Forex in The US Market
Is Forex trading in the USA legal? Have you been wondering How to start Forex trading in the US? To discover more and have a break down of all of those answers to the questions Read more.
Is Forex Trading Legal in the US
Forex trading is legal in the USA, but it also comes with various differences as opposed to trading within any other continent in the world.
The US has various different rules and regulations as opposed to other countries. So in answer to your first question – Yes you can trade forex legally with the USA.
When conducting your research to find if you can trade forex within the US you may have come up against various conflicting messages through various websites and platforms as to the legal status of trading forex within the US, as these legal changes are the major differences between the US forex trading market in comparison to the forex trading market across the rest of the globe.
Where the US trading market may seem slightly harder and challenging when you are just starting out and ready to explore but as we explain in further detail you will see in the steps that it is actually easier and simpler then you may initially think, subject to remembering the legal changes.
A good point to keep in mind in regards to trading in the US forex market is that it is and can be just as straight forward once you have the right guidance as it is across the world.
Many people may have their own thoughts on forex trading and some have even described it as a form of gambling and believe that in some countries forex trading is in fact illegal but these statements could not be further from the truth.
forex trading is in fact allowed in all countries where the currency is allowed (bank exchange offices, currency accounts etc). But forex trading is mainly used for serious purposes as a whole for individuals whether it is business purposes, international investments or importuning and exporting – the list is endless.
Fact: Forex trading is legal in all countries where the currency is allowed, which is why the forex market is the largest financial market in the world with a daily volume estimated according to Central Bank of FX and OTC of $6.6 trillion per day. With such a staggering volume there is no wonder the forex market is even greater than the stock market.
In this article, we have placed together and we have broken down in easy and simple terms how to trade within the US forex market, what the legal status is of the US on forex trading and how to start your journey trading forex in the US with some added extras that will benefit your journey in-between including top US forex brokerage platforms to where you stand being a US and Non-US citizen wishing to invest in the US forex market.
The legal status of trading Forex in the US
Many people who are non – professional traders may have made assumptions or advised others that forex trading within the US is illegal and which we have confirmed above it is not and is much readily available and legal within the states.
The Dodd-Frank law which was legislated and signed into the American law by former President Barack Obama in 2010 with the aim to improve and promote the financial stability within the US, to protect consumers/investors from certain financial services and traders who were not acting legitimately and also to end the “too big to fail” happenings which describes a business or businesses very deeply embedded within the economy that if failed would leave disastrous impacts on the economy which intern would leave the government to look at bailing the company to prevent such disastrous events.
So as an outcome to the Dodd-Frank law placed many limitations throughout the financial system including rules on hedging, a leverage cap over major pairings and exotic pairings and also made mandatory annual tax returns to be carried out by traders and depending on what the trader’s income brackets were was then subject to being taxed further or not. So 60% as normal will be subject to 15% tax and on the further 40% will be dependant on how much income the traders made as to how much money will be taxed.
Note: Now you will be able to understand and see the reasoning more clearly as to the strictness for US Forex traders. And if traders break these laws a penalty if the rules are broken could be with a heavy fine of up to $2 million which FXCM had to repay the NFA this figure dating back to 2011 due to slippage malpractices.
The careful and monitored US brokers by the U.S regulating bodies is where the stricter rules apply as the brokers are in fact monitored closely as to their activity. But like with all traders US brokers are no different and do require a licence in order to offer trading services within the states and my goodness is it a difficult and financially challenging process.
The requirements to become a legitimate forex broker within the US is the main reason it has a smaller margin of US forex traders aside from the individual having to obtain the correct operating licence by a verified US regulatory authority, it also requires the individual to have a $20 million security deposit.
Yes, you read correctly $20 million for a security deposit to be considered along with a licence to be a broker, whereas for a European trader the deposit is at a cost of $865,000 or EUR 730,000 in comparison. But we will explain in further detail shortly in regards to European brokers working and offering US services to investors.
To summarise the outcome yes, Forex trading is legal in the US and you can legally trade Forex within the USA. But who can trade, that is the next part to uncover.
Can US residents and Non- US residents Trade Forex?
Ok, the simplest answer to this question again is yes, of course. Any nationality can trade Forex within the US but slight limitations may come in the way for US residents.
For US citizens the process of trading forex is also not prohibited and US residents can in fact invest and trade in the forex market.
Whether it be online or through a trader however due to the limitations of brokers and the strictness of the American financial market as mentioned above only enables US citizens to have access to various brokers and traders within their home country. But it still doesn’t rule out that avenue for investors to trade.
Consider A Forex Broker in the USA
For a market that runs 24 hours a day pretty much 7 days a week sometimes as humans, it can be impossible to carry out everything we wish to. So in the bigger picture getting someone who is a qualified expert to help take over this part for you doesn’t seem that bad of an idea right?
Every forex broker operating within the United States must be registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) to be able to operate and offer clients their services as the two companies are operating regulated financial governing bodies.
Just like brokers from within the UK have to be registered with The Financial Conduct Authority (FCA) which is the financial regulating body within the UK that enables brokers to forex trade not just within the UK but around the globe.
One of the main reasons European and other brokers around the world do not offer services for US traders is simply as they can not without a regulated licence. As mentioned previously the requirements for US brokers for obtaining a licence to trade within the US is the same for Non-US brokers where a regulated licence needs to be obtained and a security deposit of $20 million is required.
However having said that there will be brokers within the U.K, Europe and elsewhere around the globe that you may come across that will be able to offer services to US traders but we would advise before investing to please reach out and confirm that the broker is licensed in order to trade within the US and take on US traders. You can do this by contacting the broker directly; contacting the firm or check FAQ’s online for confirmation and clarity before you jump straight in.
Finding a US Forex Broker
o now that you know that it is possible with ways in which you can trade within the US forex market now you are on the lookout for a US broker to get you started.
As we have all seen or if not heard of the movie adoption Wolf of Wall Street and with the real-life Jordan Belfort creating his way in the financial market, granted it was in stocks not forex but for non-financial individuals it made individuals relate to the financial market as a whole which in turn has lead to more professional individuals to think a little more in-depth of who they are choosing to help with their investing. Which is why researching becomes your friend to pick out who is suitable for you and including what services suit your needs that the broker can offer to you.
Looking for a US trader who is approved by the regulating bodies NFA and CTFC is the safest and easiest route to stick with. You will be able to see if the brokerage is NFA or CTFC regulated as it will advise on the company website with the broker detailing their licence status on their file too.
Note – Please be careful when researching and looking for a US broker as many brokers will seem professional and know the ins and outs but who are not legally registered licensed brokers, which faced in unfortunate circumstances could potentially see your investments or deposit funds lost due to liquidation or unlawful acts being carried out.
To confirm or to find a broker in question you have found and want to clarify their regulated status you can check the NFA website. Here you will be able to see who is a member of the company and be able to search for your broker in question for confirmation.
List of the Best US Forex Brokers
Where can I trade Forex in USA?
Some of the most popular forex brokers include FOREX.com, IG, and TD Ameritrade.
To find the best platforms for online US Forex trading along with their additional various benefits we have listed below.
Not only did these three forex brokers rank within the best in 2020 but they are also the only major platforms to trade within the US forex market online.
Top Forex Brokers in the USA
1. Forex.com USA
Forex.com or (Gain Capital) as previously discussed is not only one of the quickest and easiest platforms with everything you need at your fingertips but the platform which is FCA regulated has all the needed help, guidance and support for your journey from the beginning.
With videos for beginners to watch and learn their new ways of learning deeper strategies for the more advanced traders. Alongside the downloadable software that is also available along with mobile apps and being apart of the largest trading platforms, MetaTrader.
Forex.com is a fantastic platform to invest and carry out your joining through US forex trading and forex trading across the world.
A 30-day demo account is available, however, generally speaking, at Trading Education, we don’t advise traders to base too much of their expectations on demo accounts.
When creating an account, you need to provide your name, address and tax ID number to establish your identity, so make sure you have them close by.
IG is another English platform which is trusted and respected globally across the market. Having been voted one of the best firms to be apart of in 2020 there is no doubt that this firm was going to make the shortcut as a firm to be apart of to start or to carry on your forex trading journey.
With low–cost brokerage fees, alongside offering the best investment, excellent education tools and services to help and guide you along the way and a global reach of over 19,500 tradable assets.
It has outshone all of its competitors with its unstoppable elements in 2020 which is what makes IG a platform to become apart of.
3. TD Ameritrade
TD Ameritrade is an online desktop trading platform which covers and has almost everything ready and available in front of you. But with this platform, there is only one downside, that this platform is only available for US residents to trade Forex.
The platform which welcomes both US traders and investors to be apart of the technical thinkorswim platform enables you to have a well-designed desktop experience for your trading purposes which also syncs with mobile devices and has an ample amount of premium research available for your needs at your own leisure whilst trading Forex and Bitcoin futures.
If you are a US citizen this platform is one perfect choice for you.
Note – Always keep in mind the tax information advised above that within the US it is 60/40 tax which to confirm means 60% you be taxed 15% automatically but the remaining 40% can be taxed up to an amount of 35% depending on what your income earnings are.
US Investors seeking to trade overseas
For the US investors looking to trade overseas, this can be a tricky process and also have strict requirements for you to be able to look at investing overseas.
One of the first points is to make sure a broker is CFTC regulated to be able to trade. However, having said that is can be risky due to many factors with one of the main factors being Tax. Even if you are within the U.S and trading overseas you still have to pay your taxes as you normally would at 60/40 you are not exempt because it’s overseas and this in effect is breaking the law which can see huge fines going against you.
If trading outside of the US is a deal-breaker for you we would advise that you make enquiries with a registered brokerage within the US for their expertise or alternatively you could send an enquiry email to CFTC or contact them directly to see if someone will potentially be able to confirm this query.
The Differences in Forex Trading in the US
Forex trading in the US has slightly different rules as opposed to forex trading in the rest of the world this is subsequently due to the changes in laws which has been implicated within the US as we have mentioned above. But now we will break down some of those differences for you to understand.
The ban on Hedging in the US
In 2009 it was confirmed by the NFA whom released a statement of new rules which also involved the banning of hedging with forex trading within the United States.
The reasoning for this motion was to quite simply stop or eliminate any opportunity to profit on the transaction in question and secondly because hedging increases the consumers financial figures which when hedging you have to in effect double your expense which was enough evidence for this strategy to be banned within the US.
Having said that you may come across brokers that will advise ways around enabling you to do so but all we will say on this matter is always play by the rules as nothing is worth losing everything for a small matter.
If your broker advises that there are similar ways in which you can make such similar activity as long as you make sure all is above board and check and ask FAQ’s which will always be worth knowing for your understanding on what is allowed then it’s a way forward for both parties.
Along with hedging the FIFO ‘First in first out’ rule was also amended, which is a Forex trading requirement complying with the NFA regulation which subsequently means that the first or oldest trade must be closed if a customer has more then one trade of the same pair and size.
Along with the hedging and FIFO rules surrounding Leverage was also amended and reduced for US forex brokers to 1:50 or 50:1 whichever way you choose to look at it, which means for every $1 you input you can trade $50 of a major currency and 20:1 or 1:20 for a secondary pairing.
When comparing the leverage to elsewhere in the world like Europe for an example that has in recent years become a lot tighter and stricter with their leverage and now has a maximum 1:30 and a minimum of 1:20, which as you can see the potential maximum within the US is still greater even after the being amended.
Note – When trading within the US you will see there may also be other slight differences that you will pick up along the way but these will be a few and far between. And if any bigger changes come into play in the future you will be up to speed on the US trading laws.
The Bottom Line
Forex trading in the US is more than doable and yes it is legal for you to trade forex in the USA. As long as you comply with the US law and tax requirements you are on your way to US trading.
We would recommend the top 3 platforms are the best and most suited for trading within forex US with all benefiting for fantastic software and extras and all with 24-hour support and help that you need right beside you.
If you are a beginner to forex trading in general then there are ample amounts of educational materials and tools such as virtual online platforms in order for you to understand just how forex trading actual operates before you dive headfirst into the US market. We would advise reading the below articles as they will be very beneficial for you to learn and get an understanding on how to trade forex in the US before heading straight into the US forex market.
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Please Note: Forex trading involves significant risk of loss and is not suitable for all investors