A Bank for International Settlements study, published in September 2019, revealed that daily global Forex trading volume has jumped to $6.6 trillion from $3.2 trillion three years earlier. That’s a whopping 30% increase. With this being said, it’s easy to say that the number of traders has been continuously growing globally.
As participants continue to fill in the Forex market, the world’s largest financial market, this also opens a great opportunity for businesses to enter the industry. The Forex industry has now become saturated and it’s become difficult for traders to filter out the bad ones from the good ones.
Thankfully, each country has certain regulating bodies that monitor the financial market and protect its citizens. The UK has the Financial Conduct Authority, while the Australian Securities and Investments Commission is Australia’s regulating entity . Meanwhile, in the United States, the Commodities and Futures Trading Commission or CTFC is the most famous one, which oversees US financial markets, specifically the futures and options markets. Before we discuss how traders can check the registration of a US Forex broker, let’s first have a look at its background.
Role of Forex brokers Monitoring in the US
CFTC is a self-governing US agency which safeguards consumers against scams. The agency works hand-in-hand with the National Futures Association to impose instructions and guidelines which ensure accountability and honesty among entities. The CFTC also looks for ways to best perform its duties. Nevertheless, the financial crisis happened from 2007 to 2008 forced the agency to take tougher measures to keep customers from bribery, scams and abuse. CFTC-monitored Forex brokers must always follow their criteria and abide by their guidelines.
While Forex continues to expand in the US, FX firms are trying to penetrate this market to get their share of the market. It’s better said than done though. Any broker who wants to sell to U.S. customers must be an NFA member, and must be registered with CFTA. The association provides brokers with a specific identification number that they can post on their websites in order to provide clients with transparency. The CFTA has also made it difficult for FX companies to be a member by imposing a minimum requirement of $20 million in operating capital. Moreover, the agency also requires brokers to segregate its funds from clients’. Such steps protect customers should brokers file for bankruptcy.
CFTC Prohibits Hedging and Enforces Lower Leverage
Since Forex trading is a risky endeavor, the CFTC is constantly adjusting its rules to further protect traders against potential large losses. The CFTC is known for enforcing a rule barring traders from using hedging. This involves the opening of buy and sell position on the same currency pair at the same time.
The agency believes that hedging doesn’t bring any financial benefit to traders; rather, it incurs them more financial costs. The highest leverage allowed by the CFTC is just 1:50. As we all know, a high leverage puts traders at a disadvantage in case the market goes against them. Nonetheless, for scalpers and high-volume investors, a 1:50 leverage may not sit well.
Verifying A US Forex Broker CFTC Registration
Now, let’s answer how traders can verify CFTC registration of a US Forex broker.
Traders and investors are lucky that the Forex market, and the agencies regulating the market are becoming more and more transparent to guarantee client security and safety.
If you are a US resident wanting to know if a broker is truly registered with the CFTC, you can do some research online. As we’ve mentioned earlier, the CFTC provides brokers with unique registration numbers to make your checking easier. If a broker claims that they’re registered with the CFTC, you can see their registration number on their website. To check if it’s valid, go directly to CFTC’s official website (cftc.gov) for verification. Plus, you’ll be able to see if complaints have been filed against a specific broker or even file a complaint yourself. Furthermore, the agency provides the Red List which informs consumers about entities operating illegally. There’s also an option in which you can directly contact the CFTC via email or call.
As the Forex ecosystem continues to expand, government agencies around the world will continue to improve their guidelines and rules to make sure the consumers remain confident in investing their money. The CFTC is just one of those agencies trying hard to combat scams and fraud not only in the Forex market, but in all financial markets. The legality and reliability of a Forex broker can now be verified much easier, so there’s no excuse for traders to fall into the trap of bogus FX entities.