Benefits of a Regulated Exchange

In this lesson
  • What is the most secure and legal way to trade binary options and spreads in the US or globally? 
  • Who regulates Nadex and how does it affect your trading outcomes?
  • Where does Nadex hold your money?

Nadex is a US CFTC-regulated Exchange 

Binary options are legal and available to trade in the US only on a CFTC-regulated United States exchange. In fact, the Commodity Futures Trading Commission issued a fraud advisory in 2013 warning the public about offshore binary options providers who solicit US customers illegally. 

Some online binary option providers may not be properly registered and regulated. They are based outside the US, operate outside US law, and may hold member funds in various types of offshore accounts. They cannot legally offer binary options to retail customers in the United States. In 2016, one of the largest offshore companies was fined $11 million in cases brought by the SEC and CFTC for various fraudulent practices, including refusing to let customers withdraw their funds until they had done a minimum number of trades. Nadex lets you withdraw anytime after a brief waiting period, whether you trade or not. 

Your money is secure with Nadex

As a Nadex member, you are guaranteed that your funds are held in segregated bank accounts in accordance with CFTC regulations. "Segregated" means that your money is never mixed with Nadex's money. It is in a separate account from which you can withdraw funds as you wish. The only restriction is a brief waiting period after your first deposit. The government requires banks and financial firms like Nadex to have a waiting period as part of its effort to combat money-laundering. But your funds are held securely during that time.

Nadex holds all member funds in top-tier U.S. banks such as BMO Harris and Fifth Third. How secure is that? Their offices in downtown Chicago are just a short walk from our offices at 200 West Jackson Blvd. We're a real company in a well-known building close to the Sears (Willis) Tower. Nadex is about as easy to find as it gets. When it comes time to make a withdrawal, your money will be available. We guarantee it and US law requires it. 

Who is on the other side of your trade?

When you trade with an offshore binary options broker or "provider," you are often not just trading with them, but also against them. Poorly regulated binary options shops can and do take the other side of customer trades. So if you're buying a binary option and the person who will profit if you lose is also the one who is running the exchange. How much of an incentive does that person have to give you a fair outcome? That's what regulation does. It ensures that you get a fair result for your trade. 

Nadex is an exchange, like the New York Stock Exchange or Chicago Mercantile Exchange, only newer. Like those exchanges, Nadex is regulated, by the CFTC (Commodity Futures Trading Commission), the same government agency that regulates the CME, CBOT, NYMEX, and other major financial exchanges. As a regulated exchange, Nadex is bound by strict laws that require all trades to be conducted fairly and transparently. For example, while one of Nadex's multiple market makers is an affiliate of Nadex, CFTC regulations preclude Nadex from giving its affiliate any advantages over any other market maker.

As an exchange, Nadex's primary function is to match buyers and sellers in an unbiased manner. Unlike brokers who may be taking the other side of your trade, Nadex itself is never on the other side of your trade. Neither Nadex nor its employees trade on the exchange at all. Your order is matched to another trader or one of Nadex's multiple market makers, larger institutions which agree to provide liquidity. Those market makers do not receive any unfair advantage. Their profit and loss is determined by the movement of the markets, the same way other members' profits and losses are calculated.

At this point you should understand:
  • What Nadex is: the first and largest regulated binary options exchange in the US
  • Why CFTC regulation means that Nadex doesn't engage in trading, but only makes transactions happen fairly
  • How your funds are held: in a segregated member account in a major US bank



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