TLDR
- Cboe is in early discussions to revive binary options for retail investors to compete with the growing prediction markets.
- The exchange is negotiating with retail brokerages and market makers to introduce fixed-return contracts.
- Binary options would offer investors simple yes-or-no trades based on specific financial outcomes.
- Cboe aims to attract retail investors with event-based contracts designed to simplify derivatives trading.
- Cboe’s previous binary options experiment in 2008 had limited success but retail interest has grown since then.
Cboe Global Markets is in early talks to revive binary options for retail investors, seeking to rival growing prediction markets. The exchange is reportedly negotiating with retail brokerages and market makers to introduce these fixed-return options. If successful, it could reshape the trading landscape, especially given the surge in popularity of prediction markets.
Cboe Looks to Compete with Growing Prediction Markets
Cboe’s renewed interest in binary options is driven by the fast growth of prediction platforms. Companies like Kalshi and Polymarket have seen trading volumes soar, reaching over $17 billion in January. These platforms allow users to trade contracts on political, financial, and cultural events, and Cboe wants to enter this competitive space.
Cboe is exploring partnerships with retail brokers to offer binary options, which allow investors to place simple yes-or-no trades. These contracts, if successful, could appeal to retail investors due to their straightforward nature and risk structure. According to Rob Hocking, Cboe’s global head of derivatives, the goal is to create “simpler, event-based contracts” aimed at attracting more retail investors into derivatives trading.
The binary options that Cboe intends to bring back will pay out a fixed amount based on specific financial outcomes, similar to prediction market contracts. These options offer a fixed return if an event occurs, but nothing if it doesn’t, making them an “all-or-nothing” proposition. For instance, an S&P 500 binary option would pay a set amount if the index closes above a particular level.
Cboe previously experimented with binary options in 2008 but saw limited success. At the time, institutional traders dominated the market, and retail interest was low. However, with retail options trading on the rise, Cboe believes now is the right time to reintroduce these products.
Regulatory Concerns Around Binary Options
Despite the growing retail interest in binary options, they come with regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) has issued warnings about the risks of binary options, especially regarding fraud and market manipulation. Cboe assured that any new contracts would comply with strict regulations, working closely with regulators to ensure proper oversight.
Binary options are legal in the U.S. only on regulated exchanges under SEC or CFTC oversight. Offshore binary options platforms remain illegal for U.S. residents, due to concerns over investor protection and fraud. Cboe’s move will have to clear a lengthy legal and regulatory process before these products can hit the market.
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