When you’re a forex trader, you’re exposed to a great amount of risk. Many market movements may be out of your control, but a number of things can be controlled by you to limit your risk. Just one of these is your choice of broker.
You want a broker that works for you. One that’s regulated properly, protects your funds and doesn’t expose you to unnecessary risks. By selecting carefully, you essentially provide yourself with a type of “forex insurance”. Here’s how to check your broker is properly regulated and how to check your money is safe.
What Makes a Broker Safe?
Segregation of Funds
You should ensure that your broker keeps your funds separate to theirs are a company, and they should always be kept in separate bank accounts.
This will ensure that your funds cannot be used for any other purposes and you should be able to see whether this is the case through the company’s website, or through their independent auditing. All of this should be transparent if your broker has nothing to hide.
Investor Protection
You should also be protected. Many top brokers sign up to the Financial Services Compensation Scheme (FSCS) and the Investor Compensation Fund (ICF). Your eligibility to claim will always depend on the status and the nature of the claim, but it gives you an extra layer of protection.
They Should Take Additional Measures Too
It isn’t a requirement, but top brokers will diversify the funds of their customers across banks and regularly monitor credit risk. Your funds should also be kept in a reliable bank, such as the Bank of America, Royal Bank of Scotland, or Barclays Bank. Your funds should also only be kept in jurisdictions where segregation of client funds is supported by the local legal framework.
What Regulations and Memberships Should They Have?
Financial Conduct Authority (FCA)
They should be registered with the Financial Conduct Authority. This is a leading, independent, non-governmental body, which aims to protect consumers, improve integrity within the financial system and promote competition with the interests of consumers in mind. Leading brokers, such as FXPro, will even place their registration number on their homepage, so you should easily be able to check if your broker has this accreditation.
Financial Services Compensation Scheme
They should be a member of the Financial Services Compensation Scheme (FSCS). This is the UK’s statutory fund of last resort for customers of authorised financial services firms. They can pay compensation to you if your broker is unable to pay your claim against them.
By ensuring that your broker is a member of these bodies and meets the above criteria, you will provide yourself with as much protection and the best form of forex insurance possible.
