Are binary options legal in the US?

February 24, 2021
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Binary options are legal to trade in the US, as long as you trade on a regulated exchange. Find out more, and learn the truth about binary options.

Are binary options legal in the US?

It’s not just legal to trade binary options in the US – it’s regulated, has low capital requirements, and is accessible to retail traders. However, the industry’s reputation has been tarnished by unregulated providers outside of the US. It can be difficult to cut through the confusion to identify where, and how, you can trade binary options safely and legally. Nadex is here to help.

Are binary options legal?

Yes, binary options are legal to trade with a regulated provider in the US. However, there are many providers outside of the US that are unregulated – they do not have regulatory oversight from the Commodity Futures Trading Commission (CFTC). It is illegal for these providers to solicit US traders.

How to trade binary options legally

  • Trade with a regulated provider. Look out for CFTC regulation to make sure the exchange you are trading on has legal oversight to protect you against unscrupulous market practices.  

  • Make sure the exchange is based in the US. Remember, it’s illegal for offshore firms to solicit your business. You can also run into difficulties if there is a dispute and the provider is unregulated, as you’ll have no backup or protection. This is not uncommon either – the US Securities and Exchange Commission (SEC) and CFTC have received various complaints of fraud from internet-based, unregulated providers, including:

    • Identity theft

    • Manipulation of software to create losing trades

    • Refusal to credit accounts or reimburse funds

    In short, this means you could end up out of pocket with no legal protection.

  • Trade your own account. Binary options are traded on an exchange such as Nadex, where all members must trade their own accounts. No third party is allowed to trade your account for you, such as a broker. Anybody who says that they can, even on social media, is not associated with Nadex and is acting illegally.

The truth about binary options

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How to spot an illegal binary options provider

Now that you know it’s illegal for offshore providers to solicit business in the US, it’s much easier to avoid illegal binary options transactions. Check the location of the provider to see where they are based as a starting point.

The other important aspect to check is regulation. Binary options trading platforms might be operating in violation of the law if they are unregistered and unregulated. This will depend on the type of binary option, and whether the platform is operating as an unregistered exchange.

It can be complicated to understand – the most simple step you can take is to check the exchange is regulated. You can find a list of the designated contract markets (DCMs, otherwise known as exchanges) that are regulated by the CFTC on their website. Certain DCMs can list futures or options contracts based on underlying commodities, indices, or instruments, with regulatory oversight from the CFTC. Nadex is the largest CFTC-regulated exchange offering binary options in the US, so you can trade here with complete confidence.

Binary option scams

Due to the large number of unregistered and unregulated binary options providers that exist outside of the US and that offer easily accessible internet-based trading, scams are unfortunately not uncommon. Scams could involve offshore exchanges soliciting business illegally, or they could involve people giving you false information about a legal exchange such as Nadex. If you know what to look out for, though, you can avoid these binary option scams.

How to avoid binary option scams

Here are some steps to follow so that you can trade binary options safely and legally:

  • Only trade with a CFTC regulated exchange and don’t be tempted to use providers outside of the US.

  • Don’t engage with anybody who claims to be a broker, or who says they can trade your account for you. Unregistered brokers may contact you on social media and there has recently been a rise in cases of this happening, so always remain vigilant.

  • Trade your own account. Never hand over money to anyone claiming to be a broker who says that they can trade for you.

Check out our acceptable funding methods on our website – Nadex does not allow you to fund your account using bitcoin or other cryptocurrencies.

Check the Nadex Rulebook and Membership Agreement and understand your obligations before trading.

Legal, regulated binary option trading: what does it mean for you?

Trading on a regulated exchange means you have legal protection, and that practices will be subject to strict regulatory oversight. If a dispute was to arise, then you would have legal protection and backup. Unfortunately, even when trading on a regulated exchange, unregistered brokers and scammers can still attempt to contact you. As long as you remain vigilant and trade your own account, you will be able to trade safely with peace of mind.

Learn to trade binary options with Nadex

As a legal provider of binary options, we want to help you trade successfully. We want to make sure you are a well-educated trader who has the knowledge needed to succeed on our platform.

Learn more about trading binary options:

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