Regulations on Trading Forex in Canada fxcanada. I knew this day was coming since the USA did similar things and Canada just follows USA like a lost puppy, but I hoped it was much further down the road. I was contacted by my UK Broker letting me know that all Canadian accounts are being scrutinized due to new regulation rules coming into effect. I have no idea how new this is I only signed up 3 months ago , so seems pretty new , nor how many or which rules are all going to apply, but the link above seems to indicate many things, I cut and pasted the article below and highlighted the important things that stood out to me being in Ontario.
Sure you can try to argue that trading with USA companies should better protect the people since regulation is higher. Please tell that to former PFG clients. No, regulations are not worth the paper they are written on.
Also note, the lower you make the leverage, the MORE money someone has to put into their account, which is now susceptible to loss either by Broker going tits up OR bad trading. No, I think not folks, quite the opposite. Have these Morons not heard of a margin call? The whole leverage thing is really misunderstood and misinterpreted overall. Anyway that horse has been beat to death for years already, but the bottom line with these fantastic IIROC rules is someone who had Have they seen the price of Gold?
EJ the same too? Do these people have any clue about Forex at all? Even EU the most traded pair, is now Oh, the logic here my my, and as if new Forex Traders didn't have enough things to be confused about, they go and make margin completely convoluted to the point no one can ever, easily figure it out, just asinine. Bottom line is instead of forcing dealers into stricter regulation ensuring people have a better opportunity like cutting out Virtual Dealer Plugin and other MM games and that money is truly segregated and limits respected, check up on them every 3 months etc to avoid PFG scenario; they have forced clients into stricter regulation ruining their opportunity and making it impossible for some to trade and even more difficult than it already is for others.
In Canada, the lack of a national securities regulator for the interbank foreign exchange forex market and the online trading of fx has led to a confusing conglomeration of different policies and rules from each province.
Recently, some new developments have occurred that will change the face of forex trading , especially for those either providing or trading in unregistered online forex. Ontario and Quebec have been first in line to address the question of who can participate in forex after the Canadian Securities Administrators implemented harmonized requirements in for their jurisdictions.
Until recently, there was no agreement even on what type of contract forex trading constituted, with some provinces calling it a derivative and some a security and some both , and regulating it accordingly. Quebec went with the derivative label, and enacted laws requiring anyone trading forex to be registered or seek an exemption.
Ontario decided forex was a security, and thus would be regulated under the Securities Act, though it went on to amend this Act to allow derivatives to be included. This meant that whether a court declared forex contracts to be securities or derivatives, they would still fall under the same legislation. British Columbia has been regulating forex traders for over a decade now, and does so under the label of securities. Initially BC required its forex traders to register as exchange contract dealers, but has recently amended this to investment dealer with the Investment Dealers Association.
Membership in the Investment Industry Regulatory Organization of Canada IIROC allows individuals or companies to provide margin, and may exempt them from some provincial requirements under specific circumstances. But the formal position of the three largest provinces is now that forex trading on margin is a financial activity that requires registration. Securities Commission BCSC considers a forex contract to be a security because it is a forward contract involving a leveraged agreement between two or more parties to exchange different currencies at a future time or times.
Although a forex contract is based on the spot rate, it is neither a spot contract in the traditional sense because it has no two-day settlement, nor is it a forward contract because it has no maturity date.
There is also no mechanism or obligation for delivery. Short-term forex is exempted from the BC Securities Act when the settlement of the contract is required within three business days.
This does not include leveraged online forex, however. Commodity contracts that oblige the trader to take actual physical delivery of the commodity and not a cash equivalent are also exempted, though there is no clear direction as to what happens when the commodity involved is currency. Trading forex contracts with Quebec clients is regulated as an over-the-counter currency derivative. Until the publication of its formal position, Ontario was open to offshore and unregistered dealers, despite several court cases that clearly showed forex to be within the purview of the Ontario Securities Commission.
The difficulty of prosecuting overseas traders offering online platforms was significant. Trading in a designated derivative will be prohibited except where a disclosure document has been filed with the OSC, providing retail investors with disclosure of both product features and counter-party risk.
Prospectus requirements and related regulations will not apply to designated derivatives, standardized exchange-traded derivatives or derivatives traded in any other marketplace, if certain conditions are satisfied. So far, no other provinces have enacted legislation to control forex trading, instead relying on national associations to regulate the industry. In , the Canadian Securities Administrators adopted new rules to reform the process of registration for anyone offering securities or investment advice.
These regulations do not specifically address forex trading, but the only reasonable conclusion from the changes is that dealers who are not IIROC members will no longer be able to sell to Canadians.
IIROC members are required to margin the unhedged foreign exchange positions of clients. The nature of the online forex market makes it practically impossible to sanction unregistered dealers, particularly those offshore.
But Canadian companies currently lose clientele to dealers based in Cyprus or Belize, for example, because of the much more advantageous margin rates.
How, then, to encourage Canadians to use local forex dealers, especially for online trading? If a foreign forex dealer commits fraud or declares bankruptcy, Canadians have very few avenues to recover their investment dollars. Bargain shopping is the norm in most areas these days, and forex is no exception.
The main sticking point is the high margin rate, high even compared to the Chicago Mercantile Exchange. Other complaints are that the individual margins in non-USD and non-CAD currencies are skewed when matched up with each other, and that the market already mitigates risks for dealers and investors with readily available tools such as stop-loss and take-profit points along with auto-liquidate levels. It remains true that margin rates should accurately reflect the risks of the currencies being traded.
What needs to be addressed is a method of ensuring fairness across the board for IIROC members and unregistered dealers. A registration requirement for anyone wishing to sell to Canadians would accomplish this, but would be onerous to enforce against companies from lightly-legislated countries.
It would seem, then, that the logical direction to take is to offer incentives rather than threatening penalties. For example, if the minimum margin requirements were to be more competitive, there would be little benefit in trading with a foreign dealer over a Canadian one. This would keep more investors under the umbrella of the IIROC, and offer more protection for forex traders on both sides of the deal.
Margin rates are a hot topic, especially in the current financial climate where excessive leverage has been blamed for sparking the global meltdown. Canadian banks fared well throughout, thanks to strict legislation that limits their investment margins to Very few governments can be expected to encourage more leverage in favour of less, or less regulation rather than more. Outside North America, though, there are only a few national regulators capping forex leverage.
The Monetary Authority of Singapore restricts leverage to Japan has recently brought in higher margin requirements, phased in over several years. Summary of Changes to Registration Requirements. In the provinces of BC, Ontario and Quebec, dealers must comply with additional prospectus and qualifying requirements, unless an exemption is granted.
For salespeople at registered dealer firms, futures proficiency is required to trade forex contracts. In Ontario and BC, additional proficiencies may apply.
Only registered portfolio managers can advise clients and manage forex accounts on a discretionary basis. A fund that trades forex contracts will likely require registration as an Investment Fund Manager.
If the fund distributes its units to the public, it would also require dealer registration. Commercial forex firms that offer only hedging services to corporate clients and money transfer services to retail clients currently comply with FINTRAC regulation but are not registered with the applicable securities commission or regulated by IIROC.
It remains to be seen whether any changes are pending in response to the recent regulatory developments. The CFTC delegates regulatory responsibilities to the NFA, which provides oversight for every firm and individual trading futures and forex with the public. According to the NFA, forex is defined as: A customer is any party to a forex trade who is not an eligible contract participant similar to accredited investor in Canada.
Hedging has been disallowed in the same customer account. Positions have to be closed based on FIFO. Don't forget about poor Alberta Really, really idiotic if you ask me, glad I don't live there but after this I think all of Canada is really ruined overall, much worse conditions than the already stupid USA ones. Are we just SOL then? I was trading at forex. Just now looking to get back into the game with a legit dealer. Found a comment online somewhere about sunbirdfx being available to canadians.
I started demo this week, and talked to a rep today on the phone. No one so far has mentioned any problems about being Canadian, but I haven't tried to go live yet. Was just offered a promo. Hi, I don't think we're that bad off At first it was frustrating trying to find one, but then I found and opened a live account with MF Global and everything was fine Now I'm shopping around for another broker and there are a couple of options available Here's the list you can check Dealers We Regulate.
The dumb just got a lot dumber.. Oanda is a MM, which usually should be avoided like the plague, but they have a good rep overall and dont play TOO many games, be sure they are some, like widening the hell out of the spread during news. See this is the whole trouble, people are not free to choose the best Brokers anymore, AND good luck trying to make money with You won't be trading full time I guarantee you that, unless you have 40K to stick into an account.
I completely agree with you Jayjonbeach. What's with all these strict restrictions from US and Canada. If they want so much to protect the clients then make some hard rules for the brokers, not the traders.
Basically they limit only the traders. In the end traders could "choose" from a very small number of brokers and basically these brokers can afford to offer the conditions that will only be in their best interest knowing that clients will not have any other choice.More...