✔️ Information reviewed and updated in February 2024 by Pedro Martínez González
As there are more and more traders, the offer of brokers has also increased considerably. With so many different brokers, several have emerged that are not worth investing our money in. Then, How does a trader select a good broker? It is likely that with so much offer, you cannot decide which one to choose.
Well, one of the most important points, one of the things that you should definitely pay attention to so as not to have problems when investing, or more likely, after investing with this type of company, is if the broker is regulated or not. To avoid this type of problem, and many others, we must select one with these characteristics.
Nor should you confuse that a broker is licensed, that it is regulated. We will try to explain this in the simplest way possible. A regulated broker is headquartered and controlled by the regulatory body of the place where the broker is resident. But nothing prevents it from operating in other countries. Let's say there is a broker from Germany, regulated by BaFin, after completing the necessary procedures, it will be authorized to operate in different European countries, such as Spain.
The problem is that if I have a problem with the broker and I'm in Spain, I still have to claim it before the German regulatory body. Taking this into account, the best option would be to operate with a regulated broker in the country where we reside. If we are in Spain, then look for a broker regulated by the Spanish CNMV.
We always recommend trading with properly regulated brokers, which in theory implies ruling out those from countries like Cyprus, Vanuatu, British Virgin Islands, or any small island that is a tax haven or that you didn't even know existed.
Why choose a regulated broker?
Un regulated broker it is one that is under the supervision of a legitimate regulatory body. The objective of this type of organizations is to prevent the broker from exploiting the trader, avoid abusive practices, fraud and deception, that is, protect the client. In general, the broker is controlled more, and its quality and practices are controlled.
The regulated brokers they must follow practices regulated by regulatory bodies. The unregulated, should not follow any practice, in case they do not want to follow it
If the broker is not regulated, we recommend you, at least, think twice before investing with this broker.
How can I know if a broker is regulated?
Know if a broker is regulatedIt is easy, usually a broker, on its website it shows if it is regulated, it usually shows it in an attractive way, since it is something well seen in the broker market, it gives a certain guarantee and legitimacy. If you can't find it on the main page, you can look for sections on the web such as "about us", "why invest with this broker", "regulation", "safety of funds" or sections similar to these.
It is also normal for the broker to provide the registration number, so that one can search and see if it is really regulated or not. If you can't find it in this section, because usually brokers have a chat, or contact section, ask them.
The lack of this type of information on their websites is a sign that NOT REGULATED, since, as we mentioned before, a broker is usually “proud” of its regulation, since it differentiates it from unregulated brokers, and makes the broker at a higher level than an unregulated broker, the regulation of a broker provides some security to the broker's clients.
Some of the most popular regulators are: FCA (Financial Conduct Authority, in the United Kingdom), BaFin (German regulator), FINMA (Swiss regulator), FMA (Austrian regulator), ASIC (Australian Securities and Investments Commission in Australia ) and SEC (Securities and Exchange Commission, in the United States), CNMV (Spain), CONSOB (Italy), CMVM (Portugal), to name a few regulators.
Not sure about a regulator or your broker's security? Do you think it could be a scam? leave us a comment explaining your doubt or problem. We will reply to you as soon as possible!