Imagine what the world would like without law and order. With no rules and no guidelines, every person will have the liberty to do as they please. The final outcome would be utter confusion and chaos. The same happens in the forex market if there had been no regulation.
What is Forex Regulation?
Forex regulation refers to a system of checks that have been designed to make sure that the forex market is a safe place for investors. These checks involve setting standards for the forex’s market functioning. To make sure forex brokers comply with these checks, regulators exist who act as watchdogs who oversee and monitor the behavior of major players. The main objective of regulation is to safeguard traders from fraud.
A while ago, the forex market was considered the same as black market. This was because there were no rules governing the market; therefore, it was just a place where buyers and sellers were doing business via brokers and banks. Nevertheless, it is not the same anymore since there are regulations now to promote fair and transparent trading in the forex market. It’s worth mentioning that the forex market is one of the biggest markets in the world; however, it is completely decentralized, making it hard to manage at first place. But, regulation in forex trading has made it possible and is the most important thing that keeps the clients’ funds safe and secure. Trading with regulated forex brokers has so many merits over unregulated brokers.
Regulation not only keeps your business in check but also tightens its control on forex brokers to manage their behavior. A regulatory body is established by several parliamentary acts which describe the regulator’s responsibilities, duties, and jurisdictions for enforcing laws related to forex trading. Such laws make it compulsory for forex brokers, signal sellers and investment banks to comply with the standards established by forex regulatory bodies.
Every regulatory body has different guidelines based on their country of operation. They obligate all brokers to be registered and licensed in the country they intend to operate in. Furthermore, brokers are also subject to periodic audits, reviews and evaluations that can be done on a monthly/quarterly/annual basis. The major significance of regulation is to protect investors and traders by building trust between brokers, traders and copytrade services. If there had been no regulations in place, it would be so convenient for brokers to steal clients’ money. But, regulations have made it possible that no such unfair practice is conducted as the brokers have to follow strict rules.
However, one thing to keep in mind here is there is still a probability of unfair trades because some brokers tend to take the advantage of jurisdictions that don’t have real oversights. These are countries that don’t have strict regulations which put them under the category of “high-risk” jurisdictions. As a client, you need to be careful to make sure you don’t end up dealing with brokers who have ulterior motives which can cost you a lot of money later on. Thus, regulations keep the clients’ interest safeguarded by keeping their funds secure. Additionally, the traders can get sufficient compensation if the broker is regulated and goes bankrupt.
Regulations have the power to cancel or revoke the licenses of brokers who have been accused of cheating their clients. This makes sure the forex market is as transparent for traders as possible and the traders only choose legitimate and regulated forex brokers whom they can trust completely with their money. To check if you are not dealing with a fake broker, you can just check the list on the regulator’s website. Additionally, you can cross-verify the license number with the regulator to make sure you are on the safe side.
To sum up, one can conclude that in recent years, forex trading has become quite a secure investment option for all investors. There are certain guidelines that you can follow to make sure you don’t end up choosing unregulated and fake forex brokers. However, just like the laws governing your daily lives’ are a little broken, the same happens in the forex market. Many big players try to take advantage by manipulating the system in the countries where these rules don’t apply. Thus, it is up to the client to do his best to fully safeguard himself and avoid comment and scammers at all costs.