The foreign exchange is by far the largest and most liquid financial market in the world, with an estimated $5.3 trillion traded globally on a daily basis. This is at least according to the most recent Bank for International Settlements’ (BIS) triennial survey, which evaluates markets according to their value and growth.
The size of this market has caused some issues in terms of regulation, however, as historically there has been no single global body tasked with policing the foreign exchange. Instead, individual countries have their own independent regulatory bodies, while national governments are also active in driving compliance from traders, banks and brokers alike.
3 Things that you need to know about Forex Market Regulation
Other than the apparent lack of a single global regulatory body, what else do you need to know about achieving forex market compliance? Consider the following: –
1. Spot FX is not Regulated
Spot FX, which sees the agreed purchase of one currency against another for a price that is fixed on the spot date, accounts for an estimated 95% of all forex trades and is not regulated. In contrast, options and futures trades (which make up a much smaller proportion of daily transactions) in the foreign exchange are regulated as derivatives by nationally recognised, independent bodies. If you are involved with options and futures forex trading, it is therefore important that you check government websites for guidelines and visit resources hosted by independent commissions such as the FCA (Financial Conduct Authority).
2. The FCA will regulate all reputable Brokerage firms
The FCA is a key player in the regulation of the forex market, as while this body does not police individual trades and investment vehicles it does regulate the financial service providers that manage them. Before investing through an online broker to trading platform, it is therefore crucial that you browse the website in question to ensure that is has adequate certification and has been recognised by the FCA. This should include a unique registration number, while it should also list any products or markets that are not regulated. If you do not see this, you should avoid the broker at all costs.
3. The Financial Services Register includes details of all issues with clients and regulators
As a part of its increasingly influential role in regulating the forex market, the FCA keeps records of any formal proceedings that have been pursued against certified firms. These are listed on the publicly accessible Financial Services Register, which includes the details of any criminal proceedings that have involved regulated brokers, advisers and other professional entities. This is an important resource when evaluating the suitability of a specific broker, as it highlights any past issues and offers insight into their history as a service provider.