What it means
Before sending money anywhere, look the firm up on its regulator's register, such as NFA BASIC or FINRA BrokerCheck.
In practice
A licence means the firm must keep client money separate from its own, report its finances and follow rules on how it treats customers. It also gives you somewhere to complain and, in some countries, a compensation scheme if the firm fails.
Rules differ by region, which is why the same broker offers different leverage and products in different countries. Leverage limits on retail accounts in Europe, the UK and Australia exist because of how many retail accounts were losing money.
What to watch for
Scam firms copy the names and licence numbers of real ones. Search the regulator's register yourself and check that the website address listed there matches the one you are about to send money to.
Related terms
3 terms- BrokerThe company that gives you access to markets and sends your orders on for execution.
- ExchangeAn organised marketplace where buy and sell orders meet in one central order book, under one set of rules.
- SEBIThe Securities and Exchange Board of India: the regulator of India's stock exchanges, brokers, mutual funds and listed companies.