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The United States has been called out multiple times for having an over-regulated financial market. In some cases, it has been called out for not having enough regulation as well. So the real picture of what the financial markets look like in the US is kind of convoluted. Therefore, in this article, we would like to outline 3 very popular and wide-spread financial sectors that are completely banned in the USA and could lead to significant monetary fines, or even jail time depending on how serious the violations are.
Day trading
Day trading is a trading strategy used by millions of traders worldwide. But, for US traders it’s a luxury they can’t really get their hands on unless they’re in a seriously good position with their equity.
According to the Securities and Exchanges Commission (SEC), any individual who buys and sells an asset within the same trading day hours, will be directly violating the US federal law against day trading.
The only way that people could technically day trade in the US is if their account equity before, during, and after the trading, the process does not go below $20,000.
Not many traders have such a luxury, especially those that are just now getting started. And due to the extreme volatility of markets we’ve been seeing nowadays, even those that had that luxury had to be extra careful not to go below the recommended minimum.
This is one of the main reasons why FX trading is so hard in the United States. Due to how volatile the currency markets are, most traders are forced to close their trades within the same day in order to fully capitalize on their profits, or pay fees to extend their trade onto the other day. All in all, FX day trading is arguably the most profitable as it doesn’t have any overnight fees.
However, when it comes to trading FX in the safest environment, many traders are more than happy to abandon this strategy to be able to trade with US-based countries. Despite the fact that forex trading in the USA is heavily regulated, most people are still willing to sign up and pay those overnight fees. This is due to the guarantee that most US FX brokers are able to provide for them. And if the account is big enough, these companies can even facilitate day trading within the US jurisdiction.
You see, FX trading is usually made profitable thanks to leverage. Because, if somebody opens a EUR/USD trade for around $100 without leverage, they may gain no more than $0.01 in a day if they’re lucky. This is why leverage is so important as it could boost a trade’s size up to 1000 times, therefore providing an opportunity for larger profit margins.
CFD trading
CFDs or Contracts for Difference are a very handy instrument for traders that don’t want to sign up for stock exchanges or crypto exchanges. It’s an instrument that basically allows the trader to trade anything they want without having to directly own it.
Unfortunately, such a system does indeed cause confusion in the regulatory system of most countries. So much so that many had to ban it completely, and unfortunately, the United States is one of them.
Any CFD offering found on a platform that caters to United States customers, should be immediately considered as illegal and reported to the authorities. These authorities are the SEC and the CFTC.
It should be noted that US traders can’t just sign up on European or African platforms to trade CFDs as well. Companies officially registered in those regions will actively reject any attempt to go on their website, or an attempt to register with them.
The only way US citizens can trade CFDs is if they physically go to those countries or use a VPN. But note that VPN usage will shift the blame from the service providers to the trader directly. This can then cause monetary fines or even jail time depending on how long a trader’s been doing it and hiding capital gains from the government.
It could potentially be filed under tax fraud if it’s that severe.
Trading Chinese military-owned company stocks
This is a relatively new law, being signed in November 2020. The Trump administration has given US citizens until 2021 to divest from these companies and diversify into other “approved” Chinese companies if they want to.
This law only applies to 31 companies though, but most of them are household names with thousands of US investors holding on to large chunks of their stock. To give you an example, this list includes companies like Huawei and China Telecom.
Almost every company on the list is a fast-growing one and holds massive potential for US investors to gain profits from. But the president’s office sees massive issues with the enablement of Chinese military assets to develop at the expense of US citizens.
Therefore, any attempt to buy these shares in the future will be officially blocked by the New York stock exchange or any other exchange operating in the country. Should a trader be found holding these company shares after November 2021, they could either be confiscated without warning or remuneration or the investor could be charged with significant fines.
Making sure you’re not breaking any laws
In order to be 100% sure that you’re not breaking any laws you’re not aware of, it’s recommended that you sign up with a service provider officially approved by the SEC and the CFTC. This ensures that you will always be informed about potential law changes. You will also not be offered any illegal securities or investment options as the company itself will undertake filtrations and warning messages.
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