Trading with a CFTC regulated broker will aim to provide an extra safety layer to the retail trader. Regulated brokers will need to fulfil certain conditions set up by the regulator, and that’s no easy task.
Regulation comes at a cost for the brokers, so those operating under the umbrella of a regulator go the extra mile to represent the trader’s interests fairly.
The list of CFTC regulated Forex brokers:
Who is the CFTC?
The Commodity Futures Trading Commission (CFTC) regulates the US derivative markets. It monitors various primary exchanges like the Chicago Mercantile Exchange (CME) or the Chicago Board Options Exchange (CBOE) and applies a set of rules for all market participants.
It oversees trading activity in the trading of futures, swaps, and other derivatives, and the rules enforced to create a fair environment for all market participants. Moreover, it protects investors by setting a regulatory framework that aims to prevent financial fraud.
What is a CFTC Regulated Broker?
A CFTC regulated broker would be an entity operating in the United States that obeys the rules set by the regulator. Without the license to operate, it’ll be impossible to have access to the large US trading market.
Being a regulated CFTC broker comes with huge responsibilities and costs. Earning and maintaining a license requires continuous investment in ethical practices as well as constant improvement.
How a Broker Becomes CFTC Regulated?
One of the conditions to become a CFTC regulated broker is to hold at least $20 million in operating capital. For larger brokerage houses this may not be a substantial figure, but for companies who may be involved in false operations this will not be easily achieved. Therefore, if a broker is licensed to operate under the CFTC umbrella, it is a statement that it meets the financial conditions to do so.
Brokers are also required to submit financial reports and must keep the clients funds in segregated accounts, separated from the funds needed to operate the business activity. This way, there’s no conflict of interest in representing the traders.
How CFTC Regulation Protects You?
- Segregated accounts – traders’ funds are kept separate from the operating capital of the broker
- FIFO rule – First In First Out rule means that traders must close the positions in the opening order – another layer to protect the retail trader
- No hedging allowed – hedging is viewed as a risky alternative in the United States and prohibited under CFTC, further enhancing the retail traders’ protection
- Continuous compliance with the CFTC supervision – brokerage houses must stay up-to-date with all the regulatory conditions imposed by the CFTC
Trading with a regulated CFTC broker offers strict compliance. Traders’ funds are guaranteed up to a certain level and segregated in separate accounts so they can’t be used by the broker for operating activities.
A CFTC regulated broker imposes extra safety measures (FIFO rule, no hedging) to increase the safety of client capital whilst they are trading financial markets.
Regulating the Forex market ensures fair and ethical business between parties and we would always recommend that you choose a broker that is regulated by the overseeing body in your jurisdiction. It makes trading less one-sided, and forces risk management to be put in the forefront of clients minds to help protect them.
I have a hedging strategy. Can I use it on a CFTC broker?
Yes and no. Yes, if you have separate trading accounts with the same broker or with two different brokers. This way, you hedge your funds and not the actual position, but the outcome is similar.
I hate the FIFO rule. Does it really protect my interests?
Yes. One of the reasons why many traders fail is because of human nature. As human beings, we tend to quickly book the profits in the trading account while letting the losses run. The FIFO rule tries to ensure that you can’t make this mistake by enforcing an order when closing the trades.
Can I check if the broker is CFTC regulated?
Yes. Find out the license number, usually on the broker’s website, and directly inquire on the CFTC to double-check.
Is a CFTC regulated broker a safe broker?
Yes. To follow all the rules imposed by the CFTC is a suggestion the broker is aiming to be safe to trade with.
When was the commodity CFD ban enforced?
The CFTC stopped all leveraged commodities on July 15th 2011, see here for more details of the ban. For information about leverage changes, you can see their old 50-1 leverage and 10-1 leverage policies.
For more regulated brokers by highly respected authorities see below: