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The Forex market holds a giant flow of money, while an overall turnover is nearly $2.7 quadrillion. That is why this industry promises excellent benefits for traders and investors. However, many scammers choose FX to generate income through financial fraud. They create fly-by-night brokerages to attract money and mysteriously disappear. With this in mind, newcomers think about how to start a Forex business without hurdles.
The only way to do this is by following the Forex broker regulation rules. Obtaining a license provides excellent opportunities for both brokerages and traders. Thus, trustworthy brokers may scale the business and offer first-class solutions, while traders may be assured that an FX legislature protects their rights.
The critical functions of Forex regulation bodies
Specific authorities control the Forex industry. That is why traders and investors can be sure that brokerages follow all conditions and laws. Forex regulation bodies have the following obligations.
- Financial regulators create a set of mandatory requirements for all brokerage companies.
- Regulation bodies (RBs) license newer brokers and control the fulfilment of authorities’ demands.
- Financial regulators oblige brokerage companies to report about trading activities.
- RBs provide traders with a set of legal rights and control their respect by a broker.
- Regulators leverage different mechanisms to affect dishonest brokerages. If some violations are detected, RB imposes sanctions on a Forex broker.
There are various Forex broker requirements and rules. For example, Vanuatu or Saint Vincent and the Grenadines grant more rights to brokerage companies, while the United Kingdom or Japan prefer to protect traders’ rights.
Why is it risky for traders to work with unregulated Forex brokers?
The FX license is one of the most important things for running a Forex broker from scratch. However, some business founders prefer creating an electronic wallet and inviting traders and investors to join the new broker.
Newcomers enter the Forex market having basic trading skills. Beginner traders understand that working with brokers without a license is dangerous. In some cases, such brokerage companies are trustworthy, but there are still too many one-off companies.
If a broker has a license issued by a reliable financial regulator, traders and investors get a stable solution for buying and selling assets. Regulated Forex prime brokers provide top-notch service and follow all laws and requirements, while regulation bodies control their activities to prevent fraud. Since the FX industry is highly competitive, brokerages understand that unregulated operating ends up losing the market’s reign.
How to check are Forex brokers regulated properly?
Fraudsters use fake data to welcome newer traders to the broker and attract their investments. Forex scammers are resourceful, so newcomers should be cautious. The main rule is to check all the information on the official website of the project. The rest is just a formality.
How to learn that an FX broker truly has a license? There are three pieces of advice on how to protect yourself from fraudsters:
- Many financial regulators have specific lists of unregulated or one-off brokerages to warn newer and experienced traders. Every RB publishes the warning list on the official website.
- Go to the brokerage company’s website and the licensing data. Most brokers place information about licenses in the footer section. Look for a license number and check it on the website of the issuer. After that, you will know if the broker is indeed licensed.
- If you are still uncertain, contact a regulatory body to know more about brokers’ registration.
Therefore, brokerage companies cannot hide the absence of a license — traders may promptly bring down an errant company.
What is the way for an FX broker?
The Forex market welcomes brokers with an actual license issued by a trustworthy financial regulator. Analyze the list of countries, register a company there, provide all the necessary documentation, and get a license. If you have a permit in a jurisdiction with proper regulation, you can make your first step to success.
That is why it’s essential to learn more about Forex broker regulation limiting. What does it mean for business founders? Licenses may have some limitations. For example, the Cypriot or Maltese license allows providing services only throughout the EU. An Australian license has more power, but the brokerage company will not operate in the United States. A regulated broker can undoubtedly get several types of licenses if they plan to provide global services.
For instance, brokerage companies can receive a license in a jurisdiction without special requirements (e.g., Seychelles or Belize). If they are ready to pass the next level, they can get an Estonian or Australian license. The final step is getting the license from The United States Securities and Exchange Commission. It’s complicated to receive, but this type of license allows brokers to reach the audience in the US.
How can experts help in following the regulation demands?
The business founders focus on technological aspects when it comes to entering the Forex market. However, the vast majority of countries tighten legal requirements; this is why brokerage companies need to dive deep into every letter of the law. If they don’t have enough time, they discuss all steps with competent lawyers.
Meanwhile, companies that have chosen the White Label trading platform start their Forex career smoothly. B2Broker offers to select the White Label Forex solution or get a ready-made brokerage company that follows all legal norms and demands in a specific country. Our specialists have years of experience in Forex regulation. Coupled with first-class trading solutions, it creates a unique experience for newcomer brokers that strive to reach the mountain!
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