Forex Regulation & Forex Investor Protection

Forex regulationBefore opening and funding an account with a Forex broker, Forex investors should seriously consider the safety of their money.


Key Factors Ensuring the Safety of Forex Investor's Funds

There are quite a few variables that ensure the safety of money:

(i) Forex broker's regulatory status (license)

(ii) Forex broker's country of headquarters

(iii) Forex broker's compensation scheme in case of corporate insolvency

And after a Forex account is opened and funded:

(iv) protecting the account against internet fraud

(v) protecting the account’s balance against extreme market volatility (trading small sizes and using tight capital leverage)


This article emphasizes on the first 3 factors (license, headquarters country, and compensation scheme in case of corporate insolvency).


Forex Market's Regulatory Authorities


No matter the trading style and risk profile, all Forex investors need secure and reliable Forex brokerage services. Here is why Forex regulation matters:

  • Regulatory authorities impose strict rules that all their members (brokers) follow
  • In case a Forex corporation misbehaves regarding any operation, regulatory authorities can interfere and impose high penalties, or even take back the license
  • Regulators force Forex brokers to keep their client’s funds separately from their own corporate funds. This is called client bank account segregation.
  • All licensed Forex brokers are obligated to display by whom they’re licensed, on their official website


Client’s Compensation in Case of Forex Broker’s Insolvency

Being able to receive compensation in case of brokerage bankruptcy is very important. Below you can find the compensation scheme behind each different license:

  • FINMA (Swiss) - All foreign exchange dealers domiciled in Switzerland have been obliged to hold a banking license and that means that up to 100,000 CHF are fully covered
  • FCA (UK) -The compensation scheme (FSCS) in case of default covers up to 50,000 GBP
  • ICF (Cyprus) -The Investor Compensation Fund (ICF) covers up to 20,000 EUR
  • ASIC (Australia) - There is no coverage in case of bankruptcy
  • FSC (BVI) - There is no coverage in case of bankruptcy
  • BaFIN (Germany) – The compensation scheme covers up to 20,000 EUR for investment
  • HCMC (Greece) = The investor compensation scheme covers up to 30,000 EUR
  • MFSA (Malta) –The investor compensation scheme covers up to 20,000 EUR
  • CBI (Ireland) –The investor compensation scheme covers up to 20,000 EUR




Since 2018, the European Securities and Markets Authority (ESMA) implemented new rules regarding Forex and CFDs trading. Here are some important facts regarding the new European regulation on the financial industry:

□ 30:1 is the maximum allowed capital leverage on Forex major pairs

□ 20:1 is the maximum allowed capital leverage on minor major pairs, indices, and gold

□ 10:1 is the maximum allowed capital leverage on less-liquid assets

□ 5:1 is the maximum allowed capital leverage on individual equities

□ 2:1 is the maximum allowed capital leverage on cryptocurrencies

□ Negative account balances are banned

□ Almost all types of Forex bonuses and rebates are banned

 CYSEC -Cyprus Securities and Exchange Commission

CySEC is the Cyprus Securities and Exchange Commission. ► Visit the Cypriot CySEC

Forex Brokers Regulated by CySEC: » FXCC | » FXTM

 BaFin –German Federal Financial Supervisory Authority

BaFin is the German Financial Regulatory body found in 2002. BaFin's responsibility includes supervising Stock Exchanges and similar financial markets, Commercial Banks, Financial Service providers, Pension Funds and Asset management firms that are operating in Germany. ► Visit The German BaFin




The United Kingdom is the world’s most important financial center accounting for more than 35% of the global OTC Foreign Exchange turnover. In the U.K., the body which regulates Forex trading is FCA:

 FCA UK -Financial Conduct Authority

FCA UK is the financial services authority of the United Kingdom. The FCA UK was found in 2000 and it is responsible for regulating the UK Financial Markets (firms, brokers and exchanges). FCA UK is the conduct regulator for more than 58,000 financial services firms in the U.K.” ► Visit British FCA UK

Forex Brokers Regulated by FCA UK: » FXCC | » FXTM




The United States accounts for about 20% of the global OTC Foreign Exchange turnover. There are 2 main regulating authorities in the USA:

NFA -US National Futures Association

NFA is the US National Futures Association. NFA is an independent regulatory organization that aims to protect investors from fraud and to preserve the integrity of the derivatives markets.  Visit the American NFA

 CFTC –US Commodity Futures Trading Commission

The CFTC is the US Commodity Futures Trading Commission found in 1975. CFTC is responsible for ensuring the smooth operation of the US options and futures markets. ► Visit the American CFTC 

Since 2010, the CFTC issued new regulations regarding the Foreign Exchange market:

  • 50:1 max capital leverage for major Forex pairs
  • 20:1 max capital leverage for all other pairs




There are quite a few other important regulatory bodies around the globe.

ASIC -Australian Securities and Investments Commission

Forex Brokers Regulated by ASIC» ICMarkets | » IronFx

ASIC is the Australian Securities & Investments Commission. ASIC is an independent Australian supervising authority found in 1991. ► Visit the Australian ASIC

FINMA -Swiss Financial Market Supervisory Authority

Forex Brokers Regulated by FiNMADukascopy Group » Dukascopy

FiNMA is the Swiss financial supervisory authority. ► FINMA Web

SFC -Hong Kong Securities and Futures Commission

SFC (Securities and Futures Commission) is a non-governmental regulatory body. ► SFC Web

 BVI -British Virgin Islands Financial Services Commission

The BVI Financial Services Commission is the single financial supervising body of the British Virginia Islands. ► The BVI Website

RAFMM -Russian Association of Financial Markets Members

Forex Brokers Regulated by RAFMM» InstaForex

The RAFMM is the Russian Association of Financial Market Members. ► Visit the Russian RAFMM




Opening an account only with licensed Forex brokers means a lot regarding the long-term safety of your capital. Forex investors should always check the licensing status of a Forex broker before opening, and especially before funding, a trading account.  Some Forex brokers are licensed in more than one country, that is even better as it means a brokerage company is monitored by more regulatory authorities. Here are some tips to ensure that you have chosen a 100% safe Forex broker.


What is really important for the safety of your funds:

(1) Choose licensed Forex brokers -Headquartered in countries implementing strict financial legislation

(2) Choose Forex brokers operating at least 2 years in the market

(3) Full client bank account segregation is absolutely needed (Separation of client funds from corporate funds)

(4) Check the compensation scheme behind each broker (presented at the beginning of this article) and adjust your account balances to take advantage of it

(5) Avoid Market Makers and prefer ECN/STP Forex brokers. Market makers are used to trade against their clients and that is not good news for the safety of your invested capital. On the contrary, ECN/STP Forex brokers do not trade against their clients and in general, are considered more reliable companies.


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