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Forex Basics

Which Countries Ban Forex Trading?

Forex trading is certainly legal in the vast majority of countries around the world, and very few countries prohibit speculative currency trading. At present, Belgium is the most prominent case, with too many warnings to its citizens. Another very different question would be to analyze why in some countries there is more difficult than in others to carry out Forex trading, and then we would have to stop to analyze the particular situation of each one.

Researching in different brokers we have observed that there are restrictions to the opening of accounts to citizens of certain countries. The issue is not that in these countries the practice of Forex is illegal, but that the brokers themselves for different reasons do not want to open accounts with some nationalities.

In summary, the list of countries where it would be more difficult to open an account for Forex trading would be as follows:

“Afghanistan, Azerbaijan, Bosnia and Herzegovina, Brazil, Guyana, Iraq, Laos, Yemen, Vanuatu, Uganda, Quebec, Syria, Ethiopia, Sri Lanka, Trinidad and Tobago, Tunisia, Iran, North Korea, Burundi, Cuba, the Democratic Republic of the Congo, Libya, Republic of Mali, Nicaragua, Somalia, Sudan, Zimbabwe, and Venezuela”

Many times, although the governments of these countries do not explicitly prohibit forex trading, it makes it difficult for various reasons, one of them may be the prohibition of bank accounts denominated in currencies other than those of the country itself. That is, as is the case of Venezuela for example, which limited the currency USD for use among its citizens. This circumstance makes complicated the payment in several gateways like Skrill or Neteller and therefore the simple task of opening an account with a few dollars becomes very complicated.

In other cases like Cuba, the limitations that the population has for good access to the Internet also make it very difficult for its citizens to practice Forex trading. Let us not forget that in Cuba and in some other countries the US economic and financial blockade still exists.

Another case apart is the countries in war, in these countries, some of them in the Middle East, it becomes practically impossible to have an account to practice Forex, as the difficulties in general multiply.

“Since tradING is extremely risky, many countries have imposed strict regulations on Forex trade to prevent financial losses for their citizens.”

Brokers are well aware of all these circumstances, and that is why many of them do not want to have relations with citizens of countries they consider “conflicting”. But as the circumstances of each country change from day to day, this list of “banned” countries is constantly being updated.

China. China and India deserve special mention, in these countries Forex trading is restricted by their respective governments, which does not mean that it is prohibited. Yes, it is legal and although China allows currency trading, Chinese traders cannot open their accounts with foreign brokers due to strict capital controls. China-based traders can only open their accounts with Chinese brokers. To attract Chinese traders, international currency brokers can open a local branch in China.

India. Forex retail is permitted in India, although it should be routed only through registered exchanges. Indian traders are not legally allowed to finalise cash transactions for foreign exchange trading. Another restriction of Indian traders is that they can only trade in currency pairs with the Indian rupee (INR), for example, EUR-INR, GBP-INR, JPY-INR, and USD-INR. This implies that Indian traders cannot trade in currency pairs without the INR. This is a big disadvantage for Indian Forex traders.

Japan. There is a lot of competition for Forex trading in Japan for smaller traders, and the market is growing rapidly. The financial services agency allows retail Forex traders in Japan to trade only through licensed brokers in Japan, they cannot register with other foreign brokers. There are also restrictions imposed on margin trading, typically 1:25 for major currency pairs.

South Korea. Forex restrictions in South Korea combine the restrictions of Japan and China. Due to capital controls, traders in South Korea cannot open their Forex account with foreign brokers. Due to strict government regulations, local brokers impose many restrictions on currency trade in South Korea. The maximum permitted leverage for Forex trading is quite low at 1:10

Turkey. The law has recently changed (relatively new regulations have only been introduced in 2017) for Forex trading and traders cannot use the services of unregulated foreign brokers. The local broker must also obtain a license to trade on Forex from the Turkish board for capital markets. The trader is required to make a minimum deposit of at least 50,000 Turkish lira.

Forex-Friendly Countries

On the contrary side to what we have been dealing with, are the countries where everything is easy for the practice of forex, and we have thought it convenient to name them also in this article because not everything will be prohibitions and difficulties!!

One of the particular advantages of becoming successful enough on Forex to do full-time trading is that it is possible to do it from any place where there is good access to the internet. There are no bosses, you don’t have to leave the house to go to work, and you don’t need to be in a specific place. You can go anywhere, so why not choose the best place? Naturally what is best depends on each person, but there are some general considerations we can use to make some recommendations.

The Right Price

Many dream of becoming rich with trading, and living in luxury in a city like New York. But the most realistic probability is to have a modest and consistent income. Earning a couple of thousand dollars isn’t exactly a bad income, but there are places where that can be a very good income.

Forex traders know that currencies vary in their purchasing power, and you have to take advantage of that knowledge. In fact, switching to another country could improve the situation of a forex trader significantly.

Basics

Trading on forex requires a good internet connection, banking infrastructure, and a friendly tax environment. It is for the latter that many immediately think of countries that do not tax capital gains. But several of those countries, like Hong Kong, Singapore, or Switzerland, have a high cost of living.

On the other hand, some of the so-called low-cost countries w-cost countries have other problems, such as lack of infrastructure and security. The ideal is to find a balance. But you also have to consider trading hours; it is not very pleasant to get up at a foul hour to trade at the best times in the market.

Candidates

If measured by popularity, Thailand would be at the top of the list. Not only for Forex traders, but many of those who work online will live or spend a good time there. They have no tax on capital gains, life is cheap, friendly people, there is good internet, and many foreigners. Another close candidate would be neighboring Malaysia, for the same reasons. Other countries that are not so well known, but still would be interesting to consider.

Panama: For those looking for a business-friendly and safe environment, in addition to being relatively close to the US. It is also an advantage that they speak Spanish and English.

Malta: It has the same status as the countries of the European Union. The weather is mild and meditative, and it does not tax most of the gains from forex trading.

Categories
Forex Basics

What You Don’t Know About Forex Regulation Could Hurt You

The forex (FX) market is the largest and most liquid market in the world, with around $5.3 billion traded daily. Day trading is the most common among Forex traders, but many of the investors depend on the creation of trading accounts and the execution of their transactions through Forex brokers.

There are hundreds of new Forex brokers and brokers constantly opening their doors to the public. This makes it difficult to choose the best broker and leaves traders at the mercy of the broker when we talk about transparency and honesty. The Forex market is huge, but regulation in this market is scarce and there is not a single global body to monitor it 24/7.

There are no specific statistics, but the amount of foreign exchange brokers and binary options working under a regulatory authority is minimal (estimated at 5 percent) and that gives many companies the opportunity to take advantage of their customers and engage in abusive practices without consequences.

The Risk of Non-regulation

For retail forex traders, the biggest disadvantage of most brokers’ lack of regulation of the forex market is illegal activity or outright fraud, as well as losses in a market increasingly dominated by speculative activity and large institutions. After a series of scams related to the forex market during the period 2001-2008, the CFTC to create a specific task force to address the problem, and stringent forex regulations were introduced several years later to protect retail currency traders.

Under the Commodity Trading Act (CEA), the CFTC assumed jurisdiction over leveraged Forex transactions offered to retail clients in the United States. This Act only allows regulated entities to act as counterparties for forex transactions with US retail clients and requires all online US forex brokers to be registered and comply with the strict financial rules applied by the National Futures Association (NFA).

At the institutional level, banks, which are responsible for 95 percent of daily foreign exchange trade, are heavily regulated. The United States Federal Reserve and the United States Department of the Treasury are very attentive to the regulation of the Forex industry and carefully monitor brokers for evidence of manipulation.

Forex Regulation: Why not?

Why is Forex regulation so important? The aim of regulation is to ensure fair and ethical business behaviour. Under the current regulatory contracts, all forex brokers, investment banks, and signal providers are obliged to trade in fair compliance with the regulations and regulations established by the forex regulators or their activities may be considered illegal. These bodies must be registered and authorised in the country where they operate, ensuring that quality control standards are met. Brokerage houses are subject to audits, reviews, and periodic evaluations that force them to maintain industry standards.

In addition, regulated Forex brokers must hold a sufficient amount of funds to be able to execute and complete foreign exchange contracts performed by their clients and also to return clients’ funds in the event of bankruptcy.

If a regulator finds a broker infringing its guidelines, it can use a wide range of powers – criminal, regulatory, and civil  – for the protection of consumers and take action against businesses or individuals that do not meet acceptable standards. It may publish notices that are important to ensure the transparency of the decision taken by the authority and to inform the public, thereby maximizing the deterrent effect of enforcement action.

Some regulators issue alerts about financial services companies and individuals, both abroad and in their local areas. Of course, there can be no guarantee that any action taken by a regulatory agency, such as the FCA in the United Kingdom, translates into a payment or return of funds or securities, even when formal disciplinary action is taken and sanctions are imposed.

Many of the measures taken by regulatory agencies against brokers covered by their authorities may also apply to unregulated brokers in similar situations by police and other enforcement agencies, but its mandate is limited and less likely to be imposed, leaving investors with few resources in the event of fraudulent practices.

Forex regulators work within their own jurisdictions but often work together to search for suspicious activities. In fact, in the European Union, a single Member State licence covers the whole continent.

Over the years, regulators around the world have sought to organize some kind of universal body of regulation. The Mifid (Markets in Financial Instruments) Directive was introduced in the United Kingdom in 2007 and has been the cornerstone of Europe’s financial regulation regime ever since.

The Mifid Regulation is being revised to improve the functioning of financial markets following the financial crisis and to strengthen investor protection. The changes entered into force on 3 January 2017, although discussions are under between the European Commission,  the Council of the European Union, and the European Parliament. The new legislation is called Mifid II and includes a renewed Mifid and a new Financial Instrument Markets Regulation (Mifir).

There are, however, powerful voices working to pressure the wholesale forex market to have a broad regulatory base. The Association of European Financial Markets (AFME), a body in the sector, has spoken out against the strict rules of MIFID II and has recently published a document highlighting “unforeseen consequences” that could lead to excessive regulation of the Forex sector that would not allow brokers to serve their traders comfortably.

Local Approaches

At present, there is still no uniform approach to the global level when it comes to this market. The regulatory industry continues to operate locally with each broker requesting regulation at a chosen location and some organizations being more active than others. In Japan, one of the most active retail foreign exchange markets in the world, the Financial Services Authority (FSA) oversees all markets, including retail trade. The FSA is proactive in regulating retail foreign exchange trading and has reduced several times the maximum leverage that can be used by retail currency traders in recent years. In the UK, where the FCA (formerly the FSA) is the main regulatory body, and in much of continental Europe there are very few limits to the level of leverage offered.

Cysec, the financial regulator of Cyprus, is part of the European Mifid regulation, but it has attracted a number of foreign companies who wish to take advantage of what is seen as light regulation and an easy way to obtain a licence without having to comply with the strict requirements imposed by other European financial regulators.

In Latin America, there is no regulatory agency, and traders are protected by the regulatory authority that regulates the broker, depending on the country from which the broker originates, for this reason, it is very important that if you are going to carry out trading in Latin America, do so only with a broker who is regulated by a globally recognised authority.

Currently, the lack of regulation of the institutional foreign exchange market continues to pose continuing risks for the retail investor, including increased currency volatility and discrepancies in available public information.

Despite the difficulty and cost of brokers to be under an authorized regulatory body, there are many worthwhile brokers who choose to do so and these have to be considered ahead of all others. Traders have a large selection of regulated brokers in their jurisdictions or in other countries and will also find the same features -and more- with regulated brokers as with unregulated brokers.