EU regulator warns about unregulated Forex brokers

The European Securities and Markets Authority (ESMA) has made a strong announcement warning retail investors to be wary of unregulated Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term brokers. The regulator, which is based in Paris, wrote a detailed paper on the subject after investors claimed huge losses in FX and CFD (OTC products).

The report is more of a 'how to guide' for retail investors giving them information on FX, how markets fluctuate, Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term and even trading via an online platform.

Undoubtedly an important reminder for investors who are not familiar with the dynamics of OTC margin products.

Most FX brokers in the EU are regulated with some authority; Cyprus and Ireland have been the notable locations after UK's FSA and Germanys BAFIN.

The report has key messages which include:

• Do your homework: check if the firm is authorised.

• Don’t use money you can’t afford to lose; you could lose more than your initial investment.

• Be aware that some product or service offerings could be misleading.

• Know the risks involved.

Source Date: 5 December 2011 ESMA/2011/412

The report has come when the European Commission has been discussing the Tobin Tax and MIFID 2. Forexmagnates team will be discussing MIFID 2 in the next quarterly report.

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