Regulated Forex Brokers
In almost every country throughout the world, financial markets are heavily regulated to prevent fraud, greed, excessive risk, or other damaging phenomenon from occurring. Forex markets are some of the least regulated markets in the world - however when it comes to the retail Forex market (the one that you and I trade on) - there are certainly a few regulatory boundaries in which brokers must operate.
Every broker offering Forex trading services to the general public is required to be regulated in their respective market. For example, if they are registered in the UK, the financial authority they are responsible and answerable to is the Financial Services Authority (FSA).
Segregation of Client Funds
UK Forex traders should be aware that if they are signing up to a broker which is regulated by the UK Financial Authority (FSA) - all of their funds must be segregated from broker funds.
This is a great thing for us traders! It means that if we were to deposit $10,000 to a Forex trading account with Broker X, and then 6 months later Broker X goes in to bankruptcy, all of our funds which were deposited are completely safe!
In other words, our account capital is protected by the FSA, and we will be able to get it back should something bad happen to the broker.
Anti Money Laundering
Just in case you are thinking of utilizing the power of FX trading for something other than speculative profit (i.e. money laundering) - you should be aware of the regulations in place to prevent this from being possible.
All of the financial authorities involved in Forex regulation around the world have put a certain framework of criteria in to place which individuals must meet in order to trade on the retail Forex market.
At the time of signing up to the Forex broker of your choice, you will be required to submit a large number of personal details. All of these details will be verified to ensure that you are who you say you are. Thus, the instance of money laundering in the FX markets is actually surprisingly small compared to the possibility of it happening in other markets.
Other Regulatory Bodies
The FSA is only one of the financial authorities involved in Forex market regulation. Others throughout the world include:
- Commodity Futures Trading Commission (CFTC)
- National Futures Authority (NFA)
- Futures Commission Merchant (FCM)
- Forex Dealer Member (FDM)
Whilst not all brokers need to be members of the above organisations, different brokers in different jurisdictions will have different requirements.