Comparing EU and US Forex companies for Canadians
As a result of many regulatory agencies in Canada and the absence of a national law that compels brokers to set up their office in Canada, Canadian Forex traders has a limited choice of the number of brokers resident in Canada.
Trading Forex in Canada is legal. However, to trade Forex in Canada, there are regulations that the trader must keep to, but these regulations vary depending on your state or province.
The CSA has stated escalating instances of complaints from Forex brokers outside Canada who wants to attract Canadian customers. The United States Commodity Futures Trading Commission (CFTC) also revealed that majorities brokers didn’t have adequate protection in place for their traders and noted that most brokers operate fraudulently.
The CFTC concerned about the development sent an advisory report and developed a website to warn people of the enormous risk involved in Forex trading.
The United States Securities and Exchange Commission (SEC) in its investor bulletin of on July 20, 2011, specified a few risks of Forex transactions to individual investors.
The European Securities and Markets Authority (ESMA) also warned investors about Forex risk on the On December 5, 2011.
EU Forex regulations
The Forex regulation in the EU is highly regulated and more than the existing rules in Canada. EU, recently, created a unified regulatory body for all brokers that operate in the European Union. The body is called the Markets in Financial Instruments Directive or the MiFID. The primary duty of the organization is to unify the European Union’s financial markets and enhance the number of cross-border Forex investments.
Best 10 European Forex Brokers
One can reasonably assume that brokers from the US, the UK including those for other EU member states are the most trusted and reputed globally.
However, there may be some reasons why a Canadian Forex trader may decide to stick with Canadian brokers. The main reason behind such choice is the Canadian Investor Protection Fund (CIPF). This fund offers traders compensation of up to one million dollars if their broker files for bankruptcy or gets liquidated.
The protection fund is a huge sum when compared to only 50, 000 pounds complementation allowed for traders in the UK by the FCA.
Besides, Canadian regulation does not restrict their traders like the NFA and the CFTC.
Are Canadian Forex Traders allowed free choice of world’s top FX brokers?
Canadian allow traders to freedom to choose to trade with any broker of their choice globally. However, there are some limitations to Canadian traders as a result of the national regulations in those countries. Also, Canadian financial laws and gambling, in general, may limit the trader’s choice of highly ranked Forex brokers, especially the best ones, well-known in the world. Many standard Forex trading platforms especially those that EU based brokers do not accept Canadian traders. They state clearly on the website that Canadian Forex traders are not allowed.
Canadians traders can trade with any broker, but with specific Canadian Forex brokers like Websites for Forex trading that either has an office in Canada or are regulated by Canadian body or by other reputable independent regulatory agencies.
Primary Regulatory Authority For Forex Brokers in Canada
The financial market regulatory structure in Canada is still at its nascent stage of development. Unlike most developed nations of the world, Canada gives its citizens the right to trade Forex with overseas FX brokers who don’t have a license to operate in Canada. Canada has the most significant amount of regulatory organizations bodies than any country in the world because of the non-existence of a unified regulatory body.
Brokers who want to register and operate in Canada need to enroll in the province they wish to establish their office and as well register with the Investment Industry Regulatory Organization of Canada (IIROC) if they hope to provide margin Forex trading.
The current Canadian Law allows Forex brokers to function in Canada without a Canadian regulatory license if they have a reputable international permit. Canadian traders also commonly choose Forex brokers that meet their trading needs abroad. Many brokers render unique services and have distinct features that determine the choice brokers a trader makes.
Canadian Forex Brokers vs. American Forex brokers
- The trading rules governing Canadian Forex brokers vary from the trading rules imposed by the US brokers.
- A US Forex broker must comply with the rules established by the NFA and CFTC like the as FIFO rule, optimal leverage of 1:50, and rejection of hedging strategy.
- The Forex trading rules in the US are highly restrictive. The regulatory bodies make policies that prevent traders from losing their funds. Though some of these laws minimize Forex risk, they are highly restrictive in nature and not favorable to retail traders.
- Canadian Forex brokers, on the other hand, do not impose trade restrictions on their traders; however, the country’s financial policies change regularly to curb incidences of fraud.
- Canada makes it easy for traders to send and receive funds from foreign brokers in so far as both the Forex trader and the company stick with all anti-money laundering regulations.
- Sending money to a foreign Forex broker in the US, on the contrary, is illegal. Same applies to other countries of the world.
- The US law is strict against foreign payments as a result of the potential of it to threaten national security.
- The CIPF offers one million dollars compensation to Canadian traders if a broker goes insolvent.
- The UK compensation of fifty thousand pounds is small compared to that vast amount permitted by the Canadian law.
EU brokers Vs. US brokers
For brokers to operate in Europe, it needs to, first of all, obtain a license from one of the European regulators after which it can start to accept traders from the European Union.
A broker that has European licensee cannot operate in the US. It must first of all be regulated by the National Futures Association (NFA). A broker that wants to work in the European Union needs roughly 100,000 to 500,000 dollars to secure any of the European licenses. In the US, to obtain a permit with the NFA, the broker has to pay 20 million dollars.
The strict Forex regulation in the US is responsible for the few numbers of brokers that operate in the US. The sizeable initial deposit required for a broker to run makes the environment unprofitable to brokers and reduces their leverage.US Forex Brokers must offer leverage that is less or equal to 1:50, while other foreign brokers can provide 1:1000 or up to 1:2000 leverage.