The foreign exchange (forex) market is the largest and most liquid financial market in the world, with a daily trading volume of over $5 trillion. It is a decentralized market where currencies are traded 24/7, allowing investors to buy and sell currencies at any time. However, one commodity that is notably absent from the forex market is gold. Despite being a popular investment asset, US residents cannot trade gold on forex. So, why is this the case?
Firstly, it is important to understand that forex trading involves the buying and selling of currencies. In contrast, gold is a physical commodity that is traded on commodity exchanges such as the New York Mercantile Exchange (NYMEX) and the Chicago Mercantile Exchange (CME). These exchanges offer futures contracts that allow investors to buy and sell gold at a future date and at a predetermined price.
The reason why US residents cannot trade gold on forex is due to regulations set by the Commodity Futures Trading Commission (CFTC). The CFTC is a regulatory body that oversees futures, options, and swaps trading in the United States. Its primary role is to protect market participants from fraud, manipulation, and abusive practices in the commodity and financial futures markets.
Under the Commodity Exchange Act (CEA), the CFTC has the authority to regulate commodity futures and options trading in the United States. The CEA defines commodities as “goods and articles of commerce” and includes agricultural products, energy products, and metals such as gold and silver. However, the CEA also grants the CFTC the authority to exempt certain commodities from regulation.
In 2011, the CFTC issued a final rule that exempted retail forex trading from certain provisions of the CEA. The rule required forex brokers to be registered with the CFTC and the National Futures Association (NFA) and to meet certain capital requirements. However, the rule also excluded physical commodities such as gold from the definition of retail forex.
The reason for this exclusion was to protect retail forex traders from the risks associated with trading physical commodities. Unlike currencies, physical commodities such as gold have storage and transportation costs, and their prices can be affected by factors such as supply and demand, geopolitical events, and natural disasters. Retail forex traders, who typically trade in small amounts, may not have the resources or expertise to manage these risks.
Moreover, the CFTC has also expressed concerns about the potential for fraud and manipulation in the retail forex market. By excluding physical commodities such as gold from the definition of retail forex, the CFTC has reduced the risk of such practices occurring.
In summary, US residents cannot trade gold on forex due to regulations set by the CFTC. The CFTC has excluded physical commodities such as gold from the definition of retail forex to protect retail forex traders from the risks associated with trading physical commodities and to reduce the potential for fraud and manipulation in the retail forex market. While US residents cannot trade gold on forex, they can still trade it on commodity exchanges such as NYMEX and CME, which offer futures contracts for gold trading.
