Binary options have been around under their current form since 2008. Whenever online investing is involved, the number one question that comes to mind is legality. Are binary options legal? The short answer is yes, in most countries around the world. However, the long answer is slightly more complex and we explain why below.
Your country of origin
The legal status of binary options is dependent on your home country. For most countries, there is a distinction between legal and regulated. For example, in Canada, binary options are legal but unregulated. In the United States, they are legal but very strictly regulated. In other parts of the world such as the European continent, they are legal and regulated (although not as restricted as in the US). Note that most restrictions imposed within the binary options industry apply to brokers, not necessarily to traders.
Many financial authorities regulate and oversee the practice of binary options within their country. The biggest financial regulator of binary options is CySEC in Cyprus. Some financial authorities in other countries, such as the UK and Australia, have regulations pertaining to binary options among other financial investment tools. Aside from the US, who largely restricts binary options brokers to those who have obtained licensing through the CFTC, most regulated (and unregulated) brokers are free to promote their services to traders worldwide.
Types of binary options
For most traders, signing up with a broker is the only way to trade binary options. These are called non-exchanged traded options and involve you selecting whether or not you think the price of a given asset will rise or fall within a specific timeframe. When executing a trade, you know in advance how much you may profit and what you are at risk of losing. Alternatively, exchange-traded options are those found on the New York Stock Exchange Amex Equities (NYSE) or the Chicago Board Options Exchange (CBOE). Trading via these two means requires more financial knowledge than the first type.
What does all this mean for you?
The first step to take when considering binary options is to check with your local or national financial authorities to ensure this type of trade is indeed legal and to see if there is any regulation information available. If no regulation exists in your country, this means you are likely free to pick the foreign broker of your choice. Choosing a broker is an important task. To find the most trustworthy and reputable brokers, search for online communities of experienced traders to discuss with and look online for broker information from credible sources. If possible, you should avoid small or new companies until more data is available on them. Firms that are regulated are generally more secure but plenty of reliable brokers are also just in the process of obtaining regulatory status. Remember that binary options have an element of risk; never invest more than you can afford to lose. Lastly, you will need to check with your local or national authorities regarding how to file taxes. Since money earned from binary options is considered ‘earnings’, this means it is taxable in most countries and you will be required to declare any profits you make from this practice.