The world’s forex exchange is endless and the market is a global one that transcends national boundaries. An Australian trader can easily trade in Japanese Yen through a broker based in the US, so how is forex trading regulated in the US?
The Forex market is a growing and fraudulent intermediary involved in fraudulent or dishonest trading. There have also been many instances of trading websites that have suddenly shut down, much to the dismay of those who invested money with them.
When looking for a reputable brokerage firm, one of the most important issues is the broker’s regulatory approval and which regulatory body is responsible for setting the rules that the broker must adhere to. For example, here’s how US brokerage accounts are regulated.
In the United States, it is the National Futures Association (NFA) that is responsible for retail off-exchange foreign exchange brokers. They are an independent body that provides regulatory framework and compliance monitoring of the derivatives market, including the forex market.
The scope of the NFA’s role includes licensing brokers after due diligence, enforcing capital requirements, keeping records and enforcing reporting requirements, and fighting fraud. Each NFA member must adhere to the detailed regulations regarding foreign exchange transactions. A PDF copy of the NFA Regulatory Guide is available on the NFA website.
When you are looking for a trader to conduct your forex trading business for you, it is important to check the ownership, location and regulatory status of the trading firm before you sign up for a trading account. You should also be aware that there are a number of websites that charge very low brokerage fees, but are not registered with the relevant regulatory bodies. If you are looking for a broker outside the United States, the major brokerage regulators in other countries include the UK Financial Services Authority (FSA), the South African Financial Services Board (FSB) and the Australian Securities and Investment Commission (ASIC) in Australia.
For brokers in the United States, you can check a firm’s regulatory status in an online tool provided by the NFA. To complete the check you need the name of the firm, the firm’s ID and the name of the person or pool. You will also find some of the best forex brokers listed on some specialist investment websites, but you are advised to check your own background before investing any money.
As with all types of investing, it is advisable to thoroughly examine any list of forex brokers you can find before taking any risk on your money. The best way to test a firm’s credibility is to check its regulatory status in the country where the firm is located.