Behind every good trader, there is a good broker who provides reliable trading service. In regards to the notion, how are US forex brokers compared to the offshore ones?
In this new era of globalization, people are getting a lot more flexibility in doing business transactions. Let's take the choice of forex brokers for an example. We get to enjoy a wider range of options offered by the international forex brokers available. But, does a broker from other countries provide better services than a broker in a certain area?
Well, let's check them out as we delve deeper into the comparison between trading packages offered by US forex brokers and their offshore counterparts. Hopefully, by the end of this article, you will understand the differences and be able to choose the one that better suits all your trading needs.
See Also: How to Choose the Best Forex Broker
- US Forex Brokers
- Offshore Forex Brokers
- Key Differences Between the US and Offshore Forex Brokers
- The Main Takeaways
US Forex Brokers
Let's first start by defining US forex brokers. In this article, every company that is located within the borders of the United States and actively offers forex pairs for trading will be categorized as US forex brokers.
The main trait owned by these brokers is that they usually have membership in the National Futures Association (NFA). The other characteristic is that they are usually regulated by the Commodities and Futures Trading Commission (CFTC).
As you might have guessed, having these two characteristics means all US forex brokers operate under a very strict regulatory environment. People even say that the environment is so harsh nowadays, that it becomes the main reason for the shutdown for over 90% of forex brokers who used to operate there before 2010.
Some of the still operating and well-known US forex brokers are OANDA, IG, and Forex.com that we will review below.
Traders looking for brokers with accurate precision, OANDA can be an option. That is because OANDA is a broker that provides quotes with 5-digit accuracy and active price movements that follow market developments. Order execution speed is also faster in this broker.
It provides benefits for novice traders, as they can trade with smaller volumes using the calculation system based on currency value, unlike other brokers adopting the lot system.
Founded in 1996, OANDA was built by Dr. Michael Stumm who is a lecturer in Computer Engineering at the University of Toronto, Canada, along with his colleague, Dr. Richard Olsen of The Olsen Ltd., which is one of the leading econometric research institutes. They have a head office in San Francisco, United States.
OANDA branch offices can be found everywhere. Some of these offices are located in the United Kingdom, Singapore, Japan, and Canada. With this number of offices spread, OANDA has increasingly attracted the attention of clients worldwide.
OANDA's company is registered under several well-known jurisdictions in financial trading. They are regulated by CFTC and NFA in the US, FCA in the UK, ASIC in Australia, and many others. Traders do not need to worry anymore about security when trading in OANDA. However, these advantages make trading rules at OANDA more stringent compared to other brokers.
For example, OANDA only allows maximum leverage of 1:20, because the rules in the US and Japan do not allow leverage above that. Besides, the registration procedure is more complex due to various additional requirements that are not submitted by other forex brokers. On top of that, hedging is not allowed in one trading account as the client must open an additional account to hedge.
Nevertheless, OANDA is known for being a leading broker with many advantages offered. OANDA faces increased market risk during periods of price volatility, such as economic and political news announcements. When market spreads increase or decrease, their pricing engine widens or narrows spreads accordingly. That way, traders can get the latest conditions from price movements in the market more quickly.
Prices move very fast in the market. Especially when news releases have a large impact on market volatility. This condition is often exploited by brokers to take advantage of clients with Requotes. However, traders do not need to worry about additional costs when trading with OANDA.
The company never withdraws Requotes so traders can get maximum profit. When traders are unavailable to monitor open positions, they can set take profit orders to lock in profits and Stop Loss orders to help protect against further losses.
As an experienced and well-known online forex broker, OANDA is committed to maintain an efficient trading environment that reduces latency and provid tools to help clients manage the degree of acceptable slippage.
With a fast & reliable trading platform by OANDA, clients' trades are executed in 0.012 seconds. This suits traders who choose brokers based on execution speed.
Because of this exceptional execution service, it is not surprising that OANDA won many awards, including the winner of the world's Best Retail FX Platform at the prestigious e-FX awards. The broker is also voted number 1 for Consistency of filling trades at quoted prices, Execution speed, and Reliability of platforms.
There is no minimum deposit or minimum balance required to open an OANDA account. Deposit and withdrawal can be done easily. OANDA provides a variety of payment method facilities, including Paypal, Wire Transfer, Credit Card, and Debit. Traders can adjust it to the region where they live.
OANDA provides more than 100 trading instruments, including 71 currency pairs, 16 indices, 8 commodities (Brent Crude Oil, Copper, Corn, Natural Gas, Soybeans, Sugar, etc.), 6 Bonds, and 23 Metals.
The fxTrade and MetaTrader platform are available at OANDA. These platforms can be used for Desktop and Mobile. Another plus is they have an OANDA Technical Analysis that exists in collaboration with a technical analysis provider called Autochartist.
With these platforms, clients can monitor price movements easier and automatically recognize patterns created on charts, as well as receive alerts when the awaited patterns appear. Access to this technology can be enjoyed free of charge.
In conclusion, OANDA is an ideal broker for traders in need of fast execution backed by many years of experience. The company is also a good alternative for those looking for a well-regulated broker with flexible trading and deposit conditions.
OANDA was first established in 1995 in America with the main activity of forex brokerage, having registered with a business license from the Commodities and Futures Trading Commission (CFTC) as well as ongoing valid membership in the National Futures Association.
OANDA offers its traders the simplicity to trade by integrating their system with MT4. And they are applying the FIFO rule on their trading system, which means that two opposing positions cannot be held on the same currency pair at the same time. You might realize that the spreads are not as low as you might find elsewhere. For instance, EUR/USD trading is being offered with a spread of 1.1 pips.
Nowadays, OANDA has become an international brand that you can find in other countries such as Canada, Australia, and Europe. Having originated from the US, OANDA limits its forex majors leverage up to 1:50.
However, the products offered by US-based OANDA are very different than what we can find in other branches of OANDA. For example, there is neither CFD nor spot metal trading on the assets listed in US-based OANDA.
However, the traders in the US do get some interesting tools they can tinker with. Traders in the US have access to a forex order book and forex open positions book. The options allow traders to get a summary of open and recently opened positions by all clients on the OANDA platform for the previous trading day. This kind of tool is essentially perfect for traders who base their trades on sentiment market analysis.
IG Markets is an online trading provider with decades of experience in the financial market. Founded in 1974, the world-leading company has gathered more than 178,000 clients worldwide with over 16,000 markets reached as of 2019. IG Markets is authorized and regulated by the Australian Securities and Investment Commission (ASIC). It is also important to note that being established in 1974 makes IG Markets one of the forefront online CFD brokers. Their service has expanded to 15 countries across five continents.
Aside from famous for its reliable experience, IG Markets is also known for its truly broad range of trading instruments. In fact, the broker has long been regarded as one of the most accomplished companies in offering the most trading assets to clients. The wide choice of instruments includes forex pairs, 26 indices, over 12,000 shares, hard and soft commodities, cryptocurrencies, as well as other markets such as bonds, rates, and options.
Forex trading in IG Markets is provided in two ways: CFD and DMA (Direct). Here are the conditions for each type of trading:
- Minimum spread: 0.6 pips
- Commission: None
- Platforms: Web, mobile apps, MT4, ProRealTime, L2 Dealer, terminals and APIs
- Trading size: Contracts
- Demo account: Yes
- Minimum spread: No details
- Commission: from $10 per $1 million traded
- Platforms: Web, mobiles apps, L2 Dealer, terminals, and APIs
- Trading size: Lots
- Demo account: No
Both ways of trading are available for all clients. However, DMA does not enable trading in MetaTrader 4. Clients are also not allowed to trade in a demo account for virtual trading. It is essentially a type of trading reserved for experienced traders with high necessity for the best pricing in the market, as DMA offers market depth from a range of exchanges (including full market depth from the LSE).
Trading platforms in IG Markets are accessible via web, mobile app, and desktop. They are offered with 2 main varieties: Core Platforms and Specialist Platforms. The core platform is meant for all types of trading with the add-ons of DMA, ProRealTime access, and Forex Direct. Meanwhile, Specialist Platforms consist of L2 Dealer, ProRealTime, and MetaTrader 4.
The first two platforms charge fees that include minimum $2000 balance and monthly fees for shares data and level 2 prices (for L2 Dealer), as well as platform fees amounting to $40 per month and monthly fee for shares data (for ProRealTime).
IG Markets does not require a minimum balance to open an account. It also provides a swap-free account that frees clients for any interest, rollover, or swap charges on overnight positions. Yet, All costs and charges are built into the spread. This account suits well with long-term traders who need to keep their positions open for days or even weeks.
For beginners, IG Markets builds an IG Academy that gives interactive education and online trading courses. This way, clients can get a grip on the financial markets with the essentials of trading provided in infographics, video explainers, and end-of-course quizzes. Even better, the IG Academy is already integrated into its mobile app so clients can always learn about financial markets in much more efficient ways.
In conclusion, IG Markets is a client-friendly broker with more than 40 years of experience to back up its credibility. Their efforts and commitments to provide the best varieties of trading platforms are proven in the unique Core and Specialist Platforms.
Traders with little experience can apply to Forex CFD account in either Core Platforms or MetaTrader 4, while professionals can achieve the best experience in the financial market with IG Market's DMA trading and L2 Dealer or ProRealTime platforms.
IG Markets (IG.com) is licensed by the Commodities and Futures Trading Commission (CFTC) as an RFED and IB. They also hold a valid membership in the National Futures Association with NFA number 0509630.
Previously, this forex broker has decided to make an exit from the US forex market for a couple of years. But then they decided to make a re-entry into the retail segment of the US forex space. However, they no longer offer services to residents of Ohio and Arizona.
Similar to other US forex brokerages, a leverage cap of 1:50 is applied to trading on forex majors. This forex broker offers quite competitive spread rates. For an instance, the EUR/USD currency pair gets 0.8 pips of spread, which higher than that of Forex.com but lower than OANDA.
IG Markets also offers a charting package. This package allows traders to place orders directly from within the charts. There are also additional charges of $12 per month for inactive users and $15 for bank wires.
FOREX, also known as FOREX.com, is one of the global market leaders in the financial industry. Established in 2001, FOREX is a part of Gain Capital Holdings specifically meant for FX & CFD trading on powerful trading platforms and the popular MetaTrader 4.
Similar to its parent company, FOREX has been licensed by various financial watchdogs, including the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) from the US, the Financial Conduct Authority (FCA) from the UK, the Investment Industry Regulatory Organisation from Canada, as well as the Financial Services Agency from Japan.
For traders in South East Asia and the Middle East area, FOREX has been operating under the regulation of the Cayman Islands Monetary Authority.
Quality execution on every trade, transparency, and competitive pricing are some of the most optimized services in FOREX.com. As per Q3 2019, the broker's total assets reached $1.288 billion and the total customer equity amounted up to $849.8 million.
FOREX presents its clients with the best freedom to trade in 300+ global markets including 80+ FX pairs, 220+ shares, indices, commodities, and cryptocurrencies. Spreads on each asset are displayed live on FOREX.com's official website, with EUR/USD having a spread as low as 0.8 pips.
For the trading platform, FOREX provides two major options: its in-house platform and MetaTrader 4. Both types are available on various devices and can be accessed as a web-based platform and mobile app. Furthermore, FOREX's proprietary platform is furnished with advanced charting tools like 70+ technical indicators, a host of time intervals, multiple chart types, 50+ drawing tools, and customization features.
Trading in FOREX.com is provided with various trading conditions that accommodate the needs of multiple types of traders. Apart from the services, FOREX also provides guidance and supports in the forms of real-time trade signals and analysis tools from Autochartist and Recognia. There are also trained market strategists to work with on developing a trading plan, as well as market analysis to keep clients Stay informed with real-time market insights and actionable trade ideas from FOREX's research team.
Account funding and withdrawal are enabled via bank transfer. However, there are no further details on the minimum amount of each process. FOREX also does not seem to present other options for payment methods like credit cards or even e-payment.
Generally, FOREX is a reliable FX and CFD broker based on its regulations and long-standing history since 2001. Clients can trade in either FOREX's platform or MetaTrader 4 with competitive spread and pricing. Still, FOREX is one of the top-tiers in the brokerage industry that adheres to strict regulations of prestigious financial regulators.
Some of its trading conditions may not suitable for retail traders with barely enough experience or small capitals. Despite it all, FOREX.com hosts one of the most accomplished material packages when it comes to financial trading.
Forex.com is registered on the National Futures Association with member ID 0339826. It is exclusive only to the US market and currently is the biggest forex broker in the US by market share.
Forex.com is owned and operated by GAIN Capital Holdings Inc. This firm specializes in the forex brokerage industry and is located in the US and other major locations around the world.
Since its inception, Forex.com has served the US retail forex market for more than 20 years. Currently, they can provide clients with the opportunity to trade with a wide option of more than 80 forex pairs. Traders can get up to 1:50 leverage for forex majors, and up to 1:20 leverage for forex minors and other assets.
Traders can easily access Forex.com either from its proprietary platform or even using the MT4; both of which has full optimization to all types of device such as desktop, mobile, and web-based. Upon initial sign up, every client of Forex.com is gifted with 20 free custom indicators, even for a demo account.
Spreads on the EUR/USD are as low as 0.2 pips. Traders have the option to choose either spreads only spreads plus commissions, or the DMA model on trade charges. Even better, Forex.com also features an Active Trader program. This program works by providing a 15% rebate on trade charges for high-volume traders.
Offshore Forex Brokers
Now, let's move to discuss offshore forex brokers. Although there is no official classification, the term "offshore forex brokers" is commonly applied to those who establish a business in typical areas such as St.Vincent and Grenadines, British Virgin Islands, Cayman Islands, Seychelles, Mauritius, and the island nation of Vanuatu.
The main characteristic of these offshore brokers is that they typically function in a more lenient regulatory environment than the US, UK, or EU. This lower entry barrier for brokerage business and forex trading made these locations popular destinations among new brokers and traders alike.
Some of the most well-known offshore brokers are LMFX, ATC Brokers, and FxGlory. So, let's go ahead and review their features.
LMFX is an innovative online foreign exchange broker that offers advanced institutional and retail trading conditions to global audience. This broker commits to provide the full spectrum of cutting-edge trading tools and services, which are needed to support trading activity at the world’s most liquid market. LMFX also provides an unparalleled trading experience that offers the most competitive trading conditions to clients, by allowing them to trade Forex and CFDs on Commodities, Indices, and Shares.
LMFX was firstly founded in 2015 and is the brand used by Global Trade Partners Ltd., which is listed as a Macedonian (FYROM) entity according to LMFX's customer agreement. This broker offers the popular MT4 platform, but it is not regulated and its entity is located in a politically unstable jurisdiction. LMFX lists GTP Global Solutions Ltd as a payment services provider which is based in St. Vincent and the Grenadines.
Though LMFX has not been regulated yet, they keep trying to provide a lot of convenience and interesting services for clients. Should you know, this broker offers the suite of platforms developed by MetaQuotes Software Corporation, including the MetaTrader 4 (MT4) platform and an economic calendar powered by MTE-Media, which also powers its educational content that includes videos. Moreover, LMFX is pleased to provide a selection of essential forex calculators, which enable traders to have comprehensive statistics on their trades. Using these tools, traders can estimate profit and losses, evaluate margin requirements for secure trading, and calculate the impact of taking specific positions with different sizes.
For those who open an account in LMFX, this broker offers three types of trading account:
Zero Spread Account is a low-cost trading account that boasts No markups and super-tight spreads.
- Spread: raw spread from 0.0 pips
- Commission: from per 1k lot
- Minimum Deposit: USD100
- Leverage: 1:250
- Trading Condition: Ideal for scalping and high-volume trading.
A Fixed Account is the perfect solution for traders who prefer to trade with fixed spreads.
- Spread: fixed spread
- Commission: none
- Minimum Deposit: USD250
- Leverage: 1:400
- Trading Condition: Ideal for Expert Advisors (EAs) that operate with fixed spreads.
Premium Account is carefully tailored to meet the trading needs of retail FX traders and with the minimum trade size at 0.01 lots.
- Spread: from 1 pip
- Commission: none
- Minimum Deposit: USD50
- Leverage: 1:1000
- Trading Condition: Has advanced trading platforms such as MetaTrader, Webtrader, and Mobile Trading.
LMFX offers traders to deposit and withdraw via wire transfer, credit cards, and e-payment (Skrill, Neteller, FasaPay). Moreover, trading in this broker is set up with a Segregated Account to ensure that there is a clear and complete separation of Clients' funds from the company's funds. If LMFX is no longer able to offer its services to the clients, clients' funds will be returned to them as they have been correctly accounted for before any trading activities being terminated.
Overall, though LMFX is not a regulated broker, it commits to give the best services for traders. LMFX has several kinds of account types as well as some convenient deposit and withdrawal methods.
LMFX is a forex brokerage that is located and operates from St. Vincent and Grenadines. They offer access to regularly updated economic calendar and daily market analyses. There is also an educational section and video tutorials that will smoothly assimilate beginner traders to the journey of profitable forex trading.
LMFX offers three account types to choose from: Premium, Fixed, and Zero accounts. The most notable account is the Zero Account. Staying true to its name, this account features zero-spread trading with very low commissions, making this account type suitable for high-volume trading and scalping.
All types of accounts require a minimum deposit of $50, and there is a variety of funding methods available such as e-wallets (Skrill, Fasapay, Vload, and Neteller) or credit/debit cards from VISA and MasterCard. Do note that there is a $250 minimum transaction amount for bank wire transfers. The fund is safe since clients' funds are segregated from the broker's operational funds.
LMFX also offers extra competitive leverage up to 1:1000, which can be used either to trade forex or CFDs using 7 different versions of the MT4 trading platforms.
ATC Brokers is an ECN brokerage regulated by the Cayman Islands Monetary Authority with license number 1448274. The company aims to go beyond a mere brokerage and has since actively offered several partnership models to interested individuals and companies.
For trading activities, ATC Brokers utilizes a modified version of the MT4 that can be used for ECN trading called the MT Pro. The strong point of the platform is its Depth of Market feature. This feature allows users to trace where institutional traders place their trades.
ATC Brokers provides a Multi-Account Management (MAM) trading model, suitable for those who trade multiple accounts. For traders with a single account, they have complete trading access to spot metals, FX, and CFDs, with API available in case they wish to split Maker and Taker order executions.
ATC Brokers offer 1:200 Leverage for FX and CFD and 1:10 leverage for silver. Spreads start at 0.3 pips for the EUR/USD and Gold is traded with a spread of 0.09 pips.
FXGlory is a forex broker is located and operates from St.Vincent and Grenadines. It is said that FXGlory remains unregulated after 8 years of operations. They offer a 24/7 forex and CFD trading experience with a lot of interesting features.
One such feature includes a sliding leverage scale, which adjusts leverage offered from 1:3000 to 1:100 as capital increases from $1 to above $30,000. Apart from the high leverage cap, FXGlory also provides micro lot trading and VPS service to its funded live account holders for free. Traders also get a 50% bonus on first deposits and have access to various funding methods including PayPal.
Key Differences Between the US and Offshore Forex Brokers
Upon reviewing the main features offered by the US and Offshore forex brokers, there are several key differences that may affect the way forex traders manage their accounts and trading strategies.
- US: In the United States, the Commodities and Futures Trading Commission (CFTC) is responsible to ensure the regulation of forex trading and brokerage business. The CFTC achieves this goal with powers granted by law, such as enforcement by using steep fines, heavy financial penalties, and even outright banishment from the US market.
- Offshore: Offshore brokers are typically regulated as well, but not as tight as the regulation being enforced 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: In America, the Commodities and Futures Trading Commission (CFTC) has set the maximum limit for leverage to 1:50 for forex majors and 1:20 for forex minors and forex options. These leverage limits are backed by the Dodd-Frank Act; a US law passed in 2010. The law distinguished retail traders and classified them as "unsophisticated investors" that needed to be protected from leverage abuse.
- Offshore: Almost every offshore broker provides a generous amount of leverage, sometimes even as high as 1:2000. The leverage provided to traders ranges from 1:25, 1:500, 1:1000, and 1:2000. Traders are free to choose from any leverage option available to trade their preferred currency pairs.
Minimum Account Deposit
- US: Forex brokers in the US require traders to deposit a minimum of $50 as an account opening balance.
- Offshore: The minimum deposit for account opening balance is more lenient; traders can open forex accounts with just $10 on some offshore platforms.
- US: US forex brokers are allowed to serve only US citizens and US permanent residents.
- Offshore: Offshore brokers can serve clients from all over the world.
- US: Every asset traded on the platform must be exchange-listed, i.e. the assets must be listed on the US markets. This means CFD trading by retail investors is banned in America.
- Offshore: Offshore forex brokers allow traders to trade CFD assets on their platforms without any restrictions.
Setup Costs for Brokerage
- US: Forex brokers in the US are expected to have at least $20 million in operational capital. Reporting requirements are extremely strict. Non-compliance can be fatal for brokers as fines and penalties are reportedly very expensive.
- Offshore: The capital requirement to open forex brokerage in offshore countries is quite low. On average, companies usually spend less than $200,000 for license and other setup costs.
The Main Takeaways
Now that we have clearly defined the differences between the US and offshore forex brokers, we can safely summarize four-point differences that will directly impact forex traders:
Having a regulated broker usually spells better consumer protection. CFTC has always been strong on consumer protection, although they do have some complaints by consumers caused by brokers' misconducts.
Offshore brokers regulators are also well known to offer good consumer protection, even though they might be a little bit more lenient than the US regulator. IFSC even offers investor compensation fund in case the broker proves to be negligent or conduct any kind of improper operation.
Leverage & Margin Requirements
The leverage allowed for US forex broker is capped between 1: 20 up to 1:50, while offshore forex brokers usually offer leverage from 1:25 to 1:2000. The leverage limitation causes forex trading to be more expensive in the United States than in offshore areas since there will be higher increased margin requirements for traders.
Leverage and margin requirements have great implications on forex traders, especially for rookies. First, it means that US forex traders lack the option to use small accounts. It will also imply position sizing on trades if the trader chooses to stick with acceptable risk management standards.
The combination of the difference in leverage, margin requirements, position-sizing, and risk management principles makes offshore brokers as a more attractive option to forex traders around the world. Historical data also showed that the US forex market did lose a remarkable amount of market share to offshore brokers on this point alone.
Location of Clients
The CFTC limit US forex brokers to serve customer located within the United States only. On the other side, offshore brokers are allowed to serve clients from any part of the world, without any form of limitation or discrimination. But, offshore brokers are not given free rein to market their products to US forex clients, in what many people consider as protectionism taken a bit too far.
You will not see any CFD products or assets listed for trading on US forex broker platforms, since the CFTC bans any form of CFD or assets listed for trading in the US. In contrast, offshore brokers offer CFDs. So if you love to trade CFDs on stocks, indices, metals, and other commodities, you can only trade with offshore forex brokers.
Apart from the US and offshore forex brokers, another broker category to consider is a ion of UK forex brokers. How are their specifications and what do they offer for retail forex traders? Find out in Top 10 Forex Brokers in the United Kingdom.