Binary options are really junk, so please don’t fool yourself. No institutional investor has ever traded anything like this nor of course no well-informed private trader. In the end, it was just years of hype, which, for example, was often advertised on TV stations before soccer broadcasts. Really fast and just to bag some money on the stock exchange, like in a slot machine casino. So we can describe the offer of the industry, which drove humans without any product knowledge for many years into their arms.
Extremely short running bets could be found here. Bets on alleged stock market prices, which were only simulated by the providers. What was the percentage of providers who were serious or largely serious about prices, executions, payouts etc? That’s hard to say. In any case, at some point the EU financial market supervisory authority ESMA decided to ban binary options because the industry was simply too dubious.
In March 2018 Binary Options (as it was thought) were buried once and for all time at EU level. In August 2018 ESMA relaxed the ban under very strong restrictions. After extensions, the restrictions continued to apply until now. According to BaFin the ESMA measures will end today. BaFin decided today to continue the ban on binary options on its own initiative for the German market. To this effect, a detailed “General Order” has been issued today (read here for details). In a short form here is the reasoning of BaFin, which is easy to understand in terms of content (Note: Why are warrants and certificates not also prohibited with the same reasoning?):
The BaFin sees risks and thus considerable investor protection concerns primarily in the fact that binary options are complex and not very transparent. This applies above all to the calculation of their performance and the underlying asset. Unlike other financial instruments, binary options are not traded on a market where prices are a function of supply and demand. The provider sets the price itself without the client being able to understand and verify it. Small investors have difficulties in accurately estimating the risk/return profile due to the regular extremely short maturities. In addition, providers of binary options regularly act as direct counterparties to their clients. The interests of the providers are therefore in direct conflict with the interests of the customers. For example, providers could manipulate the price of the underlying asset when the binary option expires or change the term of the binary option by seconds or milliseconds so that the option contract would not be paid out.