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Top U.S.-Regulated Forex Brokers
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.
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.
- 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 2020, 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.
U.S. Forex Market Regulation
There are two institutions responsible for regulating the forex market in the United States—the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
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.
Daily trading volume has reached as high as $4 trillion in the forex market.
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 2020 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:
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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.
thinkorswim by TD Ameritrade is another popular U.S.-regulated forex broker that offers to trade in more than 100 global currency pairs.
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 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.
If you are a forex trader that has decided to work with a forex broker who will execute your trades, it is important that you keep in mind a few criteria to work with the right kind of broker. In the first place, you should examine carefully the regulatory status of the broker that you want to work with. Trading with a regulated forex broker is important if you want to have the least amount of risk when you are trading and you want to keep your capital investment safe. The forex broker that the trader chooses can be an individual broker, an association of individuals, or a brokerage company.
Top Recommended Regulated Forex Brokers
|Broker||Min Deposit||Spread||Leverage||Regulation||Open Account|
|$1||From 0 Pips||3000:1||CySEC, IFSC||Visit Broker|
|$5||From 0.2 Pips||500:1||FSA (Saint Vincent and the Grenadines), CySEC||Visit Broker|
|$5||From 0 Pips||500:1||ASIC, CySEC, FCA (UK), IFSC Belize||Visit Broker|
|$1||From 0 Pips||2000:1||FCA UK, CySEC, FSP, BaFin, CRFIN||Visit Broker|
|$50||Starting 0 Pips||up to 400:1||FCA UK, NFA, CFTC, ASIC, IIROC, FSA, CIMA||Visit Broker|
|$1||Fixed Spread From 3 Pips||Up to 1:1000||CBR, CySEC and FFMS||Visit Broker|
|$200||Starting 0 Pips||500:1||ASIC Australia, FCA UK||Visit Broker|
|$200||From 3 Pips||400:1||NFA, FCA, CySec||Visit Broker|
|$100||Starting 0 Pips||up to 500:1||FCA UK, ASIC Australia, MAS Singapore||Visit Broker|
|$300||floating, from 0 pips||500:1||FCA UK reference number 579202||Visit Broker|
Why You Must Trade With Regulated Forex Brokers
Starting to trade in forex these days is much easier than it was in the past. A trader can trade from anywhere in the world, even in the comfort of his/her own home. All you need to have is a computer, a reliable internet connection and help from a reliable forex broker who is regulated and offers a convenient and easy-to-use trading platform.
Regulation – What is it
Many major financial institutions around the globe comply with financial regulations. This compliance sets them apart as having a genuine purpose in running the organization and their willingness to follow rules and standards. In the case of a forex broker, it is necessary that they sign a code of conduct to run their businesses in different jurisdictions. The code of conduct is constituted by the local financial regulator. The code of conduct supplies a set of regulatory guidelines that the forex broker is expected to follow. It specifies as to how they should run their business. The guidelines also provide a framework on what behavioral and financial ethics the forex brokers are expected to follow.
On the financial front, regulated forex brokers will be expected to submit copies of financial reports to the regulatory authorities at specified intervals. Examples are operational accounts of the company that will be subject to audits by qualified personnel. Regulated forex brokers are also expected to work with an adequate amount of capital reserve and liquidity to ensure reliable and uninterrupted operations on their part.
The best regulated forex brokers will see to it that they comply with all the operational procedures and standards set by the authorities. Any failures on the part of the brokers to follow the guidelines that are specified are punishable and penalties will be charged. In the worst cases of non-compliance with rules, the broker’s regulatory status may be lost or their operations may be closed forcefully. In the interest of furthering their businesses, it is best for the forex brokers to comply with regulations.
Importance of Working with Regulated Forex Brokers
The forex broker is the connection between the seller and the purchaser of the currencies that are exchanged in the market. It is, therefore, important that the brokers that the traders want to work with have appropriately planned businesses and a good standing reputation.
There are many reasons why forex traders should seek to work with regulated forex brokers. First and foremost, working with a regulated forex broker means that it provides a safety net for their investments. The trader is assured of the fact that their trading operations are being overseen by an official body. Any point of contention between the broker and the trader is resolved by the higher body. The guidelines that are put in place by the regulatory authorities control the different functional areas of the brokers’ operations. These are mainly in the areas of monitoring the brokers’ accounts and use of the clients’ data. They are designed to combat fraud on the part of the broker and also set benchmarks for customer service and support that is to be provided by the brokers.
The single most important aspect of regulation for the broker is dealing with the requirement of holding the clients’ funds in segregated accounts. This arrangement is in place to protect the users’ funds if the broker runs into financial trouble. This money may not be used by the brokers to settle their debts as it is ‘protected’. If this kind of a scenario happens, this money is to be returned to the client.
How to Ascertain If A Broker Is Regulated
Though a good number of forex brokers claim that they are regulated it is a good idea to ascertain the same before parting with any money or transferring funds to their account. Some forex brokers that operate in different parts of the globe are members of more than one regulatory body. This is good because there is additional scrutiny of their operations. This provides additional protection against fraud and malpractices. Though it is not an absolute requirement that a trader should associate with a forex broker in their own country, most traders prefer to utilize the services provided by a local forex broker because of the convenience of communicating in the language they are most comfortable with.
The main regulator for traders in the UK is the Financial Conduct Authority (FCA) and for those in the US is National Futures Association (NFA). Regulators in Europe include MiFID and CySEC. In the United States, a forex broker of repute is a member of the NFA and is also registered with the US Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant and a Retail Foreign Exchange Dealer. This means that the broker is compliant with all the rules and programs that are laid out to protect the market and the traders from manipulation, fraud, and other abusive practices. It also means that these regulated forex brokers support open, competitive futures and options markets that are financially sound.
Having a well-designed and flashy website alone does not guarantee that the forex broker is a member of a regulatory body. A forex broker that is a member of regulatory bodies usually displays the fact on their websites. Typically, the member/registration numbers are displayed in the ‘About Us’ section of the websites. Like the US, each country has its own regulatory bodies.
Forex Regulatory Bodies In The World
Forex is a decentralized market, so you should pay close attention to the broker’s regulatory status. This brings us to the question, what is forex regulation? It’s all about customer protection. These are rules set by bodies or authorities to protect traders and investors. The regulatory agencies audit licensed brokers to ensure they meet the industry standards. Here are the best forex regulatory bodies to help with your investment decision.
- Commodities Futures Trade Commission (CFTC)
This regulatory body protects individuals and investors in commodity, futures, and forex trading. Since it was established in 1974, CFTC has been at the forefront of creating a level playing field for investors. The mission of Commodities Futures Trade Commission is to be competitive and financially sound. To ensure transparency, CFTC receives data from reporting firms every month. The body has five committees who represent the interest of traders, commodity exchanges, and futures exchanges.
CFTC guarantee investors that the price of commodity futures is fair. Without regulation, sellers could have control of the current and future prices. This means that there would be unfair commodity prices in the market. CFTC has invested heavily in research and development.
- National Futures Association (NFA)
NFA began its regulatory operations in 1982 and is one of the top forex regulatory bodies in the US. The National Futures Association protects market participants and monitor industry integrity. Their members include commodity pool operators, commodity trading advisers, introducing brokers, and futures commission merchants. Once you register as a member, NFA must perform a background check before you’re allowed to conduct business in public.
Because the members are required to pay membership fees, NFA remains completely independent. The body takes disciplinary measures to members who violate the rules. And before you make the investment decision, NFA provides investor education. Also, traders are given a lot of resources to help them make an investment decision. Any entity or person conducting business in the futures exchange market should register with the body. Furthermore, the regulator offers new programs to ensure the members stay up-to-date with the current changes. If a member is being investigated, NFA works together with the FBI to ensure the prosecution is successful.
- Financial Conduct Authority (FCA)
FCA regulates over 59,000 financial firms in the UK. It ensures individual investors and businesses get a fair deal when they trade in the financial markets. Whether you’re a novice or an advanced trader, the body will ensure there are no malpractices when conducting online business. And because this is an independent public body, it’s accountable to the treasury. Just like other financial regulatory bodies, FCA works with trade associations and stakeholders.
Once you become a member, you can find lots of information regarding mortgages, insurance, and any other financial advice. And if you’re unhappy with the services of the forex broker, you simply report and claim compensation. According to financial services and reporting act of 2000, any firm that carries financial activity must be regulated by FCA. Brokers must adhere to the regulatory system and meet the set standards. As an investor, you should sign up for a monthly newsletter that shows all the regulated firms. You can also access a wide range of publications regarding your broker.
- Cyprus Securities Exchange Commission (CySec)
CySec was established in 2001 and is part of European MiFID regulation. Because Cyprus is one of the top destinations for forex brokers, CySec serves as a gateway to Europe. The commission is tasked to oversight the performance of brokers. Forex brokerages regulated by CySec must provide financial services according to the rules set by the body. Also, the operations must comply with the European Commission (MiFID). If you’re using a broker under CySec regulation, you don’t have to worry about the safety of your funds.
Cyprus Securities Exchange Commission grants operating license to investment firms, forex brokers, and brokers for binary options. Other than that, it imposes disciplinary penalties to firms that fall under Stock Market Legislation. Due to the high reputation of the regulator, brokerage firms use the body to gain investor confidence. If you’re an investor within Eurozone and you’re not sure whether the broker is regulated, you can ask for information at customer support. Unlike most regulatory bodies, CySec imposes higher fines and penalties to forex brokers who go against the set rules.
- The Swiss Financial Market Regulatory Authority (FINMA)
This is one of the most trusted and safest regulatory bodies in Switzerland. It works closely with other banks to monitor the operations of forex brokers. FINMA was established in 2007. It has authority over financial institutions and investment schemes. And because it’s an independent body, the regulator reports to the Swiss Federal Department of Finance. Each year, FINMA audits the financial institutions to ensure all measures are in place. Besides that, the regulator represents the global stage and fights terrorist financing activities.
- The Canadian Security Administrators
These are provincial security regulators whose goal is to regulate forex brokers in Canada. They strive to cultivate policies impacting the investment landscape. Beyond regulated-related functions, the body educates the public on all aspects of the financial market. All brokers in Canada are required to register with the body.
- Australian Securities and Investment Commission (ASIC)
ASIC regulates the financial markets in Australia and surrounding regions. It was established in 2001 and strives to ensure the forex markets are transparent. Under the ASIC act, brokers are required to store and process the information quickly. They should also improve financial system performance to boost investor confidence. Also, the body educates investors on prudent financial investment. And based on consumer behavior, they hold gatekeepers into account. ASIC also regulates organizations such as mortgage brokers, finance companies, and credit unions. This regulatory body takes financial fraud very seriously.
- Federal Financial Markets Service
This is an executive body that controls the financial markets. Since it was established in 2004, it took over the role of federal executive branch agencies. The main goals of the regulatory body are consumer protection and financial accountability. It works closely with government agencies and banks to ensure the safety of the trader’s funds. Also, they have strict laws that prevent market manipulation and insider trading. If you want to file an official complaint with your broker, you should make an official report on the customer’s section.
Since there’s no centralized market to control forex exchange activities, you should ensure your broker is regulated. The idea of forex regulation is to boost investor confidence and maintain sanctity in the financial market. Ideally, the above forex regulators ensure traders are not subjected to conditions that tilt the market against them.
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