What Are The Forex Regulations? What Are The Essential Points?
It has been more than 10 years that major updates has taken into effect with Forex Regulations. Those changes has forced the Investors to enter a more fragile and unprotected environment. We believe this article would help to raise awareness on the subject.
Regulation has a major effect on Organizational Behavior. Spreading and communization of regulations by the beginning of early 2010 within the EU and other developed countries has allowed investors to feel protected. This also has allowed the Regulated Brokers to lure more investors and build trust faster than usual. As a result, the instinct of preserving a valuable license has forced the brokers to act more fairly and transparently towards their clients.
ASIC in Australia, FCA in UK and CYSEC in EU has provided maximum fund protection while allowing the investor to trade with a high leverage.
Why Forex Regulations Are Crucial? What Has Changed and What Are The Elements to Pay Attention?
Holding funds in a segregated account with a limited access by the broker has helped the investor to have access to their funds even the broker is liquidated. We can easily say the years between 2012-2017 has been great times for the industry in terms of client onboarding due to mutual trust between the parties.
Unfortunately, the changes in the recent years has resulted with leverage restrictions which has pushed the investors to trade with offshore brokers. Despite the negative trend, serious regulations has continued to allow the investor to onboard with limited jurisdictions and heavy conditions to meet.
FCA has decreased the leverage to 1.30 and allowed only professional investors to trade with a higher leverage. Unlike ASIC, FCA has not closed its doors to the foreign investors. ASIC has taken a more decisive turn and has not allowed the foreign investor to invest with an Australian Broker. All this development has pushed the investors to look for an alternative which has resulted with the wide establishment of Offshore Brokers.
Obviously, all those bad news does not mean the Forex Markets are dead. In contrary, risk apatite for online income has elevated during Corona Pandemic.
Which Regulations Still Allow High Leverage? What Are the Basic Characteristics of an Offshore Entity?
We can consider the FCA, ASIC and CYSEC as the most serious regulations in the world.
Despite the funds are held in a segregated account, legislators has decided that high leverage and retail client has posed a tremendous risk on the industry and as a result they have decided to take action on those 2 matters.
Those decisions has resulted with high leverage ban for retail investors and more so, some regulations has stopped providing service to non domestic investors.
FCA(United Kingdom): FCA has continued to allow foreign investors to onboard with broker under its jurisdiction. FCA is a very serious regulation and broker are heavily monitored. However, the highest leverage you can get is 1.30 as a retail client, but it it possible to get a higher leverage if you are classified as Professional Investor.
In order to qualify as a professional investor, you must provide a sufficient trading history, at least 1 year employment history at a financial institution and a proof of at least 500k liquid assets. If you can satisfy 2 out 3 conditions mentioned, you will be able to qualified as Professional Investor.
ASIC(Australia): Unlike the FCA, ASIC has completely shut its doors to non Australian citizens. There are rarely exemption in Institutional level. Australian brokers in general has embraced a transparent approach and they mostly have adopted the real STP model. Even though, it is not possible to onboard clients from ASIC, they mostly have maintained their license and this gives confidence to investor to work with their offshore branches.
CYSEC(EU): CYSEC is an important regulation within the European Union. Only EU citizens can be onboarded from this regulation. Like FCA, retail clients can open an account with lower leverage. According to the ESMA rules, it is possible to be qualified as a professional. In order to qualify, sufficient trading history backed up with a realistic CV should be enough to qualify.
However, we need to point out that the CYSEC brokers in general has not embraced the STP model and preferred to operate as market maker which often results in profit removal or account closure. Nevertheless, clients funds are kept in segregated account which should protect the investors against liquidation.
OFFSHORE(Seychelles, BVI, Vanuatu, Bermuda, SVG and Others): We can describe offshore as small island states where the regulation is quite light and money laundering is a common practice. Unlike serious regulators, you can have a license with less budget and back ground check. Control mechanism is much more flexible compare to EU regulations, thus it would not be wrong to say that offshore regulations are actually not real regulations.
Unlike FCA and ASIC, client funds are not held in segregated accounts and even the broker goes against the trader and manipulate the transaction, there is not a serious legislator to enforce the wrongdoings on them. In addition and sadly, you would find yourself helpless in case the withdrawal requests are not honored or you loses all of your funds due to synthetic pricing generated by the broker.
Obviously, we can not always be pessimistic about offshore entities. Leverage is essential for FX traders and unless you are qualified as professional, offshore entities are only venue left to get it.
Does IT Mean All Offshore Entities Are Not Credible? Why Investors Continue to Operate with Them?
Regulation restrictions has forced the investors to work Offshore entities. Most of the regulated and reputable brokers has decided to initiate an Offshore Entity. They are all aware that without high leverage, they would lost %90 of their business.
Reputation requires long time to build and it also creates a company DNA along with it, thus we can easily say that most of the brokers has preserved the good conduct culture with in their organization and continue to operate transparently as they acting under a serious regulation.
As a result, we can say that it is always better to invest in regulated companies, but if you can cannot invest in such jurisdictions, it is ok to invest in the offshore branches of big brokers. For more questions, you can always contact us from https://www.affrefer.com/.