The foreign exchange (forex) market runs 24/7, offers global currency pairs for trading, and is driven by geo-political developments, news, release of macro-economic data, and related developments. On one hand, such a global market offers enormous trading opportunities, but on the other, it is challenging to protect individual traders from any financial irregularities. Thus, regulations were introduced through an established framework that ensures that financial intermediaries, like forex brokers, comply with the necessary rules to offer loss protection and controlled risk exposure to individual traders.
In the US, there are 2 institutions responsible for regulating the Forex market, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). All US forex brokers (including the introducing brokers) must be registered with the National Futures Association (NFA), the self-regulating governing body that provides the regulatory framework to ensure transparency, integrity, abiding of regulatory responsibilities, and protection of various market participants. The NFA also offers an online verification system called Background Affiliation Status Information Center (BASIC), where forex brokerage firms can be verified for having necessary regulatory compliance and approval. Every Forex broker operating in the US is also supposed to register with the CFTC. The laws enforced by the CFTC and NFA apply to the Forex brokers based in the US and any other Forex broker, who intends to serve US-based clients.
The Securities Exchange Commission (SEC) does not have authority over the Forex market because it doesn’t consider currency pairs a security.
In the United States, the Dodd-Frank Act constitutes the primary body of rules governing Forex trading. Signed into law in 2010 by President Obama, it reformed insufficient financial regulation that allowed too much leeway to financial institutions, which contributed to causing the 2007-2008 financial crisis.
These regulations have “scared off” both the…