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What is the National Futures Association?

Luke Arthur
Luke Arthur

The National Futures Association (NFA) is an organization that provides information to investors in the futures, commodities, and foreign exchange (Forex) markets. The organization is considered to be the governing body of the futures and Forex markets in the United States. Brokers to wish to be included in the National Futures Association have to abide by certain rules and pay fees to become a member. Traders often look at brokers who are included in this group as safer than alternative brokers.

Created in 1982, the National Futures Association emerged from the Commodity Futures Trading Commission, which resulted from legislation from Congress. This is not a government body, but it was created as the result of government legislation. Brokers in the US can decide whether they want to be included in the National Futures Association or not. Most brokers choose to be included in the group because it provides them with added credibility in the industry. Most investors look for brokers who are included in the NFA because it gives them an impression of safety.

Man climbing a rope
Man climbing a rope

If there is a dispute between a broker and an investor, the National Futures Association will step in and mediate the dispute. It will hear both sides of the story and issue a ruling in the situation. This provides some level of protection for investors in the futures and Forex markets.

Brokers who wish to be included in this organization have to pay membership dues to the National Futures Association. These fees are generally passed onto the customers of the brokers. Many times, brokers will charge a particular fee with each trade that is placed in order to cover these expenses.

The NFA has the ultimate goal of protecting the trader. They accomplish this by coming up with rules that brokers should follow. Many times, they also govern how traders can place trades and what types of leverage can be used in an account. These rules apply to traders in the futures market, commodities market, and the Forex market.

The National Futures Association plays a vital role in the Forex market in the United States. For example, they set regulations that prevent hedging by traders, and they limit the amount of leverage an individual trader can use. Many traders who wish to avoid the rules imposed by the NFA have set up accounts with brokerages in other countries that are not subject to the same rules.

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