When you are searching for an FX broker for retail trading, it is a good idea to check if the brokers you are interested in are regulated and if so, how. In which jurisdictions are they regulated? Are they only regulated by law, or are they also restricted by other rules, e.g. a broker association code?

The first thing to check out is if the broker is regulated by a national regulatory body, e.g. the UK Financial Conduct Authority (FCA). Is the broker company registered, headquartered and regulated within the same country? If not, why the discrepancy?

Next step is to check the reputation of that regulatory body. Is it a strict regulatory body with actual powers to clamp down on offenders? Or is it a laissez–faire body with wishy-washy rules? Or maybe the rules are strict but the regulatory body is unable or unwilling to really do anything about entities that break the rules?

USA

The Commodity Futures Trading Commission (CFTC) has issued certain rules for Retail Foreign Exchange Dealers. The most recent set of rules have been in effect since October 18, 2010.

The CFTC was created in 1974 as a result of the Commodity Exchange Act. In 1982, CFTC created the National Futures Association (NFA).

Under the most recent CFTC rules, any firm acting as a counterparty to certain retail off-exchange forex transactions is required to register as a Retail Foreign Exchange Dealer (RFED) with the CFTC. Futures Commission Merchants are exempt if certain requirements are fulfilled and they are approved as a Forex Firm and designated as a Forex Dealer Member of NFA.

Individuals acting as forex solicitors, account managers and/or pool operators must register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs). They must also be members of the NFA.

All individuals who solicit retail off-exchange forex business or who supervise that activity must take and pass two exams.

• The National Commodity Futures Examination (NCFE or Series 3). The exam is focused on on-exchange futures trading theory, terminology and regulation.
• The Retail Off-Exchange Forex Examination (Series 34). It is focused on forex-related issues.

All individual NFA applicants must submit fingerprint cards. Individuals being fingerprinted must present two forms of identification, of which at least one must be a valid picture ID issued by a government agency. The fingerprint cards of an applicant are sent (physically or digitally) to the Federal Bureau of Investigation (FBI) to determine if the applicant has a criminal record.