While regulators are maturing with the industry, some of them are still incompetent and traders aren’t always aware of regulation in forex. Better regulation is essential in making forex more mainstream.
Part of the blame for the financial crisis was on big financial institutions such as Lehman Brothers and AIG, and the lack of proper regulation. The reform presented in the US comes to prevent future cases of misconduct and also to avoid having institutions that are too big to fail.
The forex industry enjoyed the financial crisis – when stocks fell, currencies rocked and became attractive. Forex brokers bloomed while the banking sector was struggling. But popularity doesn’t mean that the situation is good.
As we all know, there are lots of forex scams, and forex brokers that trade against their clients. And what do regulators do? With chasing and stopping forex scams, they’re not perfect, but it seems that the nasty ones are eventually caught.
Duties of website owners and of traders
As a website owner in this industry, it’s also my duty to try to catch such scams, as I reported with the case of Crown. All in all, many eyes are open for catching scams.
But what about general malpractice? Trading against the clients and playing with slippage and execution isn’t a rare practice among market-making brokers. And here, the regulators all over the world don’t seem to have good answers.
Traders need to check out which brokers are regulated and which aren’t. It’s also important to see that the regulating body is a serious and well known one. And even the well known ones such as the CFTC are sometimes busy with proposing a tight leverage of 10:1. Will this stop brokers’ malpractice? I don’t think so.
For the industry to really mature and attract more mainstream traders and investors, we need to know that the regulators are examining the behavior of brokers and ranking them according to their fairness.
Serious regulation will send away the risky image and will make currency trading a possible path of investment for solid traders.
This is the fourth article in a series about the road of forex to the mainstream. Previous articles:
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