Forex trading has become one of the most popular online businesses today. The advent of online brokers has made it possible for individuals to trade forex from the comfort of their homes. Many forex brokers have therefore emerged to render financial services to traders across the globe. To monitor the activities of the existing forex brokers, various countries have created some regulatory bodies to scrutinize each broker rendering financial services in their country. Thus, we find the SEC in charge in the US and FCA in the UK, and so on. This work has paid greater attention to the regulation of forex brokers in Australia. The reader will learn from this work about the major forex regulatory authority in Australia and the major expectations from all forex brokers operating in Australia.
Meaning of forex brokers
Brokers are intermediaries between the forex trader and the exchange market. They are charged with executing the individual’s orders directly at the market and delivering the returns afterwards. This could come in the form of profit or loss depending on the price difference between the trader’s entry and exit. Not all brokers are known to deliver the trader’s order directly to the market. Some often mimic the market prices and take the opposite side of the trader’s position. We have therefore discussed the major types of forex brokers below.
Types of Forex Brokers
There are three major types of forex brokers such as:
- Electronic Communication Network (ECN): ECN brokers are a special type of brokers that execute the trader’s orders directly at the market. They usually charge the trader some commissions for the services rendered. This commission charge is called spreads.
- Desk Dealing Brokers (DD): This type of broker is known to mirror the market prices of various assets and present them to traders. They often take the opposite position of each trade taken by the trader and hope to win against the trader in each trade he takes.
- Market Makers (MM): This type of broker often served as liquidity providers in the market. Often they purchase various financial assets and resell them to buyers at higher prices. The market makers link both the buyers and sellers together and provide the desired service.
Major forex brokers regulators in Australia
Forex brokers in Australia are regulated by the Australian Securities and Investment Commission (ASIC). Every broker seeking to operate in Australia must first register with this regulator, otherwise, its activities will be considered illegal. Only the brokers registered with this body are considered the legal forex brokers in Australia.
Thus, any broker operating in Australia that fails to register with ASIC is usually blocked by the local ISPs.
Before a broker is granted a license to operate in Australia, it is expected that the broker must first create a physical office and presence within the country and also submit their office details to ASIC.
Aside from these, there are several standards set by ASIC that every forex broker operating in the region must abide by. This includes having at least $1 million (AUD) as working capital deposited separately in the bank. This is to ensure that they can pay their clients whatever profit they make from the market.
Added to this, brokers are required to hold the traders’ funds in a segregated bank account. This will ensure that the broker does not divert the traders’ funds for personal use.
Above all, a limit has been placed on new traders on the initial amount they can deposit with a broker using a credit card. The initial transfers must not exceed $1,000 (AUD).