Is Forex Trading Legal?

  • October 5, 2020

Is Forex trading legal? Having been in the trading business for many years, I've been asked is Forex trading legal more times than I can count. I'm pleased to say that the answer is an enthusiastic yes!!! 

The trading of Forex is entirely legal in the U.S. As a result, we make sure the services we provide, and the advice we give is always 100% compliant with all U.S. legal guidelines and regulations.   

What Does Forex Mean?

  • Forex, shortened from the Foreign Exchange market, is where investors and institutions trade various world currencies. The Forex market is the world’s biggest financial market. Therefore, is Forex trading legal?

According to the 2019 Triennial Central Bank Survey, it consists of around $6.5 trillion in total trades daily, five days a week, on the four major Forex markets.

Even though Forex trading is legal, sadly, this industry is filled with unscrupulous actors perpetrating several different scams.  

We advise all investors to do proper due diligence before stepping into what may be considered the global financial markets Wild West.

Is Forex Legal

1. How Exactly Does Forex Trading Work?

If you're wondering is Forex trading legal then you need to know how it works. Those in the biz look for changes in various currency rates of exchange.

This market has no absolute value for any of its currencies. However, the market’s role is to provide a value of one country’s currency relative to another’s.  

The Forex market allows traders to take positions in nearly all major currencies against each other. The currency pair with the most amount of trade is the Euro to the U.S. Dollar.

This pair comprises two of the world’s biggest economies. On the smaller volume side, you could even trade the South African Rand with the Japanese yen pair.

The majority of Forex market activity is conducted by either central banks, affecting monetary policy, or by multinational corporations hedging their positions. Retail investors also speculate on future currency movements. 

Is Forex Trading Legal

Traditional investing in stocks, bonds, and real estate differs significantly from currency trading. With traditional investments, over time, there's a gain; as eventually, these markets will always go up.  

However, with currencies in both the short and long term, there's always a zero-sum. When the dollar gains strength against the Euro, the holders of the dollar will gain an equal amount to the value lost by those holding the Euro.  

This nature provides many opportunities for traders to gain when they can predict currency market movements correctly. 

Those wishing to break into the Forex world must first find a good Forex brokerage. Finding one is easier said than done. So you're in luck if you're wondering is Forex trading legal. 

However, you need to take into consideration how important your broker will be in all of this. Not all brokerages are created equal, and many may even take advantage of their own clients.

2. What Are The Most Common Forex Broker Scams?

Forex is 100% legal. However, there are two scams that many bad brokerages will conduct in an attempt to dupe their clients.

  • Front Running- is when a brokerage is aware that their own client is placing a large order. Then the brokerage places their own order prior to the client’s (can be on the order of milliseconds).
  • Spoofing/Ghosting- is a market manipulation technique where a trader or the brokerage will manipulate the market with a large order placement that'll never be executed. This move looks like there's interest in the position. This is intended to draw in other traders. 
Is Forex Trading Legal

With the increase of internet trading worldwide; and lack of regulation in some countries, the risks of these kinds of scams and manipulation of the system using software have also increased.

Along with various other promotional schemes, failure to pay out on gains, and overstating investment returns. 

Sadly in some cases, Forex trading lacks a clear regulatory structure, real transparency, and sufficient oversight. That said, Forex does have exchange-listed products that are both regulated and have oversight.

So again, if you're asking is forex trading legal, it's very much so. Additionally, there are brokerage services that do things by the book and create a viable playing field for their clients. 

On the bright side, Forex doesn't pump and dump and guru's have very little power to pump a currency! 

How to Find a Good Forex Broker?

  1. Is Forex trading legal? Yes! As a result, you must find a good broker. So who would that be?
  2. This is a critical question to ask. When you find a legitimate broker and set up an account, you can conduct your trades safely and confidently.  There are a few crucial measures you can take to easily gauge the quality and efficacy of a potential brokerage
  3. The first simple test is to make a test deposit and withdrawal.  This'll inform you as to how accessible is your money. The longer it takes to be transferred out, the more of a concern you should have. 
  4. You should find no issues getting a hold of your broker or at least a qualified representative. If you can't call someone that can help you, then there's an issue.

1. Country Matters

Is Forex trading legal? Yes, but the country your firm is in matters. Therefore, what country is the firm based in? 

In developed countries, there are significantly more regulations and oversight as to what can be done with the funds in your account; and how transactions are carried out. 

Brokerages in the U.S., Europe, Canada, and some Asian countries are much better than any other location of which you should be wary. 

Confirm that the brokerage is listed with the U.S. Securities and Exchange Commission. This registration typically means that the brokerage is transacting business in a transparent and compliant country that can be trusted.

Many experts say that the best way to protect investments is to do due diligence on the brokerage and conduct trading only on a U.S. regulated exchange; this'll ensure the verification of a broker’s registration.

Check out the job and disciplinary history of the broker and the brokerage at BrokerCheck. You'll need their name and state to do a search in this registration database for the financial industry’s regulatory authority.

You can also look at the National Futures Association’s Background Affiliation Status Information Center (BASIC).

Finally, you can discuss with the broker their procedures and policies for the placement of trades. If they're a reputable service, they'll use a third-party audit system. This ensures the fairest trade rates.

Forex Trading Is Legal Final Thoughts

Is Forex trading legal? Yes! Forex trading is an exciting and profitable way to invest, but you need to know what you are doing. That being said, the Bullish Bears has everything you need to get started learning technical analysis.  

We want you to have the most useful information to make the best trading decisions, and for that reason, we give all of our trading courses away...for free.  For more info about Forex trading check us out.

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