September 26, 2021

The Forex market is the largest, most liquid market on the planet. Combined with a highly volatile and extremely competitive CFD market, the FX/CFD industry has attracted massive attention and an ever increasing number of individual investors. Unsurprisingly, trading activity of that size and scope creates unique challenges regarding market regulation.

How is the Forex market regulated?

In an industry so liquid and lucrative, it is essential to have strong regulatory oversight to prevent malpractice. It is important to understand that there is no centralized body governing the currency trading market. Instead, there are a number of governmental and independent bodies that supervise forex trading around the world. These supervisory authorities regulate forex by setting standards which all brokers under their jurisdiction have to comply with. These standards ensure that Forex/CFD trading is ethical and fair for all parties involved.

As the largest and most liquid financial market in the world, the Forex/CFD market is regulated by the same regulating bodies that supervise banks and other financial institutions. The only difference however, is that these regulators can only regulate the Forex market domestically within their jurisdiction. It’s therefore very important for retail traders to look for brokers that obtain regulation which covers the jurisdiction where the trader resides.

What regulation means for traders

With Forex brokers supervised by a regulatory authority investors can be more confident about the credibility of the broker. For a retail trader, the biggest risk of trading with a non-regulated broker is that of illegal activity or schemes. Fraudulent activities include excessive commissions; very lose spreads, hidden Terms and Conditions and even restrictions on withdrawals. Regulatory authorities can provide a level of protection for investors as they can be trusted to restrict, sanction or ban such unwarranted actions and to safeguard investors.

Choosing a Regulated Broker

Trading with a regulated broker should be one of the main prerequisites for any individual trader looking to trade forex and CFDs. The fact that a broker is regulated implies that they respect industry standards. A regulated broker not only follows Forex regulation that is aligned with the clients’ best interests, but also offers safety, reliability, and security.
The biggest advantage of trading with a regulated forex/CFD broker is that a financial authority will step in if there are any problems. A broker that is regulated by a financial authority also offers segregated funds, meaning that your funds are not being used for any purposes other than trading. Traders’ funds are held in segregated accounts and cannot be used by the brokerage. What is more, a regulated broker will build its business around its clients and it is more likely to have outstanding customer satisfaction as well as a customer oriented service.

Regulatory Authorities around the world

The following table includes a list of the most important Regulatory Authorities across the globe. 

Country Regulator’s website
Hong Kong Securities and Futures Commission
UK Financial Conduct Authority (FSA)
Canada http://www.fsa.gov.uk/
France The Autorité des Marchés Financiers (AMF)
Germany Bundesanstalt für Finanzdienstleistungsaufsicht (BAFIN)
Bulgaria Financial Supervision Commission
Gibraltar Gibraltar Financial Services Commission (GFSC)
Cyprus Cyprus Securities and Exchange Commission (CYSEC)
Singapore Monetary Authority of Singapore
Sweden Finansinspektionen (FI) Swedish Financial Supervisory Authority
Australia Australian Securities and Investments Commission
Switzerland Financial Market Supervisory Authority FINMA
Japan Financial Services Agency (FSA)
Belize International Financial Services Commission (IFSC)
BVI British Virgin Islands Financial Services Commission (FSC)
 Mauritius  Financial Services Commission Mauritius
Seychelles Seychelles Financial Services Authority (FSA)

 
In addition to the above regulatory agencies, the European Union obligates each member to be responsible for the regulation of its financial markets and conform with the E.U.’s Markets in Financial Instruments Directive or MiFID. This also allows for companies regulated in one E.U. member country to service customers in other E.U. member nations.

How Forex Regulations Protect You

Forex regulations protect traders by ensuring that brokers segregate client deposits from corporate funds. They also provide an enforcement mechanism against broker fraud, police the financial sector, and issue warnings. Traders can check their websites and databases to retrieve information about brokers. Regulators require brokers to submit trade execution and financial data and command minimum capital requirements before granting an operating license. Some regulations remain counter-productive, like the ill-advised ESMA crackdown on leverage and bonuses, but traders should never trade with an unregulated Forex broker. Trading with uncompetitive EU-based brokers can harm profitability and limit competitiveness, but there are many viable options. I urge all traders to conduct their due diligence and select any of the regulated Forex brokers in competitive jurisdictions with a clean track record.

How do I know if my Forex Broker is regulated?

In order to check if Broker is regulated or not, you should verify this information through the official brokers’ website first, as regulated companies always provide its licenses. And the next step is to verify a license through the official regulatory website. However, in our Forex Broker Review you will find all the necessary information and license check as well.

It is a fact, unscrupulous brokers may easily fake information and assure you of its license while its not true, so always verify information through the official source. As well, adhere to trade with brokers regulated in serious jurisdictions, not the offshore once, as they luck of strong regulation, requirements and necessary safety measures. 

Regulated broker means:

Safety of funds

A fully regulated Forex broker always keeps clients’ funds in separate accounts at top tier banks. Meanwhile, the whole process is regularly audited by the relevant regulatory authority. Other measures such as offering negative balance protection, diversification of clients’ funds, Investor Compensation Fund, and encryption protocols of all the transactions are taken to provide extra means of security. Also, all the regulated forex brokers are required to have sufficient capitals defined by the supervisory entities.
 
Business Ethics and Fair Practices

The rules and regulations are set to make certain that all the licensed FX brokers always offer fair financial treatment and act ethically towards their clients. Brokers ought to be regulated in the same country where their operations are controlled, so their compliance with the provisions is guaranteed. Moreover, they must present their clients with quality services including fast and reliable executions, reasonable pricing with no hidden fees, and transparency in their operational status.
 
Deposit Insurance (Compensation Schemes)

Deposit protection programs such as Investor Compensation Fund (ICF) of Cyprus and Financial Services Compensation Scheme (FSCS) of the UK are designed to protect the covered customers and compensate them if the member organizations such as Forex Brokers could not hold up their end of the bargain or went out of business for a number of reasons. ICF and FSCS would reimburse the clients up to €20000 and £85.000 respectively. You can benefit from such compensation programs only if you’re registered with a regulated Forex broker.