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The binary options trading industry is drawing increased regulatory attention due to a spike in “zero day” options trading activity. “Zero day” options, otherwise known as digital or electronic options, are those that expire on the same day they are bought.
In recent years, regulatory agencies have encountered a growing number of complaints, inquiries and investigations into the zero day options trading industry. Critics argue that this type of trading is highly speculative and risky, as investors may not have enough time to evaluate their options or do proper due diligence before making a financial commitment.
The increased attention by law enforcement has led to changes in the way some firms operate. For instance, many firms now require traders to hold their positions for at least one day before they can liquidate or close out the position. This policy helps to reduce the risk of losses, as traders have more time to properly assess their investment decisions.
The regulatory environment has also become stricter in some countries. In January 2021, the European Securities and Markets Authority (ESMA) imposed stricter limits and conditions on the provision of binary options, including the ban on offering asset-or-nothing options to retail investors. The ESMA also strengthened its guidance on the responsible promotion of digital options, with the aim to protect investors from misleading advertising and other unethical practices.
The spike in zero day options trading activity has also caused regulators to take note. For some countries, this has resulted in increased monitoring and oversight of the industry, while others are enacting new laws and regulations to better protect investors. As more people become aware of the risks associated with zero day options and the potential pitfalls associated with the industry, the regulatory environment is likely to become more stringent.
Ultimately, it is clear that the binary options industry is facing greater scrutiny due to the boom in zero day options trading. This is likely to become even more pronounced as regulators actively work to protect investors and ensure a level playing field.