Why US Traders Should Compare Forex Brokers?
Traders in the USA should aim to minimise participating in forex scams (regulation), adopt the most advanced trading platform while minimising the brokerage while trading. With these three objectives in mind, I have outlined below the core elements to look for when choosing a broker.
1. Regulation Compliance
The US is one of the most regulated in the world when it comes to currency trading. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are the main regulators overseeing American derivatives and futures markets. These two bodies develop and enforce rules to protect investors and ensure market integrity, from reporting timelines to margin limits to market capitalisation requirements.
Due to the strict rules set out by American regulators, only the largest and best-capitalized can afford to enter. As of January 2024, only ten top forex brokers worldwide hold a license from the NFA.
Choosing a US-regulated forex broker minimises the risk of exposure to forex scams and fraud. Unregulated brokers regularly target this lucrative region, and trading with a licensed, regulated broker offers valuable protections for discretionary traders.
The spread in forex trading represents the difference between a forex pair’s bid (buy) and ask (sell) price and typically represents the broker’s profit. Wide spreads can eat into your trading earnings, so reviewing published spread data is important to understand your potential with a given broker.
3. Forex Trading Platforms
Most forex traders opt for the globally popular platform MetaTrader 4 (MT4). The world’s most widely used trading platform, many top brokers offer MT4 with combinations of integrations and trading tools. It also has the largest Expert Advisor (EA) marketplace and community, simplifying sharing bots and other automation programs.
The platform is mobile friendly with a web-based mobile platform and trading apps, including:
- iPhone App
- iPad App
- Android App
Other trading platform options include MetaTrader 5, which focuses on financial markets beyond currency, and TradingView, which has an excellent user interface and technical analysis tools and charting. Algorithmic traders will appreciate cTrader’s powerful bots.
Many brokers also offer their own proprietary trading platforms. IG Group, for example, has developed an award-winning platform with advanced functionalities.
Is forex trading legal in the US?
Yes, forex trading is legal for US citizens and US residents; when trading Forex, you will be trading using spot products, not CFD products. You must use a broker registered and regulated by the Commodity Futures Trading Commission (CFTC) and be listed as a National Futures Association (NFA) member. Using an appropriately regulated broker ensures the brokers follow the strict requirements set by the CFTC and NFA which will help protect you as a trader.
Is forex trading taxed in the US?
Yes, forex trading is taxed in the US. The Internal Revenue Service (IRS) treats online trading as a business activity, so you must record and report your profits to the IRS. Whether you pay capital gains tax, stamp duty reserve tax or income tax will depend on how frequently you trade and the volume of transactions.
Who is the CFTC?
The Commodities Futures Trading Commission (CFTC) is the federal agency responsible for overseeing the derivatives markets in the US. Its primary responsibilities include ensuring market transparency, investigating potential misconduct by exchanges, brokers and clearinghouses, and enforcing rules.
Who is the NFA?
The National Futures Association (NFA) is a regulatory organisation authorised by the CFTC to oversee the activities of specific financial services companies, such as futures commission merchants (FCMs), commodity pool operators (CPOs), commodity trading advisors (CTAs), and introducing brokers (IBs) that are members of the NFA.
Can you trust Forex brokers in the US?
Yes, you can trust forex brokers in the US. The CFTC and the NFA impose some of the strictest controls on derivatives trading of any regulator worldwide. The requirements for an NFA license are so intense only the largest and most well-capitalized brokers can afford them.
What are the forex trading hours in the US?
You can trade forex 24 hours a day, seven days a week in the US. However, the most popular hours for trading fall between 8:00 AM and 5:00 PM EST. Volume peaks between 8:00 AM and 12:00 PM, making these the best times for high liquidity.
Can I trade with MetaTrader 4 in the US?
Yes, you can trade forex on the MetaTrader 4 trading platform in the US. Many of our top choice brokers offer this option, including OANDA. You should be aware, however, that you can only trade via MT4’s mobile app if you use an Android phone.
How do I choose a forex broker?
To choose a CFTC-regulated forex broker that aligns with your needs, consider the following factors:
- Trading style. Particular styles call for specific trading tools.
- Trading budget. Look for tight spreads and low commissions if you’re on a limited budget.
- Educational materials. New traders may need more resources to get the most out of trading.
If you are a beginner, you should be looking for a forex broker that offers good customer support as well as a good demo account with which you can experiment on the foreign exchange market and with other markets, such as cryptocurrencies (e.g., Bitcoin) and indices. As a retail trader, you should look for a user-friendly platform that offers mobile trading to maximise your trading experience.
How do I know if my forex broker is regulated?
You can check the status of your preferred US forex broker via the online registry on the NFA website.
Which forex broker has the best trading platform?
The forex broker with the best trading platform will depend on your specific trading style and experience level. If you need access to centralised exchanges, you’ll want MetaTrader 5. If you need advanced charting, you’ll want a broker with TradingView.
Which forex broker offers the most currency pairs?
FOREX.com offers the most currency pairs to trade with of any US broker: more than 80. Beyond the high-volume major pairs, this broker allows you to explore minors and exotics.