Forex Trader in the US? Here’s How to Find a Good Broker

Whether you’re already an experienced investor or tech geek or you’re just a regular person who wants to multiply their income, Forex trading is probably on your radar. In the past years, this type of trading has taken off all over the world, especially in Europe, Asia, and the Middle East. Without posing high barriers to entry or requiring large initial investments, the Forex market offers high liquidity and low transaction costs.

According to the latest data, there are approximately 1.5 million Forex traders in the US, which, compared to the 3.2 million in Asia, might not sound like much. However, it’s not the lack of appetite for trading that makes North America trail a bit behind, but rather the somewhat complicated process of finding a reliable Forex broker that accepts US clients.

So, does this mean that trading Forex will be too difficult for you or that you should look at other investment options instead? Not at all. Even though the US market is a bit more complicated, armed with the right information, you can work your way through it and find a reliable Forex broker that will meet your needs for years to come.

Why are There so Few Forex Brokers in the US?

It all boils down to the regulatory environment, which is much stricter in the US compared to other countries. It’s one of the heaviest regulated in the world, in fact. Because of the strict rules introduced by the Federal Government, it’s almost impossible for brokers to operate on the US market and, to make things even more complicated, the Dodd-Frank Act and the Memorandum of Understanding, forced global Forex brokers to stop accepting US clients.

In the US, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) regulate the activity of Forex brokers, whether they’re based in the US or another country. In both cases, they still have to comply with existing regulations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed in 2010 by Barack Obama, is perhaps the most prohibitive one. As stipulated in this act, the Commodities and Futures Trading Commission could now oversee not just conventional financial markets, but also the swap markets, which include Forex.

While it aimed to reform many of the flexible financial regulations that caused the 2008 recession, it also drove away most Forex brokers because of its strict rules, high compliance fees, and massive fines. In the end, only a small handful of the 40 brokers remained active after it. Many of them were reliable, but they simply didn’t want to take the risk.

As a result, the US share of the global daily Forex volume dropped from 6% in 2009 to just 3% in 2016. There are rumors that the Trump administration might repeal the Dodd-Frank Act or replace it with something else, but the situation is currently uncertain.

What Options do you Have as a US Forex Trader?

If you’ve traded other assets before, you know just how important it is to have the power of choosing a good broker. Ultimately, everyone’s trading style is different, and no one should be forced to use a broker that, though reliable, doesn’t match their individual needs and preferences. Unfortunately, this is what US Forex traders have had to do for many years.

Regulated US Brokers

After the Dodd-Frank Wall Street Reform and Consumer Protection Act, only a few US brokers remained, such as FOREX.com, OANDA, and TD Ameritrade. If you want to work with a broker that’s strictly based in the US, these are your main options. And if you already found what you were looking for on their websites, so much the better. The fact that they are regulated isn’t a guarantee for flawless practices but, if you’re not happy, you can easily take legal action.

However, you’re not exactly spoilt for choice and, if you’re very specific about your trading strategy, then it’s perfectly understandable why you may want to have more options.

Offshore Forex Brokers That Accept US Clients

The other way to do things is to sign up with an offshore Forex broker that accepts clients from the US. Granted, these brokers aren’t regulated; they’re simply registered in regions where local authorities haven’t imposed strict restrictions yet, so that allows them to accept US traders.

If you’re skeptical about using an offshore Forex service instead of a local one, you should know that there are many advantages of going offshore, including:

• No FIFO rules
• No hedging prohibition
• High trading leverage

Besides, the fact that an operator doesn’t have a license yet doesn’t comply with the US regulatory environment doesn’t necessarily mean it’s a scam. On the contrary, they could still be highly reliable, but they simply can’t afford to pay millions in operational costs, or, in this case, they want to appeal to a broader audience.

That being said, choosing an unregulated broker isn’t without risks either. Should you have a problem, you’re not protected by a regulatory body, so there’s no way of getting your money back.

What you can do, however, is learn to compare Forex brokers so that you don’t get scammed. It might sound like a job for an experienced finance analyst, but the Internet has already done the heavy lifting for you. Whether you’re a beginner or you’re looking to change brokers, there are many platforms that list the most reliable offshore brokers accepting US clients.

Here, you can read in-depth reviews, find out important details such as; where they are based, what instruments and platforms they use, what leverages they have, and the minimum deposit. If you also read reviews from traders to find out about the actual user experience, then you can make an informed decision.

All in all, even if Forex trading doesn’t come as easily for people in the US, there are ways to find a reliable broker. Just make sure you arm yourself with information and use comparison tools to make a good choice.