Forex Market Regulations – Key Points To Consider When Trading Forex

by FX EA Review
Forex Market Regulations – Key Points To Consider When Trading Forex

The forex market is a risky and highly liquid multi-trillion-dollar industry. It has many players scattered all over the world, from analysts to brokers, investors, and traders. Due to the high risk of loss and the huge amounts of capital involved, service providers in this industry need to be overseen so as to protect their customers’ interests. 

As it is, there is no single entity that regulates all forex brokers globally. However, there are institutions in every country that are mandated with forex regulation, with some operating across borders. In this article, we will explore different regulators and the requirements they impose on service providers in their jurisdiction.

What regulation means

Forex regulation is the act of imposing restrictions on forex brokers in the industry so as to ensure they operate ethically and with transparency. Regulation is aimed at promoting fairness and protecting investors from fraud. 

Unregulated forex brokers can engage in unethical practices to make profits in the market, sometimes even bordering on the illegal. Since such brokers answer to no higher authority, they could even engage in unscrupulous deals to swindle the clients of their funds. Once this happens, the client does not even have the legal grounds to sue them.

Regulation of the forex market ensures that brokers adhere to ethical business dealings, act in their clients’ best interests and offer them some level of financial protection. For this reason, when selecting a forex broker, you should make sure that they have the proper license from their region of operation. Further, it is important to know which statutory body regulates them, as different regulators have different requirements for their brokers.

Statutory requirements by region


There are several regulators in Europe. The most popular country for forex brokers to set up headquarters in this region is Cyprus. This is because of its solid but flexible regulatory environment. The Cyprus Securities and Exchange Commission (CySEC) requires licensed brokers in the country to satisfy the following conditions.

  • Have an initial share capital of above 200,000 euro.
  • Have a minimum of 750,000 euro in operating capital.
  • Provide annual audit reports from reputable external auditors and financial statements.
  • Protect their customer’s capital by holding them in separate accounts. They must also use tier 1 banks and liquidity providers.
  • According to the Investor Compensation Fund, if a brokerage goes bankrupt, every one of their investors should recover at least 20,000 euros.

The statutory body that oversees brokers in the EU zone is the Markets in Financial Instruments Directive (MiFID). 

As of 2007, every broker with a MiFID license must:

  • Classify their traders as either retail or professional investors, and inform them of the risks involved.
  • Clearly showcase their fees and charges.
  • Act with complete honesty with their clients. 

The UK

London is the world’s forex trading capital. It handles around 37% of all forex trades in the world. All brokers need to be licensed by the Financial Conduct Authority (FCA) to avert fraud and general malpractice by brokers.

Every licensed broker must satisfy the following requirements:

  • They must have a minimum of a million euros in operating capital.
  • They must submit annual audit reports and financial statements.
  • They must uphold the Financial Services Compensation Scheme (FSCS). This compels them on insolvency to pay their clients up to 85,000 euros.

The US

Here, the National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC) are responsible for protecting investors in the forex market. For example, the CFTC limits leverage to 1:50 for major pairs and 1:20 for minors. Additionally, a broker licensed with the NFA and CFTC must fulfill these requirements:

  • They must be transparent in all their dealings.
  • They must present their audit reports and financial statements, which are then made public on the NFA website.
  • They must abide by the first-in, first-out rule.
  • They must never trade against their clients.
  • They may never authorize their clients to practice hedging.
  • They must segregate their clients’ funds into different accounts.
  • They must hold a minimum operating capital of $20 million.


The regulating entity in Australia is the Australian Securities and Investment Commission (ASIC). This commission grants Australian Financial Services (AFS) licenses to regulated brokers. To be a holder of this license, a broker has to:

  • Have operating capital exceeding a million AUD.
  • Maintain absolute transparency in their financial activities, including submitting regular audit reports.
  • Have a physical office in Australia.
  • Have their accounts in tier 1 banks and have segregated accounts for their client funds.

South Africa

Regulation in South Africa is mandated by the Financial Sector Conduct Authority (FSCA). Their main function is to maintain a secure and honest trading environment while protecting investors from fraud. Created in 2018, it is a fairly new statutory body. Its predecessor was the Financial Service Board (FSB).

Factors to consider when choosing brokers

First off, we have seen the importance of choosing a licensed broker to invest your funds with. If you’re in Europe, for example, you can check whether your intended broker is listed as an EU-regulated broker. This information is usually posted on the European Securities and Markets Authority (ESMA)’s website. 

The ESMA also publishes a list of brokers who provide brokerage services illegally. Also, the Internal Organization of Securities Commissions (IOSCO) website posts scammer alerts from members on its investor alerts portal. 

Another life hack is when choosing a service provider is that a broker that’s licensed in one region is good, but if they’re licensed in several regions, they’re even more credible. 


The forex market is a multi-trillion dollar industry. For every honest trader looking to make a profit, there’s a scammer looking to benefit off of people’s ignorance. For this reason, several governmental and independent bodies regulate the forex service providers in their regions. This protects the investors from fraud and ensures that all brokers engage in ethical activities. Before choosing a forex broker, you need to make sure that the relevant statutory body licenses them. The more jurisdictions they’re licensed in, the better for you as a customer.  

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