regulatory oversight by the CFTC. The maximum risk for any trade is fixed and required in advance so you cannot be called upon for further funds. But please remember these are volatile instruments and there is a high risk of losing your initial investment on each individual transaction.On Nadex you can trade Binary Optionsand Bull Spreads to take a limited-risk position on price movements in forex, commodity futures and equity index futures markets. Binary trading allows you to take a yes or no position on these markets, with a strictly defined maximum profit or loss. As a regulated, retail-focused exchange, Nadex provides traders with innovative products in a transparent, secure environment.You may have heard the term binary option before. This term may have a negative connotation for you or perhaps it has a very favorable one. Or, maybe it elicits no feelings what-so-ever. The truth is, there is a great deal of confusion surrounding binary options. They can be a fantastic trading instrument as long as they are structured correctly and traded on a regulated exchange.While all binary option contracts share the same name, there are many different flavors available. As a rule, all binary options share one characteristic. That is, at expiration there are only two potential outcomes, all or nothing. Hence the term binary option. For many of the instruments sharing this name though, that is where the similarities start and end.If on hearing the term binary option, you had a negative feeling, it is likely you had heard of, or perhaps even traded binary options as offered, by unregulated, or very lightly regulated, off-shore firms. Over the last several years, the number of said firms significantly increased offering an easy way to get massive returns from a small investment. This is truly a case of if it sounds too good to be true, it is.As a result of the activities and conduct of said offshore firms, in June of 2013, the CFTC and SEC issued a joint fraud advisory alerting investors to the number of complaints they had received. Thankfully in this advisory they also explained to investors what to look for in legitimate firms offering binary options. Unfortunately, much of the confusion continues to this day.In the CFTC Fraud Advisory note, Nadex (North American Derivatives Exchange) was listed alongside the CME as one of three exchanges to legally list binary options in the US and that any other entities outside of the three mentioned, who were offering binary options that are commodity transactions, are doing so illegally.Ultimately, binary options are a very serious trading vehicle which allow traders, or those interested in trading, a means to participate across a range of markets, while having absolute control over their risk exposure. It is important though for individuals interested in participating to understand what to look for in a firm, why to look for it and what the benefits of doing your homework are.U.S. Exchanges are regulated by government agencies dedicated to protecting traders and investors. As part of this protection, they hold the exchanges to extremely high standards in every area of their operation. Two of the agencies responsible for maintaining a fair marketplace are the SEC which has oversight of a securities exchange like the CBOE and the CFTC which has oversight of Nadex.As part of the regulatory structure, exchanges that hold member funds, have strict requirements as to how this money may be handled. This generally means that funds are held in segregated accounts with top-tier financial institutions. Additionally, when members wish to withdraw funds, the exchanges must provide an easy to understand and fast withdrawal process.One of the main benefits of trading binary options on exchange is that the markets are transparent. Because the pricing of these contracts is derived from and settled against a 3rd party market, traders have complete price discovery and transparency. Also, if a trader has a question regarding a settlement, the exchange will provide time and sales data for verification.An exchanges most basic function is to match buyers and sellers in an unbiased manor. To maintain a bias free environment, the exchange itself, nor its employees may take positions in its markets. Also, unlike some OTC firms which may take the other side of your trade, exchanges do not make prices or take the other side of your trade. You are never betting against the house.If you ever played a game with an older sibling in which as soon as you started doing well, they changed the rules to put you back at a disadvantage, you probably understand the importance of having clear, well defined rules that cannot be changed mid-stream. And how much more important is that when your money is on the line As part of the governance, exchanges must publish publicly well established, clearly defined rules. Any rules that do change need to be approved by the regulatory authority and members must be notified of the rule change prior to it taking effect. Not so with some of the offshore firms.There are many different uses for binary options and I would encourage anyone interested in exploring them to do so. As with trading any instrument though, you need to understand not just the contract and corresponding risks, but know the firm with which you are trading.Like traditional options, Binary Options are based on an underlying security, have various strike prices to choose from as well as various expirations. CBOE lists both call and put Binary Options. If, at expiration, the price of the underlying security closes at or above the selected strike price, the buyer of a call Binary Option receives 100 per contract. If the underlying security closes at a price that is below the strike price on the expiration date, the buyer receives nothing.The price of a Binary Option usually reflects the perceived probability that the underlying security price will reach or exceed (for call Binary Options) or fail to reach or exceed (for put Binary Options) the selected strike price at expiration.