Foreign exchange, in simple terms forex, is the biggest financial market. It is also by the most liquid of all the financial markets around the world. Retail forex trading became increasingly possible because of the technological advancements of the World Wide Web. This enabled individuals to participate in the forex market through online trading platforms.
Forex trading was opened to retail clients toward the end of the 1990s. Retail online forex brokers also started their operations around the same time. The forex market started functioning much before that, but it accepted only institutional customers. Currently, trillions of dollars are traded on a daily basis on the currency market. However, the contribution of retail clients to the daily turnover is just about 5.0 percent. It works out to approximately $250 billion.
The forex market is so large because financial institutions, large multinational companies, and hedge funds need foreign currencies to conduct their businesses. Forex is all about buying or exchanging one currency for another. This causes a good amount of flow of funds. This means that the forex market is the place for trading global currencies. Now that we have some understanding about the forex market, let us look at the reasons as to why you could consider forex trading.
Top 7 Regulated Forex Trading Brokers
Why Is Forex Trading A Good Option ?
Each trader chooses forex trading for a different reason. Actually, the forex market offers a lot to all traders and there are many reasons for trading forex online. Some of the key reasons are listed below:
#1: Regulation – Over the years, forex trading has come to be heavily monitored. Many forex brokers operate under the regulatory control of multiple authorities. This means that the currency market is a safe market even for newbies. Of course, it is applicable only in the case of regulated brokers.
#2: Volatility – It is the volatility in the currency market that attracts many traders. If the volatility is high, it presents more opportunities to traders to buy and sell assets quickly. If there is no movement in the market, it does not make any sense to hold the capital in it. Volatility is by far the main benefit offered by the forex market.
#3: Accessibility – The currency market is one of the most accessible financial markets. You can start trading forex with just about $100. This means that the capital requirement is very low. This is not the case with any other market. Further, it is easy to open an account and trade form the comfort of your home. Inexperienced traders can make use of the demo account to learn to trade and start trading using real money in a short period of time.
#4: Technology – Advancements in technology enable the online trading platforms to be updated continuously and made more user-friendly. Actually, this is what makes forex trading a lucrative option. Additionally, third-party software providers make add-ons and plug-ins available for the most popular trading platforms such as MetaTrader 4 and MetaTrader 5.
#5: Possibilities – In the forex market, you can buy and sell currency pairs without owning them. Moreover, forex brokers make margin available to you. This means that leverage is available to you. It allows you to trade much higher amounts than the deposit you make. However, leverage should be used with caution as it can make or break your trading business.
These are the key reasons for involving in currency trading. However, this is not an exhaustive list. Other reasons include bonuses and promotions, growth possibilities, social trading or copy trading, availability of education material, and well-developed infrastructure.
The opening up of the forex market to retail traders led to the influx of forex brokers that provide online platforms for currency trading. While some of the brokers are serious about their business, some others are only interested in snatching away the hard earned money from clueless customers. This gave rise to a lot of forex scams and governments of countries around the world started setting up regulatory bodies to monitor the activities of online forex brokers.
As such, forex regulation is aimed at regulating the operation of the decentralized forex market which has no clearinghouse or a central exchange. In developed countries, the forex brokers are regulated through governmental as well as independent supervisory bodies. They act as watchdogs in their respective markets, issuing financial licenses to businesses that comply with the regulations.
Forex regulation aims at ensuring ethical and fair business behavior. This means that all forex brokers, signal sellers, and investment banks have to comply with the standards and rules specified by the regulators. Typically, these include registration and obtaining a license in the country of operation, brokers subjecting themselves to audits, evaluations, and reviews to check compliance, etc. Forex brokers are also required to ensure a certain amount of capital requirements to execute as well as complete contracts closed by their customers. In addition, brokers are required to return customers’ funds in the event of a bankruptcy.
Why Should You Trade Only With Regulated Forex Brokers
The online forex broker that you choose to work with has a key role to play in currency trading. If you work with the right broker you will succeed as a trader and if you work with the wrong one you may suffer huge losses. In short, they can make or break your forex trading career. Therefore, you should choose to work only with a regulated broker. The advantages are:
- Protection from Scammers
When you work with regulated forex brokers, you are automatically protected from scammers. This means that the financial regulatory authority will provide help to you if something happens to go wrong with the broker. As such this is the first and foremost reason as to why you should opt to trade only with regulated forex brokers. When you start forex trading, you have to submit personal and financial information to the broker, deposit funds into your account, and trade online to make profits. While a regulated forex broker will safeguard your personal information, you cannot be sure whether a scammer will act in the same manner or not. An unregulated broker’s platform your personal data and bank data could be compromised.
Further, regulators insist that forex brokers submit relevant documents as regards their financial capabilities and operation. Additionally, regulated forex brokers have to undergo reviews, evaluations, and audits on a regular basis. These requirements to be complied with by brokers ensure that they do not engage in unethical business practices. The brokers also have to work hard to retain their license. As far as you are concerned, these steps on the part of the regulator equate to a very safe trading environment, instilling a sense of security as far as your funds are concerned.
- True Business
A forex brokerage makes money in many different ways depending on the type of operation chosen by them. The broker earns commissions on every trade, makes money through spreads, or locks in profits by trading against either all or a few of their clients. It is not wrong to do that as they are not there for charity. However, regulation ensures that the broker is serious about the business they are in. The regulation also ensures that the brokerage is a true business. But, how can you know that a broker is regulated or not? Here are certain things that you can check.
- Check the Web Page
This is the first place to check. The web page of the broker should be providing details related to regulation. You will find the information either on the homepage or in the “About Us” section. Regulated forex brokers will be proud of their license and will always want to show it off to the visitors to the website. As such, it should not be difficult for you to find this information on the broker’s website. The will always display it in the most visible spot.
If you are not able to locate a license number or information related to regulation on a broker’s website, then you should understand that this is not the right broker you should be working with. Regulated forex brokers strive to remain transparent and provide and make it easy for you to easily locate all information on their website.
- Google Broker’s License Number
If a broker does not display the license number but claims that their business is regulated, you should find out the license number from the website of the financial authority that they claim is regulating their operations. The license number is supposed to be displayed on the broker’s website, but many of them fail to comply with the same.
You can find the required information through a simple search on the Internet. If you are not able to get any information regarding regulation or license number, then the brokerage may not be a credible one.
If the broker’s website provides live chat facility, ask for their license number. If the broker provides the number, verify the same through a Google search. You can also check with the financial authority to see if the information is correct.
All these steps might seem unnecessary to you, but it is important that you know as much about the forex broker as possible because you are going to deposit your hard earned money into your account with them and allow them to handle your capital. It is not bad to be suspicious prior to placing trust in the right broker. By becoming suspicious, you are actually exercising caution to ensure that you are not being taken for a ride.
Some of the Major Regulators Around the World
- United States
Commodities and Futures Trading Commission
National Futures Association
Financial Services Agency
Japan Investor Protection Fund
- United Kingdom:
Financial Conduct Authority
Australian Securities and Investment Commission
Cyprus Securities Exchange Commission
- European Union
Markets in Financial Instruments Directive
Now that you have understood the importance of dealing only with regulated forex brokers, it is to be kept in mind that the license issued to a broker does not remain valid throughout the life of the brokerage. The license of a broker can be suspended at any point in time. Actually, the brokers are obliged to make an announcement to all their clients in the event of their license getting suspended.
The license of a broker may be suspended for a variety of reasons. However, the main reason is non-compliance with the requirements set forth by the regulators. As non-compliance with regulatory requirements can cause inconvenience to clients. The financial regulatory authorities resort to a suspension of license to safeguard the interests of customers.
It is not good for the broker if the regulator suspends their license. People could lose trust in the broker and in the absence of trust, the broker could lose the business.
Trading with forex brokers that are not regulated almost always would give you a hard time in terms of withdrawing funds from your account if you accumulate some profits. When dealing with brokers like these, you cannot be sure that they are not using fraudulent means to increase their profits at your expense. There have been many such cases in the financial markets. Further, if you find out that you are being cheated by the broker or you realize that the broker is misusing your funds, you don’t stand a chance to get back your money.
Forex trading is simple, but an untrustworthy broker can make your life miserable. You have to invest some time and effort to identify the right, trustworthy forex broker with whom you could establish a long-term relationship. This is very important to succeed as a forex trader. Ultimately, the reason why you take up forex trading is to make your financial goals come true. You will be in safe territory as long as you choose to work only with reliable and regulated forex brokers. All that you have to do is make up your mind not to go after opportunities to make profits quickly. You might end up with the wrong broker.