The forex market is decentralized. It means there is no central agency to control how the market runs. Forex trading is one of the largest liquid markets in the world. It trades in more than US$5 trillion daily. How is such a vast market regulated? Previously, forex trading had been running like a black market. Now, things have changed. There are trading regulations in place. The regulatory bodies have been tasked with the role of watchdogs in forex trading.
How Are the Forex Trading Regulations Enforced?
Traditionally, forex trading was set aside for bigger corporations and banking institutions. Today, most of the forex trading is carried through the brokers. Thus the need to regulate and protect all the parties involved.
Different countries have established regulatory bodies that ensure compliance with the set standards. These bodies enforce sanctions to non-complying institutions.
The regulatory bodies differ according the jurisdictions. The following is a list of major, but not limited trading to, regulating bodies in the world:
It stands for Cyprus Securities and Exchange Commission (CySEC). It is a major trading regulatory body in Europe.
It is a USA based regulator. Commodities Futures Trading Commission (CFTC) is ranked as one of the strictest trading regulators in the world. Together with the National Futures Association (NFA), all online forex traders have to be registered and meet certain financial requirements.
Based in Australia, the Australian Securities and Investment Commission (ASIC) has been regulating the Australian forex markets since 2006. Every forex broker is required to have an Australian Financial Services license. The body sets up the regulations which every broker or companies comply to.
The Importance of Trading Within the Regulations
- Licensing and Registration
Major trading regulators issue trading certificates to the trading institutions. Join a trading brokerage that is already verified in terms of their competency, location of the trading firm and the website.
Check if the company or the brokers you intend to trade with are licensed and registered by any leading global regulators. In most countries, a trading institution that is not compliant of the laid rules and regulations will have the licensed revoked.
Another way of identifying a legitimate trading institution or brokerage is by checking what former clients are saying about them. The reviews are a key in understanding the kind of trading partners you are involved with.
- Protection from Fraud
Trading within the laid regulations ensures that you are protected from fraud. There is a rise in fraudulent cases in the forex trading markets.
Conduct a thorough background check with the leading regulators before you start trading with any broker or company.
- Promoting Fair and Ethical Trading Behavior
Cases of fraud and unfair trading practices have dominated the trading markets in the past. Regulations ensure that all the investors and stakeholders operate under strict and fair conditions. These regulations are set to preserve the sanctity of the forex markets. They encourage the investors to take up the investment opportunities by setting fair market standards.
Due to the decentralized nature of forex trading, it is full of fraudsters. As a forex investor, you need to trade within the set regulations to stay safe. Check the credentials, policies and the reputation of the company you are trading with through the regulating bodies. The regulations are put in place to protect the consumers and all the stakeholders in this industry.