Next steps that regulators worldwide should take: Yes to ECN, no to unregulated Robots

Following the bulk of regulatory actions and announcements we have experienced this month, it seems that now is the time

Following the bulk of regulatory actions and announcements we have experienced this month, it seems that now is the time that regulators worldwide should wake up and understand that it’s about time they really start regulating the Forex market.

Japanese regulators, in an unnecessary move in my opinion, capped the leverage to 50 times the margin and then next year will cap it to 25 times.

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US regulators forced the FIFO requirements, which took effect last week.

Israeli regulators have finally drafted a proposal to start regulating the local markets.

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Now is the time to propose to regulators what I think are the really burning issues they should start dealing with as soon as possible:

1. Market Making – the era of market making is soon to be over and the regulators should deal this practice a final blow. Market making, as I explained a while ago, is an artificial type of brokering. While some brokers are responsible enough and make sure their customers don’t lose all their money, some brokers are infamous for using various tricks to make their customers lose their socks. Any loss you incur with a market making broker goes directly into his pockets.

2. ECN era is the exact opposite of Market Making is the ECN style of trading. ECN lets you participate directly in the market and trade with other traders, thus eliminating any conflicts of interest the brokers might have. A suitable regulatory framework should be constructed, outlining the guidelines for Forex brokers to start offering ECN trading only.

3. Forex trading Robots – these little pieces of software have been sprouting all over the internet in the past few years. There’s almost no regulation over the marketing content used and certainly there is no supervision on the exact trading algorithms. This market share is controlled by successful marketing people and not by real software developers. The better marketer you are, the more you are able to promote your trading system. Whether it delivers the results (in most cases it doesn’t) is not something that concerns the marketers, or the regulators. There has to be a way to monitor and control these hundreds, if not thousands of systems, robots and algorithms, because this issue is more important to me than dealing with market makers. Many more people lose money buying worthless systems than by losing to market makers.

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