Forex and regulation - basics that could come in handy
More than five trillion American Dollars are traded on the forex market on the daily basis, making it one of the most liquid markets in the world. This is, of course, good news for everyone who is interested in trying their luck trading here. Plus thanks to modern technologies almost anyone can start trading forex, nowadays.
However, before anyone decides to follow this path of great opportunity, they should always think safety first. And by safety, we do not mean the protection of investments against losses resulting from unsuccessful trades, but rather the legislative protection of investment funds from the point of view of their possible unfortunate entrustment to "bad" hands.
How many brokerage companies are regulated?
Although it is very difficult to determine the exact percentage, it is estimated that less than 10% of brokerage firms are regulated by one of the recognized regulators. In a literal sense, this means that the vast majority of brokerage companies are not sufficiently supervised today, which of course brings with it certain risks. One of them being that such companies may not always behave completely correctly and in the interests of their own clients.
Risks arising from trading with an unregulated broker
Undoubtedly, one of the biggest risks that traders can face when trading an unregulated broker is embezzlement. Although it may seem that most brokers are sufficiently regulated and traders have certain guarantees as a result, the truth is often quite the opposite.
Many dubious, but also smaller, brokerage firms are seemingly regulated by a regulator, but these regulations often do not protect users from embezzlement or unfair commercial practices at all, as they are issued in places where neither international law nor various conventions are being enforced.
Regulators and organizations providing a high level of protection
CFTC – US supervisory authority overseeing futures trading in commodity markets
NFA – US regulator for futures markets and derivatives
CySec – Cyprus regulatory authority
FCA – An organization involved in the regulation of financial services and financial institutions in the United Kingdom
Advantages of regulated broker
- a certain type of guarantee of moral behavior and conduct, not only by brokers but also by other participants
- the obligation for brokers, banks, and other companies to comply with the rules issued by the regulatory body to which they are subject
- in case of error, it is possible to find the company or restrict their activities for the given market
- regulated companies are subject to regular inspections
- Well-established regulations can protect traders against fraud