US Forex Brokers
Over the last decades, the forex market in the US has emerged as one of the most regulated markets anywhere in the world.
Rules that were introduced and backed up by Federal laws have made it very difficult for brokers and traders alike to operate in the US forex market. Presently, only three brokers still operate in the US forex market: Oanda, GAIN Capital LLC (Forex.com) and TD Ameritrade.
Others have either been put out of business or were forced to close down as a result of the strangulating environment created by the regulators, backed up by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
After the global financial crisis of 2008 which had its origins in the US subprime mortgage market, there were general calls for better regulation of the various markets operating in the United States.
The Dodd-Frank Act was a direct consequence of this agitation. This law strengthened the Commodities and Futures Trading Commission, enabling it to oversee not just the conventional financial markets, but also the swaps market which was valued in trillions of dollars.
Changes to the way business was conducted in the US financial markets were sweeping and aggressive.
Some of the changes which were directly targeted at the retail segment of the market were as follows:
A) Introduction of leverage caps in forex and options, pegging leverage at 1:50 for forex majors, and 1:20 for forex minors, and forex options trading.
B) Elimination of hedging ability via the introduction of the First In, First Out (FIFO) Rule.
Thus rule states that a position on an asset must first be closed before another can be opened on the same asset.
1. TD Ameritrade: Best overall
The FIFO rule effectively ended the hedging style of traders placing opposing positions on the same asset.
C) Stratification of traders in the FX market was institutionalized, as these rules were targeted at the so-called “unsophisticated’ investors, defined as traders with assets that are less than $10million, as well as small businesses. Professional and commercial traders (investment banks) were largely exempted from these changes.
According to the CFTC, these rules were meant to protect the retail clients from overexposing their money to the market and from taking excessive risk.
But to what extent these rules have actually protected the retail consumers of forex products in the US is anyone’s wildest guess.
What the regulators of the US financial markets will not readily reveal, is that many traders in the US simply exited the US market and migrated their accounts to brokerage platforms in other countries.
Forex brokers located in the US have had whatever market share they had badly eroded, and brokers without the kind of purposeful structure that the former US brokers suddenly emerged as less desirable but ready alternatives to traders who were unwilling to trade under the new conditions in the US.
In other words, the Dodd-Frank Act killed the forex brokerage business in America and the statistics do not lie.
As at the time the writer of this article started to trade forex in 2005, more than 40 retail FX brokers were serving both US and international clients.
Ever since Dodd-Frank became law, that number has not only dwindled to the three brokers mentioned above, but the international clientele base simply moved away from the US and on to brokerages in the UK, Europe, Australia and the Caribbean.
A lot of the damage in the US forex brokerage business environment came as a result of the $20million bond which was imposed as a requirement for starting a forex brokerage business in the US. Tax reporting requirements have also scared off many brokerages from accepting US clients.
Best US Forex Brokers for 2019
Clearly, no foreign forex company wants to get the kind of attention that Huawei is getting from the US government at the moment.
What are the options for US Forex Traders?
One of the best things that consumers of any product can enjoy is the power to choose, and to be able to make that choice from a wide range of service providers. This is what the Dodd-Frank law has taken away from US forex traders…until now.
Aside from few forex brokerages operating in the US, there are a number of offshore forex brokers that have expressed willingness to take US traders on their platforms.
There are a number of advantages and also drawbacks to this arrangement.
In terms of benefits, this is what US forex traders will enjoy when they use the brokers we have presented in the list below.
A) The ability to hedge trades is a risk management tool. The FIFO rule basically prevents this from happening. Realizing this great folly in the US forex brokerage setup, the brokers in the list provide below have created a system which allows traders to hedge, even if it means placing opposing positions on the same asset.
B) The CFTC has argued that the leverage caps protect retail traders by stopping them from overexposing their capital and accounts to the market.
The leverage caps imposed a $25,000 minimum capital requirement on forex accounts opened in the US. This requirement only served to either lock out a large segment of the trading public. With the forex brokers for US traders introduced here, you get lower capital requirements you can actually meet. You also trade with a wider spectrum of leverage, which allows you to trade under non-restrictive leverage conditions.
C) Your greatest asset as a consumer (the power to choose) is restored.
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You have a choice of not three brokers, but several brokers. If a broker does not match your requirements, move to the next one on the list.
What does the future hold for US Forex traders?
US President Donald Trump is apparently keen on executing another campaign promise he made to the investing public: that of liberalizing the markets by repudiating some of the regulations that have strangulated industries such as the brokerage business.
Many foreign forex brokers are already standing by to take position in the US market if this pans out. However, this is not going to be an easy process, as large sections of the Dodd-Frank Act, if not the entire law as it is, will have to be repealed.
This takes some doing and will take some time. You do not have to wait until this happens before you get into the trading game once more.
Visit the list of forex brokers that accept US clients below and kick-start your trading career.
The brokers featured in the list below have been carefully selected to offer you a forex brokerage service that rivals what you can get anywhere in the world, and under non-restrictive conditions. They are great for beginners who can make a transition from a demo account to a lightly funded live account, just to ensure they can understand what live trading is all about before they get more heavily committed.
ECN style accounts are also available for those who prefer to trade directly with the FX interbank market. There is a lot of choice for you as you go through this list of brokers, one after the other.