You are a forex trader living in the US and you like to trade but you do not know where to begin and what is the best forex broker for the US clients. We are explaining everything you need to know about trading forex. You will find answers to the questions such as is forex trading legal in the USA?, how to trade forex in the USA? and what are the forex brokers that accept US clients?. Additionally, you can get extensive information about forex brokers in the USA and read US forex broker reviews.

US forex clients can choose between two options; onshore forex brokers or offshore forex brokers. There is a limited number of onshore forex brokers in the US. Onshore means the broker is located in the US – same country with where the client is located. Offshore is the opposite – the forex broker is stationed out of the US but still serves to the US forex clients.

There are only a few forex brokers that are onshore which means located in the US and (Gain Capital) is the one that we like in terms of reliability, customer services, fees and commissions.

On the other hand, there are several offshore forex brokers that accept US clients. FXGlory, AAFX Trading and LMFX are the one that we favor the most.

Leverage: 500:1

Minimum Deposit: $10

Trading Fees: Very Low

Country: SVG

Regulation: FSA

Leverage: 50:1

Minimum Deposit: $0

Trading Fees: Very Low

Country: US

Regulation: CFTC, NFA, CIMA, FCA

Leverage: 1000:1

Minimum Deposit: $50

Trading Fees: Medium

Country: N.M.

Regulation: None

Leverage: 3000:1

Minimum Deposit: $1

Trading Fees: Medium

Country: SVG

Regulation: None

Leverage: 2000:1

Minimum Deposit: $100

Trading Fees: Low

Country: SVG

Regulation: FSA

Leverage: 1000:1

Minimum Deposit: $1

Trading Fees: Medium

Country: SVG

Regulation: FSA

Is Forex Trading Legal in the US?

One of the biggest misconceptions among forex traders is that forex is prohibited in the US. This is incorrect. Online forex trading is regulated and allowed in the US under the supervision of CFTC and NFA. Nevertheless, there are some limitations.

CFTC and NFA are the financial watchdogs that regulate forex trading in the US.

Although it could be a double-edged sword, leverage is what makes forex trading compelling for investors. The leverage enables traders to open orders for larger contract size with little capital. Some offshore forex brokers offer leverage up to 2000:1 to attract clients. On the other hand, US authorities believe that high leverage encourages investors to overtrade and take high risk without really understanding it. This is why regulations in the US restrict leverage to 50:1 on major forex pairs and 20:1 on minor pairs.

Another limitation is about hedging. Hedging is a strategy that is used to reduce the risk of a losing trade. Some traders prefer to hedge their losing trade by opening another trade on the same pair in the opposite direction. However, this is not allowed in the US.

Hedging is not allow in the US.

The regulators in the US believe that hedging is not beneficial for traders due to the increased cost resulting from paying double spread for the eact transaction. As a matter of fact, US forex brokers are obliged to enforce First-In-First-Out (FIFO) rule which requires forex traders to exit from the existing orders on a pair in order to be able to open a new position on the same currency pair.

What is an Off-Shore Forex Account?

An offshore forex account is simply a forex account that is opened at an offshore forex broker for the purpose of trading in online forex.

Such a forex account is described as offshore because the broker, thus the account, is located in a jurisdiction that is outside of the account holder’s home country and usually on an island far away.

The location is critical because the offshore broker must be established in a country where there are looser regulations and fewer constraints, so making it easier to trade forex. This type of offshore brokers work with clients from all over the world. They possess the essential knowledge and experience regarding taxation, economic and political factors that may considerably affect the trading process.

Offshore forex brokers are able to offer lower spreads and higher leverage.

Trading forex through an offshore forex broker comes with many advantages. Lower spreads and high leverage are two most important of those. Additionally, traders would be able to enjoy the benefits of bonuses and promotions that are offered by the offshore forex brokers.

Why aren’t There Many Forex Brokers in the US?

Everything has started with the Great Financial Crisis (GFC). If you have watched the documentary Inside Job or the movie Big Short, you already got the idea. Brokerage firms have invented complicated investment products for the purpose of further profit and market diversification.

Those products were presented to the clients with the pledge of high returns. Due to their obscure nature, the clients were not able to understand the risk that they undertook through acquiring those derivative products.

After major financial institutions, such as Lehman Brothers, Merrill Lynch and AIG, went out of business at the financial crisis in 2008 – 2009, US regulators took serious measures and brought tighter rules and regulations for the financial sector. Leveraged investing, thus forex trading, suffered the most from the new stricter financial rules since it was the main culprit for the turmoil.

US regulators lowered the maximum leverage to 50:1 in the aftermaths of Great Financial Crisis in 2009.

Maximum leverage for forex trading was lowered down to 50:1 and acquiring brokerage license from NFA and CFTC was set to 20 million USD which makes it way more expensive for forex brokers to operate in the US compared to other jurisdiction. For the sake of comparison, note that Forex brokers in the UK must hold a minimum capital of 1 million GBP in order to provide forex brokerage services, while the requirement is 1 million EUR in Cyprus and 1 million AUD in Australia.

Due to low leverage and high capital requirements, profit prospects of forex brokerage are not that attractive in the US. Thus, there are only a handful of brokers located in the US that provides forex trading services to the US traders and higher operational cost leads those brokers to pass higher fees on the traders.

What are the Advantages of Trading with an Offshore Forex Broker?

High Leverage: In the aftermath of the Great Financial Crisis of 2009, US regulator CFTC decided to lower the maximum leverage to 50:1 for retail forex transactions. On the other hand, offshore forex brokers carry their operations in the overseas countries where there are usually lighter regulations and restrictions. Therefore, offshore forex brokers can offer leverage from 100:1 to 2000:1.

Bonuses and Promotions: Offshore forex brokers are capable of offering compelling bonuses and promotions that US forex clients would not be able to otherwise receive from US forex brokers. This is because offshore forex brokers are taxed less than US forex brokers and thus they can share some portion of tax savings with the traders. The bonuses and promotions usually come in the form of free deposit bonuses, free trading VPS and free analysis tools.

Less Paperwork: Offshore forex brokers can open a trading account within a few hours for US clients while it may take up to several days to open a forex trading account with a US forex broker. The less bureaucracy expedites the entire trading operation including registration, funding and money withdrawals.

Automated Trading: Offshore forex brokers support automated trading whereas US forex brokers are hesitant on this matter. Automated trading is the use of computer programs (Expert Advisors) for executing trades. Expert advisors enter and exit trades with respect to the predetermined set of rules and preferences. Traders can connect these systems to the trading platform and automatize the whole trading process. Automated trading has several benefits such as minimizing the role of emotions for trading decisions, preserving discipline and improved order execution speed.

No Hedging Restrictions: According to NFA regulations, US forex brokers have to follow FIFO rule that restrains traders from hedging. In times of unexpected volatility, some forex traders prefer hedging their trades by opening a trade in the opposite direction on the same currency pair. However, NFA’s FIFO rule prohibits traders to open simultaneous trades on the same currency pair which means that traders have to close the first trade in order to be able to open a new trade on the same pair. This rule is not implemented by the offshore forex brokers.

Are There Any Risks of Trading With an Offshore Forex Broker?

All the advantages listed above come at an expense and trading forex with an offshore forex broker possesses some inherent risks. The light regulations and rules that are the reason for the advantages of offshore forex brokers are the very same culprit for the drawbacks.

The most popular offshore countries for forex brokers are Belize, Saint Vincent and the Grenadines, British Virgin Islands, The Bahamas, Mauritius, Marshall Islands, the Seychelles and Vanuatu. Some of those countries have regulated forex trading and the brokers have to adhere to certain capital and operational requirements in order to be able to provide services. On the other hand, some of the offshore countries have no regulation whatsoever which increases the possibility of the forex broker being a scammer.

Some of the offshore countries have no regulation.

Scammer forex brokers are never shy of employing strategies that would create unfavorable trading conditions for the sake of clients’ loss. They may make use of certain platform plugins in order to manipulate the order execution time, spreads and slippage.

You may also have a hard time when you try to withdraw your funds, let alone the profit since the unregulated brokers are aware that there is no authority body in the offshore country that will go after them for their wrongdoings.

The capital requirements for founding a forex broker in the offshore countries are lower than for founding a broker in onshore countries such as the US, UK, Australia, Germany, Cyprus, etc…

The brokers would only need $28000 capital in Mauritius and $2000 in Vanuatu to become eligible in order to provide forex trading services. On the other hand, the US regulators require $20 million, UK regulator FCA requires at least 1 million GBP and Australian regulator ASIC requires at least 1 million AUD. Therefore, it is highly likely that onshore forex brokers have a stronger financial outlook compared to the offshore forex brokers.

Risk Warning:

Trading Forex and CFDs involves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose and should ensure that you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.