What follows is the country report prepared by the binaryoptionswire.com team pertaining to the online retail binary options industry in the United States. Holding the number one position globally when it comes to setting the standards in the regulation of financial trading and investment vehicles, the US could not be an exception in the field of binary options trading as well. This means that US regulated binary options brokers are truly trusted since the US authorities allow no laxities in their regulatory framework.
The novelty of binary options trading is that it allows traders to pursue profit, like in the case of other traditional financial trading vehicles, but to do so in a way that is much simpler, much faster and potentially much more lucrative. Since when trading on binary options you actually forecast the movement of the price of an asset you are able to achieve high profits fast, in contrast to investing on let us say the stock of a particular company that might take years to yield any return. Therefore, binary options trading, soon after its official launching in 2008 became hugely popular with US traders.
If you are based in the USA and are interested in trading binary options you should be aware that currently binary options are offered to big companies and investment firms through banks and other licensed institutions such as the Chicago Board Options Exchange (CBOE). However, it should be also pointed out that the general public cannot trade on these financial instruments directly through these channels. Interestingly enough though, strictly speaking by purchasing binary options as a USA citizen or resident, you are not breaking any laws per se, so binary options trading can be deemed to be legitimate. However, what obscures the situation are regional variations at a state level as well as the complexity and strictness of the federal landscape which poses significant difficulties for aspiring brokers. Read below our attempt to clarify matters further.
Understanding Financial Regulation in the US
In the aftermath of the 9/11 terrorist attacks and the enactment of the Patriot Act by the US Congress, all US companies, including forex brokers and later on binary options brokers, had various restrictions imposed on their dealings with foreign country nationals, prohibiting dealings with individuals from countries with a high risk profile when it comes to money-laundering, terrorist activity and unusual financial transactions.
Furthermore laws were also passed which render “off-exchange” binary options trading an offence in the United States, while both the Commodities and Futures Trading Commission as well as the Securities and Exchange Commission have taken active steps in order to dissuade American citizens from participating in this sort of trading. Indeed, there are examples of legal being instituted against off-exchange binary options companies for soliciting clients from the US. This handling by the relevant national regulatory authorities has paved the way for strictly US-owned and US-located binary options brokers to doing business with those amongst the American public wishing to invest in binary options. This can be done primarily through NADEX, which stands for the North American Derivatives Exchange, and is currently the only direct market access platform that allows market participants to buy and sell binary options without the intervention of a dealing desk or market maker.
Legal Restrictions on Binary Options Brokers
The peculiarity of the prevailing situation as regards binary options in the US pertains largely to the fact that although binary options are legal for anyone wishing to invest as a trader, a customer, a depositor, there are on the same time several legal aspects that need to be addressed by brokers who are called to make the necessary amendments to their offerings as well as ensure compliance.
The Dodd Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act, known in short as the Dodd-Frank act, is a reform aimed at changing the relevant regulatory framework and protect and shield the market from ever again experiencing the downfall it did a few years ago, primarily due to the lack of strict and severe rules that allowed the creation of illusions and misconceptions. A long and complex act, the Dodd-Frank act also has implications on the trading of binary options.
Dodd Frank Act impact on Binary Options
One of the provisions of the act is that offering forex options as well as certain commodity options is rendered illegal, thus brokers are not allowed to offer such products and traders not allowed to invest in them.
Dealing with the risk
Although the trading of binary options could under certain circumstances be deemed perfectly legitimate and even if the trading is done through a trusted, reliable and fully regulated broker, this does in no way do away with the risk involved in binary options trading, since as an investment type they are inherently risky. The best method to minimize this risk is for each broker to learn as much as possible about binary options and their trading before delving in, taking advantage of the huge range of training and educational resources available, through brokers or independently.
Why Do Offshore Binary Brokers Avoid USA Customers?
The main reason why a large number of international binary options brokers refuse to offer their services to US residents is the fact that they fear and indeed they cannot figure out exactly the fractured, complex regulation process prevailing in the US. An additional explanation is the confusing wording of the CFTC provisions that stipulate that: “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.”
What we can discern from this is that a broker, offshore or home based, is required to be registered with the CFTC to be allowed to be offering commodity options, i.e. binary options currency pairs and binary options of commodities. This explains whythe majority of offshore brokers that do accept USA customers only allow them to trade binary options from the stocks and indices assets categories.
Why is it difficult for some firms to obtain a US license?
The reason most firms find it extremely difficult to obtain a US license and US registration is the fact that the relevant US legislation stipulates as a pre-requisite that the headquarters of the financial firm must be located in the US and also pay high fees to theSecurities and Exchange Commission as well as the Commodities Futures and Trading Commission as well satisfy the very strict requirements of these two regulatory bodies which pertain to its capital adequacy. The strictness of the rules, which is designed to favor large corporations is the main averting factor for the smaller fish to attempt to enter the game.
Tips on Finding a Good Broker in the USA
Picking the right broker is a decision of paramount importance could determine the success and enjoyment of your trading experience. Therefore, prior to committing to opening an account with a specific binary options broker, make sure the broker indeed accepts US based customers and cross check its reputation and reliability through reading reviews and customer feedback, especially those you can find on independent traders’ forums. Make sure you are picky and concentrate on real quality characteristics and do not allow yourself to be dazzled by some flashy bonus ads. It is rather preferable to pay attention to the ease of use and transparency of the site, the terms and conditions governing deposits, withdrawals and bonuses, any special features offered and the quality of the customer service as well as any educational resources that are put at the disposal of traders.
The fact is that an indefinite number of online binary options brokers claim to be accepting US based customers, however the truth of the matter is that a great number of them are plain crooks who are looking for unsuspecting US traders to deceive. Therefore, we strongly advice all US citizens wishing to trade binary options online to do their research thoroughly and carefully and only trust brokers that are proven to be reliable, legitimate and properly regulated in some respectable jurisdiction.
To make things easier, we have some suggestions of such brokers:
Following its initial set up as HedgeStreet by John Nafeh, in 2004 it started operating as an online exchange for the trading of financial derivatives. It was renamed NADEX in 2007 following its acquisition by the IG Group, which is also the owner of UK based binary options brokerage IG Index. With the launchingof the Germany 30 binary contract, which wasbased on the Xetra DAX Index, in 2008 the company added binary options to its derivative instruments.
Featuring very competitive and attractive payouts this broker is worth exploring by US traders since it offers both an extensive experience and a high level of customer service and support, maximizing your profit opportunities.
Interested US based traders will find this broker particularly interested and a good choice to trade through since it is focused exclusively on the American market.
The main advantages of this particular broker are the user friendliness of its trading platform that makes trading easy and simple, coupled with a wide range of tradable assets and high returns rates.
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.