Experts Warn Of Risks As Unregulated Platforms Attract Traders With Lower Costs

According to experts, unregulated trading platforms may continue to exist as long as some traders are willing to trade away consumer protections for the benefits of high leverage and lower fees. The challenge, they noted, is for regulated platforms with high compliance costs to show these traders that the risks of unregulated trading might be more significant than the benefits.

In September, the Foreign Exchange Professionals Association (FXPA) released a report on trading venues in over-the-counter (OTC) FX derivatives markets. The report stated that unregulated trading platforms might mean fewer protections for customers.

FXPA Highlights The Risks Of Unregulated Platforms And The Benefits Of Regulation

According to FXPA, many traders pick unregulated platforms for lower costs and flexibility, but these options also come with risks.

Patrick Bartle, managing director at LMAX Exchange, said there have been cases where traders lost money because unregulated platforms have little oversight. He added that these platforms often do not offer support if problems arise.

Gerard Melia, head of FX sales at StoneX, said regulations help keep customers safe from fraud and risky trades that might harm their money. Melia noted that rules also help keep markets stable, prevent crimes, and offer fair choices for all. Without these protections, he remarked, unregulated platform users face more risks.

Melia also said it seems strange for traders to pick unregulated FX derivatives platforms when regulated ones offer similar spreads, leverage, and options.

Alexander Kuptsikevich, chief market analyst at FXPro, pointed out that regulations limit leverage. He added that these rules also restrict the types of instruments available, which may limit options for traders wanting more variety.

Unregulated Platforms Exploit Weak Oversight, Leading To Increased Scams

The FXPA report also revealed that unregulated platforms allow for “regulatory arbitrage,” especially in emerging markets. Kate Leaman, chief market analyst at AvaTrade, noted that many unregulated platforms show up in areas with weak rules or little cross-border oversight, allowing them to avoid strict rules.

She explained that cryptocurrency and decentralized finance help these platforms operate more freely and sometimes even offer anonymous trading, which some customers like, though it adds risks.

Nicolas Jegou, Chief Executive Officer of Euronext FX, mentioned that many of these platforms work as technology partners but have unclear regulatory status.

Leaman highlighted the case of PlusToken, a hybrid crypto-FX platform where investors lost over $3 billion. She explained that crypto growth has led some unregulated FX platforms to mix FX and crypto products, which has resulted in scams that misled investors.

Filip Kaczmarzyk, head of trading at XTB, said cryptocurrency’s lack of regulation attracts crime, unlike FX markets in developed countries, where rules are stronger.