Bitcoin Margin Trading For US Traders
As a US American trader you can really get frustrated when looking for a Cyptocurrency Margin Broker. Apparently the whole world is allowed to trade with leverage, only inhabitants of the USA are not. But why is that and is there really no broker where Americans are allowed to trade with leverage?
First of all we’ll try to explain why US Americans are usually excluded from cryptocurrency margin trading. The whole thing has to do with strict legislation in the USA.
The Regulation of Margin Trading in the US
In the USA there is a national supervisory authority that provides the legal framework for leverage trading products, the Commodity Futures Trading Commission (CFTC). This institution was established in the 1970s to regulate the futures and options markets in the USA.
At the same time, there is a second instance that co-operates with the CFTC, the National Futures Association (NFA) which deals in particular with the regulation of derivatives trading in the US. Its tasks include the regulation of futures traded directly on broker platforms as well as Forex and SWAPs trading.
Trading platforms in the USA must be members of the NFA in order to offer their services. Authorisation by the supervisory authority is therefore mandatory. That’s why the big ones are all members, such as Oanda, Forex.com etc.
The authority determines which financial products may be traded and with which leverage.
The CFTC defines the limits of leverage for the various trading products. For example, the limit for retail Forex traders is limited to 50:1 on the main currency pairs. For all other currency pairs, the maximum leverage is 20:1, but we are talking about the “normal” Fiat exchanges.
Cryptocurrencies Classified As Commodities
Cryptocurrencies are now a legally somewhat controversial new branch of financial trading products. Authorities are often even not yet sure how to categorize cryptos. In the US cryptocurrencies are legal, and since 2015 they’ve been classified as a kind of commodity by the CFTC. So far it doesn’t seem an option for the NFA to accept crypto trading brokers as members since cryptocurrencies and digital tokens do not belong to the group of financial products permitted and regulated by the agencies.
In any case, it seems that Cryto Brokers are not approved by the institutions mentioned and therefore at least cannot offer the typical trading with leverage. At least not without the risk of serious legal problems with the USA – Crypto Brokers seem to avoid this for understandable reasons.
Brokers With Leverage For US Traders
However, Crypto Brokers are accepted in the USA as simple exchange platforms. After all, trading with leverage is a different financial product than simply exchanging one currency for another. However, a smaller leverage of up to 5:1 seems partly feasible, depending on the currency pair.
In any case, we find this in Kraken, and it probably also applies to US Americans. However, Kraken is no real substitute for a professional margin broker such as BitMEX or PrimeXBT, because Kraken only has the functionality of a simple exchange. Without advanced orders and only with this slight leverage effect on some currency pairs.
Until 2018 Poloniex also had margin trading for US Americans on offer, but unfortunately this has also changed. Again it only concerns US citizens.
Also the trading platform of Coinbase (formerly GDAX) once offered margin trading, the leverage was small, but at least there was. Unfortunately, that is all history.
Small Leverage Possible
Why small leverage is apparently possible with good will and why only Kraken seems to use this possibility – we don’t know. We can only speculate. Either it is a special permit or it has to do with some kind of effort, which is not worthwhile for all the other Crypto Brokers at the moment.
Perhaps a ray of hope: Cex.io, a crypto exchange based in the USA, will soon offer its own separate margin trading platform, which will at least offer a leverage of 10:1 on BTC and ETH (derivatives trading against USD). However, it is not clear whether the offer will include Americans. Logically speaking, it is unlikely that it will. It remains to be seen. But if there were a legal possibility to suddenly offer 10-fold leverage in the USA on Bitcoin Trading, more or less everyone would do that.
Suspected Unreported Number of US Traders on Margin Broker Platforms
However, many American traders who are a little more technically skilled are not deterred by the regulatory hurdles and use a VPN to conceal their American origins from the broker platform. This is the well-known “secret trick”, according to estimates, not a few US citizens use.
Using a VPN, you can use an IP address from another country. From a technical point of view it looks like you are in this other country. The VPN is then used with every login on the respective trading platform, so that the login IP history in the account never contains an American IP.
The whole thing is probably used more frequently at online brokers, who normally do not require ID verification. It is suspected that BitMEX, PrimeXBT and other broker platforms therefore contain a certain number of unknown American traders, simply because this possibility exists. The conclusion is simply obvious.
This explanation is by no means to be understood as advice! It is forbidden to register with Margin Brokers under false statements. The registration as such may partially even be permitted, but trading will be disabled.
We hope that this article has shed some light on the question of why Americans are not (yet) allowed to trade cryptocurrencies with leverage. Hopefully this will change in the next couple years.