Is there an incentive to be an unlicensed Broker?
Today, Forex trading is one of the most profitable businesses that entrepreneurs can engage in, provided that they have the right analytical skills and understand of how the financial market works. Despite the regulatory bodies monitoring the whole industry, unlicensed brokerage firms and brokers still exist.
One reason that start-ups choose to operate as unlicensed brokers is that such activity is not prohibited by law, whereas being a licensed broker usually means tons of restrictions and bureaucracy. Operating without a brokerage license may be an attractive prospect, but the long-term risks can be rather severe.
One of the most common things that incentivizes unlicensed brokerage activity is that many countries in the world require potential Forex brokers to pay enormous fees to become regulated, and then strictly follow multiple rules and regulations. These rules, of course, are put in place to protect traders, but they can make licensed brokerage difficult and very expensive.
On the other hand, unlicensed Forex brokers are unburdened by rules and regulations. While this makes the business more comfortable to operate, it puts both consumers and brokers at risk, because if a deal fails, there is almost no legal support available.
Depending on the country of jurisdiction, unlicensed brokerage companies can operate without oversight or regulation. In other cases, a couple of countries offer start-ups cheaper and faster incorporation, providing them with a legal operation but a less stringent regulatory body watching over their every move.
Countries with loose financial regulations are attractive to unlicensed brokers because it allows them to operate with minimal risk and establish terms and conditions for traders that are more beneficial. Among other things, unlicensed brokers also enjoy operating without the need to submit packages of documents, certification, legal advisory, and licensing exams consistently.
When a trader makes a huge investment of his funds in foreign currencies or buys shares, he needs a broker or a brokerage company he can trust. After all, some of these transactions can be a client’s life savings and worth millions of dollars – a license will provide a broker with a more trustworthy reputation.
Apart from that, governments around the world are taking steps to curtail unlicensed brokerage activity. Banks and online payment firms are making the payment process and transferring funds harder for unlicensed brokers.
Another way to ensure that all the actions of broker follows the letter of the law is to use white label services. Cutting edge white label companies propose risk-free management with ready business solutions and a prevention program that protects against all kind of risks.
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