The Big Challenges Ahead for the Binary Options and Forex Industry

This article was written by Sydney Ifergan, FX and binary options consultant.

It’s not breaking news anymore that the binary options industry is under fire. The question on many people’s minds is who is to blame for the negative stigma that has developed and what has caused the decline of this fledgling industry? The other major question on many peoples' minds is will this trend taint the already well establish FX industry?

Every day, more and more binary options brokers are being flagged as scams and with so many brokers having to shut their doors in recent years, it’s clear that the industry needs a good shakeup to eliminate the rotten apples that have tarnished the entire binary options industry.

The Platform Providers

The industry started with a handful of innovative tech companies, that saw an opportunity to build trading platforms and to provide turnkey solutions for those who wanted to be brokers. While the intentions were good, the aggressive marketing to would-be brokers opened the door to many unscrupulous businessmen who wanted to make a quick buck, with no thought to the medium and long term sustainability. On the other hand, there were also many entrepreneurs who took the opportunity to build quality, service-oriented businesses.

Based on this, should these platform providers not have done more due diligence as to who they were offering their solutions to, or at least created a framework and monitoring mechanism to ensure that business was kept clean and ethical?

The Brokers

Now, if we turn our attention to the brokers and how they have been operating, many have done a good job of 'keeping it clean' but unfortunately there has been no shortage of brokers who simply went for the quick buck. What started the cancer growing in the industry, were those brokers who promised the impossible and whose sole intent was to drain every last cent from their traders. They also especially preyed on those who didn’t have the means to even start trading.

This short-sighted approach allowed for the tumor to grow and many brokers, who were trying to keep it clean, found themselves quickly losing market share and having to adopt the same shady tactics. As a result, everyone is paying the price now. So now the question is whether it’s the dubious practice of many brokers that has allowed the tumor to become fatal?

The Regulators

The next potential culprits in this mess are the regulators. Now you are probably wondering how can the regulators be to blame. Well, the first potential reason is that many brokers simply didn’t have the time, money or resources to meet the ever-changing regulatory requirements. As a result, many brokers simply rejected the idea of all this investment in Regulation and those that did, in many instances, shot themselves in the foot. Why, you might ask.

Well there are so many different regulators with different requirements, but the bigger issue is they have all been somewhat reactive, in taking action only when they receive a complaint. As the old saying goes, 'prevention is better than cure'. So, what has been the best way for a broker to avoid issues with regulators? Simply don’t get regulated and operate without it. There are many brokers now who are turning to the more established and structured gaming industry regulators, as this has been far more effective and successful than the financial regulators.

Maybe the financial regulation bodies should have formed a more cohesive and unified approach, while working closely with governments, to create a proper legal, regulatory and licensing process.

Affiliates and Marketers

Affiliates are part of the lifeblood of traffic to brokers, but they are also to blame for the growing tumor. It is no secret that some affiliates use less than ethical marketing techniques in order to make money; from manufactured reviews and testimonials, unsubstantiated systems and bots, to promising endless riches. The other major marketing technique, that has really put a target on binary options, are the scam sites. In the purest form, these types of sites should prevent traders from being scammed. Instead, they have simply shifted the trader from one 'dirty' brand to another, where the affiliates are making better commissions.

The bigger problem is that as soon as someone with very little knowledge of the industry reads the word 'scam', it draws attention and questions whether binary options are legit or actually a scam.

What about the FX brokers?

FX, over the years, has become an established and stable industry and has been through its pains, but all the bad publicity of binary options has now started to shift some of this negative sentiment to the FX space. The other challenge that is perpetuating the impact on the FX brokers is that many of the binary platform providers are now offering FX as part of their package, and many binary brokers, who have been running less than legit businesses, are taking advantage of this FX offering and applying their same shady tactics.

The Bottom Line

So, who is to blame and what will happen to the binary options industry? It’s clear that the four main players, platform providers, brokers, regulators and affiliates, all have their share of responsibility.

Platform providers need to realize that they cannot simply hand out their platform like candy, and they certainly must not abdicate their responsibility for good ethical business practices by passing the buck to regulators. This short-sighted approach of selling their solutions to anyone and everyone must stop and measures need to be in place to regulate, to an extent, at the provider level.

Brokers also need to step up and take a long-term view of not promising the impossible, practicing good business ethics and delivering on their promises. In a perfect world, brokers shouldn’t need regulators to tell them what is right and wrong; any reasonable, honest person can evaluate what they are doing.

Regulators also need to get their act together and work together to build a uniform approach that is sensible, logical and simple enough for brokers to implement and adhere to. The fly by night, dodgy brokers need to be taken to task and eliminated and ensure that when a brand is closed, funds are returned to traders.

The affiliates and marketers need to realize that if they don’t apply some level of moral marketing, they are going to kill the goose that lays golden eggs. There are thousands of niches out there that have grown and continue to flourish, without all the dirt, which proves that good business practices today will ensure the goose keeps laying golden eggs for a very long time.

Where to from here?