We all are aware that Forex trading takes place all over the globe and the Forex market trading happens 24 hours a day, 5 days a week. This happens because of the fact that there are different countries in the world and different centers where currencies are traded. In spite of this, New York Currency trading session has a great impact on currency rate fluctuations, and the fact is that the retail traders in the US are less compared to the rest of the world. Though there are lots of speculations about the fact whether trading Forex is legal in the USA or not however the answer is Yes it is. Yes, Forex is legal in the United States and unlike the securities and futures market, the foreign exchange market is not controlled by any central governing body, there are no clearing houses and there is no arbitration panel. Thus all the trade happens between the members based on the credit agreements and understanding.
However, there are many reputed Forex dealers and brokers who are licensed and regulated as providers of the financial services in the countries where they operate. In the United States, these Forex dealers and brokers become the members of National Futures Association (NFA) which is a self-regulatory organization whose jurisdiction extends for the whole futures market. It is mandatory for the US Forex brokers to be licensed as futures commission merchant (FCM), and they must have a retail foreign exchange dealer (RFED) license. This way NFA regulated forex brokers face a number of restrictions, and they must adhere and meet various requirements in order to facilitate forex trade.
Most important of them all are certain regulations that a Forex dealer needs to adhere; they are as follows:
1 The capital requirement
This is an important clause which mandates NFA-registered brokers to maintain net capital of at least $20 million to guarantee clients positions.
2 The FIFO (first in, first out) rule
Under this rule, all the traders are bound to close their oldest transactions first whenever they have more than one position open on the same currency pair.
3 Leverage restriction
All US Forex brokers are required to provide leverage no higher than 1:50, while there is no restriction on the brokers outside of the US who are free to provide up to 1:1000 or even 1:2000 leverage.
4 No hedging is allowed
This is the reason so far there are only a few brokers that have been licensed and operate in the country. However, anyone and everyone as an individual can register with the licensed Forex brokers and can freely trade as per allowed rules.
At the moment the US Forex market is one of the most highly regulated markets in the world. This makes the Forex trade and the market safe for investors and leaves no scope for any fraudulent brokers. US Commodity Futures Trading Commission (CFTC) and US National Futures Association (NFA) are the two organizations which are the sole in charge of regulating Forex market in the US. The CFTC is a government agency which is independent from other bodies; it governs and oversees all the Forex transactions that are conducted through the licensed and regulated Forex brokers in the United States. At the same time, the NFA is a nonprofit self-regulating body for the US futures industry. The main objective of the NFA is to maintain the integrity of the market within the United States and at the same time protecting traders and investors from being involved in any kind of forex scam or fraud.
The main intent of both the regulating bodies is to protect the interest of small investor or customer (with assets of less than $10 million). This means rules and regulations are put around in such a manner which is aimed to protect individuals and small businesses involved in the forex trading market. All the licensed forex brokers have a norm if accepting US clients and thus there is no restriction that a US client cannot trade in US Forex market. There are many well-reputed and established forex brokers who invite and accept US clients for forex transactions and to name a few are Forex.com, OANDA, TD Ameritrade, ATC Brokers and many more.
In the end, one needs to understand and respect the Forex Trading market and regulations are there to balance the act. Remember too little of regulations will lead to financial irregularities and inadequate protection to all traders and at the same time, too much will lead to lack of competitiveness and interest in the forex market.