RegulationAre Regulated Brokers More Secure?


  • When asked whether regulated brokers are more reliable? The answer is simple: a certified broker is obviously safer than an uncontrolled unregulated broker.

    This does not mean that all brokers are unregulated scams.Indeed many brokers serious and accredited are not regulated, but now having a financial license is synonymous with reliability and financial strength.

    The regulation represents a safe tool with full protection for users:

    -  Check the financial strength of the brokerage firm to participate in a fund for the protection of customers' capital.
    - Reduction of costs of services.
    - Management of conflicts of interest.
    - Ensuring- Maintaining the integrity and efficiency of markets.

     

    • Main Regulator Commissions

    Euro area:  MiFID
    The MiFID or The Markets in Financial Instruments Directive is a common law in the EU for regulating firms in the financial services. It includes 28 EU members and Iceland, Liechtenstein and Norway, making up 31 member states of the European Economic Area.
    The European Parliament has enacted in 2004 with the aim of creating a system of financial intermediaries that is "competitive and uniform."

    The MiFID has been the base for financial regulations and services in the EU since 2007 when the internal states (in particular Cyprus) have started managing the fund appropriate licenses issued by domestic financial bodies of each country. In fact, to ensure the application of this Directive there is currently a single EU body to supervise the regulation of all European economies. However the internal organizations of the same countries in which these companies reside, have to enforce territorial jurisdiction.

     

    Cyprus: CySEC
    The Cyprus Securities and Exchange Commission(CySEC), has regulated and been the base for many financial companies operating in the EU under MiFID compliance. There are more than 20 regulated Brokers underCySEC regulation that can do legitimate business anywhere in the EU.

    CySEC has tough laws on transparency, fines, suspensions and license suspensions for illegal activities. It has strict guidelines for company name change also. They also have a set up for traders’ complaints.

     

    England: FCA (FSA)
    The Financial Conduct Authority (FCA, formerly the FSA). The regulations will encompass:

    • Banks used by brokers to hold clients’ funds must be FCA approved.
    • There should be a distinction between the Broker’s and the Trader’s accounts at all times.
    • A process to resolve disputes.
    • The company must submit financial reports to FCA and have regular audits.

     

    USA:CFTC & NFA
    In the USA, futures/financial trading are regulated by the CFCT, with the NFA as a self-regulatory organizationfor U.S derivatives operating under the authorities of the CFTC.  The CFTC writes the rules and enforces them for non-NFA members, while the NFA enforces the rules for its members.
    The Securities and Exchange Commission (SEC) on the other hand enforces and administers federal laws governing sale and trading of securities e.g.  Bonds, stocks, mutual funds, but do not regulate futures trading.Overseas companies are not allowed to operate in the USA.
    The regulations compel brokers to protect traders, but traders are free to trade with offshore companies.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    Few brokers view regulation as a mere form of minimum requirement, without paying attention to other equally important services like customer satisfaction, haven obtained some form of affiliation with a regulatory authority.

    Many brokers today portray themselves as being regulated, meanwhile in reality; they carry out illicit practices that are totally against best practices lay down by the regulatory authorities.

    It is important for serious minded traders/investors to carry out sentiment analysis on all regulated brokers of their choice. This analysis can be carried out by gathering text data in the form of reviews from neutral forums and chat rooms and running them through Natural Language Processing (NLP) library like “NLTK” and “Gensim”.

  • the Manager's answer

    Robert Danvil - Investment Manager

    U.S.A. brokers.. . The U.S based regulatory authority introduced the First in First out (FIFO) rule in Forex trading, as well as a no hedging rule. This lead to the relocation of a handful of brokers from the U.S. The FIFO rule stipulated that all trades placed by a trader must be closed in the order in which they were opened. This brought about a lot of frustrations to traders when trying to adapt to this new rule.

    Staying away from U.S based brokers will do a trader better when it comes to Forex trading. Although the most regulated brokers in the current cryptocurrencymarkets are based in the U.S, and they do not accept deposits from non U.S citizens. In fact U.S citizens themselves have to pass through a lot of scrutiny and verifications to get their accounts funded.

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