Regulation

US Forex Brokers Regulation

Since Forex became home for traders and investors, the problem of its regulation became a number one question as the government was to protect FX brokers’ customers from being deceived by the companies. 

It is to mention that traders risk losing money not only if they make a wrong price forecast. Wrong broker choice is another great threat to traders’ funds. It doesn’t mean that all unregulated FX brokers conduct malicious activities against their customers. However, if you choose a regulated company, you have more chances to get top-notch service.

US Regulatory authorities

Two agencies provide Forex traders security in the United States. These are the National Futures Association (NFA) and the Commodities Futures Trade Commission (CFTC). Let’s have a closer look at them.

NFA

The National Futures Association is a self-funded US FX broker regulatory authority. Those companies that become members of NFA are whitelisted in all Forex brokers ratings. It is to mention that brokers have to meet all the NFA requirements to become members of this organization. They also have to comply with all NFA rules to “stay inside”.

The National Futures Association works in close cooperation with the FBI to screen the potential members. This means new members can quickly get an NFA license but they also understand that they can have big problems if they decide to conduct any fraudulent activities.

The National Futures Association registers both individuals and companies. Investors can benefit from using their educational tools and guides. There are webinars for all members. If you have any issues with your current NFA-regulated broker, you can use a complaint form as NFA arbitrates disputes between traders and brokers.

Commodities Futures Trade Commission 

This agency was launched in 1974 i.e. before the Forex market opened its doors to retail investors. The main mission of this authority is to monitor and regulate the futures and commodities markets. As for the Forex market, it is included in this futures and commodities world and thus is subject to the CFTC regulatory activities.

Five commissioners of the Commodities and Futures Trade Commission are appointed by the President of the United States. Those members are controlling all crucial agency activities. They are located in Washington D.X, Chicago, New York, and Kansas City. This means their headquarters are placed where futures and commodities activities are conducted.

The CFTC issues a special Commitment of Traders Report on Tuesdays. This report covers all major details of important Forex movements. Traders can also address their complaints and reports of any suspicious activities by Forex brokers.

One of the most important things that CFTC does is that they provide traders and investors with information about the legitimacy of a particular Forex company. 

If you want to trade with a CFTC broker, you need to check if a company is listed in their database. If not, you can ask the provider about the reasons they are not there. However, even if they are not listed in the CFTC database it doesn’t mean they are not legit. They may be part of other databases.

CFTC provides users with information about current alerts, scams, and fraudulent schemes. Thanks to the CFTC you can avoid those suspicious offers including limited time offers, easy money offers, complicated financial products, and others.

SEC

While the SEC is not dealing with Forex services providers, they often intervene when it comes to fraudulent schemes related to trading. The SEC was founded in 1933. It is considered to be one of the most respected and famous regulatory authorities in the world of financial markets. 

As it comes from its name, the Security and Exchange Commission monitors and controls companies that offer securities brokerage services. However, SEC engaged to penalize many binary options scams. Thanks to this regulatory authority, many binary brokers were closed or had to return money to their clients.

SEC operates on the US ground. However, they also engage when overseas brokers offer services to US customers. There were many cases when the SEC engaged to penalize overseas brokers that are even not subject to US legislation.

Regulated vs unregulated Forex brokers

The main reason why professional traders attempt to find a regulated US Forex broker is that they want their funds to be safe. Regulated companies meet all regulatory bodies’ requirements. By choosing those US FX brokers you may be sure they are not going to use your funds for inappropriate purposes. If you are going to invest a lot of money in trading, you need to choose regulated brokers only. 

Regulated companies are more transparent and always provide higher quality services. Those companies are required to have all the necessary documentation that you can read to make sure you are in the right place.

When dealing with regulated US Forex brokers you get protection from the regulatory authority. In case of any dispute, you will have your own “Big Brother” who will take care of you and of your funds.

What other aspect to watch before picking a broker

Even if you have chosen a regulated US Forex broker, it doesn’t mean you will have the best trading conditions. You need to look at some other aspects to make the best choice. Here are some useful tips.

Consider your personal needs

Before creating an account, you are recommended to consider your needs. For example, if you are going to trade using intraday strategies, you need to make sure the broker offers the lowest spreads ever. US Forex brokers provide traders with two types of spreads – floating and fixed. The latter is always higher. For EUR/USD currency pairs, fixed spreads are around three pips.

When it comes to floating spreads, they start from 0 pips. However, you can hardly find US Forex brokers offering these tight spreads. Normally, they start from around one pip and higher. It is also to mention that floating spreads are always higher during important data releases.

This is why most technical traders using scalping strategies try to avoid those periods when important data appears.

Another thing to consider is how much money to invest in trading. Most US-regulated Forex brokers have minimum deposit requirements meaning you will have to invest a certain amount to be able to benefit from all company’s features.

However, it doesn’t necessarily mean you need to invest this amount only. You can fund your account with more money if you want. Choosing your minimum trading amount should comply with your financial state. It is recommended to invest the amount you can afford. 

Forex brokers offer leverage allowing traders to improve their trading experience and get more funds. Leverage – is an amount of money you can get in every trade from a broker. You can’t withdraw leverage but you can increase your position size and thus, your eventual profit by using it.

Look for the additional features you can benefit from

Standard broker’s set of features includes a trading platform and financial instruments to trade. Before creating an account, it is recommended to see what platforms you can choose from and what are their main features. Most regulated US Forex brokers offer MetaTrader trading platforms and some other terminals including proprietary platforms. 

The range of financial instruments also matters. When it comes to Forex trading, you can buy FX currency pairs, metals, CFS for stocks, indices, and some commodities. Some regulated US Forex brokers provide their customers with the opportunity to trade cryptocurrencies.

Apart from those key features that every broker offers to the customers, you can also benefit from some additional ones. They include market reviews and educational tools. When it comes to regulated US Fore brokers, they pay much attention to educational content as they have more responsibilities and are constantly monitored by the regulatory bodies.

This means educational content provided by those brokers is of better quality when compared to unregulated companies. The same is for market research.

How to test regulated US Forex brokers

A regulated US Forex broker is a good choice for every trader but you can test a particular company to understand whether it is a good one for you or not. Here is a brief guide on how to check the broker’s reliability.

You can’t check if a broker offers high-quality services before you start trading with it. The best way to test any company is to create a demo account. To do that, you need to create a standard account and claim for the demo. 

This will allow you to test the trading platform and to be able to familiarize yourself with the trading terminal faster and without risking your own funds.

There is another reason for opening a demo account. You can check if the broker keeps promises when it comes to spreads. You can check spreads when you start using the demo. 

It is recommended to test the broker for two weeks using this virtual account. If everything goes right, you can create an account. Another way to check a regulated US Forex broker is to invest the lowest amount possible. If the minimum deposit is $1,000 and you have $5,000 for trading, you can fund your account with $1,000 and add the rest when you make sure the broker meets your requirements. 

It is better to test the support service during this trial period meaning you can ask any question to them and see how fast they are to respond and how deep the answers are. 

While testing a broker, you need also to see how fast the withdrawal procedure is. To do that, you can cash out some amount by using one of the available payment methods. By doing this, you can also check all the costs you will have to pay when dealing with regulated US Forex brokers. While most Forex companies do not charge their customers with deposit and withdrawal commission, they may appear on the payment methods side.

Should I choose regulated US Forex brokers only?

While regulated companies seem to be more reliable, some FX brokers that have no license may also be a good choice. However, you will have to conduct your own due diligence in this case. You may check the broker’s reliability by using the points we have described above.

An unregulated broker is not synonymous with a bad or scam broker. Many offshore companies provide their customers with high-quality services and greater opportunities. When it comes to leverage, you can have greater opportunities when dealing with offshore companies. While most regulated US Forex brokers offer 1:50 max leverage, unregulated companies provide you with the opportunity to trade with 1:1000 and even 1:2000 max leverage. 

It is important to mention that you should be double careful when dealing with those unregulated companies. They are not controlled or monitored by any independent body. You need to read traders’ reviews to make sure the company is reliable. 

When examining traders’ reviews it is important to understand that not all of them are trustworthy. It is a common practice for some scam brokers to order positive testimonials. Make sure that the review you read was written by true traders.

Those who choose unregulated companies are dealing with higher risks. Moreover, in case of any trial, you will have to deal with a foreign jurisdiction, which may cost you even more money.

The benefits of choosing a US regulated broker

Those who choose US regulated Forex brokers will benefit from the following advantages:

  1. Safety. When dealing with regulated Forex companies, you are double protected against any malicious activity. Regulatory authorities monitor Forex brokers constantly. If you have any complaints, they will engage to help you.
  2. Higher quality of services. US Forex regulated brokers provide their customers with higher quality services including better education and market research content. 
  3. Protection of funds. When dealing with regulated Forex companies, you can be sure your funds are fully protected from being stolen by the company itself or the employees. All trader’s funds are stored separately from the company’s money. 

Final thoughts

When dealing with regulated Forex companies, you are protected from various malicious doings. Despite the fact regulated US Forex brokers offer less interesting conditions than unregulated offshore companies if you want to sleep well, you are recommended to choose reliable brokers only.