Over the last few years there has been an increase in the number of rules and financial regulations that govern forex broker companies based in the United States, and currently all American brokers are required to be registered with the National Futures Association and the Commodity Futures Trading Commission. However, if a forex broker company is registered outside of the United States then they are not obligated to register with these two organizations and therefore are not obligated to follow the same strict requirements regarding leverage and capital requirements.
For all US-based foreign exchange brokers there are minimum operating capital rules that a company cannot drop below, and the maximum allowable amount of leverage that a US broker company can offer traders is 50:1 or 2%. For other brokers that are based in other parts of the world, they can sometimes offer traders leverage as high as 400:1 and do not necessarily need to follow the high capital requirements that are mandated by American regulatory organizations.
It is important to draw this distinction between these two types of foreign exchange brokers and understand the benefits and drawbacks of each type, so that you can pick the right forex broker that is right for you. One important factor for you to take into consideration is your risk tolerance. Trading with 400:1 or 0.25% leverage is much riskier than trading with the 50:1 or 2% leverage that is mandated by US financial regulations, yet if you are a successful trader then this higher leverage can allow you to grow your account balance much faster.
It is simply up to you on a personal level how much risk you are willing to take on with your trading activity, and as a general rule the higher your leverage is on your trading account, the more risk you are assuming with your trading activity. Another consideration when choosing which type of broker is right for you is the capital requirements that the broker company is obligated to adhere to. There is an easy to understand reason why US financial regulators have established minimum capital requirements for forex brokers, and that is to ensure market stability and company stability.
If you decide to use a broker that is not based in the United States, you will need to keep in mind that this company may be under-capitalized compared to a similar company based in America. But this can also allow you to trade your account with a level of leverage that is higher than the 50:1 maximum that is dictated by US financial regulations, so you must decide how much risk you are willing to take on and what your personal preferences are as a trader.
For all US-based foreign exchange brokers there are minimum operating capital rules that a company cannot drop below, and the maximum allowable amount of leverage that a US broker company can offer traders is 50:1 or 2%. For other brokers that are based in other parts of the world, they can sometimes offer traders leverage as high as 400:1 and do not necessarily need to follow the high capital requirements that are mandated by American regulatory organizations.
It is important to draw this distinction between these two types of foreign exchange brokers and understand the benefits and drawbacks of each type, so that you can pick the right forex broker that is right for you. One important factor for you to take into consideration is your risk tolerance. Trading with 400:1 or 0.25% leverage is much riskier than trading with the 50:1 or 2% leverage that is mandated by US financial regulations, yet if you are a successful trader then this higher leverage can allow you to grow your account balance much faster.
It is simply up to you on a personal level how much risk you are willing to take on with your trading activity, and as a general rule the higher your leverage is on your trading account, the more risk you are assuming with your trading activity. Another consideration when choosing which type of broker is right for you is the capital requirements that the broker company is obligated to adhere to. There is an easy to understand reason why US financial regulators have established minimum capital requirements for forex brokers, and that is to ensure market stability and company stability.
If you decide to use a broker that is not based in the United States, you will need to keep in mind that this company may be under-capitalized compared to a similar company based in America. But this can also allow you to trade your account with a level of leverage that is higher than the 50:1 maximum that is dictated by US financial regulations, so you must decide how much risk you are willing to take on and what your personal preferences are as a trader.