Binary options trading (also known as digital options trading) is a unique type of options trade in which a contract is taken out between the trader and broker which has only two possible outcomes:
- Finishing in the money.
- Finishing out of the money.
This is based on whether your chosen asset price increases or decreases in keeping with your asset prediction.
Option trading has been around for a long time, but in the past it was exclusively handled as an over the counter trade (otherwise known as OTC), with little or no regulation involved with its trading.
Is Binary Options Trading Legal?
In 1973 the Chicago Board Options Exchange (otherwise known as CBOE) was formed by the Chicago Board of Trade, creating the first regulated platform on which to trade all options. The Chicago Board Options Exchange was the first options trading environment (trading only in options) and still remains the largest one today, but after its establishment many other markets added options to their roster for traders to choose from.
Throughout the years you will have seen that market regulations increased and transactions became more reliable. The Options Clearing Corporation (otherwise known as the OCC) was formed to ensure that traders bought and sold what they said they would be buying or selling and was done through a binding contract between both parties. A failure to comply with the Options Clearing Corporation rules would result in a ban, which could be a ban for a short period of time or a full lifetime ban.
Binary options are just an expansion to the options trading market using an exotic mechanism to create an easier more transparent form of trade with less speculation. Although binary options were introduced to the market early on, binary options were treated as a simple over the counter instrument for many years. As a result, there did not exist an actual liquid market, and there was no regulation whatsoever with binary options. The modern day binary option in now purchased on its own by traders, which was unheard of when it was first introduced to the markets, as options were just a small part of a larger complex contract.
In 2007, the Options Clearing Corporation made the proposal to change the ruling allowing binary options to be traded on all major markets making it a legal form of trading. In 2008, the SEC (also known as the Securities Exchange Commission) approved the requested rule change making it now legal for markets to list binary options as tradable contracts. In May 2008 the American Stock Exchange became the first exchange to publically offer binary options on their exchange, and the Chicago Board Options Exchange quickly followed suit in June of the same year.
Both of these market trading binary options are highly limited when compared to the types of binary options most online traders are use to trading with. For example:
On the Chicago Board Options Exchange, a trader can buy options on only two indices, the Chicago Board Options Exchange volatility index, and the S&P 500. Only call contracts can be purchased, with strike points at 1 point and 5 point intervals.
In the past few years with the change of computer tools and platforms, online binary options trading has now become incredibly popular with the options markets and all major stock exchanges. Unlike that of the more tightly regulated forms of binary options that take place on major markets, online digital trades can utilize many more underlying assets and have much more flexibility in their timing, strike prices, and contract options.
Since 2009 binary options have become very popular amongst traders as a way to more tightly control risk in option trading, allowing for more dynamic strategies to be developed. A number of platforms have of lately popped up with their constantly evolving technology to better facilitate trading and allowing investors to make more lucrative trades daily.
Legality of Binary Options in the US
There has always been a question to whether binary options are legal to trade within the United States, but when the Dodd-Frank regulations were implemented in the United States, many people stopped trading binary options. Many investors were left in the cold when they no longer had access to their favourite assets. Many binary options brokers remained trading binary options and now there are currently new trading signal services available in the United States that allow the day traders to once again have more assets to trade with.
Due to the Dodd-Frank regulation which was brought into law by President Barack Obama in July 21st 2010, traders in the United States are no longer allowed to trade Forex binary options. Also due to the Dodd-Frank regulation United States are not allowed to trade in gold binary options, and other related commodity options. This was upsetting to a lot of day traders as they loved trading with Forex options. This ban also affected the brokers trading styles and binary trading system quite a bit. The United States brokers had the option to skirt the law which was not recommended in anyway or to stick with the indexes which remained available for binary options trading. These include stocks and indexes from the United States.
There has always been some questions as to whether trading binary options in the United States is legal or not. Options were a type of trading that was done over the counter (OTC) with very few regulations when traders were trading with options. With the revolution of the internet this has made trading binary options online quite popular but the question of how legal these trades are is still uncertain with many people joining the options market.
The United States of America have passed legislation that offers some form of regulation for trading binary options, but the question still remains with many traders as to which types of trades are legal and which ones are not. For the most part it is legal to trade binary options in the United States either with a broker, online or in person, and the most questionable assets available for binary options trades, are Forex, or currency binary options.
With trading options you must also locate a broker who is legitimate for trading options, and it is crucial to do a background check on a broker before making any deposit or any transaction online. To help locating a legal broker, it is best to determine the legitimacy of a broker by reading reviews from their other customers especially ones who live in your country so that you know the broker is abiding by the rules of your country.
So trading binary options commodities, stocks, and stock indexes these are the options a trader is allowed to trade in the United States. The law regarding binary options trading in the United States is surrounded by Forex trading. It has been recommended that citizens of the US do not engage in this type of binary options trading. Many online brokers have limited access to customers of the United States based on the regulations that have been put into place to legalise all option trades.
What Options are Legal to Trade in the US?
There are still many binary options which you can legally trade within the United States. The number will also depend on your binary options broker and how many assets they choose to allow you to trade. Some of the favourites with United States traders are:
- Trade Rush (home of the 60 second option)
– Any Option
You will find the most popular house hold names are the options that are mostly traded in the United States are:
- - Apple
- - Microsoft
- - Amazon
Once again these are binary options that you must see if your chosen binary options broker actual has on their site for trading.
There are still many regulations that must be implicated in the United States regarding Forex markets and futures. Until these rules and regulations have been put in place with the United States there is no legal way for a broker or dealer to offer commodities and Forex binary options for clients who reside in the United States. On the other hand, citizens of the United States can legally trade binary options with United States stocks.
Is Binary Options Legal in My Country?
One of the most asked questions for newcomers to the binary options market is if binary options are legal in their country. The answer is simply yes or no. you will see that binary options companies will not allow trading with certain countries, thus showing you that those countries are illegal to trade with options. Big markets in the US, UK, and Canada etc all have the legal rights to trade with the binary options market.
Reading through binary options web pages will help you better understand if this type of trading is legal or not wherever you are located. Looking up your local stock exchange can also help you in finding out if binary option trading is legal in your home country.
Although binary options trading may be considered gambling by some and a risky form of trading, this is not true as with binary options your money is secured upon your opening trade. With gambling online or at a live casino you have a far larger risk of losing a lot of money, but with binary options you will see before you submit your trade how much you are guaranteed to win and how much you will lose before you even start to trade. Mostly all the web pages that cater to binary options betting are legitimate and allow safe transactions and security of your funds.
Always make sure that your chosen binary options broker has the currency and language available for you to choose from. A good broker will have a lot of assets to choose from, no start up fee, and a secure and reliable customer service for you to use. Always do a background check on the binary options broker you wish to use and also make sure that it is legal to trade binary options in your country.
You will find that through the years the rules and regulations for trading binary options will always be changing world wide. If binary options trading is not legal where you are located, keep an eye on the stock exchanges and their news letters as the laws for binary options seem to be changing all the time.
Binary options trading is new to the online world, but the brokers out there do know what they are doing, but you do have to watch out for the non legitimate brokers who are only interested in your money and not interested in you making any sort of profit. Also a legitimate broker platform shows that they are also legal to trade those assets that under the laws and regulations are legal to trade online.
With looking through the web pages available you cannot find the actual countries that are legal to trade binary options, but you will find some stock exchange lawyers online that are willing to help with any questions you may have. It is best to find an online exchange lawyer in your country that can give you the right information you will need to trade binary options, such as which assets you can trade. They can also help with finding a legitimate broker in your country with whom you can trust to place your money and trade with ease.
Remember to always do background checks on the assets you wish to trade and watch the news reports daily. Do not jump into trading without fully understanding how the binary options world works. As with gambling you must understand what you are doing before you gamble away your hard earned money. Trading binary options is fun and a quick way to make a good profit within a short amount of time as long as you read up on how the binary options are traded.