The fierce competition in the online trading industry has created space for many brokers. Regulation reduces the fears of having to deal with a non-compliant broker and reinsures the trader that the brokerage house operates a legitimate business.
Different jurisdictions have different rules. For example, regulating financial services in Australia is different than in Europe or in the United States. Therefore, when picking the broker to trade with, make sure you understand who the regulator is and what rules the broker must follow.
List of the Best Forex brokers, who are registered with NFA:
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Who is the NFA?
The National Futures Association (NFA) supervises the derivatives industry in the US, retail foreign exchange trading as well as over-the-counter derivatives.
Put it simply, anyone operating a business on the foreign exchange market in the United States needs an NFA license. Therefore, membership is mandatory and comes with some severe restrictions.
The NFA’s mission is to provide innovative regulatory programs and services that ensure futures industry integrity, protect market participants and help its Members meet their regulatory responsibilities. NFA’s activities are overseen by the Commodity Futures Trading Commission (CFTC), the government agency responsible for regulating the U.S. futures industry.
What is an NFA Regulated Broker?
An NFA regulated broker must obey many rules and keep high standards to be able to operate on the competitive US markets. For instance, part of the regulated process, the broker must prove its financial stability.
NFA requires no less than $20 million in operating capital, making sure that the broker can cope with periods of high volatility and many redemptions (withdrawals). Brokers are required to segregate clients’ funds from their own operating capital.
The NFA license is a statement that the broker is attempting to operate a fully compliant business in the United States. They don’t make this easy though, they only want the best brokers and have even banned credit cards for retail Forex brokers.
How a Broker Becomes NFA Regulated?
Becoming NFA regulated is a natural process if the broker meets the requirements. The registration process may start online and, once awarded a license, constant monitoring is the norm.
Brokers need to provide weekly financial reports regarding the cost of operation, account balances, accurate representation of facts, and so on. Even more, brokers must submit annual audit reports too.
How NFA Regulation Protects You?
- Punishes illegal activities – there’s no room for fraud or illegal schemes, regulators operate to protect clients from such occurrences.
- Segregated funds – deposits are held separately from operating capital
- Professional, problem-solving attitude – conflicts rarely escalate to the point where NFA must intervene.
- Safe trading environment – transparency is vital to building trust with your broker – NFA regulated entities try to create a safe environment for their clients.
When you trade with NFA broker, what does this mean to you as a trader?
- Serious businesses with transparent financial operations – these are companies who became members of the National Futures Association.
- NFA regulated brokers follow strict standards and procedures implemented by NFA, which ensures the safety of trader’s assets.
- NFA regulated brokers cannot use the client’s funds to carry out their operation activities. They must back up all customer positions with their own capital or carry them over to the Interbank market. Thus NFA regulated brokers are companies with large and sufficient financial assets.
(Nowadays, NFA registered brokers are required to have net capital of no less than $15 000 000 to guarantee their client’s positions. This minimum raises to $20 000 000 starting from May 19th, 2009).
- At the end of each week, NFA registered Forex brokers report their account balances to the NFA. Each year these brokers are subject to comprehensive yearly audits.
- Forex brokers registered with NFA also have licensed and specially trained staff.
And of course, when comparing a regulated and a non-regulated broker, the regulated broker always wins!
To check if your Forex broker is registered with NFA use Background Affiliation Status Information Center (BASIC)
For further information, check US Forex brokers list
While applying for an NFA license is easy, the process takes a long time and is quite expensive. For this reason, many brokers avoid NFA regulation by moving their operations to other jurisdictions or give up serving US customers altogether.
A broker regulated by the NFA maintains a professional attitude towards its customers and quickly finds a solution to any problems. If not, the NFA will look to intervene as a mediator and severely punishes illegal activities, if any.
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.
Is NFA the same with CFTC?
No. They are two distinct regulators for the US market but have many shared services.
Is hedging allowed with NFA regulated brokers?
Is it safe to deposit funds with an NFA regulated broker?
Yes. Funds’ safety is paramount to any regulator, one of the most stringent conditions for the broker to meet.
Is the FIFO rule enforced?
Yes. The First In First Out condition is mandatory under the NFA regulation.
What is the NFA’s policy to slippage and requoting?
In 2012 the NFA levelled the playing field with regards to slippage and brought about a new rule to make sure that it is less one-sided, namely the brokers side. See our article for more details. They also have policies on stop losses, where orders must execute a first in first out for all clients.
For more regulated brokers by highly respected authorities see below: