Are you a FX trader based in the US? Here is our USA Forex Brokers Review. Trading currency pairs in the United States is not that easy due to the tough regulations set forth by the NFA. For any Forex broker to operate legally within the US soil, they need an NFA license. Obtaining this license isn’t always easy because there are myriads of requirements that a US Forex broker should fulfill before applying to get it. Furthermore, regulators in the US don’t allow leverage that is higher than 50:1. Therefore, all Forex brokers in the US will stick to this requirement. Any US broker who offers, let’s say 100:1; will therefore be putting themselves at risk of getting fined. The strict requirements of the NFA has created a harsh business environment for Forex brokers, thereby leading to many of them exiting the market or setting up base in countries like Europe where the main regulators, CySec and MiFID, are not too strict on Forex brokerage operations.
USA Forex Brokers Review – Regulated FX Brokers of the US
As mentioned above, all US Forex Brokers need to operate with a license from the NFA. Obtaining this license is not always easy because there are large capital requirements or threshold that a US Forex broker must meet. Also, FX brokers in the US must deal with the hefty paperwork that is typically involved in the process. This complicates matters even further because most brokers just want to set up shop now and operate today without getting bothered by too many regulations.
Another serious threat that US Forex Brokers face is that of potentially suffering hefty fines if they don’t comply with any of the requirements set forth by the regulator. NFA has shown itself capable of imposing these fines on USA Forex Brokers who break the rules of fair and transparent trading. This leaves behind little or no room for scam Forex brokers who may consider operating in the jurisdiction of the United States.
Nevertheless, this is both good and bad for those who are looking to trade Forex in the States. It is good in the sense that traders can rest assured that they are doing business with ethical brokers who are licensed to provide this kind of financial service. On the downside, it appears that everyone is now afraid of US prosecution. This means that it is nearly impossible to find an unlicensed US Forex broker than it is much harder to find a scam broker operating under the pretext that they are following the rules of CySec. The same applies to Asian brokers. You are very likely to find scams hiding here as well.
As a result of the harsh business environment, scams had to close down in the beginning of 2008. But this also saw reputable brokers like Oanda and Alpari exiting the market as well.
You should also read our XM Forex Broker Review!
Why Forex trading is more widespread in Europe and Asia than in the US?
Unlike in the USA where Forex brokers have to fulfill tough requirements, brokers who operate in the Euro zone find it fairly simple to setup business here. Once an FX broker has acquired a license from a European regulator, they can accept every trader from the EU countries. In other words, a broker who is under the regulations of the UK Financial Conduct Authority can accept investors from Germany, Bulgaria, Netherlands, and generally all other EU member states.
The problem, however, is that brokers who use EU licensing cannot operate in the USA. Any broker who wants to extend their services to citizens in the USA must seek licensing from the National Futures Association (NFA).
As a matter of fact, there are many brokers who operate under multiple licensing organizations in the Euro zone. You will find one Forex broker registered with CySec, FCA and even ASIC. However, this broker will not be willing to seek licensing with the NFA, despite USA having a large client base. Why is this so? Well, the answer lies in the capital requirement of the NFA.
Capital Requirements of US Forex Brokers Reviewed!
European regulators usually require Forex brokers to have anything between $100,000 and $500,000 as locked capital to begin operation. However, NFA requires a much higher amount which is to the tune of $20 million. Now, that’s an impediment for most Forex Brokers who want to operate in the USA.
What is more, this amount of operating capital only corresponds to the deposit that clients have to make. It doesn’t factor in other expenses that a USA Forex broker is likely to incur. This may include legal fees which are associated with getting the license, employment of company executives and lawyers who will be placed on the register and so on. All these things can quickly add up to an unbearable amount of fees. To cut a long story short, the US market is an expensive Forex market to operate in, and that’s why most Forex brokers, even the good ones, shun it like the plague.
Although some US Forex brokers make enough to be able to afford the $20 million threshold, everyone thinks that this amount of money is just too big for allocating to a license. Statistics depict that the world’s best brokers hardly make $10 million USD in profits annually. And even if they were to allocate a sum of money just for obtaining this license, it would take 2 years of profits to do so, and that’s quite a serious sum of money so to speak.
Back in 2008, there were quite a handful of brokers who accepted US clients because conditions were not that tough. But since laws have changed, Forex brokerage industry in the US has also changed. Many have exited the market. Scams have ceased to exist. What remains as US-friendly Forex brokers cannot exceed 5 at the moment.
Conclusion – Always go with Regulated FX Brokers in the US
The population in the United States is slightly above 300 million. However, most Forex brokers are not making any efforts to penetrate that market. But why is that so? The answer is; there are not so many brokers in the world who could afford NFA licensing. And for those who can afford it, making a deposit of $20 million USD just for licensing is something that doesn’t make sense especially if getting good returns isn’t guaranteed thereafter. What is more, investors want higher leverage, typically 500:1. Restricting investors to 50:1 doesn’t sit right with them. In short, most reliable Forex brokers in the world don’t find this market practical enough for their operations.
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