How to check if a forex broker is licensed and regulated
In this article you will find a tutorial on how to check the license of a broker, and understand if it is valid to operate in the country.
In addition to this, you will find answers to several questions such as:
- Which regulations are the most widely used
- Which of them are the best
- How to make sure the regulation is active
- Why it is important to use regulated brokers
- Whether you can use an unregulated broker locally
How to check if the forex broker is regulated
There are numerous independent regulators in the forex industry, and each of these controls and monitors forex brokers, typically within certain regions. For example, the FCA is in charge of monitoring forex brokers operating in the UK, while ASIC is in charge of Australia and ESMA is in charge of regulating the European forex market.
Each of these bodies works in roughly the same way, however the process for checking regulation can vary slightly. In general however, to check if a forex broker is regulated you have to follow these steps:
- Visit the broker’s official website
- Scroll to the footer of their homepage
- Take note of their company information
- Go to the regulator’s website
- Search for the broker on the regulator’s website.
Each financial regulator has a different website, but overall they work similarly. We have set up a tutorial covering the main regulators listed below. First however, you will need to gather some information from the brokers homepage. See the example below.
Scroll to the bottom of the homepage when you have reached it. A Forex broker is legally required to display information related to the company in their footer. They usually redirect users to the correct website for each country. If this is not the case, select the correct world area based on your location (there is usually a flag you can click on).
On the footer, locate the business name and regulator. Take note of both. In this case Pepperstone business name is “Pepperstone Limited” (registration number 08965105), and they are regulated in the UK by the “Financial Conduct Authority” (registration number 684312)
How to check the FCA license (for UK forex brokers)
Forex brokers in the UK are regulated by the Financial Conduct Authority (FCA), a very well-respected regulatory agency. This means you should go to the official FCA website and look for the FCA Financial Services Register. Once there, use the filter of the register to find the broker. Let’s use Pepperstone as an example.
Type in the broker’s name (“Pepperstone” in this case). If the search shows no result, type in their business name (“Pepperstone Limited” in this case), or the FCA regulation number (684312 in this case). Then, click on the one matching the business name of the broker.
From here, you should double-check the information displayed by the broker to the one available on the FCA register.
How to check the European license (for European forex brokers)
Brokers in the EU must hold a License from an ESMA supervisor. Each country in the EU has its own forex regulator, which is also ESMA compliant, so the process may slightly vary depending on the regulatory body.
Most Forex brokers in Europe usually hold a CySEC license (Cyprus regulator), however it may not always be the case. In fact you may encounter brokers regulated by the MFSA (Malta Financial Services authority), the Polish KNF, the german BaFIN, the Central Bank of Ireland and other european regulators.
You can check this document provided by ESMA to find the websites of each European regulator.
In case the broker is regulated by CySEC, head to the CySEC website. You can use the search bar in the top-right corner (use XM as an example).
Type in the broker’s name (“XM” in this case), if there is no result shown use the business name (“Trading Point of Financial Instruments Ltd” in this case), or the CySEC regulation number (“120/10” in this case). Then, click on the result match.
From there you can check the broker’s information about the CySEC license.
How to check the ASIC license (for Australian forex brokers)
Forex brokers in Australia are regulated by the ASIC. This means you should visit the ASIC website and check the companies and organizations register. Once here, you can search within “Organisations & Business Names”. Let’s use IC Markets as an example.
Type in the broker’s name (“IC Markets”). You can also use the business name (“IC Markets (EU) Ltd”) or the license number (“335692”). Then click on the search result.
From here you can see all the details of the broker’s regulation.
How to check the NFA/CFTC license (for US forex brokers)
Forex brokers in the USA have several regulators including the NFA (National Futures Association, and the CFTC (Commodity Futures Trading Commission). To check these regulatory agencies you should go to the official NFA/CFTC website and look for the NFA research tool, BASIC. When you have found that, you can search for the broker. Let’s use Oanda as an example.
Use the broker’s name (“Oanda” in this case). If this might not be enough you can try the business name (“Oanda Corporation” in this case) or directly with the license number provided by the broker itself (“0325821” in this case). You can then click on the appropriate result.
Finally, double-check the broker’s license directly on the regulator’s website.
How to check the MAS license (for Singaporean forex brokers)
Forex brokers in Singapore are regulated by the MAS (Monetary Authority of Singapore). To check this regulation, head to the MAS website and the Financial Institutions Directory. Once there, you can search for the broker. Here we will use City Index as a reference.
Research with the broker’s name (“City Index” in our case”) to check their regulatory status. If the research shows no results you can use either the business name (“StoneX Financial Pte. Ltd.”) or the license number (“201130598R”) and click on the result.
From here you can double-check the broker’s MAS license.
How to check the CIRO (former IIROC) license (for Canadian forex brokers)
Forex brokers in Canada are regulated by the CIRO (former IIROC). The CIRO is the national regulator of licensed forex brokers, and quite a strict regulatory agency. Even without a license from CIRO, forex brokers may still operate within a region as the local regulator takes over. To check if they are a regulated broker, first, visit the IIROC webpage and head to the “Dealers we regulate” section. There, navigate until you reach the search bar. Let’s use AvaTrade as an example.
Type in the broker’s name (“AvaTrade” in our case). If the research gives no results you can try with the business name (“Friedberg Mercantile Group Ltd.” in our case).
How to check the JFSA license (for Japanese forex brokers)
Forex brokers in Japan are regulated by the JFSA. You can visit the JFSA website to check a forex broker’s license. Here, you can scroll through each licensed broker until you find the Financial Instruments Business Operators. For this, let’s use IG Markets as a reference.
Here you have to manually look for the broker. Help yourself with the search function of your device. On the JFSA website the most efficient way to find the broker’s regulation is to search for it using the business name (“IG Securities Ltd” in this case”), or use the license number to find the broker’s regulatory status (“255” in this case).
How to check the validity of the forex license
Sometimes brokers may seem as though they are regulated, but they display a fake regulation (they copy other broker’s legit regulation). Unlicensed forex brokers are a big problem, so these are some things you can check to make sure:
- The address of the broker
- The firm reference number
- The company registration number
- The registered website domain
Below is the Pepperstone regulatory information as it appears on the Financial Conduct Authority (FCA) register.
What are the main forex brokers’ financial regulators?
|Regulatory entities||Area of influence||Website|
|NFA/CFTC||United States of America||nfa.futures.org|
|CIRO (former IIROC)||Canada||ciro.ca|
Why is it important to trade with a regulated forex broker?
Trading with a regulated forex broker is important because the trader will be sure that he or she is trading in a transparent environment within the financial markets, controlled by independent bodies, instead of being at the mercy of the broker.
In fact, a regulated forex broker must comply with certain rules, the most important of which include:
- The broker’s websites must display a banner warning people about the risks of forex trading
- The broker must offer negative balance protection
- The broker must hold an insurance fund in case of bankruptcy or disputes with the traders
- The broker must hold the clients’ money in a segregated bank account separated by the broker’s funds
Keep in mind that there’s always a degree of risk about losing money by trading, no matter the protection of regulatory agencies or how safe the trading environment is. Here then, are some of the key dangers when it comes to non-regulated brokers.
- An entity that is not a legitimate broker doesn’t guarantee your funds’ safety
- you can’t register a complaint with any regulator
- the broker might suddenly close your operations
These are just a few of the risks when trading in financial markets with a broker that is not properly regulated.
What is the best forex regulation to trade under?
Most traders prefer to trade with FCA, NFA/CFTC, ASIC or ESMA compliant brokers, as they are the most trustworthy and strict regulations on the foreign exchange market.
These regulators have a huge authority in the industry and are pioneers of customer protection when it comes to trading and is considered among the best with many forex brokers and traders alike.
Some other traders prefer to trade under offshore regulations such as IFSC, CIMA or FSA (Financial Services Authority). These regulations are more flexible in terms of what the trader is allowed to do. However, trading under these regulations carries more risk in terms of customer protection. If you want to trade with offshore brokers, make sure the broker holds other licenses as well, such as the ones above.
Can you trade with a foreign forex broker?
Most international forex brokers accept foreign forex traders. However, the trader’s residence has a big impact on this:
There are areas of the world where forex is highly regulated, including the USA, Japan, European Union, UK, Singapore, and Australia. If you live in any of these countries, A foreign forex broker may not accept your application if they are not regulated by the local regulator or state securities regulators of your country.
In fact, forex brokers need a license if they want to operate in a regulated country. For instance, European traders cannot register with a non-european forex broker, as only brokers in the EU can accept them. Generally speaking, however, traders are free to register with any international forex broker. It’s the forex broker’s duty to reject the applications. If they don’t do so, they might face fines and be blacklisted locally and/or internationally.
Can a regulated forex broker cheat traders?
Even a regulated forex broker backed by a respected regulatory agency might violate rules.
However, there’s a statistically lower risk that this might happen if there is a strict oversight from their financial regulator, and the brokers may face fines, bans, or even get people jailed depending on the magnitude of the scam.
One of the most recent cases was between Maxiflex and CySEC, with the latter withdrawing the license from the forex broker for using traders’ funds as its own.
Also, if a regulated forex broker scams you, the local regulator will help you directly to recover your loss. This wouldn’t happen with unregulated brokers.
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