NFA Bans Credit Card Funding for Forex Accounts

Financial industry watchdog NFA (National Futures Association) proposed a ban on using credit cards to fund U.S. forex accounts, citing the need to protect investors against using borrowed money as trading capital.

Forex and futures markets are both high-risk and volatile, and individuals who wish to participate should use only risk capital to fund their accounts,” explained NFA President and CEO Dan Roth. “Allowing customers to fund accounts with credit cards encourages them to trade with borrowed money.”

I gotta say, the man’s got a solid point. As we constantly emphasize in our School of Pipsology, you shouldn’t be trading money you can’t afford to lose. It’s not that we’re assuming that you’ll wind up wiping out your entire trading capital at some point, but it wouldn’t hurt to be extra cautious of the risks involved in forex.
credit card forex funds

Take note that this proposed rule was decided upon by the NFA after more than a year’s worth of extensive account reviews, leading officials to conclude that majority of retail forex and futures accounts funded through credit cards or borrowed funds turned out to be unprofitable. Aside from that, the NFA plans to protect consumers against potential credit card fraud or identity theft tactics employed by individuals with gambling tendencies in an effort to win big in the financial markets.

While the regulation is still up for approval by the CFTC, many traders are already looking at a number of alternatives for funding accounts in a more convenient manner. Bank-to-bank transfers conducted by ACH (automated clearing house) institutions, such as Knox Payments and Dwolla, has emerged as a viable option. Those who own U.S. checking accounts can use these to open forex trading accounts in less than 48 hours.

Despite the availability of alternatives, brokers could see a significant decline in the number of accounts opened when this ruling is passed. Ever since the idea of banning credit card deposits was brought up last year, a number of retail forex brokers have already exited the U.S. market and moved their operations offshore. From the brokers’ perspective, this might not be too good for business, as the industry has already seen a slowdown in trading volumes and revenue for the past few months.

For retail traders though, it’s still business as usual… unless you were planning on opening a live account with a credit card. As my buddy Big Pippin puts it, “Don’t be writin’ checks y’all can’t cash!”

  • Dave Hanna

    While I agree with discouraging the use of borrowed money, and while I agree that a lot of people tend to use credit cards to borrow money, I think banning credit card transactions is throwing the baby out with the bath, so to speak. In today’s economy credit cards are as much a very fast and convenient transfer medium as much as they are a way to borrow money. I’m assuming that banning credit card transactions will also ban transactions with debit cards? I often use my debit card to fund my accounts directly from my checking account, but without the delay of mailing a check or the cost of a wire transfer.

    Note also that banning credit card transactions will not necessarily stop the use of borrowed funds – you simply use the credit card to make a cash advance deposit to your checking account (a loan), then fund the forex account from your checking account.

    • Not really sure what their proposed rules are for debit cards or checking accounts, but I presume they won’t have a problem with having clients use funds that are already in their bank accounts. While it’s true that banning credit card funding won’t necessarily stop the use of borrowed funds, it is probably a step in the right direction when discouraging fraudulent activity or gambling tendencies among some traders. There are several convenient options available for those who have the cash to trade.

  • kevin

    Its a few steps backwards. Sad to see it even being considered. A world leader like the USA should lead the way. I doubt that the imvestigation was accurate at all, sounds more like some prudish near sitedness!!! I trust that a fresh investigation will take place soon to considerin deposits or letting people use their credit as they see fit. Shouldnt the same be said then for making purcases at ebay, amazon, any onli.e retailer, comes down to the samething!!!

    • Let’s see how the CFTC views this proposal, but I’m inclined to think that regulators have the traders’ best interests in mind and is making this move to discourage dependence on credit card debt when it comes to funding accounts.

  • Woah! Good for you, bro! Problem is, not all traders are able to think it through the way you did. After all, you did have enough in cash to match the deposit amount anyway. I guess the NFA is just trying to discourage those who don’t.

  • Yeah, I think that’s what the NFA was going for. Trade the money that you have, not an amount that you will need to borrow.

  • Yeah I think some brokers to charge a % fee for deposits funded through credit card. I guess traders who don’t have the cash ready but would like to get in the markets right away would fund their account that way then just try to make up for the charges with their trades.

  • Pingback: 5 Things to Remember About the NFA Credit Card Funding Ban()