Forex Regulation

The Forex Regulation made because currency trading market is decentralized and operates with no central exchange or clearing house. In order to regulate the market there are several governmental and independent supervisory bodies around the world who made Forex Regulation .

The objective of Forex Regulation is to ensure fair and ethical business behavior. In their turn all forex brokers, IBs and signal sellers have to operate in strict compliance with the rules and standards laid down by the Forex regulators, otherwise their activity is regarded as unlawful. First of all, they must be registered and licensed in the country where their operations are based, which ensures quality control standards are met. In accord with this Forex Regulation licensed brokers are subject to recurrent audits, reviews and evaluations which force them to maintain the industry standards. Foreign exchange brokers must keep a sufficient amount of funds to be able to execute and complete forex contracts concluded by their clients and also to return clients’ funds intact in case of bankruptcy.

Each Forex Regulation regulator operates within its own jurisdiction but often work together in purse of fraudulent activities. In the European Union a license from one member state covers the whole continent. Not all forex brokers are regulated which means that traders are encouraged to invest only with companies that have a valid financial license and do prior research before opening a trading account.

Regulated Forex Brokers

Broker Min Account Size Leverage Spread US Traders Review Open Account
Fxstay $1000 1:500 EUR/USD: 0.6 Review Free Account Demo

Retail Forex Trading Regulation

There are different fx regulators in each country and forex brokers must register with the specific regulator in the country they want to be active, FCA in United Kingdom, ASIC in Australia, Bafin in Germany, CYSEC in Cyprus, MiFID in Europe and FINMA in Switzerland are top forex regulators in the world.

While regulation in fx markets was virtually non-existent in earlier years, the rapid growth of currency trading among retail investors has led to increasing scrutiny and regulation by bodies such as the Commodity Futures Trading Commission (CFTC). Under the Commodity Exchange Act (CEA), the CFTC has jurisdiction over leveraged forex transactions offered to retail clients in the United States. The Act only permits regulated entities to act as counter parties for forex transactions with retail customers, and it requires all online forex dealers to be registered and meet strict financial standards enforced by the National Futures Association (NFA).

For a retail fx trader, the biggest risk of non-regulation is that of illegal activity or outright fraud. Fraudulent activities include excessive commissions generated by “churning” customer accounts, high-pressure “boiler room” tactics, Ponzi schemes and misrepresentation.

Stringent regulations introduced in the U.S. in 2010 to protect retail fx traders have stamped out currency fraud in the nation to a large extent. However, the regulatory picture is mixed in other countries. In Japan, the world’s most active retail forex market, the Financial Services Authority (FSA) regulates all markets including retail foreign exchange. The FCA is proactive in regulating retail forex trading. As an example, it reduced the maximum leverage that can be made available to retail forex traders to 25:1 in August 2011, after slashing it to 50:1 a year earlier. In the United Kingdom and continental Europe, Forex Regulation is limited and leverage has few limits, with levels as high as 500:1 not uncommon.

But Forex Regulation of the retail fx market, which represents less than 5% of average daily forex turnover worldwide, is only the tip of the iceberg.

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