The Foreign currency exchanges (Forex) of the world are running non-stop and the market is a global one that crosses national boundaries. A trader in Australia could quite easily trade in Japanese Yen via a broker based in the US, so how is Forex trading in the US regulated?
The Forex market is a growing one and there have been cases of unscrupulous intermediaries engaging in fraudulent or dishonest trading. There have also been many cases of trading websites that have suddenly closed down, 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 look at is the regulatory approval of the broker and which regulatory body governing body is responsible for setting the regulations that the broker must abide by. As an example, here is 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 currency brokers. They are an independent body that provides the regularity framework and compliance monitoring of the derivative markets, which includes the foreign exchange market.
The scope of the role of the NFA includes the granting of licenses to brokers after due diligence, the enforcement of capital requirements, the enforcement of record keeping and reporting requirements, and the combatting of fraud. Each NFA member is required to abide by the detailed regulations with regards to foreign exchange trading. A PDF copy of the NFA regulatory guide is available on the NFA website.
When you are looking for a trader to carry out your foreign exchange trading business for you, it is important that you look into the ownership, location and the regulatory status of the trading firm before you sign up for a trading account. You should also be aware that are quite a large 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 of the US, some of the main brokerage regulators in other countries include the Financial Services Authority (FSA) in the UK, the Financial Services Board (FSB) in South Africa and the Australian Securities and Investments Commission (ASIC) in Australia.
For brokers in the United States, you can check the regulatory status of a firm on an online tool that is provided by the NFA. To complete the check you will need the name of the firm, the ID of the firm and the name of the individual or the pool. You will also find some of the best Forex brokers listed on some specialist investment websites, but it is still advisable to do your own background checks before you invest any money.
As with all types of investments, it is always advisable to thoroughly check out any list of Forex brokers that you may find before you risk any of your money. One of the best ways to check the credibility of a firm is to check on its regulatory status in the country in which the firm is based.
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by Neil Savin
