Table of Contents
- What Is Regulation?
- Why You Should Trade With Regulated Forex Broker
Why We Should Trade With Regulated Forex Broker and when it comes to making a decision as to which Forex broker you should use for your currency trading there are many criteria on which a decision can be made. These supplied trading platform, the cost of transactions or even the amount of available leverage that you will be offered can all be influential factors.
However the most important thing that you should check before going any farther with the application process is that the broker is financially ’Regulated.’ This will help to ensure that you receive a minimum quality of service and more importantly it will help to safeguard your deposited trading capital.
What Is Regulation?
Regulated Forex brokers are distinguished by the fact that they have membership of a recognized financial authority. These are regional legal institutions which fully monitored and audit their members activities in line with a strict set of rules and preset guidelines.
In order to attain regulated status, a Forex broker is required to meet and maintain a set of minimum legal requirements. While these requirements will vary slightly depending upon the authority involved, they will at minimum require the broker to maintain a sufficient level of financial assets so that an uninterrupted service can be delivered to trading clients. They will also require the broker to adhere to strict operational procedures and standards.
Regulation requires brokers to operate with complete transparency of their financial accounts and associated financial documentation. They are also required to submit regular financial reports to the financial regulator for scrutiny.
Non compliance with any of these standards can lead to a brokerage company being given financial penalties for their transgressions. For more serious breaches they can even have their membership terminated completely.
Why You Should Trade With Regulated Forex Broker
Regulation exists to both protect clients financially, in terms of their deposits and also to ensure that they receive an agreed level of service. This is achieved by making the broker accountable to the regulatory authorities for their dealing with clients.
The most important benefit for the trader is that their client deposit is held in a segregated bank account away from company funds. This deposited client money is clearly separated from the brokers capital and thus cannot be used as part of the broker’s financial activities. This not only helps to guarantee the safety of these funds is also legally the protects the trader in the event that the broker runs into financial difficulties. Deposited trading monies cannot be used to fund creditors.
Regulation also extends to other areas of the brokers operation. These areas including maintaining quality standards and levels of customer support. The brokerage is also responsible for monitoring accounts and reporting any suspected instanced of fraud or malpractice.
How To Find The Status Of A Broker
Most regulated financial brokers that are members of a regulatory authority will display this information in their literature and on their website.
However if you are unable to find reference to any membership or you simply want to verify a broker’s status, you can also check for their membership on the Regulators official website.
You can check the status of a broker with any one of the following agencies to help to ensure the security of your funds:
- Australia: Australian Securities and Investments Commission (ASIC), Australian Financial Services Licence (AFSL)
- Canada: Canadian Investor Protection Fund (CIPF), Ontario Securities Commission (OSC), British Columbia Securities Commission (BCSC)
- European: Markets in Financial Instruments Directive (MiFiD), Cyprus Securities and Exchange Commission (CySEC)
- Germany: Federal Financial Supervisory Authority (BaFin)
- Japan: Financial Futures Association of Japan (FFAJ)
- Switzerland: Association Romande des intermédiaires financiers (ARIF), Federal Department of Finance (FDF), Swiss Association of Independent Financial Advisors (GSCGI)
- United Kingdom: Financial Conduct Authority (FSA)
- United States: National Futures Association (NFA), Commodity Futures Trading Commission (CFTC)
The full standards by which each of the regulated Forex brokers is expected to operate can be found on the official Regulators website.