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The Commodity Futures Trading Commission-CFTC

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What is the U.S. Commodity Futures Trading Commission – CFTC?

The U.S. Commodity Futures Trading Commission (CFTC) is a state agency that is responsible for regulating the stock exchanges and futures market in this country. Based in Washington, the agency works since late 1975 and since that day, its slogan is to be committed to transparency in the regulatory process and the consumer protection.The topics of the meetings, attendees, meeting summaries and other material submitted to the CFTC is published on its website so everyone can read this material without problems (http://www.cftc.gov).

Goals and strategies of the CFTC

– The decrease in the risk level for the American consumer  relative to the financial services industry.

– The product of standardized derivatives moved to central information centers to reduce risk in the financial system.

– The Clearinghouses act as intermediaries between two parties to a transaction and assume the risk of a counterpart default. 

– Information centers ensure that operations have a lower risk in the futures market since 1990.

The principal mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the buy/sale of commodity and financial futures and options. In other words, this agency ensure that there are good practices in the financial industry.

International Initiatives

The CFTC participates in a wide range of international initiatives to enhance international cooperation in monitoring and emergency procedures with the objective to establish specific standards and implement best practices for the regulation of futures and derivatives markets, promoting greater transparency in futures markets products, improve the quantity and quality of international information exchange relating to financial markets and encourage foreign jurisdictions to remove legal and practical obstacles to achieving these objectives.

Access to foreign markets in the United States

In general, any foreign person living outside the United States and who has the necessary resources, can buy or sell the majority of financial products traded on commodity and futures markets in this country without additional approval. This means that a foreigner can open an account and trade in the markets of that country with a U.S.broker without being registered with the CFTC.  Also, the person does not require a direct authorization from this agency . In some cases, depending on the type of transactions made, foreigners operating in futures markets, stocks and with other financial instruments may be subject to certain conditions established in an order issued by the U.S. government, the SEC and/or a notice issued by a division of the CFTC to oversee the negotiations and compensate if necessary. This is part of a plan to limit companies and individuals that perform operations that can be considered risky, especially if the company is listed on the U.S. stock market. 

Regulations for Forex brokers that are registered with the CFTC

Because the regulations in the U.S. for companies that offer financial services are more stringent than in other countries, Forex brokers registered with the CFTC must meet a series of regulations to provide services to customers in that country. With respect to these brokers, some of the most important regulations are:

  • A maximum leverage of 1:50.
  • The hedging strategies are not allowed. This means that a trader can not open a long position and a short position on the same instrument at the same time. If a trader attempts to open a position in another direction opposite to a position already open,  both trades cancel each other according to the magnitude of their volume. For example, if we have a long position of 1 lot in the EUR/USD and then we open a short position of 1 lot in the same currency pair and in the same broker, one trade cancel the other immediately, or in other words the long position is closed and we must assume the gain or loss.
  • The open positions must be closed according to FIFO (First In First Out) rule. This means that the traders must close their open positions in an financial instrument in the same order in which these trades were opened.

List brokers regulated by the CFTC

The following is a list of brokers that are currently regulated by the CFTC:

Broker Trading instruments Minimum deposit Complete review
Ikonfx
  • Forex market
  • Precious metals
  • CFDs
  • Financial options
  • NDF.
$150 Review
Oanda
  • Forex  market.
  • Commodities
$25 Review
FXCM
  • Mercado Forex
  • Precious metals
$25 Review
eToroUSA
  • Forex market
  • Precious metals
$250 Review

Other companies regulated by the CFTC

  • Zulutrade: Company specializing in Forex autotrading.
  • Collective2: Company specializing in services of autotrading to trade with currency pairs(Forex), options, futures and stocks.

 


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