Is it illegal to trade binary options?

For some reason, there is a lot of talk on the internet about the legal status of binary options trading. Some rumors indicate that trading binary options is against the law. Others specify that such activities are only illegal in the USA.

Where these claims stem from is unknown, but what is certain is that they are entirely unfounded. It is perfectly legal to trade binary options – also in the USA.

Why a lot of people seem to, wrongfully, think the opposite is not certain. Possibly, they believe that any form of investment that offers the sort of fast and sizeable profits as binary options simply cannot be legal. Or perhaps they mistake binary options for some sort of online scam. Either way, as we shall see in this article, they are mistaken.

When it comes to the situation in the USA, things are a bit more complex. Whereas trading binary options is perfectly legal in America, not all brokers are allowed to operate in the country. We will also take a closer look at this further down in the text.

 

Binary options are legitimate investment vehicles

There cannot be any argument about this point: binary options are perfectly legitimate investment vehicles, and trading them is entirely legal. There is simply no debate to be had, no grey area to illuminate. It really is this simple.

A binary option is quite simply a prediction. In its most basic form, you are asked to predict whether the price of an asset will move up or down within a specific time-frame. You invest a certain amount of money in your prediction. If you are correct, you are awarded a percentage of the invested sum.

As you can see, there is nothing shady here. Quite simply an investment made on the basis of movements in the international financial markets.

This form of trading is not illegal in any way, shape or form. In fact, it has been around for a number of years, and is considered a highly reputable form of investment.

 

Binary options are traded all over the world

One observation clearly indicates that it is not illegal to trade binary options.That is the fact that literally millions of investors from all over world do so. The biggest binary brokers each have millions of members. Some, are represented in more than 150 different countries across the globe.

Clearly, you are unlikely to attract so many traders if what you are doing is against the law. Nor would you be able to conduct business in so many jurisdictions.

Furthermore, it seems extremely unlikely that an illicit undertaking would have the sort of marketing budgets that binary brokers have. You find their logos on race cars in international competitions. Also, the jerseys of professional football teams all over Europa are sponsored by brokers. That includes teams in the Italian and French top-flights. This is not the sort of publicity an illegal enterprise would engage in!

But most important here is that legitimate investors flock to binary brokers. These people are not lawbreakers. They are keen traders who want to make an honest living, profiting from their knowledge of the financial markets.

One of the great benefits of binary trading, is that it makes investing very accessible to many people.

 

Binary brokers are licensed by government regulators

One more important indication that it is legal to trade binary options, is that binary brokers are licensed by government regulators. Obviously, this simply would not be possible if this was not a legitimate form of business.

Many binary brokers are based in the EU. A substantial number of them are registered in Cyprus. Such companies are regulated by the Cyprus Securities and Exchange Commission (CySec). This means that they have to comply with the rules and regulations that govern financial services in the relevant jurisdiction.

The simple fact is that government agencies, such as CySec, would never dream of issuing licenses to binary brokers if trading binary options were not perfectly legal. What is more, by registering with government regulators, the binary brokers make it clear that they intend to operate within the law. If they do not, they will obviously be fined or incur other penalties.

This means that you, as a trader, can invest your money safely with regulated binary brokers. You are not breaking any applicable laws, and thanks to government regulation and licensing, nor is you broker.

Why the US is different

Now, when people talk about binary trading being illegal online, they are often referring to the situation in the USA. And yes, the binary options business is different in the US. Different, but no less legal than anywhere else.

The source of the confusion is probably the fact that most international binary brokers, such as the great many who are registered in the EU, are not able to allow US investors to open an account with them. This, however, has nothing to do with the legality of binary trading. It is simply a quirk of American legislation.

It so happens that in the USA the legal framework that pertains to binary trading is different from their counterparts elsewhere, including the EU. Briefly put, American regulation is stricter and more prohibitive than elsewhere. As a result, brokers that operate with licenses from jurisdictions outside the US will find it very hard to attain licenses from the US regulators.

Seeing as US law forbids brokers to operate in the US market without such a license, this means that most global brokers are not permitted to allow American citizens to trade with them. This is an inconvenience for American traders, but it obviously does not mean that this form of investment in not legal.

Nadex is the fully licensed US binary broker

In the US binary options trading is regulated by two government agencies, the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). At the time of writing, we are only aware of one binary broker that has valid licenses from both, allowing it to operate legally in the US market. The name of this broker is Nadex.

In other words, if you are an American and you wish to make money in binary options trading, you can open an account with Nadex. This is perfectly legal, and will enable you to invest in binary options just like traders elsewhere in the world.

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