Forex in the US. How the brokers work in the land of possibilities

Many of us have heard horror stories about the Forex market in the US - someone thinks that currency trading in the country of the star-striped flag is completely forbidden, someone, on the contrary, believes that “in America, everything should be fair!”. But, how it really is?

Let’s figure out the situation and find out how the things are with trading in the foreign exchange market in the capital of world’s evil and, based on examples, we will figure out, what limitations and nuances the typical Johns and Steves from the American prairies encounter.

After the financial crisis of 2008, the US government was deeply concerned about the issue of regulating the financial system, putting forward a series of stringent restrictions and rules. All this is required to stabilize the financial situation in the country and protect the capital from a sharp collapse of the market. Some of these restrictions directly affect the forex market, making almost any operation on it outside the law.

How is the bourgeoisie doing?

Not without the influence of communist propaganda in the minds of third-world citizens, a clear image of a typical bourgeois as a symbol of capitalism and the standard of permissiveness has been preserved. The ritual of exchange trading is a real bacchanalia, where everything is allowed to everyone, just if you want to.

In fact, while you complain about how bad it is with trading, for Western capitalists, Forex trading has already become a topic that is banned from discussion in a decent society. The reason for this - a tough foreign policy, and an attempt to protect their own interests, highlighting the lion’s share of resources for the development of financial contraceptives.

Sometimes such ideas reach the point of absurdity, forcing them to doubt the initial intentions of the interested persons. A vivid example is the national regulatory body of the United States, specifically, the Commodity Futures Trading Commission. The task of the commission is to regulate the actions of financial organizations, in theory, protecting private traders from fraud and thus creating a transparent competitive market.

A loud story occurred recently when the largest US broker FXCM was forever banished from the national site. The commission hopes that, at least from 2009 to 2014, the company misled customers, claiming that there is no conflict of interest, that is, acting as an intermediary in the transfer of applications to banks and other liquidity providers. The results of the investigation are reflected in the published document, where it is asserted that a significant part of the liquidity was not identified in the public reporting, in fact, is the result of the market maker’s algorithm.

Thus, no Forex broker working in the US is protected from such actions by the state, even if it is a company with huge turnover and a well-established brand. To note, in December 2016 the company’s share was exactly one-third of all retail Forex market in the US. By this, the state shows the attitude towards the decentralized currency market as a whole, agitating for more traditional methods of investing on domestic exchanges.

Restrictions for traders

• Compliance with the FIFO rule (First In, First Out). According to the FIFO rule, the oldest positions open for one currency pair must be closed first. When you try to close a later position, the trader will receive a warning about the need to close the earlier positions first.

For example, in this case, you can close only the first order in the list, while trying to close any other one will not succeed. Determine the oldest order simply - it will have the lowest ticket value.

In this case, you can close either the first order, which is the oldest with a volume of 0.05, or the second one, opened before the others with a volume of 0.10. Other two orders can be closed only after these.

Having shown some wit, this rule can be circumvented, breaking the positions into parts with the difference in the minimum step of the volume. Of course, this method does not work with brokers summarizing the volume of all orders on the instrument.

• Prohibition of hedging, that is, the opening of multi-directional positions on one instrument. Regulator explains this decision by inexpediency of such tactics, therefore it will not be possible to block the position on the account of the American broker.

The regulator here just directly tells us - a lock from the crafty one, and such a sin can only be afforded by godlike figures, that is, large legal entities.

• After 2008, the national regulator began to take stringent measures with respect to derivatives, completely prohibiting the trading of CFD instruments in the US.

The consequences of such decisions can be compared with the adoption of a dry law. Everyone knows that drinking is bad, and yet the legalization of “derived substances” gives much more advantages than their complete prohibition.

• Limitation of margin trading. The regulator decided to limit the maximum amount of leverage to 1:50 (in particular, for major currency pairs) and to 1:20 for less liquid assets.

In view of all these restrictions, the trader does not receive any additional guarantees of saving the deposit, while the remaining companies in the market are considered by default to be trusted.

Dodd-Frank Act

In 2010, a new legislative act was adopted - The Dodd-Frank Act, aimed, like most other post-crisis reforms, to reduce the risks of the US financial system.

With the adoption of new restrictions, most operations in the Forex market become illegal. Along with this, banks were forbidden to own hedge funds, and also invest investors’ funds in similar structures. The precious metals market also fell under regulation, so all current positions are forcibly closed at the end of the day.

As a result, most of the brokerage firms not registered in the US were forced to leave the US market. Naturally, this strongly affected the Forex trading, as the choice of the brokerage company was sharply narrowed to just a few names.

With the election of Donald Trump, the situation in the Forex market can change a lot. It is not yet clear what amendments the president will make, but, most likely, one should expect to soften of the restrictions.

Conclusion

If you are a citizen of US and at the same time live outside of it, you have a chance to bypass some restrictions of the regulator. But, for this, it will be necessary to prove the fact of being outside of the States to your broker. Otherwise, it remains to look for other companies that accept traders from the United States. Unfortunately, these are usually small, or highly questionable offices (for example, FXChoise). Currently, US citizenship and full-fledged trading in Forex are incompatible.

Regards, Michael

ForexTraderPortal.com