Does The License Of A Broker Determine The Value Of A Trader?

Foreign exchange brokers come in a variety of shapes and sizes. They all strive to diversify through maximum leverage, minimum spreads, deposit and withdrawal options, and various other functions that help them stand out.

However, the agent has the function of completely changing the brand, which may affect or affect the marketing activities and bring bad luck to the whole company.

Of course, I am talking about the financial supervision license. Almost all countries have financial institutions to supervise the operation of foreign exchange, balance contract, cryptocurrency and other financial asset brokers.

Each country has its own views on what foreign exchange brokers should show, which can be a perfect way to screen options that customers can have.

In this article, I would like to discuss the competency indicators of intermediaries based on regulatory licenses. I hope you can help as a futures trader at some time.

EU regulations

EU restrictions may be more diversified. For example, most intermediaries who wish to enter the EU financial markets tend to obtain licenses from the Cyprus Securities and Exchange Commission(CYSEC) or the Malta Financial Services Authority(MFSA).

The only other option they usually have is the Financial Conduct Authority(FCA), which will allow them to enter not only the European Union market, but also the UK market.

But what does the license of these countries mean for the company? Will this make them more reliable and able to trade? Well, no.

You see, brokers are always subject to the restrictions of the EU regulatory authorities. They should not only comply with the laws of specific countries, but also comply with the laws of the entire EU. The restrictions of the European Securities Market Authority(ESMA) promote this. The ESMA has been criticized for being too strict, but at least has the ability to prevent any fraudster from passing through the firewall.

In terms of reliability, EU regulated intermediaries are some of the best intermediaries, but this does not necessarily make them perfect intermediaries from a financial perspective.

Look, ESMA has strict restrictions on the issuance of contracts for differences, which are very popular in the world. Intermediaries under the supervision of the European Union can provide 1:30 leverage only in foreign exchange difference contracts, and lower leverage in stocks and bulk commodities. This is where they can gain considerable benefits in a single transaction Because of the inhibition ability, this has become the most unlikely choice for traders.

But in order to protect ESMA, their limitations do help prevent unnecessary risks.

Another major security advantage of ESMA regulatory intermediaries is the separation of customer funds and company funds. This means that banks that cooperate with intermediaries and banks that have corporate accounts set up separate accounts for customers. If intermediaries encounter any technical difficulties or business interruption, their funds will be protected.

This is an additional security provided to traders in the region.

Extraterritorial and non EU licensing.

An extraterritorial license may mean almost anything that does not belong to a particular country/region. However, in most cases, representatives of extraterritorial regulators are Saint Vincent Grenadine, the Marshall Islands, Vanuatu, and other countries around the world.

However, the term “extraterritorial” has gained quite a bad reputation among foreign exchange traders, but for good reasons. For example, the possibility of foreign brokerage companies becoming scams is three times higher than the possibility of EU regulating foreign exchange brokerage companies.

However, unlike EU brokers, foreign brokers do not need to comply with very strict regulations on providing services to traders.

For example, foreign CFD brokers do not have to limit leverage to 1:30, sometimes 1:700 or higher.

This gives them some advantages over EU dealers, which attract senior traders to trade securities at profit. In most cases, this is perfect, and traders do not have to face financial problems to choose companies.

The Georgian foreign exchange market is an example of this. It is relatively new and small in scale. However, the government there has taken full responsibility for supervising intermediaries, so they can not only provide good services to local people and international customers, but also have a high level of security in the rule of law and anti money laundering.

Therefore, many Russian, Georgian and Armenian traders have transferred from international brokers to local brokers in Georgia, hoping to make better choices than EU brokers.

Is there a final version of the license?

From a broad perspective, most regulatory permits are quite similar. All these rules require the agent to have undeniable AML and KYC rules. All these rules require that if the financial loss is the fault of the company, regional and foreign agents should be compensated accordingly.

In addition, changes in maximum leverage, minimum deposits, bank account segregation rules and specific license prices are often obvious.

Many people don’t know, but every license has a price. For example, the licensing cost of FCA in the UK is much higher than that of FSA in Vanuatu, which is one of the reasons why brokers choose extraterritorial restrictions.

In most cases, the reliability of brokers depends on whether they have a legitimate license.

Therefore, if the broker has a license, 90% may be legal, if not, 20% may be legal.

The quality of the license may vary by price.