Cryptocurrency Exchanges, Forex Brokers Making a Move: Following the ongoing crisis, scams and other unwarranted activities, the situation of crypto exchanges and foreign exchange brokers is getting dreary with the progress of each day, week, month and year. The prime reason is countries guarding themselves up against any supposed cyber attack. They are making stringent laws, which are posing difficulties for websites offering brokering services to comply. In their defence, the new regulations and authorities say that all the protection and shield are there to protect newbie traders from losing money. They are not aware of market tactics as well as fundamentals.
Restriction In The Russian Market
In 2016, Russia started to tighten the noose against forex markets. With the effect of the legislation coming into the formation of regulation, Federal Law No. 460 became effective. On 29th December 2014, it was present there with an unofficial. It empowered the Central Bank with powers to control the activities and actions of forex related platforms as well as brokers.
Here are some of the essential provisions it inflicted on forex brokers:
- Only currency pairs were the legitimate entity for transaction in the market and recognised as legal assets and instruments. Rest get debarred citing illegal.
- Without the impending license from the Central Bank (Russian Federation), a forex broker cannot work in the territory of the federation.
- It is a must for every forex broker to possess at least 100 million rubles that enables them to make a payment to their clients.
- A forex broker can also provide a maximum leverage of 1:50
- They have formed a self-regulatory organisation, whose primary job is to prevent forex brokers from failing in their obligations to clients. Adhering to it, they have a group with a membership fee of two million rubles. They have made it mandatory for a forex broker to join them.
Regulation for Crypto Dealers and Markets
Going gung-ho, Russia is developing a law for digital financial assets. The draft says that Russian people won’t be able to use the services of foreign cryptocurrency services and exchanges, which may sound a bit draconian as per the rules of globalisation. And if a Russian company wishes to jump in the market would need to fulfil a barrage of formalities. It will be quintessential for them to get a license from the Russian federation’s Central Bank and then abide by the rules of SRO to submit the security money for adhering to customers’ obligations.
These stringent legislative rules are forcing the owners of cryptocurrency and forex portals to move out of the land in search of safe havens. And one such nation that they are finding their mojo is the US. The world’s most powerful country is also accepting them with open arms. Due to that, forex brokers are moving their base out.
Let’s Learn about The Forex Regulation of The US
NFA(National Futures Association) and CFTC (Commodity Futures Trading Commission) are two of the biggest institutions and authorities that look after and regulate activities regarding forex brokers in the US. Besides, these organisations have the authority of issuing licenses.
All legal forex brokers that comply by the regulations of NFA have its membership. Anyone looking to receive RFED(Retail Foreign Exchange Dealer) license has to contact with CFTC. It is happening since 2008.
RFED provides the permit to forex brokers willing to work in the market. The following requirements to obtain permission:-
- The maximum leverage here is 1:50.
- The report submitted to CFTC must be transparent.
- Minimum funds required here to start proceedings- $ 30 million.
- They should get the membership of NFA, which would require an annual contribution or fee of $ 125,000 per year.
- The trading tools also available to legal forex brokers of America go beyond currency pairs.
- No one forces brokers to publish data of profit-loss for each customer.
- After getting banned due to misfortune like bankruptcy, they are not liable to pay customer deposits.
So, going by the facts above, the forex broker migration will soon witness a mammoth rise to the US.
In the same league, the European markets are finding good bargaining in forex brokers. They render convenient offers and laws.
Requirements For Brokers To Start Trading in European Markets
ESMA is the European regulator which has the task of monitoring all activities pertaining to forex exchanges as well as brokers. In the year 2012, it started its operations. After a few years of working, it introduced some rules requiring the companies to meet. Here are they:-
- Use of binary options as tools not allowed.
- For preventing traders from the menace of negative balance, forex brokers need to bring measures.
- Forex brokers can only offer leverage of 1:30 to clients.
- They need to publish information related to profit and loss for each individual.
Out of the all, the most strict decision or rule is to let everybody know the profit as well as the loss for every trader. Besides, they even have to inform the proportion of the money lost by an investor. Putting such sensitive information across the platform pushes clients away from forex brokers and trading. Even advertisements are not helpful to draw potential customers.
That’s why, on hindsight, the US market is in a win-win situation due to its liberal approach toward forex brokers.