The foreign exchange (forex) market runs 24/7, offers global currency pairs for trading, and 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.

U.S. Forex Market Regulation

In the U.S., there are two institutions responsible for regulating the Forex market: the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). 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. Every Forex broker operating in the U.S. 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.

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 the Forex brokers and the retail traders. There are fewer Forex brokers currently operating in the U.S. compared to other areas in the world 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), offers many salient features like tight forex spreads, timely trade executions, a mobile trading platform, and numerous technical research indicators in 29 different languages. trading offers integration across MetaTrader 4 or FOREXTrader PRO platforms.
  • OANDAOANDA is another popular broker offering competitive spreads with no commissions and deep market liquidity, along with its OANDA Marketplace which 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.
  • TD Ameritrade: 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. They also provide reputable third-party research tools from Morningstar and Market Edge.
  • ATC BROKERS: 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 of U.S.
  • thinkorswimthinkorswim by TD Ameritrade, Inc. is another popular U.S.-regulated forex broker that offers trading in more than 100 global currency pairs.
  • Interactive Brokers: 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. 
  • Ally Invest: 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 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.