Best Regulated Forex Brokers 2018
It is extremely important to only trade with regulated brokers. But not all regulated brokers are created equal. It’s hard to find a good Forex broker to work with, especially as you don’t have the option to visit the companies in person. That’s why here at FXEmpire we have done all the research for you so you don’t need to worry about finding a good broker, that leaves you to focus on trading well.
What is a Forex Regulation?
The foreign exchange market or forex market is the largest example of a free market at work. It turns over on a daily basis more than 4 trillion dollars worth of transactions. However despite the amount of money that flows through the forex market, it is an OTC (Over the Counter) market and is unregulated. Trading in the forex market is decentralized and there is no central exchange that is specially geared towards the handling of forex transactions. Even with the decentralized and unregulated nature of the forex market, trading on an institutional basis poses no problems due to the fact that the parties involved such as banks trust each other.
However as forex trading becomes more accessible and popular among retail traders, the forex markets has started to become more prone to fraud. In order to curb fraudulent activities in the forex markets, many countries are beginning to regulate forex trading activities by requiring forex brokers to be regulated by regulatory agencies such as the UK’s Financial Conduct Authority and the National Futures Association in the U.S. Within their respective jurisdictions, these regulatory agencies act as the watchdog for traders dealing with forex brokers operating under their jurisdictions.
Why should you pick a regulated forex broker?
Given the fact that the forex market is decentralized and unregulated, you might be asking why you should only choose to work with regulated forex brokers. It is important to bear in mind that regulations exist in a market to ensure that the parties involved in a transaction conduct their business in a fair and ethical manner. By requiring forex brokers, banks, institutional investors and support industries to operate within a set of rules as defined by the forex regulatory agencies, traders and investors can have the confidence to invest in the forex market and this promotes the growth of the industry.
Normally as part of the regulatory process, a forex broker must be registered and licensed by the regulatory agency that is in charge of regulating forex trading activities in the country that they are operating in. Apart from the need to be licensed, regulated forex brokers are also required to submit regular audits in order to ensure that they meet the regulatory requirements and industry standard. For example, most forex regulatory agencies will require that the broker hold sufficient liquid capital that will enable them to execute and complete the forex contracts initiated by their clients. In addition, the broker must also be able to return all its clients’ money in the event it becomes insolvent.
Major Regulatory Bodies
Forex regulations differ from country to country. For each regulatory agency, they have their own specific regulatory requirements and their area of jurisdictions. Enforcement policies also vary from region to region. Normally for major financial centers such as London or New York, the regulatory agencies in charge are stricter in their enforcement of breaches of regulatory requirements due to the need to protect the reputational integrity of the financial industry for that region. Nevertheless, below are some of the major regulatory bodies which every forex trader should be aware about:
- Australia: Australian Securities and Investment Commission (ASIC)
- British Columbia Securities Commission
- Ontario Securities Commission
- Investment Industry Regulatory Organization of Canada (IIROC)
- Cyprus: Cyprus Securities Exchange Commission (CySEC)
- Denmark: Danish FSA
- France:Banque de France Autorité de Contrôle Prudentiel (ACP)
- Germany: Bundeszentrale für Finanzdienstleistungsaufsicht (Bafin)
- Hong Kong SAR: Securities and Futures Commission
- Indonesia: Badan Pengawas Perdagangan Berjangka Komoditi
- Italy: Commissione Nazionale per le Società e la Borsa
- Financial Services Agency,
- Japan Investor Protection Fund
- The Financial Futures Association of Japan
- Japan Securities Dealers Association
- Kanto Local Finance Bureau
- Russia: The Commission on Regulation of Financial Markets Participants Relationships
- Licensed clearing member of the Singapore Exchange
- Monetary Authority of Singapore
- Spain: Comisión Nacional del Mercado de Valores
- Sweden: Swedish Financial Supervisory Authority (Finansinspektionen)
- Groupement Suisse des Conseils en Gestion Indépendants
- Association Romande des intermediares financiers
- Swiss Federal Department of Finance
- Organisme d’autorégulation fondé par le GSCGI
- Commission fédérale des banques
- Swiss Financial Market Supervisory Authority (FINMA)
- Turkey: Capital Markets Board of Turkey (CMB)
- United Arab Emirates: Dubai Multi Commodities Centre
- United Kingdom: Financial Services Authority
- United States:
- Financial Industry Regulatory Authority, Inc.
- New York Stock Exchange
- Office of the Comptroller of the Currency
- Securities and Exchanges Commission
- Commodities and Futures Trading Commission
- National Futures Association
It should be noted that member states in the European Union (EU) share a common regulatory framework under the Markets in Financial Instruments Directive (MiFID) passed by the European Parliament. The objective of the directive was to harmonize the regulation of financial services providers operating within the European Economic Area (EEA). This means an EEA authorized forex broker will be able to “passport” its services legally to another member state through the authorization obtained from its home country. For example, a CySEC regulated forex broker is permitted to operate in the UK by “passporting” its CySEC license to the UK’s FCA.
How can regulations protect you?
Regulations play a huge role in protecting the traders/investors interest as they compel the financial service providers such as forex brokers to act in a fair and ethical manner.
- For example a major requirement of the regulator is for the segregation of funds. Brokers must maintain segregated accounts for their clients’ fund and their own operational funds in order to prevent possible abuse by the broker. In addition should a broker become bankrupt, its creditors are not allowed to tap into the broker’s clients fund as settlement of the broker’s debt.
- Another important regulatory requirement imposed by the regulatory agencies is the requirement that forex brokers warn their potential clients of the high risk involved in forex trading. This rule was put in place to forewarn traders that they face a possibility of losing all their investments due to the risks involved.
- Related to the above requirement is the need for brokers to categorize their clients as retail investors or professional investors. This is due to the fact that professional investors are regarded as experienced traders and are well versed with the risks involved in trading forex. As such, brokers have to take additional efforts to educate their retail clients of the nature of risks involved with forex trading.
- Another way which regulations protect retail traders is the leverage which forex brokers are permitted to offer to their clients. Forex brokers in the U.S are only permitted by the NFA to offer their clients a maximum of 1:50 leverage ratio.
- Regulators provide a level of protection to the investors by guaranteeing a certain amount of compensation should the broker become insolvent. For instance CySEC provides compensation to the tune of 20,000 EUR for deposits lost.
Guidelines to regulated brokers
As mentioned earlier, the regulatory requirements for forex brokers vary from region to region. Nevertheless, although the specific details of the regulatory requirements may vary from region to region, there are some commonalities with all the regulations imposed by the various regulatory agencies:
- Brokers are required to maintain sufficient liquidity to meet all contractual obligations.
- Brokers are required to maintain segregated accounts.
- Brokers are required to submit regular audits to verify their compliance on their capital adequacy ratio.
- Leverage ratios are capped to a certain limit.
There is no doubt that investors benefit from working with a regulated broker as opposed to an unregulated broker. To help investors verify the regulatory status of a broker, most regulatory agencies maintain an online database which investors can access in order to verify whether a broker is truly regulated by the specific agency.
We have researched deeply into the very best regulated brokers in the market and can save you the trouble of searching for yourself. Here is our list of the best-regulated Forex brokers in 2017, with a view to their reliability, technology, service standards and ancillary products.
- New Zealand
- South Africa
- South Korea
- Hong Kong
- United Arab Emirates
- Russian Federation
List of Brokers
|BROKER||USER RATING||REGULATED BY||HEADQUARTERS||MIN. DEPOSIT||OFFICIAL SITE|
|ASiC, CySEC, FCA||Israel||$100||Open Account|
80.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money
|ASiC, BVI, FSA(JP), FSB, MiFID||Ireland||$100||Open Account|
Your capital is at risk
|CySEC, FCA||Cyprus||$50||Open Account|
Your capital is at risk
|CySEC, FSB||Cyprus||$100||Open Account|
CFDs carry risk. 73% of traders lose
|BaFin, FCA||United Kingdom||$50||Open Account|
Your capital is at risk