If you want to engage in CFD trading in the USA we answer all your questions in this tutorial. Is investing in CFDs illegal or allowed? How do you find the best US CFD brokerages and platforms? Read on for answers to these questions, including a thorough look at the rules around CFD trading in the USA.
What Is CFD Trading?
Contracts for difference (CFDs) are agreements between buyers and sellers to pay the difference between the current value of a security and the price at the contract time. They are also derivatives, meaning you donâ€™t hold the underlying asset.
CFDs are particularly popular for a couple of reasons:
- Markets – Traders can buy online CFDs on stocks and shares, forex, futures, options, commodities, plus many more markets.
- Leverage – Trading can be financed by putting down a small percentage of a trade, known as margin, and borrowing the rest from a brokerage firm. This increases potential profits but also potential losses.
Is CFD Trading Legal In The USA?
Trading CFDs is unfortunately banned for citizens from the United States. The Commodity Futures Trading Commission (CFTC) and The Securities and Exchange Commission (SEC) prohibit USA residents and citizens from opening CFD accounts on domestic or foreign platforms.
CFDs are illegal in part because they are an over-the-counter (OTC) product – not passing through regulated exchanges. Also, American regulators have concerns over the possibility of large losses stemming from using leverage. Despite this, some citizens from the USA do turn to offshore companies for access to CFDs. But that does come with risks, one of which is finding an adequately regulated option. Most FCA regulated firms, for example, do not allow USA citizens to open an online CFD trading account.
Non-US citizens, however, can trade CFDs on American shares and markets. The restrictions only apply to US citizens and residents.
Note! The remainder of this article is for traders based outside the United States who are legally allowed to engage in CFD trading in their respective jurisdictions.
How To Trade CFDs In The USA
For non-American citizens, getting started CFD trading in the USA is straightforward:
- Find a brokerage – First and foremost, check they are regulated. Then make sure any commissions and fees are competitive. Also, check their platform is reliable and suits your trading style.
- Open an account – Lots of providers offer multiple accounts. In general, the larger the initial deposit, the better the leverage options, customer support, and analysis tools available.
- Find a market opportunity – Identify an opportunity in your chosen market, on the USD/JPY currency pair for example. Do you think the price is about to rise or fall? Once you’ve decided, how much margin do you want to trade on? For guidance on strategies, see here.
- Take a position – Open the trade ticket on your platform and enter a position. Add a stop-loss order to curtail losses when they hit a certain point, and a stop-limit order to lock down profits when they reach a set level.
- Monitor & exit – In line with your strategy, exit the position when your charts and tools tell you itâ€™s the right time. Try not to let emotions guide the decision-making process.
Picking a CFD Trading Brokerage In The USA
Since they’re illegal, there arenâ€™t regulated, American-based online CFD brokerage firms. However, international traders can choose from a variety of providers. The first thing to check is that a potential company is regulated by a reputable body, such as the Financial Conduct Authority (FCA) or the European Securities and Markets Authority (ESMA).
Popular firms for American markets include IG and CMC Markets, both of whom are regulated by the FCA. IG offers over 17,000 CFDs across interest rates, bonds, FX, cryptocurrencies, and more. CMC Markets provides over 9,500 CFDs with competitive spreads. Pepperstone is another of the largest companies, headquartered and regulated in Australia. Pepperstone offers three sophisticated platforms and during periods of low liquidity, spreads can drop to zero pips.
Who the best CFD brokerage companies are for US index funds and markets will come down to personal choice. But use our CFD brokerages list to narrow your search to a few high-quality and regulated providers.
Platforms for CFD trading in the USA come in all shapes and sizes. Youâ€™ll find the popular MetaTrader systems, plus bespoke software available on both desktop and mobile devices. Each user has their own needs and preferences depending on their strategy. A great way to check a platform will be a good fit is to open a demo account. With your demo login details, you can test charts, pattern recognition functionality and more.
For traders based in the US, CFD trading is currently banned. But while American citizens cannot make investments, traders from many other countries can buy and sell CFDs on US markets. What’s more, with the right strategy CFD trading in the USA can be lucrative. But remember, most will lose money. Take into account all of the considerations above when looking for the best firms and platforms in the USA.
Is CFD trading allowed in the USA?
CFD trading is banned and illegal for citizens from the USA. The concerns over the leveraged OTC product combined with the increased regulatory scrutiny following the 2008 financial crisis, have resulted in the SEC taking a dim view of CFD products. With that said, traders from other countries can buy and sell CFDs on US markets.
Is CFD trading in the USA likely to be allowed in the future?
It is hard to predict whether trading CFDs will one day be allowed in the USA. Some argue that if legislators do not make CFDs legal, the US equity trading market will continue to lose volume and liquidity. But until the law does change, CFDs remain banned.
Can I trade CFDs in the USA?
If you are a US citizen or resident, you cannot trade CFDs. Most providers simply wonâ€™t let you open a trading account. However, if youâ€™re from countries such as the UK or Australia, among others, you can still trade CFDs on American securities.
Will I make money trading CFDs in the USA?
There are no guarantees youâ€™ll generate profits day trading CFDs on US stocks, for example. CFDs are extremely risky due to their leveraged nature. Do not open a CFD trading account until you understand the risks.
Who are the best brokers for CFD trading in the USA?
There are a number of popular companies that are good choices for CFD trading in the USA. Check out our list of the best, regulated CFD brokers.
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