Mostly because Dodd-Frank Act requires that Forex Brokerage company who wants to do business with US Clients must first be registered with both CFTC and NFA. Many offshore or foreign Forex Brokers find this very difficult and costly operation with tedious reporting requirements.
In comparison to the maximum, the NFA and CFTC licence fees are each 20 million dollars. Other reputable jurisdictions, such as the FCA (UK), ASIC (Australia), FSP (New Zealand), and CySec, charge a one-million-dollar licence fee (Cyprus).
Offshore Forex Brokers have simply stopped accepting US citizens in order to avoid such high fees, high operational costs, and a paper mess. It’s easier for them to turn down US citizens than to deal with the unexpected costs. So, Dodd-Frank Act is the primary reason that has forced offshore Forex Brokers to decline US Citizens or Residents.
Offshore Brokers Vs US brokers
Following the financial crisis of 2008, many large US banks went bankrupt, prompting regulators to change course and enact regulations to close financial sector loopholes. As a result, the National Futures Association (NFA) and the Commodities and Futures Trading Commission (CFTC) regulate all US forex brokers, both of which have strict rules in comparison to other FX brokers around the world.
According to these regulations, US brokers can only offer their clients a maximum leverage of 1:50, implying that US citizens and residents have a lower overall leverage advantage than other global traders who can trade with leverage ranging from 1:100 to 1:2000 with offshore Forex brokers. Hedging is also restricted for US brokers, who must instead use FIFO (First In First Out), which means that if you open more than one position on a currency pair, you must close the first before closing the second. Offshore brokers are exempt from taxes. For US traders who sign up with US brokers, there is a lot of red tape to get through, including lengthy checklists and providing tax information. The registration process with offshore brokers, on the other hand, is quick and simple. US traders are not permitted to fund their Forex trading accounts with credit cards or to access any add-on services such as signals and indicators.
Why do US citizens search for offshore Forex Brokers?
Do you remember the 2008 global financial crisis?
Following the failure of large US banks during the financial crisis, regulators such as the CFTC and the National Futures Association decided to amend regulations to close loopholes in the financial sector.
The National Futures Association (NFA) and the Commodities and Futures Trading Commission (CFTC) regulate forex brokers in the United States (CFTC). When compared to other regulatory bodies around the world, these two bodies’ regulatory framework is often seen to be too strict for FREE trading.
Restrictions/Limitations imposed by CFTC and NFA on US based Forex Brokers:
- Low Leverage: US Forex Brokers allow a maximum leverage of 1:50. This means that US citizens and residents have no leverage advantage over other global traders who can leverage their accounts with offshore Forex Brokers from 1:100 to 1:2000.
- No Hedging & FIFO: US-based Forex Brokers are disallowed from hedging and are required to use FIFO (First In First Out), which means that if you open more than one position on a currency pair, you must close the first before closing the second, which is a less-than-simple method of preventing hedging. When trading with the best offshore Forex Brokers that accept US Clients or Citizens, there is no such FIFO rule.
- OFAC Restrictions: The Office of Foreign Assets Control (OFAC) has imposed restrictions on who US Forex brokers can accept as clients. Before opening an account with a US Forex Broker, US citizens or residents must go through a lengthy checklist.
- Credit Card Restrictions: US citizens and residents are not permitted to fund their Forex trading accounts with their credit cards.
- No Value-Added Services: US-based Forex Brokers are bound by strict laws and regulations that prevent them from providing US citizens with a wide range of flexible and value-added trading services. However, the best offshore Forex Brokers that accept US clients can provide these beneficial trading services without a lot of hassle.
Why US Citizens or Residents are still trading with offshore Forex Brokers?
- Freedom: The best offshore Forex Brokers accepting US Clients conduct all of their major operations overseas and establish headquarters in a country with few regulations and constraints, which means offshore Forex Brokers can offer leverage ranging from 1:100 to 1:500, No FIFO Rule, No Hedging Restrictions, No Scalping Restrictions, and No EA Trading Restrictions.
- Better Trading Conditions & Execution Quality: With the best offshore Forex Brokers, the chances of making better results for US citizens increase.
3. Less Hassle: When dealing with offshore Forex Brokers that accept US Clients, US citizens do not have to meet as many requirements as they would if dealing with US Brokers.
- Excellent Trading Conditions: Due to the high competition, offshore Forex Brokers offer tight spreads, lightning fast execution, and higher leverages, enhancing the trading experience of US citizens and providing them with more opportunities to achieve their financial goals.
5. Valuable Promotions: The best offshore Forex Brokers offer valuable promotions (bonuses, free deposits, free VPS, free analysis tools) that US citizens may not be able to get from US Brokers. This is due to the fact that they are registered in Tax Heaven and are able to transfer a portion of their tax savings to US traders.
- No Restrictions: With the best offshore or foreign Forex Brokers, there are no restrictions, which means that US citizens can engage in any trade that interests them and employ any technique or strategy that they deem appropriate.