Forex trading has grown in popularity and importance and terms of enormous profitability and liquidity over the years. But the fact that the market is operating round the clock, just a click away from the computer screen of millions of traders worldwide, makes it challenging for regulations and legislation.
As a completely decentralized market, gathering millions of traders and many brokers from different jurisdictions, Forex requires strict and comprehensive regulations.
First and foremost, the regulations aim to separate the grain from the chaff. Regulators require forex brokers to adhere to strict accounting and administrative criteria.
Consequently, for foreign exchange traders, having a broker registered with these regulatory authorities guarantees security and professionalism.
Due to its high profitability, Forex attracts more and more investors. Therefore, there are more and more suspicious and unreliable entities offering trading signals, unrealistic bonuses for account registration on their platforms, and many more. In general, everything they promise is too good to be true. And Forex is not a miracle way to earn money but a regulated business for serious and realistic people ready to invest.
Thus, there are also scam brokers making enormous efforts to attract new traders, take advantage of their lack of information. All in all, their strategy is to take the money and run. That’s why every new trader ought to check if the broker works in compliance with the regulations.
Usually, it’s stated in broker reviews and on the authorized body’s websites in the trader’s jurisdiction. Disclaimer for the newbies: when checking the brokers’ information, pay attention to the spelling of their legal name. Many scammers use very similar and quite noticeable variations in their company’s names.
That’s why there is no sole international governing body for foreign currency market trading. Instead, many independent and governmental financial authorities are supervising the regulations, audits, and legislation. If you don’t know these different regulatory bodies, here’s something to catch up on!
MiFID is an EU directive implemented in Cyprus on November 1, 2007. It provides for a harmonized regulatory regime for investment services in the European Economic Area, the EEA. The goals of MiFID are to increase competition and protect consumers.
ESMA, an independent European authority, helps preserve the stability of the EU’s financial system by ensuring the integrity, transparency, and efficiency of financial markets and investor protection. The authority’s mission is to promote convergence between securities regulators and between financial sectors.
The FCA is an independent, non-governmental body that regulates the financial services industry in the UK. Financial companies licensed in the EEA may offer certain products or services in another EEA country if they have a passport that entitles them to do so. These companies must be regulated in their home country and meet strict standards that have been agreed upon in the EEA.
CySEC has been a public supervisory authority since 2001. Its mission is to control and supervise the functioning of the stock exchange and the transactions carried out there. It grants operating licenses to investment firms and imposes administrative and disciplinary sanctions when brokers fail to comply with the rules set.
The NFA is a self-regulatory body for the US futures industry. Its mission is to provide innovative regulatory programs, services that ensure the integrity of the futures industry and protect its participants. Its activities are overseen by the CFTC, the government agency responsible for regulating the US futures industry.