If you live in the USA, the world of binary options will have to be approached differently than is the case for people based elsewhere. The reason for this is that binary options trading is regulated according to different rules in the USA than in most other countries.
In the US binary options trading is regulated by two federal agencies, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC). Both apply much stricter rules than most foreign jurisdictions.
As a result of restrictive US law, many binary traders will find US-licensed brokers very limited compared to overseas competitors. However, there are good reasons you, as a US citizen or resident, should think long and hard before signing up with a non-US binary broker.
Only US brokers offer full protection
The reason the SEC and CFTC operate according to such stringent rules is to protect investors and traders. US regulations are in place in order to safeguard the interests of traders.
This means that the money you invest enjoys federal protection. Should something go wrong or you feel the broker somehow did not act fairly, the regulators can protect you. This is not the case with an overseas broker.
The rules that the SEC and the CFTC implement are there to assure fairness and transparency. Importantly, you can complain to these regulatory bodies if you are unhappy. They will investigate.
Should they agree with your complaint, they have the authority to issue fines and even more severe punishments. In order to stay clear of such consequences, US-brokers are highly motived to play by the rules!
It is illegal for non-US brokers to solicit US traders
Another reason you need to take care if you consider opening an account with a non-US broker, is that brokers who do not have a US-license are not permitted by law to solicit US-based traders.
You will not be breaking US-law by signing up with a foreign-based broker, and complete trades with them. However, it is highly likely that the broker might be in breach of US regulations by allowing you to conduct your business with them.
For this reason, many reputable binary brokers who are licensed with regulators in markets such as the UK or Cyprus, specifically prohibit US-citizens from opening accounts with them. This is in order to prevent inadvertently breaking US law.
No foreign binary brokers are licensed to operate in the US
Even though some foreign brokers claim to be licensed to operate in the US market, this is not the case. No overseas binary broker is currently licensed to operate in the US by the SEC or the CFTC.
Now, this does not mean that you incur a risk, as such, by trading with a foreign broker.
Many non-US brokers are regulated by highly respected organizations. As long as you make sure that the broker in question has a license issued by a regulatory body that is trustworthy, you really are doing business with an organization that is under every bit as stringent regulation as US-brokers.
Especially brokers that are registered in the EU, predominantly in countries such as the UK and Cyprus, are perfectly reliable and trustworthy. They offer excellent service, and great customer care.
The range of assets and types of binary options they allow you to trade in is far greater than is the case for US-brokers.
The only drawback is that they are operating outside of US jurisdiction, and that they quite possibly could be in breach of US-law by permitting you to open an account with them.
You trade with non-US brokers at your own risk
The consequence is that you trade with non-US brokers at your own risk if you are a US citizen or resident.
The risk is minimized by making sure that you choose a broker that enjoys a good and well-established reputation. Traders overseas are not fools – they don’t throw their money away on fraudulent or incompetent brokers. If a company has established itself as a market leader over time within binary options trading, it is because they provide a good service offering.
You will also have to make sure that the broker is regulated by a serious government body, and that it has valid and up-to-date licenses.
The two most important regulatory bodies when it comes to the binary brokers you are likely to encounter online are CySEC from Cyprus and the FCA in the UK. By making sure that a broker is licensed by one of these authorities you assure that they play according to the rules, and that strict guidelines apply.
You should easily be able to see where a company is registered and under which regulatory body’s remit they fall, by visiting their website. You can then visit the regulator, e.g. CySEC, online to verify this.
Many non-US brokers do not allow US-traders
However, even if you do decide to trade with an overseas binary broker, you will in most cases find the door closed.
As we have already pointed out, most non-US brokers do not allow US-traders. These are serious financial institutions who are eager to operate within international rules and regulations. As it is not permissible for foreign organizations to offer binary options trading to US-citizens, they make sure they don’t.
Having said that, though, seeing as companies based outside of the US do not fall under American jurisdiction, they are not technically breaking the laws they operate under by accepting US clients.
Several highly reputable and well respected binary brokers, among them Finpari, makes it possible for US-based traders to join.
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