You may have heard that there are Forex License for Forex brokers, but what are these licenses and how can you protect your money so that you are not defrauded by any broker, and how do you choose the appropriate broker based on the licenses it has obtained Because these licenses show how honest or dishonest the broker is and how strong he is in the market.
The Importance of Forex Licenses for Safe Trading
1 – What is the Forex license
Any broker must obtain a Forex License in order to be able to open a company or a representative office in the country he wants. For example, if there is a broker who wants to open a branch of his company in Dubai, in order to be able to do so, he must first obtain an official Forex License from the competent authority in Dubai (DFSA – Dubai Financial Services Authority). After he completes the necessary procedures and obtains the Forex License, he will be allowed to practice the profession.
2 – Conditions for obtaining a Forex license
There are some conditions imposed by the country in order for the broker to obtain a Forex License. These conditions are a guarantee from the country to protect customers’ money from any company/broker seeking to defraud or steal from customers.
1 – Minimum Capital
The broker must provide a certain minimum capital according to the regulatory organizations to which it applies. For example, some organizations such as the FCA in the United Kingdom require large capital to ensure that the broker is able to meet its financial obligations in order for this organization to ensure that in the event of any financial crisis, clients will not be harmed by this crisis. Also, providing a large capital indicates the strength of the broker in the market and the extent to which it bears responsibility for clients’ money.
2 – Segregation of client funds
The broker must separate his funds from the client’s funds in order to preserve the client’s funds in the event of any economic crises for the broker and also so that the broker does not use these funds for any purpose.
3 – Compliance with Anti-Money Laundering (AML) Laws
The broker must comply with anti-money laundering laws by verifying the identity of customers upon registration. You will notice that after you create a new account, the broker will ask you to activate the account in order to enable you to withdraw and deposit. You will not be able to make any withdrawal or deposit transactions unless you activate the account (in some brokers you can make a deposit without activation).
Among the laws against money laundering is also when the customer deposits money in the broker using a specific deposit method, for example, Skrill Bank, he will not be able to withdraw this money in any other bank except Skrill, and you will find this condition in all Forex brokers to protect any money laundering process that may occur from the customer through the broker in order to transfer his money to another bank.
However, this does not apply to profits made through trading or profits through referrals. You can withdraw these profits through any withdrawal options available to the broker (some brokers require the trader to withdraw profits through the same deposit method).
4 – Periodic financial reports
The broker must submit periodic financial reports to the organization in order to maintain transparency in financial transactions between the broker and clients and to ensure that the broker does not use any illegal methods to defraud clients.
5 – Transparency in pricing and transaction execution
The broker must provide clear and real prices on the trading platforms. If the response speed on the platform is slow compared to global prices, it will be difficult to trust this broker to preserve the clients’ money because the delay in the appearance of prices on the platform will cause great harm to the client’s transactions.
Also, the commitment to executing transactions quickly and accurately is of utmost importance. If there is any delay in executing transactions, this indicates that the broker intends to defraud clients in illegal ways.
6 – Money Insurance
Money Insurance
This condition is not mandatory, as some regulatory authorities require the broker to provide insurance that covers clients’ money in the event of the company’s bankruptcy or any financial problem in order to preserve clients’ money. Even if the broker separates his money from the clients’ money, clients may be harmed in one way or another through the company’s bankruptcy. In order for the competent authority to protect clients’ money, they may require the broker to provide an insurance amount to the company.
7 – Data Protection Procedures
Most companies, including brokers, use customer data for advertising purposes, and before they do so, they write in the privacy policy that they will use customer data for advertising purposes (so you should read the terms and conditions carefully). However, if the broker does not write that and uses customer data for advertising purposes, he will be held legally accountable because he has defrauded customers and violated their privacy data.
Brokers must comply with data protection laws, such as the European Union’s General Data Protection Regulation (GDPR), to ensure that customers’ personal information is protected. For this to happen, brokers must have strong security programs that include the use of advanced encryption systems.
8 – Disclosure Policies
The broker must commit to disclosing anything related to the client such as the spread, commission, account types, etc. This is to avoid the existence of hidden fees that the client incurs without knowing anything about them. There are some brokers who manipulate prices through price slippages, and during this violent volatility they increase the spread significantly and of course, push the price to the stop-loss areas of the clients in order to defraud them and get their money.
Obtaining a Forex License means that the broker is subject to monitoring and follow-up by the regulatory authority, which works to protect traders and ensure transparency and integrity in the market. Therefore, if the broker obtains a good license, this gives some reassurance to clients in this broker so that they can deposit money and trade with it.
3 – Types of Forex Licenses and Regulatory Authorities
Types of Forex Licenses
Since there are many regulatory authorities that a broker can obtain a Forex License from, we will point out the most reliable and strong brokers. Most likely, if a broker has at least one license from these, it is a strong and trustworthy broker.
1 – FCA (Financial Conduct Authority – UK)
The Financial Conduct Authority (FCA) is one of the most stringent regulators of financial intermediaries. It requires brokers to comply with strict rules to ensure client funds are protected and requires them to keep client funds in segregated accounts, Brokers also require a security deposit as a guarantee for clients’ funds, which can reach up to £85,000.
2 – ASIC (Australian Securities and Investments Commission)
ASIC requires Brokers to provide strong customer protection, including segregating client funds from company funds. brokers with this Forex License are required to be transparent about their operations but there is no financial compensation system similar to the FCA, but oversight of brokers is strong.
3 – CySEC (Cyprus Securities and Exchange Commission – Cyprus)
CySEC supervises brokers in Cyprus and is a gateway to the European market. brokers with this license are subject to moderate oversight compared to those licensed by the FCA or ASIC, but they are required to segregate client funds. The Cyprus Investor Compensation Fund covers clients up to a maximum of €20,000 in the event of a broker’s bankruptcy.
Of course, if the broker has more than one Forex License, this is very good for the client because he will be more reassured that his money is in safe hands.
Forex License vs Leverage
Forex licenses are closely linked to leverage, with regulatory authorities imposing certain limits on the leverage a broker can offer. The aim is to protect clients’ funds from the high risks that come with using high leverage. More stringent authorities limit the leverage to minimize traders’ losses, while less stringent authorities allow higher leverage, but this increases the level of risk of course.
Why Forex Licensing Is Important
The Forex field is very large and this is due to the ease of joining it for anyone, even brokers. It is possible for many brokers to join the market overnight. Among these brokers, you may find some of them with bad intentions in order to profit from traders in illegal ways. This is very normal to find in such a field.
Others are honest, but the broker will not tell you that he is honest and that he will not defraud you. He must prove that so that you can differentiate between him and the fraudulent broker who defrauds traders. Licensing is the best way to distinguish between an honest broker and a fraudulent broker.
These Forex licenses are not easy to obtain. In order for a broker to obtain a Forex License, there are many procedures carried out by the Financial Regulatory Authority to ensure that this broker is able to manage the company and that it will not defraud clients. Through these procedures, the client becomes somewhat reassured in depositing his money in the broker and entrusting it to him. Of course, the Regulatory Authority carries out these procedures on your behalf to protect your money.
Common Red Flags of a Forex Scam
Red Flags of a Forex Scam
There are some signs that if you find them in any broker, do not trust this broker because it is most likely a fraud and will not allow you to withdraw your profits.
No license OR Fake license
If the broker does not have a Forex License, this is an indication that the organization from which he tried to obtain a Forex License rejected him or that he did not try to obtain a license, but the result is the same, and that his intention is to defraud clients. You will find many of these brokers on the Internet through their tempting advertisements that urge you to deposit a lot of money and you will inevitably win… etc. You can infer from such advertising methods that the broker is defrauding clients.
Or it is possible that he wrote on his website that he has a Forex License from the FCA, for example. You must enter the FCA website to make sure that he is not lying.
Withdrawal and Delay Issues
If there is an unnecessary delay in withdrawals, this indicates that the broker is not honest and is hiding his true intentions, or he may be trading with this money or using it in other projects. Of course, this is against the policy of the regulatory authority from which he obtained a Forex License.
But in the event of a technical issue on the site, it is normal for there to be a delay in the withdrawal and deposit transactions as well. Many good brokers experience technical problems on their sites.
Customers reviews
Customer experience is very important. Customers’ opinions of the broker are very neutral. There is no benefit for customers to praise a broker who has defrauded them, right?
So if your friend or someone you know has tried a broker, let him tell you about his experience with this broker, or you can simply search for the broker you want on the Trustpilot website and you will find customer reviews on this broker, and the broker will also respond to them if there is any misunderstanding.
Conclusion
Forex licenses are very important to protect traders’ money from fraud and deception. There are many licenses in Forex. If you see a broker that does not have any Forex License, I do not recommend trading with this broker because it is not subject to any financial oversight. If the broker defrauds you, you will not be able to recover your money from the regulatory authority.
