Avoid Common Legal Mistakes in Forex Trading

by Penny Cooper on September 7, 2012

Forex trading is a risky business where a lot of money changes hands. Also as international currencies are involved; laws, rules and regulations are not always clear and precise. To counter these vulnerabilities most governments have placed stringent rules and regulations when it comes to foreign exchange trading. Forex regulations are controlled and monitored by various international bodies and they make sure that Forex traders and brokers adhere to these regulations. Unfortunately for these legal regulatory bodies, most Forex trades take place online and many illegal transactions are never detected. To make sure you chose a legal broker and to avoid common legal mistakes in Forex trading, read the following information on Forex laws and regulations.

Forex Regulation Bodies

  • FSA- The Financial Services Authority is a UK based regulatory agency. It was given statutory powers by the Financial Services and Markets Act of 2000. This independent body regulates and supervises the financial services industry in the United Kingdom. The FSA creates regulations, investigates Forex practices and enforces financial regulations and penalties. As an obligation, the FSA must have regard for the Principles of Good Regulation.
  • CFTC- The Commodity Futures Trading Commission was started in 1974. This independent body can issue foreign exchange regulations for financial markets in the US. Their regulations boost competition and efficiency in the markets and as a result assures economic utility of these markets. The CTFC shields traders and brokers from illegal Forex trading practices.
  • NFA- The National Futures Association is an independent agency with no specific connections to any market. By law, all Forex brokers must be members of the NFA to be able to operate in the US. NFA is a self- regulatory body protecting the American futures industry. This agency protects traders and investors and the integrity of the market by implementing foreign exchange regulations.
  • Other National Authorities- All countries have their own regulatory bodies and they decide Forex regulations specific to local needs. Brokers and traders must adhere to these country specific regulations. Make sure the broker you have chosen has a valid license in the country where they operate.

Rules and Regulations

Traders must avoid legal mistakes to continue investing and trading in the Forex market. Before choosing your Forex broker, service provider or dealer make sure you read these regulations.

  • Brokers must have approval from national regulatory institutions, which ensures that they maintain strict quality control levels. Dealings with such brokers are honest, safe and fair.
  • All Forex dealers, service providers and traders must have valid licenses in the countries they operate in. This is the first regulation you must check as you could be trading illegally if your broker is not licensed.
  • By law; periodical audits, evaluations and reviews are to be conducted on all licensed dealers and brokers. This ensures that they strictly adhere to industry standards and national regulations.
  • Forex brokers are bound by law to honour every contract they have with their clients. Brokers can lose their licenses if they fail to comply with the contract.
  • Foreign exchange brokers must maintain enough funds to cover their clients needs. This Forex regulation safeguards the clients and ensures that the brokers can complete the contracts they made with their clients.
  • Forex brokers and dealers must follow fair representation laws. They must disclose all the risks and policies involved in trading with them. Forex brokers cannot make false claims and promises of profits in the market. By regulation, brokers cannot promise profits to their clients.


Penny is an expert associated with a leading foreign exchange rates information company. Their website provides live Forex charts, prices and tools that help their customers compare foreign exchange. Customers can also transfer money, find foreign exchange news, guides, etc. on the website.

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