The initials CFTC stand for the Commodity Futures Trading Commission, which is an independent US federal agency that was established in 1974 by an Act with the same name. It is an agency which is responsible for regulating the commodity futures and options market. The goals of the Commission are to promote competitive and efficient futures markets and to protect investors against fraud, abusive trade practices and manipulation. The Commission is made up of five committees, each headed by a commissioner who has been appointed by the US president and approved by the Senate. Each committee has its own area of expertise: agriculture, energy, environmental markets, technology, or global markets. Each being made up from a selection of individuals, the committees represent the interests of certain industries, traders, commodities exchanges, futures exchanges, the environment and consumers.
The CFTC has introduced a number of guidelines for regulated brokers
Any Forex brokers operating in the US must be registered and regulated by the CFTC. As such, there are a number of guidelines CFTC Forex brokers must follow.
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- A CFTC-regulated broker has to be registered and held in good standing with the Commission, and must also display its CFTC registration number on its website.
- A CFTC Forex broker must keep proper records and financial reports and maintain disclosure, as well as providing the CFTC with all necessary information on a regular basis. This must include details of the segregation of traders funds.
- Regulated brokers are required to keep a minimum net capital level of USD$20 million, plus 5% if the liabilities accruable to retail Forex customers exceed $10 million.
- A regulated Forex broker must be registered either as a futures commission merchant or a retail foreign exchange dealer. This requirement extends to all introducing brokers that might claim to represent a CFTC-regulated brand.
- The FIFO (First In, First Out) rule must be followed by any Forex brokers regulated by the CFTC. This means that traders must liquidate the oldest open position first when trading multiple currency pairs.
- The CFTC does not allow hedging of Forex trades, and all regulated brokers have to comply with this.
As you can see there are a number of rules already in place to help safeguard the investments of Forex traders, which highlights the importance of choosing CFTC-regulated brokers. The CFTC also continues to monitor the market and introduce new regulations. So how can you go about finding the right one?
It’s easy to check whether a Forex broker is CFTC registered
The CFTC have made it really easy for members of the general public to check up on the standing of any broker claiming to be CFTC-registered. It is also possible to check out their history as well as to access any complaints that may have been made, and even to file your own. It is good to know this just in case you find yourself in a situation wherein you are tempted to invest your hard-earned dollars with a broker claiming to be CFTC-regulated. There have been instances in the past where a broker from an unregulated European country claimed to have offices in the US, and was thereby regulated. The CFTC has the power to issue a disclaimer stating the broker is not a bona fide CFTC-regulated broker.
When writing our own Forex broker reviews we will always check any regulatory claims a broker makes, but would advise you to do your own research as well. Don’t be worried if you think it will be too complicated, as the process is very easy. The CFTC website has a list of regulated brokers that you can access directly, or you have the option of emailing the CFTC and asking them. Another option is to use the customer service live chat option of any broker you’re considering investing with, and asking for their NFA/CFTC licence number. Once you have the licence number you can check the broker’s standing on the CFTC website. If the broker is unwilling to divulge their licence number this is a surefire sign they are a scam.
The difference between regular and CFTC-regulated brokers
It is considered by many traders, not just those who reside in the USA, that CFTC Forex brokers are among the most reliable brokers to do business with. All kinds of brokers are accountable to the CFTC – not just those who offer foreign exchange services – and they are all dedicated to offering a fair platform where investors can take advantage of the financial markets and make trades.
The CFTC works independently of the financial markets, and regulates brokers on acceptable behavior should they wish to offer consumers a range of financial services in the US. The Forex market in particular is a breeding ground for unscrupulous providers, financial fraud and crime, so the CFTC works tirelessly in the interests of protecting consumers and their hard-earned cash.
Before we finish we’d like to bring to your attention to another aspect of the CFTC that makes it stand out from other regulatory bodies. Traders and investors are able to contact the CFTC and file complaints directly, as well as providing information to the Commission with regard to any discrepancies. The CFTC also runs a Whistleblower Program for consumers who wish to report any misdeeds. Should the claims prove to be true there are some hefty rewards provided by the Government.
When you take into consideration all the rules and guidelines the CFTC have put in place, there is no valid reason why would anyone want to choose a regular broker over one that is CFTC-regulated. We hope you take our advice on board, as it really is the only way to safeguard your investment. Choosing a regular broker is only leaving yourself wide open to being scammed. You’ve worked hard for your trading capital, so do as much as you can to keep it safe by choosing a regulated Forex broker.