1. Is the broker regulated?
It might surprise you to learn that the Forex market doesn’t have a central regulator. However, that doesn’t mean you should choose a broker without considering the question of regulation. Instead, we recommend choosing a broker that is regulated by the financial regulator in your area.
This would be the FCA (Financial Conduct Authority) in the UK, CySEC (Cyprus Securities and Exchange Commission) in Cyprus, ASIC (Australian Securities and Investments Commission) in Australia or SEC (Securities and Exchange Commission) in the US. A good broker will usually be proud of their licensing and will use this as a selling point.
The benefit of choosing a regulated broker is that this will ensure that you, as a trader, are protected to the full extent of the law in your country. For instance, in 2018 the European Securities and Markets Authority (ESMA) introduced a range of legislation protecting retail trading clients, which all European Forex brokers must abide by. This legislation includes limits on available leverage, volatility protection, negative balance protection and more.
If you would like to learn more about the ESMA legislation, we have several special webinars on the topic that you can access via the following links:
- ESMA, Retail, Professional, Leverage & Margin – CFD Regulation in the EU from August 2018
- CFD Trading Strategies After ESMA: Day Trading Live With New Leverage
- New ESMA Regulation and Scalping: How To Go Ahead with Forex & CFD
It’s also important to consider the security of your funds. With this in mind, we recommend choosing a broker that segregates their clients’ funds from their own, which ensures that the broker cannot use your deposits for any of their own financial activities.
It also ensures that your funds will be available for withdrawal upon your request. Finally, check whether the broker offers a financial services compensation scheme. This defines the amounts of funds that will be compensated to you in the extreme case that your broker or its bank is going bankrupt.