No to non-regulated brokers!

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Trading with a Regulated Broker

The Forex market is the largest, most liquid market on the planet. Combined with a highly volatile and extremely competitive CFD market, the FX/CFD industry has attracted massive attention and an ever increasing number of individual investors. Unsurprisingly, trading activity of that size and scope creates unique challenges regarding market regulation.

How is the Forex market regulated?
In an industry so liquid and lucrative, it is essential to have strong regulatory oversight to prevent malpractice. It is important to understand that there is no centralized body governing the currency trading market. Instead, there are a number of governmental and independent bodies that supervise forex trading around the world. These supervisory authorities regulate forex by setting standards which all brokers under their jurisdiction have to comply with. These standards ensure that Forex/CFD trading is ethical and fair for all parties involved.

As the largest and most liquid financial market in the world, the Forex/CFD market is regulated by the same regulating bodies that supervise banks and other financial institutions. The only difference however, is that these regulators can only regulate the Forex market domestically within their jurisdiction. It’s therefore very important for retail traders to look for brokers that obtain regulation which covers the jurisdiction where the trader resides.

What regulation means for traders
With Forex brokers supervised by a regulatory authority investors can be more confident about the credibility of the broker. For a retail trader, the biggest risk of trading with a non-regulated broker is that of illegal activity or schemes. Fraudulent activities include excessive commissions; very lose spreads, hidden Terms and Conditions and even restrictions on withdrawals. Regulatory authorities can provide a level of protection for investors as they can be trusted to restrict, sanction or ban such unwarranted actions and to safeguard investors.

Choosing a Regulated Broker
Trading with a regulated broker should be one of the main prerequisites for any individual trader looking to trade forex and CFDs. The fact that a broker is regulated implies that they respect industry standards. A regulated broker not only follows Forex regulation that is aligned with the clients’ best interests, but also offers safety, reliability, and security.
The biggest advantage of trading with a regulated forex/CFD broker is that a financial authority will step in if there are any problems. A broker that is regulated by a financial authority also offers segregated funds, meaning that your funds are not being used for any purposes other than trading. Traders’ funds are held in segregated accounts and cannot be used by the brokerage. What is more, a regulated broker will build its business around its clients and it is more likely to have outstanding customer satisfaction as well as a customer oriented service.

Regulatory Authorities around the world
The following table includes a list of the most important Regulatory Authorities across the globe.

Top U.S.-Regulated Forex Brokers

The foreign exchange (forex) market runs 24/7, offers global currency pairs for trading. The market is driven by geopolitical developments, news, the release of macro-economic data, and related developments. On one hand, such a global market offers enormous trading opportunities, but on the other, it is challenging to protect individual traders from any financial irregularities. Thus, regulations were introduced through an established framework that ensures that financial intermediaries, like forex brokers, comply with the necessary rules to offer loss protection and controlled risk exposure to individual traders.

Learn more about the basics of forex market regulation in the U.S., as well as some of the popular forex brokers in the country.

Key Takeaways

  • The Commodity Futures Trading Commission and the National Futures Association are responsible for regulating the forex market in the U.S.
  • All U.S. forex brokers must be registered with the NFA.
  • The Dodd-Frank Act, which was signed into law in 2020, constitutes the primary body of rules governing forex trading.
  • Some of the most popular forex brokers include FOREX.com, OANDA, TD Ameritrade, ATC BROKERS, thinkorswim, Interactive Brokers, and Ally Invest.

U.S. Forex Market Regulation

There are two institutions responsible for regulating the forex market in the United States—the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

Every forex broker operating in the U.S. must register with the CFTC. The laws enforced by the CFTC and NFA apply to both U.S.-based forex brokers, as well as any other forex broker who intends to serve clients in the country.

All U.S. forex brokers (including the introducing brokers) must be registered with the National Futures Association (NFA), the self-regulating governing body that provides the regulatory framework to ensure transparency, integrity, abiding of regulatory responsibilities, and protection of various market participants. The NFA also offers an online verification system called Background Affiliation Status Information Center (BASIC), where forex brokerage firms can be verified for having necessary regulatory compliance and approval.

One point to note is that the Securities Exchange Commission (SEC) does not have authority over the forex market because it doesn’t consider currency pairs a security.

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Daily trading volume has reached as high as $4 trillion in the forex market.

Dodd-Frank Act: Forex Rules

In the United States, the Dodd-Frank Act constitutes the primary body of rules governing forex trading. Signed into law in 2020 by President Obama, it reformed insufficient financial regulation that allowed too much leeway to financial institutions, which contributed to causing the 2007-2008 financial crisis.

These regulations have scared off both forex brokers and retail traders. There are fewer forex brokers currently operating in the U.S. compared to other areas in the world—primarily because of the regulations enforced by the NFA.

U.S.-Regulated Forex Brokers

This list of seven U.S.-regulated forex brokers—that remain after Dodd-Frank washout—is not in any particular order, and it is not comprehensive:

FOREX.com

Owned by NYSE-listed parent company, GAIN Capital Holdings, Inc. (GCAP), FOREX.com offers many salient features like tight forex spreads, timely trade executions, a mobile trading platform, and numerous technical research indicators in 29 different languages.

FOREX.com trading offers integration across MetaTrader 4 or FOREXTrader PRO platforms. There are three ways traders can trade—advanced trading, web trading and mobile trading applications.

High volume traders get cash rebates, earned interest, and bank fees waived.

OANDA

OANDA is another popular broker offering competitive spreads with no commissions and deep market liquidity, along with its OANDA Marketplace. It offers loads of features for forex traders such as forex tools, products, advanced analytical tools, forex news, training videos, and MT4 plugins from OANDA and associated partners.

You can start with a free demo. The site also offers benefits for high volume traders. You can get a discounted spread, a subscription with a partner platform, free wire transfer among other perks.

TD Ameritrade

TD Ameritrade offers powerful charting tools, capable of comparing multiple currency pairs alongside each other, as well as providing any necessary technical indicators. Customers can also analyze social sentiment from Twitter. The brokerage also provides reputable third-party research tools from Morningstar and Market Edge.

The firm promises no hidden fees, access to its mobile trading app, and 24/7 support.

Verify a forex broker’s status by using its NFA ID or firm name through the NFA’s Background Affiliation Status Information Center.

ATC BROKERS

STP Execution, No Dealing Desk, Scalping Allowed, Multiple Brackets Order along with other risk management tools like breakeven capability, custom trailing stop-loss, and more enable ATC BROKERS to be one of the popular regulated brokers in the U.S.

The broker also provides access to news events and an economic calendar, along with support through email, phone, and online chat.

thinkorswim

thinkorswim by TD Ameritrade is another popular U.S.-regulated forex broker that offers to trade in more than 100 global currency pairs.

You can sync the platform on multiple devices and customize and share your alerts. You can also get in-app chat and sharing, so if you need help, the representative you’re communicating with can access your screen. And like TD Ameritrade, it promises no hidden fees, and data fees also don’t apply.

Interactive Brokers

Another popular broker having a global presence, Interactive Brokers claims to have low trading costs with high-level execution, global offerings, high-end trading technology, risk management tools, and trading tutorials.

It promises access to 23 different currencies, as well as 120 different markets in 31 different countries. You can stay connected to global markets 24 hours a day, six days a week.

Ally Invest

Ally provides traders with comprehensive research and analysis, competitive pricing and robust educational resources. The trading platform includes a full suite of trading tools, 24/5 market access and a practice account for testing investing approaches.

The Bottom Line

Regulations are a balancing act. Too little will lead to financial irregularities and inadequate protection to individual traders; too much will lead to a lack of competitiveness in global markets. One major challenge reported with U.S. forex regulators is that leverage provided is limited to 50:1, while global brokers, outside of U.S. regulations purview, provide up to 1000:1 leverage. Traders and investors need to take a cautious approach, ensuring security first.

Disclaimer: Information presented is as available at the time of writing this article, and may change in due course of time. The author does not hold an account with any of the mentioned brokers.

Regulated vs Unregulated Brokers – Which One You Should Choose

Forex, also known as FX or foreign exchange is one of the biggest and most liquid decentralized markets in the world with a normal day by day exchanging volume exceeding $5 trillion. In the past few years, forex trading gained a notable popularity due to the opportunities it offers and its ease of access.

If you decided to become a forex trader, you have a long way to go until you reach your first victory; but knowledge, information and logic thinking will get you there. The online broker you choose is the first and most important step towards this journey, that’s why is crucial to pick the right one. Here are a few things you need to look for in an online broker.

Regulated vs unregulated brokers

Why is it so important for an online broker to be financially regulated by one or more regulatory bodies? Because we are talking about the safety of your capital, the money you invest and the promise of the broker to use your funds solely for the right purpose. When a broker is unregulated, this means that there is no regulatory organization or group of persons monitoring them, in other words, they can take your money and disappear. This is the reason why you see lists of online brokers described as scams or frauds. The first thing you need to do while checking out online brokers is to verify whether they are regulated or not. For example, TradeFW.com is a trustworthy online broker, regulated by CySec and MiFID compliant, an excellent choice for both novice and experienced traders. Their transparency and the amount of legal documentation they put at your disposal is a sign of professionalism and a feature that any legit online broker should have.

While there is no international organization to protect all forex traders, there are certain countries that monitor and oversee forex trading activity and the legitimacy of online forex brokers. Do some research about the regulatory agencies in your country or the ones in which the broker has the headquarters. Take your time and check in all possible ways if the online forex broker you’re about to trade with is genuinely financially regulated. The safety of your capital is the first step towards success and profit.

Only settle for the best

While being financially regulated is crucial, equally important for your trading success is the environment, instruments and help the online forex broker provides. Trading forex is no piece of cake because before the actual trading process takes place, you need to read and get to know the basics, otherwise, you will not know what to choose or how to separate the good forex brokerage firms from the bad ones. Here are a few essential things you can check:

Make sure they have a trading platform which is easy to navigate and has all the required tools, advanced charts, and optimal speed. See if they provide various account types and if any of them has the features you need (like the suitable minimum deposit demands, the right spread, and leverage) and if their list of products is what you’re looking for. In addition, check how available they are, if the accounts come with a personal account manager, if the time schedule of the customer support service is what you need and if they have any headquarters. Don’t hesitate to call or e-mail them your questions, a professional broker will always have a team of experts ready to answer.

All in all, the best online brokers know they should provide anything but the best to their traders because when traders make the profit, they make the profit. That’s why you need to settle only for the best.

Conclusion

In the end, the rate of success stands only in your hands and the decisions you make belong only to you. There will always be good and bad in this world and the forex trading market is no exception. Knowledge is power and once you will be able to identify your needs and choose the right online forex broker for you, success and profit will eventually come.

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