The National Futures Association and the Commodity Futures Trading Commission outlawed Forex trading with credit cards in the Unties States, and it seems they had a good reason for doing so. In fact, it is not just Forex trading that you cannot legally fund with a credit card, but all types of speculative products or investments.
There are a few reasons behind this decision, most of which make perfect sense.
Why Some Traders Use Credit Card For Trading
Although it is considered a crime in the US to use a credit card for investing, in other parts of the world, traders choose this as their payment method all the time. It is convenient and speedy for deposits and withdrawals. If there is not enough money available from your bank account, a credit card is a way of making your investment by basically having a loan from the credit card company.
That all sounds fine, but what if you lose money on the stock market? Then you end up owing the loan and having to make the repayments with nothing to show for it. Unless you have a really good credit card such as the Capital One Savor Card, you could find yourself facing fees and high-interest rates until the loan has been paid.
If you cannot meet the monthly commitment, you could end up very heavily indebted, and this was just one of the reason for making trading with credit cards illegal in the US.
Merchant Service Providers
If you receive bad service from a company or have faulty goods, you can get the money refunded by your credit card company if that is the way you paid. If they have too many complaints about one particular place, they will withdraw the facility to accept card payments.
However, if you were to deposit money with an unscrupulous broker, perhaps via your credit card because they are based in one of the countries that allow credit cards to be used in this way, you have no recourse against the credit card company if it all goes wrong. It is said there are two questions that the merchant services providers fail to ask these brokers before signing them up for card payment acceptance. The most important of these is whether they have sufficient capital to pay withdrawals should their customers want the funds from their trading accounts.
It is this lack of scrutiny that is the second reason why using credit cards for trading is illegal in the US.
Stopping the Investing In Cryptocurrencies
Some banks in the US, and in several other countries, will not allow the purchases of cryptocurrencies with credit cards. This is becoming so widespread that one of the biggest platforms for dealing in cryptocurrencies is not accepting credit card as a payment method from new US customers. Coinbase has said that debit cards are still fine but using credit cards for investing is fraught with danger.
It seems as if the US and other countries that do not allow the purchase of investment products with credit cards have put this in place to protect investors, and that they had good reasons for doing so.