Binary options: a product banned for retail clients in the EU

A binary option pays a fixed amount if price is on the right side of a level at a set time, and otherwise the whole stake is lost. In 2018 ESMA banned the sale of binary options to retail clients in the European Union, citing negative expected returns and a conflict of interest.

Casino slot machines — Photo: unknown author, CC0 licence (source)

What it is

Popular offers run over a horizon of minutes, and the payout for a correct call is lower than the stake lost on a wrong one. It's built like a bet with a house edge.

Despite the EU ban, firms from outside the Union still operate online and offer these products to EU residents.

How people use it

bets on price direction over a few minutes
binary option “strategies” from YouTube
platforms from outside the EU

What the research and evidence say

The European Securities and Markets Authority (ESMA) justified its 2018 ban by the structurally negative expected return, the product's complexity and the conflict of interest between provider and client. With a payout lower than the stake, you have to be right much more than half the time just to break even.

Weaknesses

structurally negative expected value
the provider profits from the client's loss
a ban for retail clients in the EU
frequent scams by platforms from outside the Union

What order flow shows

Binary options have nothing to do with the market in the order flow sense: you're not trading on an exchange with other participants, you're betting against the provider. Futures on a regulated exchange such as the CME have a central order book and public volume data.

Indicators vs order flow

Every indicator and every pattern in this section is built from the same data: a candle's open, high, low, close and sometimes volume. They're derivatives of price, showing the effect rather than the cause. Order flow looks at what price is made of: who was buying and selling aggressively (delta), where limit orders were waiting (the order book) and at which prices the market accepted trade (the volume profile).

On CME futures this data is real and comes from one central market. Spot forex doesn't have it: platforms show tick volume, the number of price changes at a single provider.

To be fair: order flow isn't the Holy Grail. It takes learning, it can be noisy, big players hide some of their orders, and an edge only comes from a process and risk control. But it gives you information that simply isn't on a candlestick chart.

How to use it sensibly

check whether the firm is authorised in the EU and isn't on a regulator's warning list (in Poland, the KNF)
beware of offers from outside the EU
understand who is on the other side of your trade

Glossary: Expectancy
Glossary: Futures contract
Glossary: CME Globex
Atlas of biases: The house money effect
Atlas of biases: The illusion of control
Also under the microscope: Scalping
Also under the microscope: Day trading
Also under the microscope: Swing trading

Frequently asked questions

Are binary options legal in Poland?

ESMA banned offering them to retail clients in the EU in 2018. The offers that reach people in Poland usually come from firms outside the Union.

Can you make money on binary options?

The product's design gives it a negative expected value: the payout for being right is lower than the loss for being wrong.

Educational content, not investment advice. No signals, entries, stops or position sizes.