Forex Trading in the US in 2021

Forex trading

Forex trading for US citizens

Forex trading has undoubtedly gained much popularity across various parts of the world in recent years. Given the growing interest in it, many still seek clarity on what it is, how it works, and the legalities surrounding it, amongst other things. It is worth noting that different rules and regulations apply to Forex trading across the globe, compared to those in the US, therefore, US citizens and brokers need to stay informed on the latest developments and governing measures.

It is advisable to view the various guides to Forex trading in USA that are available, in order to get a better understanding and overview of the industry and suggested approach to trading. This applies to both novice and experienced traders.

Legislation and differences

Despite some of the seemingly contradictory reports on whether or not Forex trading is legal in the US, rest assured that it is. There are several myths and misconceptions surrounding Forex trading as a whole, which have ultimately led to much confusion. Although Forex trading in the US is said to be more regulated than in other parts of the world, it is still permitted. The confusion, perhaps, may be due to the changing laws and regulations that are to be adhered to, particularly by brokers.

While some may view the stringent regulations in the US as hindrance, that is not necessarily the case. They are said to have been introduced as a way to discourage traders from taking too big a risk, as a way to avoid a possible financial crisis. Moreover, there are certain strategies that are prohibited in the US.

For example, hedging, which is often done to reduce losses, is not permitted in the US. This is because of the first-in-first-out rule. Additionally, the maximum leverage in the US is 1:50 for major pairs and 1:20 for all others. This is a notable difference as it is not the case in other parts of the world.

The two bodies that are tasked with regulating Forex trading in the US, but not the Forex market, are the Commodities Future Trade Commission (CFTC) and the National Futures Association (NFA). For brokers that want to provide their services to US-based traders, it is required that they be registered with the CFTC and be a member of the NFA, so as to ensure compliance at all times.

Trends and the way forward

Although 2020 was a year of uncertainty and devastation for most industries and trade, experts remain confident that there are lessons to be learnt from the disruptions that came with it. Due to a certain level of instability that still stands as at 2021, analysts and experts are championing a more cautious approach to Forex trading, particularly as it relates to pairings.

According to reports, the US Dollar remains, fortunately, amongst the safe-haven currencies. Moreover, the USD/CAD pairing remains of interest as one of the most heavily traded pairings. This is due to the close economic ties between the US and Canada. Experts claim that the best time to trade the USD/CAD is during the North American trading session, while Fridays are generally the most volatile for the pairing.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.