When it is about Forex trading, it is a completely decentralized market, operating with no specific central exchange. Therefore, the Forex market is open to numerous fraudulent brokers and scams, having methods that are too much to be desired.
One of the prime concerns of any trader is whether their money is safe or not. Also, they care about falling into scams and losing their hard-earned funds.
To prevent falling prey to different rogue brokers, it is essential that you understand the process of regulation and licensing of the brokers and how they operate in your state.
Which Forex Licenses are Crucial?
Moreover, you must know what license you must look for, and will you be able to identify that a broker is functioning morally and legally. By the time you have a complete understanding of the market regulations, you will make a better Broker choice.
Every country’s responsibility is to regulate the Forex market and control its brokers and those who operate in their country from overseas. Undoubtedly, it is more effective in one country than in the other. However, some countries consider trading as illegitimate.
The following guide has information regarding:
- The existing trading legislation
- Who is responsible for regulating the online Forex market
- How to pick a licensed broker
What is the Existing Trading Legislation?
Factually, countries do not regulate the Forex industry, like banks and other financial institutions. However, some countries try to control the trading process to ensure their traders are protected from different fraudsters that scam you and get hands-on money.
So, multiple regulatory authorities worldwide are made to protect Forex, Binary Options, and cryptocurrency traders.
Under this legislation, the brokers function in the boundary of strict guidelines and sanctions. Additionally, they receive regulated licensing along with partnerships with financial institutes. So if your broker violates any of the trading rules, it is the traders’ sole duty to report the activity to the regulatory bodies.
If the brokers operate outside the government authorities’ regulations, they will be charged with severe penalties. The regulatory bodies take away the broker’s licenses too.
Usually, the rules demand the brokerages function within specified guidelines and have enough funds to cover all the contracts they trade on your behalf. The set of rules are defines to safeguard your capital.
Never fall victim to a rogue broker; it is mandatory to understand licensing.
The Forex Regulation Authorities
There is a wide range of financial governing authorities worldwide that regulate the Forex Exchange market. In countries like Indonesia, central banks control the market. Conversely, other countries put the responsibility of regulation on the security commissions.
Among the top-notch regulation authorities are Cyprus’s Cyprus Securities and Exchange Commission (CySEC). The body is responsible for regulating numerous European brokers and an EU regulatory body, Markets in Financial Instruments Directive (MiFID).
One more popular regulation authority is the Australian Securities and Investments Commission (ASIC).
However, the most stringent regulation of all is for the US brokers, as they will have to get multiple licenses. Commodity Futures Trading Commission (CFTC) provides grants to Futures Commission Merchants (FCM) and Retail Foreign Exchange Dealer (RFED). Also, they will have to become members of the National Futures Association (NFA).
Hence, finding a Forex broker in the US is very difficult, as many overseas brokers do not function in the US. The reason behind these is strict regulations regarding their services to the US traders.
How Regulators Audit and Approve FX Brokers
Among the best examples of regulatory authorities is CFTC. The regulatory body has an up-to-date scam watch list that keeps warning the fraudulent brokers’ traders that cause scams. If there is an instance of any fraud and fraudulent cases, the firm will impose significant sanctions and fines.
If you discover that any broker you know is functioning outside their trading regulations, you can immediately report it to the relevant licensing authority. All the members having licenses are checked and reviewed every now to ensure that they abide and conform to the market’s standards.
Furthermore, brokers are subject to capital requirements. In this, the broker must have enough funds in their possession to cover the trading contracts and return funds to the clients in case of bankruptcy.
It should be enough to make you feel confident that your money is secure in our hands. The brokers who operate outside the regulation are usually from the countries where the regulatory requirements are not as strict and come with low tax havens.
Picking a Licensed and Regulated Broker
If you are aware of what you want, picking a broker to trade on is not difficult. Firstly, see the country you will be trading in and look at its regulatory requirements specifically.
For example, if you trade in Australia, the US, Germany, UK, or Cyprus, you will select the brokers more confidently than selecting brokers in countries where trading is not legal.
It is entirely your choice to go for a local broker or a broker that is registered overseas. The second is to observe at the footer of the broker’s site for further licensing details.
Also, as anyone can put the licensing logo on their site, see their registration for clearing any suspicions. Do not forget to do some research to gather further information. To reach out to the relevant licensing body, follow the given links:
- CySEC (Cyprus Securities and Exchange Commission)
- ASIC (Australian Securities and Investments Commission)
- BaFin (Federal Financial Supervisory Authority)
- FCA (Financial Conduct Authority)
The brokers that have been wronged by frauds are quick in sharing their experience. You will discover numerous reviews and forums online that will suggest you stay away from specific Forex brokers.
You will repeatedly see some brokers in the recommendation. Gradually, you will spot the market leaders. Eventually, it is wholly your choice to select the broker depending upon the features and benefits you prefer and require trading.
