The simple answer to the question is “yes,” but as you have probably figured out, it’s not really a simple question with a simple answer. Binary options is a very murky topic right now, particularly in the USA.
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That may change once regulation becomes stricter for offshore brokers, but for the time being, most binary options brokers are located offshore, and they aren’t regulated as binary options brokers. We will explain this in more detail in a moment. For now, let’s just get to the meat of the question.
How do you know it is legal to trade binary options in the USA?
Well, Nadex is pretty solid evidence that you’re good to go. Nadex is an exchange located in Chicago and caters to USA customers. One of their trading products is binary options. They are regulated as a binary options broker, and are among the only companies in the world that is. They also offer a range of other markets and trading vehicles.
So why wouldn’t you just trade with Nadex? If you can understand Nadex, there is no reason to avoid them. It would be hard to find a stronger reputation anywhere as far as trust goes. Nadex can be confusing, though. If you look up how to trade binary options on your site, it’s almost a guarantee you’ll be confused by the time you get to lot sizes and how risk is calculated. Could you figure it out? Sure. But do you have to? Not if you trade with an offshore broker. And that brings us to the next aspect of the question.
Is it legal to trade with offshore brokers if you are located in the USA?
Here, Nadex lists the answer as “no,” but that is not entirely accurate either. If you keep reading their statement after the “no,” it becomes a bit more clear. Here is the statement from the Director of Enforcement for the CFTC which Nadex references:
“It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt.”
If you read this carefully, it means that for a company offshore to legally trade with you, the following must be true:
1. The company must be registered with the CFTC,
2. The company must not allow you to trade commodity options.
This is why you will notice a lot of offshore brokers will stipulate that you can trade only stocks and indices, and choose to make currencies and commodities unavailable to you. (Click here for more information on available trades.) Other offshore brokers disallow USA traders completely because they find the wording of the laws so confusing that they simply do not want to tread on any toes and upset the US government. But they are only avoiding offering you the option of trading because they don’t want to deal with the hassle of getting it right, and not because trading with you would be illegal.
So if you do want to trade currencies or commodities, you are going to have to find a broker who is actually registered with the CFTC, whether they are located offshore or otherwise. You are not going to find many brokers of binary options who are located offshore and have a CFTC registration. There are some brokers who are working on this, though. This will allow them to expand their services to USA clients. In the meantime, you will either need to find another way to trade commodities (like going through Nadex, or not using binary options as a trading vehicle to trade them), or be content to trade stocks and indices.
That is something to keep in mind when you work on creating a trading method. Since you are probably going to be trading stocks and indices, you will need to pursue a method which will work for stocks or indices. It would do you no good to invest all your energy into making a system which will work great for trading gold but will be useless for dealing with stocks, since that is what you’re going to be trading. There are many ways to trade stocks and indices using technical or fundamental analysis or price action, so try not to be too discouraged. There are dozens of assets available to you.
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What is the deal with binary options regulation right now anyway?
Until a couple of years ago, not a lot of retail customers traded binary options. They have been around for a long time, though. Nadex was one of the first brokers to offer the trading vehicle to ordinary people like you or me. Since 2011, binary options have been exploding in popularity online, which is why a ton of new brokers have formed to offer easy binary trading to customers. The advantage of trading with these brokers is that they really do make it simple. The disadvantage though is that regulatory agencies have not had time to play catch-up with the new brokers, and most of them are not regulated at all in any way. They may be “registered” as businesses in their respective countries, but this is pretty vague and doesn’t offer you much in the way of protection.
If you are looking for regulation in an offshore broker, the best thing you can find is a broker which is regulated as some kind of financial entity, and not just as a general business. Examples of types of registrations that would give you some measure of protection include registrations as a gambling house, a Forex broker, or a private bank. And in the meanwhile, countries like Cyprus are working to lay a groundwork which will eventually become a full regulatory system for binary options companies. Once this happens, it will be easier for the CFTC to work with offshore brokers to list them in their exchange.
You can also look for signs of good faith. Some brokers are actually actively working on getting listed in the CFTC exchange, even though they are located overseas. Others are busy working with Cyprus authorities to become some of the first brokers to be listed in the Cyprus exchange.
Along with signs of good faith like these, there are also other indications that a broker is open, honest, and trustworthy. The more open and knowledgeable a customer service agent is with you on the phone or live chat line, the better. You can also look for risk disclaimers and clear terms surrounding bonuses on the company’s website. Companies that provide resources to teach traders and encourage traders to learn responsible trading methods and money management techniques before spending money are generally more trustworthy than those who do not.
It is legal and safe for you to trade binary options if you are located in the USA, but you do have to be careful when you make your selection of an offshore broker. The brokers we list in our broker list are located offshore; some of them are regulated while others are not. They all have demonstrated to us through their resources, customer service, and other strengths that they offer a solid product to customers in the USA and around the world.
After finding a trust-worthy binary options broker you may want to check which one accepts minimum deposits. Check that here!