Forex has status of biggest market in terms of trade operations, circulation and income. Trillions of dollars circulate here every day. And these currency transactions involve the commercial banking establishments worldwide, transnational organizations, large-scale investment companies, private capital holders and traders. Below we’ll consider the main aspects regarding the Forex license as official permission, and possibility of obtaining it in a particular state.
FX market is a place where there is no interference from third parties when making transactions. This has created an environment where scammers operate freely. Some states created licensing and regulative bodies for FX brokers. Forex licenses show traders that their funds are safe. Plenty of FX traders have lost thousands of their investments to unlicensed brokers. New brokers make false promises to forex traders while stealing their funds. Only way to distinguish stable FX brokers from rest is via licensing. Some states have strict licensing regulations. There are regions where brokers cannot act not possessing a permission.
In simple words, essence of FX trading is speculation on price of currency pairs’ difference. Here it is possible to earn both on growth of currency and on its fall. Income can significantly exceed bank deposits and investments in traditional stock exchange instruments and amount to tens of percent per year, subject to a balanced, thoughtful approach to trades. It should be noted trade deals are high-risk direction.
Essence of Forex broker
Secondly, this is a commercial company, and its main goal is to make a profit, which is formed from commissions for servicing clients. Thirdly, operations for purchasing and vending currencies through FX brokers are purely speculative. In other words, clients can purchase in this case one or another currency only for subsequent sale, and not, for example, for personal use. The fee for fact that brokerage parties help traders earn on FX is spread, which is charged as commissions. Every time traders conclude a deal on a pair, he/she pays spread to his/her brokerage firm.
FX market pitfalls
Traders may face the following points.
- The problem with depositing and withdrawing funds is to trade on FX, you replenish incomprehensible accounts, and also when you withdraw money, it is not clear where you come from. Thus, you may receive questions from the tax office.
- Large commissions for deposit and withdrawal. As a rule, in order to replenish or withdraw funds from FX broker account, 3-4% of amount is taken from you.
- High spreads are broker’s embedded specific commissions. You bought at the same cost and it immediately becomes unprofitable to sell because brokerage firm has set a large spread.
- Delay in order accomplishment. In your terminal, you press the button to close the order at one price, and the forex broker closes it at another, this is a frequent occurrence.
On any Forex, brokers with a license, or ordinary Forex dealers, you can make means, but not everyone. Beginners in 98% of cases will lose money. Currency exchange rates’ analysis is a very complex procedure, not every trader can handle it. However, this is a promising direction.
All FX brokerage firms that aren’t licensed are often considered scammers. This is because in case you do not agree with the funds, it is difficult to resolve this issue. This is why a Forex broker must obtain a trading permission. Licensing is a positive step for brokerage organizations as they can offer services in other states. FX firms providing quality services can attract more investors to their project. Because official permission gives you abilities to cover other traders.