With trading centers in major cities across the world, like London, Singapore, New York, Hong Kong, and Tokyo. Forex trading involves purchasing and selling currency pairs depending on their value at central banks. The forex market is active almost all the time, and instead of being held physically, is mostly held as over-the-counter transactions.
The Forex market has emerged as one of the most deciding factors in the present finance market, and has a lot to offer to experience traders, as well as amateur traders. While forex trading is undertaken at a global scale, the forex trading platform needs to meet certain regulations and restrictions depending on the trader’s country of origin.
While Forex is considered legal in almost all countries, traders must be aware of these regulations in order to avoid violations and actively participate in the Forex trading platform.
Is Forex trading legal in the US?
Though there have been significant speculations about whether Forex trading is legal in the US, since its origin and subsequent popularity, Forex trading has been undertaken by US citizens. In fact, North America boasts a gigantic number of Forex traders, which stands at over 2 million, with new traders joining Forex trade every day. Forex trading is, therefore, legally recognized in the US, but is subjected to individual regulations and differences in comparison with any other continent.
In terms of foreign exchange trading, the former US president Barack Obama had signed the Dodd-Frank law, integrating it into American law. This was undertaken with the aim to improve the financial stability within the country, and protect US consumers and investors from fraudulent services, slippage malpractices, and Forex scams.
Though the Dodd-Frank law legitimized Forex trading in the US, it also imposed several limitations to keep up the integrity and stability of the Forex trading platform. Some of the prominent limitations included rules on mandatory tax returns, hedging, and leverage caps on major currency and exotic pairings. Traders violating these laws are liable to penalties or fines up to 2 million US dollars.
Trading Forex in the US
The US Forex regulations allow both US residents and citizens to deal in forex trading. Though anyone residing within the US borders can join the Forex trading platform, they are often subjected to additional regulations in comparison with US citizens.
The American financial market must also abide by rules and limitations on brokerage. Brokerage rules limit the access of US citizens just to traders and brokers within the country. In addition, non-US citizens can also trade forex with the help of a financial expert.
If you are planning to join the Forex trading platform in the near future, you must be aware of the following regulations imposed on Forex trade by the US government.
US Regulations on Forex trading
The US government imposes several regulations to prevent fraudulent actions in the Forex trading platform and protect smaller investors against excess leverages. Some of the key regulations include:
l The available leverage on major currency pairs is capped at 50:1 to avoid over-leverages and protect small-time investors and traders. Major currency pairs under this limitation include the British pound, the euro, Swiss franc, Japanese yen, the Australian, New Zealand, and Canadian dollar, and the Norwegian, Danish, and Swedish krona.
l The average leverage on other minor currency pairs is capped at 20:1, or 5% of the notional transactional value.
l The entire option premium is considered security for long Forex options.
l In the case of short forex options, the option premium, as well as the notional transaction value amount, is held under the security deposit.
l The FIFO (first-in-first-out) rule intercepts traders from running simultaneous positions on the same forex asset or other existing trade assets.
Forex trading is pretty straightforward when you are aware of the rules and regulations the US government imposes on it when it comes to trading Forex in America. If you are a newcomer in the world of Forex trade, knowing about these regulations will help you keep out of malpractices and illegal trading strategies, and gain experience as a trader in no time.