Forex trading is a very popular option for those interested in trading online. When we talk about Forex we refer to the exchange of a national currency for another. In the US, very often people ask the question: is Forex legit in the US?
The answer is yes!
However, there are several restrictions regulating brokers and limiting them with the ultimate goal of protecting the traders and their money. Brokers are closely monitored by the Commodity Futures Trading Commission and the National Futures Association.
Both these entities regulate the operations of Forex brokers in the currency exchange market. Particularly in the US, there are some additional restrictions regarding the minimum deposit brokers have to guarantee.
So, what are the best US brokers for forex? Selecting a broker is a delicate choice and you have to make sure it offers all the features and characteristics you will need to operate in the market.
What is Forex trading?
Forex trading is the exchange of one currency to another one. In Forex we normally talk about currency exchange rate pairs, for example, USD/EUR or USD/GBP.
The market is very large and very active, which means that there is a great possibility of making a profit, and also the equivalent risk. The market deals with more than $5.1 trillion in daily forex trading volume, which is no surprising considering that the currency exchange market is global and one of the most liquid in the world.
How is a profit made in the Forex market?
So, how is it possible to make a profit by exchanging currency? What traders are interested in is the interest rate differential between two currencies.
The exchange rate is always changing and this is what investors can take advantage of and generate a profit. The rapid changes in the market also mean there is a higher risk of losing money in the Forex market.
If you are interested in Forex trading because of a forthcoming trip, or to do business with a foreign partner, you may not be necessarily interested in making a profit. However, as an individual, you may have already dealt in the Forex market.
Why are there a few Forex brokers in the US?
When it comes to Forex trading in the US, there are two main entities that regulate this market. The first one is the National Futures Association (NFA), and the second is the Commodities & Futures Trading Commission (CFTC).
Both have very strict guidelines regulating Forex trading. No broker in the US can deal in the Forex market without being registered with both entities. That’s a smart way to separate serious and reliable brokers, from scams and fraudulent operations that may put traders’ money at risk.
But, why is this different from other countries where brokers have to be registered to regulatory entities anyway?
Well, the big difference is that in the US where Forex brokers must hold capital of 20 million dollars. And this is the minimum!
As you can imagine, this number limits the number of brokers that can register, and therefore the government controls the few that are allowed to trade in Forex.
There are other regulations that brokers must comply with. Users’ money must be kept in separate accounts, brokers have to present detailed reports of all movements made in the Forex market, and manipulation of the market is severely punished.
However, ultimately, these guidelines are in place to protect traders and their money. Making sure your US Forex broker is registered with the appropriate entities guarantees a safe experience investing in the Forex market.