A quick history
Digital options really exploded in popularity in the financial trading and gaming industries. In 2008, when the Chicago Board of Exchange (CBOE) and the North American Derivatives Exchange (NADEX) decided to add binary options as a trading option.
After this dramatic change in the financial market, they became an integrated part of the exchange market, along with government regulations and taxes.
Whereas in traditional trading traders predict the exact price of future stocks, in binary options traders simply predict the direction of the change in the stock. In traditional trading, the expiration date can be several weeks or even months in advance, but with binary options, traders can predict the direction of stocks which are set to expire in days, hours, or even minutes. Traditional trading allows traders to buy and sell futures contacts up until the time of expiration, whereas binary options typically lock in traders until expiration. This made binary trading less flexible for traders, but also a lot simpler. (It is noteworthy that many online operators now offer early exit options, allowing binary options traders greater flexibility than ever before).
With online binary trading, the ability to trade became less regulated for traders and operators, although it became harder to distinguish which sites were trustworthy. Still, this possibility allowed for traders to trade with receiving a contract, opening the market around the globe.
Current regulations requirements
Digital options trading sites have a major advantage over other forms of trading and gaming offered online as they can be regulated either under financial regulations or under gambling regulation (fixed-odds bets).
Binary Options under financial regulations
Since binary options are financial instruments, retail sites can be operated under regulations of financial jurisdictions such as CYSEC at Cyprus (many of the Forex companies run under this license), FSA in Japan, AFSL in Australia, FSA in UK, MAS in Singapore etc . According to the legislation in the European Union, a license from one member of the EU is valid in all other members of the EU. This option could have been used more for markets where gambling and gaming are prohibited. Most of these games available are similar to the leading gambling options but can be considered financial games as well. In addition, in some countries such as Israel and Turkey where the regulations are not as strict as in the EU or the US, no license is required by law for operation.
Binary options as fixed-odds betting
Since binary options offer traders only two fixed possible results, the risk and the potential revenues for the final possible results are known in advance. Therefore, this game is considered to be fixed-odds betting under the regulations in the UK, Alderney and other popular gaming commissions. This allows retail sites to offer financial investments that are taxed and regulated as fixed-odds bets and therefore a lower tax for traders in most jurisdictions.
Benefits of regulation
In the past governments like the US have banned online gambling outright, but in light of the economic crisis governments are taking a second look at this very profitable revenue source. The UK, for example, offers online gaming licenses.
When sites are licensed, players are more secure in their participation and would encourage their friends to play. Governments can ensure a licensed and secure product for players as well as channel money into government resources, creating a win-win situation for governments, players, and operators.