There are a lot of forex brokers out there. The forex industry is quite spread out: there are many players in different countries. Competition is great and some small forex brokers compete with the big boys is blessed.
Many industries are controlled by a few powerful entities, and it is great that forex isn’t one of them. What does regulation provide?
- Minimum size: Regulators require that a broker has a minimum amount of capital. This means that the broker has lower chances of going broke too fast and taking your money on the way.
- Requirements: Regulation is needed to ensure your rights as a trader. This starts from proper disclaimers, something you may dismiss, providing some protection against having the broker take the opposite position against you in a way that harms you, and lots more. With some unregulated brokers, you may find it very hard to withdraw your money. This kind of behavior still exists unfortunately.
- Someone to complain to: Does your forex broker treat you badly? At least you have someone to complain to, someone who will seriously look at your complaint and will investigate it. In many cases, the fear of a complaint makes the brokers avoid malpractice in the first place.
Some unregulated brokers may look more shiny and may promise you much more than a regulated broker offers. But will they live up to their promise? The level of doubt is much higher with unregistered brokers.
Not all regulators were born equal. Some regulators are tough in regulations but don’t bother enforcing them. Some are just a rubber stamp.
Some brokers may claim to be regulated. Don’t believe them! Check it out on the official sites of the regulators listed below, and make a check on them using the internet. Here are some quick methods.
Here are 4 leading bodies
- NFA (together with CFTC in the US)
- FSA (In the UK(
- FINMA (Switzerland) which also has a blacklist.
- ASIC (Australia).
With some unregulated brokers, you can be the perfect trader, and that’s where the trouble begins. Seeing a successful trader triggers the alarm bells. You suddenly see your stop loss orders triggered when the market wasn’t even close to your order. Perhaps some of the functionality is denied and execution, our next point, may turn out to be very poor.
With an unregulated broker, you have no one to complain to, apart from forums on the web. This may help in relieving the pain, but it will not get your money back. Hopefully you are able to withdraw your funds.
These stories happen more than people are willing to admit. You don’t usually boast when you are deceived. Trading with a regulated broker significantly lowers the risk.
This is the fourth chapter of 9-chapter series about trading forex responsibly. This guide touches the key points of trading forex more responsibly and provides many practical tips that only help avoiding the pitfalls but also provide tools for balanced, successful and sustainable trading.
The whole series is available as an eBook which you can download by joining the newsletter at the bottom of each article on the site.
All the chapters in the series:
- Chapter 1: Money Management
- Chapter 2: Trade with the Trend
- Chapter 3: Use Higher Time Frames
- Chapter 4: Trade With a Registered Broker
- Chapter 5: Execution is Everything
- Chapter 6: Account Size Does Matter
- Chapter 7: Pacing
- Chapter 8: Learn How to Lose
- Chapter 9: Use More Predictable Currency Pairs
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