Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Title Icon

Beginner

Venturing into Forex for the first time?
Explore the basic concepts of buying and selling.

How is Forex Regulated?

There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers. Only about 5% of the Forex brokers work under regulatory authority, leaving firms to take advantage of their clients and engage in abusive behavior as there is no fear of any consequence. This also increases the chances of illegal activities or outright fraud. That is why, if you are getting into Forex trading, it’s crucial to understand how is Forex regulated and then look for Forex brokers that follow all the necessary regulations

US Forex Regulatory Bodies

The Commodities Futures Trading Commission (CFTC) created a special task force that deals with the problems of stiff Forex regulations in 2008 to protect the FX traders.

The Commodity Exchange Act permits only regulated entities to act as Forex transactions counterparties with the US retail customers. It requires that all Forex dealers online be registered and meet the financial standards enforced by the National Futures Association (NFA) – the premier independent organization providing efficient and innovative regulatory programs, safeguarding the integrity of the derivatives Forex market.

These supervisory bodies regulate the foreign exchange market by setting standards that all brokers must follow under their jurisdiction. These standards involve being registered and licensed with the regulatory body, setting leverage limits, having minimum capital requirements, undergoing regular audits, communicating changes of services at all points in time to their clients, and a lot more.

The NFA provides a robust verification system called Background Affiliation Status Information Center (BASIC) that verifies US-based Forex brokerage firms' status. They use their NFA ID, fir name, individual name, or pool name for the same.

How do US Authorities Regulate Forex Brokerage Accounts

The activities and tasks performed by the NFA are:

  • Providing necessary licenses to eligible and reliable Forex brokers after a robust screening process involving due diligence.
  • Enforcing adherence to the mandatory capital requirements.
  • Combating fraud and illegal activities.
  • Imposing and executing detailed record-keeping and reporting regarding all Forex transactions.

Provisions of the US regulations

  • The US regulations protect small investors by defining customers as individuals with less than $10 million assets and including most small businesses. High net worth investors are generally not covered under standard regulated Forex accounts.
  • Leverage is limited to 50:1 on major currencies. This saves under-educated investors from taking unprecedented risks.
  • Available leverage for minor currencies is limited to 20:1.
  • The short Forex options need the notional transaction value amount plus the option premium as a security deposit.
  • The extended Forex options require the entire option premium as the security.
  • The first-in, first-out rule prevents an investor from holding simultaneous positions in the same Forex asset. This implies no possibility of hedging while trading Forex since any current trade position is squared off for the opposite position in the same currency pair.

Regulations one should withhold as an individual

Utmost care should be taken to verify the ownership, status, and location of each Forex trading firm, website, or application before one signs up for a trading account. Many websites claim low brokerage charges and impossibly high leverage, but these websites are not as legitimate as we think they are.

Not all websites are authorized and approved by the host country's authority, especially if they are operated overseas. This is why it is imperative for an individual to carefully study and examine Forex trading platforms before signing up with one, considering its diligence, transparency, and approvals from the necessary authorities.

A few Forex brokerage regulators around the world are

  • Australian Securities and Investments Commission (ASIC), Australia
  • Cyprus Securities and Exchange Commission (CySEC), Cyprus
  • Federal Financial Markets Services (FFMS), Russia
  • Financial Sector Conduct Authority (FSCA), South Africa
  • Swiss Federal Banking Commission (SFBC), Switzerland
  • Financial Services Authority (FSA), United Kingdom

Final words

Market sanctity at all levels can only be attained through Forex regulatory bodies. Although not as strong as the regulations should be, there are specific rules and regulations the brokers and the brokerage firms must follow.

Blueberry Markets is one of the most transparent and trusted brokers in Australia.We provide trading plans and live foreign exchange charts with indicators for all types of major and minor currency pairs. With quick trades and even quicker withdrawals, we make Forex trading as easy as clicking a few buttons.

Sign up to get started as a Forex trader today!

Recommended Topics

  • Hedging in Forex: How to Hedge Currency Risk

    Forex hedging or currency hedging allows you to open multiple trade positions to offset any possible currency risk associated with your current position

  • What Is PIP in forex trading?

    PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.

  • What Is Gap Trading?

    Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals.

  • Top Swing Trading Indicators

    Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement.

  • What are Support and Resistance Levels

    Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.

  • MT4 vs MT5: Which is Better?

    MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?

  • What is Forex?

    The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $6.6 trillion in 2019, it is the largest financial market in the world.

  • What is Margin trading?

    Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.

  • What is Leverage in Forex

    Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.

  • How To Set a Stop Loss Order in Forex Trading

    A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you.

  • MetaTrader 5: The Complete Guide

    MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.

  • What is MetaTrader 4: The Complete Guide to MT4

    An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.

  • What are Long and Short Positions in Forex?

    In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.

  • What is a Spread in Forex?

    A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.

  • What is a Currency Pair in Forex?

    The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies.

  • How do you trade forex?

    Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.

  • When Can You Trade Forex?

    In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.

  • Who trades forex?

    Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.

  • Why trade forex?

    As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.

  • Forex Margin & Leverage

    Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.

  • Key steps to making your first trade in Forex

    Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.

  • Rollover rates

    When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.

  • Tips for Forex trading beginners

    In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.

Learn Icon

Intermediate

Have a basic understanding of
Forex? Ready to level up? Move on
to the intermediate course.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook.

Ads BG

Start a risk free
demo account

News & Analysis

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away