This article is meant to make a direct comparison between US forex brokers and offshore forex brokers, so one may understand the difference between both and be able to understand the main trading pros and cons.
American forex broker is a company located within the borders of the United States, which offers forex pairs to the US investing public for trading. These brokers are usually members of the National Futures Association (NFA) and have to be regulated by the Commodities and Futures Trading Commission (CFTC). US forex brokers operate under a very strict regulatory environment. Indeed, the environment is so strict that the US laws have been blamed for the shutdown of more than 90% of forex brokers that used to operate there before 2010. Examples of still fully functional US brokers include Oanda FX, IG (US branch), GAIN Capital LLC (Forex.com) and ATC Brokers.
Forex.com
The Forex.com brand is owned and operated by GAIN Capital Holdings Inc., a forex brokerage firm located in the US and other major locations around the world. The Forex.com brand is exclusive to the US market and is listed as a member of the National Futures Association (NFA # 0339826). Forex.com is the biggest US forex broker by market share. Forex.com has been in the US retail forex market for 18 years, providing its clients the opportunity to trade more than 80 forex pairs. Spreads on the EUR/USD are as low as 0.2 pips. Traders have the option of choosing their trades to be charged on using the following models: spreads only, spreads + commissions and the DMA model.
All clients of Forex.com are provided with 20 free custom indicators once they sign up for a demo or real account. Forex.com has an Active Trader program, which provides a rebate of 15% on trade charges for high volume traders. Traders on Forex.com can choose between the proprietary platform or the MT4; both of which have desktop, mobile and web-based versions. Leverage for forex majors is 1:50, while that for forex minors and other assets is 1:20.
Oanda
Oanda is a US forex broker which commenced operations in 1996, and is licensed by the Commodities and Futures Trading Commission (CFTC). It is also a member of the National Futures Association, with membership number 0325821. Oanda offers its traders the opportunity to trade with the MT4. Being a true US broker, its leverage provision does not exceed 1:50 for forex majors. Oanda is an international brand that is located in other countries such as Canada, Australia and Europe.
However, a look at the product offerings of Oanda US will reveal major differences in what US forex traders get and what traders in other Oanda locations are offered. For instance, CFD and spot metal trading is not part of the asset listing on Oanda US. Spreads are also not as low as you would find elsewhere, with the EUR/USD being offered with a spread of 1.1pips. The FIFO rule also applies, which means that two opposing positions cannot be held on the same currency pair at the same time. However, some interesting tools are provided to US forex traders by Oanda. Traders get access to a forex order book and a forex open positions book, which provide a summary of open and recently opened positions by all clients on the Oanda platform for the previous trading day. This is a useful tool for traders who base their trades on sentiment analysis.
ATC Brokers
ATC Brokers is an ECN brokerage which is located in the Cayman Islands. It is being mentioned here because it represents an alternative destination for many US traders. ATC Brokers is regulated by the Cayman Islands Monetary Authority with license number 1448274. ATC Brokers offers its clients a modified version of the MT4 that can be used for ECN trading, known as the MT Pro. MT Pro offers a Depth of Market feature, which allows users to know where the institutional traders are placing their trades. Trading access to spot metals, FX and CFDs is provided from a single account, and an API for Maker and Taker order executions is provided. ATC Brokers also provides a Multi Account Management (MAM) trading model, suitable for those who trade multiple accounts. ATC Brokers goes beyond being a mere brokerage; it also offers several partnership models to interested individuals and companies. Leverage on FX and CFD assets is maintained at 1:200, except for silver which is traded at a leverage of 1:10. Spreads start at 0.3 pips for the EUR/USD, and is as low as 0.03 pips for XAG/USD. Gold is traded with a spread of 0.09 pips.
IG Markets (US)
After having made an exit from the US forex market for a number of years, IG Markets has made a re-entry into the retail segment of the US forex space. However, it does not offer services to residents of Ohio and Arizona. IG.com is licensed as a RFED and IB by the CFTC and is also a member of the National Futures Association (NFA number 0509630). IG Markets US has a EUR/USD spread of 0.8 pips, which is higher than that of Forex.com but lower than that of Oanda. In addition to the MT4, IG Markets US also offers a charting package which allows its clients to place orders directly from within the charts. Additional charges are applied as well: $12 per month for inactivity and $15 for bank wires. As with other US forex brokerages, a leverage cap of 1:50 is applied to trading on forex majors.
Though not an official classification, the name “offshore” is used to describe forex brokers that are typically located in areas such as the St.Vincent and Grenadines, British Virgin Islands, Cayman Islands, Seychelles, Mauritius and the island nation of Vanuatu. The hallmark of these offshore brokers is that they typically function in a regulatory environment that is regarded by industry standards to be more lenient than those of the US, UK or EU. The easier barrier of entry for brokerage business and forex trading has made these locations alternative destinations for new brokers and traders alike. Examples of well-known offshore brokers accepting US clients include PlexyTrade, MidasFX, GatesFX and HeroFX.
Plexytrade
Plexytrade has added the Tradelocker platform to its platform suite, which also features MT4 and MT5. There is also a PAMM account facility that displays a leaderboard, along with other metrics traders can use to select a Master Account. In terms of trading tools, traders have access to various Trading Calculators and a VPS, which gives non-stop access to automated trading. The VPS is free for those who deposit the minimum account-opening balance of $2,000. For those who prefer to have it as a standalone product, there are three account types: silver, gold, and platinum, which go for $50, $60, and $110 per month, respectively. Traders also get access to a 120% cash bonus and a 100% tradeable bonus. There is also a Titans trading competition where traders can put their expertise to use and secure fabulous prizes.
When it comes to the core trading product, traders can trade CFDs on forex, indices, stocks, commodities, and cryptos. There are four account types: micro, silver, gold, raw, and platinum accounts. Typical spreads for the Gold Raw account start at 0.0 for EUR/USD, USD/JPY, and AUD/USD, and 0.1 for GBP/USD. The preferred payment method on Plexytrade is crypto, either directly or via the Confirmo platform. The minimum transfer amount is $ 50/$50 EUR, and transactions are settled instantly.
MidasFX
MidasFX is one of the few brokerages that allow traders to operate corporate FX trading accounts in addition to the regular individual accounts. The minimum deposit on MidasFX is $1. This makes it an excellent choice for those who want to test the market with real money without major commitment. All you need to register to get a trading account is your email address. All verification processes come later. The minimum lot size is 0.01, and traders can use leverage of 1:1000. Spreads start at 0 pips for ECN accounts and 0.7 pips for Standard accounts. The ECN accounts incur a $5 commission per Standard Lot traded.
The preferred methods of funding and withdrawing from accounts are wire transfers, credit/debit cards, and crypto assets via the Instacoins platform ($50 - $4800). When it comes to trading platforms, MT4 and MT5 are the preferred choices. Each of these platforms comes in a webtrader, a desktop version for MacOS and Windows, and mobile versions for iOS and Android.
GatesFX
GatesFX does not just offer a 2-hour withdrawal guarantee: it offers much more. GatesFX offers three account types: a 100% deposit bonus account, an ECN Raw Spread account, and a STP Standard account. While the ECN Raw Spread account offers spreads as low as 0 pips, the other two account types have spreads that start from 1.0 pips. Commissions of $15/Standard Lot and $7/Standard Lot are charged on the Deposit Bonus and ECN Raw Spread accounts, respectively. The STP Standard account attracts no commissions. The lowest account-opening minimum is $10 and is charged to the Deposit Bonus account. The STP Standard requires a minimum deposit of $100, while the ECN Raw Spread requires a minimum deposit of $500 to operate the account.
One great feature of the GatesFX product offering is the ability to trade US and EU stocks and futures, available only on the ECN Raw Spread and STP Standard accounts. For all account types, the preferred trading platforms are MT5 and TradeLocker. A CopyTrader platform will be introduced in the near future.
In terms of leverage, traders can choose between four leverage settings: 1:100, 1:200, 1:500, and 1:1000. More than 300 assets are available to trade using any of the leverage settings.
HeroFX
HeroFX offers four account types for everyone: a Hero10X account, a Zero Commission Account, a Raw Spread Account, and an Islamic, swap-free (non-interest-bearing) account. The Hero10X account is the latest account type offered by HeroFX and mimics the structure of a prop firm account. However, there is a difference: HeroFX's Hero10X accounts provide the trader with up to 10X the account capital, allowing them to retain all profits, and come with a 10% static drawdown provision. There are no challenges, evaluations, or fees whatsoever. Profits can be withdrawn instantly, and accounts can be up to $1m in size. There are also no restrictions on trading styles, and traders can use EAs, trade the news, and use strategies with no restrictions. The Hero10X account has basically rewritten the rules on prop firm trading.
HeroFX offers the MT5 and Tradelocker platforms for trading of more than 170 assets. The minimum deposit to trade is $5, but the Hero10X account requires a $50 minimum deposit. To fund your trading account with the minimum deposit or other amounts, you may use cryptocurrencies, Google Pay, Apple Pay, or a debit card. Preferred funding cryptos include USDT (Tether), USDC, Bitcoin, Polkadot, Solana, Tron, Polygon, and BNB. Transactions are settled instantly.
There are key differences between US forex brokers and offshore forex brokers. These differences affect the way forex traders do business in these jurisdictions.
US: Regulation of forex trading as well as forex brokerage business in the United States is the responsibility of the Commodities and Futures Trading Commission (CFTC). This agency has sweeping powers: enforcement using steep fines, heavy financial penalties and even outright banishment from the US market are commonplace.
Offshore: Depending on the location, offshore brokers are also regulated, but not as tightly as in the US. Some offshore regulators include the International Financial Services Commission (IFSC) which operates in Belize, Vanuatu Financial Services Commission (VFSC) and Cayman Islands Monetary Authority (CIMA).
US: The Commodities and Futures Trading Commission (CFTC) has mandated a leverage cap of 1:50 for forex majors and 1:20 for forex minors and forex options. These leverage caps are backed by the Dodd-Frank Act, a US law passed in 2010 that distinguished retail traders and classified them as “unsophisticated investors” who needed to be protected from leverage abuse.
Offshore: Most offshore brokers provide generous leverage that is sometimes as high as 1:2000. Leverage provided to traders is usually in a spectrum that ranges from 1:25 to 1:500, 1:1000 or 1:2000. Traders are expected to choose from the provided leverages in trading their preferred currency pairs.
US: As a result of the leverage caps imposed on retail forex trading, US forex brokers require traders to deposit at least around $50-100 as account opening balance.
Offshore: Minimum account opening requirements are not as stringent as in the United States, and traders can still open forex accounts with as little as $10 on some offshore platforms.
US forex brokers attend to US citizens and US permanent residents only.
Offshore brokers take on clients almost from all over the world.
US: In addition to trading currencies, other assets traded on the platform of a US forex brokerage must be exchange listed i.e. must be listed on the US markets. This effectively means that CFD trading by retail investors is banned in the US.
Offshore: Brokers allow traders unrestricted access to trade CFD assets on their platforms without restrictions.
US: All profits are subjected to capital gains tax. All traders opening forex accounts with US forex brokers are strictly required to fill a W-9 form that discloses their tax resident status to be the United States.
Offshore: Many brokerages are located in jurisdictions which are tax-free havens, or in areas where the tax requirements do not require international traders to declare tax status. It's also a common practice for traders to deposit and withdraw funds with use of cryptocurrency (e.g. Bitcoin). And, as you may know, blockchain transactions are highly anonymous.
The US is classified as a Level A forex jurisdiction, along with Japan. These are jurisdictions where brokers are expected to come up with high paid up capital in order to be approved for an operating license.
Majority of offshore brokerages are classified as Level D and Level E forex jurisdictions. Licensing is required, but requirements are not as stringent as for Level A jurisdictions. Licensing is required in British Virgin Islands, Latvia, Estonia and Vanuatu, but not so in Seychelles and St. Vincent & Grenadines. However, not obtaining a license will severely limit the ability of the forex brokerage to open a bank account with which clients can move funds into and out of the brokerage accounts. Reporting requirements are low.
US: Very high. Brokers are expected to have at least $20 million in operational capital, clients funds excluded. Reporting requirements are extremely strict and non-compliance can be a death knell for brokers as fines and penalties are very heavy.
Offshore: Quite low. With just under $200,000, licensing and other setup costs can be defrayed.
Now that the differences between US forex brokers and offshore forex brokers have been established, the information will not mean much to you as a forex trader unless you know how these points affect you.
As a consumer, you get a lot of protection when using regulated brokers. The CFTC has been very strong on consumer protection, but usually there have been repeated complaints by consumers of forex products about broker misconduct. Regulators of offshore brokers have also been known to offer some degree of consumer protection, but are generally more lenient than the US regulator. The IFSC also offers forex traders an investor compensation fund, so that they get financial compensation when broker malfeasance is proven.
Leverage caps in the US forex market mean that it is more expensive to trade forex in the United States than in offshore locations. This is as a result of the increased margin requirements for trades. This has great implications on forex traders. Firstly, it means that US forex traders are unable to use small accounts to effect a transition from demo to real money trading. Secondly, position sizing on trades will also be affected if the trader is to stick to acceptable risk management standards.
When trading forex with a US forex broker, you will be required to come up with a margin from 2% for forex majors, and from 5% for forex minors. A Standard Lot trade on the EURCAD will cost $100,000. 5% margin on this amount will mean that the trader will require a margin of $5,000 for a standard lot trade. Any US forex trader who intends to trade with the minimum capital of $25,000 and still maintain the risk exposure rule of 3%, will only be able to trade a maximum of 0.25 lots in total at any given time. In contrast, a forex trader with an offshore forex broker can use leverage of up to 1:2000. Assuming such a trader was to use 1:500 (i.e. 0.2% margin) as leverage, such a trader can comfortably trade up to 3 standard lots at a time with the same capital of $25,000, since total margin requirement that is within the 3% risk exposure rule is only $750.
The remarkable difference in margin requirements, leverage and position sizing ability while sticking to risk management principles, is what makes offshore brokers very attractive to forex traders around the world. Indeed, the US forex market has lost a lot of market share to offshore brokers on account of this point.
CFTC rules restrict US forex brokers to dealing with just US clients. Conversely, offshore brokers are not given a free reign to market their products to US forex clients. It is a case of “Americans only” when it comes to US forex brokers, in what many consider as protectionist policies taken a bit too far. In contrast, offshore forex brokers usually take on clients from any part of the world and do not discriminate.
CFD trading is banned in the US, so you will not see any CFD products or assets listed for trading on US forex broker platforms. Offshore brokers offer CFDs, so if you love to trade CFDs on stocks, indices, metals and other commodities, you will be restricted to trading with offshore forex brokers.
