Not long ago, Forex trading was almost like the black market. There was virtually no rules, no laws, nothing. It was basically just the customer and the seller doing business via the banks and brokers.
Those who are anti-rules would prefer trading during that period. Nevertheless, those days are long gone. Regulation has caught up with the trade and it is here to stay.
In this text, we shall help you understand why it was not only urgent but also vital to regulate forex trading. To grasp the benefits of regulations one needs to first understand how regulation is done.
One fact is Forex trading has now become the largest financial market in the world. It is also decentralized in nature, which made it hard to regulate in the first place.
However, the problem of unscrupulous behavior in the forex market has seen regulators tighten their grip on forex brokers and banks.
Essentially, Forex regulation is by the same institutions that supervise financial institutions and banks trading in the finance market. The regulators deal with trading that happens in their respective countries.
Government regulators controlling trading have been established by various acts of law passed in parliaments. These acts describe the regulators duties, jurisdiction, and how they will enforce laws and regulations of forex trading.
Laws enacted stipulate that all brokers (foreign exchange), signal sellers, and investment banks, have to abide by the standards set by forex regulators. As each forex supervising body operates in their given jurisdiction, guidelines and enforcement vary depending on which country you are operating from.
All dealers (brokers and banks) of foreign currency are required by law to be licensed and registered in the countries they are based in. Furthermore, regulations stipulate that brokerage firms be subjected to periodic reviews, audits, and evaluations. As such, industry players are coerced to adhere to industry standards.
Regulatory agencies have wide-ranging powers- civil, criminal, and regulatory- when it comes to dealing with anyone who doesn’t abide by the rules.
The relevance of forex regulation
Forex control has been significantly useful in streamlining the trade. It is extremely essential due to the following:
1. Promoting fair and ethical behavior
In the past, cases of hoodwinking in forex trading were quite rampant. Every now and then, many people lost money due to the greed of various participants in the market.
Regulations have made it difficult for such things to happen as players have to operate under strict rules and guidelines. However, there is still a possibility of dishonest deals as some individuals take advantage of jurisdictions that lack real oversight.
As a client, you should be very watchful to ensure the people you are dealing with do not have ulterior motives which might end up costing you a lot of money. You can do this by operating in countries that seriously enforce trading guidelines.
2. Client protection
Another importance of forex regulations is to ensure clients are cushioned. Rules by regulators call for brokers to have a layer of protection for both themselves and the clients they deal with. Protection strategies should be updated on a regular basis to deal with new risks that emerge in forex business.
Therefore, through regulation, the client interests are safeguarded while their investment is secured since there is compensation where bankruptcy occurs.
3. Dealing with fraud
The establishment of regulators has created a platform in where cases of graft in forex trading can be dealt with effectively. Scams are usually in form of Ponzi schemes, misrepresentation, churning of customer accounts and through boiler room’ tactics.
Regulators have the mandate to deal with anyone practicing illegal behavior by following legal channels as stipulated in the acts that establish them. The only limitation here is the fact that individual regulators are only able to deal with cases happening under their jurisdictions.
Nevertheless, there has been a significant reduction of shamming the behavior where regulators have been serious in enforcing the rules they set.
Having the power to issue or revoke licenses has helped clients when it comes to looking for legit forex brokers. For you to know whether you are dealing with a fake, just search for their names in a given regulator’s list, which is regularly updated. Also, you can ask for the license number and confirm licensing with a regulator to know whether you are on the safe side.
Regulation has a very high value in everything that we do. Guidelines help to set limits thus preventing us from slipping into extremes. Just like the way laws that govern everyday life are often broken, so are regulations set to control forex trading.
Furthermore, these rules do not apply internationally which has enabled big players in the industry to continue manipulating the system. It is up to a client to fully safeguard themselves to avoid being conned.