What to do if the broker has banned access for traders from your country

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Why do Forex brokers not accept US clients?

It is a common known fact that the Forex market trading goes on 24 hours a day, 5 days a week. This happens due to the fact that there are multiple centers all over the world where the currencies are traded. Yet, even though the New York session tends to have the most significant impact on currency rate fluctuations, the amount of US based retail traders tends to be quite small.

If you are from the US you can be quite puzzled by the amount of brokers that are offering the services throughout the world, but are still not present in the States. Even though the US is the major market for various goods and services, for some reason FX trading for individual investors is not so common.

US residents can trade Forex

Before we move on any further, it is vital to state that Forex trading in the US is not prohibited. A trader from the US can trade FX online as easily as a person living in Europe or Australia. However, the main difference lays in the variety of brokers a trader can choose from.

There are a few reasons why the amount of FX brokers is very low, let’s examine each of them below.

Licenses and Regulations

When it comes to the brokers that operate in Europe, the regulatory environment is rather simple. Once a broker has obtained a license from one of the European regulators, it can easily accept traders from all EU countries. In other words, a UK Financial Conduct Authority regulated broker can accept traders from Germany, the Netherlands, Bulgaria and other EU member states.

However, when it comes to the US, European licenses simply do not work. A broker that wants to have traders onboard from the US has to be regulated by the NFA, National Futures Association. At this point you may ask, there are brokers that have multiple licenses, like CySEC, FCA, ASIC and more, why would they not get another one to provide services in the US? The reason for this is quite simple – capital requirements. While a broker has to have around $100,000 – $500,000 of locked capital to obtain one of the European licenses, NFA requires quite an enormous amount of capital to be able to operate in the US – 20 million dollars.

This amount of money only corresponds to a deposit that a broker has to make and does not include any legal fees associated with obtaining the licenses, employment of lawyers to be placed on the register and executives. In other words, the US market is an expensive market to operate on.

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Even though some brokers make profit enough to afford it, 20 million dollars is quite a large sum to allocate just for a license. On average, the world’s 15th largest broker would hardly earn 10 million USD in profit annually, hence allocating a profit of 2 years for the privilege to work in one country is an extremely serious investment.

The situation with capital requirements was quite different back in 2008 and at that time there were quite a few brokers that accepted US clients. However, today the amount of US friendly brokers is just less than five.

Profitability

Now you may wonder, if there are only a few brokers in the US, why are more brokers not trying to penetrate the market? There are over 300 million people living in the US and it is quite hard to believe that there are no more brokers that could actually afford the NFA licensing. Well, the truth is that, although more brokers could deposit 20 million to operate, not every broker will find it profitable.

As you know, FX brokers earn from the volume traded, hence the higher the trader’s volume is, the more profit a broker makes. However, unlike European countries where a trader has access to the leverage of 500:1, in the US it is only possible to supply 50:1 leverage on majors and 20:1 leverage on minors. This means that a broker can expect to receive some 10 times smaller profit in the US than in Europe, provided that it has the same amount of traders with the same amount of deposits in the two regions.

Furthermore, yet needless to say, wages in the US tend to be quite high, so the whole process of financing the US-based operations is not cheap at all.

Regulator’s attitude

Even though it is already quite hard for some brokers to start operating legally in the US and then to become profitable, historically US authorities have also been seen as a hindrance.

Quite a few brokers have been heavily fined by the NFA for malpractice. While the impact of the reasons behind the fines could be quite insignificant, the fines tend to be heavy: ranging from $200,000 to $2 million.

In other words, a broker may spend a year working hard, and by the end of the year its profits (or even more) can be simply taken by the regulator as a result of certain misconduct.

Indirect competition

US traders have also been much more inclined to stock trading, this is why they often choose to acquire shares over currencies. In most cases, trading stocks is actually more expensive for traders (or more profitable for brokers) than Forex. This is why US based brokers not only have to compete against each other, but also in order to take a slice of the stock brokers’ pie by increasing the awareness about online currency trading.

Conclusion

The limited amount of FX brokers in the US is certainly caused by the heavily regulated environment that requires brokers to deposit a substantial amount of funds and, at the same time, decreases brokers’ profitability by limiting leverage.

This also results in a few unregulated brokers offering their services in the US as they can better meet the needs of the traders, while their legal and operational costs are minimal. However, unregulated brokers that accept US traders should never be your choice.

Why do some countries ban Forex trading?

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There are usually 2 reasons that countries ban Forex trading on their territory. Sure there may be some exceptions with a third reason, but these two are the primary and most important.

Forex trading is not the safest thing you can do. First things first, it’s sort of like a business, which immediately associates it to risk. Furthermore many countries still view the market as some sort of gambling reiteration, therefore they feel the need to protect their citizens.

One example would be ESMA. Sure they’re not banning Forex trading in the EU completely, but the restrictions they are bring.

Forex Trading Regulations Around the World – the Full Breakdown

Finance Magnates Intelligence maps out the global regulatory environment for forex trading.

Following up on our popular recent feature global binary options regulations overview, we are proud to present you with a detailed breakdown of leveraged currency trading regulations around the world.

The importance of getting a forex license today cannot be underestimated as traders are more aware than ever about the risks associated with unregulated firms. Brokers on their part are strongly emphasising, even in countries where it is not required, how many jurisdictions they are licensed in and trying to get more established signs of approval.

Finance Magnates Intelligence analysts have mapped out regulations relevant to forex brokers and traders by country and we visualised it in the form of regional maps.

In North America, home to some of the biggest forex brokers in the world, trading is highly regulated and regimented. The high costs associated with getting approved to offer services make the market very hard to break into. It has been consolidated to a degree unseen in markets of its immense size with just a handful of companies remaining to legally serve North American clients.

In South America, Chile offers a forex trading license for firms approved by the SVS (Superintendencia de Valores y Seguros). Brokers are reporting growth throughout the continent which is developing as a new high target market.

One of the most advanced and developed markets on the continent, South Africa offers a forex license regulated by the FSB (Financial Services Board) which is highly respected in the region.

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In the diversified markets of the Middle East, Cyprus remains the top destination in which to establish a legal presence. A gateway to Europe and a regional hub, Cyprus is one of the leading international forex jurisdictions.

Want to get more valuable data for decision-making? Go to the Finance Magnates Intelligence page

One of the biggest retail forex markets by its own right, Japan remains an island onto itself with regulated online brokerage groups targeting traders in neighboring Asian countries based on Australian, Hong Kongese and even UK licences.

Despite a growing focus on developing markets recently, Europe remains the leading region in terms of the number of markets welcoming forex brokers while ensuring trader safety. A European license is often the most sought after by firms that operate in markets where a local legal framework is not available.

A number of national regulators in Europe have also recently issued specific guidelines for conducting business under their jurisdictions. These include additional client protection measures in Spain, an advertising ban in France, a distribution ban in Belgium, a CFDs advertising ban in the Netherlands and a new minimum deposit and maximum leverage requirements in Turkey.

Where does your jurisdiction stand regarding CFD trading? Finance Magnates Intelligence has mapped this out too.

It’s important to remember that the situation can change from time to time. The maps offer a snapshot of the market as it is in March, 2020. Keep following Finance Magnates to stay up to date with the latest developments.

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