A Brief Guide to Forex Trading Regulations in the United States

Forex is a high-risk type of trading that is focused on gaming the fluctuations in value between currency pairs. It has somewhat of a tarnished reputation because of the plethora of forex scams, however, there is nothing inherently problematic about forex trading except that it is risky. Forex is the largest financial market and sometimes as much as $6 trillion is traded daily. 

Because of the high risk associated with forex, many people incorrectly think that forex trading is not allowed in the United States. This is not correct; there are regulators that oversee forex services and rules for forex trading in the United States. The problem is that many brokers ignore these regulations, hold no licenses or pretend to have qualifications they don’t have. 

Broker Complaint Registry can help you avoid these forex scams and retrieve funds from fraud. Our experts consult with clients, create intelligence reports and outline strategies that have a proven track record of success. We have a close working relationship with banks and regulators and can help our clients retrieve their funds from crypto scams, forex scams, and other forms of financial fraud. Talk to BCR  about how to proceed with fund recovery. 

The Truth About US Regulation of Forex Services

One of the reasons people believe that forex is not allowed in the United States is that, because of the prevalence of forex scams, US financial regulators took aggressive action against fraud. Since many forex brokers are unlicensed in the first place, the fact that huge numbers of forex services closed their doors may have given the appearance of shutting down the forex market. However, this is not the case. 

Forex is highly volatile because it is so active. A forex trader can lose money unexpectedly when a government or a huge institutional investor divests or buys a certain currency. These losses are not due to fraud, but because of the volatility of the market. Add actual forex scams to the picture, and forex can seem perilous. 

However, forex trading when it is regulated is legitimate. Regulations in the United States, however, are more demanding than in many areas of Europe. That may seem counter-intutitive since the perception is that the U.S. is less heavily regulated than in the E.U. The main piece of legislation that has increased forex regulation Dodd-Frank which was passed in 2012 and provides oversight for financial services in response to the financial crisis. 

The Effect of Dodd-Frank on the U.S. Forex Market

Dodd-Frank and the Wall Street Reform and Protection Act were intended to provide security to traders and avoid the loose regulations that were blamed on the financial crisis of 2008. For forex brokers, Dodd-Frank imposes significant limits on leveraging and hedging, which can reduce losses for traders and decrease the likelihood of manipulation. Dodd-Frank also established a strict taxation policy on returns from trading and significant market capitalization requirements for those who are seeking a brokerage license for forex trading. 

Market capitalization is an important way to protect traders. This is one area in which regulation in the United States differs greatly from in many other countries, including those in Europe. To operate as a forex broker in the United States, the broker must have a license and a $50 million security fund. European forex brokers, however, need only $100,000 to $500,000 in cash reserves. For this reason, many forex brokers try to dodge these regulations and find other locations. 

United States Regulators for Forex Brokers

It is important to ensure that any broker you sign up with has a license. There can be some confusion about which licenses are required for a forex broker. Some of the main licensing bodies in the U.S. include:

  • SEC (Securities and Exchange Commission)
  • CFTC (Commodity Future Trading Commission)
  • NFA (National Future Association)
  • FINRA (Finance Industry Regulatory Authority)

If you notice that a U.S. forex broker does not have a license from the SEC, that does not mean that it is a forex scam. The fact is that the SEC does not regulate forex, because technically, foreign currencies are not securities. The CFTC regulates derivatives which include options, swaps, and futures. The NFA and FINRA are private regulators, and the NFA has dispute resolution services as well as licenses for brokers. 

Choosing a U.S. Based Forex Broker

The reason that there are fewer licensed forex brokers in the United States compared to the rest of the world is that certain requirements, such as market capitalization, are steeper in the U.S. However, it is not worth taking a risk with forex brokers who are trying to get past these regulations and operate anyway. If you want to trade forex in the United States, it may mean that you have fewer registered brokers to choose from, but after all, you only need to choose one. 

Research brokers thoroughly and look not only for licenses but for transparency about who is behind the brokerage, their names, credentials, and contact information. Look for in-depth information about accounts, platforms, spreads, fees, and commissions. 

Research brokers and find one that has a valid and current license to trade forex in your area. It is worth noting that even though a forex broker may have a license, there is no guarantee that you will not have problems with them. If you have lost money on a forex scam and need fund recovery services, contact Broker Complaint Registry right away to improve your chances of getting your money back. 

Contact Broker Complaint Registry experts if you need assistance with a forex scam complaint. We deal with a variety of issues, including data theft, forex trading scams, and crypto complaints. Our team will refer you to experts who have vast experience dealing with regulators, banks, and law enforcement. We will provide advice and give you valuable guidance to help you resolve the issue.