Binary options trading involves betting on what will happen to the price of a stock, commodity or other asset over a very short time period – in many cases just minutes.
Such bets are complex, high-risk, and the majority of consumers who place them lose money, according to the FCA.
Until now, those betting on binary options have had no protection from the financial regulator, as the industry was overseen by the Gambling Commission.
From January 3, 2018, firms will require FCA authorisation and complaints will be able to be referred to the Financial Ombudsman.
Deposits will also be protected by the Financial Services Compensation Scheme if a binary options company goes bust, although this will not protect consumers from losses they incur by betting on legitimate binary options. For investments, the FSCS protection limit is £50,000 per person, per firm.
Aside from most consumers losing money, the FCA’s other concerns include the addictive nature of binary options betting, and inherent conflicts of interest.
“In most cases, the firm you are buying from benefits when you lose. This places the firm’s interest in direct conflict with yours,” it said.