Trading, like any investment, is a practice that involves risks. However, you can gain greater security by choosing a regulated broker to trade with.
A regulated broker is a company that holds your money, allowing you to trade financial assets through licenses. Several governmental organisations are responsible for verifying and controlling the legality of these brokers, ensuring that you invest in a regulatory and trustworthy environment. If any issues arise, you can seek help from a higher authority.
These organisations are called broker regulatory bodies. Their role is to monitor the broker's behaviour towards investors, supervise the transparency of their activities and services, and protect you as an investor.
Trading with a regulated broker won't eliminate the risk of losing capital, but it will give you peace of mind regarding the broker's practices. In addition, you'll receive reliability, security, and support whenever you need it.
Therefore, before opening a trading account, verify that the broker has one or more licenses granted by international regulatory bodies. Doing so lets you trade more confidently, knowing that a watchdog is watching what your broker does with your money.
The Top 6 broker regulators
1. Financial Conduct Authority (FCA)
The FCA is the regulatory body in the UK. It currently regulates more than 59,000 businesses. Among the large brokers that it supervises, we highlight Pepperstone and Plus500.
2. Commodity Futures Trading Commission (CFTC)
The CFTC is an independent agency of the United States government, which regulates the futures and options markets, to promote their transparency and financial soundness. Robinhood, OANDA and GFT are some of the leading brokers it regulates.
3. Cyprus Securities and Exchange Commission (CySEC)
CySEC is one of the central regulatory bodies in Europe. It is located in Cyprus, under the rules of the European Union, which gives it great prestige. You can be sure of the reliability of the brokers that this body regulates. Some of them are eToro, IQ Option, and Libertex.
4. Federal Financial Supervisory Authority (BaFin)
This body is originally from Germany and has become one of Europe's most prominent financial authorities. BaFin ensures the financial supervision of credit institutions and asset management companies in the EU. One of the leading brokers that it regulates is Pepperstone.
5. Australian Securities and Investments Commission (ASIC)
ASIC is a leading body in the industry and the foremost in Australia. It is an independent commission of the Australian government regulating financial and business services and enforcing the laws to protect consumers. Some brokers approved by the ASIC are XM, AvaTrade and Pepperstone.
6. Comisión Nacional del Mercado de Valores (CNMV)
This body is in charge of regulating brokers in Spain. Its objective is to ensure the transparency of the Spanish securities markets, acting mainly on companies that offer or issue securities to be placed publicly, on secondary securities markets, and on companies that provide investment services.
How to check if your broker is regulated
Remember that the same broker can be regulated by one or more of these organizations. That is why, if you choose a broker with a single regulation, you must ensure it is good (Avoid offshore regulators, which tend to be laxer in terms of their rules).
Finally, before choosing your broker, we recommend visiting their website, where their regulatory bodies should be listed, along with the license number. With this number, you can verify the regulation on the pages of the regulatory bodies to ensure the broker's reliability.
Remember that operating financial assets with a regulated broker guarantees that your money will be safer and that you will have support to turn to if things go wrong.