Will Foreign Forex Brokers Get “Gambling” Classification

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The new CFTC rules consist of 50:1 leverage decision as well as many other regulations for the industry. But there might be one big hidden rule: US clients won’t be able to open accounts with foreign brokers. This can be implemented by assigning the notorious 7995 credit card classification to foreign brokers – preventing American from depositing funds with foreign brokers. Here are the full details.

Update, December 2014: US forex traders banned from making credit card deposits after January 2015

The CFTC finalized their ruling for forex, with the 50:1 leverage decision taking the headlines. The rules that will be in effect on October 18th, about 6 weeks from now are based on the initial proposals from January, but also on the Dodd-Frank act. And this is already something else:

In the past 24 hours, there’s been a lot of talk about one implication of the Dodd-Frank act – that US brokers won’t be able to open accounts with foreign brokers – including subsidiaries of respected and regulated US brokers in the UK.

Here’s what Rob Booker said in a comment on Michael Greenberg’s post yesterday:

The requirement that a counterparty to retail fx transactions be a U.S. financial institution has not changed. That is not part of the CFTC regs that were published today, but rather part of the ‘‘Dodd-Frank
Wall Street Reform and Consumer Protection Act’’ – the finreg that everyone has been talking about.

Francesc Riverola mentions and then emphasizes on a small comment on the official statement made by InterbankFX:

InterbankFX in its public note states: “Beginning October 18, 2010, overseas brokers will no longer be able to service U.S. customers.

So, in order to protect the American public, regulation in the US may not be enough. “Protection” may go beyond domestic regulation – it may forbid US clients from opening accounts abroad.

In my report about the CFTC 50:1 ruling, I asked if US traders will run away. But maybe they’ll have nowhere to go to.

How can this be implemented? By blocking credit cards.

Every company has a credit card classification by the IRS. This is called Merchant Category Code (MCC). 7995 is the code for Betting/Casino Gambling.

US credit cards are often rejected when a client tries to fund an account with an online gambling company. This is one of the ways to prevent Americans from gambling outside the US.

This 7995 mechanism to keep money in the US already exists for gambling. Will it also be used for forex trading?

Now, I’m sure there are workarounds, and as Michael states, the gambling industry is still on its two feet. So, this may not fully prevent US clients from trading abroad.

But,  it still might have a strong implication – the average American will virtually have no choice.

What do you think?

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

9 Comments

  1. Nobody moving serious money to a forex account here or overseas does it with a credit card. A bank wire will still work.

    The foreign brokers who don’t have a US presence are laughing at the CFTC and perfectly happy to continue servicing US clients. They do not answer to the CFTC.

    I personally have an IRA account with Gain Capital in the UK. If there’s a demand I repatriate the money here, I take everything out of the Roth IRA eat the penalty, and place the money where I want (overseas). End of story. Life is too short to deal with the perpetually blown out spreads and being requoted from a gain into a loss over a period of minutes at brokers in this country. Having the CFTC regulate those jokers is like having Bugsy Segal regulate Meyer Lansky. Professional courtesy among gangsters.

  2. John van Rensburg on

    I dont know what all the fuss is about, it is only newbies and suckers that get conned into using high leverage with promises of making fortunes in forex and then blowing their accounts. Any seasoned and knowledgable trader wont use more than 10 to 1 leverage anyway.

  3. George Buchanan on

    Hear hear John. 10:1 max. If you need higher leverage than that, you’re throwing mud at the moon.

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  6. Sick and Tired One on

    “Hear hear John. 10:1 max. If you need higher leverage than that, you’re throwing mud at the moon.”

    That’s great George. You are a genius. How about the no hedging, fifo crap? I bet you think those are good things too. What a bone head…..

  7. I also have Gain Cap (forex.com) as a broker and they just gave me the shaft and starting within the next few weeks they are sending my account back to the US. It doesn’t make any sense. My busienss is with forex.com. So what is the difference between forex.com UK and Forex.com US I’m within the company and they will send me a 1099 at the end of the year anyway. WHAT IS THE DIFFERENCE? I STILL PAY MY TAXES.

  8. Peter J Shepherd on

    I thought that the United States was the “land of the free and the home of the brave.”

    With the new ruling, the rich will continue to get richer. Middle class people, or those trading in micro account sizes, that depend on higher leverage for higher profits, will be the ones to get the shaft.

    I maintain what it’s none of the government’s business if a broker and a trader agree to a certain leverage. Let the federal government do what they’re supposed to do – protect us from foreign invasion through our open borders – and stay out of all other areas.

    I wouldn’t be surprised if someone takes this new ruling to court to test the constitutionality of these new rules.

    Personally, I think Congress does not have constitutional authority, and is overstepping its bounds. I would like them to cite the article of the constitution that gives them the authority in this area.

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