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Introduction to Forex Regulation

Let’s face it: in today’s world, with a myriad of websites and brokers to choose from, looking for the right broker that suits your needs can be challenging and quite time consuming. When it comes to regulation of Forex and CFDs brokers it’s usually fairly easy to figure out which licenses these entities hold. But is it really a seal of approval and of significance if a broker is licensed and regulated with certain industry watch-dogs?

For many novice traders who are looking to enter the world of online trading the answer is probably “yes” and they believe that not holding one of those licenses means that the broker is operating illegally. However, this is not the case for the Forex market, as it is an OTC (over-the-counter) market with no specific regulations overseeing it.

There are various regulators and industry watch-dogs, but they only cover a specific jurisdiction and do not apply to the entire industry on a global scale. Regulations unlike legislation are not written by the lawmakers but instead are crafted by bureaucrats based on their understanding of what the market needs in order to function with as little friction as possible. This means, that regulations are never fixed and applicable to the whole Forex market. Instead they are flexible and can change according to circumstances unlike legislation which require amendments before any changes can take effect.

NFA regulated brokers often enjoy a very positive reputation and there are a number of international heavy-weight Forex brokers that hold a license with the National Futures Association in the United States of America.

Who is the NFA, what is NFA regulation and why are NFA regulated brokers often known for their reputation and "market integrity"?

Who and why NFA?

The NFA is a self-regulatory authority operating independently from the US government. However, it follows the laws and legislation passed by U.S. Congress regarding the regulation of financial entities. It further works in accordance with the U.S. Commodity Futures Trading Commission (CFTC) and must follow their guidelines. As an autonomous organization, the NFA does not use taxpayer money and is self-funded, generated through membership fees and also fines.

The NFA is the sole regulator of Forex brokers (FX brokers)in the U.S., meaning all U.S. based Forex brokers must be licensed and regulated by them. As well, U.S. Congress has required that other financial companies including SWAP dealers, hedge fund managers, signals service providers, and every other similar financial entity to be regulated by the NFA. Currently, there are more than 4,200 firms and 55,000 associates under NFA regulation in the USA, meaning they must all adhere to the same high standards of professional conduct.

The NFA is dedicated to safeguarding market integrity and the protection of investors. They work to achieve these goals in numerous ways. They develop rules and regulations, they implement programs and services to both investors and brokers, and they constantly supervise and implement best financial practices. The NFA is vital to the success and integrity of the U.S. Futures industry.

As the official NFA website states, key objectives include:

  • Registration & Membership: The Commodity Exchange Act (CEA) requires certain firms and individuals that conduct business in the derivatives industry to register with the CFTC. CFTC regulations also require, with few exceptions, CFTC registered firms to be NFA Members. The CFTC has delegated registration responsibility to NFA.
  • Rulemaking: The essence of self-regulation involves identifying industry best practices in certain areas and then mandating those practices for the entire industry.
  • NFA Members: NFA develops and enforces rules, provides programs and offers services that safeguard market integrity, and helps Members meet their regulatory obligations.
  • Enforcement & Registration Actions: To enforce its rules, NFA takes disciplinary actions against Members when appropriate.
  • Member Education & Resources: NFA strives to provide a number of Member education initiatives to help Members understand their regulatory responsibilities.
  • Arbitration: NFA offers an affordable and efficient arbitration program to help customers and Members resolve futures-related and forex-related disputes.
  • Investor Protection: NFA offers a variety of resources to help investors perform due diligence prior to making any investment decisions.
  • Outreach Programs: NFA offers training to regulators, exchanges or self-regulatory organizations from around the world on an as-requested basis.
  • Market Regulation: NFA provides regulatory services to designated contract markets (DCM) and swap execution facilities (SEF)—each of which has self-regulatory responsibilities to monitor trading on its platform.

What are the benefits of NFA Forex brokers?

As said before, Forex traders looking to invest into Forex trading or participate in the financial markets shouldn’t confuse regulation with legislation when it comes to Forex brokers and the financial services industry. However, the US forex regulatory authorities are known to have stringent rules and conditions especially for the companies or individuals who would like to start a brokerage firm. These rules are in place to ensure that investors are sufficiently protected and do not experience scams or malpractices that are common in many other jurisdictions.

There are certain rules that the NFA enforces with all USA based brokerage firms. These rules include:

  • Capped Max Leverage: 50:1 is the highest maximum leverage that retail traders can select when trading Forex, CFDs, etc. When trading financial instruments as a retail trader or when joining a social trading network, market participants should always heed all risk warnings when it comes to high risk products in combination with leverage settings.
  • Hedging: This is not allowed in the US and all forex brokers in the region are instructed to prevent traders from using any hedging strategies in the FX market. In the event, that a trader successfully implements this strategy, any profits that accrue from the trade will not be recognized in the account.
  • Stop and Limit orders: The US stopped the use of the stop-loss order in favor of the OCO (Order-Cancels-Order) form of execution. This is especially suitable for any trades that have a pending order.
  • FIFO rules: FIFO stands for the first in, first out rule. Under this rule, the regulatory body requires that a trader should liquidate their first trade when they have multiple trades that are open in one currency pair. Since this rule applies to the members of the NFA, it essentially means that all US based Forex brokers are required to follow this rule.
  • Capital requirements: Brokers in the US are known to have some of the highest minimum capital requirements in the world. NFA regulated brokers in the US are expected to hold an upward of $20 million in capital reserves. The main rationale behind this is to ensure that the position of every broker is guaranteed and that any withdrawal requests made can be swiftly processed. There have been instances, in other jurisdictions, where forex brokers have been unable to meet the withdrawal requirements for their clients. In such an instance, the investor confidence in the market is highly eroded.

Apart from the NFA in America there are some other strong regulatory bodies out there with strict rules and decent consumer protection. These entities include the Financial Conduct Authority (FCA) in the UK, the Cyprus Securities and Exchange Commission (CySEC), and finally for Australian Forex Brokers the Australian Securities and Investments Commission (ASIC) of Australia or the Financial Services Board (FSA) of South Africa .

Who are the best NFA regulated brokers?

The best Forex brokers are typically those that are registered with strong regulators and industry watch-dogs such as the NFA (National Futures Association) of the USA. is a leading CFDs broker which is regulated by the National Futures Association (NFA).

Conclusion for best NFA regulated brokers

There is a range of decent NFA regulated brokers available but please feel free to check out our comparison table and ranking of above to help find the best Forex trading brokers that is best suited for your very own needs. If you need more in-depth information or if you are looking for more brokers to choose from then check out our detailed individual broker reviews and other comparison tables.