USA Binary Option Brokers
The model of binary options trading in the USA is quite different from what is obtainable in other parts of the world. The underlying principle of binary options trading in the USA is as prescribed by the Commodities and Futures Trading Commission (CFTC), which is the regulatory body assigned with the oversight and regulation of the binary options market and the operators therein within the United States and US jurisdictions.
This underlying principle states that all assets traded within the binary options market in the US must be listed on one exchange or the other. In essence, traded assets must be exchange-backed options, and this is to allow total regulation of the market and its constituent assets as well.
For instance, if a trader wants to trade Alcoa as a stock asset on a binary options platform, it is expected that Alcoa must be listed on any one of the US stock exchanges. Alcoa is indeed listed on the New York Stock Exchange (NYSE) where it is subject to regulation by the Securities and Exchange Commission. This provision rules out the trading of virtual assets such as random indices which are traded on a popular proprietary brokerage platform.
As such, there are specific laws that have been put in place and enforced by the CFTC regarding the trading of binary options which are described as “off-exchange” i.e. binary options assets which are not listed on a regulated exchange. Trading of binary options assets not listed on any US exchange is considered illegal in the United States. Furthermore, it is expected that companies that offer binary options must therefore also be regulated by the CFTC and only offer assets listed and regulated on US exchanges.
So in a nutshell, binary options trading in the US is:
- A regulated activity with oversight function provided by the CFTC in this regard.
- Must involve assets listed and regulated on US exchanges. Therefore foreign assets not listed on US exchanges and off-exchange assets CANNOT be traded as binary options in the US.
- US citizens who trade binary options with foreign companies not licensed by the CFTC are breaking the law.
- Foreign companies not regulated by the CFTC and who solicit patronage from US citizens are also breaking the law.
- Only companies regulated by the CFTC can offer binary options in the US.
Trading Binary Options in the USA
Attaining the status of a US binary options broker is a stringent process. So far, only three companies are listed as binary options providers in the US. These companies are:
- IG Group, which operates the North American Derivatives Exchange (NADEX).
- Cantor Exchange LLC
- Chicago Mercantile Exchange, which offers ETF-based binary options as well as binary options based on weather contracts.
Founded in 2004 by John Nafeh as a derivatives trading company known as HedgeStreet, the company was later acquired by the IG Group in 2007. The acquisition came with the name change to NADEX. In 2008, binary options became part of its offering of derivative instruments with the launch of the Germany 30 binary contract. Trading on NADEX is based on a Buy-Sell trade type with each option worth either $100 for an in-the-money option, or worth $0 for an out-of-the-money option. Profits or losses are calculated based on the distance of the option price from either 0 or 100 and the number of lots purchased.
To start trading on NADEX requires an opening account balance of $100. Only traders with a US green card or US citizenship and Canada can participate on NADEX. Transaction fees are charged on each lot at $0.90, up to a maximum of 10 lots. No charges are incurred on additional lots. Traders get a demo account which lasts 2 weeks with a maximum of $25,000 virtual money.
Cantor Exchange LP offers binary options to market participants and are open to both US and non-US traders. The trading conditions on Cantor Exchange are the same as for NADEX.
CHICAGO MERCANTILE EXCHANGE
The Chicago Mercantile Exchange (CME) Group provides weather-based binary options. These are “Call-only” binary options with a minimum trade size of $10,000. Weather-based binary options are considered as commodity-based binary options. Binary options based on exchange traded funds (ETF) are also part of the binary options offering on the American Exchange (AMEX).