The fact that the inception and founding of the entire forex industry as we know it today was done in the United State, online retail forex trading currently enjoys extreme popularity in the nation. As a result, an enormous number of brokers compete for the custom of US traders and here at binaryoptionswire.com we have compiled a dedicated country report to guide interested American forex traders about the fundamentals of participating in this market and locating the best lawful brokers to trade through.
Besides providing a concise market overview our report also deals with matters of legality and regulation. It is imperative to point out from the beginning that according to both federal and individual state’s laws, forex trading is not illegal, however like other forms of financial trading in the US, forex trading is governed by extremely restrictive laws, with licenses to operate brokerages only being given to very few genuinely American companies. In fact currently no offshore broker has a license in the US.
United States Foreign Exchange Market
The American foreign exchange market constitutes a big part of the whole United States economy and being one of the largest markets in the world, it is rightly viewed as one of the most important sources of revenue for the U.S. government. The popularity and size of this market is the fact is mostly attributed directly to the U.S. dollar, which is usually part of some of the most traded currency pairs and actually comfortably sits on the number one position on the list of the most traded currencies worldwide.
Currently the USD is undeniably the most traded currency in the world and as such it generates the largest part of the total revenue generated by the global forex market on a daily basis, while its popularity has led certain countries to adopt it as their functional currency. However, ever since the inception of the Euro the USD has been faced with increased competition, but it still manages for the time being to hold strong and resist.
Foreign exchange market transactions in the US are executed by several entities, including central banks, commercial banks, Forex dealers, retail Forex brokers, as well as investment management and hedge fund institutions.
What makes the US forex market more special is the fact that it is home to one of the largest financial and forex centers globally, the city of New York, where naturally many forex brokers have selected to set up shop. All Forex trading brokers and institutions dealing with forex trading and located in the US are regulated and licensed by the United States Commodity Futures Trading Commission.
Moreover, the foreign exchange market in the United States is regulated by the Federal Reserve Bank, which is also responsible for issuing the American dollar coins and banknotes, while it also has the power to determine the exchange rate of the USD against other currencies. The United States Treasury Department also affects the US forex market as it works closely with the FED to decide and implement foreign exchange policies of the US.
Forex Regulation in United States
Strict regulations and requirements must be followed and upheld by the many stakeholders in the US forex brokerage business. Forex brokers in the US are regulated by the National Futures Association (NFA) as well as the Commodities and Futures Trading Commission (CFTC).
The comprehensive regulatory framework set out by these two bodies, coupled with the country’s trusted criminal justice system which includes strict laws for the protection of traders and severely punishes those who break them, render the US forex brokerage landscape perhaps the most tightly regulated in the entire world, providing peace of mind to all traders depositing their money with US regulated forex brokers. In fact, US forex brokers must certainly be on their toes so as not to breach the law in any way, because authorities have always been quick to react and impose harsh penalties on all the brokers that were found to mess around with traders and their rights. Authorities in the US mean business and fraudsters are almost guaranteed not to get away with it.
Rules US Forex Brokers Must Follow
These rules stipulate both the kind of trades that US forex brokers can accept and offer to clients as well as the trading conditions for the traders themselves. Examples of specific provisions of the regulatory framework in the US forex market, include the following:
According to the revised trading rules released by the CFTC in 2010 the use of leverage and margin by clients is regulated through the setting of specific levels of leverage requirements, which are set at 1:50 for individual forex traders and at 1:20 for options traders.
Moreover, limitations restricting the countries of origin of the clients that US forex brokers can sign up to their networks were imposed by the Office of Foreign Assets and Control (OFAC). The OFAC drafted a blacklist and the national of countries contained with it are not permitted to open forex trading accounts with US forex brokers, while those citizens of such countries who had already opened trading accounts before the implementation of this measure have had their accounts suspended. In order to avoid problems with the authorities US forex brokers are obliged to fully comply with these stringent guidelines and they therefore restrict their business certain types of traders, originating from countries that are not on the OFAC blacklist.
According to the US Foreign Accounts Tax Compliance Act all financial services business who have US clients are required to report to the IRS all the details of the holdings of their US clients in order to deter tax avoidance and tax evasion. In fact the FATCA is so strict and wide-encompassing that it provides for worldwide taxation of all assets, businesses and holdings of US citizens in an attempt to combat the budget deficit that has persistently plagued the US economy.
The implementation of the FATCA forced most of the US forex brokerages that had already expanded abroad through setting up branches in other countries to shut them down and create completely new, separate companies to cater to the international market segment. Thus, the US based brokerage does not accept non US customers, while US traders are not accepted in the non-US based versions of the specific broker, so as to ensure that FATCA requirements are not breached.
Securities and Exchange Commission (SEC)
Since the SEC controls the main participants who are dealing with securities, its principal task is to ensure the protection of the investing public not only against fraud, but also through safeguarding the existence of fair business relations and as well as by promoting the disclosure of crucial information. Recognizing the importance of the existence of rational and well-educated investors for the efficient functioning of the market, the SEC includes a lot of material on investor awareness on its website, including the database of documents that are liable to disclosure and submission.
National Futures Association (NFA)
The NFA is the self-governed sectoral organization that represents the participants in the American futures industry. It is a prime example of self-regulation, in fact it has rightly been characterized as a model agency in this field and its good reputation also has a positive spill- over effect on industry as a whole. Through the drafting of regulations and the implementation of programmes and actions, the NFA strives to uphold the lawful qualifications of all its members and also to protect the integrity of the market as a whole.
An important point to consider about the NFA is that its existence does not burden the US taxpayer in any way, since it is funded solely by users of the futures markets in the form of affiliation and assessment fees.
Financial Industry Regulatory Authority (FINRA)
FINRA’s primary objective is identified as the protection of American investors through safeguarding the fair and honest operation of the securities industry.
FINRA regulates and controls every aspect of the securities business in the USA, including the registration and instruction of industry agents, the drafting and implementation of the relevant rules and federal laws, the constant evaluation of all companies engaged in the field, the training, instruction and awareness of investors, ensuring the submission of trade reports, as well as the administration of a forum for dispute settlement. Moreover, FINRA is also responsible for the contractual market regulation for the key U.S. stock markets.
Commodity Futures Trading Commission (CFTC)
The CFTC’s primary aim is to safeguard the economic interests of markets dealing with futures trading in the US, whose effective supervision is essential for the smooth and effective functioning of the market in conditions that minimize risks in an optimal manner. Moreover, the CFTC pays particular attention in protecting the market participants from fraud by combating manipulative and unfair commercial practices and ensuring the existence of a robust clearing process. The existence and proper and effective functioning of the CFTC ensures that the futures trading market in the US is open, viable and efficient.
Top Forex Brokers in United States
Regulated Forex Brokers in the USA:
The strict and sometimes even harsh rules and regulations as well as the very demanding requirements imposed on forex brokers by the pertinent US authorities and regulating bodies is responsible for the fact that a US trader in reality has more limited options in choosing a broker than his international counterpart. Having said that, still there is a large number of US regulated forex brokers that offer their services to American traders in a reliable manner and in a user-friendly environment. A small sample of such brokers who are in good standing with the competent, regulating authorities and which we could recommend as being trusted brokers to trade forex through if you reside in the USA is listed below. Of course others do exist as well and we would urge you to consult the sites of the regulators and other responsible agencies before committing to opening an account with any US based forex broker to make sure that everything is in order before parting with your money.
A well established forex broker that offers a variety of tradable assets on its platforms, including currencies, futures, energy assets (crude oil and natural gas) as well as spot metals (gold and silver). Moreover, through its partnership with Autochartist, Alpari US enables traders to trade on its MT4 platform, while using the Autochartist MT4 plug-in software.
Although it hit the limelight as a discount stock brokerage firm, Zecco decided a few years ago to also begin online retail forex trading as one of its products. The shift was successful and it currently enjoys increased popularity among US traders.
FXCM was heavily fined in 2010 by the CFTC for breaching certain rules. However, ever since it has bounced back, straightened up its act and has imposed effective measures in place ensuring that it now complies with all the market terms and conditions. Today, it is a trusted forex broker that operates both a dealing desk division as well as an ECN brokerage service.
GAIN Capital is considered by many as being one of the best forex brokers in the world, partly due to its robust system of providing news and technical analysis tips on the News tab of its trading platforms. Besides operating a brokerage, GAIN Capital are also the owners of the well established site Forex.com, while recently they expanded their operations even further by taking over the operations of FX Solutions LLC.