Forex in the USA - how brokers work “where we are not”
Many of us have heard horror stories about the Forex market in the United States - someone thinks that trading in currencies in the country of a star-striped flag is completely prohibited, someone on the contrary believes that “in America everything is absolutely honest!” But how really?
Let's look at the situation and find out how things are doing with trading on the foreign exchange market in the capital of world evil, and we will look at examples of what limitations and nuances typical John and Steve from the American prairies face.
After the financial crisis of 2008, the US government was very concerned about the regulation of the financial system, putting forward a number of strict restrictions and rules. All this is required to stabilize the financial situation in the country and protect capital from a sharp market collapse. Some of these restrictions directly affect the Forex market, making virtually any operation on it illegal.
What is there among the bourgeoisie
Not without the influence of communist propaganda in the minds of Soviet citizens a clear image of a typical bourgeois remained, as a symbol of capitalism and a standard of permissiveness. The ritual of exchange trading is a real bacchanalia, where everyone is allowed everything, just want to.
In fact, while you are complaining about how bad things are with trading with us, with Western capitalists, forex trading has already become a topic that is prohibited for discussion in a decent society. The reason for this is a tough foreign policy, and an attempt to protect their own interests, allocating the lion's share of resources for the development of financial contraceptives.
Sometimes such ideas reach the point of absurdity, making people interested in the initial intentions doubtful. A striking example is the US national regulatory authority, and specifically, the Commodity Futures Trading Commission. The commission’s task is to regulate the actions of financial organizations, in theory, protecting private traders from fraud and thus creating a transparent competitive market.
A big story happened recently when the largest US broker FXCM was forever expelled from the national platform. The Commission hopes that, at least from 2009 to 2014, the company misled customers by claiming that there is no conflict of interest, that is, acting as an intermediary in transferring applications to banks and other liquidity providers. The results of the investigation are reflected in the published document, which states that a significant part of the liquidity was not identified in the public reporting, in fact, as a result of the market-maker algorithm.
Thus, no forex broker operating in the United States is protected from such actions by the state, even if it is a company with huge turnover and an established brand. Note, for December 2016, the company's share amounted to exactly one third of the total retail forex in the United States. By this, the state shows its attitude to the decentralized foreign exchange market as a whole, campaigning for more traditional methods of investing on internal exchanges.
Limitations for Traders
- Compliance with the FIFO rule (First In, First Out - first in, first out). According to the FIFO rule, the oldest positions opened on the same currency pair should be the first to close. If you try to close a later position, the trader will receive a warning about the need to close earlier positions first.
For example, in this case, you can close only the first order in the list, while an attempt to close any other is unsuccessful. Determining the oldest order is simple - 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. The other two orders can be closed only after them.
Having shown some ingenuity, this rule can be circumvented by dividing the positions into parts with a difference in the minimum step of the volume. Of course, this method will not work with brokers who summarize the volume of all orders for the instrument.
- The ban on hedging, that is, the opening of multidirectional positions on one instrument. The regulator explains such a decision by the inappropriateness of such tactics, so it will not work to block the position on the account of the American broker.
The regulator tells us so directly - a lok from the evil one, and only god-like figures, that is, large legal entities, can afford such a sin.
- After 2008, the national regulator began to take tough measures against derivatives, completely banning trade in CFD instruments in the United States.
The consequences of such decisions can be compared with the adoption of prohibition. Everyone seems to know that drinking is bad, and yet the legalization of “derivatives” provides far more benefits than their complete ban.
- Limit margin trading. The regulatory body decided to limit the maximum leverage to 1:50 (in particular, for major currency pairs) and to 1:20 for less liquid assets.
Given all these restrictions, the trader does not receive any additional guarantees to save the deposit, while the remaining companies in the market are considered trusted by default.
In 2010, a new legislative act was passed - 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 forex transactions become illegal. Along with this, banks were forbidden to own hedge funds, as well as investing funds of depositors in such structures. The precious metals market also came under regulation, so all current positions are forcibly closed at the end of the day.
As a result, most brokerage firms not registered in the United States were forced to leave the US market. Naturally, this has greatly affected forex trading, as the choice of a brokerage company has narrowed sharply to just a few names.
With the election of Trump, the situation in the forex sector can change dramatically. It is not yet clear what amendments the president will make, but, most likely, we should expect relaxation of restrictions.
If you are a citizen of America and at the same time live outside it, you have a chance to circumvent some restrictions of the regulator. But, for this you will need to prove the fact of being outside 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 extremely dubious offices (for example, FXChoise). Currently, American citizenship and full-fledged forex trading are incompatible things.