Why Regulations for FOREX Brokers are must?
Financial Market is the backbone of global and individual countries’ economy. And there by the need to keep a close control and watch on different participants of the financial markets is must.
What forms a financial market?
The buyers, sellers, platforms, banks, institutions, fund houses, technology providers, service providers and more, they all form the modern financial markets world over. With the advent of internet and mobile technologies, securities and financial markets have interconnected in seamless fashion.
A trader/investor or an intermediary like broker, liquidity provider, ECNs, STPs can connect with other parties, their clients located across the globe. When there is money, there is prosperity, growth, health and wealth and so is the frauds, theft, con men and all.
Governments and authorities world-over keep a tight vigil on these participants and their activities to ensure their financial and securities functions smoothly. Any disruptions can cause havoc on economy and well being of countries.
Remember the Lehman Brother bankruptcy and its cascading effect on world economy which lead to the Global Recession?
Regulations for Forex Brokers can be categorized into:
I. Tier 1
II. Tier 2
III. Tier 3
If you are are planning to start a forex brokerage business, getting regulatory approval is one must. There are many shady forex brokers who run their brokerage business without any formal regulation which puts them and their clients in grave danger.
And they could do it because Forex Market in a decentralized market where no central market unlike Stocks & Bonds market which are traded on exchanges like NYSE, NASDAQ, Nikkei etc.
When any market is centralized, its easier to regulate it. But when its spread all over the place the way Forex Market is, life of regulators get really tough and so does the lives of brokers, traders, liquidity providers etc because they need to follow different regulations to operate in different markets.
Forex Traders who are going to be your clients prefer the regulated forex brokers because that brings greater security and provides a safety net to them. A Forex Broker must share the Regulators name its has been approved by and reference numbers like registration ID with clients.
It can be displayed on website, promotional campaigns, emails templates, letterhead etc. When your prospective clients see it, they would instantly know that you are genuine and legit forex broker who is dead serious about the business and they could trust you.