Importance of trading only with regulated brokers

Investing boils down to making decisions. Good decisions can bring rewards in the form of profits, whereas bad decisions can be very risky and lead to losses. For every investor that wants to trade financial assets online, choosing a brokerage company is one of the first decisions that has to be made.

Brokers provide a gateway to the world of online financial assets trading, and a bad decision can set back investors even before they get started on their trading journey. A broker is essentially your trading partner, and you must ensure that you choose a partner that is reliable and trustworthy. One of the biggest signs of a good broker is regulation. Here is why you must ensure that you only trade with a regulated broker:

1. Segregated Accounts – Regulated brokers are mandated to keep investor funds in segregated bank accounts that are completely separate from their own operating cash flows. This is very important as it guarantees the safety of investor funds even when a company is facing insolvency.
2. Transparent Operations – Regulated brokers are subject to periodic and random platform checks by the relevant agencies. This ensures that they always provide honest and transparent services to their customers at all times. A typical scam among forex brokers is platform or software manipulation. Bad brokers can unnecessarily widen spreads or delay trade execution in a manner that puts a trader at an immense disadvantage. Away from the platform, bad brokers can also run dishonest promotions or offer unclear bonuses designed to lure investors to deposit more capital into their trading accounts. Regulated brokers always commit to providing transparent operations at all times, and investors can rest assured that they are performing trading activities under the best possible conditions at all times.
3. Effective Mediation – Sometimes, issues may arise between investors and their brokers. In such a case, investors will be confident of a fair mediation by the relevant regulatory body. Regulatory agencies are there for the sole protection of investors, and in the case of a conflict, an investor will have the issue mediated by a body that is intended to look out for his/her interests. If one was dealing with an unregulated broker, there simply would be no recourse whatsoever in the case of a conflict because the broker basically acts as the jury.
4. Customer Segmentation – Some regulatory bodies obligate brokers to segment their customers into two distinct groups: retail and professional. In this way, retail investors are to be offered products and services that are consistent with their level of trading experience. Most regulated brokers will have new customers fill out a questionnaire that will determine their experience level as part of their registration process. As part of this segmentation, the brokers will also display conspicuous risk warnings on their products so that investors will understand the risks and rewards they are exposed to. An unregulated broker will not go through this process because they are likely to be only interested in a customer depositing funds into their account.

Beyond the above reasons, regulated brokers also provide comprehensive investor support. Regulated brokers have a reputation to uphold, and they are more incentivized to provide their customers with high-quality support to enhance their trading activities. From comprehensive educational materials and market analysis to handy trading resources and excellent and reliable customer support, regulated brokers do all they can to attract and retain their traders.

What Type of Regulation Should You Look for?

There is no single body that regulates the forex market. Different jurisdictions have different regulatory agencies that also have different standards or guidelines. It is not uncommon to have complaints from investors who have had bad engagements with supposedly regulated brokers.

For instance, there are some offshore locations that provide brokers with licenses and authorizations, but with non-strict conditions that are not exactly in the best interest of investors. Some regulatory bodies also do not have the requisite technical capabilities to track the operations of brokerage firms. Thus, it is important to only trade with tightly regulated brokers.

If possible, trade with a broker that has achieved regulation in multiple top jurisdictions. Some of the major regulatory bodies in the forex industry include Cyprus’ CySEC (Cyprus Securities and Exchange Commission), UK’s FCA (Financial Conduct Authority), and the EU’s ESMA (European Securities and Markets Authority).

An example of a tightly regulated broker is AvaTrade. AvaTrade has been licensed and authorized by regulatory bodies in multiple top jurisdictions such as Israel, Ireland, Japan, Abu Dhabi, South Africa, and Australia. Such high regulation is a sign of reliability and trustworthiness.

To support its traders, AvaTrade has a comprehensive education centre, routine market analysis by experts, as well as responsive customer support. AvaTrade offers over 1000 trading instruments and supports different types of strategies including automated trading. Its platforms run smoothly on both desktop and mobile devices as well. As a truly globally regulated broker with compelling trading services, it is no wonder that the company has managed to attract over 300,000 traders around the world.