Is Binary Options Trading Legal in the US?

Michaela is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

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Binary options have been present in the US since 2006, but only started to gain popularity in mid-2008.

Since then, countless brokers and traders have been mushroomed from various states across the US, and now, with more and more people wanting to start their career in binary options trading, many questions have been flying around the internet on whether binary options are legal under US laws.

Are Binary Options Legal In The US?

The legality of binary options in the US can be delved into two levels: whether brokers can lawfully operate in the US and whether Americans can lawfully trade binary options. The answer to both levels is a simple YES. In 2007, the Options Clearing Corporation(OCC) proposed a ruling which would legally permit binary options and in 2008, binary options have been approved by the Securities and Exchange Commission (SEC), listing binary options as a cash-or-nothing security.

Then, in mid-2008 American Stock Exchange (Amex) and Chicago Board Operations Exchange (CBOE) both started to list binary options as a cash-or-nothing security. In 2009, the North American Derivatives Exchange (NADEX) included binary options in one of its trading platforms.

However, a strict restriction is imposed. Americans can freely trade with binary options for as long as the broker they are engaging with is legitimate. That means that the broker should have processed the legal procedures in establishing its business in the home country that it is operating in and that the federal government has not banned it from transacting business with US citizens.

Are Binary Options Regulated In The US?

Being legal and being regulated are two different things. The latter guarantees protection, unlike the former. As you can already infer given all the agencies and stock exchanges involved in the binary options market in the US, binary options are indeed regulated.

In fact, over the years, the regulations for binary options have been more stringent. The OCC has been strict in checking the binary option securities sold by brokers. Trading rules have been established and all traders and brokers are expected to abide by those rules. Otherwise, depending on the violation, the trader and/or broker may be banned for quite a period of time. Limits have also been set for the number of indices that can be listed under binary options to better control the trades going on in the market.

Recently, a few serious scams have hit the growing binary options market. Some traders who have fallen prey to those malicious schemes have lost thousands of USD. However, the SEC and the US Department of Justice have been quick in taking legal action against those crooks such as freezing their bank accounts and placing them behind bars. Although, those victims were only able to recover a portion of their deposits (not the entire amount) the federal government was able to enforce justice by making those erring brokers accountable for their wrongdoings.

Hence, the hard-core regulation in the US continually builds a stronger and reliable market condition for both brokers and traders of binary options.

Reputable Binary Options Brokers In The US

In terms of quality service and reputability, the brokers 24option, TradeRush, and TraderXP are among the best.

In Sum

Binary Options in the US are legal for both brokerages and trading purposes. Binary options are also listed in several stock exchanges and are highly regulated by the OCC. Traders and brokers can seek for legal action when one is necessary with the help of several government agencies such as the SEC and the US Department of Justice.

About the Author

In conjunction with Affiliate Media, Michaela McNamara establishedBinaryReview.com in 2012 with the intention of providing new options traders with the tools, reviews and information they need to profit from binary options trading.

Michaela joined Affiliate Media Inc. in 2011 as the company's digital content editor. In addition to spearheading BinaryReview.com, she manages the content direction for the company's websites with the goal of creating and providing trusted, engaging and interactive content. Email her at michaela@affiliatemedia.com


Interested in learning more about binary options trading? If you’re ready to start trading with a reputable broker that operates in the US, go ahead and try TradeRush. Sign up to TradeRush now.

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