In the United States of America the services of operating with derivative financial instruments, the underlying asset of which are currency quotations, contracted in the result of trading on the interbank FOREX market, are for the most part provided by futures brokers, licensed as futures commission merchants (FCM) and retail FOREX dealers with the retail foreign exchange dealer (RFED) license.
The main features of the US regulation of operating with derivative financial instruments have developed under the influence of the historically determined factors. On the issue of the US regulator of the derivatives market, it is necessary to take into account the great role of the Commission commodity futures trading (CFTC) and the self-regulatory organization - the National Futures Association (NFA), the jurisdiction of which extends for the whole futures market. FCM and RFED are licensed by the CFTC and become members of NFA self-regulatory organization.
An important feature of American companies’ operation is that upon concluding a contract the client is given the risk warning notice form, the text of which should be approved by the regulator. Besides the general prohibition of fraudulent activity there is a number of specific prohibitions in the USA relating to, for example, transactions at non-market prices, expansion of the spread between the bid and ask prices, as well as the direct prohibition on transactions without prior authorization received from the client. FCM and RFED are obliged to submit financial documentation and information on compliance with the regulations in the form of annual and periodic reporting, submitted to the appropriate CFTC and NFA departments. NFA, in turn, conducts annual audit of all FCM and RFED operations.
In addition to the standards and rules set by the regulators in respect of transactions in derivatives in the USA, the FORTRESS system is implemented (Forex Transaction Reporting Execution Surveillance System). This system documents all client transactions and functions as the unified register. Report on the results of trading operations contains all their main characteristics, such as time, quotations, on which the transaction was opened and closed, trading volume and others. This is the real advantage of the US regulation system that makes it possible for the regulator to find deviations from normal market conditions automatically. One more substantial benefit of the US regulation is that the US financial infrastructure is one of the most reliable in the world and all brokerage accounts in the United States are insured by the state. It is necessary to mention one more plus - the clients have accrued income on the free funds in the account, however, it is not high.
The permanent integral feature of the American system of regulation is the rule that sets a limit on the amount of leverage available to retail FOREX customers. We can assume that this restriction is one of the disadvantages of the system of the US regulation, which leads to stagnation of this industry in the US, as the lack of great opportunities associated with margin lending, deprives the OTC FOREX of its main advantage and prevents it from being outlined in comparison with other financial markets. There may be indicated less comprehensive disadvantages of ownership of the account with a US broker. First, there can be fairly high commission and there are some restrictions on trade, depending on the amount of the trading account.
According to different estimates, at the moment the total amount of liabilities of companies offering retail clients trading on the OTC segment of the FOREX market to clients from the USA is about 800 million U.S. dollars. By far the greater part of this sum is formed by liabilities of the five largest companies, the number of active clients of which ranges from 20 to 100 thousand people. These companies are worthy of being called the top brokers offering US trading. The first place is taken by FXCM, then come Forex.com, OANDA, FXDD and others. However, every broker in the provision of additional services relies on a certain type of instruments: stocks, bonds, futures or options. The difference can also be found in investment geography.
To draw the conclusion we can say that investing in the USA stock markets, you should perfectly know – why are you doing this. Trading, based on news reports or on technical analysis data is also possible in Russia, but if there is a need for high liquidity of trading instruments (for scalpers), well-developed derivatives market infrastructure (options and futures strategies) or just the most conservative investments (U.S. government bonds), Uncle Sam is glad to welcome you.
by Julija Matovic
The above information is available at the time of publication and may become no longer accurate. The author is not the interested party and has no kind of relation to any of the said brokers.