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Why is CFD Trading Banned in the U.S.?

Why is CFD Trading Banned in the U.S.?

Why is CFD Trading Banned in the U.S.?

CFD trading exists across most regions globally, especially in Australia and Europe. While many investors earn good profits from it, the activity is still illegal in the US. This has brought about heated discussions regarding why CFD trading is banned in the US, especially among the natives emigrating from outside the country, and confused if the activity will ever be legalized. 

Below, you will learn more about CFD trading in the US and why it is banned. We hope that the information here will clear any confusion regarding CFD trading in the US and help you find alternative ways of profiting from the financial market.  

Why CFD Trading is Illegal in the US

It is unfortunate that CFD trading is banned in the US, and residents and citizens cannot open CFD positions. Whether you want to open CFD accounts on foreign and domestic platforms, the Securities and Exchange Commission (SEC) and ​​Commodity Futures Trading Commission (CFTC) prohibit you from doing so. This is especially if you are an active taxpayer obligated to pay US tax.  

The main reason for banning CFD trading in the US is because they are over-the-counter financial instruments or derivative products. This means CFDs do not pass through regulated exchanges, and any buyer and seller on a marketplace can trade them. That being said, CFD investments are difficult to oversee and lack transparency. 

Another reason CFD trading is prohibited in the US is because of concerns from the American regulators. You see, trading CFDs comes with the application of leverage, which often leaves traders with massive losses. Simply put, banning CFDs in the US is a way of protecting citizens from financial risks that could make them lose a lot of money. 

Despite having CFD trading prohibited in the US, some citizens still venture into the activity using offshore companies. This is more riskier, considering that you do not have access to regulated platforms and can lose your money to fraudsters. 

Note that non-US citizens who have CFD trading legalized in the countries can trade CFDs on US financial markets. You simply have to find the best broker in your country with access to the markets to trade. For instance, click here if you are looking for FCA-regulated brokers that allow CFD trading on the US markets. 

Remember, CFDs are risky, but the best brokers will disclose all those risks before you begin venturing into the activity. If you meet a broker that doesn't disclose CFD trading risks, you may want to question their credibility and consider other options. 

Will CFD Trading Ever Be Legalized In the US

After the 2008 financial collapse, the US laid down stringent restrictions against CFD trading in the country. In this regard, we do not expect to see CFD trading legalized in the country anytime soon. However, laws keep changing, and you never know what the future holds. Therefore, keep learning about how the CFD market works just in case it becomes legal in the future. Also, you may move to another country that trades CFDs, thus making it easier for you to begin your ventures in the market. 

Keep in mind that there are alternative assets to CFDs you can try in the US. These include ETFs, options, binary options, forex, and futures contracts, which you can trade on margin. Does that sound interesting? Then you can read this article about forex brokers.

There are also additional markets to venture into, such as stocks, commodities, and cryptocurrencies. However, make sure you understand how an asset works before putting your money on it. By being disciplined and dedicated to your activities, you can still make good profits with the assets. 

Trading CFDs in the US Market

As mentioned earlier, non-American citizens can trade CFDs on US financial assets. The process is pretty straightforward, and if you are a newbie, here are the step-by-step procedures. 

1. Find a Regulated CFD Broker

A regulated broker should be licensed and overseen by top-tier authorities such as the Financial Conduct Authority (FCA), Australian Securities and Investment Commission (ASIC), etc. Using such brokers secures your funds, and you will get access to the best options in the US market to venture into. 

2. Open a CFD Trading Account

Before accessing the US CFD assets, you need to create a trading account with your regulated broker. Some of these brokers have the same account opening procedure and verification process. You will share your personal details, including name, email, phone number, source of income, etc., to sign up for a trading account. Then the broker will require you to share a utility bill and a copy of your identity card for verification purposes. 

3. Deposit Funds

At this point, your CFD trading account will be fully activated, and you will deposit funds per a broker’s requirements. Once your deposit has been confirmed, you will access the platform where the US CFD assets are listed to find an opportunity. 

4. Open a Position

It is always recommended that you conduct thorough research and market analysis to choose an asset you are fully familiar with. Then, identify the best entry and exit points based on your strategy and open a position. Also, consider applying risk management controls such as stop-loss and take-profit orders to curtail losses and lock down profits when prices hit specific points. 

5. Keep Track of Your Activities

Note that market trends are not constant, and it is crucial to monitor your positions and limit risks. Luckily, regulated brokers have trading apps you can install on mobile devices and monitor your positions on the go.

Verdict

Although CFD trading in the US is banned, traders from authorized countries like the UK, Australia, and more can still profit from the country’s CFD market. Remember, CFDs are leveraged assets, and while you can make huge profits, losses are inevitable and can be massive. In this regard, you must be familiar with how CFD trading in the US works and select the best CFD asset for maximum profitability. Also, your choice of a CFD broker matters, and take advantage of the tools provided by brokers to develop solid strategies. 

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