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The unfortunate reality of the Forex trading world is that some brokers seek to take advantage of traders. Brokerage fraud remains a constant fear for inexperienced traders, and even those who have experience might fall victim to a scamming broker. Here is some advice on how traders can verify a broker is regulated before doing business with them.
What is Brokerage Fraud
Brokerage fraud refers to a wide range of illegal activities committed on behalf of stockbrokers. All brokers must abide by a set of laws and regulations when working with investments and securities, and failure to comply with these laws is considered brokerage fraud.
Examples include pyramid schemes, embezzlement, crypto scams, and the infamous Ponzi scheme. This kind of white-collar crime is taken very seriously, and while many might get away with their scams because their victims don't know any better, that can change as traders become more informed on how to verify broker regulations are being complied with.
Depending on where the trader in question is in the world, different countries will have different government agencies to regulate their national brokers. These agencies put the laws in place and are responsible for licensing and verifying brokers.
To verify whether a broker is regulated, traders will have to do some research into the broker's and firm's background. Finding reviews, talking to traders who have been in the business for longer, and researching the firm's history will be a great start.
The easiest way to verify regulated Forex brokers is through their licensing.
The tier of licence will indicate how strict and sought-after a brokerage firm is. A tier 1 licence is the highest level, and holders are difficult to trade with given their strictness, how highly sought-after they are, and the fact that they operate on a much larger, international scale.
A tier 2 licence is far more common and is given to smaller brokers and firms. These brokers essentially act as an intermediary between a tier 1 brokerage firm and its customers.
If a broker is wanted to offer their services in South Africa, they have to obtain a license from the Financial Sector Conduct Authority (FSCA). While it is uncommon for foreign brokers to obtain a licence in a different country, it isn't unheard of. Regardless, the first step in verifying a broker's legitimacy is to verify their licence.
Every licence has a licence number that belongs to the broker. This can identify the broker with the agency that provided the licence, with the agency in question having a database of brokers they regulate.
In addition to local licensing, brokers can obtain an international licence with organisations such as the FCA and the ASIC. These agencies, based in the UK and Australia, respectively, are considered tier 1 regulators.
Should a brokerage firm have a credible licence—which traders can find out through research on the broker and their licensing agency—then it is almost guaranteed that it is regulated.
Below is a list of the leading Forex broker regulators. These are among the most popular and credible options for traders to research and brokers to be licenced by.
● Financial Conduct Authority
● European Securities and Markets Authority
● Cyprus Securities and Exchange Commission
● Australian Securities and Investments Commission
● National Futures Association
● Monetary Authority of Singapore
● Japan Financial Services Agency
Learning to trust a broker can be a challenge for new and inexperienced traders, but learning about the proper licensing and regulatory agencies allows traders to do their research. Verifying a broker's licence and researching their credibility will ease the mind and make trading that much easier.
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