Education|December 4, 2010 10:05 pm

Forex Regulation 101

Regulatory bodies in Forex Trading:

• National Futures Association (NFA). The NFA is the regulatory organization for the US futures and forex industry. Its role is to ensure market integrity and safeguard investors by implementing regulations. All futures or forex service operating in the US need to be a member of the NFA. This is mandatory.

• Commodity Futures Trading Committee (CFTC). The CFTC was formed in 1974 by the United States Congress to monitor the forex markets and develop the necessary regulations. The CFTC’s forex regulations assure the economic utility of the markets by encouraging their competitiveness and efficiency, and protecting market participants against and abusive forex trading practices.

• Financial Services Authority (FSA). A UK based regulatory body that works under the power of the Financial Services and Markets Act 2000. The financial services industry in the UK is entirely controlled by the FSA. Its powers include creation of regulations, its enforcement and investigation of potential concerns. The FSA is obliged to have regard to the Principles of Good Regulation.

• Various National Authorities – Many other regulatory bodies exist in their respective countries to regulate the financial services industry. These are the bodies that decide on forex regulations; you must therefore make sure that your forex broker is licensed in the country from which they operate. To get a detailed list of regulatory bodies in different countries go the forex regulatory organizations.

Forex Regulations for providers of Currency Trading services:

• A forex broker (online or offline) should be licensed in the country in which their operations are based. This is mandatory according to forex regulation. So look out for, brokers running operations from one place and regulated in another. It is against the law.

• Approval by the national regulatory bodies proves legitimacy of operations and ensures that the broker is maintaining strict quality control standards and that your money is in safe hands.

• Also, licensed forex brokers who operate under proper regulatory jurisdictions undergo periodical audits, reviews and evaluations which enforce their need to comply to industry standards.

• Regulation also stipulates that forex brokers must maintain enough funds to meet their customers’ needs of leverage.

• Regulatory bodies also ensure that forex brokers and service providers do not misrepresent information and encourage customers to execute a trade without informing the customer of the potential risks in the transactions. Brokers are not allowed to guarantee profits under any circumstance. Be cautious with such brokers.

• A Forex broker is obliged to honor each and every forex contract (position) opened by a client. Failure to complete the forex contract with a client will lead to the revoking of the broker’s license.

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