Are Binary Options Legal in the USA?

BryanMac

I am not a Lawyer and by no means is this any type of legal advice but just searching thru the CTFC and SEC web sites this is what i have gathered, if I am wrong please correct me.

Yes, binary options trading is legal in the United States. There are at this moment no laws both on federal and state level that forbid US citizens from trading binary options online. The financial trading market is regulated and supervised by the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission. However, these organizations are very unfriendly towards brokers operating from outside of the US.

The CFTC and the SEC have the task of supervising the financial service market of the United States. The current rules of the SEC and CFTC allow companies and financial service providers to legally offer binary trading services to United States citizens.

These organizations are also tasked with awarding valid licenses to safe financial service providers. Licensed brokers are obliged by the law to respect traders’ safety and security. If a broker breaks the strict rules and regulations imposed by these organizations, then it will lose its license and risks heavy fines and even prison sentences on its owners.

However, binary options trading (and financial trading in general) laws are extremely restrictive in the US, meaning that authorities are only willing to offer licenses to a selected few of genuine USA companies such as NADEX. At this moment, no offshore broker has a license in the US.

This however does not mean that offshore brokers are illegal in the US. Offshore brokers are in reality not even subjected to US laws, meaning that traders are allowed to register at brokers of this kind. Sure, authorities and operators like NADEX might not like this but they have no legal means of prohibiting traders from trading at offshore brokers and offshore brokers from accessing the US market.

The biggest disadvantage regarding the binary trading laws in the US is the fact that they’re not very friendly towards offshore traders. Unfortunately US policy in regards to financial services is extremely protectionist and as such national regulators are not that keen on awarding licenses to offshore companies, even though those companies fulfill all licensing criteria.

USA Friendly Binary Options Brokers
There are basically two types of online trading brokers in the US. The first category is that of offshore brokers that are licensed most commonly in European Union jurisdictions but fulfill all regulatory criteria and safety standards imposed by the laws of the United States. The second is that of binary options brokers located in USA.

Offshore-licensed brokers

The largest category of financial trading brokers that accept USA traders are those that are located and licensed in offshore jurisdictions. While located in other countries than the US, these companies still respect all the laws and regulations imposed by the US CFTC. This way the CFTC kind of tolerates their presence (because it has no legal means of prosecuting them) even though it has not awarded them a license.

In most cases, these brokers are licensed in a European Union member state and as such already follow a strict set of guidelines and regulations that most of the time are even stricter than those in the United States. So, trading at an offshore licensed broker is actually a better idea than trading at a broker located in the US.

Most European brokers also offer much better services than genuine US binary options brokers. This is because the diversity of the European market is much bigger than that of the US. Due to the fact that the CFTC only licenses a limited number of genuine US brokers, the internal competition is extremely weak.

Again, I’d like to point out that trading at brokers that are licensed elsewhere than the US is perfectly legal.
Brokers that are located in the US

At this moment there’s only a limited number of genuine USA based companies that offer binary trading services. This is not because only small number of operators manage to successfully apply for a license, but because the current binary options laws in the USA aren’t yet that well established.

It’s however expected that in the near future the US would implement a new set of laws and regulation that would enable the CFTC to award much more licenses to both domestic and offshore companies. Once this happens, all those USA binary options brokers that at this moment operate from Europe will most likely instantly receive a US license as well.

Francelbrito2

I was reading an Article And I want some more insight from ppl in the Forum.

http://www.cftc.gov/PressRoom/PressReleases/pr6423-12

http://www.cftc.gov/PressRoom/PressReleases/fraudadv_binaryoptions


Although I have notice these pressReleases are outdated and a year or 2 old. It makes me question if it is illegal as many online Foreign Binary brokers are US friendly.

I know there is alot of HEAT going around with Micheal Freeman, and Paul (TBOW) and I couldnt help but notice they both suddenly posted a video about binary options trading being illegal in THE US.

Although that seems a little fishy. Can anyone shed any light on the legality of Binary trading for US citizens?

BryanMac

The wording of the law is very specific and the key word your looking at is "Solicit" and is used in reference to the brokers themselves. Not individuals. So yes by using a broker who calls you all the time you are putting yourself at more risk. But if your happy with a broker and they process your withdrawls simply tell them I am in the US and do not wish to be contacted as you put me at risk, otherwise I will move to another company.

Johan

It is not illegal for traders to register and trade binary options in the US.

It is illegal for offshore brokers to accept USA traders.

If case something happens, nothing will happen to traders from a legal perfective. Things WILL happen to the brokers that accepted US traders.

Those press releases might be old but since then the law remains unchanged. Those warnings remain valid today the same way they were in 2012.

What's still vague at this point is the question of websites that promote "USA friendly" binary options brokers. Do they also fall under the category of "soliciting" people to trade binary options at unlicensed operators or is it just the actual brokers themselves that fall under this law?

gatsby2016

NOT DIRECT LEGAL ADVICE but my research looking at government websites and reading the press releases is the same as Johan's; illegal for THEM to ACCEPT YOU; however not DIRECTLY illegal for YOU to trade with THEM; the only legal action that has been taken that I know of, is banc de binary got sued because of many complaints, and the justification that they wern't CFTC regulated was used in the lawsuit; no traders were targeted in the lawsuit, just the brokers; I do believe though, that it is rather complicated as far as taxes are concerned; NOT DIRECT TAX ADVICE; but as far as I know any such income is taxible, but the foreign brokers don't issue any tax forms, which could bring your income into question; make sure you consult a tax advisor and do your taxes correctly or you could get in trouble in case of an audit

gatsby2016

Also, about a year ago, almost all affiliate websites for brokers said "LOOK AT OUR US FRIENDLY BROKERS" I'm noticing more and more of them drop those US FRIENDLY pages, and/or put very strong, clear warnings that they "are not soliciting" (though they might be) people to go on those sites, I'm curious what's making these affiliate marketers lie low more, I have a feeling someone was threatened legal action at some point

Eric_G

I was doing some research into this same issue and came across this forum discussion.

I thought the following article which is quite recent (last month) was really interesting as well:
https://www.prlog.org/12609292-binary-options-in-the-global-news.html

It seems that just in the last month or two regulators (Israel, Holland) but in various countries are either on the fence or have concluded to classify binary options as gambling. While it has been pointed out that there is one CFTC regulated binary options exchange in the USA namely Nadex, I think it is important to note the fundamental difference between Nadex and the typical binary options platform.

Nadex is a real exchange where a buyer is matched up with a seller and Nadex takes an exchange fee or commission to provide the platform for buyers and sellers to trade against one and other, that’s it. This means that options contracts are not always available like when the price goes really high (and is about to drop) which is when I for one like to place my trades (or the opposite when it goes really low and is about to bounce up), but you can’t get your trade in right at the most favorable moment because no one wants to take the other side of your trade offer. Whereas with all the other binary platforms I am aware of you are trading directly against the house and they have to honor the trade once you click to buy it, the trades are on offer and you can enter your trade whenever you are ready and they have to take your trade. This is far superior from my perspective.

I think this is also key for the whole US legality aspect as well. Because if it is just fixed odds betting as some regulators now hold that it is (Isle of Man, UK, Israel, etc.) then it is 100% legal in the USA as a non-prohibited form of online gambling.

The illegal online gambling is defined by law in the US to cover casinos, the actual law refers to a prohibition on gambling on games of chance. It is in court in the US currently whether things like fantasy sports and poker are games of chance, I do not think anyone will say that movements of forex and stocks are games of chance and I can only imagine the mushroom cloud that would erupt over Wall Street if a US court ruled the world stock markets and forex were all just down to luck and chance! Lol

This debate about whether binaries will be regulated as financial or gaming seems to be going in the direction of gaming. I think that the City of London and the UK regulators are looked at as the leaders of Europe and are leaning this way. The Isle of Man is part of the British Isles and has already decided the issue. I tend to agree based on the facts: you are betting/trading against the house, there is (thankfully) no exchange and all the problems with an exchange as I said before, it is a fixed odds contract with a fixed return.

It is great that some European regulators are already licensing these under gaming / gambling as this gives a full answer for the US legality question. There is no need to even go down the route of CFTC overview unless the operator is trying to operate an exchange like Nadex which as I already said is not at all what I and I think a lot of others even want or think of when we are talking about binary options betting/trading.

jamesn

Since binary options first became available in the US in 2006, traders have shown a considerable amount of interest for this relatively new form of investment. The binary options industry experienced a boom in the later part of 2008, as traders from every corner of the country wanted to learn and participate in this type of trade.

As a result of the financial crisis experienced by the United States in 2008, the financial securities market has greatly evolved over the years, and some critics would say it has become very restrictive, especially in terms of binary options. Despite this, the US is one of the few countries in the world to have a very solid regulation structure in place, which assures the utmost protection for traders by adding many security layers. Some view this as limiting, but most investors feel confident in investing in binary options due to how closely monitored the market is.

The legality question of binary options in the US has two layers. The first consists in whether binary options brokers from the US can operate in accordance with the federal and state laws; the answer is yes. The second layer involves traders and whether they can lawfully start trading options; the answer is yes to this as well.

The US history of binary options shows that over the counter transactions were popular at first when there were very few regulations in place. In 1973, the Chicago Board Options Exchange (CBOE) was created and provided a trading platform. A few years later, the Options Clearing Corporation (OCC) started regulating all over the counter operations in order to keep a closer eye on buying and selling activities. Anyone who would stray for the rules would be banned from trading options, either temporarily or permanently, depending on the severity of the breach.

Kind regards
Jamesn

Blue Sky Binary

Hello,

Binary options are legal in the sense U.S citizens won't be jailed for trading them. However, soliciting U.S clients for the trading of binary options is illegal. The CBOE, CBOT/CME oversee the trading of regulated options (call and put), but these are not the same as binary options. Digital Options, however, are regulated by the CFTC and this body grants operating rights to companies like NADEX, who can solicit U.S clients.

The last time a company active in traditional binary options tried to solicit U.S clients, they were deported. This company was called Banc De Binary.

A clear demarcation between binary options, digital options and proper call/put options (which indeed were created in the 70s) needs to be made.

Team BSB

JohnUSA

There is a lot of confusion caused by the term "binary option" being used by two very different kinds of platforms.

The first kind is an actual options exchange (like Nadex is) and operates under the purview of the Commodity Futures Trading Commission (CFTC) which regulates futures and option markets in the USA.

Most binary platforms are the second kind and are not an exchange operation at all, instead you are playing a real money game against "the house". The asset pricing comes from the real financial markets, granted, but that is not the same as buying an actual option like on Nadex. When you buy an actual option you have an actual right to take delivery of it or if the seller an obligation to deliver it up. The fact that in 99.999% of cases options will be settled for their cash value doesn't change the fundamental basis of the transaction. Nothing you do on these platforms has any impact whatsoever on the actual value of the assets in the real world, you are just playing a real money game against the “house”.

The UK correctly regulates this product under gaming. The only place that has said these operations would be regulated by a securities or derivatives exchange regulator is the Cyprus equivalent to the CFTC: Cyprus Securities and Exchange Commission which is only misleading consumers. I am not aware of one company in Cyprus that is operating an exchange like Nadex. Rather you are playing a game against the house. No option is in fact being sold. It is a total misrepresentation in posturing themselves as an options exchange or financial product (as Nadex is) but in fact they just provide a game against “the house” and therefore should be properly regulated under gaming. So the UK government is right. Cyprus is wrong. No surprise there.

The USA must follow the UK's lead. Under US gaming prohibitions casinos and sportsbooks are illegal but there is absolutely no prohibition against binary betting on the outcomes or performances of the world financial markets. For gaming legality comes down to whether it be a game of skill (legal) or a game of chance (illegal). Betting against the house does not constitute trading in derivatives.

The end result is that whether a given binary company is legal in the USA or not will depend on how they have gone about regulating and marketing their product. If they operate a game against the house and market it as such with a gaming license then they are not in any way afoul of US laws under games of skill as they currently stand. Alternatively if they are operating an exchange or selling derivatives which is something entirely different then they must be licensed by the US financial regulator, the CFTC.

illod

It's difficult to come to a specific answer to this question. Theoretically no one prohibits from trading on BO, but the government always has complaints in terms of legalising the company itself.

OptionsATM

If I may it is very very simple. They are not legal in the sense the U.S. has any regulation of said entities but you are not restricted from using them. So no they are not Illegal which would mean you were committing a crime and that is a fact. If anybody says the opposite they lying to you or work for Nadex.. Big Laugh. On that same note you have no regulation or protection because of this and if a binary options company goes belly up or does not wish to pay you, well you have no recourse. All of the G8 regulatory agencies will have warnings against trading with these companies because they are nothing more than online casinos. Some are good ones but still you are taking a risk, hope you don't get snake eyes!

ACM

Would it be possible for a US citizen to be employed by a foreign trading company and trade as the business entity and not as a US citizen?