In today’s modern world, a lot of opportunities are available for us to make money online. When you make a Google search on the best ways to make money from home, you’ll get endless results. Thanks to the internet, you can buy and sell stuff online, and even engage in different financial markets like stocks, mutual funds, and Forex trading. The latter has started to become a popular way to build wealth when a great number of Forex brokers started popping up.
Trading Forex is starting to become a household name in many Asian countries, especially in the Southeast Asian region, including Malaysia, Vietnam, Indonesia, and Thailand. There’s also an increase in trading volume over the years in European countries like the UK, Germany, Russia, and Cyprus. Furthermore, its popularity has also extended to African countries like Nigeria, Kenya, and South Africa.
A lot of Forex companies provide trading services to clients residing in the above-mentioned countries. If you were to take a look again at the countries we’ve mentioned, you’d notice that the USA wasn’t mentioned. How come? It’s because only a few Forex brokers have clients from the U.S, and we’re going to discuss below why Forex brands avoid this country.
Strict Forex Regulation of brokers
The government of every country has the responsibility to protect its people. The USA, just like any other country, has different departments and agencies each tasked to create and implement rules and guidelines meant to protect U.S. citizens. Several agencies are assigned to look after the country’s financial system. When it comes to Forex business, the National Futures Association, along with the Commodity Futures Trading Commission, regulates the operations of Forex brokers and other global Forex brands, that accept US traders.
The U.S. has a population of over 300 million people, and when you think about this, it only makes sense to penetrate the U.S. market. However, it’s easier said than done, especially for Forex brokers. While Forex trading can be a profitable way to earn money online, this venture has also become a way for opportunists to take advantage of vulnerable investors. A simple Google search about Forex scams will show you a lot of results on scams surrounding the Forex market.
With that said, this has pushed the NFA and CFTC to step up on implementing stricter rules on Forex companies that plan to enter the U.S. market. But because of these severe rules, many Forex brands are hesitant in pursuing this huge market.
Expensive License Fees
The mission of the NFA is to protect the American people from any kind of customer abuse. This includes making sure that Forex brokers have enough capital to maintain their business. This ensures that clients’ funds may never be used for operational expenses.
While the Financial Conduct Authority requires brokers to have at least $1 million operating capital, the NFA requires way higher – a staggering $20 million locked capital. For newly-established FX brokers, this license fee is just expensive. Some of the big global Forex brands regulated by the NFA include Forex.com, TD Ameritrade, and Interactive Brokers. These companies have been in the business for decades, so no wonder they’re able to afford the NFA license.
Low Leverage and Restriction in Trading Strategies
The maximum leverage Forex traders may use for trading major currency pairs is 1:50. This is way below the normal maximum leverage Forex brokers outside the U.S. offer, which goes as high as 1:500, and even 1:1000. With this leverage, traders can control much bigger funds. Therefore, they can trade in large volumes and earn higher profits.
Now if brokers can only offer up to 1:50, this can drive clients away, especially those with limited trading capital, because they can only trade low volumes. Low Forex trading volume also means low revenue for Forex companies.
Furthermore, the U.S. Forex regulators prohibit the use of certain trading strategies like hedging. This strategy involves opening a new position in the opposition direction of traders’ losing traders. If Forex brokers can’t allow this strategy, clients may not be interested in dealing with them because such restrictions can affect the trading habits of Forex traders.