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Reason #1: Choosing a regulated forex broker should be the topmost priority as the risk involved in the currency market is very high. A regulated broker is one who is committed to following some basic standards and rules pertaining to the forex market set up by the regulatory authorities. At the very basic level, such brokers have to function with segregated funds: that is, their funds for operation have to be separate from the funds deposited by the client for the purpose of trading. This, by itself, can save the client from a number of financial issues that are likely to occur in the future. The broker will not end up using the traders’ funds to cover up their own expenses.
Reason #2: A regulated forex broker will be one that has a good reputation in the market and will most likely want to maintain it. Having a good reputation in the forex market is not easy to come by and the forex broker would have worked hard to earn the same. In this context, it is also important for the trader concerned to find out if the broker is really regulated. For this it is enough if the trader sends a relevant email to the financial regulatory authority concerned. The regulation number is usually available on the website of the online broker.
Reason #3: It is also a good idea to check the customer reviews of the forex broker that you want to tie up with. Regulated brokers have a number of positive reviews which is one other reason a trader can work with a regulated broker. They would be in a position to help the trader make some profits in the trade.
Reason #4: In addition to all of these, regulated forex brokers will be committed to following some rules set up by the financial regulating authority. As part of these rules, a regulated forex broker would need to submit statement of accounts to the authority for the purpose of audit at regular intervals. Therefore, such brokers will be compelled to follow basic financial discipline in terms of maintaining the statement of accounts as well as transactions that take place. There are likely to be fewer scams with respect to such forex brokers and helps the trader to save his funds. Such brokers also use fair practices in that the trader will have each of the orders placed executed at the currently prevailing market prices. Thus there would be one hundred percent transparency.
Reason #5: In case the brokers has more than one branch that is functional and is operating in different countries, the trader should bear in mind that the broker should be registered with more than one regulator, that is, the authority appropriate for each country. As an example, a regulated broker in the US would be under the purview of the NFA and CFTC. In the UK, the broker would be regulated by the FCA. This ensures that the trader would be protected under all circumstances.
Reason #6: Another reason why a trader can opt to trade with a regulated brokers is that they cannot go over a leverage ratio of 50:1 for a major currency pair and 20:1 for a minor currency pair. Though higher leverages can help to generate higher profits for the trader, the potential risk to incur losses would also be very high for the traders. This ratio varies by the place of operation as well. For example, in Europe, it is common for brokers to offer leverage ratios as high as 200:1. It is essential for a trader to be informed about this.
Other factors such as ease of withdrawal of funds, a helpful customer support function, educational tools, etc., are basic characteristics that discern a regulated forex broker from others.
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