Banc De Binary: Difference between revisions

Banc De Binary

Company type	Private
Industry	Binary Options
Founded	2009
Headquarters	Limassol, London, Hong Kong, Diamond Exchange District
Key people	Oren Laurent, Company Founder; [1] [2] Soteris Flourentzou, Director;[3] Pieris Hadjipieris, Director;[4] Sarah Fenwick, Director of Communications;[5] Roy Ogen, General Manager of the Cyprus Headquarters [6]
Website	www.bancdebinary.com/

Banc De Binary is an Cypriot based financial enterprise specializing in binary options (also known as fixed return options or digital options) on assets including commodities, stocks, indices, and foreign exchange. The company operates an online trading website through which customers can buy or sell binary ("call" or "put") options, predicting whether the price of a certain asset will go up or down in a specific time period.

In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange).^[7] Binary options are usually European-style options.

When buying a binary option the potential return it offers is certain and known before the purchase is made. Binary options can be bought on virtually any financial product and can be bought in both directions of trade either by buying a “Call”/“Up” option or a “Put”/“Down” option. This means that an investor can go long or short on any financial product simply by buying a binary option. Binary options are offered against a fixed expiry time which may be e.g. 30 seconds and up to 30 minutes, an hour ahead or to the close of the trading day.^[8]

Within the European Union, the company is regulated by the Cyprus Securities and Exchange Commission (CySEC). CySEC^[9] made the decision to recognized binary options as trading instruments in 2012 and enacted the first international regulation of binary options requiring licensees fulfill obligations that meet local and international law. At its genesis, Banc De Binary and the platform provider SpotOption were the first to become regulated by CySEC. Since then Banc De Binary has requested certification status from the FSA (Financial Services Authority- UK) and the FSB (Financial Services Board). Because of Cyprus’ member status in the European Union, Banc De Binary is also regulated by the ImFIB which carries some protections under the ICF (Investors Compensation Fund). This network of regulation allows Banc De Binary to operate in EU countries under the European Economic Arena Passport.

The Wall Street Journal described it as "an innovative website that allows people to trade on the price of gold, oil or stocks";^[10]

An article in the Independent on Sunday newspaper described it as a "leading City trading firm".^[11]

Banc De Binary was founded in 2009 by American businessman and financier, Oren Laurent.^[12]Laurent was recorded saying “After the financial crisis of 2008, I was dismayed at the state of the financial world, embarrassed by what damage many brokers had caused to the economy and the impact this had had on the lives of people worldwide. Banc De Binary began as a dream and vision. The idea was to make a positive contribution to the financial world and offer a product accessible to people everywhere, not just experienced traders.” The 2008 financial crisis coincided with a ruling by the SEC (Securities and Exchange Commission). Following this ruling, binary options were no longer limited to being traded on an exchange. Laurent was one of the founding members of SpotOption, a company which provides the software behind several binary option platforms. Laurent no longer holds any position in the company. He founded the trading platform Banc De Binary, which officially opened for business on 15 January 2009. This was among the first binary options firms to be established after the SEC’s decision.

Binary options contracts have long been available over-the-counter (OTC), i.e. sold directly by the issuer to the buyer. They were generally considered "exotic" instruments and there was no liquid market for trading these instruments between their issuance and expiration. They were often seen embedded in more complex option contracts.

Since mid-2008 binary options websites called binary option trading platforms, such as Banc De Binary, have been offering a simplified version of exchange-traded binary options. It is estimated that around 90 such platforms (including white label products) have been in operation as of January 2012, offering options on some 200 underlying assets.

The platforms offer standardized short-term binary options with a pre-determined profit/loss, that cannot be liquidated (buy or sell to close) before expiry, unless the platform or broker allow such liquidation.^{[disputed – discuss]}

A trader who thinks that the EUR/USD price will close at or above 1.2500 at 3:00 p.m. can buy a call option on that outcome. A trader who thinks that the EUR/USD price will close at or below 1.2500 at 3:00 p.m. can buy a put option or sell a call option contract.

At 2:00 p.m. the EUR/USD price is 1.2490. The trader believes this will increase, so he buys 10 call options for EUR/USD at or above 1.2500 at 3:00 p.m. at a cost of $40 each.

The risk involved in this trade is known. The trader’s gross profit/loss follows the ‘all or nothing’ principle. He can lose all the money he invested, which in this case is $40 x 10 = $400, or make a gross profit of $100 x 10 = $1000. If the EUR/USD price will close at or above 1.2500 at 3:00 p.m. the trader's net profit will be the payoff at expiry minus the cost of the option: $1000 – $400 = $600.

The trader can also choose to liquidate (buy or sell to close) his position prior to expiration, at which point the option value is not guaranteed to be $100. The larger the gap between the spot price and the strike price, the value of the option decreases, as the option is less likely to expire in the money.

In this example, at 3:00 p.m. the spot has risen to 1.2505. The option has expired in the money and the gross payoff is $1000. The trader's net profit is $600.

Banc De Binary does not charge fees from their investors. The profit comes from the difference between the options that expire in the money to options that expire out of the money. This difference can be found by the formula below. In this (for each base asset with same expiry characteristics), (W) is the in the money option payout in percentage terms (e.g. 1.7), (L) is the out of the money option payout in percentage terms (e.g. 0.15), ${\displaystyle (V_{1}),(V_{2})}$ are the turnovers of transactions made for each outcome (e.g. $1,000), (S) is the platform's gain.

${\displaystyle S=-[V_{1}(W-1)+V_{2}(L-1)]}$

In this example the platform's turnover is $2,000 and its profit is $150 or 7.5% on turnover. As the platform’s gain comes from the above formula, most platforms will be indifferent as to the outcome of a single trade. Note that if ${\displaystyle V_{1}}$ is not equal to ${\displaystyle V_{2}}$ then the platform will have to act as a market maker. This can cause the platform gain (S) to be more volatile than in the above formula. In order for a trader to make a long term profit he has to predict correctly roughly 54.5% of the time (depending on in-the-money and out-of-the money payouts).

In the Black–Scholes model, the price of the option can be found by the formulas below.^[13] In fact, the Black–Scholes formula for the price of a vanilla call option (or put option) can be interpreted by decomposition 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 ${\displaystyle \sigma }$ is the volatility. ${\displaystyle \Phi }$ denotes the cumulative distribution function of the normal distribution,

${\displaystyle \Phi (x)={\frac {1}{\sqrt {2\pi }}}\int _{-\infty }^{x}e^{-{\frac {1}{2}}z^{2}}dz.}$

and,

${\displaystyle d_{1}={\frac {\ln {\frac {S}{K}}+(r-q+\sigma ^{2}/2)T}{\sigma {\sqrt {T}}}},\,d_{2}=d_{1}-\sigma {\sqrt {T}}.\,}$

This pays out one unit of cash if the spot is above the strike at maturity. Its value now is given by,

${\displaystyle C=e^{-rT}\Phi (d_{2}).\,}$

This pays out one unit of cash if the spot is below the strike at maturity. Its value now is given by,

${\displaystyle P=e^{-rT}\Phi (-d_{2}).\,}$

This pays out one unit of asset if the spot is above the strike at maturity. Its value now is given by,

${\displaystyle C=Se^{-qT}\Phi (d_{1}).\,}$

This pays out one unit of asset if the spot is below the strike at maturity. Its value now is given by,

${\displaystyle P=Se^{-qT}\Phi (-d_{1}).\,}$

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 ${\displaystyle r_{FOR}}$, the foreign interest rate, ${\displaystyle r_{DOM}}$, 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,

${\displaystyle C=e^{-r_{DOM}T}\Phi (d_{2})\,}$

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,

${\displaystyle P=e^{-r_{DOM}T}\Phi (-d_{2})\,}$

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,

${\displaystyle C=Se^{-r_{FOR}T}\Phi (d_{1})\,}$

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,

${\displaystyle P=Se^{-r_{FOR}T}\Phi (-d_{1})\,}$

This section may be too technical for most readers to understand. Please help improve it to make it understandable to non-experts, without removing the technical details. (March 2012) (Learn how and when to remove this message)

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.

To take volatility skew into account, a more sophisticated analysis based on call spreads can be used.

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 infinitessimally tight spread, where ${\displaystyle C_{v}}$ is a vanilla European call:^{[page needed]},

${\displaystyle C=\lim _{\epsilon \to 0}{\frac {C_{v}(K-\epsilon )-C_{v}(K)}{\epsilon }}}$

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:

${\displaystyle C=-{\frac {dC_{v}}{dK}}}$

When one takes volatility skew into account, ${\displaystyle \sigma }$ is a function of ${\displaystyle K}$:

${\displaystyle C=-{\frac {dC_{v}(K,\sigma (K))}{dK}}=-{\frac {\partial C_{v}}{\partial K}}-{\frac {\partial C_{v}}{\partial \sigma }}{\frac {\partial \sigma }{\partial K}}}$

The first term is equal to the premium of the binary option ignoring skew:

${\displaystyle -{\frac {\partial C_{v}}{\partial K}}=-{\frac {\partial (S\Phi (d_{1})-Ke^{-rT}\Phi (d_{2}))}{\partial K}}=e^{-rT}\Phi (d_{2})=C_{noskew}}$

${\displaystyle {\frac {\partial C_{v}}{\partial \sigma }}}$ is the Vega of the vanilla call; ${\displaystyle {\frac {\partial \sigma }{\partial K}}}$ 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.

${\displaystyle C=C_{noskew}-Vega_{v}*Skew}$

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.

In a prediction market, binary options are used to find out a population's best estimate of an event occurring – for example, a price of 0.65 on a binary option triggered by the Democratic candidate winning the next US Presidential election can be interpreted as an estimate of 65% likelihood of him winning.

In financial markets, expected returns on a stock or other instrument are already priced into the stock. However, a binary options market provides other information. Just as the regular options market reveals the market's estimate of variance (volatility), i.e. the second moment, a binary options market reveals the market's estimate of skew, i.e. the third moment.

In theory, a portfolio of binary options can also be used to synthetically recreate (or valuate) any other option (analogous to integration), although in practical terms this is not possible due to the lack of depth of the market for these relatively thinly traded securities.

In theory a portfolio of options can synthetically recreate any other financial instrument, including conventional options.

It may come as a surprise to many interested in the options space that put options were not introduced on the CBOE until 1977, nine years after call options were. The binary options market at present is in the same 'no-mans-land' where there is a vibrant FX binary options market with sophisticated binary options strategies, while at the other extreme there are a plethora of platforms offering one-hour bets dressing themselves up as 'investments'.

But the binary options market too has its range of straddles, strangles, call spreads, butterflies, condors etc.. which as yet have not been explored by the mainstream exchanges. Tunnels, aka rangebets, aka corridors are reasonably well-known and are priced in the manner of a conventional call spread although the tunnel is primarily a volatility trade. Others such as the Duke of York, Tug of War, Accumulators provide a rich seam of varied instruments providing distinct and unique P&L profiles.

As indicated above, binary options are generally perceived as European-style options that cannot be exercised before expiry. The American-style binary options are out there but are usually referred to as one-touch options. A comprehensive list of binary options strategies would include European and American binary options, 'knock-in' binary options, 'knock-out' binary options and two-asset binary options.

On May 3, 2012, the Cyprus Securities and Exchange Commission (CySEC) announced a policy change regarding the classification of binary options as financial instruments. The effect is that binary options platforms operating in Cyprus (where many of the platforms are based) will 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.^[14] On January 7, 2013, Banc De Binary became the first licensed binary option firm recognized as an investment firm by the Cyprus Securities and Exchange Commission (CySEC)..^[15][16]

Investment firms regulated by CySEC must demonstrate to CySEC that their activities comply with the laws of any non-EU countries where they do business.^[17][18] According to the company, its operations "outside of the European Union" are conducted by BDB Services Limited (formerly known as BO Systems Limited), which is incorporated in the Seychelles.^[19]

Banc De Binary are also fully compliant with the European Markets in Financial Instruments Directive (MiFID).^[20] In accordance with MiFID, Banc De Binary has passported into almost all member states of the EEA and have notified the relevant financial regulators in such states that it provides services to residents of such states. The list below shows regulators who have accepted the Banc De Binary passporting notice:^[21] Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lichtenstein, Lithuania, Luxembourg, Malta, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, The Netherlands, United Kingdom.^{[22] [23] [24] [25] [26]}

The Financial Services Register maintained by the UK's Financial Conduct Authority states that from 25 February 2013 the company "is authorized or registered by ... [CySEC] ... and may be subject to limited regulation by the Financial Conduct Authority".^[27] The company has similar licenses in Germany,^[28] Italy,^[29] France,^[30] and Spain.^[31] In accordance with the European Markets in Financial Instruments Directive (MiFID), the company has "passported" into almost all member states of the EEA; MiFID allows companies to provide financial services primarily regulated by their home state rather than the state where the customer resides.^[21]

The company received a complaint by the US Federal Security and Exchange Commission filed on June 5, 2013 (Civil Action No. 2:13-CV-00993-RCJ-VCF), alleging that Banc de Binary had been offering and selling binary options to investors across the U.S. without first registering the securities as required under the federal securities laws. A request for deposition was made via the Nevada courts, yet to date no charges by the US Securities Commission were filed against the company or its staff.

In a message posted on its Web site,^[32] the company stated that

[...] Banc De Binary is voluntarily discontinuing its operations in the United States. The United States Commodity Futures Trading Commission and Securities and Exchange Commission have asserted that Banc De Binary is not permitted to offer its binary option products to U.S. residents without registering with those agencies. We are currently in discussions with the CFTC and SEC about these issues, but in the interim, we have discontinued all business with U.S. residents.

The company allows people to place predictions on changes in the price of various assets by using a pricing platform provided by another company, Spotoption, and customised by Banc de Binary. Customers do not own the asset but instead predict whether its price will rise or fall.^[33] Spotoption also provide similar pricing services for other binary options brokers.^[34] The company offers several kinds of options; customers can make predictions of the price of over 200 global assets including commodities, stocks, indices, and FOREX using several variations of the trading platform including classic binary options,^[35] long term options, sixty seconds,^[36] one touch (boundary options),^[37] and pairs trading.

• 2013, Global Leadership and Excellence in Binary Option Trading, IAIR ^{[38] [39] [40]}
• 2013, Gold Award for Best European Broker, Binary Options Leader (BOL) ^{[38] [41]}
• 2013, Best Trading Platform, Binary Option Strategy ^{[38] [42]}
• 2013, Best Binary Options Broker in the Middle East 2013, JFEX^{[38] [43][44]}
• 2013, Corporate Governance Award, World Finance Magazine^[38]
• 2012, Best Binary Options Customer Service, ForexTraders^{[38] [45]}
• 2012, World Finance 100, World Finance Magazine^{[38] [46]}
• 2012, Best Binary Options Platform in North America, World Finance Magazine^[38]
• 2012, Best Binary Options Platform in Asia, World Finance Magazine^[38]
• 2012, Most Secure Binary Broker, Moat & Bailey^[38]
• 2011, Best Customer Service, Forex News Now^[38]
• 2011, Best Customer Service, FX Empire^{[38] [47]}
• 2011, Broker of the Year, Binary Options Daily^{[38] [48]}
• 2011, Platform of the Year, Binary Options Daily^{[38] [48]}

As of March 2014, the following domain names (and possibly others) were registered in the company's name:

• bbinary.com^[49]
• bancdebinary.com^[50]
• bancdebinary.net^[51]

• Banc De Binary Website
• CySec License & Regulation
• United Kingdom Regulation - Financial Services Register 2013
• BaFIN Regulation - Unternehmen
• Italian Consob Regulation - REGISTER OF EU INVESTMENT FIRMS: WITHOUT BRANCHES (DATE 08/08/2013)
• BDF Regulation - Résultat de votre recherche
• CNMV Regulation - Empresas de Servicios de Inversión del Espacio Económico Europeo en Libre Prestación
• Binary Trading
• Binary Options Trading Platform
• [1]

• Binary option
• Options strategies
• Options spread
• Options arbitrage
• Synthetic position
• Prediction market
• Futures market
• Paper trading