I already understand that there are some good regulators and many fake regulators. I see many different opinions on the forum regarding the regulation of brokers. I also see many opinions here that are very different from opinions in books and opinions on other websites and opinions on other forums.
I’m confused.
I have 2 specific questions.
Why do people want to use brokers that are not regulated or not well regulated and actively recommend this?
And is it possible for a client outside the UK to be protected by the real regulator in London?
I think there are two main reasons why people choose such brokers:
Firstly, they want the higher leverage offered by these brokers in order to trade larger size positions. We shouldn’t believe that all such brokers are inevitably scams. Some very large and well regulated brokers do also have subsidiaries elsewhere to cater for such requirements. This is simply a calculated business risk knowingly assumed by the trader when opening an account with them.
Secondly, unfortunately, there are clearly many inexperienced new traders that are attracted by offers of bonuses, cashbacks, and other such benefits, as well as the glossy websites that look oh so professional and attractive. But do not realise they need to even think about regulatory authorities, or that such issues even exist. These are the minnows that the sharks feed on. They pay their money and get nothing back and have nowhere to turn to for help.
The regulators regulate the companies, not the clients. Therefore, if one is a legitimate client from an acceptable country then I would assume that you have the same protection as domestic clients. But I am not an expert in these matters at all so hopefully others will add to this and correct me if I am wrong here.
I don’t think there is need to be overly concerned about the risks with properly regulated brokers of being scammed. For example, client funds are held in segregated accounts. If there are problems nowadays then they are more likely to be related to specific trades concerning, for example, wide spreads, bad fill prices, etc. I don’t recall seeing cases for some time now where people’s funds disappear or withdrawals refused from such regulated companies.
I can answer this part, and with certainty (I’ve done it myself, and checked).
If you use a broker regulated by the FCA, you don’t have to be either British or living there to be fully protected, including by the UK government underwritten funds guarantee, FCA regulatory services and even the UK’s financial ombudsman service. There are also many threads here mentioning this. And certainly nobody will ever tell you that the FCA isn’t a “proper regulator”!
