What is Forex? – Forex Market Trading Regulations
Last Updated on Tuesday, 20 September 2011 10:07 Written by FxTT Content Department Thursday, 22 September 2011 12:30
As we know that the forex market is decentralized market. Forex market does not have a single physical location, so then you might ask who regulates forex markets. Well, the answer is; the market itself remains unregulated but the market participants are regulated by various authorities, depending on the country where the given participant resides.
Forex Market Regulators
For Forex brokers that are based in United States have to get themselves regulated by NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission), these regulators help protect the traders by regulating forex entities. These regulated entities include financial institutions, such as banks and savings associations, registered broker-dealers, registered futures commission merchants (FCMs), certain insurance companies and investment bank holding companies.
Financial Service Authority (FSA) regulates the Forex brokers that are based in U.K. or are dealing with the British traders. The U. K. regulation is much lighter than the one in U.S., so traders usually find no difference when they are dealing with the FSA-registered broker.
Figure 1. UK's Financial Service Authority (FSA)
Swiss Federal Banking Commission (SFBC) is another regulatory organization that requires all Forex brokers that are based in Switzerland to obtain the real Swiss banking license and thus become a regulated banking institution. Swiss banking regulation is one of the best in the world and those institutions that fulfill all the requirements can be certainly considered reliable. Some Forex brokers are regulated by the European and other banking laws as they are registered as the banking institutions in the respective countries. Such brokers can be considered the most reliable ones, but for the common retail trader dealing with them isn’t easy as they usually require high minimum account deposit and a lot of paperwork.
Australian Securities and Investments Commission (ASIC) regulates the forex brokers in Australia, similarly Financial Service Agency (FSA) regulates forex activity in Japan.
Forex for Retail Investors
It was 1976; major countries had accepted floating currency exchange rates. The modern era of forex markets had begun. But it was still difficult for retail investor to trade forex unless he/she had very deep pockets. But as the time passed and internet came along, which allowed ‘e-trading’. A normal citizen like us could trade from the home with just a PC and an internet connection.
Earlier if someone wanted to trade forex, he/she had to have a large amount of money to put as initial deposit. But overtime as competition between forex brokers for market share grew; the mandatory initial deposit constraint was removed, and thus, now anyone with as small as US$100 can start trading forex.
General Rules for trading in Forex markets
These are some forex trading rules that every trader should follow, in order to be successful in forex:
- Develop a system that suits your own trading style.
- Always have your long-term goals in mind.
- Remember trading is a business not gambling.
- Trade objectively. Always follow your system.
- Always have a profit target in mind when entering a trade.
- Always set a stop-loss.
- Do not trade when signals are mixed.
- Identify key support and resistance levels.
- If you trade intraday, don’t enter a trade unless you can actively focus on it.
- Avoid reversing trades.
- Use leverage properly. Manage risks.
