Brokers regulation

Broker Regulators

Since the majority of the brokers are the principal or the counterparty of the forex contracts traded in the retail forex market, understanding the regulation that applies between you and your broker is probably the most important factor when considering to open an account with one broker or another.

In the following table we summarized for you the principal characteristics that define the most popular regulations when it comes to forex trading.

USA Japan UK Australia Switzerland Cyprus Malta Singapur Hong-kong
Regulator NFA FSA FCA ASIC FINMA CYSEC MFSA MAS SFC
Offices in country required required required at least one responsible manager is located in Australia institution is managed in Switzerland office in Cyprus

nominated employees should reside

nominated employees should reside will need to establish a Hong Kong subsidiary
Capital requirements trading as a principal $ 20million   $20 million $1 million 10% of revenue (minimum of $A1 million; 50% in cash or cash equivalent) 100 million CHF

+

10% total risk exposure

€1 million 125,000

+

0.02% of the amount by which the value of the portfolios under management exceed EUR 250,000,000

HK$10,000,000
Capital req. Intermediary $10million exceed 120% of the total risk equivalents $100,000 Tailored to needs

$100,000 or more

1.5 million CHF  €125,000 125,000 HK$5,000,000
Institutional Effectiveness 4th Not considered 6th Not considered 1st Not considered Not considered 2nd 5th
Regulatory Enforcment 6th Not considered 3rd Not considered 8th Not considered Not considered 1st 4th
Reducing Financial Crime 7.06 Not considered 7.54 Not considered 7.36 Not considered Not considered 7.55 6.90
Protection client investment SIPC-500.000$ ¥10 million

Deposit Insurance Corporation of Japan (DICJ)

Fscs 50k pounds Financial Claims Scheme

250 AUSD

100,000 CHF ICF (Investor Compensation Fund)

€20,000

90% max 20.000eur $150,000

Investor Compensation Company Limited

Min. Margin 2% 4% 0.25% 0.20% No limit

As we can see in the table, in some countries to be a market maker doesn't require a large amount of own funds, however in other regulations does. The fact of being able to create a market without having a large sum of free funds increases the risk of bankruptcy when taking the counterparty risk of your trades. Moreover, the regulator might not effectively control whether the execution policy of the broker is being applied correctly; or whether the client funds are being systematically segregated from the broker's money. In the table you can also check what is he maximum allowed leverage per regulation, and the investment protection amount that the regulator offers if any.

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