Choosing a right forex broker is one of the important strategies for any retail forex broker. There are many things to consider while choosing a broker like commission rates, historical performance, spreads, leverage options etc. But first and foremost thing to check is whether the forex broker is regulated or not.
Regulated broker means that broker/firm is regulated by local regulatory bodies – the “watch dogs” for financial market. A Regulatory body aims to prevent fraudulent activities, excessive risk in financial market and also increasing consumers’ awareness.
When a forex broker is regulated, it means that all their trading operations are performed accordance with the policy, industrial standards and guidelines set by the local regulatory bodies and they are subjected to periodic audit from regulatory authorities. They are closely monitored and controlled by the regulatory body. When regulated forex broker fails to follow the standards and guidelines set by regulatory authority and they are liable for legal action from regulatory authorities.
This certainly brings strong benefits to the forex traders which are less possible with a non-regulated broker, in particular:
Transparent Trading Operation
By dealing with regulated broker, trader can experience transparent trading operation. This is because regulated they are compelled to operate with complete transparency and related fiscal reports have to be produced to regulatory authorities periodically. Failing to do, brokers’ membership can be terminated and same will be informed to traders too. Traders can check their current or prospective forex broker’s historical/current records from the regulatory authority.
Safety To Investors’ Money
As per regulatory rules, regulated forex broker cannot mix up their clients’ fund with the firms’ funds. This means that they need to maintain a separate account to hold their clients’ fund, and at any point it cannot be used to cover up their own needs. Also, if a broker goes bankrupt, clients’ fund cannot be used repay the creditor and can be used only to compensate clients’. In this way, investors’ money is safe with regulated broker, even if anything wrong happened to him.
Finding the Regulated Broker:
A broker is regulated or not can be found by reading the “disclosure policy” or “about us” page of broker’s website, otherwise by checking their membership status from regulator’s website.
Each country has its own regulatory body that regulates the local forex broker. For example, UK based brokers are regulated by FSA – Regulatory Body of United Kingdom. Similarly different countries have their own regulatory body that regulates its respective forex broker.
List of regulatory bodies:
Below listed are some of the important regulatory bodies in the world of forex market. Traders can check whether their brokers are registered in any of these regulatory bodies, to ensure their security of funds.
• Australia: ASIC, AFSL
• United States: NFA, CFTC
• Germany: BaFin
• Canada: CIPF, OSC, BCSC
• Switzerland: ARIF, FDF, GSCGI
• United Kingdom: FSA
• Japan: FFAJ
• European: MiFiD, CySEC