However, seeing as the internet is a vast informational space that is difficult to monitor and control, there will always be forex brokers and service providers who disregard forex regulations and get away with dealing in way contrary to the official policies of the regulatory bodies.
The following is a guide that you can refer to when checking up on a forex broker or service provider to make sure that they are indeed following official forex regulations.
The People in Charge of Forex Regulation
First things first - you must be familiar with the bodies administering the forex regulations we're about to discuss.
- The NFA – the National Futures Association. The NFA is a self-regulatory organization for the US futures industry. Its purpose is to safeguard market integrity and protect investors by implementing forex regulations. Membership in NFA is mandatory for any futures or forex broker operating in the US .It is an independent regulatory body with no ties to any specific marketplace.
- The CFTC – the Commodity Futures Trading Committee. Created by congress, the Commodity Futures Trading Commission (CFTC) was formed in 1974 as an independent agency with the mandate to issue forex regulations for financial markets in the United States. The CFTC's forex regulations assure the economic utility of the markets by encouraging their competitiveness and efficiency, and protecting market participants against and abusive forex trading practices.
- The FSA - The Financial Services Authority. This is a UK based independent body, given statutory powers by the Financial Services and Markets Act 2000. The FSA regulates the financial services industry in the UK, which is made possible by the FSA's regulation making, investigatory and enforcement powers. The FSA is obliged to have regard to the Principles of Good Regulation.
- Various National Authorities – each country has its own national body for regulating its financial service industry. These are the bodies that decide on forex regulations, you must therefore make sure that your forex broker is licensed in the country from which they operate. This ensures that they are obliged to operate in accordance to that country's forex trading regulations.
Forex Regulations for Forex service providers
- A forex broker/ dealer / service provider must be licensed in the country in which their operations are based. This is a very important forex regulation to look out for, since if the broker you are looking into isn't licensed, they are operating against the law.
- Being approved by the national regulatory institutions ensures that the broker must maintain strict quality control standards and that your business with the broker is safe, fair and honest.
- By regulation, licensed forex brokers are subject to periodical audits, reviews and evaluations which enforce their need to comply to industry standards.
- Forex brokers must maintain a sufficient amount of funds to meet their customers' needs. This forex regulation ensures that the forex broker is able to execute and complete forex contracts made with their clients.
- Forex brokers are in no way allowed to misrepresent their services or to solicit customers to trade forex without a fair representation of the risks involved. Be wary of brokers who promise profits in the forex market, since by forex regulation they are not in any position to do so. No broker can guarantee profits in the forex market.
- A Forex broker is obliged to honor each and every forex contract (position) opened by a client. Failure to complete the forex contract with a client will lead to the revoking of the broker's license.
