Every trader knows that the forex market is one of the largest and highly popular financial markets in the entire world, where daily transactions exceed more than $5 trillion. Forex trading has become one of the best income sources for people globally. However, if you are considering getting into this profession, there are several decisions that you need to make first. One of them is choosing a reliable forex broker. When it comes to selecting a forex broker that you can use, you need to take into consideration several factors such as commissions, spreads, performance, experience and leverage. But apart from all of them, one of the most crucial aspects to bear in mind is that you choose a regulated forex broker.
Who Is A Regulated Forex Broker?
In simple words, a regulated forex broker is the one whose activities and operations are controlled and managed by some high authorities. These authorities act as the “watchdogs” for the forex market. They are known as regulators and work towards preventing fraudulent activities in the market and raising awareness among traders and investors. A regulated broker implies that they adhere to all the guidelines, policies and standards stipulated by the regulator. They are subjected to regular audits from supervisory authorities. In case any regulated broker fails to comply with the rules set by the regulator, legal action can be taken by the regulator, leading to the permanent cancellation of the license.
Why Should You Work With A Regulated Broker?
So far, we have learnt how forex regulations work, but how do they actually help the forex brokers? Here are some significant benefits of working with a regulated broker.
1. Transparency In Trading Operations
According to several forex experts, traders who seek a regulated broker tend to experience honest, fair and transparent trading operations. This is so because regulated brokers are required to serve their clients with complete honesty and fairness without manipulating the market to turn it in their favor. This is the reason traders need to check the validity of the forex broker’s registration number with the regulator so that they don’t fall prey to fraudsters. Additionally, regulated forex brokers must also submit financial reports periodically to the regulator. Failure to do so could result in the termination of their membership.
2. Safety Of The Traders’ Funds
Regulated forex brokers are also compelled by the law to never mingle their clients’ funds with their company’s funds. It means that the forex broker must have a separate account to keep the traders’ funds. The broker cannot use their funds to finance their own needs. Additionally, if, in any case, the broker goes bankrupt, they cannot use the client’s money to pay their creditors. The money should only be utilized to pay out the clients. In this manner, the trader’s money always remains safe no matter what happens to the broker.
3. Recourse In Case Of A Dispute
In case of an issue, fly-by-night forex brokers are difficult to come into contact with. However, regulators ensure that the brokers have a customer support system in place. Every regulated forex broker must have a customer support desk, a valid phone number, an email ID and a representative to assist the clients. Furthermore, when you work with a regulated broker, any complaint you file against them will certainly be easier to solve. Therefore, when you choose a regulated broker, you get proper assistance from the forex brokers. Regulators can also intervene if the traders think they have been mistreated by any regulated forex broker, which is not the case with an unregulated broker.
4. Protection From Fraud And Scam
Regulated and licensed forex brokers do not get involved in any trading malpractices that can affect the traders negatively in the market. Illegal trading and financial practices such as tampering with the trading platforms, manipulating the markets and prices, opening positions without the traders’ consent and withholding their funds without any valid explanation are strictly prohibited by the regulators. Therefore, any forex broker involved in such illegal activity attracts severe penalties and even a permanent ban from the forex industry for themselves. Thus, it is recommended that traders should always work with a regulated broker to protect themselves from dishonest trading practices.
To conclude, one can say that regulation has a vital role to play in ensuring that forex brokers abide by all the standards and do not engage in any illegal practices. As such, traders must always work with a regulated broker to protect their interests.