Currency trading depends on the integrity of broker/dealers to protect investors.
Currency trading is a popular contemporary investment area. Forex (foreign exchange) trading can be profitable or highly risky as a country's currency value is often affected by internal and external issues. Along with local and global economic events, currency values change with governmental, environmental, and natural disaster conditions. Those interested in forex trading should understand the laws and regulations involved to better minimize risk and increase profits.
Currency Trading Regulation Enforcement
Millions of dollars (and other currencies) are traded daily. There are numerous opportunities to "bend" the laws and regulations. Hence, multiple entities oversee and enforce currency trading regulations. The National Futures Association (NFA) is a US self-regulatory organization that helps protect investors and attempts to maintain market integrity. Since 1974, the Commodity Futures Trading Commission (CFTC) issues and enforces forex trading laws in the US to help protect investors from unlawful or abusive actions by currency trader broker/dealers. Based in the UK, the Financial Services Authority (FSA) exists to issue regulations, protect investors and markets, and enforce currency trading laws.
Major Currency Trading Laws
Most currency trading laws pertain to broker/dealers and others offering forex services. A forex trader must be licensed in the country which houses their home office operations. These traders must be approved by their country's regulatory authority. In addition to the major US and European organizations previously noted, every sovereign country has an entity that enforces currency trading laws. All licensed currency traders must permit regular audits and examinations to ensure they are acting according to forex regulations and dealing with investors fairly. Currency trading firms must advise investors appropriately, including highlighting the many risks involved when trading foreign currencies. To maintain their license, all forex servicers must honor and complete every transaction generated by investors.
Understanding Currency Trading Investment Realities
For all of the organizations established to oversee and enforce currency trading standards and integrity, one must understand that forex is technically an unregulated industry. Unlike the stock market, which has strict laws regarding the listing and transfer of securities, currency trading are transactions involving at least one foreign country. In some cases, both sides of transactions involve foreign currencies. For example, a US resident owns Japanese yen and trades for Euros. To preserve market integrity, broker/dealers/servicers are licensed and examined, but the transactions themselves depend on the legality and law adherence of the dealers involved. Unlike stock markets or other commodity futures transactions, the diversity of governments, foreign regulations, fee structures, and the obvious fluid nature of "cash" transactions, currency trading laws, from country to country, can cause confusion.
