Forex brokers regulation and reputation Although the FOREX market is not regulated, because there is no central
exchange, individual brokers have to operate under a set of regulations
defined by every country’s own financial regulatory bodies. For example,
in the United States, a broker should appear as registered with the Commodity Futures Trading Commission (CFTC)
as a futures commission merchant (FCM) and as a member of the National Futures Association (NFA).
The status of a broker can be verified directly with those organizations;
additionally, a broker should be showing a clean record with them. Some
brokers, especially offshore brokers, don’t possess any kind of financial
regulation, so they represent a risk in dealing with your money because
they could disappear and leave you with no legal recourse. Brokers in the
United Kingdom is regulated by the Financial Services Authority (FSA).
PREPARING YOURSELF ADEQUATELY BEFORE JUMPING INTO THE MARKET
You should check carefully the kinds of regulatory bodies with which the
the broker claims to be registered and verify if indeed it is a real financial regulatory institution or simply a business generic registration.
Currently, several U.S. FCMs allows you to choose if you would like to
open an account in the United States or overseas, most specifically in the
The United Kingdom, which has good oversight as well.
The reason for doing this is that with the most recent changes, some
traders are electing to go overseas so that they can continue to trade the way
they want. One example of this is that in the United States, you can no
longer hedge your trades in the same account. Thus traders who like to use
hedging—a strategy that requires you to go long one currency and go short
the same currency at the same time—now will have to use multiple
accounts or go offshore.
If your broker is affiliated with any of the important exchanges, this
adds a significant qualification because it implies that the broker is larger
in size and thus has more representation on the markets, and it vouches for
longer-term expectations for its business life. Check, Forex broker’s regulation and reputation for example, for any
membership at the Chicago Board of Trade, the London Metal Exchange,
the New York Mercantile Exchange, or other commodity exchanges. Size
and years in business are extremely important because they further guarantee that there will be
less of a chance that the broker falls into bankruptcy,
unlike a broker that is new and barely starting its activities. Having a large
number of customers and a bigger capitalization testifies to the broker’s
level of responsibility and commitment.
The regulation and reputation of a FOREX broker can be easily checked on the Internet
by adding the word review, scam, or problems to the broker’s name in your
favorite search engine. Read the opinions of other traders on forums and
trading communities; do thorough research before entrusting your money
to any broker. You must have a great deal of confidence in your broker, and
this confidence has to be backed up by real facts, not just the advertising
hype, Use a practice account for a while, prepare some
basic questions, and ask the broker’s customer support team to gauge the
broker’s credibility and responsiveness.
I highly recommend that you deal only with certified brokerage firms.
Check the possible connection to banks or financial institutions. Although
there are not many brokers who will disclose the names of all their liquidity providers,
investigate these relationships further. FOREX transactions
are mostly based on credit, and therefore, this is a very important element
in your research.