Broker Licenses Explained - Our Categories

At TheTradingBible.com we decided to create a very simple approach where we place financial licenses into two categories: top-tier licenses and other licenses.

Top-tier licenses

Top-tier licenses belong to countries that have a high reputation and a very strong law enforcement behaviour. Their financial regulators usually operate with the most strict rules making them the safest ones. Here are our top-tier regulators:

• SEC (United States)
• FINRA (United States)
• NFA (United States)
• ASIC (Australia)
• FCA (United Kingdom)
• MAS (Singapore)
• FFAJ (Japan)
• IIROC (Canada)
• BaFin (Germany)
• ADGM (United Arab Emirates)
• CBI (Ireland)

Other Licenses

The “other licenses” category belongs to any country that is not part of the above list.

In this category there is a mixture of some good financial regulators and other low quality ones. While making this decision, we realised there is no way for us to micro-manage or control the ethical behaviour of all regulators so we made the decision based on presenting facts and letting our users make their own decisions.

When it comes to operating with our “other licenses” category assuming that these are the only licenses a broker has, you’re entering a grey area as for example: there are famous high quality european brokers that operate only under these licenses and there are also scam brokers operating under them.

Our suggestion is to pay attention to the following:

• Does the broker provide accurate risk warnings throughout their website?
• Does the broker employ high-pressure sales? (Is someone calling you telling you there is a unique opportunity for TODAY and not tomorrow?)
• Does the broker have a verifiable physical address on their website?
• Is the broker located at a reputable location?

For example, it is not the same for a broker to be under a low reputation country versus a Caribbean island with two palm trees with Timon and Pumba singing Hakuna Matata. Clearly, option 2 will clearly present a higher degree of risk versus option one.

If you have a valid reason to operate with a broker from “other licenses” do your due diligence and please investigate the broker well, explore their website, check their address, verify who is the financial regulator behind them, etc.

Multi-category brokers

You’ll notice that many times there are brokers that hold one or more top-tier licenses and maybe a few of the “others category”.

In this particular case, you’re operating with a broker that is still good and the only reasons that they choose to expand their regulatory framework to the “others” category are:

• Access to onboard more customers from a different jurisdiction
• Providing higher leverage factors thus increasing the broker and the client’s profitability / risk
• Having access to a larger variety of payment services providers (so more payment methods can be provided to the user)

Plain and simple, they expand for valid reasons to off-shore loose regulations only for the above reasons and not to practise financial fraud.

Risks of operating with unregulated brokers

The main risks of operating with unregulated brokers are:

• Credit or bank financial fraud
• Losing all your funds
• Suffering electronic manipulation of prices (to make you lose)
• High-pressure sales tactics designed to make you over-invest and lose
• Dealing with a fake office location and fake employee names
• Not being able to come winning out of the situation as if something goes wrong there is no one to complain to

Grey-space of unregulated companies

There are some types of companies or services that are part of a newer and still young industry (cryptocurrency most specifically) and they are not required to have a financial license by traditional financial regulators.

That’s why you’ll notice that most cryptocurrency exchanges or wallets do not have an active license and some of them are still world-wide known and reputable.

For the space of cryptocurrency, we’re planning to come up with a new solution as the one on this page is mostly driven towards traditional online brokers.

How to make the decision

Choosing the right licenses can definitely have a big impact on your trading endeavours. Here are our suggestions:

• Is safety your top priority and concern? Then only operate with top-tier licenses or hybrid multi-license brokers
• Is gaining access to higher leverage or other trading conditions your priority? Then explore the “Other licenses” category and always do your due diligence on each broker to cover your risk exposure
• Is gaining access to unreasonably crazy trading conditions at a high risk your priority? Then explore unregulated brokers at your own risk and knowledge that things can turn out quite badly for you

Ultimately it is your responsibility to perform due diligence on each broker and to understand what you’re getting yourself into. 

TheTradingBible.com is switching its focus into becoming instead of an “opinionated” brand a “fact-driven” brand where we present things as they are and users are able to choose what suits them best.

 

Good luck!