Trading foreign currencies are becoming more and more popular in parts of the world including the United Kingdom. The financial practice has great potential especially if you’ve mastered the art of buying and selling on time. As it has become so popular nowadays, it shouldn’t be surprising that governments are regulating the sector.
What is forex trading? Simply put, it’s the practice of changing one currency to another – taking advantage of lows and highs to make gains through short-term trades. Regulation is important in the industry as it protects not just the traders – but also the platforms wherein trades are made.
In the United Kingdom, almost all financial instruments are regulated. Of course, forex trading isn’t spared from regulation as well but in the United Kingdom, it can be a bit confusing. If you are a new forex trader, then you might want to know exactly how the governing body oversees the industry to give everyone a level playing field.
Who Is Regulating Forex Trading In The United Kingdom?
To put it bluntly, regulations are in place for forex trading in the United Kingdom but not in the strict ways that you think. Keep in mind that the market for forex trading is open 24 hours a day and five days a week. It is a must for a government body to enforce rules for the foreign exchange market.
In the United Kingdom, the industry isn’t exactly regulated. However, the forex brokers themselves are. They are overseen by the Financial Conduct Authority, better known as the FCA. It is an independent agency that is tasked with regulating all companies and investors in the field of finance.
The FCA was introduced in 2012 and it was created to set guidelines on behalf of the government. Basically, it was reinstated to ensure that the micro and macro-economic factors in the financial markets are functioning as systemically and as fairly as possible.
Simply put, the FCA is just one of several regulatory commissions for financial instruments in the United Kingdom. Others are Markets in Financial Instruments Directive (MiFID), Federal Financial Supervisory Authority (BaFIN), National Futures Association (NFA), The Australian Securities and Investments Commission (ASIC), Commodity Futures Trading Commission (CFTC), Cyprus Securities and Exchange Commission (CySEC), Autorité des Marchés Financiers (AMF), and the Financial Services Board (FSB).
For forex brokers to function legally in the United Kingdom, they need to be audited by some of the commissions. All forex brokers in the United Kingdom should be regulated for the protection of the people. Of course, it’s also for the protection of the brokers themselves.
How Is The Market Regulated?
It can be tough to understand how exactly the forex trading market is regulated. However, what we do know is that the supervisory bodies set standards for United Kingdom Brokers to adhere to. These standards serve as safeguards for all those involved in forex trading.
The regulatory standards vary from country to country. The most common standard for regulation is that brokers must be registered and licensed with a regulatory body before they are considered as a legally functioning annex for forex trading in the area of jurisdiction.
Another common practice is having forex brokers undergo regular audits. This is important too as forex brokers must regularly update their systems and security measures to keep up with the industry standards. This is for the safety of the customers and the brokers as well.
Since forex trading is mostly done online, it is very important for regulatory bodies to set standards for brokers to adhere to. It can be very easy for people to get scammed by unrecognized brokers which is why traders are suggested to only use platforms that are licensed.
Of course, there are also regulatory guidelines that protect the consumers as well. For instance, in the United Kingdom, forex brokers are asked to communicate any changes made in their service or terms of conditions to their clients
Over time, regulatory agencies will try to introduce more standards for forex brokers and investors to adhere to. Now, why is regulation important? Are investors losing and missing out on big opportunities because brokers and trading platforms are being controlled by larger entities?
Why Is Regulation Important?
In truth, regulation is there to protect the people first and foremost. It ensures that every investor is on a safe and level playing field when it comes to forex trading. Without regulation, it will be hard for newcomers and those who have low capital to make anything out of forex trading.
Keep in mind that forex trading is a legal practice. It’s something that people can easily dive into or try out whenever they can. Because of its accessibility, it’s only a must that there are steps taken to ensure the financial safety and security of those people as well.
Regulation can start as early as when people begin looking for a forex broker to trade-in. As a general rule of thumb, you don’t want to trade with a broker that doesn’t have a license or isn’t authorized by any regulatory body. While this doesn’t exactly mean that these brokers are unsafe, what these do mean is that the broker is yet to be inspected thoroughly.
The regulatory bodies are also tasked with helping increase the financial literacy of investors. This can be done through programs, as well as the announcement of the standards that they set for brokers.
As for the brokers themselves, regulation is a must because it helps set aside trustworthy brokers from those that have lackluster security practices. By following the guidelines, brokers are able to guarantee the security of the platforms, while giving their names more credibility in the eyes of an investor.
Regulation is important especially when it comes to the world of finance. Without it, the sector will be a hotbed for scams and unfair practices as well. As an investor, it would be wise to know how a market is regulated as it can be used to your advantage as well. Hopefully, this guide helps you out with your forex trading in the United Kingdom.