Below you will find a list of Forex Brokers highly regulated by different commissions and agencies. On one hand, strict regulatory authority ensures that company is legit and clients funds are safe and securely protected. On other hand, certain credible regulators burden market participants with many trading restrictions. For example, due to the heavy CFTC interference, Forex Brokers in the USA offer very low leverage, dont allow hedging and apply the FIFO rule. Trading Forex became quite a challenge for many US citizens since these limitations came into force. Meanwhile, regulators in offshore countries dont tend to take such radical measures.
The forex market is a regulated market in many parts of the world. This means that there are independent agencies that oversee the conduct of business in the forex market, as well as keep an eye on the providers of the products traded in this market. Some regulatory agencies are established by acts of government and are therefore empowered by law to carry out their functions. There are other regulatory agencies that are established from within the industry participants and act as self-regulating agencies. However, the majority of regulatory agencies found in the forex market are put in place by governments. Examples of countries where government-established regulatory agencies oversee the forex market are the United States, United Kingdom, EU member states, Australia, Singapore, New Zealand, Switzerland, Russia, etc.
Regulated forex brokers are issued licenses, which authorize them to market and distribute forex trading products to their various prospects and clients. Regulated forex jurisdictions fall into 5 categories. The regulated forex brokers that are showcased on this page fall into Levels A to C. This is what each Level of forex regulation stands for.
Level A forex jurisdictions are considered to have the most stringent regulatory requirements for the forex market. Regulators considered to be in this category are the Commodities and Futures Trading Commission (CFTC) and the Japanese Financial Services Authority (JFSA). These two bodies regulate the US and Japanese forex markets respectively. One factor common to both regulatory jurisdictions is that the regulated forex brokerages that operate in the two countries are prohibited from marketing and selling forex products to citizens of other countries. They also operate under a highly protectionist regulatory regime, where foreign brokers are prohibited from seeking licensing or offering forex brokerage services to clients in these countries. The regulated forex brokers in this category are also mandated to place leverage caps on their forex products as defined by the regulators. Reporting requirements are very strict and any form of infringements of the rules can attract very strong penalties/fines. Regulated forex brokerages in this category of licensing are also required to have a lot of free capital: usually in excess of $20million.
In addition to the individual forex brokerages being regulated, those who work in such brokerages (e.g. the dealers) are required to be certified holders of specific industry professional qualifications. Attempting to work in the industry without the requisite qualifications can bring on very unwanted consequences. In Singapore, such people can expect to spend some time in prison! and Oanda are examples of regulated forex brokerages that operate under Level A licensing. You can see more about what these brokerages offer by checking out their features on our list below.
Regulated forex brokerages that operate under Level B licensing protocols include those that operate in the UK and Australia. These two jurisdictions are overseen by the Financial Conduct Authority (FCA) and Australian Securities and Investment Commission (ASIC). Generally speaking, reporting and capital requirements are not as stringent as in the Level A jurisdiction, but are tighter than in other locations that fall into Levels C, D and E. Liquidity requirements are about $1m if the broker will act as a full market maker, and about $100,000 if the broker transfers fulfillment risk to prime brokerages (i.e. act as an ECN brokerage). It is mandatory for the forex brokerage operating under the FCA or ASIC to have a physical office domiciled in the respective countries. Usually, many brokers will offer both models of brokerage, and we also have brokers that have offices in both countries. Examples of regulated forex brokerages that operate under Level B conditions include FXOpen, FxPro UK, IC Markets, FXCM UK and City Index.
This category features regulated forex brokerages found in Cyprus, New Zealand and Malta, where regulation is done by the Cyprus Securities and Exchange Commission (CySEC), Financial Markets Authority (FMA) and Malta Financial Services Commission (MFSA) respectively. There is an even lower level of reporting than is required for Level A and Level B forex jurisdictions. Any penalties imposed on the regulated forex brokers are also much lighter. The environment here for regulated forex brokers is a lot freer and is not as suffocating as is the case with the Level A jurisdiction. Regulated forex brokers you will find here include HYCM, FXTM, and other brokers in individual EU countries such as FINMA (Switzerland) and BaFIN (Germany). While those who work in the industry are encouraged to attain some qualifications (e.g. CySEC Basic and Advanced Level certifications in Cyprus), the kind of harsh penalties you see in Singapore or the US for non-compliance do not usually apply here.
The other jurisdictions (Level D and Level E) are where you will have the offshore forex brokers. That will be discussed in another article.
Regulation of the forex market is meant to bring about protection of the consumers of forex products. However, there is always a question of balancing consumer protection with overall interest and growth of the markets. So while there is a general consensus that some level of regulation is good, there are dissenting opinions over how much regulation constitutes just enough regulation, or too much regulation.
The list of regulated forex brokerages presented below will show forex brokers that are scattered across the three regulatory levels described above. From what has been described, there are advantages and disadvantages to being regulated in certain areas. On one hand, application of regulation protects consumers by ensuring that only legitimate entities operate as forex brokers. On the other hand, there is also the worry that too much regulation will only serve to stifle the market. But even this supposed demerit is not an absolute demerit.
A good instance of this is seen in the Level A forex licensing jurisdictions. Regulation of the US market was tightened in 2010 by the passage of the Dodd-Frank Act, which imposed all sorts of limitations on forex brokers as to how much leverage they could offer, how much free capital they needed to have, etc. Prohibition of hedging and the FIFO rule were also added to the mix. This has resulted in a contraction of the US forex market, which by all available data has lost a significant portion of its market share to other locations. The number of forex brokers in that country has dwindled from more than 40 brokerages in 2010, to just 3 as at the time of writing in 2019. This is a clear instance of a market where regulation is actually killing the market and not helping it. In contrast, the forex market in Japan is actually thriving, with volumes soaring year-on-year, even though the conditions under which brokers operate there are almost similar to what is obtainable in the US.
But as you head to the Level B and Level C jurisdictions, regulators of the forex markets have been able to find the right balance between consumer protection, and ensuring that the market continues to have the opportunity to expand.
Things may yet change in the US, as President Donald Trump has indicated that he intends to relax some of the suffocating regulations that plague the US markets. So we may see an expansion of the number of regulated forex brokerages on our list in no distant time.
Forex trading imposes a high level of risks and is not suited for all traders and investors. As much as trading on foreign exchange markets may be potentialy profitable, it can also lead to significant losses. Ensure that you have enough trading experience, knowledge and full comprehension of potential risks involved. Most derivative contracts have high leverage and low margin requirements. Hence, rapid price movements may inflict serious financial damage or even devastate your entire trading account.