FX Regulations

W

WallstYouth

Is Forex trading regulated here in the US I’m particularly looking to trade EUR/USD? I've been reading these forums for about two weeks and every now and then I run into conflicting answers about regulations and FX trading.

As a new FX trader (demo's only) in another month or so I plan to start trading with real money, so I began doing some research on the government bodies like CFTC, NFA do these regulations apply to all trading pairs ? Or just countries with a regulatory body that overseas FX trading?

From government bodies here in the US (CFTC/NFA) is it fairly safe to trade FX w/o companies ripping me off, going out of business and taking all my investments?

From the CFTC Website
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An Important Mission in the Ever-Changing World of Finance

The mission of the Commodity Futures Trading Commission (CFTC) is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.


From NFA Web site
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National Futures Association (NFA) is the industry wide, self-regulatory organization for the U.S. futures industry. We strive every day to develop rules, programs and services that safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities.
 
If your broker is registered with the CFTC and the NFA, all pairs and all trading activity will be subject to the rules of these bodies.
 
I think those entities you cited deal specifically with currency futures. If you have any doubts, and are just interested in trading eur/usd, there's no reason why you shouldn't just trade eur futures through globex.
 
Quote from TradingWise:

If your broker is registered with the CFTC and the NFA, all pairs and all trading activity will be subject to the rules of these bodies.
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Not really true.

CFTC has no legal authority to make rules governing spot retail FX trading, or to make rules to prevent fraud. CFTC's power is limited to shutting down fraudulent operations after fraud has already occurred and been proven. CFTC's only authority is to close the barn door after the horses have already run away.

Many FX brokers are not regulated by NFA. Those who are regulated by NFA are not regulated in an effective manner. No matter what the brokers have done, no matter how much money they stole from no matter how many people, they usually get away with it, and when they don't, they usually make a deal where they never, ever, ever admit or deny wrongdoing. This reflects the extreme weakness of "regulation" of retail spot FX trading. A truly effective law enforcement program would, in at least some cases, make deals in which the wrongdoer was required to admit wrongdoing, but this never happens, and the reason it never happens is because regulation is basically a joke. A serious law enforcement program, like the one run by your county or federal prosecutor, will make plea-bargains in which the criminal is required to "allocute", that is to admit to the specific facts of the criminal offense.

Just ask people who lost their money in RefcoFX last October. The Refco group was one of the biggest companies in finance, and had various parts regulated by CFTC, NFA, and SEC. What good did this "regulation" do for the victims?

Another caution: it is very common for retail spot FX brokers to make false or misleading statements about who regulates them and how they are regulated.

Do not rely on government to protect you. Just ask the citizens of New Orleans, or the stockholders of Enron, what happens when you sit back and relax and assume the government will protect you. Just because the government has an agency which claims to protect you, like, for example, the Federal Emergency Management Agency (FEMA), you are a fool if you gamble your money on an assumption that they will actually protect you from catastrophic events like hurricanes, fraud, and corporate bankruptcies.
 
It's pretty tough to regulate a market without standardized quotes...

The dealer quotes you his world....you execute in HIS world he is presenting to you....This is the secondary market, in which he may or may not hedge in the primary market. He may just trade his bucket until he must hedge...The collection of spread should be the only profit a dealer makes, but that is not enough..I once heard a story where a dealer spiked his quotes to clear out some bad trades he was holding, then he returned the quotes back up to the "buffered/shadowed EBS price" that he normally maintained and reported to his clients (you the trader).

He holds your money....and if he goes BK...you must go through the BK procedure....When you deposit funds you make them payable to your dealer.

There are only two dealers that I know of that are honest...there may be more....

One of them is a sponsor here...

Michael B.

P.S. Why do you think arbitrage between the retail Forex dealers is strictly forbidden by them? You must allow them to make their money and keep them happy, when your "on" to them, you take away some of that profit, out of their book, when they are, shall we say "adjusting". :)

P.P.S. Some of them are so obvious, I sometimes wonder if they even care about losing clients...there is plenty of fresh meat racing to the mousetrap...These internal traders and these trading desks....I wonder if these guys talk and understand what they are doing, when there putting on trades for their Forex Firm that they are working for? Do they know they are stealing...do they brag about it? How are they silenced when they quit? Why are there not more arbritration cases and cival law suits? Why?

P.P.S. I know programmers that could program software to look at all the other sides of the trades that a dealer has in nanoseconds and adjust the quotes to allow their feeble trading desk to put on some profitable positions that they know in advance that they have ana edge with...it could all be automated and its a piece of cake! The programmer could have secondary operations tracking stops and targets and project outcomes...piece of cake!
 
Quote from ElectricSavant:

I once heard a story where a dealer spiked his quotes to clear out some bad trades he was holding, then he returned the quotes back up to the "buffered/shadowed EBS price" that he normally maintained and reported to his clients (you the trader).

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ElectricSavant,

I think you made some great points throughout your entire posting, and I'm glad that other people feel the way I do about these scumbags. I think that the one part of your posting, which I have quoted, needs to be clarified so that newbies can understand what you are saying. I think that when you were talking about "spiked" quotes, you were referring to the practice of stop-running, which is extremely lucrative for retail spot FX bucketshops (broker/market-makers), and extremely harmfu to their customers. Newbies need to know that stop-running is one of the most important issues that arise from this fundamentally corrupt industry of FX broker/market-makers (bucketshops).

The smart way to go is with a broker which does not act as a market-maker.
 
jimrockford,

Thank you for your posts in ET. As a guest here , I read certain posters comments and your one of them.

Thank you for clearing some things. Your quote and comment was correct and appreciated.

When I type this stuff out on the fly, it makes sense to me...but when I read it 24 hours later, I sometimes wonder what I was trying to say.

I interviewed once to be a trader at a bucketshop and I know what I am saying is correct. From their view point they must make a profit and need to be able to get a clients order, usually a large bank...this retail stuff is just icing on the cake, but if I know I got a bank on the hook at a certain price...well then I can run my book acccordingly. Lots of phone calls and phone work! I went back for the second interview and they were shut down a week later by the NFA for unaccounted russian money...(they wanted me to be the designated CTA as they wanted a fall guy....)

Michael B.


Quote from jimrockford:

ElectricSavant,

I think you made some great points throughout your entire posting, and I'm glad that other people feel the way I do about these scumbags. I think that the one part of your posting, which I have quoted, needs to be clarified so that newbies can understand what you are saying. I think that when you were talking about "spiked" quotes, you were referring to the practice of stop-running, which is extremely lucrative for retail spot FX bucketshops (broker/market-makers), and extremely harmfu to their customers. Newbies need to know that stop-running is one of the most important issues that arise from this fundamentally corrupt industry of FX broker/market-makers (bucketshops).

The smart way to go is with a broker which does not act as a market-maker.
More...
 
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