The daily turnover of the Forex market is more than $6 trillion, making it the largest market in the world. Furthermore, it is also the fastest-growing trading market in the world. Because people conduct international business every day, they need to convert from one currency to another. This constant switching of currencies makes the market highly volatile.
Forex trading is legal in many countries under governments’ regulation. However, some countries completely restrict their citizens from Forex trading. Regulated governments encourage their citizens to trade in a safe environment. Their trading activities within the country reflect on its economic conditions. The Canadian government regulates Forex trading, but their sanctions and restrictions are unfavorable, according to many traders. That’s why there aren’t many domestic brokers in Canada.
The Biggest Challenge for Forex Brokers
The biggest dilemma for Forex traders in Canada is the choice of broker. Canada does not have universal legislation in its country to support its brokers. In another part of the world, countries regulate Forex as a derivative or security. Because federal regulations differ from provincial regulations, many people find it hard to decide whether to become an advisor or a broker.
Canada’s Regulatory Bodies
Surprisingly, there are fifteen regulatory bodies in the Forex market. Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Securities Administrators (CSA) are federal, while the other 13 are provincial regulatory bodies.
These regulatory bodies make it hard for a broker to survive. Regulation works as a double-edged sword. It creates a competitive and fair market, which leads to new opportunities and innovation. However, the Canadian government fails to maintain the balance between both types of regulation.
· Role of CSA as a Regulatory Body
CSA or the Canadian Securities Administrators manages the territorial and provincial regulators in Canada. Their goal is to create harmony, coordination and improve the financial market for their traders and brokers. However, their restrictions and sanctions are discouraging for traders. Their policies should be efficient and supportive for the Canadian market to bring in more competition.
· Role of IIROC as a Regulatory Body
IIROC, or Investment Industry Regulatory Organization of Canada, regulates the Forex market. They also define the maximum leverage to the broker. Therefore, brokers offer a high level of leverage to their clients. Many people misunderstand leverage as a trading tool. Even though the government tries to reduce leverage, many brokers are misleading traders, which is leading to various problems.
Another reason for higher leverage is the lack of risk management. Because the regulatory bodies fail to identify the problems traders are facing, the problems are constantly increasing for Canadian Forex traders.
Lack of Regulations
The Canadian regulated bodies have numerous unjustified restrictions and sanctions that disrupt the trading experience for the traders. Here are two major problems that need to be solved.
1. High Leverage
Many traders think that this leverage is high. But, they should consider the difference between leverage deployed and advertised leverage. Furthermore, every broker has a different margin for their clients. The margin requirements depend on the assets traded.
The brokers located in Canada offer high leverage on Canadian Dollar pairs only. However, the amount of leverage decreases with the changing liquidity of other currency pairs. Many retail traders’ portfolio includes less leverage than what they allow. If you want to find the best Forex brokers in Canada, you should read more.
2. Additional Protective Layer
Canadian Investor Protection Fund works as an additional protective layer that facilitates investors. Brokers under CSA and all the thirteen provincial regulators should purchase the insurance to keep their traders protected. However, this insurance only protects investors if the broker has filed for bankruptcy. The regulation does not act upon fraud and other similar activities. So, if a broker frauds the trader, there is no compensation for the trader.
There are more than enough regulatory bodies involved in the Canadian Forex market. The Canadian marketplace is decreasing because many Canadian traders prefer international brokers instead of Canadian-based brokers. However, the Canadian government is improving the financial market. But, it will take a bit more time to completely implement. Till then, traders will continue working with the brokers in other jurisdictions.