The role of regulation in onli

The role of regulation in online currency trading

With an average of $5.3 billion being traded every single day on the Forex exchange market, it is without a doubt the biggest global financial market today.

The role of regulation in onli

Day trading is a common practice among currency traders on this platform. However, most investors rely on setting up personal trading accounts and performing their trades through online brokers, like ECN or STP forex brokers. This brings us to the question; As a trader, what factors do you consider when choosing the best Forex broker?

While spreads and swap rates are an essential factor, without a regulatory body, all your hard earned cash may just go down the drain. Forex regulation is the most important aspect when trying to find the best FX broker to trade with. Forex regulatory bodies act as watchdogs that help to keep broker firms accountable as well as protect traders’ funds from scoundrel brokerages.

What is the role of Forex regulation?

The role of Forex regulation is to guarantee fair, ethical business behaviour. According to the current regulatory contracts, FX brokers, signal sellers, and investment banks are expected to operate in strict obedience of the standards and regulations provided by the regulators or their businesses will be deemed illegal.

These bodies should be registered and licensed in the country of operation to ensure quality control measures are met. The regulated brokerage houses are open to periodic evaluations, reviews, and audits which ensure they maintain all the industry standards. What’s more, they are also expected to keep an adequate amount of money to perform and complete FX contracts and to return their client’s funds intact in the event they file for bankruptcy.

The process of regulation is normally a long and difficult one and may take a while before it is completed. That is why some brokers choose not to bother themselves with undertaking it. The one thing that makes the entire process demanding is because the regulatory environment is not the same in all locations. Different regions have their own set of rules and legislation that correspond to the regulation of financial services in the specific country.

Here are some of the top regulators

Australian Securities and Investment Commission (ASIC)

This is a fairly new but respected regulator that has been operating since 2006. Although these regulators do not have the same compensation scheme, their criteria for being able to get a license is quite stringent. This regulatory body oversees customer credits, all financial services and the FX market in Australia. They are also strict on new traders. For a new trader to open an account with an ASIC regulated broker, they need to take a test before they can open an account.

Financial Conduct Authority (FCA)

About three-quarters of all FX are traded in through the UK. Their regulatory bodies have been around much longer compared to others. FCA provides the FSCS, which guarantees up to 50K GBP for any trader with an account with an FCA regulated broker. Basically, this means that even if a broker goes under, the trader is still able to claim up to 50K back.


These are German and French regulators with a good record. Traders located in France shouldn’t be worried about regulators.


These US regulators require all online and Forex brokers to be registered and meet strict guidelines with regards to finance. Their goal is to stop any company with inadequate resources to become brokers. The unique nature of the US brokers is that all their dealings have to be transparent from amounts of accounts to profitability.


Currently, Russia and other CIS countries do not have a regulatory body overseeing the counter financial services like CFD Trading and Spot FX. The Russian Association of Financial Markets is a self-regulatory that was set up to protect the FX traders dealing with unregulated brokers. However, the Russian government is working towards regulating the provisions of CFD trading and retail Forex in the country.


Israeli’s ISA (Israeli Securities Authority) introduced new regulatory stipulations to tighten reporting, limit leverage, provide transparency among other conditions. The new regulations that were recently introduced helped to bring Israeli regulations in line with the regulatory definitions elsewhere in the world.


Turkey’s regulatory body CMB (Capital Markets Board) or SPK (Sermaye Piyasasi Kurulu) in Turkish is a strict regulatory body that has seen only a few brokers from the country meet its criteria and receive permission to operate in Turkey.

The bottom line

One of the first things that you should always look out for when choosing the best forex broker is the regulatory body that they operate under. Once they meet this criterion, you can move on to other aspects such as spread, swap and execution type.