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Why most forex brokers don’t deal with US citizens and ways to overcome it
Being American is a great advantage in most cases when you go abroad. You can travel wherever you want, your money is accepted everywhere. More often than not, you can expect locals to speak your language and have less money than you. If you get in trouble you can rely on the most powerful armed force to come to your rescue not to mention Chuck Norris and Captain America. And since you live in a democracy, once every 4 years you can choose which of the 2 carefully pre-selected miserable thugs will be your president in the next 4 years. It’s generally a good thing.
But when it comes to forex trading, it really sucks.
Why? Because most brokers freak out at the very moment you mention you are a proud son or daughter of America. They wish you the best of luck and close the chat window. It’s worse than being invisible, you are the skunk of forex traders.
The bad news: it’s because of the law buddy. You can read more about the legal background at the end of the article, but to sum it up in one sentence: American traders can be served only by American brokers. Patriotism at its best.
What options do you have?
0. Things that won’t work – Beginners’ Playbook
No, you cannot hide your nationality or give a fake address on the online application form. The broker will ask for a photocopy of your passport, utility bill or other proof of residence.
No, it’s not a good idea to use your Brit/Aussie friend’s identity even if you manage to take photos of his/her IDs. Most brokers don’t allow withdrawals to third-party bank accounts, so you might end up in a situation where you can transfer your funds only to your friend’s account. Then you will have an awkward conversation..
No it’s not enough if you incorporate a company abroad. As long as you are the owner of the company, CFTC and IRS will still care about you and brokers won’t deal with you.
1. Not really legal option – Wizards of the Caribbean
Welcome to the grey zone. There are some companies that specialize in “asset structuring” for US citizens. It usually involves some sort of trust or company that is owned and run by – and here’s the rub – NOT you. In most cases the whole thing is incorporated on some funny island where you always wanted to go for an all-inclusive 4-star week, but going outside the resort with more than 20$ cash in the pocket is just plain gambling.
You can expect that some very friendly local guy (let’s call him Carlos) will be the owner and/or director of your company, he will likely hold the same position in around 100-150 similar companies, that’s what you would call “proven experience”. I don’t want to dwell too much on such offshore structures as most of off-shore business is not related to forex trading. Nor will I endorse or place links to such companies, you can google it for yourself.
Recommendation: Honestly, I don’t think they are worth the risk. Offshore services are generally expensive, and you are playing a game of what I call “inverse lottery”. You will get “some” gains in most cases (tax-free income, more freedom on investments), but might lose big sometimes, mainly when Carlos stops answering your calls. Then you realize there’s not much official connection between you and your money. It’s a feature turning into a bug. And then you will want to file a complaint but will realize que la autoridad financiera solamente acepta quejas en español y tú no lo hablas con fluidez. Lo cagaste.
You get me? You don’t? Now you get me.
Even if you carefully set up your structure on an English-speaking island or peninsula, suing is clearly not an option as you would instantly turn yourself in for tax-evasion, money laundering and who knows what else. And I can assure you Carlos knows it well too.
Even if Carlos performs his duties well, you might end up in an awkward situation if the whole structure somehow got unveiled and you need to explain your case to some black-suited guy on federal payroll. Just google for “Mossack Fonseca scandal news”.
2. Still not quite legal option – the Canadians, yet again!
It’s the same scenario as Option 1- you ask, say a Canadian friend to open an account in his name and then let you know the login credentials.
Sounds good, but still barely legal. Due to anti money-laundering laws your friend will be asked about the beneficial owner of the funds. Either s/he declares the funds are his/hers (which is a lie) or s/he admits the funds are yours and the broker will cease the process right there. You can, of course, officially “lend” that money to the friend for an infinite period of time with no interest, but who would sign an agreement like that?
You can also expect that you cannot directly fund the trading account as most brokers don’t accept third-party wire transfers. The same goes for withdrawing funds but the key issue here is trust yet again. Nothing stops your friend from asking for a new password at the broker’s customer care and taking control over your account.
Recommendation: Honestly, if I were that friend, I wouldn’t do it, would you? This account in his/her name causes nothing but headaches when it comes to moving funds, preparing tax returns, and communicating with the broker.
3. Trading with a broker who doesn’t care
So your broker has tough balls.. If you are dealing with a broker who doesn’t mind you are US citizen AND you don’t see them among the CFTC licensed brokers it’s time to run away. There are some barely legal brokers who usually lack any kind of regulation and deliberately go against the law. You will never be able to force them to send your money back. You can threaten them with legal action, but they will disappear when things get tight. This is their business model.
4. Boring legal option – Trading with American broker
A totally legal method, finally. Don’t give up, there are some forex brokers in the US who survived both Katrina in 2005 and the Dodd-Frank Act in 2010. Not many though. You can find a link to the actual full list of CFTC licensed brokers at the end of the article.
The total list of forex brokers who can deal with US clients
Let me introduce 3 categories first, since this is how NFA categorizes its members.
They can offer forex trading, but cannot be the counterparty of these trades. In plain English, it means they are “retailers” and they will have to give up all your trades to a “wholesale” broker, who can either absorb it or give it up to their prime broker.
Forex dealer members (FDMs) or Retail Forex Dealers (RFEDs)
They are the retail & wholesale guys. There is a significant difference between FDMs and RFEDs, but from a forex trader’s point of view it’s irrelevant. While RFEDs can deal only in spot forex products, FDMs are allowed to deal in other asset classes like futures, options – further limitations and restrictions of their business activity may apply, obviously.
Here is a list that is relevant at the time of this post’s publication.
FDMs and RFEDs:
|FXCM – oh well, they got expelled from the US by CFTC lately|
There are an additional 163 forex firms permitted to offer forex trading, see below. Please keep in mind, having trading permission doesn’t necessarily mean they all actually offer forex trading.
I am in the middle of querying these firms for more info about their retail offerings, I will add their typical EURUSD spread, commission and some other important factors soon. Please leave your email address and/or join the TradeProofer community and you will be notified whenever the post is updated.
|NFA FIRM ID||FIRM NAME|
|495558||ACADEMIA CAPITAL LLC|
|360||ADM INVESTOR SERVICES INC|
|437700||AIO CAPITAL LLC|
|468072||AK FINANCIAL HOLDINGS INC|
|481899||ALGOALPHA CAPITAL LLC|
|458087||ALPHA CAPITAL VENTURES LLC|
|457189||AMBASSADOR CAPITAL MANAGEMENT LLC|
|294293||AMERI GROUP FINANCIAL SVS LLC|
|412490||AMP GLOBAL CLEARING LLC|
|213616||APPL INTERNATIONAL INC|
|314612||ARCA CAPITAL INVESTMENTS INC|
|358522||AVAIL TRADING CORP|
|430910||BCD FOREX INVESTMENTS LLC|
|404507||BELLWETHER CAPITAL MANAGEMENT LP|
|264961||BEVERLY HILLS TRADING INC|
|465272||BLACK MANGROVE CAPITAL MANAGEMENT LLC|
|227478||BMO ASSET MANAGEMENT CORP|
|424212||BRIGHTWORK FINANCIAL SERVICES LLC|
|357061||BROKER JUNCTION SERIES LLC|
|436545||BTG PACTUAL US CAPITAL LLC|
|364051||CAMPBELL & COMPANY INVESTMENT ADVISER LLC|
|2631||CAMPBELL & COMPANY LP|
|1720||CAMPBELL, DONALD KEITH|
|216708||CANNON TRADING COMPANY INC|
|313199||CAPITAL MARKET SERVICES LLC|
|432712||CHELONA CAPITAL GP LLC|
|402075||COBRA TRADING INC|
|438987||CONTINGENT MACRO ADVISORS LLC|
|324375||CONVERGEX EXECUTION SOLUTIONS LLC|
|423967||COWEN PRIME SERVICES LLC|
|480076||CYGNUS TRADING ADVISORS LLC|
|492229||DALE INVESTMENT MANAGEMENT LTD|
|268560||DEARBORN CAPITAL MANAGEMENT LLC|
|253977||DENALI ASSET MANAGEMENT LLLP|
|495560||DESERTSCAPE ASSET MANAGEMENT COMPANY LLC|
|465800||DICONIA FUND LP|
|241277||DRURY CAPITAL INC|
|489996||DYNAMIC CAPITAL EXPRESS LLC|
|252185||E TRADE CLEARING LLC|
|320906||E TRADE SECURITIES LLC|
|248697||EAGLE TRADING SYSTEMS INC|
|418103||EXCEL MARKETS INC|
|489288||EYRIES CAPITAL LLC|
|465768||EZ SIGNAL INC|
|265977||FARR FINANCIAL INC|
|342002||FAST TRADING SERVICES LLC|
|372539||FIELDHOUSE CAPITAL MANAGEMENT INC|
|495589||FINTECH INVESTMENT GROUP INC|
|307930||FOREMOST TRADING LLC|
|416496||FORTRESS CAPITAL INC|
|491342||FORTUNA OAK ASSOCIATES LLC|
|405540||FOUR ELEMENTS CAPITAL PTE LTD|
|491174||FREEMAN CAPITAL MANAGEMENT LLC|
|492854||FUNDSEEDER INVESTMENTS LLC|
|322531||FUTUREPATH TRADING LLC|
|421241||FX PROPHET LLC|
|382286||GAR WOOD SECURITIES LLC|
|402367||GECKO FINANCIAL SERVICES INC|
|467333||GEMINI ALTERNATIVE FUNDS LLC|
|485136||GLACIER CAPITAL MANAGEMENT LLC|
|338681||GLOBAL ASSET ADVISORS LLC|
|289721||GLOBAL FUTURES EXCHANGE & TRADING CO INC|
|418581||GOLD STREET TRADING LIMITED|
|479264||HALIFAX AMERICA LLC|
|307725||HARPOON CAPITAL CORP|
|475268||HATTERAS FUNDS LP|
|470182||HECTERION TRADE MANAGEMENT LLC|
|483147||HOBBLE CREEK CAPITAL MANAGEMENT LLC|
|484902||I CONTROL MONEY LLC|
|409896||IBN FINANCIAL SERVICES INC|
|266569||INFINITY FUTURES LLC|
|457288||INFINITY SQUARED INVESTMENTS LLC|
|245008||INSTITUTIONAL ADVISORY SERVICES GROUP INC|
|464195||INTERACTIVE INVESTMENTS LLC|
|466835||JERICHO TRADING LLC|
|440121||JP GLOBAL CAPITAL MANAGEMENT LLC|
|479629||KAMIDO CAPITAL LLC|
|403747||KAWA CAPITAL MANAGEMENT INC|
|482652||KMC WEALTH MANAGEMENT LLC|
|364262||LAZZARA CONSULTING INC|
|474396||LINNIS GP LLC|
|497828||LION CROWN CAPITAL MANAGEMENT LTD|
|493533||MARK ANTHONY TRADING COMPANY LLC|
|461520||MASON DEAN CAPITAL LLC|
|315389||MB TRADING FUTURES LLC|
|309067||MELVIN, WILLIAM DANIEL|
|339976||MIRUS FUTURES LLC|
|428747||MYRMIDON CAPITAL MANAGEMENT LLC|
|474983||NEWGATE GLOBAL MARKETS LLC|
|488174||NOR GLOBAL GROUP LLC|
|438113||ODESSA CAPITAL MANAGEMENT LLC|
|474767||PARAGON GLOBAL MARKETS LLC|
|425111||PENSO ADVISORS LLC|
|422202||PHILLIP CAPITAL INC|
|481278||POSEIDON CAPITAL MANAGEMENT LLC|
|489561||PROVISION GLOBAL CAPITAL LLC|
|498468||QQV CAPITAL MANAGEMENT LLC|
|431162||QTS CAPITAL MANAGEMENT LLC|
|466715||QYU HOLDINGS CORPORATION THE|
|481105||R SQUARED MACRO MANAGEMENT LLC|
|210597||RABAR MARKET RESEARCH INC|
|425065||RELIANCE CAPITAL MARKETS II LLC|
|187||RJ OBRIEN ASSOCIATES LLC|
|1262||ROBBINS FUTURES INC|
|441466||ROW ASSET MANAGEMENT LLC|
|232832||RTY TRADING GROUP INC|
|482047||SANTA CRUZ CAPITAL MANAGEMENT LLC|
|423988||SC CAPITAL MANAGEMENT LLC|
|452522||SEACAP SECURITIES LLC|
|488667||SEAVIEW HOLDINGS LLC|
|304395||SEGALL BRYANT & HAMILL LLC|
|426782||SGW CAPITAL MANAGEMENT LLC|
|463649||SMJ CAPITAL MANAGEMENT LTD|
|458091||STERLING ASSET MANAGEMENT INC|
|417463||SWEET FUTURES 1 LLC|
|465334||T3 SECURITIES INC|
|1466||TACTICAL INVESTMENT MANAGEMENT CORP|
|460359||TALEI CAPITAL LLC|
|446185||TARCAN CAPITAL LLC|
|435699||TEN YARD CAPITAL LLC|
|467960||TEREBELLUM INVESTMENT GROUP LLC|
|493160||TFO MANAGER LIMITED|
|424572||TIME SERIES FX LLC|
|494549||TIVERTON TRADING INC|
|270490||TJM INSTITUTIONAL SERVICES LLC|
|387000||TORON INTERNATIONAL GROUP LTD|
|379304||TRADE INTEGRATION LLC|
|408077||TRADEKING FOREX LLC|
|403756||TRADENCY USA INC|
|468913||TREND FINANCIAL SOLUTIONS INC|
|466053||TRINITY TRADING GROUP LLC|
|490392||UNIQUE FOREX SOLUTIONS LLC|
|428395||V50 CAPITAL MANAGEMENT LLC|
|431482||VAEL ASSET MANAGEMENT LLC|
|402215||VALHALLA CAPITAL GROUP LLC|
|312722||VANKAR TRADING CORP|
|422000||WALLEYE TRADING ADVISORS LLC|
|467075||WEALTH OPPORTUNITIES CAPITAL MANAGEMENT LLC|
|86156||WEDBUSH SECURITIES INC|
|445196||WHITMORE CAPITAL MANAGEMENT LLC|
|270183||WILLOWBRIDGE ASSET MANAGEMENT INC|
|209826||WILLOWBRIDGE ASSOCIATES INC|
|245133||WILLOWBRIDGE DOUBLEWOOD INC|
|425110||WILLOWBRIDGE GLOBAL INC|
|422250||WORLD CURRENCY INVESTMENT GROUP LLC|
|1951||ZANER GROUP LLC|
If you don’t see a company above, don’t worry, probably they got into business after I published this post. Here’s the total, actual list of NFA members and CFTC registrants.
If you don’t see a company in the actual list either, it’s time to worry. Drop me an email to email@example.com and will take a look at them.
Useful tool – financial background check:
CFTC publishes their financial situation monthly, don’t forget to check your favourite broker here.
Useful tool – regulatory status check:
Also, before you open account, check your broker’s regulatory status here.
Should I go to the wholesale guys directly to get wholesale price?
Not necessarily. You have 2 factors to consider:
- Forex trading is a highly competitive industry on the wholesale level as everybody is selling the same hamburger at the end of the day. Even wholesale companies separate their retail offering from their institutional one so you won’t get wholesale pricing unless you deliver wholesale trading volume. On the other hand, if you are an active trader with considerable trading volume I would strongly recommend haggling a bit with your broker and don’t settle on their public offering as is.
- Some forex firms specialize. They can offer value-added services, more sophisticated trading platform, super-fast customer care, superb research with Rockstar analysts, social trading and so on. You need to understand your needs first in order to be able to pick your own best forex broker.
Appendix – Legal background
Below I write a brief explanation of the regulative bodies and legal framework. However, I do not aspire to rewrite Investopedia or Wikipedia, so I’d rather place links to the relevant Wikipedia articles and the organizations’ website.
CFTC- Commodity Futures Trading Commission
US government agency. They supervise the futures and options trading in the US. Forex trading belongs to their portfolio too, unless the firm is already regulated by SEC due to other business activities.
NFA – National Futures Association
Self-regulatory organization. They have developed rules, processes and standards to maintain the same professional standard among association members. Membership is mandatory for futures, swap, options and forex broker/dealers.
SEC – Securities and Exchange Commission
US government agency, just like CFTC. It’s just they supervise securities trading, like stocks, bonds.
Just to sum it up, SEC and CFTC are government agencies, paid by US taxpayers, NFA is a self-regulatory organization paid by the member firms. While SEC supervises mainly securities trading, CFTC covers futures and forex, there is some overlap though.
Don’t use this word in Switzerland! You might get mobbed especially in the banking districts! FATCA is an American act forcing financial institutions all around the world to cooperate with IRS and disclose just about everything about their US citizen clients.
In plain English, if you happened to have an insignificant amount on an insignificant account with a significant Swiss bank and you happened to forget to declare it in your annual chit-chat with the IRS for decades; well, FATCA kindly reminds (read: forces) your Swiss bank to fix it and disclose all necessary information about you. So the IRS could do the nasty paperwork without bothering you, isn’t that nice of them?
FATCA made entire business branches and “financial product lines” in financial havens obsolete but as a side effect, brokers all around the world have to carefully consider whether they want to bother with US citizens and all the paperwork that entails, or just let them go and close the chat window.
The Dodd-Frank Act
This act addresses lots of issues about financial stability but from our point of view, the most relevant change it effected was that Americans can trade forex only with brokers regulated by CFTC. The act doesn’t explicitly exclude non-American brokers, it’s just they have to apply to NFA membership and fully comply with CFTC rules and regulation.
Hence, there are some non-American brokers who decided to undertake the burden of American regulation. Not many though.
One has to admit that the spirit of the old legislation was the same. Under Regulation S of the Securities Act 1933 the SEC prohibits, among other things, foreign financial institutions that are not registered and regulated in the US abroad from soliciting US residents as clients. This does not mean they cannot accept US residents but that act was written in 1933 when Hitler won the election in Germany, so the short-sighted lawmakers didn’t give special attention to address online sales channels and cross-border business activities. Thus, the common practice was that brokers were not permitted to directly solicit US residents but could deal with Americans if they actively reached out the broker.