The fact that there is no physical interaction in online trading has increased the rate of scamming and other fraudulent practices in online trading. Given the high rate of funds lost daily to fake brokers and crypto exchanges, the government of each country has extended the roles of their financial service regulators to include all financial activities carried out online. The implication of this is that all online financial service providers must obtain licenses from these bodies to function; otherwise they could be considered illegal dealers. In the UK for instance, only the FCA regulated brokers are considered ideal for trading. This work has exposed the importance of online regulators in restoring sanity to the different online trading platforms.
What is online trading?
Online trading is the practice of buying and selling different digital assets online using a broker. Often these digital assets could have a physical equivalence or exist only electronically.
Meaning of regulation in Online Trading
Regulation in online trading refers to established protocols put in place for monitoring the activities of all the online financial service providers, especially brokers and exchanges. The purpose of establishing these protocols is to bring sanity to the different online trading platforms existing today. Regulation in online trading is designed to protect investors from scams, trade manipulations, and hijacking of funds. Thus, regulators ensure that each financial services provider complies with the given standard and presents an accurate account of all the transactions of the clients using their platforms for future reference and security purposes.
Who are the online trading regulators?
Online trading regulators are established government authorities assigned the task of foreseeing fairness and compliance in the conduct of all online financial transactions. These regulators ensure that various trading platforms such as forex brokers and crypto exchanges meet the standards for conducting financial services and can fulfill to their clients the required results of the completed financial transactions. Each country has got their respective online trading regulator. We have outlined them below.
List of major online trading regulators across the countries
- Financial Conduct Authority (FCA) – UK
- Securities and Economic Commission (SEC) – US
- Financial Services Authority (FSA – Japan)
- Australian Securities and Investment Commission (ASIC) – Australia
- Cyprus Securities and Economic Commission ( CYSEC) – Cyprus
- Financial Services Commission (FSC) – Mauritius
- Financial Markets Authority (FMA) – New Zealand
- Securities and Futures Commission (SFC) – Hong Kong
- China Financial Futures Exchange (CFFSE) – China
- Vanuatu Financial Services Commission (VFSC) – Vanuatu
- Financial Services Commission (FSC) – British Virgin Island
- Financial Market Regulators (FINMAR) – Switzerland
- Federal Financial Supervisory Authority (FFSA) – Germany
- Securities and Exchange Regulatory Commission (SERC) – Cambodia
- Monetary Authority of Singapore (MAS) – Singapore
- Cayman Islands Monetary Authority (CIMA) – Cayman Islands
Importance of regulation in online trading
- Security of investors’ funds: Online trading regulation helps to provide maximum security for investors’ funds. Here the regulators ensure that the brokers do not tamper with investors’ funds and have enough liquidity to pay for all the contracts signed with the investors using their platform.
- Standardization of trading platforms: Online trading regulators ensure that the different trading platforms can hold a large volume of transactions on their platforms with relevant structures that makes it easy for buying and selling.
- Compliance with the terms of the contract: Various online trading regulators scrutinize the contracts agreed upon by the broker and investor and ensure that each party fulfills his part.
- Fair charges for services delivered: Online trading regulators ensure that various trading platforms do not overcharge the traders for using their platforms. Thus, they establish a fair rate to be followed by brokers as the standard fee for using their platforms.