Regulation plays a crucial role in ensuring OTC forex brokers play by the rules and don’t indulge in illegal practices. Forex trading 101 dictates that you should only trade forex on the global market through a broker who has a solid standing in the market and is someone you can trust, considering your forex broker carries out trades on your behalf and holds your money in safekeeping.
Forex trading is speculative and notoriously risky. Why increase the risk by trading through a dodgy broker?
Limit the risk in a notoriously risky market
The forex market is the largest and most actively-traded financial market in the world. The allure of “easy money” sucks hundreds of thousands of unsuspecting newbie traders into the forex fold every year, where beginner traders fall for the promise of risk-free trading, low investment and high returns.
The reality is forex trading is not that rosy. Remember, “if something sounds too good to be true, it probably is not true”. If you’re interested in trading forex, you need to go in with a full appreciation of the risks involved and ideally trade through a regulated forex broker says Gayle Webb Davies from Forextrading.africa
What a regulated broker can do for you?
A regulated broker simply means the broker is monitored and controlled by a top-tier regulatory authority. These regulatory bodies are the ‘watchdogs’ of the financial world and their primary purpose is to sniff out or prevent fraudulent activities and limit excessive risk.
There are 5 simple reasons it’s wise to trade forex on the global market through a licensed and regulated broker. Off the top of the bat, you can assume a regulated broker can be trusted but there’s more to it than that.
1. Regulated brokers offer protection from fraud
You can trust the fact that a regulated broker will not get involved in any fraudulent activities such as tampering with the trading platform, manipulating the prices, opening positions against their clients or withholding their clients’ money without a valid reason. They would face severe penalties for doing so and even a permanent ban from the industry.
2. Regulated brokers should keep your funds safe
Regulated forex brokers are compelled by law to keep client funds segregated; meaning they are not allowed to mix their own money with their investors’ money. Clients’ funds must be kept in a separate account and at no time can a brokerage use their clients’ money to finance their own financial needs.
3. Regulated brokers should be covered for bankruptcy
A regulated broker should offer their clients insurance cover in the unlikely event the firm goes bankrupt. Your broker should be covered by the likes of the FSCS in the UK or the SIPC in the USA. These schemes add another layer of protection against business failure and lost assets.
4. Regulated brokers offer transparency
When you trade forex through a regulated broker, you should enjoy a transparent and honest trading environment. Regulated brokers are compelled by law to operate in a completely transparent way, without manipulating the market in their favour. They’re also required to submit financial reports and account for any issues that may arise. Failure to do so could mean losing their operating license.
5. Regulated brokers offer recourse in the case of a dispute
Regulatory authorities offer you a real person who is able to assist you when something goes wrong with your broker. You have a telephone number, email or a living person in customer support you can speak to. If you mistakenly trade through a fly-by-night broker, you may find they simply disappear when deals go wrong.
Find a regulated broker in South Africa
Practice due diligence before registering an account with a broker who accepts South African traders. Ideally, the broker should be regulated by a top-tier authority and have a representative office in South Africa.
In South Africa, the top-tier authority is the Financial Sector Conduct Authority (FSCA). The FSCA has been responsible for regulating the non-banking financial services industry since 2018.