(www.hedgefundlawblog.com in conjunction with www.forexregistration.com)
Forex or FX or retail off-exchange foreign currency transactions all refer to the same thing – trading foreign currencies for gain, usually in the spot market. The Forex markets have grown tremendously over the last few years and both individual investors and money managers are trading foreign currencies to make money. Unfortunately, many fraudsters have used the lure of the Forex markets to perpetuate scams and for some Forex has a negative connotation.
While certain Forex transactions are regulated by the Commodities Futures Trading Commission (CFTC), spot forex transactions are generally not regulated. While the CFTC does not have the power to directly regulate spot forex transactions, it does have authority, under the anti-fraud provisions of the Commodities Exchange Act, to bring enforcement actions against certain fraudulent spot forex transactions. In order to close this regulatory gap Congress passed the Farm Bill which mandated that Forex transactions be subject to CFTC oversight and regulation. The CFTC will presumably release rules which require forex managers to register with the CFTC and become members of the National Futures Association (NFA). The NFA has stated that they would like new categories of members to include the following designations: Forex CPO, Forex CTA, Forex IB, Forex Dealer Member and Forex Associated Person. The NFA has also stated that all Forex associated persons will need to pass a new exam called the Series 34 exam.
The information reprinted below, found here, is from the SEC’s website on Forex.
Forex – Foreign Currency Transactions
The foreign exchange markets are sometimes referred to as “forex.” The forex market is the largest financial market in the world, with daily average trading turnover of approximately $1.5 trillion. Operating 24 hours a day, the forex market is highly liquid and most of the trading is conducted electronically or over the phone. Banks, insurance companies, large corporations and other large financial institutions all use the forex markets to manage the risks associated with fluctuations in currency rates. In recent years, retail investors have also looked to the forex markets as yet another possible investment opportunity.
The Commodity Futures Trading Commission cautions investors to be wary of websites that purport to offer high yield investment opportunities in forex transactions, because this is a common area of internet fraud. The CFTC has posted several fictitious websites that are representative of typical websites that have been the subject of CFTC enforcement actions. CFTC’s examples of fraudulent websites include Global Financial Capital Management, Colfax Trading International, TradeForex4You, White, Truman and Fischer, Excalibier Precious Metals, and Commodity Profits.com.
Foreign currency futures contracts may be legitimately traded either on a recognized futures exchange or in the “interbank market,” which generally involves trading between large institutions such as banks and corporations. The interbank market does not typically include individual or retail customers. Fraudulent currency trading firms often tell customers that their trading is done in the “interbank market.” Be wary of any firm that claims that you can or should trade in the “interbank market” or that it can or will do so on your behalf. Your losses can be very large in a single day. Companies that tell you otherwise may well be engaged in illegal schemes.
For more information about the CFTC or foreign currency transactions, please visit the CFTC’s website.
Other HFLB articles:
- Forex Registration Requirements (please also see our other website on Forex Registration)
- Forex Disclosure Documents Part I
- Forex Disclosure Documents Part II
- Submitting Forex Disclosure Documents to the NFA
- Forex Fraud