7 Oct, 2019 @ 11:03
3 mins read

Forex Regulation – what does it mean for brokers, IBs and strategy providers?



As it is legally defined, regulation is a rule of order having the force of law, prescribed by a superior or competent authority, relating to the actions of those under the authority’s control.

Find out more about Forex regulation and why choosing a regulated brokerage service is important and can have a significant impact on your trades.

Regulation in the Forex Market

The Foreign Exchange Market, commonly known as FX, or simply Forex – is the biggest and most liquid market in the entire world – with a daily trading volume of around US $5.3 billion. The market is active 24/7, but there is no centralized regulatory body to conduct and supervise the activity of all online forex brokers at all times. Ever since the internet was introduced, hundreds of forex brokerage websites started to appear on a daily basis, which made this industry very competitive, but extremely risky, too.

Regulation in the Forex Market is the one that ensures fair and ethical business behavior; and requires brokers to operate in strict compliance with its rules and standards. It is safe to say that being regulated is now a criterion for traders when choosing an online forex brokerage provider. Before you start forex trading and open an account with an online forex broker – the first thing you need to do is check if it is regulated!

What does regulation mean for brokers?

Forex brokers that voluntarily apply to be under the strict supervision of a regulatory body are considered the most professional and safe. That’s because when they do not comply with the guidelines, the regulatory agency is entitled to use enforcement powers – criminal, civil and regulatory; to protect consumers and to take action against the brokerage firms. When they are regulated, brokers should be transparent and make their license number visible on their website.

For instance, TradeFW.com is an excellent example, as the firm states on its homepage that it is licensed and regulated by CySEC; and it is also MiFID compliant. This broker is ideal and comes with great benefits for both beginner and professional traders.

As we mentioned, there is no single regulatory body – so Forex regulators operate within their own jurisdictions. Here are some of the governmental and independent bodies that supervise forex trading around the world:

  • United States: The National Futures Association (NFA), Commodities Futures Trading Commission (CFTC).
  • United Kingdom: Financial Conduct Authority (FCA)
  • Cyprus: Cyprus Securities and Exchange Commission (CySEC).
  • Australia: The Australian Securities and Investments Commission (ASIC)
  • Japan: The Financial Services Agency (FSA)
  • Canada: The Investment Industry Regulatory Organization of Canada (IIROC)
  • Cayman Islands: Cayman Islands Monetary Authority (CIMA)
  • Hong Kong: The Securities and Futures Commission (SFC)
  • Singapore: The Monetary Authority of Singapore (MAS).

Licensed and regulated brokers need to comply with the strict requirements of their regulatory agency, requirements that include undergoing regular audits, communicating changes of service and being transparent to their clients, and more. In addition, certain brokers, like TradeFW, believe that it is also important to be a member of a professional and governmental body, such as Markets in Financial Instruments Directive (MiFID).

This regulatory body is more like a European Union law with the purpose of providing harmonized regulation for investment services across the 30 Member States of the European Economic Area and the Investor Compensation Company Limited (ICC), a subsidiary of the Securities and Futures Commission.

What does regulation mean for Introducing Brokers?

Introducing Brokers (IBs) perform on the futures markets (auction markets) and while they have a direct communication with the customers, they assign the work of the floor operation and the execution of the trades to another futures merchant, usually a Futures Commission Merchant (FCM). IBs charge you with a fee or commission which are upon agreed between the two of you – the broker and the customer.

Regulation plays the same role for Introducing Brokers and it has the same effect, the only difference is that these types of brokers have different regulatory bodies. They are typically registered with the Commodity Futures Trading Commission (CFTC) and regulated by the National Futures Association (NFA).

What does regulation mean for Strategy Providers?

Strategy Providers are the ones that provide you with trading strategies and require a fee/commission in exchange. Forex brokers can also provide you this service, but it is often part of an account feature. Why is regulation important in this case? Same reason, you are paying for it and you need to make sure you are not putting your capital at risk.


Regulation is extremely important in Forex trading and it tells you whether you should trust an online brokerage firm or not. Both novice and professional traders should be aware of the risk they are exposing to when trading with an unlicensed broker. You can easily avoid losing your capital to a scam by finding a broker which has the name of the Forex regulator transparently listed somewhere on the website.

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