Hi @clemmo,
We agree with you that due diligence is important. Therefore, how reliable is the reputation of a broker that avoids the strict regulation and oversight that come with operating in one of the major financial centers mentioned in our previous post? One challenge on the internet is that no one verifies whether the people posting broker reviews are real clients.
What’s to stop some obscure broker from trying to fake a reputation by having its employees post positive reviews for itself and negative reviews against its better known competitors? Have you ever wondered why some little known brokers seem to get great reviews online while more established brokers with clients around the world get poor reviews?
Focusing on brokers that are regulated by reputable government authorities where you live can go a long way to addressing these concerns. Key advantages of trading with a well-regulated broker are:
- minimum financial and trading standards they must meet,
- ongoing monitoring by the regulators to ensure compliance,
- a framework for handling complaints from customers, and the
- power to enforce actions against regulated brokers for violations.
For example, the CFTC and NFA set the requirements a broker must meet in order to offer forex trading to US residents. Though not an exhaustive list, this membership application will give you an idea of some of those requirements: Compliance Requirements for Retail Foreign Exchange Dealer (RFED) Applicants | NFA
- In the US, forex is regulated by the CFTC and NFA, and brokers are required to maintain net capital of $20 million.
- In the UK, forex trading is regulated by the FCA and funds are protected for up to £50,000 per client by the FSCS.
- In Canada, forex trading is regulated by IIROC and funds are protected for up to $1 million per client by the CIPF.