NFA brokers are in simple terms forex brokers which are licensed to operate brokerage services in the foreign exchange to retail traders based on the guidelines and standards set by the National Futures Association which is the US industry wide regulatory organization for the forex and futures industry. The NFA has the responsibility to ensure that its members meet the requirements set which are present to protect market participants. The practices of the NFA and the overall practices of NFA forex brokers are monitored from the Commodity Futures Trading Commission which is abbreviated CFTC.
As explained in other sections listing regionally licensed forex brokers although it is not the rule for your forex trading broker to be necessarily licensed with your local jurisdiction in roder for yo to be eligible to maintain a real forex trading account in many cases it might be in your benefit as a trader for your forex trading broker to be licensed with your regional exchange or futures association in order for you to be fully protected when you might have any sort of issue with your account handling.
NFA Forex Brokers
As a retail trader when you pick a NFA regulated forex broker you have the benefit of being sure your funds are being handled by a trustworthy forex broker with physical presence in the US which does not make use of customer balances to perform day to day activities and moreover cover running operational expenses. NFA forex brokers are obliged to maintain enough liquidity in order to be able to back up all customer positions in the over the counter interbank market. As a general rule NFA forex brokers are obliged to maintain $20,000,000 of net capital in order to cover customer positions and moreover they NFA regulated forex brokers are obliged to report account balances directly to the NFA at the end of every trading week.
Disadvantages of NFA Regulated Brokers
You should understand tha NFA Brokers which in turn are overseen by the CFTC are limited to restrictions in terms of leverage as the maximum allowed leverage is 50 times for major currency transactions conducted by accredited brokers which is in many cases forcing Americans to switch to European based forex brokers which are licensed with European regulatory bodies and offer equally high quality services with much more lucrative offerings to customers.
The very high amount of net capital required by the NFA for a forex broker to be considered to be licensed as a NFA broker is an additional barrier for many trusted and high quality institutions to be licensed with the NFA. As a trader you should ask yourself why should a European based forex trading broker which offers very high rated services adjust and limit offerings in order to meet NFA restrictions and potentially lose a large amount of clients due to limitations in offerings in order to comply with the NFA brokers restrictions. At the end of the day why should a European licensed forex broker even decide to comply with the NFA and its restrictions when it can still accept US customers which can enjoy higher leverage and additional offerings limited by the CFTC with a much lower entry barrier which benefits only large firms and maintains a silent monopoly due to entry capital.
As a forex trader you should understand that the forex market is a global market and it faces no boundaries, no regional limitations and moreover it does not require any physical presence. This does not in any way translate that we recommend you issue an account with the first broker you come across which might not be licensed altogether but you should understand that you have no limitations if you may decide to trade with a European regulated forex broker which possibly might be in a position to offer much higher incentives and higher quality services to you although not being an official NFA regulated forex broker.