The world’s forex (Forex) exchanges work non-stop and the market is global crossing national borders. An Australian trader could easily trade the Japanese yen through a US-based broker, so how is currency trading regulated in the US?
The foreign exchange market is growing and there have been cases of unscrupulous middlemen who have engaged in fraudulent or dishonest business. There have also been many cases of commercial websites closing down suddenly, at great cost to those people who had invested money with them.
When looking for a reputable brokerage firm, one of the most important things to consider is the broker’s regulatory approval and which regulatory body is responsible for setting the regulations that the broker must comply with. As an example, this explains how U.S. brokerage accounts are regulated.
In the United States, the National Futures Association (NFA) is responsible for retail forex brokers. They are an independent body that provides the framework for regularity and monitoring compliance with derivatives markets, which includes the foreign exchange market.
The scope of the NFA’s function includes licensing brokers after due diligence, enforcing capital requirements, enforcing record-keeping and reporting requirements, and combating fraud. Each NFA member must comply with detailed regulations regarding foreign exchange trading. A PDF copy of the NFA Regulatory Guide is available on the NFA website.
When looking for a trader to conduct your forex trading business, it is important that you check the ownership, location, and regulatory status of the trading company before registering for a trading account. You should also keep in mind that there are a fairly high number of websites that appear to charge very low brokerage fees, but are not registered with any of the relevant regulatory bodies. If you are looking for brokers outside the United States, some of the major brokerage regulators in other countries include the Financial Services Authority (FSA) in the United Kingdom, the Financial Services Board (FSB) in South Africa, and the Australian Securities and Investment Commission ( ASIC) in Australia.
For U.S. brokers, you can check the regulatory status of a company with an online tool provided by the NFA. To complete the verification you will need the name of the company, the DNI of the company and the name of the person or group. You will also find some of the best forex brokers listed on some specialized investment websites, but it is still advisable to do your own background checks before investing money.
As with all types of investments, it is always advisable to thoroughly consult any list of forex brokers you may find before risking your money. One of the best ways to check a company’s credibility is to check its regulatory status in the country where it is headquartered.