Regulations in Binary Options Trading
Binary options are a relatively new type of trading, and as such, they are not as heavily regulated as other types of trading. However, the U. S. has adopted some measures to make sure that traders are protected. The Nadex—North American Derivatives Exchange—is the most heavily regulated marketplace when it comes to binary option trading, and using this particular broker can offer you some big advantages over other brokers. There are some things that you will want to be aware of before you begin trading, though. Most of the trading sites found here are not necessarily regulated in the same fashion, but are secure.
Nadex, formerly called HedgeStreet, is governed by the Commodity Futures Trading Commission. This was the first U. S. government regulated binary options broker, and the fact that there are still many unregulated brokers catering to U. S. clients gives Nadex a big advantage over the competition. The CFTC helps to protect traders by putting rules in place that its brokers must follow. Basically, it puts into effect tough penalties for fraudulent actions, manipulations, and abusive events.
The thing to remember is that Nadex’s security comes at a price. There is not as much flexibility of trading offered by Nadex. You will find that a lot of types of options offered by other brokers are not offered here. But there are many advantages here not offered by other brokers. The minimum deposit is much lower than some others. You can open a Nadex account for $100, compared to the $200 to $500 that most other major brokers offer. Nadex demo accounts are also much friendlier to the prospective trader . You are given a real time practice account of $25,000, and you can use it for up to two weeks after opening itpare this to the three days that other brokers allow. This gives Nadex an air of authority that you will not find elsewhere.
Federally regulated trading can offer you a big sense of protection. There are reputable sites out there, but the guarantee of the safety of your money is an important thing to consider. The major brokers out there might not have federal regulation, but in order to keep clients, they adhere to strict internal regulations.
The odds are that in the future, it will become legally mandatory for U. S. traders to only trade binary options through a CFTC approved broker. As of right now, this is not the case. If you look at the history of online gambling, for example, you will see many similarities. For a few years, when online poker first became popular, there were no regulations and many sites flourished. Then the government stepped in and put many restrictions in place, severely limiting what could be done legally. Binary options are more closely related to active trading than they are to gambling, but the precedent still could have a big effect on the future of this s till growing industry within the financial markets . Online binary options trading will most likely be regulated more heavily in the future, so going with a broker that is already approved can save you the big headaches that come with withdrawing your cash and transferring it to a different broker.
This is a mixed blessing. It will offer a further aspect of protection, but it also comes at a price. In order to operate efficiently, Nadex currently charges their clients transaction fees. Many other brokers do not do this, but instead make money off of disparate return to risk ratios. The specter of federal protection will likely make this major difference more favorable to the trader, but will instead put the money making ability in black and white, so that the trader knows they are paying for a fair rate of return upfront, rather than having smaller profits paid out to them.