Forex Trading USA - Can I Trade Forex In The US?

Last Updated August 26th 2020

Can I Trade Forex In The US?

The short and sweet answer to that question is yes! You 100% can trade forex in the US just like anywhere else. 

But it is a good thing that you checked because forex trading in the US is not like in Europe and other parts of the world.

First off, the rules are quite different in the US and that has led many foreign brokers to simply not allow US traders who use them. 

For this reason, many people just like you, aren’t sure what the legal situation is when trading forex in the US.

In this article, we’ll look at why forex trading is so different in the US from the rest of the world and what you should be prepared for when you start trading forex stateside.

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Why you should consider a US broker

While stocks trading tends to be more popular in the USA, did you know that forex trading is actually cheaper for traders?

It’s true! Forex requires far less start-up cash to get going than stocks and you can be more a lot more specific on the amounts you want to trade.

Plus, brokers often take larger fees for trading stocks than forex. Again, making forex a better option to start trading with.

Many US traders are starting to make that realization and today US traders are the second largest nationality of forex traders in the world after the UK, and 88% per cent of all forex trades involve the US dollar.

On top of that, the New York Stock Exchange is hugely important when it comes to trading forex. Especially when it’s opening times overlap with the London Stock Exchange.

The US has tough regulation on forex

US regulation on forex trading is often seen as very strict and which can be seen as a hindrance, but that doesn’t make trading forex in the US impossible!

Forex trading is regulated by the NFA (National Futures Association) and the CFTC (Commodity Futures Trading Commission).

All brokers in the US need to be part of the NFA and the CFTC is responsible for enforcing regulations.

Fines for brokers that break the rules can pretty hefty. The NFA can fine brokers up to $2 million if they break regulations.

But the NFA and CTFC have nothing to do with regulating the forex market. No financial regulator in the world does, the forex market completely unregulated and uncontrolled.

The NFA and CTFC can only impact companies that have services related to forex trading, such as brokers.

US regulation on forex trading and other kinds of trading is highly motivated by the idea of preventing another financial crisis, like the one that took place in 2008.

It aims to prevent forex traders and brokers from taking big risks. That’s why punishment for breaking these rules is so huge.

US traders should consider themselves lucky that there is strict regulation in place to incentivize brokers not to break the law.

If they do, they can face seriously hefty fines and get in a world of trouble.

Why don’t more European brokers offer their services in the US?

There are two primary reasons for this.

The first being regulation; it is notoriously difficult to get regulated in the US. For European brokers, for example, it’s far too much unnecessary effort.

If a European broker gets licensed in Germany, for example, they can offer their services to people in all other EU countries - Ireland, France, Italy, Spain, etc.

But the second reason is perhaps the biggest; to get a license in Europe, a broker needs to have at least $500,000, while in the US, a broker needs $20 million.

That’s a serious risk that most foreign brokers do not want to take! Or that they might simply not be able to afford.

Because of these two reasons, many brokers in Europe and other parts of the world do not accept US traders because. It’s just too difficult and risky.

So, it is generally advised that US traders stick to brokers based in the US who are more equipped to deal with them.

If you do come across a broker not based in the US, check their FAQs, or send them a message to see if they accept US traders.

Some of the best brokers from abroad take on US traders, but through different branches of their business, or set up a whole new company that mirrors theirs but complies with US laws and is based on US soil.

Even if you move out of the US, you might still have problems with finding a broker who will accept you because you are an American citizen and you may even have to get residency in that country to start trading forex.

Trading with a US broker

US forex brokers

US traders need to ideally look for CTFC and NFA regulators if they want to stay safe. When looking at a broker’s website, if you can’t see that they are regulated, that should be a major red flag.

If you do use a broker that is not regulated in the USA by the NFA or CFTC, you might not be protected.

For example, if a broker goes bankrupt or gets liquidated, they might be unable to protect or compensate you. And if that happens, you might lose everything you had deposited.

You can check the NFA website to see their members. From there, you can search them by firm name or NFA ID. 

If your chosen broker is there, it means they are regulated and can be trusted. Always check this when signing up to a broker.

And whatever you do though, don’t forget to get your taxes in order! In the US, the 60/40 rule applies.

This means that 60% of your earnings can be charged up to 15% and 40% of your earnings can be charged up to 35%.

Getting caught not paying your taxes in the US will cause you a lot of unnecessary trouble that could end your forex trading career. So, don’t bother trying to get away with it!

Some strategies are not allowed in the US

US traders are not allowed to implement some forex trading strategies. For example, hedging is not allowed.

Hedging is where you open two positions in opposite directions as a back up if your trade fails. Forex traders often do this to reduce losses.

But US traders can’t do this is because of the first-in-first-out rule, which prevents forex traders from opening multiple positions on one forex pair at a time.

When signing up to a US broker, make sure you check their policies and FAQs to see what they do or do not allow.

Leverage in the US is also different

It’s also worth noting that that leverage is different for US traders than other parts of the world. Maximum leverage in the US is 1:50 for major pairs and 1:20 for all other currency pairs

In the past, leverage in the EU used to be much higher, but today the EU is even stricter, down to 1:30 for majors, and 1:20 for all other pairs.

Outside the US and Europe, some brokers allow traders to use leverage up to 1:3000. Many might say that this is far too much to handle.

Trading outside the US

It can be risky for US traders to trade abroad because you will be less likely to know what to expect.

Some forex traders try using an overseas broker to avoid paying tax in the US, but this can often backfire and really isn’t a good idea (as we mentioned above; you really should be paying your taxes!).

If you keep it legal as a forex trader, you’ll last a lot longer. It is highly advised that you play by the rules if you want to succeed, otherwise you may go down in flames.

Other US forex traders may wish to trade at a higher leverage than the US allows. But again, this really isn’t worth the risk, especially if you’re just starting out as a forex trader.

Key points

  • US brokers are regulated by the NFA and CFTC. When looking for a broker in the US, always make sure they’re regulated!
  • Brokers from Europe and elsewhere tend to not to accept US traders. This because the regulations are tougher, and it requires a lot more capital to operate there.
  • The rules for trading forex in the US are different than many other places around the world. Make sure you understand them before you get started.
  • It makes more sense for US traders to stick with US brokers. This is because it is a lot easier and they will be more protected if anything goes wrong.

Further Read

Trade With the Largest US Forex Broker 

Now You Know that you can Trade Forex in the US

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