One of the essential criteria for traders when choosing a forex broker is the broker’s regulatory status and under which regulatory body this broker is regulated. Unregulated Forex/CFD brokers are dangerous areas for traders to place their money in, and traders who do so are likely to find that they need an effective remedy for losses that result from dishonesty or incompetence.
In the list below, we identify the central regulatory bodies by country that have a strong relationship with Forex/CFD brokers and summarise the main points of applicable regulatory laws.
Choosing the country of licensing
Forex brokers are usually launched with the regulation in only one country. Obtaining such regulatory approval and submission to regulatory bodies is usually challenging, especially in areas with more stringent regulations.
New brokers usually start with the regulation in one country and then seek regulatory licenses in other countries where they wish to do business. Usually, it is easier for forex brokers to obtain some kind of regulatory certification, even in countries where they do not have a physical headquarters, if they want to market their services there.
Some of the most popular forex regulators worldwide are the FCA in the United Kingdom, CySec in Cyprus, and the NFA in the United States. In addition to being regulated forex by bodies established by national governments, some brokers find it essential to obtain membership by professional and international regulatory bodies.
Forex brokers doing business in the European Union must comply with the Markets in Financial Instruments Directive (MiFID) requirements. This EU-wide regulation ensures harmonised regulation of investment services in the 30 European Economic Area member states.
What to look for in a regulated Forex broker
If it is a regulated forex broker, the name of its regulated forex broker should be clearly listed somewhere on the broker’s website. If it is not listed, the website should tell you the address of the broker’s main office; from this, you can know that it must be regulated in this country and subject to regulatory bodies.
If the website does not give this address, that is a strong indication that the broker is unregulated – for apparent reasons, unregulated brokers do not usually advertise this fact. If you know the country the broker operates from, you can find the regulatory body in that country, and you should be able to look on their website to see if the broker is on their list of regulated forex brokers.
The list below lists the financial regulators for each country in alphabetical order, as well as the maximum leverage that a Forex/CFD broker operating from that country can offer to its citizens, which is sometimes different from what may be offered to citizens of foreign countries.
The United Arab Emirates
- The Central Bank of the United Arab Emirates
- Dubai Financial Services Authority
Maximum leverage: 1:500
When people talk about forex in the UAE, they usually mean Dubai, and for a good reason: it has become the offshore financial centre of the Gulf. Regulation is light, taxes are virtually non-existent, and the industry thrives for both residents and non-residents. Dubai is the number one place for forex trading in the Arabic-speaking world, and few are outside of it.
Turkey
- Capital Markets Board of Turkey (CMB)
Maximum leverage: 1:10
Turkey once had a small but growing forex industry which unfortunately fell into political disfavor due to the chronic depreciation of the Turkish currency. Maximum leverage is low, minimum deposit requirements are very high, and Turkish residents are not legally allowed to trade forex with brokers outside of Turkey. There are still a few forex brokers in Turkey, but virtually no one outside Turkey uses them.
United Kingdom
- Financial Conduct Authority
Maximum leverage: 1:30
The capital of the United Kingdom is one of the oldest and most well-known offshore financial services centres in the world. It has the best regulators, which always includes Forex and CFD brokerages. In fact, London is the forex capital of the world, and this has always been reflected in the solid regulatory touch and deep technical expertise enjoyed by the UK forex industry, which always attracts more clients from abroad.
Forex and CFD trading is prevalent in the UK, partly because profits can be accessible for UK residents if operations are made as spread betting. London will always have a special place in the global forex arena and will continue to be a beautiful place for traders.
United States of America
- Commodity and Futures Trading Commission
- New York Stock Exchange
- Office of the Comptroller of the Currency
- Securities and Exchange Commission
Maximum leverage: 1:50
The United States is not a favourite place for offshore forex traders, and US traders have few local options than traditional forex/CFD brokers. Futures brokers have always dominated the US market, and they still are today, which allow trading in forex futures but with minimal trading volumes.
Contrary to popular belief, US-based traders may use offshore forex brokers. Still, most offshore brokers would prefer to take people from the US as clients due to the demanding reporting requirements and strict regulatory bodies that the US effectively enforces worldwide.
Australia
- Australian Securities and Investment Commission (ASIC)
Maximum leverage: 1:500
Australia is a favourite offshore location for Forex/CFD traders due to the combination of high maximum leverage, solid but flexible regulatory body, and many ECN brokers. The problem with Australian regulators and what prevents many brokers from obtaining ASIC regulation is the great geographical distance, making it difficult for brokers to operate in Australia.
Canada
- Investment Industry Regulatory Authority of Canada (IIROC)
- British Columbia Securities Commission
- Ontario Securities Commission
Maximum leverage: 1:50
Cyprus
- Cyprus Securities and Exchange Commission (CySEC)
Maximum leverage: 1:30
The Republic of Cyprus is a trendy offshore territory for Forex/CFD traders due to its more membership in the European Union’s highly flexible regulatory body and the very large number of brokerage firms as well as the supporting infrastructure.
Denmark
- Danish FSA
Denmark is not a particularly strong destination for Forex and CFD trading, but it has always been a financial services hub for Scandinavia. There is one big brokerage firm at Saxo Bank.
France
- Bank of France
- Prudential Regulatory Authority (ACP)
Maximum leverage: 1:30
France is not a strong country for Forex and CFD trading, with most French traders preferring to use offshore brokers.
Germany
- Federal Financial Supervisory Authority
Maximum leverage: 1:30
Germany is not a strong country for forex and CFD trading, with most German traders prefer to use offshore brokers.
Hong Kong SAR
- Securities and Futures Commission
Maximum leverage: 1:500
Hong Kong is a popular offshore financial centre, especially for the Asian market, and is home to many forex/CFD brokers due to more regulation, light supervision and supportive infrastructure, while remaining a popular choice for local and overseas forex traders.
Malaysia
- Bank Negara Malaysia
Maximum Leverage: Zero
It is illegal for residents of Malaysia to trade forex except through a Malaysian legal bank or other similar financial institution. However, foreign investment is legal, so the applicable law may be at least grey, and many forex brokers cater to traders from Malaysia. Many Malaysians have accounts with offshore brokers, but Malaysian brokers do not attract foreign dealers.
South Africa
- Financial Services Conduct Authority
Maximum leverage: 1:30
Forex has had a very negative reputation in South Africa as it has been used as a cover in a few “Ponzi” programs and other scams, even though these scams had nothing fundamental to do with the Forex industry. Financial services regulators are becoming more involved as regulators.
There are several well-respected brokerage firms in South Africa, as well as a growing number of entrepreneurs looking for a lucrative pastime. There is scope for the sector to expand, but geographic and other factors mean South Africa is likely to become a hub for foreign trade for other southern African countries.
