The foreign exchange market has no central clearinghouse as do the stock market and the commodity futures market. Nor is it based in any one country; it is a complex, often freewheeling, loosely woven worldwide network of banks. This network is referred to as the Interbank system. Retail FOREX brokers—in different ways—tap into this network to fill their customers’ orders. These facts permeate every aspect of currency trading, especially the regulatory environment. It is difficult, if not impossible, to get a firm regulatory grip on such an entity. That fact cuts both ways. The market is laissezfaire, but it is also a caveat emptor enterprise. If you wish to trade currencies, you must accept these facts from the beginning.
Regulation in the FOREX Market
In the second edition of Getting Started in Currency Trading, I wrote: The retail FOREX regulatory picture continues to evolve—slowly. Three years ago some broker dealers proudly advertised they were not NFA members. Curiously one of those was REFCO, which failed soon thereafter. Today all of the major broker-dealers have joined the NFA (National Futures Association) and come under the watchful government eye of the CFTC (Commodity Futures Trading Commission). My first advice to you: Do not trade with an unregistered broker-dealer. Every broker-dealer should have his NFA registration number on the web site’s home page.
Regulation is seldom proactive; it usually is the result of a crisis. An NFA spokesman confessed to me that their hands were somewhat tied until a crisis provoked additional legislation. The NFA does host a booth at most FOREX trade shows. If you attend one of these, you might want to ask questions or voice your concerns to the people staffing them. They seem to be good listeners and keep close tabs on the pulse of the FOREX marketplace.
Broker-dealers register as Futures Commission Merchants (FCMs). Currently, Introducing Brokers (IBs) can be covered by the FCM or register independently. As below, it is likely that IBs will all soon be required to register.
Times have changed! In 2008 and 2009 the regulatory agencies in the United States have quickly evolved from a Casper Milquetoast to Magilla Gorilla. The CFTC and NFA have acted quite proactively.
Appendix A, “How the FOREX Game Is Played,” outlines many of the issues for all parties that have prompted the fast-tracking of regulation in retail FOREX.
Regulation Past
In the beginning of retail FOREX, regulations, other than fraud statutes, were essentially non-existent. This was also true of the commodity futures markets up to the mid-1970s. The regulatory path of retail FOREX is following a remarkably similar path to that of commodity futures in the 1970s and 1980s
Regulation in the FOREX Market
In the second edition of Getting Started in Currency Trading, I wrote: The retail FOREX regulatory picture continues to evolve—slowly. Three years ago some broker dealers proudly advertised they were not NFA members. Curiously one of those was REFCO, which failed soon thereafter. Today all of the major broker-dealers have joined the NFA (National Futures Association) and come under the watchful government eye of the CFTC (Commodity Futures Trading Commission). My first advice to you: Do not trade with an unregistered broker-dealer. Every broker-dealer should have his NFA registration number on the web site’s home page.
Regulation is seldom proactive; it usually is the result of a crisis. An NFA spokesman confessed to me that their hands were somewhat tied until a crisis provoked additional legislation. The NFA does host a booth at most FOREX trade shows. If you attend one of these, you might want to ask questions or voice your concerns to the people staffing them. They seem to be good listeners and keep close tabs on the pulse of the FOREX marketplace.
Broker-dealers register as Futures Commission Merchants (FCMs). Currently, Introducing Brokers (IBs) can be covered by the FCM or register independently. As below, it is likely that IBs will all soon be required to register.
Times have changed! In 2008 and 2009 the regulatory agencies in the United States have quickly evolved from a Casper Milquetoast to Magilla Gorilla. The CFTC and NFA have acted quite proactively.
Appendix A, “How the FOREX Game Is Played,” outlines many of the issues for all parties that have prompted the fast-tracking of regulation in retail FOREX.
Regulation Past
In the beginning of retail FOREX, regulations, other than fraud statutes, were essentially non-existent. This was also true of the commodity futures markets up to the mid-1970s. The regulatory path of retail FOREX is following a remarkably similar path to that of commodity futures in the 1970s and 1980s
