There are regulated and unregulated binary options brokers. But why should U.S. traders always pick a regulated broker? We explain the details in this guide about regulated brokers for U.S traders.
In detail, we answer these questions:
With the answers to these questions, you will know everything you need to pick the right broker for your trading career. Learn all in our article Regulated brokers for U.S traders.
U.S. traders face a special legal situation. This situation makes it impossible for them to sign up with most binary options brokers that traders from all around the world use. This is why finding regulated brokers for U.S traders is so important.
The unique situation is due to a U.S. law that requires binary options brokers that want to offer their services to U.S. traders to accept regulation by the Commodity Futures Trading Commission (CFTC). Overseas brokers that have not accepted this regulation are legally not allowed to offer their services to U.S. traders.
This is a unique situation because most brokers are based overseas. There are unregulated brokers, European brokers that are regulated by the European Union, mostly the Cyprian Securities and Exchange Commission (CySEC), and some brokers that are regulated by other countries all over the world. None of these brokers are legally allowed to offer their service to U.S. traders.
As a result of this legal situation, many brokers refuse to offer their services to U.S. traders. Even if you would be willing to register with these brokers despite the lack of government support, the brokers would simply refuse your application.
This special situation dictates that U.S. traders are unable to register with the overwhelming majority of binary options brokers. So what can they do? Well, there are two options:
To find out which of these alternatives is the better choice, we will examine both of them in detail in the rest of this article.
To understand whether it is important to register with a regulated broker, let’s take a look at what it means to be regulated by the CFTC.
CFTC regulation is more than just a formality. Brokers that accept CFTC regulations have to fulfill tough criteria to be allowed to offer their services to traders in the U.S. market. Some of these criteria change the very nature a binary options broker works. Let’s look at some of these criteria individually.
The most significant of these changes is that a CFTC-regulated broker is connecting binary options brokers instead of offering its binary options directly.
All brokers that are not regulated by the CFTC offer their binary options directly to traders. In this system, the broker resembles a casino. When you win a binary option, your broker loses money; and when you lose a binary option, your broker makes money.
Because of this setup, your broker has little interest to help you make money – the money that you make is the money the broker loses. While some traders will always make money, all of the broker’s customers, on the whole, have to lose money in order for the broker to survive.
The CFTC demands that brokers return to the classic broker system as you know it from stocks and other classic assets. Instead of offering binary options directly to you, CFTC-regulated brokers return to working as a middleman that connects traders and takes a fee for their service. Just like one trader has to sell a stock so that another one can buy it, one binary options trader has to invest in rising prices for another trader to invest in falling prices.
Now, some traders might ask whether they should care if they trade with another trader or their broker. After all, they end up with the same binary option and they will either win or lose this option, regardless of who they are trading with. Things are a little more complicated, though.
A broker that is not regulated by the CFTC has a legitimate interest that you lose money. In fact, if every one of their customers would turn a profit by the end of the month, the broker would be bankrupt. Just like a casino has to design its games in a way that it is mathematically impossible for their customers to make money, these brokers have to offer the kind of payouts that make it difficult for most traders to turn a profit.
A CFTC-regulated broker has no such need. They make their money by applying a small fee on every investment, which is something other brokers do indirectly by reducing their payouts a little. You are no worse off, but you gain the security that your broker does not profit from your misfortune.
CFTC-regulated brokers hold all member funds in separate accounts in top-tier U.S. banks
When you trade with a regulated broker, you can go to bed at night knowing that your money is safe. The CFTC demands that brokers keep their customer’s money in separate accounts run by large U.S. banks.
This system has two advantages:
Unregulated brokers have to do no such thing. When an unregulated broker goes bust, all your money might be gone. Brokers that are regulated by the European Union have to keep enough money in a separate account to buy out all of their customers in the case of bankruptcy, but these accounts are overseas and in the wake of bankruptcy, you might find it difficult to access them.
Having their money nearby and with a trustworthy bank is a great security blanket for U.S. traders. Regardless of what happens to their broker, they can always get all of their money back. Of course, nobody likes to plan for worst-case scenarios, but preparing for a disaster that could wipe out all of your money is a sensible thing to do, and CFTC regulated brokers help you with this issue better than any other broker.
Registration allows the CFTC to provide greater security and oversight of the industry by examining whether firms meet minimum financial standards as well as disclosure, reporting and recordkeeping requirements, for example.
These regulations are too plenty to examine them in detail at this point. The important point to understand is that the CFTC is an independent agency that monitors every aspect of your broker’s service, which is the security blanket that protects you against all sorts of fraud and other illegal practices. Since there is no disadvantage to this security blanket, there is no good reason to pass on it.
If you should ever be unsure whether you can trust a broker, the CFTC and the SEC (Securities and Exchange Commission) have started a tool that can help you make a good decision within seconds.
According to the CFTC, many foreign broker act in a capacity that would require them to be registered with the CFTC. To point out these brokers, the CFTC started to publish a RED list (short for Registration Deficient List) on which it publishes the names of binary options brokers that should accept CFTC legislation but fail to do so. The CFTC updates the list regularly, and the list is available online.
To protect your money and enjoy the best trading career that you can, you should stay away from all brokers on this list.
The selection of regulated brokers or exchanges for U.S. citizens is small in size but high in quality. In fact, there are only a few binary options exchanges that are regulated by the CFTC, and one of them is Nadex. Nadex is short for North American Derivatives Exchange.
Due to the impact of the CFTC’s regulation, Nadex is one of the best binary options exchanges you can find, which makes the limited selection almost a non-issue for U.S. traders. Let’s take a look at the service that Nadex offers and let’s see how you can profit from it.
Dealing with CFTC regulations has posed a few unique challenges to Nadex that no other broker or exchange had to deal with before. Nadex faced these challenges and dealt with them in a way that improved their service to make it uniquely flexible and profitable in ways that no other exchange can rival.
The most prominent example of this flexibility and profitability is Nadex’ strike price system. The strike price, also known as the target price, defines the price against which your binary option is measured. With a strike price of $100, for example, you could predict that the asset will trade above $100 when the option expires or below $100. If you are right, you win your option; if you are wrong, you lose it.
As you can see, choosing the right strike price for your option is the key to winning the trade. In the past, this was one of the biggest problems with binary options. Binary options used by default the current market price as the strike price, which made the system somewhat inflexible. You could predict only whether the market will close above or below the current market price, but you were unable to make more nuanced predictions.
To solve this problem, some brokers introduced additional forms of binary options such as one touch options, which allowed traders to predict stronger movements. In the end, however, no broker offered more than two or three strike prices.
Nadex has turned this whole system around. Periodically Nadex offers 30 strike prices that you can trade with binary options. This system allows you to trade more accurately than with any other broker, and this accuracy, in return, enables you to make bigger profits.
The key thing to understand here is that predicting a stronger movement with a strike price that is further away from the current market price will get you a higher payout. When you expect a strong movement, Nadex’ large selection of available strike prices allows you to trade this movement with an accurate strike price, which will improve your payout, your profit, and your long-term success.
When an asset is trading at $100, for example, and you expect a strong movement to $102, this prediction was difficult to trade with conventional binary options. You had to accept the current market price as the strike price, which meant that you would waste the most significant part of your more accurate prediction that the market will rise strongly, and that it will rise to $102.
With Nadex, however, you can pick a strike price that is close to $102 and profit from the full range of the movement. You will get a higher payout and make a bigger profit, even though you traded exactly the same type of prediction. Passing on this opportunity is illogical.
Before you invest all your money in binary options, you want to know that you are any good at this type of trading, right? Well, there is a great way to test your skills before you invest, and this way is a demo account.
A demo account offers you exactly the same tools as a regular trading account, but it allows you to trade with play money instead of real money. Using such a demo, you can perfect your trading until you know that you can turn a profit, making the switch to real-money trading in the absolute certainty that you will earn money from the start.
The problem with binary options demos used to be that brokers refused to offer these demos to anyone. To get their demos, you had to sign up for one of their regular accounts, which involved depositing at least $250 to activate your account. This premise made little sense for most traders. In order to test whether it made sense for them to invest in binary options, they already had to invest in binary options.
Luckily, Nadex and the CFTC have decided on a better offer. You can get the Nadex demo for free, without having to deposit money or any other form of commitment. Sign up directly for the demo and start trading – this is the premise that many binary options traders have dreamed of for years.
If you are new to binary options, you can now test whether you like the trading style without risking anything. If you find that binary options are the ideal asset for you, you have found your way to financial independence. If binary options are not for you, you discover this fact in a risk-free environment without losing a single Cent.
This is the ideal promise. Have some fun, and maybe you become rich. If not, who cares?
We already mentioned some of the main advantages a CFTC regulation provides. There are however more reasons why Nadex provides a trading environment no other broker or exchange can match. Some of the most significant of these reasons are:
These features make Nadex one of the best binary option exchanges you can get.
Finding an alternative to CFTC regulated brokers is difficult for U.S. citizens. This problem is mainly due to the fact that most overseas brokers refuse to accept U.S. traders as their customers. Even if you were willing to accept the risk of trading with an unregulated broker, there would be only a few brokers that would accept you. And those brokers that would are probably on the CFTC’s RED list.
Despite this limitation, there is one isolated case in which it can make sense for you to register with an overseas broker. This case is the IQ Option demo.
The IQ Option demo is a deposit-free demo, just like the Nadex demo. Because of this rare characteristic, you can get the IQ Option without having to deposit any money into your account and can use it without violating CFTC limitations.
You can use the IQ Option demo to test another broker and see how the service works for you. Sometimes, getting a feeling for another service can help you to understand yourself, discover new strategies, and improve your trading results. The IQ Option demo is the ideal demo for this purpose.
Once you are done with the IQ Option demo, however, you have to do your real-money trading with another broker. IQ Option refuses to accept U.S. citizens as customers. Consequently, the IQ Option demo is the best tool you can get gain new experiences, but it is nothing more than that.
Other than the IQ Option demo, U.S. traders are better off sticking with Nadex.
U.S. citizens face a number of issues that make registering with a CFTC regulated broker a no brainer. At no cost to you, you get better security, a better service, and you know that your broker does not profit from your losses. Why would anybody pass on this offer? Sign up today with the regulated brokers for U.S traders.
Currently, the best binary option exchange for U.S. traders is Nadex. Nadex is one of the best binary options exchanges out there and offers an all-around convincing service. If you want to test Nadex now, you can do so risk-free by following one of our links and signing up for the Nadex demo.