Forex brokers in the United States and trading regulation

USA brokers

The United States boasts the largest economy in terms of GDP and wealth and hosts the largest stock exchanges: the NYSE and the NASDAQ. However, US-based forex traders are likely to have a hard time funding a new trading account, as only some brokerages openly sign-up American traders. This is because forex trading regulations in the U.S. are among the strictest in the world.

When one examines forex trading in the U.S., one has to keep in mind that the territory - and corresponding population size - is huge, and its economy is one of the most advanced, producing advanced bio-technologies, space exploration equipment, IT solutions, medicinal solutions/drugs (including legal marihuana now!), etc. The industries that participate the most in the nation's GDP are retail, automobile building, energy production, transport and food-related services. In addition the USD is the currency that is the most traded of all and the most used reserve currency.

Harsh financial regulations have apparently scared off many forex brokers. As a result, only a few brokers are able to accept American traders. However, the US foreign currency market is still enticing to traders as ever, and over $6 trillion are traded on a daily basis.

Forex trading regulation in the U.S.

A number of rookie traders now think that forex trading isn't allowed in the U.S., but this is nothing more than bogus information, as traders can readily participate in this market in full legality, as long as they pay the usual taxes. However, brokerage operations are nevertheless closely supervised by the U.S. regulatory bodies.

To offer services to traders based in the U.S. brokers must have a license there. This may not appear to be a surprise - after all, EU forex brokers, for example, also submit licence applications with respective foreign licensing agencies. In the U.S., though, the capital holding minimums are so elevated that only a lucky few can legally operate there. These requirements first appeared in 2012 with the Dod-Frank legislation, which more or less covers all financial service sectors.

Suggested by Obama in 2010, the Wall St. Reform and Protections Act was officialised by Congress the following year. It aims to reform the system of financial regulation following the 2008 financial scandal. This law is considered to be one of the most comprehensive overhauls of the American financial system.

The Dod-Frank law lists the key rules governing currency trading activities. Some of the limits include: a leverage cap: it's 50:1 for the main currency pairs, but just 20:1 for exotic pairs. The rules also limit hedging, a trading technique that involves the opening of dual transactions on the same currency pair at the same time in order to reduce the losses from a losing transaction.

Another requirement is that residents must submit mandatory annual tax returns: 60% of the profits are considered capital gains and are taxed at a rate of 15%. The remaining 40% may be taxed, depending on the trader's income bracket.

Lastly, the capital requirements for forex brokers have scared off many companies following the enactment of the Dod-Frank law. According to them, brokers need to secure an operating license and have a $20 million security deposit. In comparison, brokers in Europe simply need to prove they have between $100,000 and $500,000 in cash holdings. This is clearly a huge deterrent, and due to these strict requirements, most brokers have simply decided to abandon the U.S. market.

U.S. financial regulators

The Dod-Frank Act introduced several new regulatory bodies, each having jurisdiction over a specific sector of the trading industry. There are currently 2 agencies in charge of monitoring the foreign exchange market: the CFTC (Commodity Future Trading Commission) and the NFA (National Future Association).

Brokers that want to serve U.S.-based traders must be registered with the former and be a member of the latter. The CFTC is an independent entity that regulates the derivatives markets, including futures, swaps and options. The NFA, however, is a self-regulated agency overseen by the CFTC that supervises all forex trading activities.

As for the SEC (Security Exchange Commission), it has zero authority in currency trading, as currency pairs aren't really securities. Also, a few U.S. brokers are regulated by the FINRA (Finance Industry Regulation Authority), which is a private agency.

BrokersRegulationOfficial website
31 brokers regulated in the European Union, Japan and the United States ZuluTrade website
71% of individual investment accounts lose money when trading these instruments. You must make sure you understand how a CFD works and whether you have sufficient capital to sustain a loss.

How does one fund a trading account?

American traders benefit greatly from the fact that they can fund their trading account with their national currency - the dollar - without having to pay extra foreign exchange fees.

Most brokers will happily accept credit cards, and it appears that most online payments are made with a standard credit cart, trailed by ewallets (19%), prepaids (3%), smartphone payment apps (2%) and wire transfers (4%).

Trading account deposits via credit cards are instant and highly secure. They rarely entail any fees. However, withdrawing profits to a credit card can entail a percentage of the amount that is sent (up to 4%). Such transactions can also take up to 2 business days.

Many traders prefer alternative payment methods such as digital wallets, such as PayPal. It can be used for deposits as well as withdrawals. Another method is Skrill, a UK cash transfer system that is becoming increasingly popular. Of course, wire transfers are also very common, and bank checks are still used (albeit by a more elderly population).

Trading platforms preferred by U.S. traders

The choice of a trading platform is key as it handles a trader's currency transactions. As forex is a decentralised market, trading doesn't transit through a unique exchange, it occurs via a worldwide network of traders and their software programmes.

A few brokers even provide their own in-house trading platforms. They sometimes offer extra features that professionals enjoy. They will also sometimes provide in-house analyses of where the currency pairs are likely to head in the short and medium-term

In any case, all brokerages provide these platforms for free, none would even consider changing a fee for their use. MT4 and MT5 are the most common platforms (and the easiest to use). The former was initially marketed in 2006, while the latter is far more recent and is able to accomodate trading of futures, shares, indices and currency pair CFD securities.

Even though MT4 and MT5 may seem identical to the blind eye, their features vary quite a bit. MT5 is said to execute trades quicker than MT4; also, the latter can only accomodate forex transactions. MT5 also enables traders to buy and sell on centralised national markets (such as the NASDAQ). Some of the other software solutions you might come across are cTrader and Trading View.

Trades in the U.S. are increasingly conducted on mobile devices

Smartphones are increasingly popular in the U.S., with people now playing, shopping and watching TV shows on them (and iOS seems to be more in vogue than similar Android-based systems). It seems that the tradictional "desk computer" is losing favour. Now, only 20% of U.S. adults don't own an internet-connected phone!

Internet-connected mobile phones and tablets are often used for the initiation of currency pair transactions, as MT4 and MT5 have mobile device versions, and price and stop-loss alerts can also be received instantly. Send money and withdrawing money from accounts is also easy to do on smartphones and tablets, making mobile forex transactions even more appealing.


1. Can I trade forex legally in the U.S.?

Of course! forex trading is fully allowed. Leverage, though, may be limited by your brokerage, as rules are pretty tough relative to other jurisdictions.

2. Can I trade the USD?

Of course! Especially as it's a very liquid currency and is considered a safe-haven during hard times elsewhere. The, EURUSD, USDJPY and GBPUSD are the most often traded pairs.

3. Who regulates currency trading in the U.S. in the United States?

The NFA and the CFTC.

4. How much leverage can I use?

As of today, you can trade with up to 50:1 on the big pairs, and up to 20:1 for the smaller ones.

5. Do I have to pay taxes for profits made on the foreign exchange market?

The answer is... yes. And this is applicable to both Americans and non-residents.

Brokers that welcome U.S. clients

BrokersRegulationOfficial website
31 brokers regulated in the European Union, Japan and the United States ZuluTrade website
71% of individual investment accounts lose money when trading these instruments. You must make sure you understand how a CFD works and whether you have sufficient capital to sustain a loss.