Foreign Exchange, also known as Forex or FX, refers to the trading transactions of one currency to another.
The transactions take place through an electronic network of banks, traders, brokers, and institutions, which are collectively known as the Forex Market.
The foreign exchange market is open 24 hours a day and five days every week across the global financial hubs, allowing any time to buy and sell currencies anywhere in the world.
Now, forex trading operates through the known exchange rate value of the currencies in the market, changing one currency for another at a local bank in its basic form.
It comes in pairs, indicating the two kinds of currencies to trade and its associated price of conversion.
Foreign exchange used to be an idea for governments, big companies, and hedge funds. But today, anyone can do currency trading through easy access to online trading schemes.
Forex Market Regulation
Forex is now regarded as the largest market in the world as it gives central banks down to retail investors the power to maximise currency fluctuations for increased profit. And to promote conduct regulations applicable for all countries, preventing misuse and fraudulent actions, forex trading legislation and regulation are enforced.
Each country has the responsibility to control its brokers who execute the trades, and those that operate from overseas. It is mandatory to get the relevant workers educated on the legalities of foreign exchange.
Brokers should function in adherence to the set of guidelines and regulated by licencing rules inside a financial institution. Violating the trading regulations can be reported and then subjected to lawful investigations.
No centralised body governs all the foreign exchange markets in the world. But there are independent authorities that regulate currency trading in every country to protect traders on a more direct level.
Some of the financial governing bodies across different countries include the Cyprus Securities and Exchange Commission, Markets in Financial Instruments Directive in Europe, and the central bank in Indonesia.
The United States of America operates the most rigorous forex regulations. Several licences should be issued to rightful brokers, including the Futures Commission Merchants and the Retail Foreign Exchange Dealer. The Commodity Futures Trading Commission licensed both these authorisations.
Common Laws Governing Forex Trading
Entering the world of foreign exchange poses personal and career-wise risks for traders. Thus choosing a licensed broker is vital before going in. Everybody should ensure that their money is secured when liquidation and bankruptcy are bound to happen.
Some of the forex regulations include the legislation of a valid licence to operate such activities in a particular country of residence. Failure to comply with the provisions and the absence of the broker licence implies misconduct and execution of illegal trading measures.
Every licenced forex dealer or broker is amenable to periodic evaluations and audits of its operations and deliverables to ensure full compliance with national regulations and forex standards.
And they should honour the contracts with each trading client, which they have signed in confidence. Forex regulatory authorities can sanction violators with penalties, including suspension and invalidation of their licences.
Forex trading firms like EverForex have more than enough funds to cover for the investment of their traders, as well.
And they should be transparent with their clients in terms of disclosing all information that they should be knowledgeable about, including the potential risks involved in forex trading.