Lesson 1 of 8 · 8 min
Why regulation matters
The first and most important check. What a serious regulator actually does for you, and what an offshore licence does not.
By the end you'll be able to
- Name the four layers of protection a well-regulated broker provides
- Look up a broker's licence and confirm it is real
- Explain why high leverage and bonuses usually mean weak regulation
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A broker’s website can say anything. A regulator’s register cannot. Before you look at spreads, platforms or bonuses, you look here.
Four layers of protection
- Supervised by a serious regulator
- Client money segregated
- Negative balance protection
- Compensation scheme
- Region
- Retail leverage cap
- Compensation if the broker fails
- Where to complain
Typical rules at the time of writing. Rules change; confirm on the regulator’s own website before opening an account.
Regulation means a financial authority supervises the broker: sets minimum capital, inspects its books, enforces conduct rules and can fine or close it. Under the stricter regimes, four protections follow:
- Supervision. Someone with power is watching the firm.
- Segregated client money. Your deposit sits in a separate account the broker cannot spend.
- Negative balance protection. You cannot lose more than your deposit, even in a market gap.
- A compensation scheme. If the firm fails anyway, a fund repays you up to a limit.
Offshore licences from small jurisdictions typically provide none of these. They are registrations, not supervision.
Checking a licence
Every serious regulator publishes a searchable register. Find the licence number on the broker’s site, then search the regulator’s own site for it. Check that the company name, website and licence number all match. Clones of real firms are a common fraud, and the register is how you catch them.
Try it
Notice in the checker above how the rings go dark as you move from the strict regulators to offshore and unregulated. The leverage goes up at the same time, because strict regulators cap retail leverage and offshore ones do not.
Quick check
Question 1 of 3
What does segregation of client funds protect you against?
Question 2 of 3
A broker offers 1:1000 leverage and a 100% deposit bonus. The most likely explanation:
Question 3 of 3
The right way to verify a broker's licence is:
Go deeper: Forex regulation explained: FCA, ASIC, CySEC, NFA and offshore · How to Choose a Forex Broker: The 10-Point Checklist · Negative Balance Protection: What It Means and Who Must Offer It