by Andrew Vargas
Unregulated options brokers – The Dangers
In 2014, a U.S. investor deposited $100 in an OTC binary options broker and made $3,000 in one week. He saw that his account balance was half of that and tried to contact someone associated with the brokerage about the discrepancy. Two weeks of unanswered phone calls/emails and being put on hold for hours left him upset and confused. Now he wanted to withdraw whatever money was in his account.
Ten days after he submitted a withdraw request. An email came saying that the broker cancelled the withdraw request, and he should contact customer support. He did and the account manager told him they wouldn’t release his funds unless he invested another $5,000 and guaranteed he will make $35,000 in 3 weeks.
The Money was never withdrawn.
It’s stories like these that make American investors weary of binary options. And why the Commodity Futures Trading Commission warns investors about fraudulent behaviours regarding OTC binary options trading.
Brokers regulated by the CFTC
It’s also why the CTFC only recognises two exchanges in binary options trading. The Nadex and the CBOE. They are the only two that follow strict guidelines.
The Commodity Futures Trading Commission (CFTC) is an independent agency created in 1974 to protect investors from manipulation, abusive trading practices and fraud. The reason these investors get scammed is that they are opening accounts with firms that may not do business with U.S. investors. They do not adhere to the regulations in place. And investors become victims because they are not trading safely with either the Nadex or the CBOE.
There have also been calls by U.S. politicians to give the CFTC oversight over OTC derivatives, but they never amounted to anything. Instead, the CFTC created a new website called The REDlist. This website lets investors know which foreign companies are accepting U.S. investors without being regulated by the CFTC. If investors use the website before opening an account and depositing money, they can give themselves another layer of protection.
So many people open accounts with unregulated binary options brokers because they are promised guaranteed winnings, bonus deposits into their accounts and uncomplicated trading software that makes executing trades simple.
These fraudulent bucketshops send out emails that prey on individuals who don’t have a lot of disposable income to trade with. Believing they can go on a winning streak of promised riches. The reality is these brokers manipulate prices and falsify earning to their advantage. They provide high risk with low payout.
Fully Regulated by the CFTC – Nadex
If U.S. investors like the appeal of binary options, they should avoid foreign brokers and stick with U.S. based exchanges like Nadex.
Being one of the few exchanges approved by the CFTC and legally allowed to offer binary options to U.S. investors. Nadex gives you much more control over your trades than OTC brokers. With Nadex you can set price targets or get out of the trade before it expires. This limits the risk of losing out. It also means that investors can make profitable trades in a flat market.
Unlike the horror stories of investors who lost out because of their funds being held hostage, the money you deposit and earn from profitable trades is held in a U.S. bank (BMO Harris, Fifth Third Bank). When you withdraw funds by wire or through ACH, it would take one or two business days for it to show up in your bank account. Your funds are separate from Nadex’s and are not used for other investments.
Since Nadex is an exchange and not a broker, they only collect an exchange fee for facilitating each trade. They’re not on any side of the transaction (they are not taking counter party risk). So they do manipulate the price in any way. They get the prices from data feeds provided by Bloomberg and Reuters. If anyone challenges the validity of the price, Nadex provides screenshots and timestamps from the Bloomberg feed.
Nadex is completely transparent in reflecting accurate prices. It is part of the strict regulations set by the CFTC. They also show you before making a trade what you stand to win or lose from it.
Even though binary options trading in the U.S. is growing in popularity few experienced traders are familiar with binary options. Nadex provides all of its members with handbooks and webinars educating them about binary options. How they work, how to trade them, and even what binary options are.
This stays in line with the transparency Nadex aims for. When more investors put trades in Binary options Nadex seems to win since they are the only game in town. So it would be prudent they teach you about them.
While Nadex doesn’t offer the variety of trades, only High/Low, Nadex spreads, and Long Term. They don’t offer the kind of speed trading usually reserved for day traders. They have 5 minutes as the shortest expiration time.
Nadex also doesn’t offer live chat like European OTC binary brokers. Which is fine because those OTC live chats are not helpful or responsive anyway. What Nadex has is a level of comfort and security for U.S. investors to trade and not be swindled out of their money.
Many investors like to try new instruments to test out, and while binary options are becoming more popular. Bucketshops overseas are leaving many new traders discouraged and angry thinking they only lose money with binary options. That is not true with Nadex being regulated by the CFTC and based in the United States. Investors who use Nadex to trade binary options can make money and learn what it takes to make profitable trades.
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