What Does Regulation Mean in Forex?
Regulation in forex means the rules that your forex broker is expected to adhere to. Without regulation, there would be lawlessness & brokers will not be held accountable by anyone.
Regulation sets the rules for the brokers to follow & lays out the penalty for breaching the rules. Regulation also covers dispute resolution.
Who Regulates Forex Brokers?
Forex brokers are regulated by government bodies, setup by law for the purpose of overseeing activities in financial markets.
Examples of some popular forex regulators are:
Is Regulation Mandatory for Forex Brokers?
Yes, regulation is mandatory for all forex brokers & any broker that is not being regulated is a scam. Forex brokers are like banks that handle customer funds, so there must be some form of control to prevent fraud.
Can One Broker Have Multiple Regulation?
Yes, if a broker wants to operate in multiple jurisdictions, then they need to get the necessary regulation from the government regulators in those jurisdictions.
A broker that is regulated locally is usually more trusted by the locals than a broker that is regulated overseas. So, this is why you see forex brokers having multiple regulation.
Why Are Forex Brokers Not Regulated By My Country’s Government?
This is because not every country is in support of online forex trading so they will refuse to issue licenses to any forex brokers. The reason for refusal could be the religion of the country, fiscal policy of the country, etc.
In most parts of Africa, The Middle East & Asia; you will find that forex trading is unregulated so their government will not issue licenses to any forex broker.
If My Country Refuses To License Forex Brokers How Do I Trade?
You can trade with forex brokers regulated overseas, as long as they are willing to accept traders from your country.
When you register with a broker that is regulated overseas, they will domicile your account under international law so any court cases will be settled overseas, where the broker is regulated.
Let us look at an example: Exness Nigeria is regulated by the FSA in Seychelles because Nigeria does not support forex trading so they will not issue a license to Exness even if they were to apply.
What’s The Difference Between A Regulated & Unregulated Broker?
Verifiable License
A regulated broker will always display their license information like a badge of honor on their website & legal docs so you can verify this license from the issuer.
An unregulated broker on the other hand may only have a certificate of registration as a general business entity but this does not give them the right to offer Over the Counter (OTC)CFD products.
Dispute Resolution & Recourse
With a regulated broker, any disputes you have can be reported to the regulator who will take it up with the broker.
With unregulated brokers dispute resolution might meet a dead end as you may have to take them to court & if you don’t have the financial capacity for litigation the dispute will not be resolved.
Leverage Restrictions
Government regulators always place limits on the amount of leverage a broker can allow retail traders to access. So regulated brokers will always place caps on their leverage.
For example, any broker regulated by the FCA UK & ASIC Australia cannot offer more than 1:30 leverage to retail traders.
Any broker regulated by the CMA Kenya cannot offer more than 1:400 leverage etc.
Unregulated brokers on the other hand use leverage to entice traders & they offer very high leverage to retail traders some as high as 1:10000 etc.
Does Forex Broker Regulation Expire?
Yes, forex brokers are issued licenses which need to be renewed periodically. A broker that is regulated today can end up being unregulated tomorrow if they don’t renew their license. A brokers license can also be revoked by the regulator for engaging in sharp practices.
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