Is Forex Trading Legal in the USA? Yes. Thanks for reading. Wait, there’s more? Well, yes, there’s a lot more. Forex trading in the USA has many rules, laws and appointed regulatory bodies that affect every aspect of trading.

Let’s examine the US Forex market, how to become a US Forex trader and local regulatory bodies.

I do not need to work for an institution or have qualifications to trade Forex in the US.

One of the best parts about Forex trading in the USA is that it is open to everyone. However, US Forex traders must follow the steps below if they want to trade successfully.

We all want to choose the best forex broker in USA to help us trade. There are several steps to choosing a good broker, including:

Regulation
Brokers legally offering services in the US must be registered with the Commodity Futures Trading Commission (CFTC) and members of the National Futures Association (NFA). This compliance ensures a safe trading environment. For example, US-regulated brokers must have minimum capital requirements to conduct business, audit records and keep client money separate in “segregated accounts.”

Trading costs

All brokers charge for their services through spreads, commissions or both. Lower spreads or commissions are generally better. However, costs will be less important to a swing trader compared to a day trader. Trading costs should not be the only factor in choosing a broker: fast and accurate execution with little negative slippage can have as much impact on profitability as spreads and commissions. Many brokers publish their execution times and slippage statistics.

Execution Direct access to the market or Market Maker

There are two ways in which brokers provide access to the market. The first is Direct Market Access (or Non-Dealing Desk), where brokers forward orders directly to their liquidity providers without manual intervention to fulfill client transactions. ECN and STP brokers are types of direct market access. The second type is the Market Maker, where brokers fill trades internally using the Dealing Desk. Brokers cannot manipulate prices with direct market access. However, Market Maker brokers can execute faster because they are always ready to buy and sell.

Trading Platform

Most Forex brokers offer MetaTrader 4 (MT4) and/or MetaTrader 5 (MT5), which is great for new traders because it’s easy to learn and has many tools to cover most needs. Some brokers have proprietary platforms with additional tools or better execution than what MetaTrader offers.

Minimum account size

Brokers require a minimum deposit before allowing clients to trade, and this can vary widely between brokers. Also, different account types with the same broker may have different minimum account sizes. For example, a broker may offer an ECN account with a higher minimum account size than a Market Maker account.

Customer service
I find it helpful to use a broker that offers phone and email support (some only offer email contact). Some brokers are much more organized with their customer support, for example, they use ticket numbers to track issues and queries.

Due to regulatory requirements, some areas are similar between brokers:

1. US regulated brokers offer the same high standards for keeping clients’ money safe using segregated accounts.
2. US regulators set industry-wide maximum leverage levels, meaning that all US-regulated brokers will have the same maximum leverage.

Brokers require several documents for compliance purposes before opening a customer account:

1. Address and PIB to establish your identity. Identity verification is a key legal and CFTC regulatory requirement.
2. Proof of identification such as a current passport, driver’s license or national identity card.
3. Address verification documents such as official photo IDs, utility bills, and bank or credit card statements. (Brokers usually require financial statements to be less than six months old.)

This step is worth several articles on its own, but every trader should follow a trading plan. A complete trading plan consists of the following:

Rules of entry

1. Technical and basic rules. Technical criteria can be chart patterns and indicator setups. Basic criteria can be macroeconomic data or news.
2. Selection of Forex pairs. Most traders do not try to trade every currency available, but will focus on a few. For several years I only traded GBPUSD because I understood how the trends formed on this pair, and today I mainly trade Forex major pairs containing the US dollar, not cross pairs, eg. EURJPY.
3. Choice of time frames. Day trading requires more screen time during certain Forex sessions (eg New York Open). Swing trading requires less screen time and means longer trade holdings. Some strategies are better suited to certain time frames.

Exit Rules

1. Stop-loss is the exit point if the trade goes against me. Let’s say I go long on EURUSD at 1,150. If I feel that my trade would prove to be a mistake if it goes 50 pips against me, perhaps because it breaks a support level, I will place my stop-loss 50 pips below my entry ie. at 1.1100.
2. A profit target is exactly what it sounds like: a price level to take some or all of the profit. I usually want my profit target to be higher than my stop loss. Taking the example above, I want the profit target to be at least 50 pips from my entry ie. 1.1200 or more.

Money management rules

These rules control the risk in my account.

1. Position size: Most traders set a maximum risk percentage per trade. For example, if I have an account of 10,000 USD and I don’t want the trade to cost me more than 1% of my account, the value of my stop loss should not exceed 1% of 10,000 USD, i.e. 100 USD.
2. Other money management rules may include the maximum number of losses before trading is paused and the maximum number of open trades.

Multiple financial regulators in the US cover a number of areas, but two regulators focus on the Forex market: the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

Commodity Futures Trading Commission (CFTC): The CFTC is an independent US government agency that regulates US derivatives, including futures, swaps, certain options and retail forex.

National Futures Association (NFA): The National Futures Association is the self-regulatory organization for US derivatives, including exchange-traded futures (ETFs), retail Forex and other OTC derivatives.

Together, the CFTC and NFA supervise Forex brokers to ensure that:

3. Brokers have enough working capital to function.
4. Fraud prevention
5. Recordkeeping and reporting requirements for brokers
6. Issuance of licenses enabling qualified brokers to conduct Forex trading.

NFA provides an online verification portal called the Membership Status Information Center (BASIC).

Any broker that is regulated in the US will list their regulatory credentials on their website, making it easy to verify.

One of the key provisions of the US Forex regulation is the maximum leverage rules:

Forex major pairs have a leverage of 50:1 (or 2% deposit of the face value of the trade). Forex major pairs contain the US dollar plus one other currency from the major country. Forex major pairs include:

EURUSD (Euro/US Dollar)

GBPUSD (British pound/US dollar)

USDJPY (US Dollar/Japanese Yen)

USDCHF (US Dollar/Swiss Franc)

USDCAD (US dollar/Canadian dollar)

AUDUSD (Australian dollar/US dollar)

NZDUSD (New Zealand Dollar/US Dollar)

Cross-currency pairs, that is, those that do not contain the US dollar, have a maximum leverage of 20:1. Examples of cross pairs include EURJPY (Euro/Japanese Yen) and GBPCHF (British Pound/Swiss Franc).

You may have come across Contracts for Difference or CFDs. They are popular in the UK, Europe, Canada and Australia, where most retail Forex trading takes place via CFDs. CFDs offer Forex-like leverage and access to many other markets, such as stocks, shares, indices and commodities.

However, US regulators do not allow US citizens to trade CFDs and do not allow brokers to offer CFDs within the US.

There is no regulated minimum account size for someone to start trading Forex in the US. Brokers often have minimum account sizes, and clients can start with as little as $100 to open a Forex account.

Small accounts generate equally smaller returns. If I start with a $100 account and double it over a few months, I’ve made an extra $100. That might not be worth my time. I need to make sure my account is big enough to pay the cashback.

Larger lot sizes require larger minimum account sizes. For example, I would need an account size of $1000 or more to trade mini lots. Larger lot sizes mean larger dollar amounts per pip and thus larger potential profits.

Use the position size calculator to calculate margin and minimum account sizes for mini or standard lots.

1. Forex trading can provide a source of income regardless of economic conditions.
2. No one needs qualifications or work in an institution to trade Forex. It is open to all.
3. Minimum account sizes can be as low as $100.
4. The US is a well-regulated environment, and brokers are held to high fiduciary standards that protect client capital, such as keeping client money in segregated accounts separate from brokerage operations.
5. There are many tools, courses and educational resources available today to help people trade profitably.
6. Traders can choose time frames, e.g. day trading versus swing trading, which suit their lifestyle and availability.

1. US regulators limit leverage to 50:1 for major Forex pairs and 20:1 for non-USD cross pairs.
2. Forex trading does not have a clear learning path. Many different trading styles have different results and it is often difficult to choose between them. Most traders try several strategies before finding one that works for them.
3. Forex earnings are not guaranteed. Capital is at risk and it is not uncommon for people to reduce their account size through losses.

Forex trading in the USA is legal and open to everyone. No one needs special qualifications or work in an institution to trade in Forex. Opening and funding a Forex account is quick and easy — brokers need proof of identity and address to get started. The US Forex market is well regulated, with excellent brokers offering market selection and fast trade execution through direct market access (eg ECN accounts) or Market Maker accounts. There are many platforms to choose from, such as the industry-wide MetaTrader platform and proprietary platforms developed by brokers. The US Forex market is mature and has plenty of resources to help new traders get started, such as trade copying services, education and courses to help develop trading strategies. Multiple charting platforms with reliable data and technical analysis tools are available to US retail traders.