Binary Options and Whether They Make Money or Not
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The Danish Gambling Authority is publishing this interpretative aid to support the understanding of the Danish Gambling Act in regards to pool betting based on the relative development in the prices of financial instruments.
The intent behind the provision marked and fundamental difference between binary options and betting to ensure that financial instruments such as spread betting, contracts of difference CFD and similar products do not fall within the scope of the Gambling Act. These instruments are best handled by the financial regulation.
This means that if a product falls within the definition of a financial instrument, then the product fails to fall within the scope of the Danish Gambling Act. Bets on the future value of financial instruments will not always be considered a financial instrument and therefore it is possible marked and fundamental difference between binary options and betting offer betting on financial instruments within a certain legal latitude.
In these virtual stock trading games, customers play with play money on fictional financial markets. The player who has performed the best during a given period wins a prize. At no point do the customers trade real financial instruments on a real financial market. Equivalently other betting products on the future value of financial instruments can be offered as long as it itself is not a financial instrument. Betting products can be derivatives When providing bets, where development in market prices of financial instruments is the key factor in settling a bet, risks can arise that the bets have the characteristics of derivatives, which is a financial instrument.
The definition of derivatives is not clear-cut and it relies on an open definition, which makes it difficult to define the framework for establishing when a betting product is a bet or a derivative. Whether or not a bet can be characterised as a derivative must be determined on a case by case basis. On a general level, a derivate is a financial instrument, where the value depends on an underlying asset. Derivatives can be structured in such a way, that the underlying asset can consist of basically any financial asset.
For example stocks, raw material or currency. It can also be an index, e. For example, a rate of interest. The price or the value of derivatives is calculated on the basis of the underlying asset and the anticipated future value hereof. If you have marked and fundamental difference between binary options and betting questions regarding the interpretation of derivatives, please contact the Danish FSA. Bets that can be provide within the scope of a betting licence The following criteria must as a minimum be complied with in order for bets not to be considered financial instruments.
To ensure that betting products are not characterised as a financial service or derivatives, the following sections should be complied with:. A — Only pool betting with equal stake for every game option A bet on the future value of financial instruments will only fall within the scope of the Danish Gambling Act section 11, if it is offered as a pool bet. Fixed odds bets etc. The stake for participating in pool betting must not be differentiated between the game options.
For example it must not be more costly to bet on stock A than stock B. However, the players can still choose the size of the stake.
In general, there must not be differentiated rules or other conditions between the game options. The management of stake, result and winnings must therefore be the same for all the game options in the pool betting. The pool bet must only be determined by the relative development in market value between several financial instruments. The winnings must therefore reflect the deposited amount of marked and fundamental difference between binary options and betting, the marked and fundamental difference between binary options and betting of winning players and the size of the stake from the individual player.
B — Which financial assets can used for betting products? Betting should be limited to financial instruments that are trading on regulated markets. To reduce the risk of market abuse it is only allowed to bet on the indices of the most traded financial instruments. Betting products based on financial instruments that are rarely traded or which can easily be marked and fundamental difference between binary options and betting should not be offered. C — The marketing and presentation of these types of games When offering betting products based on financial instruments, they must be presented and marketed as a gambling product in all respects.
The marketing and the visual presentation of the game must not give rise to doubt that it is a gambling product and not a financial asset. The offered gambling product, the marketing, and the website where the betting is made available, must not contain offering of financial services or any reference to financial services.
Therefore, the licence holder must not give financial counselling financial recommendations, compose financial analyses or other financial overview tools such as statistics, graph and charts. The licence holder must not refer to other parties who provide financial services or analysis. The licence holder must have an ordinary offer of betting before offering of betting on financial assets can take place.
A betting offer solely based on betting products regarding the future value of financial assets is not allowed since this can confuse the consumers as to what nature the offered product is. Securities traders cannot obtain a betting licence because securities traders only can offer activities as stated in appendix 4 to the Danish Financial Business Act as per section 9 1 in said act.
Supervision with this type of betting The Danish Gambling Authority will supervise the offer of these types of betting products and there will be an ongoing evaluation of the risks associated, among others market abuse.
The Danish Gambling Authority and the Danish FSA will evaluate whether or not certain bets on the relative development in market value on financial products should be regulated in the gambling or financial legislation. Spillemyndigheden - Englandsgade 25, 6. To ensure that betting products are not characterised as a financial service or derivatives, the following sections should be complied with: