Binary options are relatively new in the retail space. While they first became available back in 1974 when the Chicago Board Options Exchange was launched, they weren't available publicly until 2008 when the CBOE introduced them to the public as a tradable asset.
However, as time moves on, the trading vehicle becomes more and more popular as simplicity in trading and large profits drive interest. Unfortunately however, the United States government doesn't look at binary options favorably, and particularly points to offshore brokers and the offshore OTC market in general as a risky place to be. Today, we'll talk about why the US government views binary options as risky, what's involved in trading with both US and offshore brokers, and what you should do before you start trading to avoid a large part of the risk involved in the industry.
Why The US Government Warns Of Risk In Binary Options
At the end of the day, there are two big issues that the United States government seems to take with the binary options industry. Those issues include…
- The Win/Loss Concept – Binary options are different from most other trading vehicles in that when you win, you really win, and when you lose, you really lose. You see, a winning trade has the potential to yield 70% or more while a losing trade will lead to the loss of your investment entirely. This win/loss concept makes the United States government look at binary options as a form of gambling, not investing.
- Scams – Another big issue that the United States government takes with binary options trading is off-shore scams. Unfortunately, because binary options are relatively new and largely unregulated around the world, scams are everywhere in the industry. As a result, the United States government is trying to protect its consumers from fraud and loss.
Your Two Options For Trading
At the end of the day, if you live in the United States, you can trade binary options in one of two ways. First and foremost, you can trade with a United States broker. In the United States, binary options brokers are regulated by the US Commodity Futures Trading Commission as well as the US Securities and Exchange Commission. The fact that United States brokers, while there are very few of them, are regulated, gives the trader an added level of protection.
Another option that binary options traders have in the United States is to trade off shore. While not all offshore brokers are regulated, many are. In fact, if you're going to trade with offshore brokers, it's best to work with European brokers as many of them are regulated by the Cyprus Securities and Exchange commission. While you won't be able to get regulatory backing if fraud does take place, working with regulated brokers off shore gives you the peace of mind in knowing that your broker operates on the side of the good side of the law.
Final Thoughts
At the end of the day, binary options trading is looked at as risky, but that's largely because of the scams that are found within the industry. If you're in the United States and want to avoid these scams while getting involved, the process is simple. Either trade with a regulated broker in the United States or trade with a European broker that's regulated by CySEC. For added confidence, it's a good idea to take a look at the CFTC warning list to make sure that you avoid known scams!
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