Are Binary Options Legal in the US?
As a trader, investing in Binary Options is lawful. By purchasing binary options, as a USA citizen or resident, you are not breaking any laws.
Now let’s understand what all the fuss is about.
Legal Restrictions on Binary Options Brokers
There is a big confusion with the legal aspect of Binary Options. Two main causes are the lack of distinction between regulatory issues and legal drawbacks, and the difference between brokers to customers.
So let’s repeat: binary options are legal in the US for anyone who wishes to invest as a trader, a customer, a depositor. There are no laws that limit people living in the USA from purchasing binary options.
There are, though, legal questions that brokers must address. To say that the marketing of binary options is an illegal activity is totally inaccurate. Yet, binary options brokers will need to modify certain aspects of their business because new regulatory laws will not enable them to offer the same products they did in the past.
Binary Options: The Dodd Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act, thankfully known simply as the Dodd-Frank act, is a lengthy reform aimed at creating changes in economic rules that will protect the market from the downfall it experienced late in the last decade.
As you might remember, the lack of more sever regulation enabled the markets to create an enormous illusion of money and well-being which didn’t exist, and it all came crumbling down. The Dodd-Frank act is meant to make sure a second installment of that mess is avoided.
Although the Dodd-Frank is extremely long and intricate, we have summarized what really matters to you: understanding how the act affects Binary Options trading, and whether it answers the question if binary options are legal in the US or not.
Regulation and Juridical Propriety
Binary Options brokers are not regulated in the USA. Does this matter to you, the trader? Yes, very much, because it means there is no one responsible to making sure binary options firms have the financial ability to return the money to their customers.
Binary brokers answer to on one when it comes to guaranteeing their ability to pay back the money traders deposit with them. So it is a concern, because you could be investing your monies with a binary company on the brink of bankruptcy, in which case your money would be lost.
Still, not being regulated is not illegal, as long as you don’t offer services that demand regulation. And if a firm offers financial tools that demand regulation, it will not be able to function without those regulatory documents anyhow, because other institutions, such as banks or credit card companies, would not work with them.
In other words, the question “Are binary options legal in the US?” can be answered this way: They are legal for customers, and brokers couldn’t break the laws even if they tried…
Dodd Frank Act impact on Binary Options
Here is what changes in the binary options field as a result of the Dodd Frank act. The act, implementing one of its many decisions, will make it impossible for binary options brokers to offer forex options, as well as certain commodity options. Why?
Because with the new rules going into effect, American residents and citizens will not be able to deposit money with firms that offer this investments. This will not happen because traders who try to make such a deposit will be breaking the law, It will also not happen because binary options firms trying to receive these monies would be doing something unlawful.
What will occur is that new regulations which apply to banks and firms responsible for transferring funds will make it impossible for the money to “travel” from one institution to another. It could be said that the ones liable, the companies which would be breaking the law, would be the banks themselves. Of course, that will not happen.
In summary: with the enforcement of certain aspects of the Dodd-Frank act, binary brokers will be unable to offer certain options, because physically, by offering those options, it will become impossible for them to receive deposits. No one will be breaking the law for trying, really. It’s just that the deposit will not go through…
As for you, the investor, binary options will remain legal in the USA.
Dealing with the risk
Now that you understand that binary options are legit, the real question is how to avoid or lower the risk involved in binary options trading.
There are two risks: trading with a broker which isn’t regulated (none of them are, even those who claim to be…), and the fact that binary options, as an investment, are very risky.
To help you improve your odds, the best solution is to find reliable, experienced brokers with a good track record, which have a solid customer base worldwide. That will diminish the risk of lack of regulation dramatically.
As for the risk involved in the investment itself, the best attitude is to learn as much about binary options as possible. For this purpose we suggest using the vast educational tools provided by certain brokers.