The Foreign currency exchanges (Forex) of the world are running non-stop and the market is a global one that crosses national boundaries. A trader in Australia could quite easily trade in Japanese Yen via a broker based in the US, so how is Forex trading in the US regulated?
The Forex market is a growing one and there have been cases of unscrupulous intermediaries engaging in fraudulent or dishonest trading. There have also been many cases of trading websites that have suddenly closed down, at great cost to those people who had invested money with them.
When looking for a reputable brokerage firm, one of the most important things to look at is the regulatory approval of the broker and which regulatory body governing body is responsible for setting the regulations that the broker must abide by. As an example, here is how US brokerage accounts are regulated.
In the United States, it is The National Futures Association (NFA) that is responsible for retail off-exchange foreign currency brokers. They are an independent body that provides the regularity framework and compliance monitoring of the derivative markets, which includes the foreign exchange market.
The scope of the role of the NFA includes the granting of licenses to brokers after due diligence, the enforcement of capital requirements, the enforcement of record keeping and reporting requirements, and the combatting of fraud. Each NFA member is required to abide by the detailed regulations with regards to foreign exchange trading. A PDF copy of the NFA regulatory guide is available on the NFA website.
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