There is a great amount of forex news being released on a daily basis but very few items are directly connected to the profits and losses one can make. However, every now and then there is some forex news relating to the new regulations of the forex market. These regulations are generally seen as means of limiting the losses individual traders’ experience. However, there are some traders who feel that regulations on brokers will limit profits as well as losses. It is important to understand the regulations in place as well as the impact they may have on your profits and losses.
Finding the forex news about regulations
Before you actually look at what the regulations are and how they affect you it is important that you know where to find this information. Regulated countries will have a governing body that oversees all the regulations. In Australia that is the ASIC and in the United States of America that is the CFTC. These bodies will release the news relating to the regulations of the forex brokers.
The reason why forex brokers are the only aspect of the market that is regulated has to do with the structure of the forex market. As the market is decentralised there is no way to regulate the traders. This means that the only way to control what happens is through the brokers that retail trader have to use.
The capital forex brokers have
Another point that is often regulated in many countries is the amount of capital that the broker must have. Traders have not found a problem with this because it protects their profits more than limits them. The amount of capital that a broker had to have varied depending on the country they are in. However, now all regulated countries have increased the amount that these brokers have to have. In Australia this has been raised from AUD50000 to AUD500000.
By doing this the regulatory body ensure that the broker has a harder time going bankrupt. There are certain countries that have not increased the amount of capital they need.
The leverage on offer
In a number of countries the regulating bodies have limited the amount of leverage that a forex broker can offer. In the USA this has been limited to a maximum amount of 50:1. There are other countries like Australia where this has not been regulated and the brokers are still able to offer leverage of 200: or more.
Many traders see this leverage limit as a good and bad thing. While the limit does decrease the amount you could lose from using high leverage it also limits the amount you can make. Traders that use high leverage have stated that they understand the risks of what they are doing. They understand that they can lose the same amount that they stand to gain. However, with the regulations limiting the leverage they are no longer able to make the same profits on the small amount of capital that they are using.
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