Listen to the Article: Locked Out - The Surprising Reasons Why Most Forex Brokers Reject US Traders

​

The retail forex trading market is crowded with brokers. Apart from a handful of big-name brokers, whether it is ActivTrades, Exness, CMC Markets, Tickmill and other familiar brands, or many lesser-known small brokers, they all share one thing in common: they are not accepting (or at least have not explicitly stated that they do accept) US clients.

Why are US traders snubbed by forex brokers? Many of us in this line of business know that the forex market operates 24 hours a day because we have a network of trading centers around the world, among which New York in the United States is a vital hub. In fact, the US financial industry has a huge sway over exchange rate movements. The Fed's policy tweaks also trigger shocks to all global markets, including the forex market.

However, most of the retail brokers have shut their doors to US traders. Today we will explore the reasons behind this.

Lower Profit Expectations due to Low Leverage

The US is the third most populated country in the world, and its per capita income is also among the world's top. In 2023, there are about 14.5 million active online traders worldwide, of which North America accounts for 2.17 million, second only to Asia's 4.63 million. However, under the high regulatory costs, very few forex brokers can enter the US market, so theoretically speaking, there is less competitive pressure and more profit space. But in reality, profitability is also a factor that makes brokers shy away from the US market.

The profit of a forex broker makes mainly depends on the traded volume. The higher the trading leverage, more traders will come. Although global markets are implementing policies to de-leverage, especially in a few major jurisdictions. The US is undoubtedly the most stringent region. Fazzaco pointed out in an article titled "Is A Leverage-Restricted FX Market Becoming the New Norm?​" published last year that the US regulators "capped the leverages available to U.S investors not over 50:1 (major currency pairs) and 20:1 (other currency pairs)." In contrast, other regulators still allow leverages up to 500:1. In other words, under the same trading amount, brokers' profits in the US will be ten times or more less than others.

High Licensing & Potential Regulatory Costs

According to US law, if a broker wants to serve US traders, it must apply for a National Futures Association (NFA) license. To get licensed, NFA wants you to meet a challenging requirement. Usually, brokers need to provide a locked capital as much as $20 million. In comparison, CySEC requires a capital of 125,000 euros for straight-through processing (STP) licensing and 730,000 euros for market-making licensing; UK FCA requires a capital of around 750,000 pounds; and if it is an offshore region such as the British Virgin Islands, there are no capital requirements at all. It can be said that capital requirements are the reason why most forex brokers are prevented from entering the US market.

In addition, after entering the US market, brokers also need to bear legal fees related to regulation, fees for hiring lawyers to apply and execute, etc.

On the other hand, although it is correct and commendable for regulators to issue fines for violations by financial service institutions, the amount of fines issued by US regulators is just as notorious as their medical bills. In March this year, NFA issued a fine of $350,000​ to introducing broker (IB) GMG Brokers and its CEO and deputy CEO. In January, StoneX Markets was fined $1 million​.

Conclusion

Of course, forex trading is totally legal in the US. US traders can also trade online like traders from Asia, Europe or Australia. The only difference is that in a strict regulatory environment, US traders have limited choices of brokers. In addition, forex trading in the US also faces competition from other assets such as stocks and cryptocurrencies.

So do US traders have a chance to enjoy more forex broker services? This depends on various factors but mainly on whether there may be changes in attitude and policy towards forex market by US regulators which will release more broker opportunities and space that meet US clients' needs.

However, we should not hold our breath for such changes anytime soon.