Trading Online with Regulated Vs Unregulated Forex Brokers

Over the past few years, forex trading has emerged as a lucrative venture for earning money among millions of traders and investors worldwide. It involves buying and selling of currencies on a market that takes places 24 hours a day from Monday to Friday.

Because the forex market has no physical marketplace, traders must find a broker who is an intermediary between them and the interbank. Finding a reliable and trustworthy FX broker is one of the biggest challenges a new trader must go through. This is because the market is swamped with hundreds of brokers, each one of them claiming to be the best.

Regulated Vs Unregulated Forex Broker

When it comes to choosing the best broker to suit your needs, you have to consider some important factors like the company’s reputation, customer support, trading platform, etc. However, there is one most important factor that you should consider before choosing a forex broker for your needs – regulation. Should you work with a regulated or unregulated forex broker?

Regulated forex brokers refer to brokers that are registered with the relevant financial regulatory body of their region and that must comply with the standards and rules set by that body.

Regulated brokers are required to adhere to certain stringent standards and criteria in order to retain their business license. They must also submit evidence of periodic audits as well as their accounts on time

Unregulated forex brokers, on the other hand, refers to brokers who are not monitored by any regulatory and therefore can behave in any manner, without having to comply with any rules.

Which to Choose?

To protect your funds, all traders are advised to work with regulated forex brokers. You have probably heard of horror stories of brokers disappearing into thin air with their clients’ hard-earned money. Unregulated forex brokers are also known to manipulate market data to their favor in an attempt to rip off their clients. In case such a fraud, you have no one to protect you as a trader and you’ll end up losing your money completely.

The reasoning behind forex regulation is pretty simple – to prevent fraudulent practices. The main role of a financial regulatory body is to oversee the activities of a financial institution and brokers and to prosecute them in case they are involved in any fraudulent activities. Another role of the body is to register and license forex brokers that meet certain criteria as well as revoking licenses of brokers that fail to abide by the rules.

How to Tell if A Forex Broker is Regulated

Now that you understand why it’s important to work with a regulated broker, the next question is, how do you tell if a broker is regulated/licensed? Well, there are various to identify a genuine, licensed forex broker.

  1. Check their Website

One of the best ways to identify a regulated broker is by visiting their website. The FCA, CFTC, NFA and all other financial regulators require that their licensed Forex brokers mention the regulatory body to which they are registered and licensed as well as provide the corresponding licensing information.

This information can be found in the company’ss website on the About Us’ page. A regulated broker must mention its license number and other necessary registration information on this page. If you can’t find this information on any page of their website, then this means they are not regulated.

  1. Check the Regulatory Body’s Register

The first method can be helpful but it’s not full-proof. This is because some unregulated brokers display a fake license number claiming to be regulated by a certain regulatory body. Many of these have been caught doing this, but there’s a way to avoid this predicament. Reputable regulatory bodies like FCA have a list on their website of all licensed brokers in their jurisdiction.

Just google the name of the regulatory body, visit their website and type in your broker’s name or license to number to confirm whether they are in the register. The register is usually updated regularly so there’s no way you can miss your broker’s name or license number if it’s truly registered.

In Summary

Forex trading can be a lucrative venture provided you work with a broker who has your best interests at heart. So, ensure that your broker is regulated by the relevant regulatory body in the region where it’s based to protect your funds and be on the safe side.