Margin trading is known as one of the easiest ways to magnify potential profits by increasing the size of your trade. But, is it possible in the US?
This allows you to enhance your positions in the market and magnify your returns more than you usually would. You may have heard that some traders made a fortune by buying Apple stocks when it was cheap and using margin, so the returns were naturally doubled.
Even better, now it's even possible to margin trade with Bitcoin and other cryptocurrencies, which often promise huge returns due to the market's high volatility.
However, if you are a US trader, margin trading can be a bit tricky. While trying crypto margin trading in the country is still possible, finding the ideal broker might be challenging.
It's not hard to tell since most of the well-known global brokers offering high leverage, such as BitMEX, PrimeXBT, and Bybit, have excluded American traders from their service. How can it be? Which brokers should you pick, then?
US Regulation on Margin Trading
The main reason why most platforms with high leverage exclude Americans from crypto margin trading is because of the strict legislation in the country. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) provide the legal framework for leveraged trading products in the United States.
The CFTC regulates futures and options markets in the US, while the NFA regulates derivatives trading in the US. The institutions also determine which financial products may be traded and how high the maximum leverage is. All trading platforms in the US must be members of the NFA to operate legally.
However, cryptocurrencies as leveraged trading products are somewhat confusing and controversial because even the authorities are unsure how to categorize them. Essentially, cryptocurrencies are legal in the US.
Cryptos were classified as a commodity by the CFTC back in 2015, meaning you can legally buy and sell them like shares and other assets. Therefore, firms that facilitate the exchange of money for crypto or crypto for crypto are allowed in the US.
What is not allowed, on the other hand, are CFDs, which are usually traded with high leverage. The CFTC and the Securities and Exchange Commission (SEC) prohibit Americans from opening CFD accounts on domestic and foreign platforms.
CFDs are banned in the US mainly because they are Over-the-Counter (OTC) products, which means they are less regulated and could lead to higher potential losses. The ban affects citizens within the USA and all US citizens who live outside the country's borders.
Is There Any Crypto Margin Trading Platform in the US?
Generally, regular crypto trading platforms are legal in the US as long as they function simply as exchange platforms (spot market exchanges). But it's a completely different matter when it comes to margin trading.
After all, it's pretty clear that trading with leverage is not as simple as exchanging one asset for another. But even so, this does not rule out the possibility of crypto trading with a slightly increased profit potential if you are a US citizen.
Several platforms have the licenses to offer crypto trade with small leverage in certain US states. On these platforms, the underlying asset is physically traded despite a certain amount of leverage offered, so they are not CFDs but actual Bitcoin purchases and sales.
Because of this, the platform can only offer small leverage compared to margin exchanges in other countries. The highest Bitcoin leverage available in the US is currently 5:1, provided by the popular exchange, Kraken. Of course, the number is far from the typical 100:1 in platforms like BitMEX or PrimeXBT, but it's leverage nonetheless. Let's explore the offering further.
Kraken is one of the world's top and most reliable Bitcoin trading platforms. The exchange is often seen as one of the most secure crypto exchanges because there has never been a severe hack to the system where customers have lost money all those years. Kraken's founders had ensured the security standard by running a beta test version for two years before it went live in July 2011.
Kraken has obtained required licenses to operate within the US borders but not in all states; New York and Washington residents are excluded from Kraken's services.
By obtaining licenses to operate within the US borders, Kraken should comply with the government's rules and fulfill all of the requirements, such as providing high transparency about their operations in general, management, user transactions, and fees.
Furthermore, Kraken offers a series of crypto products that can be bought and sold for fiat money. Kraken also offers 5x maximum leverage for all trading pairs, currently the highest in the US. The minimum investment is 20 USD.
In addition, you can find certain advanced order settings that have been recently added to the platform. The "Kraken Pro" area offers the same type of advanced trading interface as the ones found in other professional trading sites. It offers automated trading settings with more complex order types, the order book, watch list, positions, and more.
2. Coinbase Pro
Coinbase is one of the most well-known spot market exchanges in the US. The company has two separate trading platforms for different trading activities. On Coinbase.com, Bitcoin and altcoins can be bought and sold against USD and other currencies. Meanwhile, the Coinbase Pro was designed for more experienced retail and professional traders who want to enjoy an advanced trading environment.
Launched in January 2015, Coinbase Pro offers at least 30 cryptocurrencies with various conditions. Some can be bought, and others can only receive or send. One of the most notable features is the margin trading feature for ed traders. As for now, the use is still limited to several jurisdictions and for approved accounts only.
You can get up to 3x maximum leverage with a minimum investment of 0.001 BTC. The exchange charges an annual interest rate of 8% for open and filled orders. The amount is calculated hourly and charged daily for all hours you used leverage.
Like Coinbase, Coinbase Pro is fully licensed and regulated in the US and several other countries. As a result, the exchange must maintain its legality by complying with some rules, including the Know Your Customer (KYC) procedure and Anti-Money Laundering (AML) checks.
Unfortunately, the margin trading feature is only available in 23 US states, which are Wisconsin, Connecticut, Maine, New Jersey, Kansas, Illinois, South Carolina, New Hampshire, West Virginia, Arkansas, Wyoming, Georgia, Nebraska, Utah, North Carolina, Massachusetts, Oklahoma, Arizona, Virginia, Texas, Florida, Colorado, and Oregon.
The Risks of Using VPN for Unauthorized Margin Trading
As an American trader, getting a notice that the service is not allowed in your country when you try to register with a particular exchange that provides crypto margin trading can get frustrating. Many companies automatically issue this notice if their websites detect a visitor with a US IP address.
In this case, you may have heard that it's possible to circumvent such restrictions by using VPN. By using IP addresses from allowed countries, a US citizen can register to the platform, especially if no ID verification is needed.
However, this practice is not advisable at all because it is illegal. If discovered, there's a high chance that you'll get serious problems. The platform might freeze your account and funds or, even worse, be sanctioned by the authority.
The Bottom Line
While margin trading is possible in the US, the list of trading platforms that provide it is still very short. Operating in the US is complicated and too costly for most companies, so they ban American traders altogether.
This is pretty understandable because to be able to support margin trading, exchanges must obtain specific licenses from each US state, which can be very expensive. Furthermore, the licenses also come with certain limitations and requirements that may diminish their competitive nature among other exchanges. Therefore, only a few companies are willing to do all that.
In the end, remember that while margin trading can magnify profits, it can also increase risks. If you want to try it, proceed cautiously, and don't invest funds, you can't afford to lose.
If you're a non-US trader and would like to try margin trading, there's a wide variety of choices in exchange. See the complete list of crypto exchanges offering margin trading.