Forex Trading in New Zealand is one of the most vibrant financial markets. Residents who decide to trade only with NZ regulated forex broker should note that in 2021 there are only a very few FMA regulated forex brokers in NZ. Good news is that New Zealanders are allowed to open a forex account with any foreign brokerage they like!
What is the FMA license?
In New Zealand, the Financial Markets Authority (FMA) is the body responsible for regulating the financial markets in the country including NZ forex brokers. A broker must be fully registered with the FMA for its operations in the country to be legal.
Many international forex brokers have targeted New Zealand to try to capitalize on its growing forex trading marketplace. But not all brokers that want to offer their services to New Zealand forex traders gain registration from the industry regulator, the Financial Markets Authority (FMA).
The FMA has several classifications under which a financial entity may be registered and regulated. For forex brokers looking to conduct business in New Zealand, their services are covered under the derivatives issuers category.
The FMA website has used Blackbull Group Limited as an example. New Zealand Financial Markets Conduct Act of 2013 stipulates that an entity must be licensed to make a regulated offer of derivatives.
The Act describes a derivative as a transaction where a party to the agreement must or may be required to provide some form of consideration in the future to an entity or person.
The amount of consideration is dependent on the part or whole of something else, in this case, an underlying asset, including stocks, currency exchange rates, interest rates, indices, and commodities among others.
The act also covers open transactions already entered into, which may include futures contracts, swaps, and contract for difference (CFDs), among others.
Selecting the Best Forex Broker in NZ
One of the first things to come to mind when selecting a forex broker in NZ is that they should be actively registered with the Financial Markets Authority. A fully regulated broker will be indicated as active on the regulator’s list of authorized providers.
Some of the highlighted providers include
- BlackBull Markets
- AVA Trade
Some of the brokers like Pepperstone are fully regulated in multiple jurisdictions including the UK and Australia, which adds to the legitimacy score.
However, traders should know that unless a broker is fully registered and regulated in New Zealand by the FMA, it doesn’t matter if they have regulations elsewhere. Therefore, regulation by the FMA NZ is important when sifting through the web to find a forex broker in New Zealand. But that is not the only factor that matters. There are more.
1. Brokerage fees
Many forex brokers claim that they do not charge service fees to the clients. However, this only applies to market makers who make money by adding some premium on the Bid-Ask spread.
All non-dealing desk (NDD) brokers must charge some fees of some kind to facilitate the process of brokering transactions between traders and liquidity providers. Some NDD brokers may opt against charging a small fee for adding a small mark up on the quoted Ask/Bid price.
2. Trading platforms
Every trader wants to have the best experience when trading forex. As such, having a variety of trading platforms can play a crucial role in attracting different types of traders. As a trader, you also want to have the freedom to choose from one platform to another and possibly switch as circumstances dictate.
The most popular trading platforms are the MT4, the MT5, cTrader, and the various versions of WebTrader platforms. Some brokers also choose to offer additional trading tools and features such as custom indicators, Expert Adviser systems, and research resources. It is also good to keep in mind the availability of mobile trading platforms for those who seek simplicity and dynamism.
This is another essential factor to consider when looking for a forex broker in New Zealand. Some countries like the US have restrictions on leverage provision. In New Zealand, traders can choose a leverage of as high as 500:1. Some brokers offer higher figures, but a top limit of 500:1 is conventional for currencies. Different assets attract different leverage limits. For instance, some brokers offer a top limit of 200:1 for commodities. It is good to note that the higher the leverage the higher the risk. As such, it is important to find a middle ground based on the risk-reward trade-offs.
3. Risk Management
This is usually an ongoing process once a trader begins trading. But before choosing the NZ forex broker of your choice. Be sure to check whether the broker keeps client funds in segregated accounts to avoid a conflict of interest. Traders can also check to see the risk protection features offered by the broker, such as a minimum account balance protection which protects clients from losing more than what is in the trading account. Other features include guaranteed stops, slippage protection, etc.
NZD the national currency of New Zealand
NZD or the New Zealand dollar is the official currency and legal tender.
The reserve bank of New Zealand is the central bank.
Though not ranked among the major currency pairs, the NZD/USD supports this view as it is one of the most popular currency pairs in the world. It is categorized as a commodity currency pair because of the NZD’s ties to commodity prices.