Forex brokers are subject to a number of rules that are established by the regulatory bodies that govern them. Among other rules, brokers are required to warn traders about the risks involved in opening a trading account. Regulators can also limit the leverage that is allowed and require brokers to separate client funds in segregated accounts.
The protection and the solutions that are offered to traders in the event of a dispute vary between countries and regulators. It is therefore strongly recommended that traders and foreign exchange dealers open an account with a broker that is regulated in their country. Forex is an unregulated OTC market, the regulatory authorities therefore allow traders to have legal recourse in the event of a dispute with a broker.
It is also necessary that you be able to distinguish between a licensed broker and a broker that is regulated by an agency. A licensed broker has obtained authorization to offer its services in a country, while the regulated broker must submit to the rules established by the regulator.
Before you open a trading account, it is essential that you verify that the broker is licensed and regulated by a credible government agency. For example, in England you would visit the FCA's website; in France, the ACPR (Banque de France) website. Each regulatory agency monitors the practices of brokerage firms, ensuring that all rules are strictly followed. It is also best to choose a broker that has a branch in your country.
The Financial Conduct Authority (FCA) is by far the most strict financial regulator in the world. The agency operates independently of the country's government and is funded by the fees it receives from the banks and brokers that it oversees. With this in mind, the FCA currently supervises the conduct of over 59,000 financial firms. These companies employ over 1.9 million professionals and inject over £66 billion into the local economy thanks to tax revenues.
In Ireland, forex trading is overseen and regulated by the CBFSAI. Banks and brokerage firms that offer services to Irish traders must be licenced by Ireland's Central Bank, or by the national regulatory body of another EU member state.
The Canadian financial market is splint into different jurisdictions that impose different regulations via multiple regulatory agencies. The principal regulator of the foreign exchange market in Canada is the Investment Industry Regulatory Organisation of Canada (IIROC - or OCRCVM for Francophone traders). It is a non-profit self-regulatory entity that oversees all forex brokers and the services they provide to traders. It is part of the Canadian Securities Administrators (CSA).
There are currently 2 regulatory bodies in charge of supervising the U.S. currency exchange market: the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). A forex broker that wants to offer forex trading services to American citizens is required to be CFTC-registered and have NFA membership.
Forex brokers that serve Australian traders are subject to the supervision of the Australian Securities and Investments Commission (ASIC), known for its strict rules. The ASIC was established in late 1998. It operates in compliance with the provisions of the Australian Securities and Investment Commission Act of 2001.
Qatar's financial industry is supervised by several regulatory entities, the Central Bank of Qatar (CBQ), the Qatar Financial Markets Authority (QFMA) and the Qatar Financial Futures Regulatory Authority (QFCRA). They are each responsible for the supervision of Qatari forex brokerage firms, banks, insurance companies and stock exchange companies.
The UAE's central bank regulates all intermediaries that deal in stock, commodity, bond, index and currency trading. The Securities and Commodities Authority (SCA), on the other hand, issues licenses to forex brokers. It also determines market rules and provides Sharia-compliant guidelines and codes of conduct.
There are several regulatory entities in Kuwait responsible for the supervision and regulation of the country's financial sector and trading activities. Brokers who market their services there are approved and regulated by the Ministry of Trade and Industry. The main regulator, however, is the Central Bank of Kuwait.
South Africa's financial industry is regulated by two independent entities. The conduct of forex brokers operating there is supervised by the Financial Sector Conduct Authority of South Africa (FSCA). The FSCA oversees companies that market financial products and services to traders. As for South Africa's Prudential Authority (PA), it regulates non-banking financial institutions.
Switzerland: Swiss Financial Market Supervisory Authority (FINMA)
Switzerland's main regulatory agency is the Swiss Financial Market Supervisory Authority (FINMA), a government body that is institutionally, functionally and financially independent of the federal finance department. Based in Berne, it reports directly to the Swiss parliament.
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Forex trading in Russia is regulated by the nation's central bank. It monitors the country's financial sector and ensures that all market participants comply with local regulations. Also, the FMRRC (Financial Market Relations Regulatory Center) oversees the quality of services offered by forex brokers there.
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France: Autorité Des Marchés Financiers (AMF)
The main regulatory body overseeing the foreign currency exchange market in France is the Autorité des Marchés Financiers (AMF). This independent agency was created following the adoption of the Financial Security Act, which went into effect in 2003. Forex brokers that violate the nation's regulatory directives and market to French traders without the AMF's approval are typically added to a blacklist.
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In order to legally operate in Germany, forex and CFD brokers must obtain a license from the local regulatory body: the BaFin (Federal Financial Supervisory Authority). They can also elect to be licensed in another jurisdiction, provided that this jurisdiction is within the European Economic Area, as permitted by the MiFID's Markets in Financial Instruments Directive 2004/39/EC.
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To legally conduct business in India, forex brokers must be licensed and have authorisation from the SEBI. This regulatory body also restricts the types of transactions that are allowed in India, the maximum leverage and the currency pairs that can be traded. Forex trading is only allowed with pairs that include the Indian Rupee (INR).
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The State Administration of Foreign Exchange (SAFE) is the regulatory body that supervises and regulates China's forex market. Together with the People's Bank of China (PBOC), SAFE supervises the flow of currencies coming in and out of China. The two agencies are also in charge of setting exchange rates through a managed float system.
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Japan's forex trading sector is overseen by a strict regulatory body: the JFSA (Financial Services Agency). The JFSA regulates markets and licenses commercial banks, forex brokers and insurance companies. As in several other jurisdictions, locally licensed companies that don't comply with JFSA requirements are subject to penalties.
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Forex brokers must possess a license issued by the CONSOB (Commissione Nazionale per le Società e la Borsa) Italian regulatory agency to operate in Italy. However, forex brokers who are licensed in other European Economic Area (EEA) countries are also allowed to market their trading services in Italy. If they have such a licence, forex brokers simply have to register in Italy and open a local office.
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Spot forex and Contracts for Difference (CFDs) trades are legal in Greece and are monitored by the Hellenic Capital Market Commission (HCMC). As is the practice in Germany and Italy, brokers can either apply for an HCMC licence or market their services to local traders with a licence issued in another EU Member State.
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The CNV is the national regulatory body that monitors and supervises Argentina's stock markets. An independent entity run by the Ministry of Economy and Finance, it was founded in 1968. The CNV oversees all securities transactions and issues rules and regulations in connection with the equity and forex markets.
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