Many traders pay attention to broker licenses when choosing a broker to open a real-money account with. There are dozens of such licenses. Let’s find out the difference between them and why some of these licenses don’t guarantee fair brokerage.
The world’s most respected international licenses.
These are the most reputable international regulators:
· NFA (National Futures Association). It was founded in 1976 in the USA as a self-regulatory organization and watchdog of the commodities and futures industry in the United States. The NFA oversees and protects investors from fraudulent commodities and futures activities. The NFA also provides mediation and arbitration for resolving consumer complaints. It is headquartered in Chicago, IL and has an office in New York.
· CFTC (Commodity Futures Trading Committee). It was created by the US Congress in 1974 as an independent agency that regulates US futures and option markets. The stated mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.
· FSA (The Financial Services Authority). It is a quasi-judicial independent body responsible for the regulation of the UK’s financial services. The FSA regulates all the financial market. However, it treats Forex services as bookmaking, thus imposing considerable restrictions on Forex brokers.
According to the US-Canadian Association of Traders and Investors under , no American trader will ever choose a broker if it is not regulated by one of these 3 brokers. That is why in the rating of Forex brokers by , those brokers which have a NFA, CFTC or FSA license, got 70 rating points (maximum for this criterion):
National broker licenses.
They are granted by the state authorities of the country a certain broker is registered in (For example, Cyprus , Mauritius etc.) or the country where the broking company offers its broking services (Switzerland, Russia). In the rating of FX brokers by brokers with such licenses get 30 rating points (Switzerland, Cyprus , Russia) or 10 points (other offshore zones like Panama, New Zealand, Mauritius etc.)
Here is the list of brokers with national licenses:
Which licenses are the least reputable and why is such a license worth only 3 points in Masterforex-V rating of FX brokers?
Such a “license” grants membership in private associations of brokers. For example, in the Russian Federations there are 3 associations like that: CROUFR, Russian Association of Financial Markets Members (RAFMM), National Association of Securities Market Participants (NAUFOR).
According to Evgeny Olkhovsky, these are nothing but some unions of Forex brokers and dealing centers created to pursue their own goals and to defend their own interests.
CROUFR members are: Forex Club, Akmos Trade, Alpari; Masterforex (please, don’t confuse it with ), Grand Capital Ltd., Admiral Markets, Adrenalin Forex
RAFMM members are: United World Capital, LiteForex, InstaForex, Corsa Capital Investments Corp.
NAUFOR can boast over 100 members.
Can licenses guarantee fair brokerage?
There are some licensed brokers that haven’t paid profits to some of their clients:
· Ikon Group refused to pay 17 000$ to a student despite being licensed by NFA and CFTC;
· The infamous Broco also refused to settle accounts with 2 students of
It means that a license is an important factor. But alone it is not enough to trust a broking company. It is necessary to make a complex image of a certain broker. For example, ’s rating of FX brokers is based on 16 independent criteria.
No let’s look at the summary table:
The following brokers have no licenses at all: FreshForex, Sunbird, Kalita Finance, EasyForex, MMSIC GROUP. Sunbird, FreshForex and MMSIC GROUP are in the process of getting a license.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
What should traders pay attention to when opening a real-money trading account with a certain broker?
