Recently, foreign currency trading, or Forex, has become widespread among investors all over the world. Many aspiring investors have been recalled and attracted by the possibilities of earning through online trading even in the short or very short time, all made possible by the ease of buying and selling simply from the home computer, but above all from the opportunities that are created every day even in because of the economic instability we live in these times.
In the following lines, we will try to investigate the Forex, its security, its transparency and the legal aspects of the platforms that allow trading.
What is Forex? Is it safe?
Textually, Forex means Foreign Exchange (ie foreign exchange) and indicates the world market in which all operators and investors, institutional investors (Central Banks, States, Agencies, Commercial, and Investment Banks), up to individual investors who work in front of their home computers find themselves operating. Forex is undoubtedly the largest market in the world in terms of turnover and the number of transactions made. The difficulties inherent in this market are considerable but not insurmountable even for those not in the sector, making it particularly attractive to a large number of investors.
In the world of forex, there is a golden rule: to make money you need great financial resources, with reduced availability you can get meager earnings. There are two types of instruments with which to trade: binary options on Forex, and so-called CFDs (Contracts for difference).
Forex binary options
In this type of financial instrument you bet on the possibility that a given currency (USD, EUR, CHF, etc.) strengthens or weakens compared to another. Binary options always have a relationship between two currencies (for example Euro / US Dollar or Euro / British Pound, and so on), and our goal is to guess the progress of this relationship so if a currency will go up or down. In the same way, with binary options we can also invest in Equities, commodities, metals and Indices, negotiating the change in the price of the asset chosen downwards and upwards.
The Contracts for Difference on Forex (CFD on Currency) are based on the negotiation of the variations on the price of one currency with respect to another, but compared to the binary options the quantification is made a priori for which the gain or loss is known at the time of signing the contract. In both instruments, we must pay a lot of attention to the leverage effect, which consists in the possibility that investors are given to buy or sell larger volumes of financial instruments (in this case the currencies) compared to the possibilities given by their account. The leverage effect serves to amplify one’s investments, thus increasing the risk both of earning and losing capital, so in simpler words the leverage effect allows the investor to carry out much more “heavy” transactions than the money actually owned, going to buy more goods.
Transparency and legality in Forex Trading
All the brokers that allow us to operate in these markets are subject to specific constraints and rules as well as to the supervision of national and international bodies such as the Consob for Italy or the FCA for England or supranational bodies such as
- the Cypriot CySEC for Europe
- the FSCA for South African Brokers
- the SEC for the United States
- the ASIC for Australia
Each broker is subject to the same rules of transparency and legality as any other financial body, such as banks and investment funds. All the rules are aimed at ensuring the investor these 3 fundamental points:
- Certainty and speed in withdrawing the amounts earned on the market;
- Transparency and uniformity in the supply of Market data;
- Deposit insurance coverage.
The conditions for trading, vary depending on the broker and its commercial policies, therefore substantially vary depending on the contracts signed at the time of accession by the user and based on the various promotions of the moment (ie all those measures taken to attract new customers through incentives, bonuses, gifts, promotions, etc) and to the technical prerogatives of the platforms. From the operational point of view, the first objective conditions set by the Broker must be taken into account, such as the minimum deposit to start trading, the minimum trade (ie the minimum lot of the transaction) the Spread on each individual trading transaction with respect to the official price, interest rates, maximum permitted leverage and daily commissions for trades that go beyond the closing of the markets.