Alright so for all those people who don’t know about binary options this article is perfect for you because it talks about binary options, how they work and whether trading is legal in the United States. A binary option is primarily a financial product where the parties involved in the transaction are assigned one of two outcomes based on whether the option expires in the money.
These binary options are solely dependent on the outcome of yes or no and hence they are called binary options. The traders mainly receive a huge payout if this option expires in the money and they incur losses if it expires out of the money. These options are set on a fixed layout and a fixed loss amount and they do not allow traders to take any position in the underlying security. Most of the trading of such binary options takes place outside the US.
Trading in the US
Now let’s dive into whether these binary options are considered to be legal in the United States. So binary options are legal and they are available to trade within the United States however they have to be traded on a platform that is a regulated US exchange such as the SEC ( securities and exchange commission). Such regulated exchanges are commonly known as the DCM’s or the designated contract markets. These markets are overseen and supervised by the SEC and the CFTC.
In the United States there are only a few portions of binary options markets which include the US Cantor Exchange, LP Chicago Mercantile Exchange inc ( CME) and the North American Derivatives Exchange Inc ( NADEX). In addition to this there are several offshore companies that are engaged in binary options trading however they are not registered with the CFTC and it is recommended to avoid such companies. This is due to fewer regulations, no set standards, less protections and there is a greater risk of being targeted for fraudulent activities.
Moreover, the United States has established a list for all such commodities which are listed on the red list since they are not regulated and the traders have a greater chance of being exploited and they can easily get scammed. Thereby the US has 3 main DCMS for binary options trading which are safe, are regulated and are protected and monitored by the CFTC and the SEC. This allows binary options trading to be beneficial and it protects the traders from scammers and fraudulent brokers.
However, most of the binary options are traded outside the US which means they are highly unregulated and clients get scammed left and right. Therefore, it is advised to all US citizens to trade on regulated platforms and avoid such platforms, offshore companies or software platforms since they will only leave you penniless. It might seem attractive but trust me these regulations are there for a reason.
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