As you get into the business of Trading Forex, there are a lot of things that need to be considered. As most people know, the Forex market is one of the most liquid markets that exists in the world and this is good to know most especially as most traders or people who would want to get into trading, would want to profit from the volatility in the market. However, some people will tend to get lost in the forest of things due to different available brokers that will offer options and choosing the wrong ones will put your hard earned savings at high risk.
There are tons of brokers for Forex online and just like mushrooms, a lot of new ones are popping out of nowhere as we speak. Although having a lot of options can be a good thing, this however gives somewhat a difficulty for those to look into the more secure ones out there today. This can also mean that you might want to look into the perfect broker for you and might mean you will need to look into it by trying some of them out.
With the ever growing market of Forex, there are a lot of new brokers that have not been covered by regulatory bodies and will more likely get into unacceptable business practices that novice traders should stray away.
What are the Risks involved when trading with Unregulated Forex Brokers
One of the major risks that you can experience when Trading Forex with unregulated brokers is they will be able to illegally or fraudulent business activities and if such things have been done to you as a trader and you lose your money, you will not be able to recover these losses.
Thanks to the Commodity Exchange Act, Forex dealings offered in terms of leverages in the United States have been taken over by the CFTC. The Act has been able to control and allow regulated brokers to give services for Forex Transactions with potential retail traders in the country and has a mandate that all Forex brokers online should be listed and meet the financial standards that have been set by the NFA or National Futures Association. This means that there will have to be minimum funds required for these brokers to maintain in order for them to be registered as legitimate brokers.
Other Countries that have traded forex had done the same in terms of regulation but the reality is there are some brokers that still do not comply with the permits required to continue operation.
Why is Regulation for Trading Forex Important?
Why is regulating Forex Brokers very important? Of course, such systems should be put in place mainly to ensure that proper and moral business practices are maintained. All forms of regulations with banks, forex brokers and other providers are required to abide by the standards and rules that have been set by the respective regulatory body. If they do not follow, there are certain fines and penalties that are placed on these brokers and if the violations are severe, can also lead to potential closure. Most of these regulatory bodies subject brokers in inspections periodically to review their compliance with the act and if the broker follows industry guidelines and ethics.
However, bear in mind that there is still no guarantee that some regulated brokers who violated rules in set, will continue by fixing their errors or refund their clients when needed. The regulatory bodies may order an action to be done by the broker but will be possible that the broker will not be able to meet its requirement.
Also, a trader’s country’s regulatory body can take action against forex brokers who are not regulated based on illegal business activity but such mandates by the regulatory body will be limited versus actions against regulated brokers.
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