Residents of the USA will be Interested in Learning More About NFA Forex Brokers
Forex brokers with their base of operations in the USA are licensed and regulated by the NFA (National Futures Association) and the CFTC (Commodity Futures Trading Commission). We’ll be looking at the work of the CFTC and CFTC regulated brokers a little later, but for now we’ll spend some time discussing NFA regulated brokers.
What is the NFA?
The initials NFA stand for the National Futures Association and it is a self-regulatory body which is responsible for the futures industry in the United States of America. Its mission is to provide a series of regulatory programs and services to ensure the protection of market participants and to help its members meet their regulatory responsibilities. The work of the NFA is overseen by the Commodity Futures Trading Commission, which is a government agency that is responsible for regulating the US futures industry.
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The main functions of the NFA are fraud and abuse prevention, dispute resolution and mediation. It is also responsible for drafting regulatory frameworks for its members. The NFA’s duties and functions have no jurisdiction outside of the US. It has the power to discipline any members who do not follow the rules but only so far as imposing fines. Stiffer penalties can be imposed by the CFTC when recommended by the NFA’s Hearing Panel and accepted by the NFA Appeals Committee. The two US regulatory bodies work closely together to ensure the trading markets are kept clean and free from abuse. All of which makes the US Forex market one that is closely regulated and overseen, and ultimately safe and secure for US investors.
How does a trader benefit if they choose an NFA regulated broker?
The NFA imposes strict standards and procedures on its members. All of which are designed to protect investors. These include:
- Limited leverage – In 2010, the Dodd-Frank Act was introduced and it imposes certain leverage limits which are currently a maximum 50:1 for Forex, and 20:1 for options. You will find a number of US Forex brokers offering higher leverage, but this is because they have international branches in other countries, which operate differently and are not regulated by the NFA or CFTC.
- No hedging and FIFO – FIFO (First In First Out) and hedging is not allowed. If a trader opens more than one position on a currency pair, the first must be closed before closing the second one.
- OFAC restrictions – Limitations have been placed on US Forex brokers by the OFAC (Office of Foreign Assets and Control) as to who they can accept as clients. US Forex brokers tend to restrict trading to a certain type of trader.
- Credit cards are not permitted to be used for funding a Forex account
These requirements and more make Forex trading for US clients very safe and fair. The benefits of choosing NFA Forex brokers include:
- Financial operations of NFA regulated brokers are transparent
- A trader’s assets are safe because regulated brokers meet strict standards and follow procedures. These include the backing up of all customer positions with their own capital or carrying them over to the interbank market. They are also forbidden from using client funds to carry out operational activities.
- NFA regulated Forex brokers are subjected to comprehensive annual audits and are required to report their account balances at the end of every trading week.
- NFA registered FX brokers have to have licensed and specially trained staff.
In order to accept US clients a Forex broker has to be registered with the US regulatory bodies and many international offshore Forex brokers have found this to be very costly and difficult.
Is it possible to check whether a Forex broker is regulated by the NFA?
For any trader that is looking for an NFA regulated broker, it is a very simple process to check whether a Forex broker is in good standing with the body’s register. It is all done via the NFA’s website. Traders are able to check using the broker’s firm name, pool name, or an NFA ID number. If a broker is regulated by the NFA it is a requirement that their ID number is stated on its website, which makes it even easier to check.
The pros and cons of using NFA Forex brokers
There are, of course, a number of advantages of using NFA Forex brokers, and the most important one is that NFA regulation ensures the safety of clients funds. It also provides a medium for arbitration and consumer dispute resolution, which is always going to be of benefit. An NFA regulated broker is also considered to be honest and will refrain from any kind of fraudulent activity. Regulated brokers have to go through a screening process which allows a prospective client to peruse a broker’s financial profile before deciding whether to use their services.
Unfortunately, there are also a few disadvantages. The first being the fact that both the NFA and the CFTC are known for interfering with the freedom of traders because of the strict trading restriction they choose to impose. Even though they are imposed in order to safeguard consumer interests, they are seen by many as an imposition on their personal rights. Any trader who would like to enjoy the freedom to trade in a way of their choosing will find the low leverage, no hedging and scalping rules very restrictive. We would, therefore, advise any traders considering an NFA regulated Forex broker to carefully analyze the various trading policies before coming to a decision.
Is it easy to find Forex brokers that are NFA regulated?
Yes it is, because most Forex brokers regulated by the NFA provide detailed information on their website. This will include the ID or license number and a link that will take you direct to their profile. And because the NFA give consumers access to the register on their own site, it is easy to check and information and perform a background check. Even though a broker may state they are regulated, we would always advise any potential new clients to verify the authenticity of the broker’s claims.