Will the USA ever let FX trading off the leash?

Forex trading has become a very popular field in the world nowadays. A lot of people seeking to make a fortune actually turn to Forex trading. It is gradually gaining a foothold in other countries as well.

The United States has long been know for generating traders, which has become very popular throughout the world. However, as interesting as it may seem to be a Forex trader in the United States there are regulations that hamper people from taking advantage of the market. In this article, we will talk about the regulatory field of the United States, as well as, how likely it is from the US to let go of the control of FX trading.

Financial regulatory tandem

The regulation of the foreign exchange market in the United States is entrusted to two of the most reputable financial regulators: the Commodity Futures Trading Commission and the National Futures Association.

The CFTC Commission was created in 1974 with the original function of regulating the futures market. In 2010, the U.S. Congress passed the Dodd-Frank Act of 2010 on Wall Street Reform. This law granted the CFTC the broadest powers for forex regulation.

In 2000 and 2008, a series of laws were adopted that designated the types of companies in the foreign exchange market

The National Futures Association NFA is a self-regulatory organization (SRO), the field of action of which is not only the foreign exchange market but also exchange-traded futures, swaps, and derivatives.

A company that is not a member of the NFA does not have the right to operate in markets that are the responsibility of the Association.

When it comes to comparing Forex to stock trading in various internal brokerage guides, it seems that FX often has more appealing conditions. However, in the United States, which is not the key market for the vast majority of the brokers, it can be said that both fields are strictly regulated, which sometimes makes it hard for investors to realize their potential to the maximum extent, considering the harsh requirements.

The main requirements of US regulators to the Forex broker

To work in the US foreign exchange market, a company must obtain an RFED (Retail Foreign Exchange Dealer, Forex Retail Dealer) license, the issuance of which is accompanied by passing a series of exams to all the company’s senior staff, checking the sources of capital and personal data of the owners, etc. An RFED license lasts 1 to 2 years.

The broker must have a minimum net worth of $20 million. At the same time, the level of early warning is 150%. This means that the broker is required to maintain a capitalization level of at least $30 million. When it decreases, the broker must notify the NFA each time.

The company is obliged to pay NFA annual membership fees in the amount of 125 thousand dollars.

All reporting should be transparent, which requires the broker to publish in the public domain almost all information, for example, customer profitability and company account data.

The maximum leverage allowed is 1:50.

A broker in the United States is required to submit a huge amount of reporting in a timely manner. Regulators, in turn, without fail, carry out sudden inspections of companies without warning.

One of the main differences from regulation in other countries is that in the event of bankruptcy of the company, no compensation for customer deposits is provided.

Constant reporting – from weekly to annual – allows regulators to respond in a timely manner to any violation of customer rights. Even the most minor manipulations by the broker are severely suppressed, and a fine is imposed on the company.

In general, you need to understand that the activities of CFTC and NFA are traditionally focused on the stock market, therefore, for currency brokers, the rules and requirements of maximum stringency are applied. Therefore, Forex regulation in the United States can not be called comfortable for foreign exchange brokers.

Will the US let go of control at some point?

It seems very unlikely. When it comes to regulations and control around the world, it is very hard to get rid of that. There’s not a big retail market for FX trading in the US, and it’s mostly done by institutions. Therefore, the government mostly focuses on regulating the institutions and the retail traders get caught up in the fire. So it is not expected that the US will go on compromise and let the Forex trading be free in the country. Donald Trump has had some thoughts about deregulation but it has not come in force yet.