The importance of trading with with a regulated Forex broker
August 21, 2016
Trading with regulated brokerages should be the top priority for a forex trader looking for a broker. Forex trading is an extremely competitive industry and there are so many brokers out there that the risk of finding unregulated brokers is quite high.
The fact that a broker is regulated tells much about that business: respects industry’s standards, a financial authority steps in if the broker has problems, and much more, as regulated brokers are subject to very specific terms of operation.
Usually a broker that is regulated by a financial authority offers segregated funds, meaning the funds that are deposited by traders are not being used for other purposes.
This is a huge risk as otherwise brokers are using incoming deposits to pay for other trader’s withdrawals or to cover other expenses and just like that the business starts to look like a Ponzi scheme as these brokers are dependent on the incoming funds. If those stop pouring in at some moment of time, the broker goes insolvent and traders are subject to losing their money.
Such a situation like the one mentioned above is simply not possible with regulated brokers and traders can focus on their trading without worrying if their funds are safe. These brokers are actually partners in trading as without them retail traders cannot access the large forex market.
Despite the belief that brokers are making money extremely easy, they do not have many income sources, as commissions and spreads make the most of a broker’s income. Some brokers may advertise zero commissions or no spreads but in reality either commissions are included in spreads, or commissions are bigger than normal and spreads are flat.
Because of the stiff competition, reputation is key. A forex trader should do his/her homework before choosing to open a trading account with a broker, even though the broker’s website states that the broker is regulated.
One can send a simple email sent to the financial authority that regulates the broker to find out if indeed it is regulated or simply looking on Internet for information about the broker and what other people’s opinions and experiences are. This way, it is virtually impossible not knowing the broker’s reputation.
A regulated broker will build its business around its clients and it is more likely to have outstanding customer satisfaction as well as a customer oriented service from such a broker in comparison with one that lacks regulation.
This is important for any trader as all processes related to opening an account, funding it, making a withdrawal, proving your identity, and so on, are being made as simple as possible and as fast as possible without having any sort of problems.
Perhaps the most relevant thing when it comes to the importance of trading with a regulated forex broker comes from the very nature of this trading business: managing risk. If a trader is managing the risk of growing an account, who manages the risk for the broker to go bust?
Here comes the financial authority and in a way trading with a regulated broker is like having an insurance that you’ll still have access to your trading funds if the broker happens to go broke or something.
The decision to choose a forex broker should only come at the end of a due diligence process and if this process is correctly done, then regulation is a must.