The Role of Regulation in Online Forex Trading

Daffa Zaky |


The FX (Foreign Exchange) market happens to be the biggest and the most liquid market on the planet with approximately US$5.3 billion being traded on a daily basis. Although day trading happens quite frequently among the currency traders, the majority of the investors rely on setting up their trading accounts and also executing trades by means of forex brokers. However, Forex regulation is quite scarce at present in spite of the huge size of the Forex market, and not a single global body exists to regulate it 24 hours a day.

Even though there are no accurate statistical records, the number of binary options and Forex brokers working under a regulatory authority is only about 5% and this simply allows a lot of firms to exploit their clients and also indulge in obnoxious behavior without any reason at all.

Why is Forex Regulation so important?

The main purpose of regulating is to guarantee decent and fair business behavior. All the foreign exchange brokers, signal sellers, as well as investment banks under the present regulatory contracts are required to function by adhering to the rules and regulations strictly as implemented by the forex speculators out there. It is imperative for these bodies to be properly licensed and registered in the country where they are from, thus ensuring proper quality control standards. Furthermore, it is essential for the regulated Forex brokers to maintain adequate amounts of funds so as to execute and accomplish foreign exchange contracts determined by the customers.

In case a broker is found to infringe on its guidelines, a regulatory agency can use a wide array of enforcement powers including civil, criminal and regulatory so as to safeguard the clients and also take proper measures against individuals or companies which do not fulfill the required standards.

It likewise has the power of publishing notices which are essential for guaranteeing the transparency of decisions made by the authority and also inform the general public thus optimizing the restraining consequence of enforcement action. Several regulators also issue warnings regarding individuals and financial services firms based both locally as well as overseas.



Obviously, one cannot give any guarantee that actions taken by any regulatory agency like the FCA in the United Kingdom will lead to a refund of funds or securities or even a payment even where sanctions are imposed and formal disciplinary measures are taken.

Despite the fact that the majority of the Forex regulators function within their own jurisdiction, they often work together looking for 2-way activities. As a matter of fact, the entire continent is going to be covered by a license from only one member state in the European Union.

For the past few years, regulators all over the world have made attempts to organize some kind of universal regulatory umbrella. Markets in Financial Instruments Directive (MiFID) was introduced in 2007 in the United Kingdom and has become the main cornerstone of the financial regulatory regime of Europe since that time.

Local Approaches:

Right now, no unique global approach exists when it comes to this particular market. As a matter of fact, the regulatory industry goes on acting on a local level with every single broker applying for regulation in a particular location, and some of these organizations tend to be more active as compared to the others. The FSA (Financial Services Authority) which happens to be amongst the most active forex market in the world is responsible for regulating all the markets including retail foreign exchange. This organization is accountable for regulating retail Forex trading and has also minimized the optimum leverage which is available to the retail Forex traders quite a few times during the last few years. The FCA happens to be the primary regulatory agency in the UK, and in the majority of continental Europe, there is not much limit on the amount of leverage provided.

The financial regulatory agency in Cyprus, known as CySEC, is a portion of the MiFID regulations; however, it has succeeded in attracting several overseas companies who like to make the most of what is viewed as light regulations and also in an uncomplicated way to obtain a license without requiring to fulfill the strict specifications imposed by the other financial regulators in Europe.

At present, the comparative non-regulation of the Forex market goes on posing ongoing threats to the retail investors including inconsistencies in the available public information plus higher currency volatility.

In spite of this difficulty, there are quite a few worthwhile brokers who like to function under a licensed regulatory body, and they must be considered above all the others. Traders are able to select from a wide array of regulatory brokers within their own jurisdiction or in some other area as well. They are going to come across almost identical features with both regulated as well as non-regulated brokers.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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