Regulation

Because the Interbank is spread out among numerous firms and across many countries, it is virtually impossible to enforce any kind of centralized, standard regulation. While a group such as the Commodity Futures Trading Commission (CFTC) can attempt to monitor U.S. companies participating in the Interbank market (and its authority in that arena is being challenged), the CFTC would have no authority over foreign firms. (Currency futures, which are distinct from the spot forex market, trade in the U.S. on regulated exchanges such as the Chicago Mercantile Exchange and New York Board of Trade.)

Nonethless, because the Interbank consists of large, global companies with reputations to uphold and business connections to maintain, it is difficult for them to take part in fraudulent trading activity with fellow Interbank members. The same, unfortunately, cannot be said of some forex brokers. Because of the lack of regulation, there have been numerous cases of unscrupulous pseudo-brokers bilking unsuspecting traders of their funds.

However, many U.S. forex firms have voluntarily registered as futures clearing merchants (FCMs) with the CFTC to solidify their credentials and provide evidence of their financial solvency and professionalism. At any rate, any potential forex trader needs to perform due diligence when selecting a brokerage by checking the firm’s reserve funds, outside affiliations, account protection, and other factors before depositing money.