Forex trading represents one of the biggest and most liquid markets across the world. Its size and scope present a host of unique challenges, and regulation happens to be one of them. A few decades ago, trading in currency was almost comparable to the black market. No rules or laws were regulating the forex market. Both investors and traders were at the mercy of banks and brokers.
Anyone that has a problem putting up with rules and laws would have thrived in the forex market at that time. Unfortunately or fortunately, the forex market has changed download.
In the current landscape, both governments and independent bodies establish important regulatory organizations that aim to regulate the forex market and bring transparency and equality to the market.
The primary purpose of supervisory bodies is to regulate the market by placing rules and standards that every brokerage company must stick to. Regulatory bodies’ standards and requirements include compulsory registration and licensing with a relevant regulatory body, frequent audits, compliance with current market prices, and transparency, to name just a few. The regulations ensure that the trade is ethical and fair to every party involved.
If you are a resident or citizen of Nigeria, you may have asked yourself if forex is legal in the country. The truth is forex trading is legal in Nigeria, but it is plagued by poor regulation. There is no specific regulatory body put in place by the government to regulate forex trading. As recently as 2018, the Central Bank of Nigeria held a meeting with the Securities and Exchange Commission to establish a regulatory body that will oversee forex trading, which is quickly gaining popularity across the country.
Most of the leading brokerages offering their services in Nigeria are foreign and regulated by various bodies, including the UK’s FCA and South Africa’s FSCA. Nigeria still features a majority of unregulated local brokers, increasing the risk of bad practices and scams run by forex brokers. Customers dealing with brokers regulated by FCA and FSCA benefit from strict standards and rules set by the foreign regulatory bodies which provide protection. However, customers still have to put up with a time-consuming and tedious process when settling disputes involving foreign brokers since they have to deal with a foreign regulatory body and not a local one.
This highlights the importance of forex regulation in Nigeria. As customers wait for the government to establish a local regulator, they are advised to do business with brokers registered with foreign companies. Like any other lucrative business, forex was an attraction for con-artists and fraudsters, making it important to have a regulatory body in place to come in when brokers do not stick to the specified standards and regulations.
Regulatory bodies are vital in establishing trust between customers and brokers since investors do not have to scrutinize every detail. They depend on the regulatory bodies to build trust. Customers can freely deposit money and trade without any concerns knowing that their finances are safe. Here are some of the advantages of trading through regulated forex brokerage companies.
1. They Handle Any Disputes Between Brokers and Clients
By creating a regulatory body in Nigeria, customers will have a platform to effectively address graft cases related to forex trading. Many people participating in forex trading in Nigeria have had to deal with scams such as Ponzi schemes, churning customer accounts, and boiler room strategies over the past few years. The regulatory body has the responsibility and power to analyze any party taking part in illegal practices through the law’s legal channels.
The problem with foreign regulatory bodies is that they can only deal with unethical or illegal cases under the jurisdiction. Nonetheless, they have helped significantly reduce unlawful practices in the Nigerian forex market thanks to their strict rules.
2. The Uphold Ethical and Fair Trading
A few years ago, when the forex industry was largely unregulated, the list of hoodwinking cases in trading was endless. Even in the current market, some traders still lose their money to greedy brokers. Regulatory bodies have made it increasingly difficult for such brokers to thrive in the market by setting strict rules and measures that every participant has to stick to. However, there are still some unethical practices and theft as some brokers move to markets with no real oversight, such as Nigeria.
As a forex investor, you need to be highly diligent to make sure that you do not deal with brokers with ulterior motives, as you can end up losing a lot of money. You can do this by sticking to dealing with brokers regulated by reputable bodies.
3. It Protects Customers
Another significant benefit of regulating the forex industry is to protect clients. Due to the strict rules, brokerages need to provide a layer of protection to the clients they do business with. Regulatory bodies frequently update the protection strategies to deal with loopholes and new risks that keep coming up in the forex industry.
Through sufficient regulation, the interests of every customer get needed protection, and their investment is secured since you get compensation in case something goes wrong with your broker.
4. Regulatory Bodies Prevent ‘Free Money’s Tricks
Unregulated forex brokers often come up with strategies to trick unsuspecting customers. They can promise free bonuses upon signing up for an account with them. In most cases, the reward is the broker’s money, but you cannot make withdrawals. Such brokerages don’t even allow customers to withdraw their deposits because they get mixed with the broker’s capital. Regulators can place stringent measures to ensure that such scams do not find their way into the market and enhance honest trading.
5. Regulation Helps Ensure Fund Segregation
There is no way your investment will go into the same account as your broker’s capital in forex markets with regulatory bodies. The separation makes sure that the broker can process your withdrawal request instantly.
In summary, regulation is an integral part of any business. Forex brokers need to stick to the standards and guidelines put in place by regulatory bodies. The regulations prevent them from exploiting unethical or illegal practices. For this reason, any Nigerian resident or citizen taking part in forex trading should work with regulated forex brokers to safeguard their investment and interests.