Swing Trading Regulations

Swing trading regulations are designed to protect traders and brokers from malpractices and scams. As with all regulations, they are the rules and the philosophy that ensure the trading world is relatively safe and fair for all participants. Of course, investing is inherently risky, and with less than 5% of brokers being regulated, it is important to find suitable protection.

This article will run through the key definitions, the pros and cons of regulations for both traders and brokers, rules for stocks, forex and crypto, specific swing trading rules and more.

The best multi-regulated brokers and trading platforms in 2024 include Pepperstone, XTB, CMC Markets and eToro.

Trading Regulations Explained

Trading regulation does what it says on the tin. It is a set of rules that traders and brokers must adhere to while operating within jurisdictions and financial markets. Regulatory bodies and financial watchdogs set and enforce these rules, which can be found online in PDF format, as a way of protecting all market participants.

While there are many regulatory bodies out there, each body only supervises brokers within their jurisdiction. They do not regulate brokers all around the world. And importantly, each body sets its own rules that firms must adhere to. If a swing trading broker is operating from the United Kingdom, for example, they will need to seek a license from the Financial Conduct Authority (FCA). This is the body that is responsible for overseeing all trading operations in the UK.

A broker receives a license by demonstrating their suitability and intent to follow all the rules in place. Licensed firms must comply with all regulations to avoid incurring fines or having their license revoked.

Swing trading brokers are free to operate without a license from any regulatory body. These are known as unregulated brokers, and they run without adhering to a set of guidelines. However, these firms do not have to put any measures in place to protect traders and therefore could potentially operate as scams.

Regulations cover a wide range of topics. Brokers and traders must comply with margin requirements, maximum leverage allowances, safety measures like negative balance protection and more.

Swing Trading Regulations

Swing trading regulations do not differ greatly from standard investing laws. As swing trading is conducted over a matter of days or weeks, there are no additional restrictions or entry rules put in place. This is unlike intraday trading which has a pattern day trader (PDT) rule in the US, for example. If you wish to execute more than four-day trades within a five-day period, you must have at least $25,000 in your account as per the PDT rule. Swing trading is not subject to these restrictions, and swing trades do not count towards trips under the PDT rule.

Regional Regulations

There are many different bodies around the world setting swing trading regulations (and other general rules). But are all of them the same, and what are some of the most popular agencies?

Is Every Regulatory Body the Same?

There are a lot of regulatory bodies out there, and each of them offers different levels of protection. Even if you focus on just top-tier agencies, they all set different guidelines. The FCA, for example, has some of the tightest rules around, whereas the Cyprus Securities and Exchange Commission (CySEC) has slightly more lenient regulations.

Swing trading brokers will choose to go with different bodies for a range of reasons. An FCA license can be expensive, and as such many firms will go for a CySEC license instead. This does not make them any less trustworthy, and these brokers will still be doing plenty to ensure the safety of their customers.

Each body is free to implement different degrees of regulation for brokerage firms. The FCA, for example, requires all brokers to offer customers negative balance protection, while the Australian Securities and Investments Commission (ASIC) does not. The FCA also requires brokers to automate the withdrawal process so that clients receive funds; other bodies are not so strict on this.

Generally speaking, if a brokerage or exchange is regulated by a top-tier body like the FCA, CySEC or ASIC, they can be trusted. Alongside these, many other regulatory bodies are operating out of offshore territories, islands and tax havens. These tend to have relaxed rules and they make obtaining a license easy. Always take caution when swing trading with firms regulated by these agencies and read plenty of reviews online before you do.

Of course, regulation does not necessarily guarantee the safety of a broker. The key is to do plenty of research before you trade with any platform. You can find many regulated broker lists online, or on Swingtrading.com.

Top-Tier Regulatory Bodies

There are many top-tier regulatory bodies available, including multiple in the US. Some of the most popular and secure are:

• Financial Conduct Authority (FCA):  The FCA is the regulatory body for the UK, and it is also one of the main bodies in Europe.
• Cyprus Securities and Exchange Commission (CySEC): CySEC regulates any brokerage firms operating in Cyprus and across Europe. Additionally, many overseas firms seek regulation from CySEC.
• Malta Financial Services Authority (MFSA): The MFSA regulates firms in Malta. Like the CySEC, it is popular among overseas brokers.
• Federal Financial Supervisory Authority (BaFIN):  BaFIN is the regulatory authority in Germany, and it complies with all EU laws.
• Securities and Futures Commission (SFC): The SFC is the main regulatory body for Hong Kong and oversees all trading regulations in the country.
• Monetary Authority of Singapore (MAS): MAS covers almost all trading markets in Singapore.
• Australian Securities and Investments Commission (ASIC):  ASIC is Australia’s main regulatory body, covering everything from forex to futures and automated trading.
• Financial Sector Conduct Authority (FSCA): The FSCA is the main regulatory authority in South Africa.
• US Commodity Futures Trading Commission: This is a US agency that specifically oversees forex and futures brokers.
• Financial Industry Regulatory Authority (FINRA):  FINRA regulates stocks in the US, setting general and swing trading regulations and rules for firms like Robinhood.
• Financial Consumer Agency of Canada (FCAC): FCAC implements all swing trading rules and regulations in Canada. However, it does not impose tax rules for trading related profits in Canada.

What Happens if you Breach Regulations?

If a broker breaks swing trading regulations, the regulatory body can take multiple actions. It is even possible for them to pursue criminal paths. One option is for the authority to remove their operating license. This can deter future customers and seriously affect a firm’s reputation. Usually, the authority will then publish warnings online to alert potential customers.

Regulatory bodies hold a lot of power, but for good reason. Scams have plagued the trading industry for years, damaging the trust clients put in brokerage firms. Traders are looking for brokers who adhere to rules that protect them, and if a firm loses its license, it may lose a lot of customers.

Benefits of Swing Trading Regulations

Traders

Traders receive many protections and benefits when using regulated trading platforms:

• Balance protection: Many regulatory bodies require their firms to offer negative balance protection. This ensures that customers cannot become indebted to brokers and cannot lose more money than their account balance.
• Compensation: This ensures that customers will receive compensation if their broker goes bust. The trading world is volatile for both traders and firms, so this adds an extra level of security for customers.
• Risk warnings:  Regulation requires brokerage firms to display clear risk warnings before clients open accounts. This gives customers the full breakdown of potential risks, including the percentage of traders that lose money with CFDs, for example.
• Leverage limits: Many regulatory bodies, like the CySEC, are starting to introduce leverage limits. Trading with leverage can lead to heavy losses, so regulation ensures traders are protected from excessively risky trades. The CySEC, for example, caps retail leverage rates at 1:30.
• Segregation: Regulation ensures brokers keep client funds separate from their own. This means your broker should always be able to honour withdrawal requests.
• Quicker withdrawals:  Regulation can sometimes ensure that brokers deal with withdrawals promptly.

Brokers

Swing trading brokers also benefit from trading regulations:

• Stability: Regulation can bring stability to firms. It ensures that they are not constantly trying to beat competitors’ offerings in areas such as leverage.
• Reputation: This is the main benefit for brokers. Being regulated by a respected authority helps build a firm’s reputation. As a result, customers will view the broker as trustworthy and will be more likely to open an account.
• Regular checks: Regulation requires brokers to regularly check and submit audits. This means that the broker will always have an idea of the profit they are receiving and will ensure they stick to a safe business model that benefits both customers and themselves.

Drawbacks of Swing Trading Regulations

While it has many advantages, swing trading regulations do come with their drawbacks. Firstly, if you specifically want to trade with a regulated broker, it can limit the number of firms or exchanges available. This is particularly difficult in the crypto world, where regulation is not common.

Another disadvantage is that some countries completely block unregulated brokers. For example, if you are a US citizen, you will not be able to open an account with any unregulated broker even if you wanted to take the risk.

Forex Regulations

Forex is a huge, global market. With a daily trading volume of over $6.6 billion, it is one of the largest markets around. It sees many more trades than stocks and futures, largely because of its simplicity for retail investors. As a result, many regulatory bodies set specific regulations for forex trading. This ranges from leverage limits to banning sign-up deals.

Some countries, like the US, have a regulatory body set up specifically for forex trading. This can make it very difficult for overseas brokerage firms to operate in the country, as the rules tend to be more specific to the US.

Commodity Regulations

Commodity regulations have subtle differences from other types of trading. In the US, commodities are regulated by the Commodity Futures Trading Commission (CFTC) which, through a range of acts, has brought in a strict set of regulations. These ensure that the commodities markets are safe for those who want to sell or buy products, and those who simply want to speculate on price movement.

Crypto Regulations

Cryptocurrency, and crypto exchanges, have an uneasy relationship with regulation. When Satoshi Nakamoto released Bitcoin, it was sold as a digital currency free from the chains of centralised banks, meaning it was also free from trading regulations. Many holders saw this as one of the main advantages of the coin, and as such most cryptocurrencies and exchanges have followed suit and avoided regulation.

However, this lack of regulation has made many governments worried. Those in countries like the UK, the US and China have sought to increase the levels of regulation enforced upon these exchanges. These governments are having an impact, with many popular exchanges like Coinbase and Binance complying with increased rules and guidelines.

With many scams operating online, increased regulation should be seen as a good thing for the crypto world. Still, many fans may view it as a step away from Nakamoto’s original vision for digital currencies.

Binary Options Regulations

Binary options are a contentious instrument among traders and regulatory bodies. They are very simple to understand, making them a popular option amongst new traders. But while binary options are easy to understand, it is also easy to lose a lot of money trading them. They are a high-risk form of trading.

Many regulators have sought to ban firms operating within their jurisdiction from offering binary options. This is because of the risky nature and the prevalence of scams within binary options trading brokers.

The FCA and EU regulators have banned the sale and distribution of binary options contracts. US regulators do allow binaries, however, there are strict regulations in place. Only US-based brokers are allowed to offer products within the country, and they must adhere to rigorous guidelines.

Automated Trading Regulations

Many established financial bodies also have stringent rules for firms offering automated, algorithmic trading. In summary, laws and rules aim to limit the sometimes distorting market effect that unfair, high frequency trading can cause. Fortunately, regulations that govern alternative electronic trading systems are usually aimed at institutional traders. Retail traders don’t typically invest with enough capital and in large enough volumes to have a significant impact on the market.

Regulations vary across Europe, Australia, Hong Kong, Singapore, India, Canada, USA and the UK, however, bodies like the SEC and CFTC essentially aim to closely monitor trading schemes and dictate the venues on which they can trade.

Copy Trading Regulations

Copy trading is experiencing an increase in regulations. It is a perfectly legal practice, but many regulators are looking to bring in tougher rules. Some bodies are even requiring copy trading signals providers to register as investment managers.

Final Thoughts

Swing trading regulations are enforced to protect customers and brokers. The rules and guidelines ensure customer funds are protected and not misused, and that brands’ reputations are kept intact.

If you are thinking about trading stocks, forex or any markets, make sure you choose from a list of regulated brokers within your area. Check the licenses the broker holds, the protection offered by that regulatory authority and its history before opening an account.

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