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Since Commodity Futures Trading Commission (CFTC) is a government agency, it does not issue rules for the forex market. It gave that right to National Futures Association (NFA). NFA is a US based industry wide, self-regulation organization. NFA is a not-for-profit membership corporation formed in 1976 to become the futures industry’s self-regulatory organization. The first NFA regulatory operations began on October 1, 1982. Today, the organization, among other tasks, audits members to enforce compliance with NFA financial requirements. NFA was formed to provide regulatory oversight to the futures market but now NFA has started regulation of the retail forex market as well. Recently some new rules were released for the retail forex market. But remember rules are not laws but still it provides some degree of regulation to the unregulated market.
On December 1, 2003, NFA was given enormous authority to regulate the forex market with the, “Forex Transaction with Forex Dealer Member Interpretive Notice.” NFA Bylaw 306 creates a Forex Dealer Member category for certain NFA Members who act as counterparties to forex transactions with retail customers. This category allows NFA to exercise appropriate regulatory jurisdiction over the retail forex activities of these Members without imposing unnecessary, and potentially duplicative, regulatory burdens on Members that are otherwise subject to regulatory oversight for their activities.
So as a retail forex trader, you should only try to deal with those firms that have some NFA designation. Since NFA is a self-regulatory organization, not all firms are member of NFA. So determining whether a firm complies with NFA should be the most important part of your background research.
FCMs are within the Commodity Futures Trading Commission jurisdiction. The provisions within the CFMA only give the CFCT the ability to put firms out of business if they are not in one of those regulated categories or take an antifraud action or antimanipulation action against an FCM or affiliate. That’s all the CFTC has jurisdiction over, basically. They cannot, however, write rules.
The NFA actually has broader ability to regulate. Once someone becomes an NFA member, their relationship with NFA is by contract, where they agree to abide by NFA rules. NFA can write rules to govern any of their conduct. The mandatory registration of FCMs gives the NFA the ability to regulate, and since any entity conducting business with an FCM must be registered, they are therefore governed by the NFA within the U.S. NFA’s rules prohibit fraud, but they also impose affirmative obligations on Forex dealer members that are designed to
1) ensure that retail customers understand the risks and the costs involved in trading these products,
2) protect retail customers against unethical business practices, and
3) require Forex dealer members to have adequate capital for their business, which reduces (but does not eliminate) the risk that customers will lose their funds due to bankruptcy or other reasons unrelated to the customer’s market losses.
What recourse does a retail trader have against abuse?
If the firm is NFA member, NFA do have an arbitration program to recover money lost. NFA can also take an enforcement action that won’t get you your money back but might give you the satisfaction of protecting other customers down the road. Before you do any investing, you should do your homework. If it is not a bank or an insurance company or broker dealer, or if they are touting themselves as an NFA member, check up on the claim.
As you are likely aware, the NFA has made some major changes to the regulations regarding order types that traders can now place. Brokers are NO LONGER allowed to accept:
OCO orders, (one cancels the other, used when bracketing the market for breakouts)
Stop Loss Orders (To Limit Your Losses or Risk in a given Trade) – GONE
Limit Orders (To Exit You Out Of Your Position When Your Target Is Hit) – GONE
Some brokers have simply removed these orders all together, others have created a temporary patchy work around (which can come crashing down on a MOMENTS notice), and others still have sent ALL of their clients overseas! (Not a good idea by any stretch)
The recent changes have many traders running scared, but the solution is genius… It’s called Forex Executor Pro, and not only does it get around the new NFA rulings, it has a TON more functionality that will literally transform your metatrader platform in ways you have to see to believe! The executor will give you an unfair advantage over all other traders, and even the brokers themselves.
Not only does it allow you place OCO’s Stops, and Limits orders, (all held on YOUR PC, not with the broker) it also allows you to execute the following orders as well…
Trailing Stops…That are infinitely more sophisticated and powerful that what metatrader offers…
Break Even Stop Loss Orders (WAY cool, and need to be seen by any serious trader)…
Cell phone texting, so you can be alerted any time an order triggers, no matter where you are…
PLUS, ALL of your orders are actually COMPLETELY HIDDEN from the brokers as well, which completely eliminating stop hunting as the brokers simply can’t take our your stops, when they can’t see them! You don’t want to miss this… its one neat plugin that will make you trading far more efficient. This is very exciting stuff!
Your trading future literally depends on having the ability to place the orders the brokers may be forced to remove at any time, the Forex Executor is THE solution. The price is SHOCKINGLY low, and it may be going up soon, so lock in your seat to ensure the intro pricing, should you be as impressed with the Forex Executor as I am.
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