Forex trading with unregulated brokers is a risky play: The decentralized nature of forex markets increases the risk of losing money from scammers and unregulated brokers. Although there is no global authority to control forex markets, some countries around the globe are controlling currency markets through independent and governmental supervisory bodies.
Like other trading markets, foreign exchange market regulation is mainly aimed at looking into the transactions that had an indirect impact on the value of foreign exchange compared to other currencies and the export and import of currency.
Although Google, Facebook, Twitter and several other advertisement platforms have recently announced to ban unregulated brokers ads on their platform; forex market traders should look at the license number and authorization certificates before depositing their money in a live account.
The Objective of Regulating Forex Brokers
The main aim of regulating the forex market is to ensure fair trading practices and level playing field for every type of investor.
Regulated foreign exchange brokers have to function based on the standards set by the Forex regulators. Licensed brokers are liable to present their business activities to government bodies on an annual or quarterly basis for the audit, and reviews.
Regulators also impose capital requirements on best-regulated forex brokers – which require trading platforms to hold an adequate size of funds to execute foreign exchange contracts completed by their clients.
Regulated forex trading platforms are liable to returns traders funds in case of bankruptcy.
The Pros of Trading with Regulated Brokers
Licensed brokers don’t have the authority to interfere in trading activities other than offering an expert’s service for educational purpose. A regulated broker also doesn’t have the power to use trader’s funds; forex platforms need to keep those funds in a separate account according to regulators laws. This means that trading through a reliable forex broker platform ensures that trader’s funds are secure – a regulated broker cannot run away by closing their company.
Withdrawal of funds from best forex platform has always been easy when compared to unregulated platforms.
The Cons of Trading with Unregulated Brokers
Beginners and new traders often fall in the trap of unregulated brokers who are attracting investors through large advertisement plans and big bonuses along with other attractive options. In case of scam or other objections, traders can’t claim their funds from any regulating authority. There is also no testimony that unregulated brokers would keep trader’s deposits in a separate account.
What are the Main Regulation Institutions?
The majority of advanced and developing countries have established a financial regulatory body to oversee the forex brokers operations and foreign exchange activities. The forex trading regulators in developed countries, however, are giving vital importance to forex broker’s role.
The UK, for instance, has established the Financial Conduct Authority (FCA) – which has set strict rules for forex brokers to ensure the safe and fair trading practices.
The National Futures Association (NFA) is the regulatory body in the US for Forex brokers. According to NFA rules, the U.S. traders are ineligible to trade with brokers that are based outside the United States. The Cyprus Securities and Exchange Commission (CySEC) is the dominant authority for forex trading platforms in European Union.
RegulatedBrokers.com and several other platforms are offering a complete list of regulated brokers according to their location.
Regulators without having any license from regulatory authority are operating their business at their own prudence – which is creating a massive threat to traders deposited money and the money they have earned from trading activities. Therefore, traders should select reliable forex trading platforms that have valid license numbers and authorization certificates from key regulatory authorities.