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A CFTC Regulated Binary Exchange

A CFTC Regulated Binary Exchange

If you are looking for a legal opportunity to safely trade binary options in the USA, you cannot beat Nadex. They have a strong reputation and airtight regulation.

Nadex (www.nadex.com) is different from any other binary options broker. I have already written up a comprehensive review on Nadex (which you should definitely look at), but I want to take a few minutes to introduce you in greater detail to the concept and background of this exchange.

Nadex Quick Links

If you are a USA trader, you have probably discovered in recent years it is getting harder and harder to find a binary options broker that will accept you. This all has to do with the U.S. Commodities Futures Trading Commission (CFTC). The CFTC is in charge of regulating options trading in the United States, and they are not remotely impressed with the vast majority of binary options brokers, almost all of which are based overseas. In fact, in 2013, they went so far as to issue a formal warning to US traders about offshore brokers.

The legality of trading binary options in the USA is extremely complicated. Here is what the CFTC has to say about it:

“It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt.”

I do not want to dissect this statement at great length. It des seem to only refer to commodity options, which is why some offshore brokers have taken the step of accepting USA customers only to trade stock and index options, banning them from trading currencies and commodities.

nadex-homepage-2-750

In any case, Nadex fits the bill as a legal USA exchange because it is registered with the CFTC.

To my knowledge, there are few CFTC regulated brokers.  CFTC regulation is extremely hard to qualify for, and most binary options brokers are simply not up to the task.

Why Does the CFTC Take Issue with Offshore Brokers?

While the CFTC may seem a bit draconian, there are good reasons they have learned to distrust offshore brokers. While there are some excellent offshore brokers (which we identify in our recommended brokers list), most offshore brokers engage in questionable practices. Some include:

If a broker is regulated with the CFTC—like Nadex—you can rest assured that they are operating legally within the US and you are also trading legally with them. That alone should give you some peace of mind. On top of that, you know that they are meeting the CFTC’s rigorous criteria for operation and will never defraud you.

Benefits of Trading with Nadex

Here just a few reasons to consider trading with Nadex:

This last point is a big deal. Almost all offshore brokers work by taking the opposite side of your trade. If you go High, they go Low. If you go Low, they go High. Naturally they offer you trades that they expect to win—and if you are winning, they may decide not to let you.

This is why there are so many scams reported by customers at offshore brokers. Most of us have at least read about them, if not experienced them. You have probably heard traders complaining that they were winning a trade when it was supposed to expire, but then the clock just kept running. When it finally stopped, they were at a loss. When they complained, the broker said it was a “technical error,” and that they were not responsible.

Not all brokers that operate this way are scammers, but at least when you trade at an actual exchange, you know that the broker has no incentive to cheat you. There is no conflict of interest. You are always matched up with another trader. Your win is their loss; their loss is your win. This may either be another retail trader like you or an independent market maker. In either case, no party is accorded any special advantage.

Almost nobody offers this in binary options right now! Nadex is one of a handful at best. As I mentioned earlier, I know of only one other in the US (Forest Park BX). So this is the Nadex advantage, and it is huge.

How does Nadex make money? – If Nadex does not take the opposite side of your trades, how do they make money? Well, as you probably have guessed, they charge commissions when you enter and exit your trades. This comes out to $1 per contact capped at $50 (cap does not apply to in the money trades).

You may feel discouraged at the thought of paying ongoing fees for trading, but at least you know how Nadex is making money, and you can see how this helps to keep trading fair. No one has an unfair advantage because Nadex gets paid by everyone who participates in the exchange. Plus, the fees really are not that expensive when you consider how high the payouts are (up to 100%). This far exceeds the payouts that you will get from most offshore brokers, which hover closer to 75-85%.

So when you think about it, because of Nadex’s fee structure, it is in Nadex’s best interest to keep you around as a customer for as long as they can. That means that not only do they have no conflict of interest with you, but they arguably have a vested interest in your success.

Are there drawbacks to trading with Nadex?

Sure—paying commissions is no fun, and you do need to set up Automated Clearing House network (ACH) for bank transfers to get around withdrawal fees. But the benefits far outweigh the disadvantages. You get to trade with a US-based exchange you can actually trust, and you can earn incredibly high payouts on winning trades.

So what are you waiting for? Check out our Nadex review to learn more about the benefits and features, or check out our other Nadex guides to learn more about placing trades on the site, or give Nadex a try.

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