CFD trading is surely an enticing investment but for individuals living in the US territory, dealing with this kind of instrument is a serious matter for them.This is due to the fact that their government clearly opposes the use of CFDs in trading.Some US residents and trading enthusiasts question this such rule but in order to fully understand the US government’s side, here are 6 facts that explain why CFDs are banned in United States Territories.
1. Dodd Frank Act
The Dodd Frank Act is one of the main reasons why CFDs and other over-the-counter financial instruments are banned in the US.This act reorganized US financial regulatory system and has assigned a new system called Consumer Financial Protection Bureau to protecting consumers against abuses related to credit cards, mortgages, and other financial products. It was also assigned to restrict banks from making speculative investments.
2. CFD Risks
Contracts for Differences (CFDS) are considered very risky financial instruments. It’s features such as leverage. CFDs being highly leveraged instruments may both benefit and endanger your account. This can happen because the multiple of your leverage will be the same multiple used to calculate either your loss or your profit. Thus, this means that if your position goes wrong, you will be obliged to pay the amount you borrowed in leverage.
3. Volatility
Just like leverage, CFDs being extremely volatile financial instruments may be dangerous to your assets as a trader. If an instrument is volatile it goes to show that market movement is fast and if you make a wrong move in every trading session, this could mean losing your assets every now and then.
4. Overtrading
Another potential reason why CFDs are not allowed in the United States is the possibility of overtrading due to CFDs characteristic being an economical way to be involved in the market. Most traders usually have lower capital commitment in each trading session thereby being tempted to over expose their position in the market. Doing this would give you insufficient assets to cover your losses in your account.
5.Technical Counts
Margins for CFDs usually have rigid requirements so this can bring you danger. You have to be aware that the system for CFD trading allows the broker to set margin portions. Therefore, this privilege that is awarded to brokers may hinder your freedom as a trader towards your trading plans.
6. Lack of Ownership
When you deal with CFDs you have to be aware that you do not have the rights to own the asset. You will only be bound to profit from the contract alone making it a less robust investment.
Conclusion:
CFDs being traded in the US is currently impossible at the moment due to its risks and disadvantages. But despite the restrictions made by the said country over such financial instruments, we still cannot deny the fact that there are traders coming from countries where CFDs are allowed who in one way or another have benefitted from its advantages.
