The Watchers – a Look Into Trading Oversight
Looking Through the Lens
Let’s talk about who watches the market, through the referee lens. Back in the early days of on-line trading, before the 2008 financial crises, the Spot Currency Market was akin to the wild west. Brokers from all over the world lured traders with obscene levels of leverage, or gearing.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act was the legislation signed into law in 2010 essentially limited the ability for US traders to engage in such practices as trading metals on leverage and limiting the degree of Forex leverage which could be offered by American Forex Brokers. Those restrictive regulations still exist today. It also provided additional extensive regulatory oversight by introducing new agencies to govern us, the consumer.
Leverage as a Lure
It was not uncommon to have access to 1000:1 (or even higher) leverage, meaning that you could control $1000 of currency for a single dollar; or, a full $100,000 lot for a measly $100 of margin. The draw was that each pip move up or down translated to $100, so a short 20 pip move could net (or lose) you a couple of thousand bucks.
Get on the wrong side of a trade without deep pockets or smart money management, your available margin could vaporize down to zero in a matter of minutes, or even seconds, depending on the size of your position and the volatility of the market.
Risk was generally an afterthought, since that actually indicates self-control and limiting unnecessary and/or dangerous levels of exposure.
Who’s Watching Who?
So the question begs to ask…who was watching all of this insanity?
Nobody really.
There were regulatory agencies tasked to monitor the financial markets; however, they usually focused on securities such as stocks, futures, options and commodities…not so much with the spot Forex market.
I personally have experienced more than one bad experience with brokers who flew “under the radar” of regulatory oversight which ended quite tragically; i.e., bye bye money. Those war stories will probably be told in another blog…in fact, I’m sure of it.
Bad Behavior…
So, what constitutes “bad behavior”? There were brokers who manipulated price on their platform by “stop hunting” or by facilitating “price spikes” and posting inaccurate chart data, while others engaged in such nefarious and brazen acts of disappearing with client funds, never to be heard from again. In actuality, this amounts to nothing less than outright theft. I didn’t take it lying down, and sought assistance from various regulatory agencies, both domestic and international; including the FBI – but nothing ever came of it. A hard lesson indeed.
That being said, I wanted to shed some light on the commonly known and universally accepted groups who keep those in the spot currency market on the up and up. Below is a list of Forex regulatory agencies worth mentioning, but please feel free to look them up yourself with an Internet search if you’d like more information.
The Regulatory Agencies
United States:
- The National Futures Association (NFA)
- Commodities Futures Trading Commission (CFTC)
United Kingdom:
- Financial Conduct Authority (FCA)
- The European Securities and Markets Authority (ESMA)
Australia
- The Australian Securities and Investments Commission (ASIC)
Japan:
- The Financial Services Agency (FSA)
Canada:
- The Investment Industry Regulatory Organization of Canada (IIROC)
Cayman Islands:
- Cayman Islands Monetary Authority (CIMA)
Hong Kong:
- The Securities and Futures Commission (SFC)
Singapore:
- The Monetary Authority of Singapore (MAS)
Switzerland:
- Swiss Financial Market Supervisory Authority (FINMA)
Cyprus:
- Cyprus Securities and Exchange Commission (CySEC)
Other agencies exist, which monitor their specific regions; however, the aforementioned agencies encompass the majority of brokers, which may help reduce trader anxiety revolving around trust issues. So the question remains; why do brokers choose to be bound by strict regulations imposed by seemingly Draconian rule?
The answer is simple.
Behave
The main purpose any reputable broker obtains certification under one or more of these regulatory agencies is to demonstrate that they are in fact governed by a higher authority and conduct themselves with an elevated degree of fiduciary morality, integrity and honesty.
This is good for us.
In fact, it’s awesome because you, as a small retail trader, have these huge bodyguards behind you, watching all the activity and ensuring that you get a fair shake at claiming a small piece of the market for yourself. Or, at least if you take a loss, it wasn’t due to broker misbehavior.
Bottom line…trade with a broker who lives in a house with reputable oversight. Check out our broker suggestion on our website – we’ve already conducted the research for you, or you can just click HERE.
Our only goal is to make you a better trader. Be sure to sign up on our contact list for the latest announcements.
BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.