Legal for US Residents
Are Binary Options legal in the US?
There seems to be a great deal of confusion these days regarding the legality of binary options trading in the US. Much of this confusion can be attributed to the rise of off-shore binary options platforms and the off-exchange or OTC contracts they offer.
With regard to the legality of “binary options”, the question is not so much are they legal, but are they listed on a proper United States exchange and are the firms offering them properly registered and regulated to offer these types of contracts to residents of the United States.
Nadex is a regulated US exchange, designated by the CFTC (Commodity Futures Trading Commission), and is legally permitted to accept US residents as members.
Can offshore "brokers" trade with US residents?
In the case of off-shore platforms offering binary options to retail customers in the United States, the answer to this question is a resounding "No".
As the Director of Enforcement for the CFTC stated in connection with a recently filed lawsuit:
"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."
Why is Nadex different?
Nadex is based in the US, is subject to regulatory oversight by the CFTC pursuant to its registration as a Designated Contract Market (DCM), commonly known as an “Exchange”, and Derivatives Clearing Organization (DCO) or “Clearinghouse”.
As a registered Exchange and Clearinghouse, Nadex is subject to the CFTC regulations applicable to its operations. A few of these important regulatory principles include:
- Serving the function of matching buyers and sellers of a contract in an unbiased manner (unlike the online platforms, Nadex does not profit from gains or losses on a trade, rather it simply receives a fully disclosed exchange fee)
- Providing a transparent environment for the settlement of accounts, including time and sales data
- Keeping member funds in a segregated bank account in the United States
These regulatory principles are meant to safeguard traders and their funds and are a key component to Nadex operations. If you are a US resident trading binary options with an offshore broker, perhaps you should ask your broker whether they comply with these principles.
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