There’s a lot of speculation among new traders and even some well-to-do traders in other parts of the world when it comes to trading if you live in the United States. U.S. residents want to generate income from Forex, the same as individuals from other parts of the world. So, what’s the deal? Is it legal or not? Read on to find out…
While it’s incorrect to say that trading is illegal for US residents, there are true facts that help support the myth. For starters, regulation requirements in the US are a lot more strict than in other parts of the world, which creates confusion for potential traders. Many foreign brokers simply decide not to allow US clients to trade with them because of these strict rules, while others might claim that they don’t allow US residents to open accounts, even though they really do. However, the USA actually comes in second place when it comes to having the largest number of traders in the world.
All aspiring traders should know that brokers in the USA are regulated by the NFA (National Futures Association) and the CFTC (Commodity Futures Trading Commission). The CTFC is responsible for ensuring that brokers adhere to regulations and can charge a hefty fine of $2 million if they don’t. However, forex trading itself is not regulated and these rules only apply to brokers. If you’re wondering why the US is so strict when it comes to regulation, it’s actually an effort to prevent another financial crisis like the one we experienced back in 2008. This is why many of the rules have to do with limiting the risks that brokers and traders can take. Regulation boards are highly motivated to keep this from happening, which is the reason why the repercussions are so strict for brokers that break their rules.
Many foreign brokers steer clear of US regulation for two major reasons – first, it is very difficult to get regulated in the US. Second, a broker needs $20 million dollars in order to become regulated in the US, which is a far cry from the $500,000 required in Europe. For these reasons, many brokers forgo even trying to secure US regulation, since they can serve clients in Europe, Ireland, France, Italy, Spain, and other European countries under their European regulation.
The good news is that traders in the US can trade with safe regulated US-based brokers, they simply need to put in the effort to find a broker that accepts them. It’s true that you might have to cross some options off your list, but there are still some solid choices out there. When searching for a broker, try scrolling to the bottom of their website or go to the account opening form to see if the USA is a selectable country. If you still can’t tell if US residents are accepted, try reaching out to customer support for clarity. Also, be careful if you decide to work with an unregulated broker, as you won’t be protected if the company is liquidated or goes bankrupt, meaning that you could lose everything that has been deposited into your account.