One of the most important decisions a Forex Trader will make is which Forex broker to use. Many of these traders will first look at regulation as one of the deciding factors. It is important to understand Forex regulation and the various regulatory bodies that exist around the world. Forex regulation provides market transparency and a much needed sense of security to the Forex trader. It also provides a set of standards in order to protect the Forex traders account and also to ensure that trade execution is fair. In Forex regulation is a relatively new concept since there is no centralized marketplace or exchange. As retail Forex trading grew regulators then established guidelines that must be met by the brokers that are under their jurisdiction.
One regulator many Forex traders are familiar with is the NFA or National futures Association. In order to conduct business with citizens or residents of the United States membership in the NFA is mandatory. The other regulator from the United States is the CFTC or Commodity Futures Trading Commission. The CFTC is the enforcement arm of the two regulatory bodies.
In the UK there is one regulator that oversees all financial services trading. It is the FSA or Financial Services Authority. The Financial Services Authority was created by the financial services markets act of 2000. This regulator will oversee trading in equities futures and derivatives which would include Forex
The third of the main three regulators is the Australian Securities and Investments Commission or ASIC. ASIC was created by the corporation’s act of 2001. Very similar to FSA a ASIC also overseas trading in equities, futures, and derivatives which would include Forex. ASIC is also responsible for insurance products as well as corporate governance.
As one can see these regulators are relatively newly established but they do serve a very important purpose in seeing that the Forex marketplace is fair and transparent to the Forex trader.
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Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Financial Services Guide (FSG) and Product Disclosure Statements (PDS)