a valid Lottery and Gaming Authority license.<ref>{{cite news|url= http://www.financemagnates.com/forex/regulation/malta-the-next-cyprus-mfsa-announces-regulatory-framework-for-binary-options/|title=Malta The Next Cyprus? MFSA Announces Regulatory Framework For Binary Options|date=July 18, 2013|work =Finance Magnates}}</ref>

=== New Zealand ===
In April 2017, [[New Zealand]]'s [[Financial Markets Authority (New Zealand)|Financial Markets Authority]] (FMA) announced that all brokers that offer short-term investment instruments that settle within three days are required to obtain a license from the agency.<ref>{{Cite web| url= https://fma.govt.nz/news/media-releases/fma-confirms-short-term-derivatives-to-be-licensed |title=FMA confirms short-term derivatives to be licensed {{!}} FMA|website=fma.govt.nz|language=en|access-date=2017-04-18}}</ref> This is intended to cover binary options as well as [[Contract for difference|contracts for difference]] (CFDs).

===United Kingdom===
;Binary options trading
In the UK, binary options were regulated by the [[Gambling Commission]] rather than the [[Financial Conduct Authority]] (FCA).<ref name=ftfca>{{cite web | url=https://www.ft.com/content/d493d457-9d93-3b9f-9d05-a09774f4b95a |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/d493d457-9d93-3b9f-9d05-a09774f4b95a |archive-date=2022-12-10 |url-access=subscription | title=FCA warns on illegal binary options providers | date=January 12, 2018 | last=Murphy | first=Hannah | newspaper=[[Financial Times]] | access-date=December 8, 2018}}{{subscription required}}</ref> This regulation, however, applied only to firms that have gambling equipment in the UK.<ref name=ftadvisor2017>{{cite web|url=https://www.ftadviser.com/investments/2017/11/15/fca-warns-investors-against-binary-options/ | title=FCA warns investors against binary options | date=November 15, 2017 | last=Fantato|first=Damian|website=FTAdviser|access-date=December 8, 2018}}</ref> The FCA in 2016 did propose bringing binary options under its jurisdiction and restricting them. They stated that binary options "did not appear to meet a genuine investment need".<ref name="FT10192017">{{cite news|last1=Murphy|first1=Hannah|title=Police launch raids on 20 City of London businesses|url=https://www.ft.com/content/f5cf9ff2-b4d2-11e7-a398-73d59db9e399 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/f5cf9ff2-b4d2-11e7-a398-73d59db9e399 |archive-date=2022-12-10 |url-access=subscription |url-status=live|access-date=October 21, 2017|newspaper =[[Financial Times]]|date=October 19, 2017}}{{subscription required}}</ref> In March 2017, [[National Fraud Intelligence Bureau|Action Fraud]] issued a warning on binary options.<ref>{{cite web|url=https://www.actionfraud.police.uk/news/what-is-binary-options-fraud-and-what-are-the-law-enforcement-doing-about-it | title=What is Binary Options Fraud and what are the law enforcement doing about it? | date=March 31, 2017 | publisher=[[National Fraud Intelligence Bureau|Action Fraud]] | access-date=December 8, 2018}}</ref>

The [[Isle of Man]], a self-governing Crown dependency for which the UK is responsible, has issued licenses to companies offering binary options as "games of skill" licensed and regulated under fixed odds betting by the [[Isle of Man Gambling Supervision Commission]] (GSC).<ref>{{cite web | url =https://www.gov.im/categories/business-and-industries/gambling-and-e-gaming/licence-holders/ | title =Licence holders | website =gov.im | publisher =Isle of Man Government | access-date =2017-09-02}}</ref> This positions binary options as a form of gambling, and the administrator of the trading as something akin to a casino, as opposed to an [[Exchange (organized market)|exchange]] or [[brokerage house]].

On October 19, 2017, [[City of London Police|London police]] raided 20 binary options firms in London.<ref name="FT10192017"/> On January 3, 2018, the FCA took over regulation of binary options from the Gambling Commission.<ref name=ftfca /> In December 2018, FCA has proposed new rules which would permanently ban the sale, marketing and distribution of binary options to retail consumers.<ref>{{cite web|url=https://www.ftadviser.com/regulation/2018/12/07/fca-to-permanently-restrict-binary-options-sales/ | title=FCA to permanently restrict binary options sales | date=December 7, 2018 | last=Fantato|first=Damian|website=FTAdviser|access-date=December 8, 2018}}</ref>

;Fraud
Fraud within the market is rife, with many binary options providers using the names of famous and respectable people without their knowledge. According to a national fraud and cybercrime reporting centre [[Action Fraud]], 664 binary options frauds were reported in 2015/16, increasing to 1,474 in 2016/17. The [[City of London police]] in May 2017 said that reported losses for the previous financial year were £13 million, increased from £2 million the year before.<ref name=branson/> In the first half of 2017, 697 people reported losses totaling over £18 million.<ref name="FT10192017"/>

=== United States ===
;Binary options trading

In the United States, the [[Securities and Exchange Commission]] (SEC) approved [[Exchange-traded product|exchange-traded]] binary options in 2008.<ref>{{Cite news|url=https://www.reuters.com/article/companyNewsAndPR/idUSN0943920080609|title=CBOE to list binary options on S&P 500, VIX |last=Frankel |first = Doris |date=June 9, 2008 | publisher=[[Reuters]] | access-date=December 8, 2018}}</ref> Trading commenced on the [[NYSE American]] (MYSEA) and the [[Chicago Board Options Exchange]] (CBOE) in May and June 2008.<ref name=leapinfo>{{cite web | url=https://www.leaprate.com/news/the-history-of-binary-options-trading-infographic/ | title=The History of Binary Options Trading – Infographic | date=January 5, 2017 | website=leaprate.com | access-date=December 8, 2018}}</ref>

The MYSEA offers binary options on some [[exchange-traded fund]]s and a few highly liquid equities such as [[Citigroup]] and [[Google]]. On the exchange binary options were called "fixed return options" (FROs). To reduce the threat of [[market manipulation]] of single stocks, FROs use a "settlement index" defined as a volume-weighted average of trades on the expiration day. MYSEA and [[Donato A. Montanaro]] submitted a [[patent application]] for exchange-listed binary options using a volume-weighted settlement index in 2005.<ref>[http://www.wipo.int/pctdb/en/wo.jsp?wo=2005069978 "System and methods for trading binary options on an exchange"] {{Webarchive|url=https://web.archive.org/web/20090218165844/http://www.wipo.int/pctdb/en/wo.jsp?wo=2005069978 |date=2009-02-18 }}, World Intellectual Property Organization filing. Retrieved on 2013-01-12.</ref> CBOE offers binary options on the [[S&P 500]] (SPX) and the [[VIX|CBOE Volatility Index (VIX)]].<ref name="cboebin">{{cite web| url=http://www.cboe.com/micro/binaries/BinariesQRG.pdf | title=CBOE Introduces Binary Options on SPX SM and VIX | date=September 10, 2008 | publisher=[[Chicago Board Options Exchange]] | archive-url=https://web.archive.org/web/20080910044859/http://www.cboe.com/micro/binaries/BinariesQRG.pdf | archive-date=September 10, 2008 | access-date=December 8, 2018}}</ref> The tickers for these are BSZ<ref>{{cite web|url=http://www.cboe.com/delayedquote/detailed-quotes?ticker=BSZ | title=^BSZ (CBOE Binary Options On The S&P 500 Index) | date=December 8, 2018 | publisher=[[Chicago Board Options Exchange]] | access-date=December 8, 2018}}</ref> and BVZ, respectively.<ref>{{cite web | url=http://www.cboe.com/delayedquote/detailed-quotes?ticker=BVZ | title=^BVZ (CBOE Binary Options Volatility) | date=December 8, 2018 | publisher=[[Chicago Board Options Exchange]] | access-date=December 8, 2018}}</ref>

[[Nadex|NADEX]], a U.S.-based [[Commodity Futures Trading Commission]] (CFTC) regulated exchange, launched binary options for a range of [[Forex]], [[Commodity#Commodity trade|commodities]], and [[stock indices]]' markets in June 2009,.<ref>{{cite web|url=http://www.nadex.com/content/files/pressrelease-01.pdf|title=Nadex, North American derivatives exchange rolls out new trading platform, products|date=June 22, 2009|publisher=[[Nadex]]|archive-url=https://web.archive.org/web/20120401080606/http://www.nadex.com/content/files/pressrelease-01.pdf|archive-date=April 1, 2012|access-date=December 8, 2018}}</ref> On March 30, 2010 the CFTC issued an amended Order of Designation to allow trades on NADEX to be intermediated.<ref>{{Cite web|url=https://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=TradingOrganizationsAD&Key=34536|title=- CFTC|website=sirt.cftc.gov|access-date=2019-03-21}}</ref> NADEX have since offered binary options trading between buyers and sellers. They do not participate in the trades.<ref>{{Cite web|url=https://www.nadex.com/why-nadex/regulated-and-legal-for-us-residents|title=Regulated & Legal for US Residents|date=2015-09-24|website=Nadex|language=en|access-date=2019-03-21}}</ref>

;Fraud

On June 6, 2013, the U.S. CFTC and the SEC jointly issued an Investor Alert to warn about fraudulent promotional schemes involving binary options and binary options trading platforms. The two agencies said that they had received numerous complaints of fraud about binary options trading sites, "including refusal to credit customer accounts or reimburse funds to customers; [[identity theft]]; and manipulation of software to generate losing trades". Other binary options operations were violating requirements to register with regulators.<ref name="CFTC investor warning" /><ref name="SEC1">{{cite web| url=https://www.sec.gov/investor/alerts/ia_binary.pdf | title = Investor Alert Binary Options and Fraud  | publisher=[[U.S. Securities and Exchange Commission]] | access-date = December 8, 2018}}</ref>

In June 2013, U.S. regulators charged Israeli-Cypriot company [[Banc De Binary]] with illegally selling binary options to U.S. investors.<ref name="CFTC investor warning" /><ref name=":0">{{cite web|url=https://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575220#.U4Au_ygVcWQ|title=SEC Warns Investors About Binary Options and Charges Cyprus-Based Company with Selling Them Illegally in U.S.|publisher=[[U.S. Securities and Exchange Commission]] | access-date=December 8, 2018}}</ref> In February 2016, the company reached an $11 million settlement with U.S. authorities. Regulators found the company used a "virtual office" in New York's [[Trump Tower]] in pursuit of its scheme, evading a ban on off-exchange binary option contracts. The company neither admitted nor denied the allegations.<ref>{{cite news| url=https://www.wsj.com/articles/banc-de-binary-reaches-11-million-settlement-with-u-s-authorities-1456409180 |title = Banc de Binary Reaches $11 Million Settlement with U.S. Authorities |newspaper = [[The Wall Street Journal]] | date=February 25, 2016 | last=Patrick | first=Margot |access-date=December 8, 2018}}{{subscription required}}</ref> In November 2016, SEC published yet another Investor Alert on binary options websites.<ref>{{cite web|url=https://www.sec.gov/oiea/investor-alerts-bulletins/ia_binaryoptions.html | title=Investor Alert: Binary Options Websites May Be Used for Fraudulent Schemes | date=November 10, 2016 | publisher=[[U.S. Securities and Exchange Commission]] | access-date=December 8, 2018}}</ref> In 2016,

In February 2017 ''[[The Times of Israel]]'' reported that the FBI was conducting an active international investigation of binary option fraud, emphasizing its international nature, saying that the agency was "not limited to the USA". Victims from around the world were asked to contact an FBI field office or the FBI's [[Internet Crime Complaint Center]]. The investigation is not limited to the binary options brokers, but is comprehensive and could include companies that provide services that allow the industry to operate. [[Credit card]] issuers will be informed of the fraudulent nature of much of the industry, which could possibly allow victims to receive a [[chargeback]], or refund, of fraudulently obtained money.<ref name="FBI"/>

On March 13, 2017, the FBI reiterated its warning, declaring that the "perpetrators behind many of the binary options websites, primarily criminals located overseas, are only interested in one thing—taking your money". They also provide a checklist on how to avoid being victimized.<ref name="FBI2">{{cite web|title=Binary Options Fraud, A Word of Warning to the Investing Public|url=https://www.fbi.gov/news/stories/binary-options-fraud|website=FBI.gov|publisher=[[Federal Bureau of Investigation]]|access-date=March 14, 2017|date=March 13, 2017}}</ref><ref name="ToIidesofM">{{cite news|last1=Weinglass|first1=Simona |title=FBI places public warning against 'Binary Options Fraud' at top of its main news |url = http://www.timesofisrael.com/fbi-places-public-warning-against-binary-options-fraud-at-top-of-its-main-website/|access-date=March 15, 2017|website =[[The Times of Israel]]|date=March 15, 2017}}</ref>

There is also a popular binary options recovery services scam, where fraudsters promise to "hunt" down the binary options scammers and retrieve the money from them through legal methods.<ref>{{cite web|url=https://www.financemagnates.com/binary-options/analysis/scamming-the-scammed-recovery-experts-target-binary-options-victims/ | title =Scamming the Scammed – 'Recovery Experts' Target Binary Options Victims | last=Kimberley | first=David | website=Finance Magnates | date=July 27, 2018 | access-date=December 8, 2018}}</ref><ref>{{cite web|url=https://www.thatsucks.com/recovery-services-the-real-story/ | title= Binary Options Recovery Services – The Real Story | last=Kay | first=Martin | date=December 5, 2018 | website=thatsucks.com | access-date=December 8, 2018}}</ref> In January 2018, Boston federal prosecutors filed a complaint against Leonel Alexis Valerio Santana and Frank Gregory Cedeno, accusing them of such type of fraud.<ref>{{cite web|url=https://www.reuters.com/article/us-usa-fraud-sec/u-s-charges-two-over-fraud-featuring-bogus-sec-employees-idUSKBN1FC38F | title=U.S. charges two over fraud featuring bogus SEC employees | date=January 24, 2018 | publisher=[[Reuters]] | access-date=December 8, 2018}}</ref> In August 2018, Santana was sentenced to 63 months in prison, three years of supervised release, and ordered to pay restitution of $105,869 (Cedeno was indicted in March and pleaded not guilty).<ref>{{cite web|url=https://patch.com/massachusetts/boston/man-gets-5-years-prison-boston-dominican-sec-email-scam | title=Man Gets 5+ Years Prison For Boston, Dominican SEC Email Scam | last=Fisher | first=Jenna |date=August 16, 2018|website=[[Patch Media|Patch.com]] | access-date=December 8, 2018}}</ref>

== See also ==
*[[Option (finance)]]
*[[Options strategies]]
*[[Options spread]]
*[[Options arbitrage]]
*[[Synthetic position]]
*[[Prediction market]]

== References ==
{{Reflist|30em}}

==Further reading==
*{{cite news |last1=Horovitz |first1=David |last2=Weinglass |first2=Simona |title=Ahead of fraud trial, US lays bare 'multitude of lies' of Israeli binary options |url=https://www.timesofisrael.com/ahead-of-fraud-trial-us-lays-bare-multitude-of-lies-of-israeli-binary-options/ |access-date=10 July 2019 |publisher=The Times of Israel |date=10 July 2019}}

== External links ==
*[http://www.BinaryOptionsFraud.ca Canadian securities regulators website]
*[https://www.cftc.gov/ConsumerProtection/FraudAwarenessPrevention/CFTCFraudAdvisories/fraudadv_binaryoptions.html CFTC investor alert]
*{{cite news|last1=Levy-Weinrib|first1=Ela|title=Regulator seeks blanket binary options ban|url=http://www.globes.co.il/en/article-regulator-seeks-blanket-binary-options-prohibition-1001175186|access-date=May 6, 2018|publisher=[[Globes (newspaper)|Globes]] English|date=February 2, 2017}}

{{Derivatives market}}

{{DEFAULTSORT:Binary Option}}
[[Category:Options (finance)]]
[[Category:Investment]]
[[Category:Derivatives (finance)]]
[[Category:2 (number)]]
[[Category:Finance fraud]]