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Forex and CFD trading can be a lucrative income stream if executed efficiently, but there are many things one needs to understand before delving into this industry. One of the major considerations when choosing the right broker is to understand the regulations that govern them. Different brokers will operate under different regulations – each of which changes how these brokers operate with your money.
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Regulation
Each country has different Forex regulations. Regulatory bodies have their own regulatory requirements and area of jurisdictions that apply to brokers. The way in which these regulations are enforced also differ from country to country. Some of the most well known regulatory bodies include: the Financial Conducts Authority (FCA) in the United Kingdon, the Cyprus Securities and Exchange Commission (CySEC) in Cyprus, the Australian Securities and Investments Commission (ASIC) and the FSCA in South Africa. This is only a small list from a much larger list of regulatory bodies that traders should be aware of. In addition to regulators, bodies established by national governments, such as the Markets in Financial Instruments Directive (MiFID), ensure harmonized regulation for investment services for all member states in the European Union.
Whilst each region has different regulatory requirements, there are a few commonalities that are imposed by all regulatory agencies. These include the requirements for brokers to hold sufficient liquidity to meet all contractual obligations, hold clients funds in separate accounts, submit regular audits and adhere to capped leverage ratios at a certain limit.
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