How did we choose our best stock brokers in the USA?
The first thing we did was to make sure that any broker under consideration for the best stock brokers in the USA was regulated by the CFTC and NFA. These are the regulatory authorities for stock brokerage firms who provide online stock trading in the USA. Upon confirmation that the broker was regulated, we conducted in-depth research and detailed analysis on the services provided. Based on our findings of what we consider to be some of the most important factors worth considering when choosing an online stock broker, we were then able to assign them with a stock broker rating. Some of the key things we considered include:
- Regulation: A USA stock broker should be authorised and regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) to provide online stock trading in the USA.
- Stock Trading Platforms: The stock broker should have a range of the best stock trading platforms with user friendly interfaces and trading tools for analysing the stock markets. The platforms should be compatible on desktop, web and mobile devices for trading stocks whilst on the move.
- Stock Trading Instruments: The stock broker should offer a large selection of global stocks in different markets for trading online.
- Spreads: The stock brokers spreads should be competitive, the tighter the better.
- Commission: The commission charged for trading stocks should be priced low.
- Fees: Other fees such as those charged for deposits, withdrawals, account inactivity, holding positions overnight, etc, should all be made clear.
- Execution Speeds: Traders buy or sell stock positions should be entered with minimal delays.
- Liquidity Providers: The stock broker should utilise top tier liquidity providers (LPs) in order to offer a deep liquidity pool to traders.
- Stock Trading Tools: There should be a good selection of trading tools for analysing the stock markets, planning and managing positions, receiving trading signals, social trading, etc.
- Educational Materials: The stock broker should consider new traders by offering them a variety of educational resources on different stock trading topics to help them improve their trading skills and knowledge. Training tools can include video tutorials, stock trading guides, webinars, etc.
- Stock Trading Accounts: The stock broker should offer a choice of flexible trading accounts to cater for different levels of investment and experience levels.
- Account Deposit & Withdrawal Methods: There should be a choice of convenient account funding options, ideally including online payment processors for fast and easy account funding.
- Client Support: The stock brokerage should offer efficient and well-educated client support in order to respond in a polite and prompt manner to all general and technical questions that stock traders may have.
USA stock brokers regulation
In a nutshell, stock trading is a popular form of online trading that enables the trader to speculate on the rising or falling prices of a particular company or basket of selected stocks known as Indices. An online stock broker acts as the intermediary between you the trader and the exchange where the stocks are traded. Anyone can open a trading account with an online brokerage and use their online stock trading platform to buy and sell stocks. In recent years, online stock trading has continued to increase in popularity and with so many USA stock brokerages to choose from, it can make it difficult for an aspiring trader to choose the best stock broker in the USA for them.
For the team here at Trading Brokers, we believe that one of the most important things to consider when choosing from the best USA stock brokers, is that the brokerage firm is authorised and regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Using a regulated stock broker can give online traders the peace of mind that they are using a brokerage that must abide by strict rules and regulations put in place to protect investors.
It should be considered that there will likely be some non-USA stock brokers that still offer their services to traders in the USA. There will also be some USA stock brokers who offer online stock trading to traders that are located in countries outside of the USA. It would usually be considered a wise idea to make sure that the stock broker in question is regulated in the jurisdiction in which they are operating from.
Before an online stock broker in the USA can accept clients, they need to be registered as a Retail Foreign Exchange Dealer (RFED) by the financial regulatory body, the Commodity Futures Trading Commission (CFTC). The broker should also be regulated by the National Futures Association (NFA) as a Futures Commission Merchant (FCM).
Commodity Futures Trading Commission (CFTC)
The U.S. Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974, that regulates the U.S. derivatives markets, which includes futures, swaps, and forex trading. The stated mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation and transparency.
The Commodity Exchange Act (CEA) requires certain firms and individuals that conduct business in the derivatives industry to register with the CFTC. CFTC regulations also require, with few exceptions, CFTC registered firms to also be members of the National Futures Association (NFA). The CFTC has delegated registration responsibility to NFA.
All futures professionals that are required to register with the CFTC are only granted registration after a thorough and detailed investigation of their background to determine if they meet the strict standards set forth in the CEA.
National Futures Association (NFA)
The National Futures Association is the self-regulatory organization for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency and OTC derivatives. NFA is headquartered in Chicago and maintains an office in New York City. Designated by the CFTC as a registered futures association, NFA strives every day to safeguard the integrity of the derivatives markets, protect investors and ensure members meet their regulatory responsibilities.
Retail Foreign Exchange Dealer (RFED)
A retail foreign exchange dealer (RFED) is an organization that acts, or offers to act, as a counterparty to an off-exchange non-U.S. currency transaction with a person who is not an eligible contract participant and the transaction is either:
- a futures contract, an option on a futures contract or an option contract (except options traded on a securities exchange); or
- offered or entered into, on a leveraged or margined basis, or financed by the offeror, counterparty or person acting in concert with the offeror or counterparty on a similar basis.
Futures Commission Merchant (FCM) Registration
A futures commission merchant (FCM) is an entity that solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps, and accepts money or other assets from customers to support such orders. If a broker is soliciting or accepting orders to buy or sell retail off-exchange forex contracts and accepting money or assets from retail clients, the brokerage firm needs to be designated as a Forex Dealer Member and comply with requirements outlined on the NFA website.
Verifying a USA stock brokers regulation
If a stock broker claims to be licensed by the CFTC and NFA to operate in the United States (USA), they should have a registration number to evidence this. This registration number will usually be located near the footer of the brokers official website. It would be a sensible idea to check that the brokers registration is valid and up to date on the NFA website. There are unfortunately scam brokers to be wary of. These scam brokers have been known to fake regulation with some even going as far to clone another brokers website. When you are checking a broker’s registration number, you should verify that the details of the brokerage firm including their website and contact details are provided and if they have any cases brought against them.