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Do you desire to enter into CFD day trading in the USA but are confused on how to day trade CFD and whether CFD is legal? Or are you having a tough time finalizing the best brokerages and platforms for CFD trading in the USA? Read with us to find answers to all your queries and study the rules before you start trading.
I found many articles on forums like Quora where people talk negatively about CFD and call it a scam. But, of course, it is not valid. So this article will describe in a simple way where the problem is.
What is CFD?
CFD or Contract for difference represents a form of derivate trading contract that pays the differences in the settlement price between the open and closing trades. In simple words, CFD enables you to trade based on the rising or falling prices of assets where you as a trader never actually owns the underlying asset.
Contracts for difference also referred to as CFDs, are the contacts between the buyers and sellers for financing the difference between security’s current value and that at the time of contract. Further, there are derivatives, implying that you do not have to name the underlying asset. The increasing popularity of CFDs is a result of the following factors:
- Markets: Online CFDs can be bought by traders in many markets such as stocks and shares, futures, options, forex, and commodities, among many others.
- Leverage: To increase potential profits, trading can be financed by taking down only a tiny trade percentage called the margin, while the rest of the amount can be borrowed from a brokerage firm. However, this might also lead to an increase in potential losses.
Is CFD Trading Allowed in the US?
CFD Trading is not allowed for all US taxpayers (US residents obligated to pay US tax) on domestic and foreign platforms. In addition, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have restricted US citizens from opening up CFD accounts after the 2008 Word Crisis.
However, US citizens can trade forex using US brokers (Ameritrade, Oanda, IG, etc. ). In addition, other assets (gold, oil, commodities, etc.) they can trade and people worldwide; only US residents need to use US market exchange.
Many websites and forums say that CFDs are banned because CFDs are an OTC, over-the-counter product that does not go through regulated exchanges. Based on discussions and internet sites, there are also concerns about the chances of huge losses from using leverage. However, certain US citizens switch to offshore companies to access the CFDs despite ample risks like looking for regulated options. It must be noted that most FCA-regulated firms do not permit US citizens to have a CFD trading account online.
However, the truth is different!
For example, leverage in EU countries is low, but still, the US didn’t allow trading using EU brokers. So leverage is not the issue.
I will show you where the problem is using a different but similar analogy.
After 2008, the US government banned online casinos worldwide; US citizens can use only US-regulated casinos today. It is not done because politicians are against gambling (I wish it is like that). It is because a lot of money from US citizens went to worldwide countries and casinos. In this way, after the US gambling restriction, all money will stay in the US (US casino company will have money, US resident or US country as tax collector).
The same logic is in the trading industry. The US restricted US residents from investing and lost money paying worldwide brokers. Instead, all money will stay in the US.
So to sum up:
Why are CFDs banned in the US?
The US banned CFDs trading for US residents to stop the outflow of money to worldwide brokers. Instead, all trading money will go to US residents, US-based brokers, or US tax collectors. This is because worldwide CFDs brokers have high profits based on trading volume, and this restriction increases US income.
Traders who invest a small amount of money (less than $5000) in short-term trading assets lose money in more than 80% of cases (in the US and worldwide too). This is why CFDs brokers earn more.
As far as the non-US residents are concerned, they can participate in online CFD trade via American shares and markets. Only US citizens and residents have restrictions on trading.
How to trade forex in the US using MetaTrader?
To trade MetaTrader forex or commodities with high leverage, you can use US brokers and follow these steps:
- Look for a US-regulated broker The first step to starting online MT4 brokers trading is finding an appropriate brokerage that is reliable and, at the same time, is in tandem with your trading style. Additionally, you must also ensure that they are regulated and that their commission and fees are competitive.
- Open a new account: Many brokers offer the option of opening up multiple accounts. However, it must be noted that the bigger the initial deposit made, the better facilities you would be entitled to, such as better leverage options, analysis tools, and customer support.
- Look for a market opportunity: Your next step is to identify the appropriate option in your chosen market. Then, you will have to make estimations about the rise and fall in prices and what margins you want to trade on.
- Choose a position: After opening the trade ticket on the platform, you will have to choose a position. Then, put the stop-loss order and stop-limit order to limit losses after they reach a certain point and lock the profits after they get a reasonable level.
- Decide when to exit: The most critical step is to leave the position when your chart and tools point at it. It would help if you did not allow your emotions to direct your action and keep close to your day trading strategies and tools.
The most commonly chosen firms in the American market regulated by FINRA and SEC are IG, Oanda, Gain Capital, Ameritrade. IG provides more than 17000 assets across bonds, cryptocurrencies, interest rates, and FX, among many others. However, US residents can trade all assets only not using CFD (instead of US market exchange).
To choose the best CFD brokerage company, you must do a comparative analysis of your demands with the services offered by the companies. However, opting for the top service providers with the best legal CFD review will be safe and ensure good returns.
You can choose from multiple CFD trading platforms that come in varied sizes and forms. MetaTrader system, as well as plus bespoke software, can be found on both desktop and mobile applications. Every user follows their unique set of strategies and has varied needs and preferences. The best way to choose the right CFD trading platform is to open up a demo account and look at the test charts, pattern recognition functionality, and other tools to analyze their work. You can also check the CFD provider’s Australia review to gain further trust in the provider.
Therefore, even though CFD trading is banned for US citizens, traders from other countries can invest in the CFD market in the USA. However, you must consider all the factors mentioned above to choose the best company and platform in the USA. In addition, you can also check out the best CFD providers in Australia and CFD Indian stocks to widen your investment options.
Will CFD trading in the USA be legal in the coming years?
No, there is a high probability that CFDs trading will not be part of the US trading market because the US can only lose money in that case. However, it is difficult to ascertain whether CFD trading will be made legal in the USA in the coming years.
Am I eligible to participate in the USA CFD trade?
US citizens are restricted from trading in USA CFDs if they are US taxpayers, and many providers wouldn’t allow them to open a trading account. However, you can use US brokers to trade forex, commodities, crypto with lower leverage than worldwide brokers.