The foreign exchange (forex) market runs 24/7, offers global currency pairs for trading. The market is driven by geopolitical developments, news, the 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.
Daily trading volume has reached as high as $4 trillion in the forex market.
Learn more about the basics of forex market regulation in the U.S., as well as some of the popular forex brokers in the country.
U.S. Forex Market Regulation
Every forex broker operating in the U.S. must register with the CFTC. The laws enforced by the CFTC and NFA apply to both U.S.-based forex brokers, as well as any other forex broker who intends to serve clients in the country.
All U.S. 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.
One point to note is that the Securities Exchange Commission (SEC) does not have authority over the forex market because it doesn't consider currency pairs a security.
Dodd-Frank Act: Forex Rules
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 forex brokers and retail traders. There are fewer forex brokers currently operating in the U.S. compared to other areas in the world—primarily because of the regulations enforced by the NFA.
U.S.-Regulated Forex Brokers
This list of seven U.S.-regulated forex brokers—that remain after Dodd-Frank washout—is not in any particular order, and it is not comprehensive:
Owned by NYSE-listed parent company, GAIN Capital Holdings, Inc. (GCAP), FOREX.com offers many salient features like tight forex spreads, timely trade executions, a mobile trading platform, and numerous technical research indicators in 29 different languages.
FOREX.com trading offers integration across MetaTrader 4 or FOREXTrader PRO platforms. There are three ways traders can trade—advanced trading, web trading and mobile trading applications.
High volume traders get cash rebates, earned interest, and bank fees waived.
OANDA is another popular broker offering competitive spreads with no commissions and deep market liquidity, along with its OANDA Marketplace. It offers loads of features for forex traders such as forex tools, products, advanced analytical tools, forex news, training videos, and MT4 plugins from OANDA and associated partners.
You can start with a free demo. The site also offers benefits for high volume traders. You can get a discounted spread, a subscription with a partner platform, free wire transfer among other perks.
TD Ameritrade offers powerful charting tools, capable of comparing multiple currency pairs alongside each other, as well as providing any necessary technical indicators. Customers can also analyze social sentiment from Twitter. The brokerage also provides reputable third-party research tools from Morningstar and Market Edge.
The firm promises no hidden fees, access to its mobile trading app, and 24/7 support.
Verify a forex broker's status by using its NFA ID or firm name through the NFA's Background Affiliation Status Information Center.
STP Execution, No Dealing Desk, Scalping Allowed, Multiple Brackets Order along with other risk management tools like breakeven capability, custom trailing stop-loss, and more enable ATC BROKERS to be one of the popular regulated brokers in the U.S.
The broker also provides access to news events and an economic calendar, along with support through email, phone, and online chat.
You can sync the platform on multiple devices and customize and share your alerts. You can also get in-app chat and sharing, so if you need help, the representative you're communicating with can access your screen. And like TD Ameritrade, it promises no hidden fees, and data fees also don't apply.
Another popular broker having a global presence, Interactive Brokers claims to have low trading costs with high-level execution, global offerings, high-end trading technology, risk management tools, and trading tutorials.
It promises access to 23 different currencies, as well as 120 different markets in 31 different countries. You can stay connected to global markets 24 hours a day, six days a week.
Ally provides traders with comprehensive research and analysis, competitive pricing and robust educational resources. The trading platform includes a full suite of trading tools, 24/5 market access and a practice account for testing investing approaches.
- The Commodity Futures Trading Commission and the National Futures Association are responsible for regulating the forex market in the U.S.
- All U.S. forex brokers must be registered with the NFA.
- The Dodd-Frank Act, which was signed into law in 2010, constitutes the primary body of rules governing forex trading.
- Some of the most popular forex brokers include FOREX.com, OANDA, TD Ameritrade, ATC BROKERS, thinkorswim, Interactive Brokers, and Ally Invest.
The Bottom Line
Regulations are a balancing act. Too little will lead to financial irregularities and inadequate protection to individual traders; too much will lead to a lack of competitiveness in global markets. One major challenge reported with U.S. forex regulators is that leverage provided is limited to 50:1, while global brokers, outside of U.S. regulations purview, provide up to 1000:1 leverage. Traders and investors need to take a cautious approach, ensuring security first.
Disclaimer: Information presented is as available at the time of writing this article, and may change in due course of time. The author does not hold an account with any of the mentioned brokers.