Best CFTC Regulated Brokers 2019
The United States of America takes the regulation of financial markets very seriously and has developed and implemented quite a few regulatory authorities over the years. However, there are a select few that stand above the rest in terms of credibility and importance. The Commodities & Futures Trading Commission (CFTC) is one of these authorities with such highly respected regulatory framework. The CFTC works as an independent regulatory agency tasked with the supervision and regulation of American companies dealing in the futures, SWAP’s, commodities, and Forex trading. By overseeing these markets, the CFTC hopes to create fair and transparent markets for traders as well as maintaining the integrity of brokerages in the markets. The CFTC is known to be a very strict regulatory authority with many guidelines, restrictions, and requirements of financial companies offering investment services to American citizens. This has deterred many companies from setting up shop at a U.S. based brokerage. However, for the brokerages that do register and become licensed by the CFTC, their traders and investors can be assured they will be a safe and secure brokerage to deal with.
Trading has been going on in the U.S. for more than 150 years, with agricultural commodities being the first. Since then, the American trading industry has vastly grown to include various financial instruments. Eventually, this led to the creation of the Commodities & Futures Trading Commission in 1974. With the implementation of this new authority, it took on the roles of previous organizations and implemented new rules and regulations to accommodate the new demands of the ever-changing financial markets. As well, since the CFTC’s establishment, the authority has changed and taken on new responsibilities and guidelines. The Commodity Futures Modernization Act of 2000 brought the Securities and Exchange Commission (SEC) and the CFTC together for the regulation of single-stock futures. Again, in 2010, the Dodd-Frank Act expanded the CFTC’s regulatory power into the swaps markets. This act required the CFTC to impose various new guidelines on the brokerages governed by them. Now, in today’s current state of affairs, the CFTC’s main goal and responsibility is to create and maintain open, transparent, competitive, and financially stable markets. They strive to protect investors and markets user’s funds, as well as to prevent fraud, manipulation, and abusive financial practices that are subject to the Commodity Exchange Act (CEA).
As the CFTC is such an important and massive regulatory authority of so many financial instruments and markets, it is no surprise they have an overwhelming amount of responsibilities. Although, when it comes down to it, the CFTC is responsible for the protection of participants in the financial market and the integrity and transparency of these financial markets.
Now, with more detail, the CFTC is responsible for the effectiveness of the futures markets by encouraging strong and healthy competition and efficiency. All while ensuring integrity by clamping down on manipulation, abusive trading practices, and financial fraud.
One of the most important responsibilities of the CFTC is to review the terms and conditions of proposed options and futures contracts to ensure their integrity. They do this by ensuring the contracts comply with the standards set out by the Commodity Exchange Act and the authorities own regulations. Along with this type of responsibility are the constant supervision and daily market surveillance to ensure orderliness is followed in the futures contracts being traded.
Another responsibility of the CFTC is the regulation of futures professionals. With this responsibility, the authority works in accordance with the National Futures Association (NFA), which abides by the CFTC’s guidelines by implementing them on the companies and individuals involved with the services of futures trading. As well, the CFTC monitors the registration process with the NFA and oversees other aspects.
The CFTC must create and implement many rules and regulations for all the financial entities they oversee. As well, this includes rules and guidelines for the NFA to implement on their behalf as well. The CFTC must ensure their rules and guidelines are implemented by the constant monitoring of the NFA’s compliance program.
How CFTC Regulation Protects You
A very important aspect of the Commodities & Futures Trading Commission is the protection of investors and consumers. The authority has developed numerous rules and guidelines for the protection of investors by safeguarding the integrity of financial markets.
One of the largest areas of protection the CFTC provides investors is the prevention of fraud and financial abuse. They achieve this level of protection by making it mandatory for all U.S. financial companies involved in investment services to adhere to their strict regulatory guidelines. Regarding Forex brokerages, all firms must pass an intense and secure licensing process, which prevents companies from participating in any financial malpractices.
As well, once companies are regulated by the CFTC, they are under constant supervision and must comply with fair and true advertising practices. This way, investors are protected through a competent and transparent market.
Also, the CFTC protects investors by cracking down on any fraudulent activity committed by companies. They issue warnings, fines, and will even take legal action by working with authorities such as the FBI. The CFTC has a very serious complaint process and will look in to and provide resolution to any disputes they find.
As well, the CFTC provides consumers with a wealth of information through their education information center on their website. The CFTC has a slew of resources and tools committed to helping investors make informed financial decisions. This is just another way the CFTC goes above and beyond with protection for investors.
All in all, Investors and traders can feel protected when dealing with brokerages and companies regulated by the CFTC. They are delighted with peace of mind knowing they are protected through the regulation imposed by them. As well, investors can enjoy secure and transparent markets to trade in.
Guidelines for CFTC Regulated Brokers
As you know by now, the CFTC is not an easy regulatory authority to be licensed and regulated by. The organization has created various strict requirements and guidelines brokerages must follow to offer investment services in America. For it is mandatory for all brokerages offering investment services in the commodities, futures, options and Forex trading to be licensed and regulated by the CFTC. So, for brokerages willing to accept the challenge and open accounts in the U.S., what are the regulatory guidelines they must follow?
Well, for one, all brokers are required to be competently registered with the CFTC. In order to do this, the CFTC carefully examines each and every brokerage who applies for licensing through them to determine if they meet all the strict requirements. As well, brokerages must display their registration number on their website. A requirement of this registration is that brokers need to be registered either as futures commission merchants (FCM’s) or as retail foreign exchange dealers (RFED’s).
Once a brokerage meets the requirements and is fully licensed, they must comply with the supervision and oversee of the CFTC. This includes proper record keeping for financial reporting on a periodic basis. The CFTC requires companies to submit financial audit reports to ensure they are following best financial practices and are not committing any crimes such as money laundering.
Another requirement of CFTC regulation regarding Forex brokers is the significant amount of operating capital held by them. Forex brokers must hold at least $20 million in operating capital. This amount is much higher than most other forex brokers in the world and goes to show just how strict and serious the CFTC is about large and competent Forex brokers. The CFTC was put in place to protect consumers, and this high operating capital can protect investors from broker bankruptcy and offers better liquidity for them as well.
Another guideline in place for the protection of consumers is the segregation of accounts between Forex brokers and investors. The brokers’ funds must be held separate from a clients account, ensuring more secure and transparent business practices.
A famous rule brokers must fall is the FIFO rule (first in, first out). What this means, is that traders must liquidate the oldest multiple open positions on a single currency pair when the trades are being closed. All positions must be closed in the order that they were opened. Brokers must implement this rule through their trading platforms either through programming it in, or the scaling up of positions according to their client’s orders.
Another restrictive requirement of CFTC regulated Forex brokers is the inability for traders to entertain the hedging method. All brokers must implement a no hedging rule on their platforms as hedging strategies are strictly forbidden under CFTC regulation.