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Trading Currency Pairs With USA FX Brokers

The USA has traditionally been at the forefront of innovation and technical advancements in the global financial markets and is home to the world’s largest stock exchange that contains some of the biggest names in the financial world. The USA is renowned for its open market economy, which aids companies to enjoy a business-friendly environment to thrive in the free world. However, when it comes to Forex transactions and CFD trading, the US may not be as advanced or investor-friendly as some of the other leading countries such as the UK, the EU, and the Asia-Pacific. Even though the US economy is positive in its outlook towards developing the global financial markets, it is quite intolerant towards financial scams and numerous risks in the market that are risky for the average investor. The Forex market is highly notorious for being one of the most dangerous financial products of the past decade, which had the unfortunate timing of coinciding with the great recession of the 2008-09. Forex trading has been rising in popularity at a rapid pace, especially due to the high leverage, immense market volatility, and the high-income earning potential, which also had a negative side to it. The financial crisis, along with a rising number of broker scams, financial frauds, and investor losses due to high-leverage trading has created a sense of uncertainty in the US financial markets. Several US traders were losing quite a significant amount of money in the markets, mainly to dishonest Forex brokers and high-risk trading strategies. Therefore, the US authorities have created several Forex trading laws and guidelines to reduce the risk to traders from the US.

What Are The Trading Restrictions Imposed On USA Forex Brokers?

The Commodities and Futures Trading Commission (CFTC), along with other US regulatory authorities, have devised several FX trading policies to reduce the overall risks to traders in the Forex market. Here are some of the trading restrictions that are currently imposed on US traders:

Maximum Leverage/Minimum Margin Requirements

logo FINRAForex trading was built upon the concept of trading on margin to leverage the magnitude of investments according to the volatility of the markets. Traditionally, the Forex market does not witness any significant amount of volatility, as there are only slight changes in currency pairs that rarely see a high movement in prices. During peak volatility, the currency markets may at most experience a maximum of 1-2% moves, which is why Forex brokers started offering leverage to increase the liquidity in the markets. However, trading on margin has its own inherent risks, as some brokers offer leverage as high as 1:3000. Therefore, traders can lose their entire trading capital with even a small move of 3 pips, which just amounts to the spreads on major currency pairs. To prevent any losses incurred in trading on margin, CFTC has enforced a restriction on the maximum leverage to 1:50. In margin terms, Forex brokers from the US will only be able to offer trading services through the absolute minimum margin requirement of 2%. It is illegal for any broker to solicit high leverage, or offer any promise of trading using lower minimum margin requirements.

No Hedging

Forex trading involves buying or selling a currency with respect to another currency, usually as currency pairs. Therefore, a trader can buy and sell on the same currency pair at market rate. There will be spreads and commission for trading, which is applicable for both orders. However, the CFTC and the US regulatory authorities have deemed it to be counter-intuitive for its traders to pay for both trades, which made them ban the option to hedge on the same currency pair. In effect, USA Forex brokers should not allow traders to hedge on a single currency pair.

FIFO/OCO Rules

FIFO stands for First In First Out, while OCO stands for One Cancels The Other. Both of these orders are a continuation of the No-Hedging policy, as USA FX brokers are expected to implement FIFO and OCO rules into their trading platforms. Essentially, traders will only be able to hold a single position on a currency pair, and the broker should employ several mechanisms in place to average and aggregate all future orders into a single position. Therefore, regardless of how many orders a client opens for a single currency pair, all positions will be aggregated into a single trade in the platform.

The US Only Allows Forex Brokers Regulated & Licensed In The US

The US authorities will only allow brokers domiciled in the US to offer its services to the US public. Every Forex broker in the US should be regulated by a verified US regulatory authority and is answerable to any relevant US agency that oversees Forex broker supervision. Several customer advocacy groups further enhance the sense of security among investors, which does help the US to create a highly regulated trading environment for Forex brokers and traders.

How Are USA Forex Brokers Regulated & Supervised For Investor Safety?

Forex brokers in the US are regulated and monitored by different regulatory organizations such as the National Futures Association (NFA), CFTC, and other regulatory organizations such as the Financial Industry Regulatory Authority (FINRA). The NFA is the primary agency that is responsible for Forex broker licensing and supervision, while the CFTC is responsible for creating rules and guidelines for regulating the financial markets. The FINRA, on the other hand, is a US self-regulatory organization (SRO) that acts as an independent agency for regulating securities firms, financial brokerages, investors, and other market participants that deal with the various US stock exchanges.

Who Is FINRA?

FINRA is the successor to the National Association of Securities Dealers (NASD), which came into existence in 2007. The creation of the NASDAQ and the subsequent merger between the NASD and the NYSE Regulation Inc. led to the creation of the FINRA as an independent self-regulatory organization that works on its own regulatory framework, which falls under the supervision of the SEC and the US Government. FINRA does not have the direct authority to regulate Forex brokers, but it may do so if its licensed firms indulge in Forex trading services as part of their overall services portfolio. FINRA has outlined specific guidelines for its regulated member companies to be open about their Forex trading products, and such brokers are also expected to register with the CFTC and the NFA for comprehensive regulatory protection. FINRA does seem to be proactive in its efforts to ensure that around 4,250 brokerages that are regulated and licensed by the FINRA do follow all guidelines and policies as specified by the FINRA and the SEC for maintaining the utmost transparency in the markets. FINRA is also responsible for issuing penalties to companies for lack of adherence, and to compensate investors fairly when dealing with broker abuses. FINRA has consistently raised millions of dollars through broker penalties, while the agency has also been responsible for refunding close to $100 million to aggrieved investors on a yearly basis. Therefore, FINRA is certainly one of the most feared and respected regulatory agencies in the US financial markets.

Is It Possible For Retail Traders To Invest In FINRA Regulated Forex Brokers?

The problem with FINRA regulated FX brokers is that there are a limited number of accepted Forex trading companies that are regulated by the FINRA. Traders from the US will find it extremely difficult to find any mainstream Forex broker that offers exclusive FX products and services under the FINRA regulatory framework. Nevertheless, there are traditional brokerage houses and securities dealers that operate under the FINRA license, which offers Forex and CFD products through CFTC and NFA licenses. Most of these brokers won’t have any dedicated Forex trading products, which might prove to be a disadvantage for traders that are familiar with the popular Forex trading model.

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FINRA Regulated Forex Broker Alternatives

Instead of FINRA regulated FX brokers, you may choose Forex brokers from the EU or Asia, especially if you are not bound by the trading rules applicable in the US. The CFTC rules are only applicable to US citizens and do not have any global relevance. In fact, most Forex traders avoid investing their money with any US Forex broker due to the inherent drawbacks of CFTC trading limitations and the higher trading capital requirements. Most mainstream Forex brokers with an established market presence are also slowly pulling out from the US market due to the diminished returns and the overall losses incurred through their US operations. A majority of established brokers from around the world, despite their extensive presence in the USA and the US regulatory status, have publicly criticized the unfavorable trading conditions that exist in the US. Even retail Forex traders from the US are highly vocal about their home country’s restrictive approach, which forces them into moving to the other main Forex broker destinations such as Europe, Africa, and the Asia-Pacific. Some traders also take the opportunity to invest their money with FX brokers located in safe havens, but the overall security of funds is still debatable.

Finding Good Quality FINRA Forex Brokers In The US

We can help traders to find high-quality FINRA Forex brokers from the US by offering the best insight into the top-performing USA Forex brokers that have excellent customer support and the best security of funds. Our list of recommended US Forex brokers is a good way of comparing the services of different Forex trading companies, and to choose a broker that suits your trading requirements. FINRA Forex brokers not only offer access to a select few FX products but also offer the opportunity to invest in a wide range of financial instruments from across the US markets, thereby providing an opportunity for traders to create a diverse investment portfolio. Although it is not a good idea to trade with a US Forex broker due to the limiting trading conditions, we understand that traders from the US have no other alternative rather than to follow all the laws that are applicable in the US. However, be warned that Forex brokers in the USA may stipulate high minimum capital requirements, which will virtually prevent smaller retail traders from accessing the Forex markets.

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