The forex market has exploded in recent years, some estimates even suggesting it has doubled in size in a little more than a decade with an estimated $80 trillion in forex being traded today.
A rise in traders flaunting lavish lifestyles on social media platforms such as Instagram has prompted many others to follow suit and try to leave behind their 9-5 lifestyle.
However, with such a large rush by so many to get trading, it can open the door for somewhat less scrupulous people to set up trading platforms that are unregulated and carry far greater risks than ones that are aligned with official bodies.
Not all unregulated platforms are scams, however. Here we will look at the differences between regulated and unregulated brokerage platforms and what using each might mean for your investments.
Features of a regulated forex broker
- Greater protection: As they are bound by regulations concerning the storage of funds, you can be confident that the money you hold on the platform is properly protected. Volatile markets such as CFDs will also be properly explained and managed to protect your investments.
- Dedicated customer service: If you have any questions about the platform or trading in general, regulated brokers are duty-bound to have customer support services available to assist you with any queries you may have.
- Transparency: From where escrow funds are kept to opening hours and future developments of the company, regulated brokers will be quick to share these things with you and always act in a transparent manner, giving you confidence that your investments are in good hands.
What to know about unregulated forex brokers
- They may be smaller organisations: Just because a broker is unregulated, it does not automatically make them unscrupulous. Many smaller and newer platforms may not be able to afford the costly fees that come with regulation from the off but still operate as though they are regulated before it becomes official.
- Greater risk: Of course, any investment is a risk, but what if you can’t get paid out when your investments succeed or withdraw money if you decide to go in a different direction? No regulation means no accountability and behind a shiny platform may be no escrow services and not a lot of liquidity.
- Be wary of sign-up bonuses and offers: Flashy offers and promises of industry-beating returns should be immediate red flags for you. Any regulated broker will make you acutely aware of the risk that you are taking by investing. Any platform that pushes you into doing so ought not to be trusted.
Why should you care when choosing a forex broker?
Put simply, it’s your money! If you have experience in trading and you know what you’re getting into by signing up with an unregulated broker then you may be able to make more from your investments.
However, if you’re newer to the process, then it is definitely advised to remain with regulated platforms where you can make mistakes and only lose what you’ve invested and not potentially much more.
