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Is
Forex trading
legal in the US? Yes. Thank you for reading. Wait, there's more? Well, yes, there's lots more. Trading Forex in the US has plenty of rules, legislation, and appointed regulatory bodies that affect every aspect of trading.
Let's examine the Forex
market in the US, how to become a US Forex trader, and the local regulatory bodies.
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money How Do I Become a Forex Trader in the USA?
I do not need to work for an institution or have qualifications to trade Forex in the US.
One of the best parts of Forex trading in the US is that it is open to everyone. However, American Forex traders must follow the below steps if they wish to trade successfully.
Step 1: Choose the Right Broker
We all want to choose the best Forex broker in the USA to help our trading. There are several steps to choosing a good broker, including:
Regulation Brokers legally offering services in the US must be registered with the Commodities Futures Trade Commission (CFTC) and members of the National Futures Association (NFA). This compliance ensures a safe trading environment. For example, US-regulated brokers must have minimum capital requirements to conduct business, audit records, and hold client money separately in“segregated accounts.”
Trading Costs
All brokers charge for their services through spreads, commissions, or both. Lower spreads or commissions are generally better. However, costs will matter less for a swing trader versus a day trader . Trading costs should not be the only factor in choosing a broker: fast and accurate execution with low negative slippage can have as much of an impact on profitability as spreads and commissions. Many brokers publish their execution times and slippage statistics.
Execution Direct Market Access or Market Maker There are two methods by which brokers provide access to the market. The first is Direct Market Access (or Non-Dealing Desk), where brokers pass orders directly to their liquidity providers without manually intervening to fill client trades. ECN and STP brokers are types of Direct Market Access. The second type is Market Maker , where brokers fill trades internally using a Dealing Desk. Brokers cannot manipulate pricing with Direct Market Access. However, Market Maker brokers can execute quicker because they are always ready to buy and sell.
Trading Platform
Most Forex brokers offer MetaTrader 4 (MT4), and/or MetaTrader 5 (MT5), which is great for new traders because it's easy to learn and has plenty of tools covering most needs. Some brokers have proprietary platforms with additional tools or better execution than MetaTrader provides.
Minimum Account Size
Brokers require a minimum deposit before allowing customers to trade, and this can vary greatly between brokers. Also, different account types with the same broker can have different minimum account sizes. For example, a broker can offer an ECN account with a higher minimum account size than a Market Maker account.
Customer Service
I've found it helpful to use a broker offering phone and email support (some only offer email contact). Some brokers are much more organized with their customer support, for example, using ticket numbers to track issues and enquiries.
Because of regulatory requirements, some areas are similar across brokers:
US-regulated brokers offer the same high standards for keeping client money safe using segregated accounts.
US regulators set maximum leverage levels across the industry, meaning all US-regulated brokers will have the same leverage maximums 2: Open and Fund an Account
Brokers require several documents for compliance purposes before opening a customer account:
An address and tax ID number to establish your identity. Verifying identity is a key legal and CFTC regulatory requirement.
Proof of identification such as current passport, driver's license, or national ID.
Address verification documents such as government-issued photo identification, utility bills, and bank or credit card statements. (Brokers usually require financial statements to be under six months old.)Step 3: Develop a Trading Plan
This step is worthy of several articles by itself, but every trader needs a trading plan to follow. A complete trading plan consists of the following:
Entry Rules
Technical and fundamental rules. Technical criteria can be chart patterns and indicator settings. Fundamental criteria can be macroeconomic data or news announcements.
Choice of Forex pairs. Most traders do not attempt to trade every currency available but will focus on a few. I traded only GBPUS for several years because I understood how trends formed on this pair, and today, I mainly trade Forex Major pairs containing the US Dollar and not cross-pairs, e.g., EURJPY.
Choice of timeframes. Day trading requires more time at the screen during specific Forex sessions (e.g., the New York Open). Swing trading requires less time at the screen and means holding trades longer. Some strategies are better suited to particular time frames.
Exit Rules
A stop-loss is an exit point if a trade goes against me. Let's say I go long on EURUSD at 1.150. If I feel my trade would be proven a mistake if it goes 50 pips against me, maybe because that breaks a support level , I will place my stop-loss 50 pips below my entry, i.e., at 1.1100.
A profit target is exactly how it sounds: a price level to take some or all profits. Typically, I want my profit target to be larger than my stop-loss. Taking the above example, I want a profit target to be at least 50 pips from my entry, i.e., 1.1200 or greater.
Money Management Rules
These rules control the risk on my account.
Position size: Most traders set a maximum percentage risk per trade. For example, if I have a $10,000 account and do not want a trade to cost me more than 1% of my account, the value of my stop-loss should not be more than 1% of $10,000, i.e., $100.
Other money management rules can include a maximum number of losses before pausing trading and a maximum number of open trades Financial Regulators
Multiple financial regulators in the US cover numerous areas, but two regulators focus on the Forex market: the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
Commodity Futures Trading Commission (CFTC): The CFTC is an independent US government agency that regulates U.S. derivatives , including futures, swaps , certain options, and retail Forex.
National Futures Association (NFA): The National Futures Association is the self-regulatory organization for U.S. derivatives, including exchange-traded futures (ETFs) , retail Forex, and other OTC derivatives.
Together, the CFTC and NFA oversee Forex brokers to ensure:
Brokers have enough operating capital to function.
Fraud prevention
Record-keeping and reporting requirements for brokers
Issue licenses allowing eligible brokers to conduct Forex trading Regulatory Status
The NFA provides an online verification portal called the Background Affiliation Status Information Center (BASIC).
Every US-regulated broker will state their regulatory credentials on their website, making it easy to check.U.S. Regulated Maximum Leverage
One of the key provisions of US Forex regulation is maximum leverage rules:
Forex Major pairs have 50:1 leverage (or a 2% deposit of the notional value of the trade). Forex Major pairs contain the US Dollar plus another currency from a main country. Forex Major pairs include:
EURUSD (Euro/US Dollar)
GBPUSD (British Pound/US Dollar)
USDJPY (US Dollar/Japanese Yen)
USDCHF (US Dollar/Swiss Franc)
USDCAD (US Dollar/Canadian Dollar)
AUDUSD (Australian Dollar/US Dollar)
NZDUSD (New Zealand Dollar/US Dollar)
Cross-currency pairs, i.e., those that do not contain the US Dollar, have a maximum leverage of 20:1. Cross-pair examples include EURJPY (Euro/Japanese Yen) and GBPCHF (British Pound/Swiss Franc).US Regulated Prohibition Against CFDs
You may have encountered Contracts for Difference or CFDs.
They are popular in the UK, Europe, Canada, and Australia, where most retail Forex trading is through CFDs. CFDs offer leverage similar to Forex and access to many other markets, such as stocks, equities, indexes and commodities.
However, US regulators do not allow US citizens to trade CFDs and disallow brokers to offer CFDs inside the US Much Money Do You Need to Start Trading Forex in the USA?
There is no regulated minimum account size for someone to begin trading Forex in the US. Brokers often have minimum account sizes, and customers can start from as little as $100 to open a Forex account.
Small accounts generate equally smaller returns. If I start with a $100 account and double it over several months, I have made an extra $100. That may not be worth my time. I must ensure my account size is large enough to make dollar returns worthwhile.
Larger lot sizes require larger minimum account sizes. For example, I would need an account size of $1000 or more to trade mini lots. Larger lot sizes mean larger dollar amounts per pip, hence higher potential profits.
Use a position size calculator to calculate the margin and minimum account sizes for mini or standard lots.
Trading Forex in the US
Pros
Trading Forex can provide a source of income independent of economic conditions.
Nobody needs qualifications or work for an institution to trade Forex. It's open to everyone.
Minimum account sizes can be as low as $100.
The US is a well-regulated environment, and brokers are held to high fiduciary standards that protect client capital, such as keeping client money in segregated accounts separate from brokers' operations.
Today, many tools, courses, and education resources are available to help people trade profitably.
Traders can choose timeframes, e.g., day trading vs. swing trading, that suit their lifestyle and availability
US regulators cap leverage to 50:1 on major Forex pairs and 20:1 on cross-pairs not containing the USD.
Forex trading does not have a clear learning path. Many different trading styles have differing results, and it's often difficult to choose between them. Most traders try several strategies before finding one that works for them.
Making money in Forex is not guaranteed. Capital is at risk, and it is not uncommon for people to reduce their account sizes through losses Line
Trading Forex in the US is legal and open to everyone. Nobody requires any special qualifications or work for an institution to trade Forex. Opening and funding a Forex account is quick and easy -brokers need proof of identity and an address to get you started. The US Forex market is well-regulated, with excellent brokers offering choices of markets and quick trade execution through Direct Market Access (e.g., ECN accounts) or Market Maker accounts. There are plenty of platforms to choose between, such as the industry-wide MetaTrader platform and proprietary platforms developed by brokers. The US Forex market is mature and has plenty of resources to help new traders get started, such as trade copying services, education, and courses to help develop trading strategies. Multiple charting platforms with reliable data and technical analysis tools are available to US retail traders.
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