Forex Brokers and Regulatory Info for United States Residents
United States Brokers and Regulatory Info
US traders are in a unique situation when it comes to trading with regulated brokers; Local US regulators take an aggressive stance toward enforcing regulation and block most non-US brokers from offering services unless they are regulated in the US. This means you won't find many offshore brokers willing to take on US clients, and the ones that will are completely unregulated. That said, US residents still have many options to consider when selecting a broker.
The primary two US regulators who oversee forex brokerages are the CFTC and NFA with the CFTC taking primary role in this regard. A third regulator, the SEC also can oversee forex brokerages but it is far less common to see the SEC as a forex broker's primary regulatory reporting body.
The CFTC and NFA together require brokers to maintain a minimum adjusted net capital of $20 million, and this requirement increases based on net client capital deposited with the broker. This means that a broker who suffers a loss from the business of executing client trades should have enough buffer so as to not affect the safety of their client's funds.
Further, the CFTC/NFA have set the following leverage and trading rules for retail traders:
- 50:1 leverage on forex "majors", often quoted as "2%"
- 30:1 leverage on forex "minors", often quoted as "3%"
- Restriction on trading CFDs (popular CFDs in the forex world include CFDs on equity index products, and metals like gold.) It's important to note that this does not restrict a trader in the USA from getting exposure to indexes and gold, and while it's not the subject of this subreddit, traders interested in gold and the index should consider looking into a futures broker and futures contracts that track such commodities
- First In, First Out - FIFO - required on all accounts, meaning the first position you entered on a given symbol must be the first position closed out on the same symbol
- No hedging allowed in the same product/symbol on the same account
This rules might seem restrictive, but the rules are fine for the overwhelming majority of traders. It is common to come across online forum posts, blogs, etc.. that claim the regulatory restrictions in the USA make it impossible to trade well, but often these sources are just trying to promote an unregulated offshore broker.
The reality is, FIFO and no hedging rules do not limit a trader or strategy in the least, as they only affect how orders and positions are accounted for and can be worked with quite easily. Later we will be expanding this point into a page on how to approach a FIFO + no hedging accounts for US residents.
NOTE: Regarding access to gold, oil, and other commodity products. Many US residents consider going with an unregulated broker to gain access to gold, crypto, index and oil CFDs. This is not recommended in general as such CFDs can be quite costly compared to trading products available to US residents on regulated exchanges. Instead of seeking out an unregulated CFD provider, consider checking out a futures broker and read into commodity futures. They are cheap to trade, liquid, and track the same underlying market. This way you can stay onshore with a regulated broker, trading on a regulated exchange, and not risk sending your hard earned capital overseas.
Brokers with offices physically in the USA and go are registered and licensed by a US based regulatory authority. These brokers will typically fall under the CFTC or NFA for regulation (with one notable exception,) and leverage is set by the regulators instead of the broker.
It is common for these brokers to offer ACH bank transfers (electronic transfers between domestic financial institutions in the USA,) and this can be considerably cheaper and faster for funding and withdrawal when compared to wiring funds or using a credit card.
Regulated brokers in the USA include:
- Execution Type: Market Making / Dealing Desk operation.
- Min Deposit: $1
- Platforms: Oanda Desktop, MetaTrader 4 (MT4 Desktop, Web, and Mobile), and TradingView.com chart trading
- Notes: Minimum trade size of 1 unit of currency on their fxTrade platform, or 1 micro-lot (1000) on MT4. Good customer service.
Gain Capital / Forex(dot)com
- Execution Type: Market Making / Dealing Desk operation,
- Min Deposit: $250 for standard account, but recommended at $1000 - $10k for active trader account.
- Platforms: FOREXTrader Pro (proprietary), MetaTrader 4 (MT4 Web and Mobile, but for Standard Accounts only,) and TradingView.com chart trading
- Notes: Active Trader program with better spreads based on volume. Also, has different account types based upon trader's experience level and capital capacity. Unleveraged (1:1) gold and silver investing.
ThinkOrSwim / TD Ameritrade
- Execution Type: Market Making / Dealing Desk operation.
- Min Deposit: $2000
- Platforms: Thinkorswim (proprietary)
- Notes: Company and platform was originally built for options traders, and provides brokerage services for equities and derivatives as well. Offers commission and marked up spread based pricing options.
Interactive Brokers USA
- Execution Type: DMA / ECN / STP
- Min Deposit: $2000
- Platforms: TWS (proprietary)
- Notes: Regulated by the SEC instead of the CFTC/NFA, and thus, authorization to trade leveraged forex required high net worth / accredited status ($10M in assets.) This makes Interactive Brokers not a viable choice for the overwhelming majority of forex traders in the USA. This requirement does not apply to residents outside of the USA.
- Execution Type: Market Making / Dealing Desk
- Min Deposit: $300
- Platforms: IG Web Trader and Mobile (proprietary), ProRealTime (extra cost not trading at least 4+ times a month,) MetaTrader 4
- Notes: US division of their UK parent company.
As per the info provided in the "onshore" brokers section. It is NOT recommended to go offshore when trading forex as a US resident. Given the nature and policies of the CFTC and NFA, combined with the sanctions these regulatory bodies impose on unregistered offshore brokers who offer services to US residents, the resulting legal position is precarious at best. Simply put: you have ZERO recourse should anything go wrong with an offshore broker. You cannot approach US authorities about it, and at any point the offshore broker may be restricted from doing business with you (via capital controls, freezing assets, etc...) in the future.
Consider qualifying to trade an institution's capital instead of your own, and get into a profit split agreement with a prop firm through trader scouting programs:
Going with a trader scouting / prop firm comes with a few advantages:
- Limited downside risk. You are only risking the cost of the scout firm's trial program, which can be as cheap as $100-200. If you pass the trial program and get a funded account, the prop firm backing you will be taking your downside risk and any losses would be on them.
- Access to better trading conditions than found within the US, such as higher leverage (>= 100:1) and tighter spreads.
- Ability to trade CFDs (on global indexes, shares, etc..,) Gold and other metals (XAU/USD,) and other assets that would otherwise not be permitted by US regulators.
- Some firms offer access to training material, coaching/mentorship, and support programs to advance your skills.
However, there are some disadvantages too:
- Since the firms would cover your downside risk (losses,) they expect to share in your upside (gains.) You will be entering into a profit split agreement that can be as high as 50%
- You'd have to trade within a firm's risk parameters or face getting cut out of the program. This means not every trading style will fit and a bad run might end your contract with the firm.
- You'd be paid out under contract (business activity,) which is treated differently than capital gains on forex come tax time.