What form and licenses are used by the modern brokerage companies?
Every day, we encounter different brokerage companies. We work with some of them, but we just know about others. Personally, I also use two different trading accounts in different companies, which allows me to trade with different assets at different trading conditions. This allows me to diversify the risks. However, today I am not going to talk about trading conditions, but about something that only a few people pay attention to when choosing a broker – about the registration and license availability http://4fxbrokers.com/.
In the financial market, it was generally accepted that most brokers do not operate in the legal field at all. I found two explanations for this:
1. Most emerging economics simply do not have a regulatory framework on which these companies could operate. Moreover, some countries do not allow the provision of services for the forex market. For example, this market is banned in the USA and India. Therefore, the brokers provide an opportunity to trade with futures for currencies, but with a maximum pay of 3-5 instead of 100 as we are accustomed to.
2. The second reason lies in the fact that in order to obtain an appropriate license, it is necessary to have a huge capital and go through a strict registration procedure, which consists in observing the necessary parameters for business organization. Often, the brokerage companies that are just beginning their activities are not able to fulfill a number of requirements and choose the easiest way.
Continuing the subject of the most common form of brokerage business registration, the first place, of course, is occupied by the offshore zones.
Offshore is a standard process that only indicates that the company does not pay taxes and does not account for its results. There is no need of shadow forms. Even the large and well-known companies in Europe and the USA are registered offshore. If we consider “kitchens,” the presence of registration in the offshore is beneficial to them, but it is not the main criterion, because even a reliable company that pays profits to the traders can be registered in the same offshore. For example, my forex broker is also registered in the offshore (which actually made me understand this topic), but this does not prevent me from working with them, because I have repeatedly withdrawn funds without any problem.
So you do not be afraid of the offshore companies. Their problem is rather in our head, as people at the mentioning of offshore, perceive the word as a hazard. But again, the offshore is a normal practice and the form of registration should not be a key criterion in choosing a specific broker. I would advise you to see first what licenses the broker has and where he is registered and only then to check his reliability.
The list of the most common offshore regions for the brokerage companies includes:
• Saint Vincent and the Grenadines;
• Panama Islands;
• British Virgin Islands;
• Cayman Islands.
Undoubtedly, if a brokerage company has a license to provide brokerage services, then it significantly distinguishes it from the rest companies. Then, you may not check the input and withdrawal of funds, but immediately be sure that the capital is in a reliable company. Moreover, in case of any problems, you know where to turn to. The license guarantees the fact that the supervisory authority will conduct regular inspections and monitor the broker’s financial indicators. Moreover, the audit of activities will determine the scheme by which the broker operates and if there are delays in the cash payment to the customers. Thus, we get a simple conclusion that only the companies that conduct their activities transparently and openly are licensed.
If you also consider the most popular types of licenses in the brokerage business, I would single out the three most common types:
1. LFSA (Malaysia): This license indicates that the brokerage company operates within the framework of regulatory documents that regulate the brokerage activities. This license is not so easy to get, but the entry threshold is less than in the two subsequent licenses. At the same time, such a license is of little value, because near Malaysia there are other offshore zones, which some companies may refer to.
2. IFSC (Belize): has a simplified registration procedure and not too large amounts to obtain a license. This form of license is chosen by companies that provide brokerage services for several years. The advantage is the fact that the companies operating in this legal field are required to report for their results, so the customers can be sure that their funds on the balance in the trading terminal will not be displayed as virtual digits.
3. FCA (England): the most significant and difficult to obtain license. Britain is famous for its financial sector and to become part of it, you need to go through the 7 circles of hell. But it’s worth it, because this is one of the most prestigious licenses that are on the market. The UK conducts an audit, requires timely presentation of a declaration, reports on the results, and also has a reserve capital for unpredictable cases, which we know, how often they are blown off on the market.
While I dealt with the forms of registration and licenses, I discovered a certain regularity in the work of the modern brokers: those, who have already been operating for more than a year, started with offshore registration (in 99% of cases in St. Vincent and the Grenadines), and then registered in the legal field and got licenses (often IFSC). This is the kind of work I would recommend to those who are just starting their brokerage company. I urge the traders not to be afraid of offshore brokers, because there are stable companies among them.