CFTC/NFA regulated forex brokers in United States

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There is no doubt that the US Forex Market is the most regulated one on the globe, which is mostly due to the excruciating local requirements. In the United States the licensing duties fall into the hands of the National Futures Association (NFA) which reports to the Commodity Futures Trading Commission (CFTC). Once approved by the NFA and the CFTC, a difficult task indeed, US brokers are in turn licensed as futures commission holder(s) and hold a retail foreign exchange dealer (RFED) license.

The NFA works as an independent self-regulatory organization for the futures and derivatives markets in the United States. It was designed by the CFTC as a registered futures association, and it gets its funding in an interesting way. Members of the NFA must pay a membership tribute to the agency; this is their only means of revenue.

The most noteworthy features of the NFA’s huge repertoire of responsibilities is to protect investors, maintain the integrity of the derivatives market, and of course to make sure that brokerage firms follow their strict guidelines and requirements to either become a US broker or to continue to maintain a status of a legitimate US broker:

– The US requires that all brokers hold a capital of at least $20 million before being registered, which is the highest financial requirement in the world of forex. Compare that to the FCA’s, the second most respect overseer in the industry, €730 000 financial demand, and you see how tall the NFA stands.
– The leverage is limited to 1:50 for major currency pairs and 1:20 for minor pairs, similarly as is done in Europe by ESMA.
– The First In, First Out rule, requiring traders to close their oldest positions before opening a new one using the same currency pair as the previous one, making hedging a prohibited practice as well.
– US brokers have to provide to their clients transaction execution data as per the rules on disclosure of transaction data of 2007. Specifically, each broker is required to provide a user (upon her/his request) with a detailed transaction data of the 15 transactions, in the same currency pair as the one traded by the client, that happened right before and after the client’s own opening/closing of a position.

The NFA keeps things mighty tight by imposing some very hefty fines should someone stray from the predetermined rules. This and the reasons stated above are the main reason why there are just around a dozen or so fully operating United States based brokerage firms.

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