Sarao, 37, was arrested by British authorities on April 21 in London at the request of the US Department of Justice which wants to extradite him on charges of wire fraud, commodities fraud and market manipulation.
Sarao is accused of contributing to events on May 6, 2010, when the Dow Jones index briefly fell more than 1,000 points, temporarily wiping nearly USD 1 trillion off shares.
He denies any wrongdoing.
A district judge ruled at Westminster Magistrates' Court that Sarao could be handed over to the US authorities to stand trial there, the BBC reported.
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He intends to appeal against the ruling, which must in any case be approved by British Home Secretary Theresa May before the extradition can take place, the report said.
US regulators have also filed civil claims against Sarao, adding that he made USD 40 million over five years.