Binary Options Trading in the U.S. – Legal or Not?

A binary option is one of the most simplistic financial product that exists. Traders need to simply say the direction a specific market goes (currency pair, index, commodity, individual stock, etc.) and a time for evaluating the outcome.

The actual distance the price travels doesn’t matter. That’s the big difference in binary trading when compared to, for example, its main rival: Forex trading.

Why its main rival? Because these two address the retail traders. Retail traders do participate in the stock market too. However, the biggest proportion of them trade Forex and binary options products.

A binary option has a striking price (the price the option is bought at) and an expiration date. When buying a call option, traders look for the price to move to the upside until the expiration date.

Despite its simplicity, trading binary options leaves room for few trading strategies. In any case, fewer than trading the Forex market.

Moreover, the industry is populated with so many scam brokers that this became become notorious on the Internet. And yet, new traders come and join the binary options trading game.

Of all traders, the ones in the United States seem to be the most protected ones.

Binary Options Regulation in the United States

Any brokerage house must have a license number. This proves the broker is regulated by a financial authority.

If there’s no license number, there’s no financial authority supervising. That broker most likely is a scammer.

Binary options trading is extremely popular in the United States. Binary options are legal and available but only on a CFTC (Commodity Futures Trading Commission) regulated broker.

This is good news for traders, bad news for brokers. How come?

Let’s start with the brokers. The CFTC conditions to be met are one of the toughest in the world. To pass these conditions, brokers need to make sure the business model adheres to regulations like:

-         The broker will match buyers and sellers and do not trade on its own.

-         The broker will keep all the deposited funds in segregated accounts, with a designated bank/financial institution.

-         The broker earns simply for the fees and/or commissions charged.

These are just a few things that make a regulated broker in the United States. If you take a closer look, they represent the very definition of a broker, no matter the industry: to be a middle-man, to give access to the market, and to earn a fee for doing that.

Brokers that cannot afford the regulation costs of the CFTC, try to use the “second door”. By this, it means they will register the broker through an “offshore”. As such, allow U.S. traders. Nevertheless, these brokers are not regulated, and, most likely, traders will have problems trading with them.

Conclusion

Not only that binary options trading is legal in the United States, but the US market is one of the pioneers in binary options trading.

Moreover, the regulation rules in the United States represent a model for other jurisdictions in the world.

To sum up, U.S. traders can trade binary options in the United States without the fear that trading is illegal. However, when doing that, they better make sure they trade with a regulated broker and not some “offshore” entity.

This is the only way to get protection under the local and federal laws.


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