Getting straight to the point, binary options trading is very much legal in the United States. However, it’s structured differently from binaries traded outside the country. Binary options trading is an alternative to speculation or hedging, but it can only bring optimal outcomes when an investor fully understands how it works in their country.
Today, we’ll look at the basics of this venture and how its trading system works in the US. According to InvestManiacs, this helps define risks and outcomes more clearly, helping limit losses if you ever were to incur them.
The Basics of Options Trading
With binary trading, you get two forms of payoff: the amount of your investment plus a bonus or nothing at all. That’s the reason behind the term binary.
The outcomes are either two extremes, and no middle ground exists. An investor is asked simply to answer “yes” or “no” to the question: will the underlying market be above or below this certain price point at this certain point in time?
Binary trading contracts are placed based on an investor’s belief of an answer being a no or a yes. Thus, they’re among the simplest money instruments to trade. Its simple nature and potentially high and fast returns led to a steady rise in popularity among traders with all experience levels.
Despite its simplicity, options trading still requires considerable research. You’re still expected to learn about the market trends, the ins and outs of the trading system, opportunities for trading, and both the advantages and limitations of the venture. You’ll also want to know which providers have the legal authority to offer binary options to United States residents.
On that note, how does binary options trading operate? How are options traded in the US?
Binary Options Trading in the US
Binary options trading allows you to trade markets with limited profit potential and limited risks. It follows a prediction-based system that uses the yes-or-no line of questioning. So, it’s nothing too complicated for even a beginner to figure out.
When asked if the price of an asset will be above a certain point at a particular date, buying a binary option would mean you believe it. However, selling the option would mean you believe otherwise.
Like other financial instruments, binary options come with a bid and ask price. However, it’s only limited to the $0 to $100 range in this case.
If a binary is currently trading at $38 with a $40 asking price, you’ll have to pay the latter amount when you buy it and the former amount when you sell it. Of course, this would require you to buy or sell then and there, without waiting.
On the other hand, if you decide to purchase at $38 and wait a few minutes until the asset’s price falls above the given price point, your $38 becomes $100. Hence, you would earn a profit of $62.
If the opposite happens and the market price falls below the given price point instead, you lose your initial investment.
Bids and asking prices fluctuate until the expiration time. You may seal your standing at any point before expiry to lock a profit in or limit a loss rather than let the money go to waste entirely.
What Sets USA Binaries Trading Apart From Other Countries’ Binaries Trading?
The following are two areas that define binaries trading in the United States:
- SEC Regulations Determine Tradable Assets: Assets one offers for trading should be found on the list of exchangeable assets for the country. They have to be on Nasdaq, the Dow, S&P500, the different commodity exchanges, or future exchange options.
- Laws Governing Online Binaries Trading: The laws governing platforms on binary options trading revolve around what constitutes web-based or European-style options and the style exchange used by the United States.
Binary trading in the US becomes illegal when used as a form of gambling. As such, if you’re a resident or citizen of the United States, you’re not allowed to engage in any method of trading business with online trading brokers.
Instead, you have to partner with brokers from the US whose products align with the regulations and laws of the Commodity Futures Trading Commission or CFTC. The CFTC is what regulates the US binary market and the brokers operating within that market.
How To Trade Binaries in the US Legally and Successfully
Before trading binaries in any country, you must first make sure what you do doesn’t get you in trouble with the law. In the US, binary trading is governed by the CFTC, so make sure not to do anything against their regulations before opening a trade.
Once you’re safe on that front, all you have to do is research the ins and outs of a US-based venture, and you should be well on your way to making successful investments.
