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Beginner

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

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!

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