Forex Broker Regulation

Forex is what is known as a ‘decentralized’ market, which simply means that currencies do not trade on one single, localized exchange.

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Instead, the foreign exchange market consists of a large web of interconnected banks, financial institutions, liquidity providers, and brokers (comprising an ‘electronic communications network’ or ECN). Some parts of this web are highly interconnected; others less so, rather like in the visualization below. One forex broker might be connected with dozens of liquidity providers, some of which are also highly connected with other brokers and major banks, while another broker might be connected with just one liquidity provider. This is in contrast to stock, option, and futures exchanges, where all participants are equally connected via the exchange, and all business is transacted through its clearing house.


Due to the absence of any central exchange, forex is sometimes perceived to be a less transparent and well-regulated environment in which to do business. This is rather misleading, as the industry is simply regulated in a different way to reflect its decentralized nature, and the sheer scale of the forex market makes the outright manipulation of currency prices within the heavily dispersed ECN structure virtually impossible.

Because forex transactions can take place anywhere in the world, crossing the boundaries of national and legal jurisdictions, regulation focuses on the conduct of brokers, especially in relation to their clients, rather than exchanges, and on the regulation of banks who participate in these markets.

How Forex Broker Regulation Works

A broker isn’t regulated merely in the country in which it is incorporated, but in the individual countries in which it wishes to solicit clients and carry out its business. This means that any broker with which you deal should be authorized and supervised by the regulatory body in your country of residence.

If a broker wishes to solicit the business of clients from a country outside of the one in which it is based then it is forced to seek permission from the body responsible for oversight of the provision of financial services in that country. For example, if a forex broker based in Cyprus and registered with that country’s regulator, CySEC, wishes to accept clients from the UK, then it must be authorized to do so by the UK regulator, the FCA.

Sometimes, this approval will require full registration with the new regulator, and in other cases agreements and co-operation between regulators in different countries may mean that authorization will be granted on the basis of the firm’s track record elsewhere and a due diligence process. In the example above, for instance, the MiFID directive in Europe and the principles of conduct shared by both the FCA and CySEC would likely allow that the the broker be granted permission to solicit business in the UK on the basis of its regulation and compliance with CySEC.

Checking a Broker’s Regulatory Status

To check a forex broker’s history of compliance with regulators is relatively straightforward once you know the relevant bodies and the firm’s registration number. That’s why for each of the firms that we review on this site have collated all this information into a convenient table below. Simply click on a link and you will be directed to the relevant page.

3 Things to Check

  1. The first check on you list should be fairly obvious – make sure that the broker is registered with the regulator in your country. If a firm is no longer permitted to offer its services the exact language used may vary from one regulator to another, but commonly used wordings include ‘suspended’ and ‘no longer authorized’.
  2. A second point to check is the record for any previous names or formations under which the broker may have traded. Once again, these are provided in the table above. Sometimes a firm will begin trading under a new brand name because its reputation has become tarnished and it no longer commands trust within the industry. However, in the majority of cases brokers establish new brands to focus on new market niches, to reflect growth in the range of services the firm offers, due to acquisitions and mergers, or for language reasons when expanding into new geographical territories. Examining a firm’s history of compliance under prior trading names will provide you with further insight into its behavior.
  3. A third and more detailed check is whether any complaints to the regulator have been upheld (normally this is accompanied by a fine). This basically means that the regulator investigated complaints from a client and found that the broker had acted improperly. However, when you’re assessing this information it is absolutely vital that you keep in mind (a) how long the broker has been in business and (b) how large the firm’s client base is. A firm that has operated for thirty years and is among the largest in the world is sure to have a few black marks with the regulator; a newly established brokerage with a few hundred accounts that has the same number of complaints might raise serious concerns.

What Not To Do

Don’t bother with user review sites around the web. They’re heavily polluted with both comments from shills tasked with negating bad PR for duplicitous brokers, people who misunderstand basic trading concepts (how spreads work and so forth) and take to the web to complain at the first sign of losses, and of course traders with genuine grievances. Separating the three is impossible. Anyone with a serious, major complaint will likely take it to the regulator – this is the official channel that you need to pay attention to.

Don’t bother with short, worthless reviews that contain little or no real information or assessment of a firm. They’re almost always overwhelmingly promotional in nature and focus only on the positive features. There are a number of sites such as this one that offer detailed and objective reviews, and are a far better resource when researching brokers.

Don’t open an account with an unregulated broker. We advise against this. Consider how you would feel if you successfully negotiate the risks of the forex market with skillful trading, only to find that you can’t withdraw your profits . . . Or even your initial deposit! You will have zero recourse to any outside agency to help you resolve this. Unregulated brokers tend to be poorly capitalized and are typically unable to provide a strong range of services or adequate support, so there is seldom any real advantage to choosing them.

Don’t pay any particular attention to whether or not a firm is regulated in the US. It reflects little on their conduct. A 2010 initiative (called the Dodd Frank Act) in which spot forex regulation was deemed by legislators to be the remit of the National Futures Association led to a mass exodus of firms from the US retail forex space. Most of these firms are regulated by other bodies (such as the UK’s FCA) which stipulate significantly more stringent levels conduct. On this site we currently list just two¬† firms accepting clients from the US, TradeStation and Interactive Brokers, each of which also offer trading in traditional securities such as stocks and bonds, and derivatives such as options and futures. Large and established firms that do not specialize in foreign exchange are all that appear to remain of the retail forex brokerage network in the United States.


Hopefully this article has given you some useful insights into how, why, and where forex brokers are regulated, as well as providing you with links to the main resources you need to investigate the regulatory compliance of any firm with which you may be considering opening an account. Regulation should certainly feature highly on your list of priorities when choosing a broker, and should also put your mind at rest and allow you to focus on the more important aspects of trading once you open your new account.