NFA was conceived in by the American Congress to ensure fair practices and conduct from organizations dealing with the general public while rendering services related to retail or OTC trading such as Forex and commodities. The NFA was introduced so that any firm that is willing to provide derivatives related services to the US traders, including swap dealers and signals providers, should be a member of the NFA and be willing to adhere to the strict standards and regulatory guidelines as proposed by the NFA from time to time.
Headquartered in Chicago, IL, the main motive behind NFA is to instill investor confidence in the derivatives markets by putting forward stringent guidelines that will not only safeguard investor interests but also act as a platform to resolve issues between a firm and its consumer. Membership in the NFA is required for all forex brokers, signals providers, brokerage firms, swap dealers, and associates who wish to do business on US soil.
Only NFA regulated brokers are allowed to offer brokerage services to residents of the US, and failure to adhere to the strict NFA regulations will attract heavy penalties and subsequent legal action.
Being a non-profit agency, NFA is maintained using membership fees and other dues. This ensures that the NFA is not run using tax payers money, and gives more credibility to the organization in favour of the consumer. According to the legislations passed in the and by the Congress, it is mandatory for all firms participating in the derivatives markets to be registered with the CFTC and become members of the NFA. Amendments to the regulations in also saw the inclusion of swap dealers as well, which pretty much covers all aspects or retail trading in the derivatives market.
NFA, along with the CFTC, performed a major overhaul of the regulatory guidelines so as to ensure more rights to the consumer, and prevent any instances firms taking undue advantage of unsuspecting customers. Since , NFA has been actively participating in regulating the derivatives market by safeguarding client funds against fraud or abuse.
NFA requires all of its members to audit their balance sheets and reports on a daily basis to ensure that there are no discrepancies. NFA also requires all compliant members to keep customer funds in safe and secure segregated accounts to ensure that customer funds can be returned to its rightful owner if the parent company is liquidated or facing a lawsuit.
The outstanding quality guidelines and regulatory by-laws put forward by the NFA have certainly helped in fighting fraud and abuse effectively. In most cases, NFA regulated brokers are seen helping their clients, rather than working against them to siphon off their money.
NFA works as an arbitrator in most customer disputes by offering an easy channel for customers to make claims or file complaints against any NFA member. There are several advantages as well as disadvantages of choosing an NFA regulated forex broker.
NFA regulation guarantees the safety of client funds, along with providing a medium for arbitration or consumer dispute resolution. It also ensures that the broker remains honest and refrains from indulging in any fraudulent activities.
Choosing an NFA regulated company also ensures that the forex broker has gone through all the screening procedures as stipulated by the NFA. On the flipside, the NFA and CFTC are known to interfere with the freedom of traders by imposing trading restrictions in the name of safeguarding consumer interests.
Low leverage, no hedging policies, and scalping rules are all deterrent to a trader who wishes to trade the derivatives market the way he deems fit. Therefore, while NFA regulation is a good thing, especially for traders in the US, it should be noted that traders should carefully analyze the trading policies before choosing an NFA regulated forex broker.
In most cases, regulated brokers will provide detailed information about the regulation that includes the license number and a link to their registration profile. NFA also provides an online resource where consumers can perform a background check on the concerned broker, and cross-reference information to ensure that the broker is indeed regulated by the NFA. Was the information useful? Get the latest Forex updates now! Receive the latest Forex broker reviews and offers Learn more about trading Forex through our academy section Start trading with a demo account and teach yourself to be a trader No thanks, maybe later.More...