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.
|Hong Kong||Securities and Futures Commission|
|UK||Financial Conduct Authority (FSA)|
|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.