Regulation

What a licence does

A licence obliges the broker to meet its regulator's rules: to hold a minimum amount of capital, to keep client money separate from its own, to treat clients fairly, to report to the regulator and to submit to inspection and discipline. In the stricter jurisdictions it also gives the client rights: negative balance protection, a cap on leverage, access to a complaints scheme and, in some, a compensation fund that pays out if the broker fails. None of that makes a trade safer; it makes the broker accountable.

The word regulated on its own means very little, because there are regulators whose rules amount to a registration fee and there are companies that register in a jurisdiction that does not regulate forex at all and call it a licence. The site's regulator pages rate each authority from AAA to C by what it obliges a broker to do.

The regulators that matter

• United Kingdom: the Financial Conduct Authority, with the Financial Services Compensation Scheme covering up to 85,000 pounds if a firm fails.
• European Union: each member state's authority, with Cyprus's CySEC licensing the largest number of brokers under EU rules and the Investor Compensation Fund covering 20,000 euros; Germany's BaFin, France's AMF and others supervise brokers based there.
• Australia: the Australian Securities and Investments Commission, with strict client money and product rules but no compensation scheme.
• United States: the Commodity Futures Trading Commission and the National Futures Association, with very high capital requirements and a small number of licensed retail dealers.
• Japan: the Financial Services Agency, supervising a large domestic industry under a 1:25 leverage cap.
• Singapore, Hong Kong, Dubai, Switzerland and Canada each have a well-regarded regulator with a small number of licensed forex brokers.
• South Africa's FSCA and Kenya's CMA license online forex brokers under regimes with conduct rules but no leverage cap.
• Offshore centres: the Seychelles, Mauritius, Belize, Vanuatu, the British Virgin Islands, the Bahamas and the Cayman Islands license brokers with lighter rules and no compensation scheme, and Saint Vincent and the Grenadines does not regulate forex at all despite hosting many broker registrations.

Why one broker has several

A broker serving clients around the world holds licences in several places and serves each client from the entity whose licence suits their country. A resident of Germany is a client of the Cypriot entity under EU rules; a resident of Malaysia is a client of the Seychelles entity with high leverage and few protections. The brand, platform and prices look the same. The company on the account agreement, the regulator behind it and the rights the client has are different. This is the single most important thing to understand about a broker, and the reason the site's research names the legal entity behind every licence.

How to check a licence

Find the legal entity on the broker's account agreement or the bottom of its website. Go to the regulator's own register, not a link from the broker's site, and search for that name or licence number. Check that the entity appears, that its permissions include dealing in derivatives or forex for retail clients, and that the website and contact details on the register match the ones you are using, because clone firms copy licensed brokers' names and numbers. Then search the regulator's warning list. The regulatory warnings paper in the research section explains what the lists contain and what a warning does and does not mean.