Regulation on Forex, what does it mean for brokers, IBs and strategy providers?
In the previous article, titled “
Regulation in Forex Trading
” we discussed how the Forex market is regulated, what are the respective regulatory authorities in some of the developed countries as well as what regulation means for traders.
Here, in this second part, we will expand on this topic and look into regulation from the point of view of those who provide Forex services – mainly brokers, introducing brokers and strategy providers. In turn, with this article, we aim to show how regulation benefits not just the clients (traders) but also brokers and all other parties involved in the Forex industry.
While regulation is primarily enforced to control brokers and stop them from potentially abusing clients, there are many ways in which regulation benefits brokers as well, which may be rather surprising to some of you.
To understand this we have to go deeper than the surface.
For starters, regulation is very beneficial for all good brokers - the fair and professional ones because it directly helps them to fight the scammers which very often are their direct competitors and can take away long-term and successful clients that a good broker will hugely benefit from.
Still, if we go even deeper from here, we realize that if no regulation exists there wouldn’t be any Forex market, Forex Trading or any Forex Brokers. Imagine a world without any laws or regulation. Would anyone invest anywhere in such a world?
Would you? - Probably not.
So, no regulation will mean no clients for brokers and basically no Forex industry. It’s the existence of regulation that attracts investors and traders to deposit their money with a broker in the first place. Regulation enables and promotes a healthy and safe business environment which can then attract many people into the whole industry which in turn benefits all parties involved.
While scammers may think that no regulation is great for them, the truth is if there was no regulation at all they wouldn’t have clients either. The only reason clients sign up with an unregulated scamming broker is because they believed that the broker should be somehow regulated. They were either lied to that the broker is regulated or they simply weren’t informed enough about regulation.
While this may sound too simple to be true, unfortunately, most often it is. It’s most likely to happen to new traders since they still don’t understand how all things work and can often fall victims to unethical, unprofessional and even completely scamming brokers.
This is why it’s very important for new traders to get fully informed before investing money. Luckily, in this age, there are many ways to do that and our website has been specifically designed to help traders in choosing a professional and fair broker. All our resources are free and can be found at www.fxtradingrevolution.com.
Regulation means a safe and stable business relationship for introducing brokers.
Introducing brokers make money from fees on clients that they bring to the parent broker company. It is therefore in their best interest that this parent company is a regulated and highly reputable company or otherwise they may have a very hard job in attracting clients.
Further, if they themselves are regulated in some way it will be even better and even more attractive for clients. Fortunately, for traders and for the Forex industry, frauds are in a declining trend as more and more traders are now aware that the possibility of being scammed is real. As a result, most traders nowadays will double and triple check the broker before putting money with them.
Regulation also ensures that the business relationships between the brokers and other companies within the Forex industry are fair and reliable which in the long term strengthens these relationships.
There are many different types of strategy providers, signal services, and account managers that are all looking to attract investments from clients. However, a lot of them are unregulated, and for a trader or investor who is looking to place his money somewhere, this simply cannot be an option.
For strategy providers, regulation promotes them to a whole new level which in turn helps to attract more and higher quality clients. In fact, any serious client will look for a signal provider or money manager to be regulated before they invest money.
The reasons for why this is the case are probably obvious.
While regulation of money managers and signal providers doesn’t guarantee profits every month, it does guarantee that these service providers will respect some basic but crucial rules of investment and that they will not use reckless tactics that could quickly blow up the whole account of the investor.
Further, regulation absolutely ensures against outright frauds. While scams are very common among unregulated brokers, money managers, and other Forex related service providers, with parties regulated in the developed world it’s very, very rare and even non-existent.
In essence, any money manager or signal provider will benefit from the credibility that regulation automatically brings with it.
Regulation helps everyone in the long-term as it promotes a trustworthy and secure business climate that fosters the exchange of value between the involved parties. This is ultimately healthy for everyone except for scammers - who in fact never look to provide value, but rather are always looking for ways to steal value.
Finally, we can sum up regulation as “credibility for service providers and security for those who invest”.