- 1 US forex regulators – How do they work?
- 2 The requirements for the US regulated Forex brokers
- 3 How to find the best US Forex brokers in 2021?
- 4 How to start trading with USA brokers in 2021?
- 5 US Dollar and Forex trading
- 6 US best Forex brokers – Economy of the country
- 7 Final thoughts on Forex brokers in the USA
- 8 Frequently Asked Questions on US Forex brokers
Forex trading has always been very popular in the United States. Over the years, the country has taken several steps towards making the market safer for local traders.
There are two regulatory agencies that oversee the financial market in the USA. Only the companies that are authorized by the Commodity Futures Trading Commission, CFTC, and the National Futures Association, NFA, are able to offer trading services to US citizens.
The United States represents the biggest financial player globally, and it should not come as a surprise that the national currency of the country, USD, is the most frequently traded one in Forex.
If you are looking for the best Forex broker in the USA, there are several things that you might have to consider. So, let’s dive deep into the American Forex trading market and talk about the best brokers here.
US forex regulators – How do they work?
To make the local trading market safer, regulated Forex brokers in the USA are overseen by two agencies, they are:
- The Commodity Futures Trading Commission, CFTC
- The National Futures Association, NFA
Thanks to these agencies, Forex trading in the country has become safer in recent years. To make sure that the local trading market is safe, these organizations are working very hard. They both have their own jobs in maintaining transparency in the market.
The National Futures Association makes sure that only locally regulated Forex brokers offer American traders their services. However, being licensed by NFA is not enough. According to local laws, brokers are also required to be registered with CFTC.
This means that in order to be able to offer services to local Forex traders, brokers will have to register as a Retail Foreign Exchange Dealer by CFTC, and as the Futures Commission Merchant by NFA.
The registration procedure with these bodies is very time-consuming. They have very strict requirements, especially compared to other regulatory bodies around the world. We will discuss the requirements Forex brokers in the USA have to follow below in this guide.
History of Forex regulators in America
As we have already said, one of the bodies overseeing US Forex brokers is the Commodity Futures Trading Commission, simply known as the CFTC. This federal regulatory agency was established by Congress in 1974 and it has control over the whole commodity futures markets. Before this regulatory agency was established, the financial market was solely controlled by the Securities Exchange Commission, SEC.
The speed of development of the financial market was very fast in America, and the SEC was not able to provide the needed regulatory framework for such a diverse market. This is why Congress had to create a new body that would maintain the stability of the financial market in the country.
As the market kept growing, USA-regulated Forex brokers once again had to face a new wave of restrictions and requirements. Soon after CFTC was established, it was obvious that the market needed another regulator.
This is how the National Futures Association was created back in 1982. This self-regulatory organization, since its establishment, oversees many financial markets, which today also includes the growing market of Forex trading.
As a result of the local laws, every single Forex broker that intends to offer Americans trading services should be registered with both of the regulatory bodies in the United States – CFTC and NFA. According to official numbers, the National Futures Association has over the years registered more than 4,000 firms and over 55,000 associates.
The requirements for the US regulated Forex brokers
Over the last few decades, both of these regulatory agencies put a lot of hard work into making the Forex trading market safe for local traders. But because the market is changing and transforming very fast, they have to come up with new regulations to keep the market secure. As of today, there are several restrictions in the country that traders have to know, they are:
- Brokers are required to offer leverage no more than 1:50
- Forex brokers have to maintain a minimum capital of $20 million
- Brokers should keep the funds of their clients on segregated bank accounts
- CFDs trading is not allowed in America
Let’s go through all of these requirements one by one and learn if there are any other restrictions for traders.
Forex brokers in the USA – Restriction on leverage
As we have already noted, Forex brokers are not allowed to offer leverage higher than 1:50. In reality, some traders can’t even access this much leverage.
According to the local laws in the United States, the leverage of 1:50 can be only on major currency pairs. For minor currency pairs, the maximum leverage is only 1:20. As the American financial experts are saying, the main reason for this restriction is to keep the market safe for traders and limit the risks.
It should be noted that the United States is not the only place where you will come across the same limitation. For example, the same goes for the EU member countries, and recently, the same rules regarding leverage were adopted by the Australian regulator as well.
Forex brokers USA – Minimum capital requirement
Every regulatory body around the world requires Forex brokers to have a certain amount of minimum capital maintained at all times. Forex regulators are constantly checking the services of Forex brokers, making sure that they are following the regulatory framework closely.
If we compare US Forex brokers to companies in other countries, however, we will see that the minimum capital requirement is much lower around the world. In the USA, as we have already said, the minimum capital requirement is as much as $20 million.
This number is huge, especially if we consider other countries. For comparison, in the United Kingdom, the same requirement is only $100,000, in Cyprus, New Zealand, and other jurisdictions, Forex brokers are required to maintain a minimum capital of only $50,000.
While talking about US brokers’ comparison with other countries’ brokers, it should also be said that the registration process for brokers can also last much longer than in other countries. The licensing period could last up to two years in America, while in other jurisdictions it might only need several months.
Forex brokers accepting US clients – Segregated accounts requirement
Leading Forex brokers around the world, not only in the United States, are keeping the funds of their clients on segregated bank accounts. This is a very important requirement that is not only required for US Forex brokers, but for others as well.
Regulatory bodies of many jurisdictions have the same rule. The main reason for it is to make sure that the funds of Forex traders are kept untouched. Even in the worst-case scenario, if the broker goes bankrupt, you will still have access to your funds on your segregated bank account.
This makes Forex trading much safer for traders and takes away a lot of risks. Also, it makes you much more confident, because you know that no matter what happens to the Forex broker, you will still have access to your hard-earned money.
Trading CFDs is restricted in the USA
According to the US Forex regulators, trading Contracts of Differences, simply known as CFDs, is not allowed in the USA. CFDs offer people to trade certain assets without having to own them directly. It mostly happens by speculating on the price changes.
The reason why CFDs can’t be traded in America is that it is an over-the-counter product and it does not pass through the regulated exchanges.
There are several other restrictions regarding Forex trading in the United States. One of them is that Forex brokers are restricted from offering bonuses and promotions to local traders in the country.
The reason for this restriction is to make sure that people who are not interested in Forex trading do not become blinded by the bonuses and end up losing their money. Also, some experts are saying that in some cases, scammers are using bonuses to attract more people to their platforms.
Another thing that traders should keep in mind is that only US Forex trading brokers that own a license in the country are eligible to offer their services to American traders.
How to find the best US Forex brokers in 2021?
Finding a trustworthy, safe, and secure Forex broker is not an easy thing. One way to stay safe while trading Forex is to only trust regulated and authorized Forex brokers. To make sure that the broker you are trading with is licensed, you can check the website of the regulatory agencies.
Most regulators will let you check the regulatory status of the broker. If you can’t seem to find a page for that purpose, you can always directly contact the regulatory body and ask them if a certain Forex broker is licensed or not. There is a huge list of brokers for US traders that are properly authorized by US regulators, so always check the information before you start trading.
Over the years, there have been many cases of scam companies claiming to be legit Forex brokers. By checking this information with the regulatory body, you can be sure that you are trusting the right company.
Dodd-Frank Act and its impact on top Forex brokers in the USA
To make the financial markets safer for traders, in 2010, the Obama administration decided to adopt a new act. The act was initially criticized by many traders and brokers in the country, however, after a few months, it proved to be very successful in maintaining market safety.
All Forex brokers that are registered in the United States are now required to follow the rules that were adopted under the Dodd-Frank act. The 20 million capital requirement that we have already discussed earlier in this article was also part of the Dodd-Frank act.
The act adopted by the Obama administration gives the Commodity Futures Trading Commission broader authority on the Forex trading market. By many experts, it is considered to be one of the most significant laws enacted during the presidency of Barack Obama.
Over the last few years, many studies have shown that the adopted act played a significant role in improving the stability in the financial markets, which also includes Forex trading.
How to start trading with USA brokers in 2021?
Before you start trading in America, there are several steps that you should take. First and foremost, as we have already noted several times, you should find a trustworthy, regulated Forex broker.
Once you have done so, it is time for you to create a live trading account. There are many different types of accounts available in Forex, including mini accounts, standard accounts, and large accounts. Depending on your needs and experience, you can create the one that works best for you.
Make your first deposit
Once you have decided which account you want to use, it is time for you to make your first deposit. There are many ways you can make your payments in the United States. Among the most popular payment methods in the USA are Bank transfers, Credit/Debit card payments, and, of course, Digital Wallet payments.
Most of the Forex traders who want to deposit a lot of money at the same time are mostly using bank transfers. But, remember that this payment method also is more likely to have high commissions. However, because of the safety and security that it offers, a huge majority of traders are still using this solution.
American traders can also use credit and debit cards such as Visa, MasterCard, American Express, and many others to deposit funds on your live account. But, if you are one of those people who want to make payments in the most time-efficient way, you should use digital wallets.
Most popular trading platforms in the USA
One of the biggest parts of Forex trading is the trading platform. There are many of them available in America for traders, but the most used one is MetaTrader 4. If you want to use US Forex brokers MT4 there is a huge list of brokers you can choose from.
MetaTrader 4 was created 16 years ago by a Russian company, MetaQuotes. This trading platform is actually used by more than 90 percent of all Forex brokers around the world. There also is another version of MetaTrader, MT5. For US Forex brokers MT5 is actually a very common offering. Millions of people are using these platforms every day in the United States.
There is a very long US Forex brokers list that offers traders the ability to trade Forex using their mobile phones. This is a very great offering, especially for those who are on the go constantly. As we have already said, Forex trading is constantly changing and developing.
Today, Forex trading in smartphones is becoming much popular than ever before. Thanks to leading Forex brokers and trading platform providers, you can easily trade Forex with your phone no matter where you are.
US Dollar and Forex trading
The United States dollar is the national currency of the USA. USD is one of the most important players in the Forex market and is known to be the most traded one. It also is the most dominant reserve currency globally.
Sometimes called ‘greenback’, this currency also has the status of a ‘safe-have’ asset because of its stability during political or economical uncertainty. Leading Forex brokers accepting US traders have noted that the ‘safe-haven’ status of the USD mostly happens because when the risks are high, many traders seem to buy US Treasuries.
This creates a huge demand for the US dollar, which, in turn, increases the price of the currency. In terms of trading value, the currency pair EUR/USD is the largest.
According to the 2016 study of the Central Bank, USD was the world’s most traded currency, while the Euro was in second place. The official data shows that the daily share of the US dollar in the global Forex trading market is as much as 87.6%.
How does the USD influence the Forex trading market?
The state of the USD has a huge influence on the Forex trading market. Over the years, we have all seen the impact that the USD can have on the financial markets around the world.
Because America plays such a huge role in the political and economic stability of other countries, the national currency of the country impacts the Forex market a lot. This is why so many traders are following the news so closely. Even slight political news can have an impact on the state of the USD and other currencies as well.
US best Forex brokers – Economy of the country
One of the reasons why there are so many Forex brokers in the United States is the successful economy of the country. As the official data of the International Monetary Fund shows, the GBP of the United States constitutes about 24% of the gross world product.
The American economy is the biggest in the world, and because of this, it is a great place to trade Forex. Official data shows that the country possesses as much as 29 percent of the total wealth of the world, making it the most successful country in this regard.
Because of this and many other reasons that we have already talked about, the United States stands to be one of the top destinations for Forex traders. It offers traders a safe, secure, and transparent market with a lot of benefits.
Final thoughts on Forex brokers in the USA
Over the years, Forex trading has become very popular in America. The USA is one of the greatest places for Forex trading. Thanks to the regulatory framework of two agencies, CFTC and NFA, the market is safe and secure for traders.
Forex trading brokers in the USA are among the best regulations around the world because of the protection services that they offer. If you want to start trading in the USA, make sure that you are trading with a company that is regulated and licensed by both of the agencies in the country.