The forex market, like all financial and investment markets, needs a framework to regulate the rules. The high liquidity of this market and the high volume of daily transactions have caused the need for more rules and regulations, because in case of any problems and inconsistencies, this framework of rules should be referred to. The Financial Market Supervisory Organization determines these rules and regulations.
Regulation in forex and in all financial markets is among the points that are of great importance. A market that is not regulated does not have high safety for investment and the risk of investing in that market is extremely high.
The regulation of brokers in the forex market makes traders and investors more confident. Beginners and novices who intend to enter the financial markets should definitely look for valid forex regulations and avoid choosing brokers that are not under supervision. Follow this article to the end to fully understand the topic of regulation in forex.
What is regulation?
Regulation in forex refers to financial institutions and brokers that are under the supervision of financial regulatory laws and the risk of investing in them is very low. Rules and regulations are very important in a financial market like forex, and for this reason, the regulation of brokers in forex indicates the high security of investing in them.
Decentralized markets such as forex and crypto currency markets, which have no centrality, can increase their credibility in the field of securing traders’ capital by being regulated or legalized.
A reliable and legal broker should be able to provide accurate information to its traders and its financial support should be such that it does not go bankrupt in case of fluctuations in the market and even if necessary, it should be able to compensate the losses of its investors. The existence of a regulatory body is necessary to protect the interests of Forex market users and reduce the possibility of any kind of fraud in this market.
It is better for all traders and people who intend to join the financial markets, before choosing a broker and opening an account, first ensure the regulation of that broker in Forex. If the name of your chosen broker is not in the list of valid forex regulations, it is better to avoid opening an account with that broker.
Due to the 24-hour activity of the forex financial market, independent government institutions separately supervise the activity of this financial market. Institutions such as the Financial Services Agency (FSA), the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are among these supervisory institutions.
Regulatory definition
A regulator is an institution whose duty is to legalize financial institutions. Regulatory institutions should regulate the forex market and other international financial markets and supervise their activities.
In fact, regulation in forex means that government financial and legal institutions and sometimes private institutions supervise the activities of forex brokers. Reputable brokers are those that operate under the supervision of regulatory bodies.
A regulatory body has the duty to determine the framework of regulations for the activity of financial markets, and these rules and regulations must be in accordance with the standards of each country and the laws there. So it can be said that the regulator plays an important role in forex and must organize the financial markets of a country at the international level.
The importance of regulatory brokers in forex
The regulation of brokers in forex determines the requirements and restrictions as well as certain mechanisms for financial institutions. The regulator in forex and other financial markets must determine a set of principles and regulations for the activities of companies in the forex market, regulate market rules and supervise the implementation of these rules by financial institutions.
Regulation regulates the market and protects the capital of traders against financial abuses and reduces the risk of transactions.
Regulatory benefits in forex for brokers
Brokers are intermediaries between financial markets and investors, and for this reason, they must be qualified to provide services. One of the benefits of regulatory brokers in forex is that in case of any problem in doing transactions, you can complain about the relevant broker to the regulatory body.
There is a regulatory body in each country and it is obliged to set the rules of the forex market in accordance with the financial standards and regulations of that country. These regulators operate under the supervision of the government and supervise the financial activities of brokers. Due to the differences between the executive laws of each country and other countries, each regulatory body operates in its respective jurisdiction.
Another benefit of regulation in forex is that brokers are required to submit their financial accounts to the regulatory body on a continuous basis and they must be accountable in case of any problems. If the broker commits any kind of financial violation, he must answer to the regulatory body and may even be required to pay a fine.
Another benefit of regulation is that clients’ capital is insured because this is one of the regulatory laws of brokers in forex and they are committed to insuring the capital of their clients and investors.
In fact, these brokers must insure the clients’ capital up to the limit set by the laws and pay damages to the clients in case of any kind of problem. Also, these brokers must separate their assets from the clients’ assets so that in case of problems, people’s capital is safe and not lost.
In short, it can be said that the security of capital and transactions and the confidence of users are among the most important benefits of regulatory brokers in forex.
How can you confirm that a broker is regulated?
Every licensed legal broker must have received an ID number from the relevant organization. In fact, the institution that has given the license to the broker has also granted an identification number to that broker, which all brokers must include on the home page of their official website. With the help of this number or ID Number, investors can ensure that this broker is part of the valid regulations of Forex and other financial markets.
Of course, before opening an account in any broker, it is better to make sure that this ID number is not fake and that it is listed on the official website of the institution that has set the relevant financial regulations.
The body supervising the broker’s performance must have an online database that includes the broker’s owners, managers, a history of the broker’s performance, and user complaints.
Types of regulatory bodies in forex
Most of the brokers that work with Iranians are offshore. In fact, when a person opens a bank account in another country where he does not live or work, he has turned to offshore banking.
This also applies to financial market brokers, and some brokers that Iranian people work with are overseas and are regulated in small islands that do not have strict financial laws, and in case of problems, it is very difficult to follow up from the client’s side because they are not accountable to any organization.
These institutions have weak credibility and are established in free economic zones, and their credibility is lower than European regulatory institutions.
Forex brokers in the United States and Switzerland are usually regulated by reputable forex regulators. Also, the countries of Australia and the United Kingdom are among the countries whose licenses are valuable in the forex market.
List of the most important supervisory or regulatory bodies
The bodies involved in forex regulation vary in terms of credibility, and some are more credible than others.
The most famous valid forex rules are as follows:
NFA in America
FMA in New Zealand
FCA in the UK
ASIC in Australia
CySEC in Cyprus
Bafin in Germany
FINMA in Switzerland
Mifid in the EU
The mentioned regulators are among the reliable global regulators, and if the broker is regulated by these regulatory bodies, the percentage of risk of investing and operating in it is very low and its credibility is very high.
Familiarity with different types of regulatory institutions
The best authentic forex rules
- ASIC regulator or Securities and Investments Commission in Australia
This institution is one of the most reliable regulatory institutions in forex, which is responsible for the regulation of brokers in forex.
- UK FCA or UK Financial Conduct Authority
This institution is one of the authoritative authorities of the financial market in the world, whose priority is to protect the liquidity of customers.
- Regulatory CySEC or Cyprus Securities and Exchange Commission
Financial conditions in Cyprus are easy, and for this reason, many brokers operate under the supervision of this institution.
Moderate and weak level regulators
- Regulatory IFSC or International Financial Services Commission in Belize
Belize is one of the OFFShore jurisdictions, some consider these regulators to be non-standard, but this regulator is one of the best among OFFShore types.
- Finacom dispute resolution organization
This center covers about 30 forex brokers and the famous Grand Capital broker is covered by them.
- SVGFSA Regulation
This regulator is also one of the institutions that does not have much supervision over brokers and the conditions for entering it are easy, and for this reason many forex brokers prefer to work with it. Famous brokers such as Alpari and Amarkets are under the supervision of this regulator.
Regulatory laws in Iran
Regulatory laws in Iran have special complications because sanctions have affected these laws. Some brokers that have a regulatory license cannot provide services to Iranian users.
The regulation of brokers in forex has led to the development of the financial market and creates balance in the market. Of course, the existence of a large number of regulations in forex may increase global competition and upset the balance of international economic activities.
Iranian investors and traders are facing a lot of problems due to Iran’s non-membership in the Financial Action Task Force (FATF) and the strict rules of the regulators have prevented them from cooperating with Iranian brokers and investors.
Choosing a broker is a difficult task for Iranian investors, and if they intend to operate in the international investment market, they must ensure the regulation of brokers in forex.
Why shouldn’t you go to an unregulated broker?
By choosing a broker that is not under the supervision of any of the valid forex regulations, the trader’s capital may face a great risk. An unregulated broker in forex may put your capital at risk with fraud and other fraudulent actions, and in this situation, you cannot complain to any institution.
Also, a broker that is not under the supervision of valid regulatory bodies will not compensate your financial losses in case of closure or bankruptcy.
By choosing a reliable broker, you can protect your capital, and if you encounter problems and misconduct, you will be able to complain to the relevant institution.
Common misconceptions about forex broker regulations
Even in the case of opening an account in a regulated broker, still having wrong goals, entering forex without training, not having a clear trading plan and strategy and not adhering to them, not having a capital management plan in the financial market, etc. It can cause you to lose your capital.
If you think that by opening an account in a regulated broker, you can get a lot of profit, you are wrong. Cooperation with these brokers increases capital security and prevents various frauds, but ultimately what is important is education.
“Zero to Hero” forex training is available for free on the official website of Fenfix. Also, these video files are available on the YouTube channel of Mohammad Ahangari. In addition to a reliable broker, education is the second thing that can guarantee the security of your capital.
Frequently Asked Questions
What does regulation mean in forex?
Regulation in forex means setting rules and regulations and monitoring them. Financial institutions supervising brokers give them more credit by regulating brokers in forex.
Why is the regulation of brokers important in forex?
Regulation protects traders’ capital and obliges brokers to comply with laws and regulations that ultimately increase the security of user capital.
How can we find out that the broker we are looking for is regulated?
For this, it is better to visit the official website of the broker. If the birth certificate number is listed on the broker’s website, it indicates that the relevant broker is one of the valid forex regulations.
Does opening an account in a regulated broker guarantee the multiplication of the trader’s capital?
No. The regulated broker is under the supervision of the regulatory institutions and if fraud, bankruptcy, closure and problems of this kind occur, the broker will be accountable to the relevant institution; In other cases, there is no guarantee.
Last word
In this article, we talked about forex regulation and also mentioned the benefits of regulatory brokers in forex and described the risks of trusting an unregulated broker.
