Nowadays, when regulations are constantly evolving, being compliant and having all relevant licenses is vital. As the forex industry has undergone lots of changes the past few years, and more are expected to come, full transparency, disclosure and fair trading conditions are necessary. Depending on where your company is registered or where your company operates, your broker needs to have the relevant licenses.

This article will cover how you can find out if a broker is licensed and regulated, as well as if they have any permissions or certain limitations regarding their company.

Check a broker’s regulatory status
First of all, all forex brokerages should have their licenses and regulations displayed on their website. These can usually be found at the bottom of their site, or through a dedicated page containing their legal documents.

Brokers are required to be registered or licenced. For example, Canadian securities laws require all people involved in the forex market, whether they are companies, or people involved in trading or advising to be registered with their local securities commission. In case of a registration exemption, they may not be required to be registered.

In any event, investors should first check the state securities regulators for any brokerage before they make an investment or a transaction. There, you will have access to extensive information about registration and regulatory status of a broker.

Where to check – U.S
If you are in the United States, there is plenty of information on brokers available from the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck website.

If you are partnering with a broker or simply trading with one, ask for all documents of your prospective broker from the CRD (Central Registration Depository). This is an automated database which includes information on licensing and registration regarding over 650,000 forex brokers.

License check example
For instance, if you want to check your UK broker’s license you should visit the Financial Conduct Authority (FCA) site and type the broker’s name in the Financial Services Register. You could also try typing their license number. Second step would be to see if the company is indeed licensed by the FCA. Third step would be to check the types of clients the firm accepts. For example, some brokerages accept institutional clients only. Next step is to check whether the broker has any limitations. The last step would be to check any other brand names that the specific broker uses.

Over-the-counter trading: ignorance of risks
Surprisingly enough, although traders from all around the globe are aware of these regulations, many of them are still incapable of complying with the rules and taking responsibility.

People participating in the financial markets are still ignorant of counterparty risk. This, however, is one of the major risks anyone in the financial spectrum can face. The foreign exchange market is an over-the-counter (OTC) market meaning that assets are directly traded between counterparties without being listed on an exchange. This also entails the risk of lack of reliable information regarding a company. As a result, there is an enormous amount of risk involved in an OTC market, so if you fail to choose your partner appropriately, soon enough you might come across some hidden liabilities.