When selecting a forex broker many people are concerned with whether or not that broker is registered with the NFA (US National Futures Association). This is especially true of US customers. The critical misnomer that many people do not really understand is that the NFA will not protect your funds like the FDIC does in US banks.

The NFA does provide a watchdog service to make sure that the brokers are not cheating their customers with order execution and irresponsible handling of funds.

In today’s trading environment, which some economists have dubbed the Great Depression II, it is critical to protect your money. The dirty secret is that the NFA does not and will not protect your money in the event of your forex brokerage entering bankruptcy.

Since the fall of Bear Stears, Lehman Brothers, Wachovia, and Washington Mutual the risk of a financial institution going out of business has increased. In security trading accounts as long as you hold a stock you will be protected if the company goes out of business. However, in Forex you never have full possession of a stock or company. Therefore, in the event that the forex broker enters bankruptcy the customer funds are safe from the creditors.

The largest case occurred with a New York based Broker – Refco. In 2005 Refco was a growing broker with more than 200,000 customer accounts. The CEO was buying up bad debt with refco resources so they would not have to write down the losses. Once this was discovered the company’s stock dropped to below $1 a share from above $20. The customers could not access their money for months. When the creditors came through most of the debts were paid with customer funds. Once the creditors were satisfied, the customers finally could withdraw their money but only at about thirty cents on the dollar.

While it is possible to lower your risk of this happening by selecting reputable NFA regulated brokers and spreading your money between multiple brokers, you still have broker risk to deal with. There is one solution right now that can protect the Refco fiasco from happening to you. Brokers in the United Kingdom have something called Segregated accounts.

The regulating agency in the UK has actually encouraged brokers to setup accounts so that the customer funds are in a separate trust account from the broker. Therefore, if the broker has debt that needs to be collected the creditors cannot touch the customers funds to pay off the debt. This is an example of where the NFA needs to bolster their support and protection of US consumers.

The good news is that US customers can have a forex UK account even though they live in the US. This is because many UK brokers have office divisions in the US. If you currently have large balances in the forex market it may be time to explore the UK segregated accounts for extra insurance. A list of brokers has been provided below that offer this service.

1) North Finance www.northfinance.com
2) ODL Securities UKwww.odlsecurities.com/uk/index.html
3) ActiveTrades www.activtrades.com
4) FXCM Uk www.fxcm.co.uk
5) aleccohFx www.aleccohfx.com
6) EuroOrient Securities and Financial Services www.fxpro.com
7) Dukascopy Suisse www.dukascopy.com