The post Forex Broker Regulations in the US by Sam Boughedda, Stock Market Analyst appeared first on Benzinga. Visit Benzinga to get more great content like this.
Forex trading is an option for just about everyone and attracts many people because of its ease of access and the lure of quick and easy profits. Retail traders can sign up with an online broker, deposit funds and begin trading.
For the broker, however, it is not as easy as just offering various forex pairs to trade. Numerous countries have put strict online forex broker regulations in place to ensure those firms domiciled within their legal jurisdiction meet official criteria so individuals can trade safely through them.
Although you might think the foreign exchange market is unregulated, forex market regulation rules do exist to protect retail forex traders. These rules help keep online forex brokers honest and protect unsuspecting traders from the risk of dealing with an unregulated broker.
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Do Forex Brokers Have to be Regulated?
A duly overseen forex-regulated broker will typically be subject to any regulations and official scrutiny that are legally required for them to operate in their respective jurisdictions. This ensures they comply with any laws and ethical standards put in place by governments or their regulatory agencies.
Although the interbank forex market remains basically unregulated, the regulation of the retail forex market puts a system of checks in place to ensure the online forex market stays safe for individual traders. These checks include a set of legal and ethical standards applicable to forex brokers domiciled within a particular country or region as well as the careful oversight of the broker by official regulators or watchdogs.
Any decent online forex broker worth entrusting your margin deposit with should be regulated to protect you against fraud. If you choose an unregulated forex broker, you can risk losing your entire deposit with little legal recourse if the broker turns out to be a forex scammer.
Because quite a few online forex brokers remain unregulated and lack any official agency to monitor their actions and discipline them for transgressions, this situation can result in the complete loss of your trading capital if you entrust them with it.
It is important for forex traders to check that any broker they are thinking of doing business with is regulated either in their own country or in another jurisdiction where the broker submits to strict regulatory oversight. In short, it is unwise to open an account with an unregulated forex broker.
How U.S. Authorities Regulate Forex Brokers
If you’re interested in forex trading in U.S.locations, it is important to understand how U.S. authorities regulate online forex brokers and how they can protect retail forex traders. U.S.-regulated forex brokers are overseen by two main regulatory bodies, which are listed and described below.
Commodities Futures Trade Commission (CFTC)
The CFTC is an independent U.S. government agency founded in 1974. The CFTC was created to oversee all derivative markets, which include futures, swaps and certain options. It also now has responsibility for overseeing online forex brokers.
The Commodities Futures Trade Commission protects the public from fraud, manipulation and abusive practices related to transactions in futures and options as well as online forex transactions. The agency investigates and prosecutes fraud occurring under its oversight to protect the U.S. public.
Furthermore, the CFTC’s regulatory oversight of the derivatives and online forex markets tends to encourage competitiveness, efficiency and trust by ensuring integrity among market participants like online forex brokers.
National Futures Association (NFA)
The National Futures Association is an independent self-regulatory organization designated by the CFTC to oversee the U.S. futures, derivatives and online forex trading markets. The NFA is a registered futures association that aims to safeguard the integrity of the derivatives and online forex market.
The NFA’s primary finance comes through dues and fees paid by members and participants of the derivative markets. This regulator helps protect individual traders by ensuring that online forex brokers that accept U.S. clients adhere to its strict standards.
Members of the NFA must fulfill their obligations to the regulator. Any failure to comply with its set rules could lead to fines or even membership cancellation that would effectively prevent an online forex broker from continuing to do business with U.S. clients.
How US Regulations Differ
A clear forex broker regulation framework is in place in the U.S. to protect large corporations and businesses, small retail forex traders and everyone in between. Care must be taken by an online forex broker to verify all key factors about a client such as who owns a trading account and where they reside.
However, most online forex brokers are based outside the United States, so you need to make sure they are authorized and overseen by their country’s regulator to do business as an online forex broker. Even if they are regulated in their host country, this does not certify the broker to accept U.S. clients.
If you are concerned about the regulatory requirements for online forex brokers operating in the U.S., you can read through the pertinent regulations regarding maximum leverage ratios, how deposits are held and other forms of retail trader protections that can vary from country to country.
To be safe as a U.S.-based trader, you should make sure any online forex broker you deal with is duly regulated by the CFTC and the NFA and remains in good standing with those agencies.
Foreign Regulatory Bodies to be Aware of
If you wish to trade forex with an online broker domiciled in another country or region, here are a few reputable foreign regulatory bodies you can look to:
- The Financial Conduct Authority (FCA): The FCA regulates online forex brokers in the U.K. as well as banks, financial advisers and other financial intermediaries. It is a strict and very reputable regulatory agency.
- The Cyprus Securities and Exchange Commission (CySEC): CySEC is the financial regulatory agency of Cyprus in the European Union. While this is not a major regulator, it does enforce all financial regulations and ensure that online forex brokers based in Cyprus comply with the EU’s MiFID II financial harmonization laws. Online forex brokers registered in Cyprus have access to all European markets and can accept clients from throughout the EU.
- The Australian Securities and Investments Commission (ASIC): ASIC is an independent commission of the Australian government that oversees all financial service firms. As a strict regulator of online forex brokers doing business in Australia, it enforces laws to protect Australian forex traders.
How Can I Verify Whether a Broker is Regulated?
Setting up a margin account with a strictly regulated broker is the safest way to start trading forex online. It may seem difficult to determine which brokers are regulated and which are not. Below are some tips to help you verify if an online forex broker is suitably regulated.
Research
A simple web search is the first thing you can do to check any details on a broker. This will bring up recent adverse reports, media outlet articles, disciplinary actions or negative reviews to help you better understand whether the online forex broker is reputable and trustworthy. Financial firms operating in major jurisdictions also generally need to be registered with and licensed by the appropriate regulator. This information will be shared with the public, so check the regulator’s website.
Ask Questions
Whichever forex broker you choose should be trustworthy, and you should be able to ask them any questions and bring up concerns you may have. Make sure you find out what type of forex trading services the company offers, what agency it is regulated by and how long it has been in business.
Establishing a good relationship with your broker can go a long way toward putting your mind at ease so you can focus on trading profitably. A broker’s customer service staff should be able to provide details regarding where they are regulated and by whom.
Check Account Regularly
If you have already opened a trading account with an online forex broker, check your trading account and its balance regularly to detect any mistakes or unforeseen deductions from your account. Not checking your account often could lead to such problems just becoming worse, so approach your broker to resolve them immediately. If you do detect such irregularities, your broker may not be regulated, so you should consider closing your account and finding a new broker.
Websites
Researching recent news or reviews about a broker you are unfamiliar with can help put your mind to rest. You can also do further research into an online forex broker’s exact regulatory environment, its licensing and whether it remains in good standing. The best place to look for that information is on the website of the broker’s primary forex regulator.
Top 5 US Regulated Forex Brokers
Below is a list compiled by Benzinga of the top five regulated best forex brokers for us clients that offer excellent forex trading platforms to help you have a reliable and safe forex trading experience.
1. IG Markets
IG offers various trading tools designed to give users the best experience possible. You can open both a demo account and a real trading account, and there are different training methods to help you improve. IG is a highly trusted broker for all traders. The broker is regulated by the FCA in the U.K., the CFTC and NFA in the U.S., and many more regulators in different countries.
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Best For
- New forex traders who are still learning the ropes
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
- Easy-to-navigate platform is easy for beginners to master
- Mobile and tablet platforms offer full functionality of the desktop version
- Margin rates are easy to understand and affordable
- Access to over 80 currency pairs
- U.S. traders can currently only trade forex
- Customer service options are lacking
- No 2-factor authentication on mobile
2. Oanda
Oanda is another great broker, especially for beginners. The broker has operated since 1996, and the company offers tight dealing spreads, good market execution and excellent trading platform tools powered by TradingView. In addition, its research tools and technical indicators make it perfect for beginners. Oanda is regulated in numerous tier 1 jurisdictions, including the U.S., the U.K., the EU and elsewhere.
OANDA offers commercial and standard access to the forex market, with over 70 currency pairs to trade. OANDA’s platform is comprehensive, offering a wide range of indicators and charting tools for experts as well as a simple and intuitive layout that’s perfect for beginners.
You won’t find retirement savings or stock trading on OANDA — the platform doesn’t offer any type of trading beyond the forex market. However, the broker does forex trading especially well — though it could stand to offer more in the way of customer service and lower fees.
Best For
- Forex Charts
- New forex traders looking for an easy-to-use platform
- Mobile traders who need a comprehensive on-the-go offering
- Experienced forex traders who seek a wide selection of charting tools, indicators and currency pairs
- Comprehensive and easy-to-understand platform
- Mobile platform improves upon the desktop version
- Over 70 unique currency pairs to trade
- Only forex trading available
- No retirement accounts available
3. Interactive Brokers
This reliable online broker offers the best user experience. It is safely regulated by major agencies such as the FCA, NFA and CFTC. The company boasts multiple awards, such as Best Online Broker by Barron’s. You don’t even need a minimum balance to sign up for an account with IB.
Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 135 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.
IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.
Best For
- Access to foreign markets
- Detailed mobile app that makes trading simple
- Wide range of available account types and tradable assets
- Comprehensive, quick desktop platform
- Mobile app mirrors full capabilities of desktop version
- Access to massive range of tradable assets
- Low margin rates
- Easy-to-use and enhanced screening options are better than ever
- Trading platform may be intimidating for new investors
4. TD Ameritrade
This multiasset brokerage firm has excellent support for customers and offers competitive dealing spreads across all its asset classes. It is one of the largest North American brokers offering online forex trading and is regulated by the Securities and Exchange Commission (SEC), CFTC, NFA, FCA and many more regulators around the world.
This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.
Best For
- Novice investors
- Retirement savers
- Day traders
- World-class trading platforms
- Detailed research reports and Education Center
- Assets ranging from stocks and ETFs to derivatives like futures and options
- Thinkorswim can be overwhelming to inexperienced traders
- Derivatives trading more costly than some competitors
- Expensive margin rates
5. FOREX.com
FOREX.com trading platform lets you trade up to 80 forex currency pairs as well as thousands of other assets spread across several markets. The company has over 200,000 customers since it was founded in 2001. In addition, its wide range of products and strict regulatory oversight in the U.S. by the NFA and CFTC makes it an excellent option for retail forex traders.
FOREX.com is a one-stop shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker.
Best For
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
- Cannot buy and sell other securities (like stocks and bonds)
Favorable Trading Conditions for the Foreign Exchange Market
The US forex broker regulations are designed to protect traders from poor trading practices. They ensure that traders are informed about the risks involved in forex trading and provide them with enhanced protection against fraudulent broker practices.
It is important for traders to understand the regulations that govern their brokers and only work with regulated entities to safeguard their investments. The US forex broker regulatory environment is one that is constantly evolving, and it’s important to stay updated with the latest developments to make informed investment decisions.
Best Forex Brokers Around the World
Choosing a broker and researching the details required can be difficult. Luckily for you, a list of some of the best brokers based inside and outside of the U.S. are listed below.
FOREX.com is a one-stop shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker.
Best For
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
- Cannot buy and sell other securities (like stocks and bonds)
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Best For
- New forex traders who are still learning the ropes
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
- Easy-to-navigate platform is easy for beginners to master
- Mobile and tablet platforms offer full functionality of the desktop version
- Margin rates are easy to understand and affordable
- Access to over 80 currency pairs
- U.S. traders can currently only trade forex
- Customer service options are lacking
- No 2-factor authentication on mobile
HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.
HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service.
Best For
- Investors who want a customizable fee schedule
- Traders comfortable using the MetaTrader platform
- Islamic traders who need swap-free accounts that don’t build interest
- Mobile app with a simple trading experience
- Wide range of currency pairs available
- Excellent selection of educational tools
- Not currently available to traders based in the U.S.
86% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Plus500 is a European derivatives broker focusing on contracts for difference (CFDs). CFDs are similar to binary options in the U.S. where traders take all-or-nothing speculation on the prices of certain securities like indices, commodities or currencies. While not legal to trade in the U.S., CFDs are legal in many jurisdictions across the globe and Plus500 offers a wide array of tradable markets using these instruments.
Plus500 doesn’t charge commission and only profits off the spread, which is the difference between the buy and sell price of a specific security. But Plus500 is not a broker for beginners — the education materials are sparse and CFDs are risky derivatives capable of sapping out all of an investor’s capital. Only trade these instruments if you understand how they operate and the risks involved with buying them.
Best For
- Traders looking for a smooth mobile experience
- Great mobile app
- Low spreads and commissions
- Unlimited demo account
- Only derivatives are available
- Not open to U.S. residents
Billing itself as the world’s 1st eco-friendly broker, CedarFX makes it easy to trade and give back to the planet. You can choose a 0% Commission Account or an Eco Account — or open multiple accounts to meet all your needs.
CedarFX offers access to a wide range of tradable securities, including stocks, futures, major and exotic forex pairs, cryptocurrencies and more. Though CedarFX could introduce a few additional educational resources, the broker remains a unique option for traders invested in giving back.
Best For
- Forex investors
- Investors interested in 0% commission or eco conscious trading
- Investors looking for 24/7 customer service
- Allows users to offset their carbon footprint
- 0% commission investing
- Offers demo account access
- 24/7 customer service available through live chat
- Eco Account Option (10 trees planted for each lot traded)
- Fast deposits/withdrawals with Bitcoin
- Limited number of educational resources for new investors
Standard Accounts: $1,000
Founded in 2006, IFC Markets is a popular forex and contracts for difference (CFD) broker that provides high-quality trading services to over 185,000 clients from more than 80 countries. The broker has oversight from the British Virgin Islands Financial Services Commission (BVI FSC) as well as the Labuan Financial Services Authority (LFSA) in Malaysia.
IFC Markets offers trading in over 600 financial instruments including forex stocks indices commodities cryptocurrency futures and synthetic assets through excellent trading platforms: MetaTrader 4 and MT5, and its own developed NetTradeX advanced platform. IFC Markets also gives clients unlimited trading opportunities via its unique GeWorko Portfolio Quoting Method that lets traders create their own synthetic instruments or choose from PCI Library synthetic instruments created by professionals.
Best For
- Traders who want to create their own trading instruments
- Intraday and mid-term traders
- Small volume traders
- Trading platforms variety
- The GeWorko Portfolio Quoting Method lets you create synthetic assets
- 15 years experience in the business
- Highly rated by clients with 8 recent international awards
- Insured by AIG Europe Ltd.
- Only regulated by 2 minor agencies
- Not available to traders in the U.S., Japan and Russia
A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.
Best For
- Beginners
- Advanced traders
- Traders looking for a well-diversified portfolio
- Controlled by regulatory agencies of multiple countries
- Choice offered in terms of trading platforms
- Support available in 14 languages and trading platforms in 20 languages
- Practice/demo account available for trying out
- Breadth of trading assets
- Does not accept customers from the U.S. as it isn’t regulated in the U.S.
- Transferring funds to the account may take up to five days; withdrawals could take up to 10 days
Frequently Asked Questions
Who regulates forex brokers in the US?
Forex brokers in the United States are regulated by both the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The CFTC is an independent government agency that regulates futures and options markets, while the NFA is a self-regulatory organization for the futures industry. Both organizations have developed regulations and guidelines for forex brokers operating in the U.S. to ensure customer protection and fair trading practices.
Do forex brokers have to be regulated?
Yes, Forex brokers do have to be regulated by an appropriate financial regulator in order to operate legally. Forex trading is a highly-regulated activity, and many countries’ regulatory authorities require that all brokers offering services in their jurisdiction must be licensed and regulated. This ensures that the broker operates according to industry standards and offers a level of protection for clients from fraudulent activities.
Do forex brokers report to IRS?
Yes, forex brokers are required to report to the Internal Revenue Service (IRS). Forex brokers must inform the IRS of any gains or losses made by their clients as part of their obligation to comply with the Foreign Account Tax Compliance Act (FATCA). This includes reporting any profits or losses resulting from currency exchange transactions.
The post Forex Broker Regulations in the US by Sam Boughedda, Stock Market Analyst appeared first on Benzinga. Visit Benzinga to get more great content like this.
