If you have ever tried to format a USB thumb drive or memory stick, you 
may have noticed that the only options you get are FAT and FAT32 file 
systems. This is the default behavior in Windows XP. However, with some 
slight tweaking of settings, you can actually format your removable 
storage devices in NTFS format, including external hard drives, etc.
Of course, there is a reason why Windows defaults the formatting of 
removable storage to FAT and FAT32. There are actually a few advantages 
and disadvantages to formatting a USB drive in NTFS format, so we’ll go 
through those before actually talking about how to do it.
The advantages of enabling NTFS of removable storage devices are mostly 
security related. For example, an NTFS file system lets you to add allow
 and deny permissions on individual files and folders for specific 
Windows users, something you cannot do in the FAT file system. But 
that’s not all in terms of security. You can also encrypt files using 
Windows XP’s built-in encryption.
Other benefits include the ability to compress files and therefore save 
space on your USB drive. You can also set disk quotas and even create 
partitions! Formatting USB drives in NTFS has several advantages that 
would be good if you need to use some of these advanced features, i.e. 
for your IT department or if you’re just paranoid!
However, there are also a few drawbacks to using NFTS on a USB drive. 
Firstly, there is a lot more writing to the drive that is required when 
using NTFS and therefore your access to the device will be slower. Will 
it make a major difference that would prevent people from using it? 
Probably not, but it’s something to consider. Also, versions of Windows 
older than 2000 cannot read NTFS file systems, nor can most Linux 
systems.
The other major downside is that if you encrypt your files on the USB 
drive, you will not be able to open them anywhere else. Actually, this 
can be considered a downside or an upside depending on what you want to 
do. If you want to secure your USB stick so that only your user account 
on your one computer can open the files, then encrypting is perfect. If 
not, then do not encrypt the files.
How to format USB drive with NTFS?
First, connect your USB device to your computer. Then right-click on My Computer from the desktop and choose Manage.
Next click on Device Manager and then expand out Disk Drives. You should see your USB drive listed there as “Generic USB 2.0 USB Drive” or something similar.

Now right-click on the USB drive under Disk Drives and choose Properties. Then go to the Policies tab.

Now you will see two options, the “Optimize for quick removal” selected by default. Go ahead and change that by selecting the “Optimize for performance” option. This enables writing caching on the drive and therefore allows you to format it as NTFS! Sweet.

That’s it. 
Now click OK and then go to My Computer. Right click on the drive in My 
Computer and choose Format. In the File System drop down you will now 
see the option for NTFS!
You can now secure your USB flash drive or external USB hard drive in any way you like! Enjoy!
Source: google.com
 
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