The forex market is one of the largest markets in the world and the amounts of traded currency pairs are really staggering, with the average daily trade now reaching an amount of over $5 trillion.
The proportion of that trade that falls under individual retail trading is still not very large, but it is growing on a regular basis.
Many of the individual traders are US citizens and forex trading is very popular in states, considering that some other online investment forms are highly restricted.
There is a number offorex brokersthat offer forex trading to Americans, including operators who are based in the country, as well as brokers that are located offshore.
The US dollar is one of the strongest, most sought after and the by far the most traded currency in the world. In fact, the US dollar participates in over 85% of all forex trade volume. That is the main reason why only pairs where the US dollar is paired with either of the other seven strongest currencies is considered a major pair. Minor currencies, that dont belong in the group of the strongest currencies are usually paired with the dollar.
The importance of the US dollar and its role as the most powerful currency, is definitely an encouragement for many Americans to engage in forex trading. After all, a change in the value of the dollar, which may be a result of a decreased or an increased trade activities to and from the US or a change in the political climate of the country may cause significant changes in the forex market. Some traders might benefit, whereas others may lose a lot.
Learning how to recognize when the value of one currency may grow or fall in respect to the value of another currency is no easy task and there is nobody who can accurately predict the price movements the whole time. But you can certainly get better at it and manage to get it right most of the time, or at least more often than not. Theres also another thing that you should definitely do and that is to find the best and the most reliable US forex broker and were here to help you with that.
The first, and perhaps the most important aspect is the legal aspect. You are strongly advised to only trade through regulated forex brokers, who have a permission to provide trading services to US citizens. Only thus you will know that both you and your money are fully protected and that there is no danger of fraud or scam.
The Natural Futures Association (NFA) is the body in charge of regulating several financial markets in the country, including forex trading. The NFA is a self-regulatory, non-profit organization. The NFA was founded in 1982. In addition to financial institutions based in the US, as well as registered broker dealers and holdings, future commissions merchants (FCMs) and retail foreign exchange dealers (RFEDs) are also allowed to offer forex trading, but only if they are registered with the NFA.
Make sure that the approved brokers adhere to the required capital standards.
Ensures that all forex brokers keep records and submit regular reports to the NFA, as required by law.
Now, we have established that in order to be able to provide services, a forex broker has to be licensed by NFA, but that is only a pre-requirement, so to say, a provider has to adhere to certain standards in order to be reliable.
There is a legal standard which doesnt allow American forex brokers to offer very high leverage, so in that respect, you shouldnt expect too many variances. But, there are other things that you should definitely take into consideration.
The minimum limit that you are obliged to deposit in order to start trading may vary. If you plan on depositing a larger sum of money in the begging, then this wont be an issue for you, but if you want to start trading with $50 or even $30, then you will have to eliminate all brokers that have a higher initial deposit limit.
Most operators offer bonus of some sort, usually that is a Welcome Bonus, which can be awarded initially or after you make the first deposit. Bear in mind that a bonus of a lower amount might be more lucrative, if the terms and conditions under which it is awarded are more favorable for the trader.
Most operators dont charge any fees and commissions per trade. Usually the brokers get their profit through the spread. Some operators, though, might charge fees per deposit, for deposits made via certain deposit methods.
The difference between the two positions, or the spread, is how the brokers make their profit.
Therefore, it is not surprising that all players are looking for brokers that offer lower spreads. If, for example, you are planning on trading EUR/USD, and one broker offers a 1.1 spread, whereas the other 1.5, it is clear that you should go with the first option.
Most forex brokers offer multiple, at least few platforms. In addition to being able to choose between a download and an online version, theres also the distinction between PC and mobile trading platforms. Moreover, there is another, perhaps more vital difference. A broker might offer a platform which features simpler, more basic options, as well as one that is far more complex. It is, of course, better to have an option to choose. Whenever you feel that youre more experienced and able to get into more complex, you can start trading with floating spreads, which allow higher profits.
Customer support isnt the first thing that comes to mind when were talking of forex trading, but the reality is the customer support is particularly important in every online-based service industry and forex trading is no different. Traders trust brokers with their hard-earned cash and it is only fair for them to expect to be provided with the best possible customer service. It is preferable that the operator offers at least few methods of communication, like email, phone or live chat and it is better if the customer support stuff works around the clock.
We already mentioned that some brokers charge fees on deposits and withdrawals. But many dont. Brokers accept a wider range of payment methods including credit and debit cards, e-Wallets, checks, bank wire transfers and other methods. Note that you will be required to prove your identity usually before youre allowed to start trading and definitely before your first withdrawal can be completed. Forex brokers have a legal obligation to check and confirm the identity of their customers. Also, you will be required to provide a proof of residency, so there will be no doubts that you are a US citizen or youre legally residing in the country.
Yes, it is completely legal for Americans to trade forex online.
2. Are gains from forex trading taxed in the US?
In the past a lot of people werent sure how money earned through forex trading is taxed. That issues caused a lot of worries for the IRS. Under the current US regulations, forex gains are treated as capital gains. Under the section 1256, capital gains are taxed 60/40, the first 60% are taxed at 15%, whereas the rest at the basic income tax, which currently is 35%. But, if the year hasnt gone too well, you might prefer to get taxed under section 988. Losing traders will find this option to be far more favorable.
If your broker is located in the US, then you should be sent a 1099 tax form at the end of the year which is very helpful as you wont be required to do any extra calculations.
3. Am I allowed to trade currency pairs which dont include the US dollar?
Yes, you are allowed to trade any of the currency pairs which are offered by your forex broker, even the ones which dont include the dollar.
4. What is the maximum leverage that I can get on major currency pairs?
The maximum leverage that you can get on majors is 50:1. Even though non-US operators offer larger leverages, according to the US laws, forex brokers arent allowed to offer higher leverage.
5. What is the definition of a forex trade customer according to the US laws?
In the US, every individual whose assets net worth is lower than $10 million, as well as small companies fall under the customer category. That is due to the fact that the law is designed in a way to protect small investors.
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