The American market was always troublesome for Forex brokers. On the one hand, it is the largest and most lucrative market segment. On the other hand, the US regulations regarding Forex in general and Forex brokers in particular, always were so stringent, so only a few companies bothered with the American market. And even fewer managed to get appropriate licences. But it does look that things are about to change.
There is a real chance that the USA soon will lose its reputation of a tempting, but extremely challenging market and will become a safe haven for the largest Forex brokers. How is it possible?
As usual, there is no single all-defining factor, but a whole combination of them. Some of them may cause the US government to become more lenient towards Forex brokers, some may make broker’s life outside the US much worse than it is now, and some may lead more brokers into giving the USA a shot, So let’s discuss all of it in detail.
The USA may relax regulations
To be fair, this is the most controversial bit. One the one hand, the US authorities have two very good reasons to let more US Forex brokers work in the country, by accepting the citizens,
First, the US economy isn’t in its best shape. Fundamental problems and disparities, combined with pandemic and civil unrest caused a full-fledged economic crisis. And of the best tried solution is easing regulatory pressure on the economy as a whole and on the financial sector in particular.
Second, the trade war with China is still going. And China leverages offshores, Forex and laws differences hard. So the US government is in fact interested in wider acceptance of the Forex market. Thus, America will be able to deny China one of the greatest advantages China enjoys.
But at the moment we don’t see such things. On the contrary, CFTC introduced new regulations, even more stringent than before.
On the other hand, it is not necessary for the US government to relax regulations formally. Committees may become much more lenient towards brokers even within the current US rules. And we can see such a trend starting to develop.
Kraken – the largest US-regulated cryptocurrency exchange, in April ventured into the Forex market. And even though US regulators are extremely suspicious about anything crypto, they gave Kraken a green light.
So the regulations may stay the same, but regulators’ attitudes may easily change – the trend is already visible.
Other countries regulations turning to the worse
The irony is, that when the US shows a more relaxed attitude towards the Forex market, the rest of the world cracks down on it. For all 2019 and for the first half of 2020 Forex brokers all over the world were in the focus of government’ attention. In a bad sense.
Basically, a crackdown on Forex happened in every part of the world outside the US in the last 12 months.
- Europe and Canada started with Forex futures brokers and then conducted something like an industry purge – licenses were revoked, brokers were fined, some criminal investigations were started.
- Russia revoked licenses of some of its largest Forex brokers.
- In China and Africa a lot of brokers’ executives, employees and even traders were straight up arrested.
Most Forex brokers don’t work in the US, because access to the most lucrative market in the world still wasn’t worth dealing with the US regulations. But today the world is changing – the rules become harsher and harsher everywhere. So the US market starts to look much more attractive: it has the money still.
So the USA may become a safe haven not because it’s that good, but because all the alternatives slowly become worse. And faced with a dilemma: “Strict rules and a lot of money” or “strict rules and only a bit of money”, most companies will choose the former,
Forex brokers become larger
Another important trend of the Forex market is that its fragmentation gradually diminishes. Small brokers fade away and the market is divided between a rather small number of large companies. And large business is, in general, more supportive of strict regulations. Large companies can afford compliance and even can force their clients to be compliant as well.
So the share of brokers that can afford entering the US market and playing by the rules of American regulators, grows. After all, there are a lot of people with a lot of money in the US. Therefore. it is possible that in a few years US-regulated Forex brokers may become a rule, not an exception.
Of course, any of these factors cannot change the situation by itself. But combined they provide enough incentives for all the parties involved to at least consider the US as a suitable country for Forex. But even then the market won’t change in a blink of an eye – it will take years.