Forex Major Regulators & Compensation Schemes

Why is regulation important?

The Foreign Exchange operates as a decentralized financial market without any central or clearing service. In that context, there are several governmental and other supervisory bodies aiming to control the participants in the Forex market and ensure that they follow fair business practices. These bodies provide financial licenses but also apply penalties or even remove licenses if certain financial entities tend to misbehave.

In most cases, there is also a compensation scheme in the event of a financial firm's insolvency.

Regulator's Objectives

(1) Control financial firms and force them in following fair business practices

(2) Protect retail traders against fraud

(3) Ensure that financial firms can meet the minimum liquidity standards

(4) Minimize the credit risk of the financial market

In accordance with their regulatory standards, brokers become subject to audits, reviews, and evaluations. Not every broker is licensed and regulated by a reliable body, and thus, traders should be very careful when choosing their partners.

Read more: Foreign Exchange Regulation and Compensation Schemes

ANNUAL FOREX SEASONALITY CALENDAR

These are some key seasonal patterns behind 15 Forex Pairs, based on 18 years of monthly data

• Data Period: 12/31/1999 to 10/1/2018
• Calculations/Formulas: Microsoft Excel 2016 Professional Plus
• Time: GMT (Eastern Time = GMT - 05:00)

◙ JANUARY:

(↓) BEARISH PATTERNS

• EURGBP, average negative returns -0.72%, times (5-14), and -0.89% momentum

RECENT 5 PERIODS: 4 bearish out of 5

RELIABILITY: a relatively reliable seasonal pattern

◙ FEBRUARY:

(↑) BULLISH PATTERNS

• EURGBP, average returns +0.71%, times (13-6), and -0.21% momentum

RECENT 5 PERIODS: 4 bullish out of 5

RELIABILITY: a relatively reliable seasonal pattern, after 2011

(↓) BEARISH PATTERNS

• GBPCHF, average negative returns -0.99%, times (3-16), and -0.71% momentum

RECENT 5 PERIODS: 4 bearish out of 5

RELIABILITY: a considerably reliable seasonal pattern

Read more: Annual Forex Calendar

THE FOREIGN EXCHANGE MARKET

The FOReign EXchange is a global market where one currency is exchanged for another. The Forex market has no specific geographic location as transactions are executed through the electronic network of banks. Anyone with a computer and internet access can buy and sell currencies through a Forex broker. Today, the FOREX market has a daily turnover of 4-5 trillion US dollars. The FOREX market operates 24 hours and 5 days a week, from Monday through Friday.

Short Introduction to the Foreign Exchange Market

The Foreign Exchange Market (FOREX) was introduced in the '70s when the global currency trading system was changed from a system of fixed currency value to a variable rate system. Fixed exchange rate system started in 1944 based on the agreement of “Bretton Woods”.

In 1977, the average daily turnover of the Forex market amounted just 6 billion US dollars. In 1987, daily turnover reached 600 billion dollars and in 1997 daily turnover reached 1.2 trillion dollars. In 2007, daily turnover reached 3.2 trillion dollars and nowadays the daily turnover of the Forex market is estimated at 4-5 trillion dollars on a daily basis. Most of the daily market activity takes place in the UK (36%), followed by the U.S. (17%) and Japan (6%). 

Chart: Forex Market Activity

» Forex Pairs & Statistics | » Forex Seasonality Calendar

Read more: The Foreign Exchange Market (FOREX)

Historical correlations between Forex pairs. Correlation analysis measures the relationship between two numerical variables. In our analysis, these variables are the daily closing rates of 15 Foreign Exchange pairs for 5 years (2014-2018).

Read more: Forex Correlations