The foreign exchange market is by necessity a global and 24-hour market.
The clients of a forex broker include retail currency traders who use these platforms for speculation on the direction of currencies. Their clients also include large financial services firms that trade on behalf of investment banks and other customers.
Any individual forex broker firm will handle only a small portion of the volume of the overall foreign exchange market.
The Role of a Forex Broker
Most foreign exchange transactions are between pairs of the currencies of the 10 nations that make up the G10. The nations and their currencies include the U.S. dollar (USD), the Euro (EUR), the pound sterling (GBP), the Japanese yen (JPY), the Australian dollar (AUD), the New Zealand dollar (NZD), the Canadian dollar (CAD), and the Swiss franc (CHF).
Most brokers allow customers to trade in other currencies, including those of emerging markets. Using a forex broker, a trader opens a trade by buying a currency pair and closes the trade by selling the same pair.
For example, a trader who wants to exchange euros for U.S. dollars buys the EUR/USD pair. This amounts to buying euros using U.S. dollars. To close the trade, the trader sells the pair, which is equivalent to buying U.S. dollars with euros.
If the exchange rate is higher when the trader closes the trade, the trader makes a profit. If not, the trader takes a loss.
Current Market for Forex Treading
Currency trading, commonly known as forex trading, is the buying and selling of currency pairs in the foreign exchange market to earn profits through speculation. Presently, the currency market, or the forex market, is one of the world’s largest and most liquid markets, thereby recording a daily turnover of $ 2 trillion, with quick growth projections.
That’s the reason why people are in search of best online forex Broker. The primary factor that differentiates forex trading from other types of trading is its liquidity. The purchase and sale of one currency for another to take place simultaneously. This kind of trading is also known as ‘Speculative forex trading.’
How is Forex regulated?
Forex is the largest, most liquid market on the planet. That size and scope creates unique challenges regarding market regulation.
How do you regulate a market that is trading 24 hours a day, all over the world?
There is no centralized body governing the currency trading market; instead, several governmental and independent bodies supervise forex trading around the world. Some of these include, but are not limited to:
| COUNTRY | SUPERVISORY BODIES |
|---|---|
| Australia | The Australian Securities and Investments Commission (ASIC) |
| Canada | Canadian Investment Regulatory Organization (CIRO) |
| Cayman Islands | Cayman Islands Monetary Authority (CIMA) |
| Hong Kong | The Securities and Futures Commission (SFC) |
| Japan | The Financial Services Agency (FSA) |
| Singapore | The Monetary Authority of Singapore (MAS) |
| United Kingdom | Financial Conduct Authority (FCA) |
| United States | The National Futures Association (NFA), Commodities Futures Trading Commission (CFTC) |
The global supervisory bodies regulate forex by setting standards which all the regulated forex brokers under their jurisdiction must comply with. These standards include being registered and licensed with the regulatory body, undergoing regular audits, communicating certain changes of service to their clients, and more. This helps ensure that currency trading is ethical and fair for all involved.
Forex License and Its Essential for Forex Brokerage’s Operation
In today’s international foreign exchange market, there are thousands of participants trading and exchanging different currencies. Forex brokers are one kind of market participant, as they act as intermediaries between private traders and investors and the interbank market in order to provide traders an ability to trade Forex.
Despite the popularity of foreign exchange brokers, a brokerage company is only permitted to process transactions with a foreign exchange license. The broker should obtain a Forex license in order to avoid conflict with the regulatory authorities or loss of potential clients. Brokerage companies lacking a Forex license are avoided by traders since their operations are viewed as unlawful and unreliable.
The regulatory authorities may also raise a number of questions regarding such a brokerage firm. There is no one centralized regulatory authority in the Forex market. In other words, every international body or organization would have authority over every aspect of the activities of market participants.
The foreign exchange market cannot have a regulator of this kind since the operations are independent, and the providers of these operations do not interact with each other.
Nevertheless, some players in the Forex market still have their activities regulated, such as brokers. In addition to the local regulators for individual countries, there are also international regulators because the algorithms of control over brokers are constantly evolving and developing.
A license is a guarantee of the security of clients today, and all brokers strive to obtain one. Different financial commissions issue such licenses after checking the legitimacy of the broker’s activities, auditing it, and monitoring it after the license has been issued.
The reason for requiring a license for an online Forex broker is to ensure the legality of its actions, as well as to confirm that it actually places trades for its traders on an interbank market and owes them obligations.
Conclusion
Choosing a regulator for licensing Forex can be a tedious and time-consuming exercise, but it is worth remembering that having such an important document as a license not only allows the Forex broker to provide its services legally, but also serves as a guarantee of the reliability of the company, which can provide a full range of necessary for Forex trading tools and services on the one hand and full support to their clients on the other.