If you are somewhat new to trading, or simply looking for a new intermediary, you may get the feeling that regulated brokers don’t give you much. Indeed, their slogans don’t promise to make you a billionaire, and there’s no super-tempting bonus system. So let’s try to break it down and figure out whether ‘going regulated’ is really worth it.
Regulatory bodies supervise all players in the financial markets, including investment firms and brokers. The primary goal of a regulatory body is to make sure customers are subjected to fair financial practices. To achieve this – a set of rules and regulations must be imposed.
When a license is issued to a broker, it gives them the right to operate in a certain jurisdiction, as long as they abide by appropriate rules and regulations. If an entity fails to do so – their license may be revoked.
Benefits of Regulation
So far so good. But what do traders actually gain by being involved with a regulated intermediary?
Ensuring that your investment is safe, your trades aren’t meddled with, and no scamming occurs. The greater regulatory authority (which varies depending on a broker’s place of registration) is there to take care of such cases, which means there’s always someone for you to turn to.
In the event that your broker is to go bankrupt, you can stay assured that your funds will be compensated for appropriately. For example, to get their CySEC (The Cyprus Securities and Exchange Commission) license, and become regulated – brokers have to automatically sign up for the ICF (Investor Compensation Fund). Any non-professional trader is subject to compensation at a maximum amount of €20,000.
Regulation ensures that your investments don’t go in the same box as your broker’s capital. This way, a regulated broker can always attend to your withdrawal request, should you wish to file one.
No ‘Free Money’ Trickery
Unregulated brokers often come up with tricks to trap unsuspecting traders. And what easier way to do so than through a bonus? What many traders don’t know till it’s too late – is that their deposit gets intervened with the bonus (which is technically broker’s capital). Well-hidden policies then state such scam trader obligations, as trading a certain volume for each $1 of bonus to withdraw their money.
Risk Warnings and Other Precautions
Risk Warnings that regulated intermediaries are obliged to use, serve as reminders of risk, and aim to prevent you from getting completely blinded by the desire to get rich quick.
Dangerously-high leverage options, as well as money-enticing marketing schemes, are also forbidden for the exact same reason.
*Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.