What makes a regulated broker different from a non-regulated one?

The knowledge of the differences between a regulated broker and a non-regulated broker is significant and should be with the customers putting their capital into investment.

The knowledge of the differences between a regulated broker and a non-regulated broker is significant and should be with the customers putting their capital into investment. What’s alarming is that research findings propose not many investors are aware whether they are trading with the regulated or non-regulated brokers in the forex market. This is a concern because regulation is a procedure which aims to sustain and ascertain honest, appropriate, and moral conduct in the trade.

Checking whether your broker is regulated or not is an important matter that should not be overlooked.

Compliance/non-compliance with regulations

Starting with the most fundamental stage, regulated brokers are liable to work in a way that consents to the mandate set around by their respective forex regulatory body. On the contrary, non-regulated brokers are not needed to comply. The regulated broker must be registered and authorised by the country where the business has its origin from.

Being registered, a regulated broker must need to fulfil the quality control standards indicated by the forex regulator for that specific country and this, as a result, implies that quality control standards will be fully satisfied. The non-regulated brokers are neither registered nor authorised, thus implying that they wouldn’t surely incorporate the quality control standards in their practices.

Nature of quality control

Therefore, the principal difference between regulated and non-regulated brokers is that of guaranteed quality control. Now the question here becomes about the nature of quality control, what it includes and why is it valuable. The answer to that is simple – regulated brokers are registered and audited regularly. Moreover, the conduct of their business is subject to cautious scrutiny on a frequent basis. Along these lines, they are compelled to take after the regulations laid down by their national forex regulatory body.

For instance of this, regulated brokers are bound to ensure the availability of adequate funds to fulfil the forex transactions of their clients. In addition, they should likewise keep adequate funds at hand to return to their customers in case the business goes bankrupt. Brokers who are not registered, neither subject to regular audit are non-regulated brokers, thus they are not required to fulfil any of these standards.

Safety of customer

It can be stated that the main feature that differentiates regulated brokers from non-regulated ones is the matter of ensuring customer’s safety. Even if a broker is unlicensed or unregulated, it doesn’t give them a free way to deviate from the regulated practices. What it implies is there needs to be taken stricter steps to bring even the non-regulated brokers under the regulatory umbrella. As obvious as it is, there will be more risks inherent for customers to deal with non-regulated brokers.

And certainly, this is not the risk similar to what comes with any type of financial trading. Dealing with a non-regulated broker may lead to a customer bankruptcy with having zero security against it. On the other hand, a customer who deals with a regulated broker will always have his/her forex transactions honoured.

Further reading on finding a regulated broker

Owen Gough, SmallBusiness UK

Freddie Halvorson

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

Related Topics