Should you Choose a Regulated or Non Regulated Broker?

Should you Choose a Regulated or Non Regulated Broker?

Sep 19 • Forex Broker, Forex Trading Articles • 2966 Views • 1 Comment on Should you Choose a Regulated or Non Regulated Broker?

Since the Dood-Frank Act took effect in October, 2010, a raging discussion ensued about its benefits and disadvantages to the retail forex industry in the U.S. which up to this time has divided the sentiments of individual forex investors. In the light of the said regulatory measures, even the best forex brokers operating on U.S. soil (and online) must be registered with the Commodity Futures Trading Commission and must comply with certain capital and reporting requirements.

The act placed the supervision of the best forex brokers operating in the U.S. under the regulatory powers of CFTC which promptly limited the allowable leverage that can be offered by a broker to 50:1. This has created a continuing uproar among individual retail forex investors who threatened to place their investments in the hands of foreign based brokers who continue to offer bigger leverages.

If you will recall, one of the best attraction of foreign currency trading is high leverage and naturally retail forex traders won’t be happy with cutting it down or limiting it. The move by CFTC is however a preventive measure since the high rate of negative returns experienced by a growing number of individual investors is, according to the agency, tied up with high leverage in trading.

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A lot of traders are actually missing the point here. The name of the game is regulations. From its inception dating back to more than 50 centuries ago since currency exchange became a necessary tool for international trade, the foreign currency trading is a largely self-regulated industry, built and founded on unwritten ‘gentlemen’s agreement’ among bankers and money brokers. It continues to be so today. But as the volume of transactions grew through the years resulting from the continued growth of international trade and as more sophisticated communication systems and the internet allowed individual investors to participate in the forex trade, the forex market also opened its doors to unscrupulous money brokers who stained the retail forex industry with their scams and get rich quick schemes.

These unscrupulous brokers still exist up to this day. Like vultures, they are ready to sweep down and feed on the unsuspecting investors. It is because of the widespread misery they brought to innocent investors that regulatory measures became necessary. New technology is making it easier for scammers and fraudulent brokers coming from every corner of the world to set up online shops and prey on the growing number of individuals attracted to forex trading.

The issue actually boils down to whether retail forex trading must be regulated or not which extends further to – should we deal with a regulated forex broker or a non-regulated forex broker. However stringent forex trading regulations may be, the bottom line is it will be to the advantage of individual investors to patronize the services of regulated forex brokers. The regulatory body and the regulation it puts in place acts as a safety net for investors. Just count the millions of dollars that Americans have lost to unregulated forex brokers most of which are foreign based and you will see the logic behind the Dood-Frank Act and at the same time appreciate the fact that you can sleep better knowing who to run to in case a broker pulls a fast one on you. The verdict? The best forex brokers to deal with are the regulated brokers.

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