Can an offshore FX regulator be trusted?

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If you’re reading this, then you have probably identified a really good broker with all the qualities you were looking for, except that they are regulated by an offshore regulator. Now you’re wondering whether you can trust this regulator to do as they claim on their website. Most of us have been here, and it’s sort of a mixed bag. As with all things, some of them can be trusted but most should not. The trick is to find that needle in the haystack by learning how you can identify a trustworthy regulator.

What are the signs of a trustworthy regulator?

The first thing you should do is find out who they are in bed with. Most FX regulators will have a list of forex brokers they have licensed on their website. After going through the list, check out some of the brokers they have licensed on forex broker review websites to find out what their clients have to say about them. Of course, you can’t learn about all their brokers, but just select a sample.

If the regulator is in charge of a bunch of brokers with a terrible record, then you should not trust that regulator. Trustworthy brokers have little tolerance for brokers who have a record of swindling people, so these brokers will flock to a lenient regulator. Remember, these forex regulators depend on license fees from forex brokers to pay their staff, and they may ignore violations for the financial incentive.

So, the first sign of a trustworthy regulator is one who is in charge or forex brokers with a good record and reputation among their clients as it shows that the regulator is keen to root out bad brokers.

Next, you should know the regulator’s own record. This should be easier, and just involves googling any cases, fines and warnings the regulator has issued to their forex brokers. Just think of it in terms of school – the teacher would warn one student causing a ruckus to stop, and the rest would too. Sometimes a trustworthy regulator will do the same with brokers – warn or fine one of them so the others don’t cross the line. It’s the old ‘give them an inch…’ metaphor, where a broker may try something sneaky, and if not caught they will continue doing it. Warnings and small fines on one forex broker will keep all the others in check.

Now look at the forex regulator’s website deeply, after all, if they are offshore, it will be your only means of communication. Trusted forex regulators will have a good website complete with a record of all forex brokers they have registered and even additional information. If the forex regulator’s website a broker is licensed to does not look professional, then you can assume that is the kind of service you shall get. There is also no problem asking them a question by email, just to see how quickly they respond.

Finally, there is an unofficial list of trustworthy forex regulators in the world. The NFA in the US and FCA in the UK are sort of tied in first place, while ASIC in Australia is also a favourite. CySEC in Cyprus is tricky because they are home to both good and bad forex brokers, but they have recently amped their efforts at rooting out bad forex brokers. Therefore, in a way, they too are trustworthy but you will have to do a lot more research on the brokers themselves.

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