Why We Show Some Less Regulated Brokers
If you’ve been in the online trading space a long time like we have, you’ll know that regardless of the warnings and risks, some retail traders still choose to open accounts with less regulated, or even unlicensed brokers. We don’t believe ignoring this reality is the answer.
Some active traders, such as day traders, seek out unregistered firms to access certain instruments, greater leverage, or other features that may not be available locally. And without a reliable source on such providers, traders may turn to social media or “too good to be true” adverts where it can be difficult to tell the difference between a risky overseas brand and an outright scam.
That’s why we take a practical approach at DayTrading.com:
- We predominantly evaluate and show well-regulated brokers, with over 50% of our broker directory authorized by at least one ‘green’ tier body from our regulator directory.
- We sometimes review and display less-regulated brokers, articulating the risks and the protections traders may forego by choosing to trade with one.
Why Ignoring The Problem Doesn’t Work
Regulators wouldn’t spend significant resources warning about unregulated trading firms if retail investors weren’t using them. In the US, the CFTC Red List contains around 300 entities that are unauthorized. While in the UK, the FCA Warning List of unauthorized firms contains over 17,000 entities, including over 650 when ‘trading’ is entered into the search function.
These figures don’t prove every unauthorized broker is fraudulent, but they do show there are many providers out there, and that retail traders are likely coming into contact with them.
Day traders in particular may be drawn to overseas, less regulated brokers. This is because day trading is highly sensitive to factors like margin availability, market access, and execution conditions. Day traders may be seeking:
- Higher leverage: In some jurisdictions, including Europe, leverage limits have been put in place. Australia, amongst other countries, have also followed suit.
- Certain products: In some jurisdictions, such as the US, certain products like CFDs are effectively banned. While in the UK, crypto derivatives aren’t allowed.
- Promotions: Incentives like trading bonuses, giveaways and rebates for active traders are not permitted in many jurisdictions.
Some trading brokers also start as less regulated but then apply for more licenses as they develop or enter new markets. The reverse is also true – some brokers have been well-regulated but give up licenses as they close certain operations, or may even have licenses revoked. The former was the case with ICM Capital, when it relinquished its FCA license following plans to close its activities in the UK.
What You’re Giving Up By Using An Unlicensed Broker
We label unregulated brokers clearly because traders need to know the risks:
- Less or no oversight: No credible regulator to scrutinize a broker’s operations or enforce rules designed to protect clients.
- Less protection of client funds: Limited transparency about safety features like whether segregated accounts, which keep company and client capital separate to prevent misuse, are in place.
- Limited dispute resolution: Fewer formal dispute routes if a withdrawal is refused, you experience slippage issues, or encounter other problems while trading or moving funds.
- Platform manipulation: Higher chance of fee manipulation, sudden rule changes, or unfair trading conditions that could leave you out of pocket.
- Exposure to fraud: More scams and bad actors operate outside of the clutches of major regulators, representing a significant risk to capital.
What We Do If We Cover An Unlicensed Broker
If we review and show an unlicensed broker, our goal is three-fold:
- Be transparent: We flag that they are unregulated in the relevant section of our broker reviews and assign them a ‘Regulation & Trust Rating’ that reflects their lack of robust regulatory credentials, sometimes as low as 0.5/5. We also note any red flags we spot during our investigations like opacity around company ownership.
- Flag the risks: Make clear the protections prospective clients may forego, such as access to investor compensation in the event the broker becomes insolvent, alongside formal dispute channels.
- Compare against alternatives: We will often, in reviews or pages where respective brokers are shown, compare them to other options, which normally include brokers with stronger regulatory credentials.
And before any unlicensed broker is shown on DayTrading.com, we:
- Verify regulation claims against official registers where possible.
- Investigate their operational history as scams often have short lifespans.
- Run platform tests to check they work as advertised and provide the products and tools claimed.
- Review important terms and conditions, especially in areas like bonuses and trading promotions.
Our team also keeps abreast of industry news, regulatory warnings and user reviews in case of concerning developments. And if we believe a broker is fraudulent or running a scam, we may remove them from our website, drop their ratings, issue public warnings, and add them to our list of trading scams.
Bottom Line
Ultimately, we know some retail traders will continue to use less regulated or entirely unregulated brokers. We aim to label providers where this is the case, articulate the risks, and help them find the best option available if users don’t want to switch to a regulated trading broker.