Regulation: Past, Present, and Future
The foreign exchange market has no central clearinghouse as do the stock market and the commodity futures market. Nor is it based in any one country; it is a complex, often freewheeling, electronically woven worldwide network of banks. This network is referred to as the Interbank system. Retail FOREX brokers—in different ways—tap into this network to fill their customers’ orders. These facts permeate every aspect of currency trading, especially the regulatory environment. It is difficult, if not impossible, to get a complete regulatory grip on such an entity, at least pending the New World Order. That fact cuts both ways. The market is laissez-faire, but it is also a caveat emptor enterprise. If you wish to trade currencies, you must accept these facts from the beginning. In the United States, the CFTC and NFA have implemented heavy-handed regulations to some degree, compensating for the areas they cannot control.
Regulation in the FOREX Market
In the third edition of Getting Started in Currency Trading, I wrote:
The retail FOREX regulatory picture continues to evolve—slowly. Three years ago some broker-dealers proudly advertised they were not NFA members. Curiously, one of those was REFCO, which failed soon thereafter. Today, all of the major broker-dealers have joined the NFA (National Futures Association) and come under the watchful government eye of the CFTC (Commodity Futures Trading Commission). My first advice ...