Regulating the forex market finds its significance by attaining its prime motive of ensuring honest and principled behavior in handling business. When every entity involved with the forex market, like the forex brokers, associated banking agents, forex signal sellers, and others, abide by the norms put forth by the regulatory bodies, it results in the entire functioning, a cakewalk. Else it would be total chaos from every perspective. Germany highlights a peculiar cluster of the supervisory bodies of the nation and Europe and other financial bodies like insurance companies, international banks, and legal practitioners to provide able financial counsel. With all these in place, Germany has been proving well in world finance, too; therefore, the nation has been tagged as the hub for financial services and regulation in the world market.
Importance of Forex Trading and Forex Regulations
In a nutshell, forex trading can be stated to be similar to the exchange of currency one performs when he travels abroad. In other words, it’s the exchange of currencies based on their values. In an explanatory mode, forex trading is the kind of currency exchange in which the buyer buys and the seller sells currency. There exists a constant fluctuation depending on supply and demand. With about 10 million forex traders across the world today, forex trading has gained popularity due to its immense capacity for profit. It returns within a short duration from existing market scenarios. Forex trading is also popular because of the risks associated with it. Few among them mentioned are those arising out of volatility and fraudulent activities. Risks due to volatility impact much because the exchange rates go through a lot of fluctuations even within short spans of time, ending up in a loss of cash. Forex traders being tricked by false advertisements pushed by fraudsters pose greater risks.
Forex trading in Germany is neither an exception from these existing risks nor far from the path to popularity. The only way to avoid being trapped in these risks is the choice to abide by the regulations put across by regulatory bodies for those planning on doing forex trading in Germany. The prime motive of enforcing strict attention to adhering to norms and regulations is to overcome these risks encountered in an ethical manner. Careful observation of the proposed regulations brings in a streamlined process of trading that is void of confusion, maintains market integrity, protects traders from losing their precious money, and welcomes fresh traders to unite in trading.
Regulation of the Forex Market in Germany
Unless a dedicated, authentic regulatory body is independent and immune to modulations from political influences, being focused on proliferation and attaining heights in the forex market would obviously remain a daydream. Ideally, Germany being blessed with such regulatory bodies is one of the significant reasons for its reputation in the universal forex market. The Federal Financial Supervisory Authority, known as the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht), is one among them, which is entirely responsible for managing all financial firms operating in Germany. Every forex broker regulated by BaFin is expected to adhere to the strictly formulated extensive regulatory standards, which undoubtedly ensure the honesty of financial markets in Germany as well as other European nations.
The European Securities and Markets Authority, ESMA, is yet another financial regulatory body which is an independent European Union authority formed with the unique purpose of enhancing the protection of investors and empowering stability, orderliness, and integrity in financial markets. In order to obtain a forex market license, the broker has to produce a copy of the Incorporation Certificate of the firm he is applying to, the memorandum and the articles about the association, along with related amendments, the audit statements, and the declaration of compliance from corresponding authorities. In addition, the declaration must depict the absence of criminal cases filed against the firm seeking a license or its board of directors. As far as the obligatory requirements are concerned, reporting is done electronically to BaFin.
However regulated the market is, evil forces are always trying to penetrate. Quite a few misconducts in forex trading, which the regulators focus on stopping or punishing, are discussed in this space. One among them is insider trading. Insider trading is punishable when material information that is not publicly announced is leaked, leading to a decline in profits, the economy, and businesses. Then comes market manipulation, wherein inflation or deflation is performed artificially solely aiming for personal profits. In other words, with the intention to influence the way the securities behave, market manipulation is carried out. Performing unlicensed activity is the other misconduct in forex trading, wherein forex trading activities are carried out without obtaining the right permission legally. All these are offensive and deserve legal action as per the regulations.
Advantages of Trading in a Duly Regulated Forex Market in Germany
Choosing a regulated forex market to trade with has its own advantages. A few of them are as jotted below.
- Forex traders enjoy the privilege of experiencing trading operations that are genuine and transparent to the core, which aid them in arriving at preferably informed decisions to favor their trade. The reason for maintaining transparency is that forex traders regulated by defined regulatory bodies are forced by regulations to offer service to their clients with ultimate transparency, yielding no room for market manipulation to favor themselves. Additionally, they are also expected to present their financial reports to the regulatory bodies on a periodic basis failing which their membership is prone to face termination.
- Forex traders have their funds safe and secured. This is achieved because forex brokers under regulatory bodies are forced by regulations to refrain from mixing funds of investors and firms. Hence it goes without saying that the broker ought to maintain isolated accounts for his clients. The trader is prohibited from using his clients’ accounts, neither for his personal use nor to repay his creditors in case of encountering bankruptcy.
- While encountering critical situations, getting immediate contact with forex brokers overnight is tough to arrive at dispute resolution mechanisms. However, being regulated by regulatory bodies assures access to an interactive customer support help desk round the clock, with a readily reachable contact number, responsive email id, and a physically available person to take you through.
- Forex brokers regulated by regulatory bodies are prohibited from performing any fraudulent actions or malpractices, like meddling with the trading platform, price manipulation, unveiling positions against their privileged clients, or retaining clients’ money with no valid reason. Upon trespassing, the brokers are viable to receive extreme penalties to the extent of being banned further from the forex industry. Traders who make their choice to prefer regulated forex brokers are safe and immune to such fraudulent activities.
While comparing with unregulated forex markets, in spite of the enticing pros like the immeasurable bonuses, ease of access, luring trading options, and very limited procedures that are projected to be fulfilled, what prompts the forex traders to blindly opt for regulated forex brokers is a couple of cons encountered with the unregulated forex markets like the exposure to high-intensity risks and the unfair means of resolving intensified disputes. High-intensity risks include insecurity in handling traders’ funds, easy manipulations leading to the investors losing their trading positions, making fake promotions to fill their pockets, and the mental stress associated with these untoward practices.
With the handful of benefits vesting with regulated forex brokers that are evident, opting for such is advisable all the time. Here is a glimpse of the benefits of regulated forex markets and brokers – transparency in transactions, secured funds transfers, quick availability of forex trading experts in instances of critical situations, fraudulent activities under cautious scrutiny, and of course, peace of mind which is precious, and without a horizon. Though the decision to opt for a regulated forex broker or a market carries an ample set of procedures to be followed at the time of inauguration, it is worth doing due to the boundless privileges enjoyed thereafter.
Maintaining market integrity to its fullest is the need of the hour, without which all painful endeavors would land in the bin. This priceless integrity is achieved by the various regulative measures put forward by renowned regulatory boards in forex trading. Continuously remaining to abide by them religiously is what the various regulations and laws ensure.