Overseas brokers for US citizens: legal or illegal?

Someone already posted The Dodd-Frank act, which is the main reason you can not operate over-the-counter derivatives that are not regulated by the US authorities.
On top of that, the U.S. is one of the only two countries in the world where taxes are based on citizenship, not a place of residence, Offshore CFD Brokers will be very reluctant to offer services to US citizens (and they should), as they will not be able to declare any substantial amount from the broker. You don't really want to be messing around with Uncle Sam. If a broker gets restricted by the authorities of any of the 194 countries around the world it might have an impact. but if you break Uncle Sam's ba#*s, as a broker you are pretty much done, all the important liquidity providers are based there, server infrastructure, payment service providers, etc getting sanctioned by the US means you don't have friends anymore in most of the financial regulated world, for a business that constantly needs to send funds around the world, is an instant Game Over, even if they are not operating in the country.

Yes but the question that has no answer is, is it illegal for us, the American Citizen to have an overseas broker if they will take us? We can still pay our taxes on our trading at the end of the year. I know its illegal for overseas brokers to take us, but if they will, can we legally use them? This seems to be a very grey area.

To put it simply, it is illegal for an American retail trader to operate a derivative over the counter from an unregistered broker. The Commodity Exchange Act, the Dodd-Frank Reform and Consumer Protection Act prohibit trading in over-the-counter derivatives with unregistered entities, and they require that all derivatives trading be conducted on regulated exchanges. That answers the question. Professional traders have more options when it comes to trading derivatives offshore.

If you were able to open an account offshore that is not regulated in the US with just your US passport without being classified as a professional or sophisticated investor, to me, that´s already a red flag of your operator, maybe you will manage to withdraw some profits without any problems, however good luck withdrawing any substantial amount.

Not only you are at high risk of not getting paid, but declaring any substantial amount from an illegal financial instrument can put you in a dodgy situation.