The foreign exchange market is the world’s most liquid and largest financial market. As a result of its accessibility and substantial size, regulating this market presents a plethora of challenges – after all, how do we possibly go about supervising a digital market that is open all across the globe, 24 hours a day? As such, no centralised body exists that governs the currency trading market. Instead, numerous governmental and independent bodies all around the world regulate it.
Due to this, for those entering the Forex market as novice traders, familiarising with its individual rules and regulations is not always straightforward – usually, the laws will differ based on the country the individual is trading within. This blog will discuss the regulation of the Forex market and Forex brokers that will assist you throughout your trading career.
Forex market regulation
Because of the global scale of the currency market, there isn’t any international firm that is able to effectively and regularly monitor Forex trading – instead, different countries have distinct authorities set up to safeguard traders on a more local scale.
The main financial regulatory body in the UK is the consumer watchdog agency – the FCA (or Financial Conduct Authority), which is funded by every company that supplies financial services in the UK – including Forex brokers in the UK. The FCA is tasked with licensing and regulating UK entities and closely works with the Bank of England that make sure that every Forex broker is creating and promoting a healthy trading environment in which they act in the traders’ best interests.
Forex broker regulations
Due to its authority in every UK financial market, the FCA takes complete responsibility for protecting customs from corrupt and, at times, immoral Forex brokers. Consequently, every best UK broker is defined as being regulated in the UK and has been named so with the seal of approval by the FCA. They are also obligated to follow their guidelines due to this. If they are unable to offer evidence that they are doing so, the FCA practices the right to revoke their license and impose disciplinary measures against the organisation in question.
Therefore, for new traders entering the currency market for the very first time, it is important that they select a licensed broker that has been approved by the FCA, in contrast to unregulated offshore Forex brokers. This will make sure your money is safeguarded in the event of bankruptcy, fraud, or liquidation. When searching for a regulated broker, ensuring that you check the regulatory status of the company in the Financial Services Register.
Benefits of trading in a regulated market
Forex brokers regulated by the FCA provide currency traders with a peace of mind that their capital is safeguarded on their platform, due to licensed brokers having to offer evidence regularly to the regulatory body to demonstrate that company funds and client funds remain segregated every time. Moreover, the FCA ensure that caps on leverage are implemented to limit the potential loss of a trader if markets happen to move in the opposite direction suddenly.
Besides the above, in an instance where you need to transfer your funds and close your account, licensed brokers are sure to provide straightforward service and will happily assist you in ensuring your funds are securely transferred. What’s more? In case of a problem, you will be compensated and protected by the official governing body for up to £50,000, courtesy of the FSCS (or Financial Services Compensation Scheme) – permitting you to rest assured that your investments are safe.