What is Foreign Exchange Market

Forex is a term that you have most probably heard a lot of times during the last year. On television, all over the internet. Moreover, Forex exchange rates are broadcast on various television channels all around the world More »

Forex Trading Regulations in USA

The Farm Bill of 2008 introduced the concept of compulsory regulations for all Forex brokers as well as a minimum amount of capital. Dodd–Frank Wall Street Reform and Consumer Protection Act issued in 2010 brought further More »

Forex Trading Regulations in Europe

The European Union and the European Economic Area has put in place a series of laws to enhance competitiveness among its members while setting up a series of harmonized laws that allow a coherent trading process. More »

 

Forex Trading Regulation Israel

forex IL regulation

An important Forex hub, Israel started going through a regulatory process of this flourishing financial activity in 2004, when a committee founded to this effect by the Israel Securities Authority began examining the area, trying to find legal ways that will allow Forex trading to continue in Israel, but in an organized manner. Six years have passed until the law providing a regulatory legal frame to Forex regulations in Israel was issued. This happened in 2010, and since then the Israel Securities Authority is allowed to establish clear rules on the Forex matter involving any company providing financial services or products to the Israeli public, whether the respective firm is registered in Israel or not.

Two years later (in June 2012), the Israeli Ministry of Finance enabled the Israel Securities Authority to issue trading licenses to any corporate body willing to have Forex activities within the country’s territory.  One of the conditions Forex companies must fulfill in order to obtain the trading license refers to providing an initial capital investment of 4 million Israeli shekels. Domestic companies and industry representatives complained that this sum of money sets the standards too high, especially when compared to other countries’ Forex regulations.

They add to this the fact that this initial amount does not express the reality as, according to their calculations, each firm willing to get a Forex trading license in Israel would actually have to provide around 7 million Israeli shekels as initial capital before even starting operating, and that a medium sized Forex company should have about 25 million Israeli shekels.

Besides, the former Forex regulations in Israel did not make reference to credit exposure, while the newly implemented laws distinguish clearly between client leverage and client credit, stating the former is allowed but the latter is not. The same legal body sets a leverage limit to an 25 times higher equity amount for Forex pairs. These figures remain lower than the industry standards within OECD countries where the leverage amounts usually to 200 times the equity.

Another concern expressed Forex companies in Israel refers the rigidity and limitations of the newly issued legal bodies. They argue that the new Forex legislation in Israel is a great deal more demanding than those in place in other OECD countries, especially in Australia – another important Forex hub of the world. The same voices compared the Forex regulations in Israel with those acting in other financial fields of activity within the same country, like hedge funds and investments houses.

The return on investment on Forex brokerage activities is rather low in Israel, and industry representatives fear it will be difficult to find the clients willing to trade within such a restrictive regulatory frame. This would mean clients could fly off to friendlier and cheaper Forex markets like Australia. The Israeli Forex industry representatives expressed concerns that the story of Japan and Hong Kong will repeat itself.

Forex Major Trading Platforms

forex platform

Forex investors and brokers have at their disposal hundreds of trading platforms nowadays. Some are more popular than others, some are still undergoing major changes, but one thing is sure: the best known of all is MetaTrader 4. But let’s take a look at the most popular trading platform and at the ways to analyze them in order to choose the right one for your own needs:

MetaTrader 4

Although there is already a new version (MetaTrader 5), MT4 is still ruling and has been doing it since it was launched in 2005. One of its greatest advantages is that it enables traders to import plenty of free indicators from the web, not to mention that it is available at no cost. Its popularity is so big that specialists speak about an estimated market coverage of over 85% of the current Forex market.  Highly customizable, MT4 allows you to import a wide range of open source scripts or use the ones you write yourself/have written in MQL language. Another interesting feature refers to its mobile versions for iPhone, Windows Phone, and Android smartphones. MT5 is slowly gaining popularity, but it is still in its infancy days and traders continue to use MT4 because of its high level of reliability.

Saxo Trader

Saxo has earned a undisputable reputation along the years. Traders choose Saxo for the platform’s stability, for its ease of use as well as for its innovative features. Big trading firms even go as far as using the white-label solutions offered by Saxo. Before deciding for this trading platform, you should know it is available for download (SaxoTrader), for browser based use (SaxoWebTrader), and for mobile devices (SaxoMobileTrader). Now the updated and upgraded SaxoTrader 2 is available offering even more exciting tools for Forex brokers and dealers to trade easier and more effectively: technical chart analysis, order tracking, price monitoring and immediate access to a wide range of trading tools.

DealBook® 360

Created especially for those who only try to make their way into Forex, DealBook® 360 is a user friendly trading platform that many professionals recommend because it is possible to fully customize it and to adapt to meet your own trading needs.

FX Trade

An innovative and user friendly trading platforms developed by Oanda, FX Trade is another option you have when you are at the beginning with your Forex experience. As you advance in the field, you can start using more analysis instruments the platform offers, including a rich portfolio of charting tools and market indicators. According to the specialists, FX Trade’s strongest point refers to the possibility to implement automated trading that no other platform except for MT4 offers at this moment.

24option Web Trading

The 24option Web Trading enables Forex traders to maximize their profit rates using a reliable environment on their computers or on their mobile devices.  With 24option Web Trading you can start trading immediately, without having to download and install any software. 

Ask Your Broker the Right Questions

Question-for-broker

As Forex dealing is an increasingly popular field that benefits from an increased public interest, the number of brokers is constantly growing. Those who have just entered this financial world have a million questions to ask and do not always find the right answers. The quantity of information is infinite and it becomes difficult to find out the accurate piece of information that will lead you to the right questions to ask yourself and the others with a bit more Forex experience. Here are some points that will help you fine tune your questions and will speed up your training process:

Regulation

Undoubtedly, one of the most crucial aspects to consider when choosing a Forex broker refers to the regulation proof. Although nowadays there are less unregulated brokers than a few years ago, this situation might still occur. Dealing with an unregulated Forex broker opens the way for a wide range of potential problems. For instance, there will be no one to turn to in case you want to dispute a trading transaction facilitated by the respective broker. Therefore, a good question to ask your broker refers to a proof of his regulation. A point to consider here is that a broker’s regulation is valid per country. If he is regulated in the US, this does not mean he is also regulated in Australia.

Capitalization

Capitalization is another important aspect to look into when choosing a Forex broker. A broker who has capital problems is not a safe business partner you can trust your money with. If you are dealing within the US market, you should check the CFTC website that contains monthly update details on its members’ capitalization status.  The regulatory institutions in many other countries offer information on brokers’ capitalization. If you don’t succeed to find information otherwise, ask your broker if his funds are kept in separate accounts from the operational capital.

Currency pairs

Some currency pairs are more stable than others. Therefore, with different pairs of currencies there are different degrees of risk involved, but also the potential to make profit varies. Depending on what kind of deals you are looking for, it is best to get informed in advance on the currency pairs your dealer is offering.

Broker Types

Before you start trading Forex, it is advisable you understand which are the main types of brokers operating on the market and the differences between them. Also known as market makers, dealing desk Forex brokers will take, if necessary, the other side of the Forex transaction. This provides them with an opportunity to manipulate the prices, but this sort of practices become less frequent by the day. Considered by some the true Forex broker, the ECN (Electronic Communications Network) type of broker deals by matching your orders with those placed by other traders via an electronic network. For these brokers, you will have to pay a commission on each trading action as they do not make any profit from the deal.

Australia Forex Regulations

australian-regulation

An increasing number of Forex trading companies, including field’s leaders like Saxo Bank, AvaFX and FxPro have recently opened an office in Australia.  The reason for the Oz country’s popularity with Forex brokerage firms lies in Australia’s favorable Forex trading regulations. Actually, both domestic Forex companies and the new comers to the Australian financial market reported substantial profit and income growth during the last years.

So why is Australia such a popular Forex market? Which are its main advantages over the US or European markets?

First of all, contracts for difference (CFDs) are considered by the Australian legislation over the counter financial products. This means that they can be easily accessed by retail Forex brokers. However, CFDs bear a high level of risk and are not likely to accomplish the profit amounts estimated by Forex dealers. This is why, the Australian Security and Investments Commission (ASIC) has recently introduced a regulatory body of law protecting Forex investors against the risk of getting inaccurate financial information regarding the financial products in which they are planning to invest, including the CFDs. This improves the situation of the Australian market even further, regulating an easily accessible investment opportunity.

Actually, these regulations are part of a seven benchmarks system set into place by ASIC in the last years in order to better regulate the Australian market.  Among these benchmarks, we mention the client’s qualification (his level of knowledge in the respective area), the opening collateral (the guarantees offered for the transaction), the counterparty risky and the client’s funds. Although a lot stricter than before, Australian Forex regulations still remain a lot friendlier than those imposed on this particular financial market in other countries of the world.

Secondly, it is a lot cheaper and easier to become a regulated Forex broker in Australia as the minimum level of capital investment is of AUD$ 50,000, while other financial centers of the world, including New York, Singapore and Hong Kong require a lot higher amounts of money as minimum capital. Further more, ASIC being a respectable regulating Forex body, you can start off as a regulated broker in Australia and then apply to the other regulatory bodies, while also dealing and gaining experience on the Australian market.

Australian regulations are more friendly than any other markets of the world. Besides, there is a wide range of other advantages for becoming a Forex regulated dealer on this markets. For instance, Australia represents one of the biggest financial markets of the world, and its domestic currency, the Australian dollar is the 5th most exchanged currency on Earth. This makes the Australian financial market highly profitable.

Moreover, the multinational profile of the Australian population provides this Forex market with an array of investment opportunities, Australian brokers dealing on a lot more markets than the international average. The difference can be noticed especially when referring to the Asian markets – currently the fastest growing financial markets of the world.

Forex Investors’ Rights

know your right

What rights do Forex investors have? This is a question many people looking into this field for the first time ask themselves. Although Forex is no longer a new area of financial activity, some question still float in the air. Here are some of the rights any Forex investor has:

Honest advertising

Many people first find out about opportunities to invest in Forex via advertising, be it in a traditional on-paper form like newspapers and leaflets, or the digital modern media like television and internet. Just like in any other area, honest advertising is one of the rights people dealing within the respective field have. Forex investors should expect that the most appealing features to be emphasized, but they have a right to honest advertising. However, they should always double check the information and not make their investment decision based solely on advertising.

Complete and accurate information

Before making a decision, any Forex investor has the right to get complete and accurate information on the investment opportunity they are considering. This includes the right to ask for informative briefings about the company that will constitute their business partner, on its record and financial stability. If the respective opportunity for investment means doing business with a firm whose stock is traded publicly, you should request information on its latest annual report.

Risks disclosure

It is a known fact that most investments involve a certain degree of risk. Forex investors have the right to learn for each opportunity which kind of risks it presents and how big they are. Some of the risks like the possibility of a price drop in shares or the bankruptcy of a business venture are inherent. However, dealers should warn investors on all the risks involved. On the other hand, investors should refrain from putting their money into an opportunity if they don’t understand which ways of making profit involve higher risks than others.

Clear definition of obligations and costs

Forex investor have the right to learn, in advance, about the obligations they take when making an investment as well as about the costs involved in the respective deal. The costs may include commissions, different type of charges, but also the expenses of each transaction, and any fees or penalties involved in each activity.

Timeline of investment actions

Since it is your money you are investing, you should request to have full disclosure on the timeline of investment actions and enough time to make your investment decision without feeling under pressure. Specialists advise to stay away from business deals that have to be closed on the spot.

Access to funds

Some Forex deals come with all sorts of restrictions, some of them limiting your access to your own funds. In such a case, you should know that it could be difficult to turn the investment into cash at any given moment. Most honest deals, however, provide you with access to your funds throughout the time of the investment.

Major Types of Forex Brokers

investment broker

Before picking a Forex broker and starting dealing in foreign exchange, it is important to know which the major types of Forex brokers that you can encounter are. The main two types are Dealing Desk  brokers (also known as Market Makers) and No Dealing Desk brokers, which can be of two kinds: Straight Through Processing or Electronic Communication Network brokers.

Market Maker Forex Brokers

Market Maker Forex brokers usually generate their income speculating on the gap between the bid price and the offer.  Their name comes from the fact that they actually provide their clients with a market acting as the other party within the commercial transaction the client performing. Without taking into account the trading decision of a particular dealer, market makers fill both types of orders (buy and sell) on their client’s behalf.

A transaction using a market maker has two possible scenarios. After filling in the trading order, you can have either an offset because of a match with other clients or because your order is passed on to the liquidity provider, or your order can be counter traded by your broker, case in which it is turned into profit.

No Dealing Desk Forex Brokers

The difference between Market Makers and No Dealing Desk brokers is the existence of a dealing desk through which the orders are passed. No Dealing Desk brokers do not act as the other party within their clients’ trading transaction. They just make the connection between the two trading parties. No Dealing Desk brokers can be of two kinds: Straight Through Processing or Electronic Communication Network brokers.

Straight Through Processing Brokers

Their name refers to the routing system they use to send their client’s orders straight to liquidity providers, which benefit from direct access to the interbanking market. STP brokers generally work with several liquidity providers, each one of them quoting a pair fo bid and ask prices. These quotes are sorted out by the system, which will pick the best prices. However, the quotes dubbed by the system as the best ones are not the same with the ones you will see on your platform. The prices you get contain a markup (usually a fixed amount). This is why most STP brokers are working with variable spreads.

Electronic Communication Network Brokers

The difference between STP and ECN brokers is the ability the latter provide for their clients’ orders to interact with the ones placed by various participants in the ECN. These participants can bear different forms such as banks, other retail dealers, hedge funds, or other brokers. All of them trade against each other within the same Electronic Communication Network, speculating on the difference between bid and ask prices. Another advantage ECN brokers present for their clients refers to letting them see what is the Depth of Market – a financial parameter displaying where the other participants on the same market have placed their buy and sell orders. Unlike other types of brokers, ECN brokers work on commission.

Forex Trading Regulations in Europe

MiFID regulations

Forex, also known as FX, stands for foreign exchange market, and is basically a decentralized global market for trading currency. The main players in the field consist of the world’s largest banks. Trading takes place all across the globe with financial centers bridging the divide between a wide array of buyers and sellers. Through the huge trading volume, FOREX determines the approximate value of most of the world’s currencies.

Forex is an outstanding international entity that is both unique and extremely powerful due to some of its most important characteristics. These are the immense trading volume that in turn leads to high liquidity, its spread across all continents and most countries and its schedule operating non-stop with the exception of weekends.

Other important factors of Forex are its large list of variables when it comes to changing exchange rates, the low margins of relative profit and the ability to use leverage, to increase profit or limit loss. Forex trading is a global phenomenon happening across all continents with the U.S., European and Asian market representing the largest players. All these immense markets have set up regulatory bodies in order to increase transparency, safety and offer a fraud free system.

The European Union and the European Economic Area (E.U. plus Norway, Iceland and Lichtenstein) has put in place a series of laws to enhance competitiveness among its members while setting up a series of harmonized laws that allow a coherent trading process.

MiFID is a E.U. law set in place in 2007 that aimed to set a standardized legislation across the E.E.A (European Economic Area) while increasing competitiveness and overall efficiency. It was also set in place as a measure to prevent certain countries from the E.U. to “enhance” their financial legislation and create an uneven market.

MiFID regulations cover a wide array of activities even all investment services and activities. For example, a company falls under MiFID regulations if it provides financial services and activities as well as ancillary services. If a company offers only ancillary services it does not have to comply with MiFID regulation.

Each company that falls under MiFID law will be regulated in whatever country they have their offices registered. Once MiFID authorization is obtained the respective company will have access to all E.E.A. markets being under the regulations of the country it is registered in.

MiFID is one of the major laws from the European Commission Financial Services Action Pan. The Plan consists of 42 measures that are part of the four part approach to market regulation under the “Lamfalussy Directives”. With the exception of MiFID there are three other directive named the Transparency Directive, the Prospectus Directive and the Market Abuse Directive

Before instituting the MiFID and four “Lamfalussy Directives” the E.U.’s market regulation was called the ISD (Investment Services Directive). The ISD was the first set of rules that emphasized the importance of a harmonized regulatory system across all E.U. and E.E.A.

Forex Trading Regulations in the US

corporate regulation usa

Also known as the Wild West of trading, Forex used to be an appealing financial activity especially because of its “no regulations” character. Specialized brokers as well as individuals were attracted by the possibility to make fortunes overnight speculating on foreign currency rates. However, things start to change, at least in the US and some other parts of the world. The American authorities were among the first to take measures in order to regulate this market, and their example is currently followed by law makers from many other countries.

Several laws passed during the last years had their impact upon foreign exchange trading.

The Farm Bill of 2008 introduced the concept of compulsory regulations for all Forex brokers as well as a minimum amount of capital. Dodd–Frank Wall Street Reform and Consumer Protection Act issued in 2010 brought further regulations and frames aimed at reducing the amount of speculative activities within financial markets. These are just two of the legislation texts through which the American government tried to exert its power into regulating Forex deals and financial markets.

Today the joined forces of two American institutions – the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC) regulate the US Forex market, and their rules apply both to brokers who are based in the States and to those willing to deal American citizens. According to current Forex trading regulations in the US, all legal foreign transactions must pass through one of these two agencies approved by the American government.

As of June 2013, brokers who want to operate legally within the American market or to deal with US residents must fulfill the minimum capital requirement, which amounts to $20 million for forex dealer members (FDMs) and to $1 million for futures commission members (FCMs). The American financial authorities explained this regulation by the need to protect customers from any bankruptcy risk that Forex dealer might go through, case in which the clients can recuperate only a small part of their investment.

For the same reasons, Forex dealers are not allowed to use their clients’ money for any other purposes. Brokers are obliged by law to insure all deals using their own capital. Moreover, in order to comply with NFA regulations, Forex dealers are required to submit their financial status to NFA every week, and they are audited by the same institution on an annual basis. This way, the American government takes the necessary steps into enhancing Forex trading regulations in the US.

Another stipulation of the NFA regulations refers to the number of positions a broker is allowed to open on a single pair of currencies. While the habit was to open several positions, nowadays NFA forces them to close any previously opened position before opening another one in order to eliminate hedging. However, this rule is often by-passed by US brokers via their own subsidiaries operating from other countries.

A very appealing market because of the big money making opportunities via speculative transactions, Forex has been operating without any regulating frames for many years. As bankruptcies and other financial issues jeopardized the customers and the market’s stability, the official started to intervene and measures are being taken to regulate this area and turn it into a safe business field.

What Is Forex

euro vs usd

Forex is a term that you have most probably heard a lot of times during the last year. On television, all over the internet, in newspapers as well as in the street, people speak about it. Moreover, Forex exchange rates are broadcast on various television channels all around the world. Although this seems to be our decade’s hottest hype, there are still those who wonder even now what Forex means. Can anyone get into Forex? Are there any guarantees? Where do you start from? What kind of investments do you need? These are just a few questions we are trying to provide answers for.

The term itself appeared as a contraction for the phrase foreign exchange. Forex refers to the currency market – nowadays considered the second largest financial market globally as far as the overall volume is concerned, the first one being the interest rates market. Forex is that specific market on which currencies from different countries are traded. How do people make money out of Forex? By speculating on the differences between the different currencies’ rates. This is the major profit making factor within this market, and it generates a lot more income than the actual sale of foreign currency in order to purchase goods and services.

Just like with any other free market, the ratio between supply and demand is the factor determining the price of currency exchange and establishing the rates at which a specific currency is traded. Therefore, Forex rates are strongly influenced by the amount of a particular currency available on the market as well as by various other factors, including rumors and news regarding a country’s political and economical situation. As Forex is not centralized in a specific place, traders operating within this market work mainly on a mutual agreement basis.

What are the direct implications of this operating mode based on mutual agreement and non centralization? It actually means that this market’s operators contact each other directly in order to perform a transaction, and that, at given moment,  they don’t have an accurate and determined quote for the foreign exchange rate. Traders from different countries buy and sell currencies and the rate of the exchange depends on the time differences and on the opening hours of the local financial institutions. Forex is, therefore, a market that never sleeps as transactions are held continuously, around the clock.

Although still surrounded by an aura of mystery and characterized by a certain lack of precision, Forex is accepted as a perfectly legal transaction in most countries. It does not require any major financial investment, and it can be used a supplementary source of income, while also having a day job. While there are still many people who regard this area with distrust, hundreds of thousands of traders operate within this market daily, and for many of them Forex has become their main job and a synonym for success. The emergence of this new form of financial activity marked the beginning of a new era as Forex allows each individual to get involved in the global economy.

Many traders prefer dealing in Forex rather than in stock markets because of the lower level of risks involved. While with stock markets, they can lose all their investments in a split second, Forex does not imply losing all the money you put into the respective transactions.