US Forex Regulation: NFA, FIFO, Hedging and Why Few Brokers Accept Americans
How the CFTC and NFA regulate retail forex in the United States and what it means for traders.
After the Dodd-Frank Act of 2010, US retail forex became one of the most tightly regulated markets in the world. Only firms registered with the CFTC as a Retail Foreign Exchange Dealer or Futures Commission Merchant, and approved as NFA Forex Dealer Members, may act as counterparty to US retail forex clients.
Key rules
- US$20 million minimum adjusted net capital for dealers
- Leverage capped at 50:1 for major pairs and 20:1 for others
- No hedging — opposing positions in the same pair are offset
- FIFO — positions in the same pair must be closed first-in, first-out
- No CFDs for retail clients
Consequences
High costs of compliance led to consolidation: today a small number of firms — such as OANDA, FOREX.com, tastyfx and Interactive Brokers — serve most US retail forex clients. Offshore brokers that solicit US residents risk CFTC enforcement; the CFTC maintains a RED List of unregistered foreign entities.
Alternatives
US traders can also access currency exposure through CME FX futures via futures brokers, which have different margin and tax treatment.