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.

Forex firms

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

Gain Capital

Interactive Brokers

Oanda

TD Ameritrade

Forex firms:

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
465270	ADVALCORE 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
327631	BULLTICK LLC
488491	BYNANE, PAUL
392965	CAMDUSTRIES 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
401602	COLLECTIVE2 LLC
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
361173	DANG, KY
268560	DEARBORN CAPITAL MANAGEMENT LLC
253977	DENALI ASSET MANAGEMENT LLLP
495560	DESERTSCAPE ASSET MANAGEMENT COMPANY LLC
465800	DICONIA FUND LP
458920	DRIVEWEALTH LLC
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
495938	FINTUE 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
402025	GRANDSTONE CORPORATION
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
493983	KIM, HYUCK
482652	KMC WEALTH MANAGEMENT LLC
364262	LAZZARA CONSULTING INC
417597	LEVERAGEFX LLC
474396	LINNIS GP LLC
497828	LION CROWN CAPITAL MANAGEMENT LTD
493533	MARK ANTHONY TRADING COMPANY LLC
461520	MASON DEAN CAPITAL LLC
403917	MATARAZZO, ROBERT
315389	MB TRADING FUTURES LLC
309067	MELVIN, WILLIAM DANIEL
425570	MINLYN LLC
339976	MIRUS FUTURES LLC
428747	MYRMIDON CAPITAL MANAGEMENT LLC
367174	NCMFX INC
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
472644	PROAXIS FUND
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
411141	SYSTRA 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
447755	VALCAPITAL LTD
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 feedback@tradeproofer.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.

CFTC on Wikipedia

CFTC website

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.

NFA on Wikipedia

NFA website

SEC – Securities and Exchange Commission

US government agency, just like CFTC. It’s just they supervise securities trading, like stocks, bonds.

SEC on Wikipedia

SEC website

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.

FATCA

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.

FATCA on Wikipedia

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.

Dodd-Frank Act on Wikipedia

Dodd-Frank Act text

Old regulation

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.

Securities Act