Forex is the largest global financial market, attracting investors from all over the world. Participants use it to trade popular currency pairs 24 hours a day, 5 days a week. Due to its high activity, the market is fantastic for intraday traders and everyone else who wants to make money on quick fluctuations.
Unfortunately, given that transactions are done online, it presents a unique challenge for regulatory organizations. In this article, we’ll explain how the market functions and risks you should be aware of.
Forex Market Organization
Basically, the Forex market is regulated by a committee. There isn’t a single agency that oversees all the processes; instead, there are numerous independent organizations that streamline daily operations. Here are a few main bodies that oversee its work:
- Commodities Futures Trading Commission (CFTC)
- The Australian Securities and Investments Commission (ASIC)
- The Financial Services Agency (FSA)
- Financial Conduct Authority (FCA)
These agencies set the rules and standards all participants should adhere to. Every broker within an agency’s jurisdiction has to comply with these laws. Among others, each trader needs to have an appropriate license with the local agency and to undergo periodic audits. They also have to abide by strict marketing and client service rules.
While these laws are fantastic in theory and they regulate the work of official brokers, that doesn’t mean the market doesn’t suffer from fraud. Its online nature is especially tricky as it allows anyone to participate in transactions. The number of inherent risks has further increased in recent years, with the introduction of cryptocurrency payments.
Avoiding Forex Fraud
Like any other financial market, Forex attracts investors from all over the world with its promise of quick profits. Many swindlers take advantage of this mindset and peddle their services to this target audience, even though they lack official licensing.
The biggest issue is that traders don’t know what to look for when choosing a broker. To help their citizens, the American CFTC has published a list of rules and best practices that will help you avoid trouble:
- A good rule of thumb is to avoid companies that promise unrealistically high profits. Check their track record to have a better understanding of what you can expect.
- You should always analyze companies that oversell “expert” tips, entice you to open an account, or that sell premium software. While marketing your services isn’t necessarily bad, you should pay attention to extreme behavior.
- Ask a broker where they got their licensing from. Contact that agency and check if they have them in the system.
- Don’t deplete your IRA or savings when trading for the first time. It would also be wise to minimize your first investment until you have a better grasp of things.
- Use a reliable source to compare and contrast various platforms and brokers and determine who is legit.
If you have any additional questions, you might consider contacting one of the local agencies working in your country. Most of them have specialists and resources that would help you get started on the Forex market