Why should we regulate forex?

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Why should we regulate forex?

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It is important to regulate forex because the amount of money that passes through the market every day makes it very attractive for all sorts of scammers and white-collar criminals to pervade the marketplace. Many of these criminals have found that the easiest way to con would-be traders and active traders is by forming brokerage companies, taking in money from traders and finding ways to run off with it. They run their scam operations by faking their regulatory status, cloning websites of genuine brokers and even going to great lengths to use the entire trading process against their clients.

In order to ensure that only those qualified to do forex brokerage business are actually the ones allowed to take in money from clients, forex regulators have instituted various means of ensuring that clients are not robbed in plain sight by any fly-by-night operators.

The job of forex regulators can be listed as follows:

  • Licensing and supervision of brokers: The process of licensing is stringent and usually involves ensuring that only people with certain industry qualifications are allowed to hold top positions in these forex brokerages.
  • Ensuring brokers comply with the segregation of traders’ funds: Segregation is a practice where funds belonging to traders are kept in a bank account that is separate from the operational accounts of the broker.
  • Ensuring compliance with reporting standards: Forex brokers are required to submit periodic reports of their activities as well as certain trade data of their clients for scrutiny and monitoring by forex regulatory bodies.
  • Enforcement of sanctions in case of market infractions: Where there are clear cases of fraudulent practices, forex regulatory bodies are empowered by law to carry out a range of enforcement activity against errant brokers.

The essence of regulation in the forex markets is to preserve the sanctity of the markets and boost investor confidence by ensuring a level playing field for all participants. The need for forex regulation is reinforced by the fact that the brokers that provide liquidity for retail traders, take opposite positions to the trades of their clients. In such instances, forex regulators must ensure that the traders are not deliberately subjected to conditions that will tilt the market against them.

So, what is forex regulation?

Forex regulation is therefore all about consumer protection. Regulated forex brokers are less likely to cheat their clients and where such infractions happen, regulators are empowered by the laws of their respective jurisdictions to apply appropriate sanctions.

Reprinted from forexbonuses, the copyright all reserved by the original author.

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