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Forex Brokers in the USA

However you want to measure it, Forex trading is by far the largest market in the world. New York is regularly fighting with London to be the largest hub for foreign exchange trades and the United States Dollar is the most traded currency. The USA is undoubtedly a major player in the global FX market. There are thousands of Forex brokers around the world, yet surprisingly in the United States, there are just a handful of domestic Forex brokers. Considering that the USA is a very prosperous nation and Americans are very enthusiastic about the Stock Market and investing in general you may be confused why so few FX brokers operate in the largest economy in the world. In this article, we will explore why there are so few Forex brokers in the USA and how U.S citizens can start trade Forex with overseas brokers.

Forex Regulation in the USA

Because the foreign exchange market is quite literally international, it’s very hard to regulate. When you trade the GBP/USD currency pair you are trading currencies issued and controlled by two different countries. Adding to the complication is hundreds of other currencies. As there is no single organization overseeing the Forex market like there is for Stock Exchanges most countries have taken it upon themselves to regulate investment products sold to their citizens. 

In the USA there are multiple authorities responsible for regulated retail FX brokers. You may have heard of the SEC which is the Securities Exchange Commission. While this organization has a lot of influence over markets in the U.S, the SEC is not directly responsible for regulating FX Brokers. The Commodities Futures Trade Commission (CFTC) is responsible for regulating the domestic Forex market. Confusingly, brokers must also register with the National Futures Association (NFA). Both organizations regulate Forex brokers together.

Brokers regulated in the U.S need to work to very strict reporting standards and they need to lock up tens of millions of dollars and pay very high fees to regulators. These factors make it very expensive to operate a broker in America. Moreover, regulations inflict very complex trading rules which ultimately makes forex trading a very attractive investment product. These restrictions push clients to find offshore alternatives where they can get the trading conditions they desire.

Forex Trading Conditions in the USA

As mentioned in the previous paragraph, the trading conditions offered by U.S brokers are far less attractive than those offered by international brokers. 

Limited Leverage

One of the most appreciated features of Forex trading is high amounts of leverage provided by brokers to retail traders. Some brokers offer leverage as high as 1:2000 but the norm is around 1:500. This gives retail traders much high purchasing power. Meanwhile in the U.S Leverage is capped at 1:50. 

Bonuses and Incentives

U.S. brokers are not allowed to offer any incentives to win business. Many brokers offer their clients bonuses as a show of gratitude for registering an account with them. 

No Cards

U.S. Brokers are not allowed to accept credit cards for funding trading accounts. Only Bank Wires and Direct Debits are allowed. For some traders this is very inconvenient. 

FIFO Rule

FIFO stands for “First In, First Out.” It’s a forex trading policy that complies with NFA regulations. It’s a rule that determines the order that you can close your position. If you have three USD JPY trades open, you need to close these trades in a specific order, starting with the very first one you opened. Many traders find this policy very restrictive to their trading strategy. The USA is the only country with this policy and it’s a major reason why traders prefer offshore brokers. 

Conclusion

If you find the Forex trading conditions of the U.S to be very prohibitive, you are not alone. Many traders are looking for the opportunity to trade with overseas brokers. The U.S. takes regulation of financial markets very seriously and because of this broker regulated in other countries like Australia, the UK and Singapore are unlikely to accept a U.S. resident. Most traders choose offshore brokers like Brantford Capitals, who welcome traders from anywhere in the world.