Worried about forex broker regulations? Check out IG Markets or FOREX.com as your highly regulated and trusted forex broker.
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. Customers 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 foreign exchange 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 investors. These rules help keep online forex brokers honest and protect unsuspecting novices from the risk of dealing with an unregulated broker.
Do Forex Brokers Have to be Regulated?
A duly overseen forex-regulated broker will typically be subject to any government 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 industry 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. Securities regulations can be quite specific, and that’s what makes regulatory compliance so difficult and telling. If the federal government allows you to continue operating, you’ve dovetailed with public policy so that you can remain in business.
What does this mean? It means that asset management is handled properly and that the firm can keep up with the code of federal regulations. If they can stay legal, they’re doing something right.
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, especially if your risk aversion is very high.
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.
A regulatory agency works directly with businesses to collect data and weigh consumer law against the facts they find. Yes, you may be able to complete a technical analysis or open several accounts like a financial advisor, but is this the right situation for your money?
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 a range of 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 these unique assets and online forex market.
The NFA’s primary finance comes through dues and fees paid by members and participants of these 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 U.S. 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. Best for U.S. Traders: IG Markets
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
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.
Features of IG include:
- Between 2% and 5% margin rates
- More than 80 currency pairs
- Supports MT4
- Only accepts US clients for forex trading
- As low as 0.8 pips
Pros
- The platform allows you to trade on margin and access multiple currency pairs for maximum potential in your portfolio
- U.S. clients can visit the platform and use the forex trading tools
- Highly regulated, the platform offers a safe place to trade
Cons
- The platform offers a world of investing tools, but they could easily increase your risk level if you’re not careful
2. Best for Dedicated Forex Traders: FOREX.com
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account
FOREX.com trading platform lets you trade dozens of 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.
Features of FOREX.com include:
- Up to 50:1 leverage
- Over 80 pairs
- Supports MT4 and MT5
- Allows U.S. clients
- Spreads as low as 0.0 pips
Pros
- FOREX.com is a powerful site that offers more than tools and regulatory surety, you can learn how to trade here, grow your portfolio and advance your career
- A wide range of platform support allows you to trade in the manner you prefer
- Low spreads help you reinvest in yourself instead of losing money on every transaction
Cons
- You may want greater access to leverage trading
3. Best for Multi-Asset Traders: 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 IBKR.
Features of IBKR include:
- Margin rates starting close to 1%
- Over 100 currency pairs
- Supports MT4 and MT5
- Allows U.S. clients
- Spreads as low as 1/10 PIP
Pros
- Low margin rates give you more flexibility and you try to quickly turn a profit
- The platform is a favorite of Benzinga and many other outlets across the world
- You can choose from even more unique currency pairs than the competition might offer
Cons
- IBKR can be so robust that it may overwhelm less-experienced traders
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 investors are informed about the risks involved in forex trading and provide them with enhanced protection against fraudulent broker practices.
It is important for you to understand the regulations that govern brokers and only work with regulated entities to safeguard your 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.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account
Investors should keep in mind that 70% of all CFD accounts lose money.
CFD trading is not available to U.S. users. 76% 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.
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.
Get a Forex Pro on Your Side
FOREX.com, registered with the Commodity Futures Trading Commission (CFTC), lets you trade a wide range of forex markets with low pricing and fast, quality execution on every trade.
You can also tap into:
- EUR/USD as low as 0.2 with fixed $5 commissions per 100,000
- Powerful, purpose-built currency trading platforms
- Monthly cash rebates of up to $9 per million dollars traded with FOREX.com’s Active Trader Program
Learn more about FOREX.com’s low pricing and how you can get started trading with FOREX.com.
About Sam Boughedda, Stock Market Analyst
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