Using only a regulated broker could be one of the best trading decisions you will make. Even better than buying Bitcoin in 2016, or shorting oil in the spring of 2020 just before the pandemic drove crude prices into the ground. Why is using a regulated broker so important? A profit isn't a profit unless funds are returned to your bank account by the broker.
If you do not factor in the regulatory status of a broker and trade using an unregulated firm, you could face a painful double-whammy. Making a profit by trading can be hard enough, but you might find you can't get any of your money back even if you are entitled to receive the cash. The harsh reality is that scammers operate in the industry whose sole aim is to take your funds and disappear.
#1eToro
What We Liked
- Easy to use functionality
- Great for beginners
- The home of Copy Trading with thousands of traders to choose from
- 13 million clients
- UK retail clients can buy crypto outright
- Free demo account
eToro’s popularity speaks for itself. With more than 13 million clients, it’s one of the biggest global players. Headquartered in London and regulated by the FCA, eToro supports self-trading, trading in crypto and Copy Trading.
The Copy Trading service can be useful for beginners who want to understand more about trading and the approach taken by more experienced traders. For many others, it offers a more ‘hands-off’ way of gaining exposure to the financial markets with a lot of the analysis and trading effectively outsourced to a third-party.
eToro (UK) Ltd is authorised and regulated by the FCA and is registered with number: 583263.
Office address: 24th Floor, One Canada Square, Canary Wharf London, E14 5AB. United Kingdom
#2Pepperstone
What We Liked
- Excellent demo account, which is free to use and doesn't expire
- No hidden costs
- Very strong in the forex markets
- The strong trading architecture ensures low-cost and reliable trade execution
- Online learning tools such as webinars are ideal for beginners
Pepperstone is an Australia-UK operation with a strong reputation in the trading community. It doesn’t try to be all things to all people, but there is a committed following made up of clients for whom Pepperstone offers just the right approach.
The customer service team consistently wins industry awards and the webinars and research notes it releases are trade focussed – they are designed to help the clients learn how to spot trading opportunities.
Pepperstone Limited is authorised and regulated by the FCA and is registered with number: 684312.
Registered office: 70 Gracechurch Street, London EC3V 0HR, United Kingdom.
#3Plus500 (CFD provider)
What We Liked
- Transparent pricing. Tight spreads and no additional trading commissions
- No hidden fees. Zero fees charged on rolling positions, live price feeds and charting packages (N.B. Plus500 may charge fees after the 5th withdrawal of the month)
- Advanced risk management tools
- User-friendly trading platform with great graphics and intuitive functionality
- Free demo account
- Good range of markets. Trade CFDs on forex, indices, crypto (*Availability subject to regulation), commodities, shares, options and ETFs
- Great education section, including the broker’s trading guide
- News and research tailored to helping traders pick the right trades
- Minimum deposit of £100
- GBP denominated accounts, so you don’t pay forex conversion costs
As a global broker with a client base of millions of traders, the key to Plus500’s success is the fact that it offers traders a simple and secure trading experience. This is backed up by a range of neat, innovative features that add up to make the Plus500 trading experience one of the best in the market. Registering for a demo account is highly recommended.
Plus500 is a trademark of Plus500 Ltd, authorised and regulated by the Financial Conduct Authority (FRN 509909).
Office Address: Plus500UK Ltd, 8 Angel Court, Copthall Avenue, London, EC2R 7HJ.
#4Admiral Markets
What We Liked
- Dedication to developing the trading skills of clients
- Hot on security including two-factor authentication
- Fast execution speeds due to clever positioning of trading servers
- Markets covered include forex and CFDs on indices, metals, energies, agricultures, stocks, ETFs and bonds
- Has been operating for 20 years
Trading with Admiral Markets is all about quality. The firm was founded in 2001 and has invested heavily in building a platform that develops clients’ trading skills.
Regulated by the FCA, the firm takes client safety very seriously. Login authentication is two-stage and the site provides regular updates on scams and how to avoid them. Admiral also engages external auditors to review and upgrade operational and internal procedures and ensure regulatory compliance.
Admiral Markets UK Ltd is authorised and regulated by the FCA and is registered with number: 595450.
Registered office: 60 St. Martins Lane, Covent Garden, London, United Kingdom, WC2N 4JS
Why Do Brokers Apply to be Regulated?
Reputable firms, those whose business model is based on delivering an attractive service to clients, have the option of applying to be authorised by a regulatory body. In the UK, the regulatory body overseeing the financial markets is the Financial Conduct Authority (FCA)
Investors and traders who use a broker regulated by the FCA can take a degree of comfort from the following features:
- Complaint procedure – the right to take complaints to the regulator if the broker doesn’t adequately address your issues
- Cash deposit protection schemes – such as FSCS in the UK, which protect your funds
- Negative Balance Protection – not being able to lose more than your initial stake
- Segregation of client funds – if the broker goes bust, your money is safe because it’s held in an independent account
- Risk warnings – brokers are required to offer information on the risks associated with trading
- Trading limits – the FCA limits leverage on retail accounts to 1:30
What the regulator demands of regulated brokers extends far beyond the items listed above. There are Order Execution Policies, Pillar 3 disclosures, Anti-Money Laundering rules, Privacy Policies and much, much more.
Brokers need to comply with the terms set out by the FCA and must also provide reports to prove compliance; doing so is very costly. The fact that a broker opts to be regulated indicates that it is a bona fide business with a long-term business plan and a desire to put in the effort to gain the rubber-stamp of the FCA
What Does Being Regulated by the FCA Mean?
The cover that extends to clients is only part of the equation. There is also a lot of compliance work that goes on behind the scenes at FCA regulated firms.
The application process itself is long-winded and costly. It usually takes more than six months to process an application and involves submitting an extensive amount of documentation. Items covered include the business’s operations, the key staff involved and evidence that they have the skills and experience to run the business in line with the rules and regulations.
Brokers are also required to demonstrate they have enough spare cash on hand to make their business viable. That’s cash tied up in a deposit account rather than being used as working capital to develop the business.
The carrot associated with being regulated is that the broker can attract more customers. The stick is that the regulator can take punitive action against brokers that don’t comply with the rules; firms can be warned or even lose their licence. The FCA’s website keeps a log of the actions it takes to police the financial markets.
If you’re looking for a reliable broker, using one that is appropriately regulated is essential. Considering the time, effort, and expense brokers commit to become regulated, why risk your money with an unregulated organisation?
The even better news is that regulated brokers compete for business in many different ways. For example, some provide excellent research tools and offer low-cost trading and good all-round service. Trying the demo accounts of the below FCA regulated brokers will help you learn more about trading and what the brokers offer.
Final Thoughts
With so many good brokers going to the trouble of gaining FCA licenses, it’s a surprise that individuals are still getting caught out by unreputable firms. A little bit of homework is all that it takes to ensure a firm is well regulated.
One final check that is recommended is to cross-reference a broker’s registration with the FCA itself. The regulators own database is the ‘golden source’ of information and it’s worth utilising the search tool to make sure a broker is genuine.
