The forex markets run busy with a $5 trillion exchanging hands in daily trade. The markets cost very little fees to conduct trade and offer the availability of a multitude of buyers and sellers, so to say, it is liquid. In a liquid market, it is easy to actualize a trade quickly at the desired price because of countless choices in buyers and sellers, and also, the products are standardized and have a high demand. In a liquid market, the spread is minimal between the prices quoted by the buyers who wish to pay and what the sellers offer. But having the right broker can make the right decisions for you is important. Aspects as spreads, commission rates, leverage options, and historical performance are all part of choosing the right broker. It is, therefore, more important to go with a regulated broker than an unregulated for the following reasons. It is not that the unregulated brokers are untrustworthy or completely dishonest, but the risks of working with one may be catastrophic. The Forex world is liquid, but there are also a lot of scams in the forex world. So in case of fraud, with an unregulated broker, there may be almost no chances of an alternative.
The local regulatory body monitors the financial activities of regulated brokers. The main role of a regulatory body is to be a watchdog in the financial market to prevent any fraudulent activities from culminating. They also monitor the excessive risk in the market and generate awareness amongst the consumers.
The regulated brokers conduct trading activities and operations as per the guidelines, policies, industrial standards specified by the local regulatory body. They are subjected to audits from controlling authorities.
If the regulated broker does not follow the guidelines set by the regulator, then the agency can take legal action and may even lead to license invalidation.
Benefits of Regulated Brokers
These are a multitude of benefits that the trader enjoys in using the services of a regulated broker. These benefits include:
1. Transparency in trading processes
As per FXDailyReport.com, the traders benefit from regulated brokers as their practice is honest and transparent. This requirement by the law works in favor of the client without manipulating them. It is part of the requirement to submit financial reports periodically to the regulatory body. If they don’t adhere to the rules, their membership can be terminated. Also, the traders are informed of this activity. So it is important to check the reputation of your broker, the license is valid or not, with the regulatory body.
Most of the brokers are registered with government financial institutions – the FSA, CFTC, NFA, and FSP.
2 Trader funds security
The Regulated forex brokers are bound by the law that they cannot mix the investor’s fund with their firms’ funds. The broker should keep a separate account for the client’s money, and it cannot be used to finance their own requirements.
This means that the broker should have a separate account to keep its clients’ money. At no point can it use these funds to finance their own needs.
3. The remedy in case of a dispute
When an issue arises, then you cannot contact the unregulated brokers. But in the case of Regulated brokers, it is mandatory to keep a functioning support desk, email, telephone number, and a real person to assist.
4. Protection from fraudulent
The licensed and regulated brokers cannot take the risk of fraud malpractices, which may affect their position in the market as a trader. The Regulated brokers cannot engage in activities such as meddling with the trading platform, price manipulation, opening positions that work against their client, withholding client’s money, or may result in a ban from industry permanently. So traders are protected from fraudulent practices, who work with regulated brokers.
But there are still unregulated brokers in the business. They do offer something worthwhile to customers; otherwise, they could not have grown. But many stories are revolting that happen due to the abuses from these brokers.
Why do people use the services of unregulated forex brokers?
They do have their advantages. They bring larger leveraged trading to the table. Leverage in forex is the ratio of trader’s funds to that of the broker’s credit. And it does happen the way round too. Greater leverage also spells a greater risk for the trader.
In case of disaster, the customers can protect their assets if they have been wronged. But with unregulated brokers or the offshore brokers, this is not the case. Regulation plays a significant role in ensuring that forex brokers abide by rules and regulations and don’t engage in illicit practices. So it works in favor of traders to work with a Regulated Broker. So, check brokers are regulated or not before choosing for forex trading or check forex broker review for further more details.