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Regulations in the Forex Market: The No Man’s Land of Currency Investing

admin on August 13th, 2008

Due to the extremely high volume traded on a daily basis — some estimate it around $3.2 trillion, but we’ll never actually know with precision — and the number of online (and offline) brokers residing and operating all around the world, it would be inherently difficult for a central organization to impose a definite regulation that is valid and accepted by all the major players.

For this and other reasons, there actually isn’t a main regulatory body for this business. Just take a moment and think about it, $3.2 trillion being traded every day and there is not a single, central authority that anyone can rely on: traders are by themselves. There is no set of rules on a global scale that any given online broker has to follow in order to operate on the market, only rules or guidelines set by each and every single country, of course with varying degrees of restriction. Now, how does that sound? Not very encouraging, that is for sure.

Commodity Futures Trading Commission

In the US, the internal regulatory body for every activity related to currency trading is the Commodity Futures Trading Commission (CFTC). We certainly invite you to have a good look at their website, especially at their “Forex Fraud” consumer advisory section, which you can find here. It contains some general, but still useful tips to sort out honest and reliable companies from scammers whose only aim is to take your money away.

A forex broker in America should be registered as a Futures Commission Merchant (FCM) with the CFTC, and also be a NFA (National Futures Association) member. Our strong suggestion is to stay away for non-regulated firms! You can check whether any given broker is registered with the NFA from this page. If you’re thinking about depositing money with a firm, we strongly encourage you to check that page first!

The Importance of Knowing Where your Forex Broker Is Operating

Needless to say, for the reasons explained above, it becomes a matter of exteme importance, whenever you are considering investing your money via a certain broker, to always keep an eye on which country such broker operates in. Knowing that your broker operates in countries such as the US, Switzerland and the rest of Europe (safe for Malta) can generally be seen as some sort of guarantee — not a definite one, but still one worth looking for — of a solid legislative background, meaning that your money is less likely to suddenly “disappear” into their hands.

Such data should always be present in the company website and, if not, you should be able to contact the support personnel via chat or email and ask them for some definite proof. If for some reason you can’t access this information, or you are given it only to find out that the company is based in Malta or in the British Virgin Islands, you’ll have a strong argument against “securing” your money with them.

Just to be clear: the fact alone of being based in a fiscal paradise does in no way mean that the company is not honest and/or legit, but it does mean that you will have less guarantees. In these cases, the least you can do to protect your investment if you actually mean to deposit money with them is to google the name of their company and see for yourself what other users and investors think about them.