Your official guide to online Forex regulations
The world of Forex trading is a world where a lot of money changes hands, which makes sense seeing as it is a market of currency trading. To make sure that things don't get out of hand, the Forex market has a lot of very strict regulations and policies that keep traders and financial bodies in check. These Forex regulations are maintained and monitored by various official international bodies whose job it is to make sure that FX providers stick to them in anything they do.
However, seeing as the internet is a vast informational space that is difficult to monitor and control, there will always be Forex brokers and service providers who disregard these regulations and get away with dealing in way contrary to the official policies of the regulatory bodies.
The following is a guide you can refer to when checking up on a Forex broker or service provider and make sure they are indeed following official Forex regulations.
The People in Charge of Forex Regulation
The NFA – the National Futures Association
The NFA is a self-regulatory organization for the US futures industry. Its purpose is to safeguard market integrity and protect investors by implementing Forex regulations. Membership in NFA is mandatory for any futures or FX broker operating in the US. It is an independent regulatory body with no ties to any specific marketplace.
The CFTC – the Commodity Futures Trading Committee
Created by congress, the Commodity Futures Trading Commission (CFTC) was formed in 1974 as an independent agency with the mandate to issue Forex regulations for financial markets in the United States. The CFTC's regulations assure the economic utility of the markets by encouraging their competitiveness and efficiency, and protecting market participants against and abusive Forex trading practices.
The FSA - The Financial Services Authority
This is a UK based independent body given statutory powers by the Financial Services and Markets Act 2000. The FSA regulates the financial services industry in the UK, which is made possible by the FSA's regulation making, investigatory and enforcement powers. The FSA is obliged to have regard to the Principles of Good Regulation.
Various National Authorities
Each country has its own national body for regulating its financial service industry. These are the bodies that decide on Forex regulations; you must therefore make sure that your broker is licensed in the country from which they operate. This ensures that they are obliged to operate in accordance to that country's trading regulations.
Forex Regulations for Forex service providers
- A Forex broker/ dealer / service provider must be licensed in the country in which their operations are based. This is a very important regulation to look out for, since if the broker you are looking into isn't licensed, they are operating against the law.
- Being approved by the national regulatory institutions ensures that the broker must maintain strict quality control standards and that your business with the broker is safe, fair and honest.
- By regulation, licensed brokers are subject to periodical audits, reviews and evaluations which enforce their need to comply to industry standards.
- Forex brokers must maintain a sufficient amount of funds to meet their customers' needs. This FX regulation ensures that the broker is able to execute and complete Forex contracts made with their clients.
- FFX brokers are in no way allowed to misrepresent their services or to solicit customers to trade without a fair representation of the risks involved. Be wary of brokers who promise profits in the financial exchange market, since by regulation they are not in any position to do so. No broker can guarantee profits in the FX market.
- A Forex broker is obliged to honor each and every contract (position) opened by a client. Failure to complete the Forex contract with a client will lead to the revoking of the broker's license.
Please keep these regulations in mind when choosing your broker/ dealer/ service provider.
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