Factors to Consider When Choosing a Online Broker

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Factors to look for & consider when selecting a trading broker

Regulation is one of the guideline of choosing a broker. As a new trader your first challenge is to choose the right one. Best ones are those which are regulated. This should be the type of firm that you should choose: a regulated trading broker.

It is not as easy as it sounds to choose a good one & the whole searching process might leave you confused due to and because of the huge competition between them, as they all offer different softwares, trading services, order execution and capabilities. Best criteria in selecting is to find a regulated one.

Brokers operating under regulation are mandated to submit comprehensive annual records of all their transactions to the overseeing regulatory body for rigorous auditing. This obligation prevents these firms from engaging in illicit operations, such as money laundering. This explains why, upon registration, your broker requests documentation verifying your identity and proof of residency from traders: this context clarifies the purpose when you are asked to provide these documents during the account opening process.

Below is a List of Some Online Regulatory Authorities:

National Futures Association (NFA) - US

The NFA regulates all US based broker companies, official website for NFA is https://www.nfa.futures.org/ where list of USA online brokers are shown. NFA doesn't issue licenses to other international, unlike other regulatory authorities, NFA only will license America based brokers. NFA just like CFTC have very overbearing regulatory rules which aren't favorable to the traders themselves. When NFA and CFTC enforced stricter rules, many international brokers closed their US-based branches or were compelled to transfer accounts held by US citizens. This reaction followed threats of legal action from the CFTC against non-US firms opening accounts for American residents. This is why most brokers will not accept USA Clients.

Commodity Futures Trading Commission (CFTC) - America

CFTC regulates all USA based broker companies, CFTC is Similar to NFA

Cyprus Securities and Exchange Commission (CySEC ) - Cyprus

CySEC regulates all Cyprus brokers, the official site is https://www.cysec.gov.cy where you can search for the registration and licenses number of those brokers licensed by this regulator. The CySEC regulates online brokers operating within the EU EU Zone Jurisdiction of Cyprus Country.

FCA - Overview of the Financial Conduct Authority as of 2013 - United Kingdom

Previously known as the FSA, the regulatory body is now named the FCA: relevant regulation details can be sourced from either entity.

FSA regulates all online brokers in United Kingdom, the official web site for FSA is https://www.fsa.gov.uk/ this website contains a list of brokers licensed in UK. FSA also registers other international firms & indices based firms from other countries that have an operating office within United Kingdom. To check whether the financial institution you're trading with is regulated in United Kingdom just navigate to FSA Register.

German Federal Labor Market Authority (BaFin ) - Germany

BaFIN regulates all German brokers, the website for BaFin is https://www.bafin.de & BaFin is the German Federal Supervisory Authority for Investment brokers and institutions operating within German.

Australian Securities and Investments Commission (ASIC) - Overview of ASIC in Australia

The ASIC regulates all financial corporations in Australia

The Financial Futures Association of Japan ( FFAJ) - Japan

Regulates all Japan based financial corporations

Swiss Federal Department of Finance ( FDF) - Switzerland

FDF regulates all Swiss based financial corporations

Canadian Investor Protection Fund ( CIPF) - Canada

CIPF regulates all Canadian brokers

MiFID, Markets in Financial Instruments Directive

MIFID sets rules for EU brokers, not an agency itself.

International Financial Services Centre ( IFSC) - Mauritius

IFSC regulates all Mauritius brokers

Top regulators hold the most trust. Pick a broker licensed by one of these well-known ones. They rank as the favorites.

US Broker Regulations and Regulatory Authorities Explained

NB: Something you should know about regulators is that you might not want to pick NFA or CFTC American Regulators, because they have very strict rules:

Maximum Leverage 50:1
First In First Out FIFO Execution (open transactions on 123 order, must close them out in 123 order, not 321, not 312, not 213 order)
No StopLoss Order Setting

It is due to the foregoing regulation that numerous traders chose not to establish accounts with US-based brokers: a significant population of traders who previously dealt with American brokers subsequently closed their accounts and relocated their operations offshore around the year 2010 when these rules were implemented.

Also, these regulators will take legal action against any financial broker that lets US citizens open trading accounts. That's why brokers don't allow American citizens to open accounts. Only those living in the USA can open a trading account for someone who is a US citizen. The only online brokers that accept US clients are the ones located in the USA.

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