Similar to other industries in the world, the forex market is also noticing the impact of the ever-expanding use of the internet with every passing minute. With several million active investors, the FX market continues to thrive as the largest market worldwide.
But on the contrary, this very factor also nudges the possibility of increasing numbers of brokers that do not come under a regulatory body. In this article, we will look into the importance of why this factor should matter to an investor and why the best forex brokers are always authorized by certain regulatory authorities.
Understanding forex regulation
The foremost criterion in choosing the right FX broker is verifying whether they are regulated by an authoritative body. Every FX broker is expected to follow certain guidelines and regulations established by the FX authorities under existing regulatory agreements. The goal of regulation is to guarantee that businesses behave in a moral and legal manner that minimizes the chances of unlawful activities.
To meet quality assurance criteria, these brokers must be licensed and governed in the nation where they conduct business. Along with the assessments, evaluations, and analyses on a regular basis, which require companies to adhere to market guidelines, the brokerage firm is also required to maintain enough amounts of funds in order to execute forex contracts.
BaFin, FCA, ASIC, FINMA, CySec are some of the examples of renowned regulatory bodies that are responsible for authorizing reliable brokers in the forex market.
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Reasons to opt for a regulated broker for trading
1. Assuring the security of your funds
The primary goal of any investor is to safeguard their capital while making sound profit through multiple trades. For that reason apart from focusing on the strategies, one must also prioritize the authenticity of the broker as their capital will be held there in the first place. Thus in case of the worst scenario of the brokerage going bankrupt, you must be prepared to face the consequences. Your capital will be protected with a registered brokerage firm since it is illegal for a brokerage to utilize a customer’s money for anything other than investing in the transaction that the client has approved.
2. Ensuring transparency
The legislation requires authorized FX brokers to perform transparent operations and provide absolute visibility to their customers. Licensed brokerage firms are also responsible to keep you informed with regular updates and reports related to your trades.
3. Protection from scams
Authorized FX brokers are required to refrain from engaging in any unlawful activity and to engage solely in legitimate deals. Inability to do so may result in severe penalties, including a lifetime suspension from trading which prevents clients from facing any sort of fraudulent activities.
Authorized fx brokers are required to refrain from engaging in any unlawful activity and to engage solely in legitimate deals. Inability to do so may result in severe penalties, including a lifetime suspension from trading.
4. Chances of minimizing risks
Authorized FX brokers are obligated to prevent investors from certain risks by issuing cautions about any potentially risky deal. Investors, especially beginners in this industry can also leverage the platform by using a range of educational resources. These factors not only reduce the potential risks in a trade but also help you to gain knowledge about the market.
List of offerings an authorized broker provides
- Audits: Due to the extreme continual surveillance of the financial regulators, a registered brokerage firm must follow the laws and restrictions. This covers tiny details like audits, which have a real-world impact on the investor.
- Compensation: Several regulatory bodies provide a higher degree of protection based on the laws in existence. This, however, differs by country and jurisdiction; thus an investor should first review the terms of services provided by the broker as well as their legal documents before opening an account with them.
- Anti-Money Laundering (AML): Money laundering is one of the main sources of funding for fraudulent activities. Investors who deal with a registered forex broker are typically required to render documents such as identification documents to prevent such activities in future.
Conclusion
With trading, comes risk management and thus opting for a registered FX broker is crucial in terms of elevated security, legality and minimising potential risks.
