Retail Regulation: a necessary framework to secure the future of e-FX

Once upon a time, retail forex was the wild child of financial markets. It existed on the fringe of the financial markets, and was plagued by insolvency and fraud. That was then. Now, regulation of the industry in most major markets is rigorous: retail forex firms today are subject to lengthy audits covering everything from capitalization to marketing practices. In fact, retail forex today is actually one of the better regulated -- and more transparent -- financial markets in the world.

First Published: e-Forex Magazine 33 / Leader / October, 2008

This was dramatically illustrated during the recent meltdown in US financial markets. The subprime/CDO debacle destroyed one of the world’s largest brokerages and undermined the market value of the rest. It shuttered several community banks, crippled the mortgage industry and inflicted severe losses across the financial services landscape. Apparently, the shrewdest derivatives traders on Wall Street were permitted to traffic in financial instruments they never examined, didn’t properly evaluate and couldn’t assign a risk to. The brokers and their customers continue to pay dearly. At the same time, retail forex was experiencing one of its most turbulent periods, with record volatility generating a tremendous burst of trading. Nevertheless, thanks to regulatory controls, American retail forex firms had more than enough funds on hand – and exact knowledge of their capital position and risk exposure -- to accommodate the trading tidal wave. Since retail forex firms are not...continued

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