Let’s first of all determine that Forex is a market in which, online, interested people (traders) exchange one foreign currency for another at the rate of the largest global OTC participants. This market is enough global and is not connected to specific exchanges. Making deals online can be faster and bring you much profit than making in an exchange office.
The trading turnover of the forex market at the moment is the largest in the world. Anyways, neither the stock markets, nor the metal market with all the available gold in circulation, can not compare with the forex market in terms of sales and purchases, the average daily turnover of which exceeds 6.5 trillion dollars.
The meaning of the Forex term
Forex (FOREX) stands for exchange of foreign currency. These two words are the basis of the abbreviation Forex or FX.
In this market, it is really possible to start making transactions for the purchase and sale of foreign currency in a fraction of a second, as it operates around 5 days a week, and has a really big turnover. Fluctuations in exchange rates can be lower when we compare it with the stock market rates.
These properties give the brokers the ability to provide margin trading for their clients. This means you can open deals with a volume that significantly exceeds your current financial capabilities. For this, brokerage intermediaries provide leverage.
How does forex work?
The main thing to be aware about trading with forex is that the price of a currency will constantly change.
Let’s review an example: the euro costs $ 1.2, and an hour later it costs $ 1.19. The price of a currency expressed in another one traders call “quote”. Every such quote is included to the chart in the trading platform and puts a full stop on it. This point is automatically connected to the previous market of the asset’s price. So in forex, a price chart is presented, and traders follow how the chart changes in order to understand when to start trading.
You may already heard about a widespread modern solution – leverage. The importance of this goes down to the fact that at the moment of opening a deal, the brokerage company adds its own additional funds to your own funds. The size of such a bounty ranges from 1: 1 (when you trade only with yours) to 1: 500 (when the broker adds another 500 for every dollar of yours).
Moreover, brokers usually allow their clients to trade in smaller amounts than they are traded on the market, that are called fractional lots. The standard minimum transaction size is about $ 100,000. However, many brokers allow you to make transactions with a tenth or one hundredth of this amount.
Thus, it comes up that it is possible to join trading on the global forex market and trade amounts from starting $100 to $10,000.
What is Forex Trade?
The main currencies traded through online platforms are the US dollar (USD), euro (EUR), Japanese yen (JPY), pound sterling (GBP) and Swiss franc (CHF). Anyways, traders can start trading cross rates, these are pairs where the US dollar is not present.
In case everything is good with the country and the indicators of the economy health are better than predicted, then the exchange rate of the national currency will most likely increase. An in comparison if the news is bad for the country and the statistics on the region are not that good, then the growth of the currency will not be expected.
In the other hand, not everything is that simple as you can imagine. Fluctuations can be happened in a week or a day, and visual lines help to work with them – so-called technical indicators of trade. They assist to determine in which direction the price will move, how strong the existing trend is and what the traders can expect to come next.
Traders follow these indicators and are being guided by the economic news from the feeds of global news agencies. Usually users are following the global information system, which helps them to find the right moment to begin trade, buy and sell.
To make everything clear let’s consider as an example one of the most popular currency pairs on the market, which is the euro-dollar (EURUSD). In Forex trading the US dollar rate depends on the situation in America, and consequently the euro rate depends on the situation in the European Union. Traders from different locations get the recent news on the regions’ status and make their next steps – either by enlarging demand for the euro and dollar, or by reducing.
In case there are more of those on the market who are interested to buy the euro (the currency that is the first in the pair), the price of EURUSD increases. And in case there are more of those on the market who want to sell euros, the price of EURUSD reduces. This is how the law of demand and supply works in Forex trading.
Those traders who are convinced that quotes will increase are called bulls, and those who are sure that the prices will decrease are called bears.
Anyways, if the statistics for the Eurozone is not that good for traders, and there are more of those traders on the market who are interested to buy US dollars, then the EURUSD price will start to decline, which means it will go in favor of the dollar.
Main bidders
Central banks
These financial institutions’ most important task in the process of online trading is foreign exchange regulation in the external market, which exists to prevent the radical changes in the exchange rates of national currencies. This is essential to prevent the start of another wave of the economic crisis, and also maintain the balance of exports and imports. Central banks, their decisions and representatives’ messages will have a direct effect on the forex market.
In the United States, the main regulator is the Federal Reserve System (FRS), in Europe – the European Central Bank (ECB), in Britain – the Bank of England (BoE), in Japan, respectively, the Central Bank of Japan.
Commercial banks
They carry out tons of foreign exchange transactions. The other market users, through their accounts that are opened in commercial banks, make the needed exchange and deposit-credit operations.
The world’s foreign exchange markets are usually influenced by large international banks, which have a daily volume of transactions that can reach billions of dollars. For example, these are Barclays Bank, Union Bank of Switzerland, Citibank, Standard Chartered Bank and other banks.
Firms that carry out foreign trade operations
Companies that are involved in international forex trading are divided into two main parts: importers and exporters. Importers are those that are constantly demonstrating a stable demand for foreign currency, and in comparison exporters are those who offer foreign currency for sale, and also place or attract free foreign exchange funds as short-term deposits.
Companies that invest assets abroad
First, these are investment funds, Monetary funds and International corporations such as Xerox, Nestle, GE (General Electric), BP (British Petroleum) and others.
Currency exchanges
In a number of key countries of the world (USA, Britain, Australia, Japan, etc.) currency exchanges operate. Their main role is to deal with currency exchange for legal entities and form the current trading rate for each pair. As soon as a quote appears on the exchange, it is transferred to liquidity providers, and they, in turn, transfer it to the brokerage companies with whom they have entered into a contract. This is how the new price appears on the online platforms of private traders who are connected to the market by the same broker.
Brokerage companies
The main role of these intermediaries between the exchange and private traders is to involve both buyer and seller of foreign currency and bring them together and also make the purchase and sale operations between them at the current rate. All transactions are being completed online, through proprietary trading platforms.
Brokerage companies will charge you a fee in the form of a percentage of the transaction amount for their assistance in the trading process and the entry of transactions to the market. It is the contrast between the rate at which traders purchase a currency and the rate at which they sell it.
Private persons
Personally, you can be in the role of both a buyer and a seller. As a rule, you will not need to have the currency on hand for online exchange: all you need to do is to simply join the process of changing the price of currency pairs. It is this process that describes the whole modern online trading.
How to get a foreign exchange license and where to open a bank account for Forex?
Have you ever wondered how to get a license to trade in the foreign exchange market? Where to open a Forex brokerage or bank account? Perhaps now is the right time to ask these questions!
An offshore forex license is the easiest way to access major liquidity providers in order to profit and build an efficient business in the highly liquid global foreign exchange market – the largest market in the world.
Even the COVID-19 pandemic hasn’t hurt the foreign exchange industry! On the contrary: because of the increased instability of the global economy, opportunities have improved. Forex thrives on volatility.
An offshore Forex brokerage license will bring you the trust of traders, validate your company’s commitment to excellence, and more!
Clients prefer to do business with a trustworthy, reliable and, of course, licensed broker who has an impeccable reputation and financial standing.
The size of the foreign exchange market and your Forex license as a ticket to it
Currently, there are between 170 and 180 currencies traded around the world, not counting cryptocurrencies (almost 6,000 virtual currencies). The US dollar is the most popular and the EUR-USD pair is the most traded currency pair.
Forex is a worldwide distributed electronic trading platform with a daily turnover of USD 6.6 trillion (as of 2019). Its world value in 2021 is estimated to exceed $ 2.409 quadrillion. Wow! The market never sleeps.
The Forex markets operate as spot (for cash) and derivatives markets, offering futures, forwards, and currency swaps and options.
There are over 10 million Forex traders around the world, more than 1/3 of them are in Asia. Most traders have never traded other markets. Individual investors make up less than 6% of all traders. About 15% of traders make a profit, the rest fail.
Traders’ risks are associated with the likelihood of adverse fluctuations in supply and demand and, therefore, the value of a currency. That is why they need specific knowledge (macroeconomics, market analysis) and technical skills. Many traders prefer to use the services of brokers.
The main players are banks, hedge funds, and other financial institutions.
The largest center for foreign exchange trading is London, UK. London is followed by the United States, Hong Kong, Singapore and Japan.
The business is actually very simple: Forex brokers buy and sell currencies on behalf of their clients and receive a commission or charge the difference between the buy and sell price. As they say, the devil is in the details.
At the moment, offshore jurisdictions offer favorable conditions for activity in Forex. On our behalf, we are ready to help you at all stages of the formation and development of your business.
Why do many brokers get a foreign exchange license in an offshore jurisdiction?
The foreign exchange market in some countries is not regulated at all. Many regulators issue licenses, but they do not have equal perceived value. According to the analytical portal DailyForex, there are about 2,000 regulated (licensed) brokers in the world.
Unregulated brokers are often associated with scams, especially in Saint Vincent and the Grenadines. This jurisdiction does not regulate or license forex and has never done so, but that hasn’t stopped many people here on the Internet from starting companies there!
Offshore banks are unlikely to dare to open a brokerage company account without a license.
The license gives you the right to operate legally, avoid fines, and be trusted in the jurisdiction (s) where you intend to offer services.
There are other parameters by which brokers are selected and evaluated by clients … but reputation is the number one criterion.
We recommend the so-called “offshore brokerage license”, that is, a license for your company registered in an offshore jurisdiction.
An offshore Forex license provides the following benefits:
- There are no citizenship or residency requirements for the director / owners.
- Relatively simple due diligence requirements.
- Available license fees and renewal costs.
- No limitation of leverage for brokerage services.
- Minimum requirements for share capital or capital deposit.
- Various audit exemptions for small companies
- Simplified accounting.
Every licensed Forex broker can and should be confident in the legality of brokerage services provided to clients.
Unfortunately, however, many scammers sell fake licenses to ignorant buyers. They come from places like Saint Vincent and Costa Rica. Also, not all licenses are created equal.
When applying for a license, you must ensure that the license is valid and will be accepted globally or in the target market. This is especially important if you plan to expand your business and open offices in different countries.
To be sure of the validity and value of the license, you will need the advice of a lawyer specializing in forex issues. We recommend free professional advice and paid assistance from our legal experts on all matters related to your offshore company formation, brokerage licensing, account opening, maintenance and expansion.
Where is it easier to get a foreign exchange license and bank account for Forex?
There are a huge number of regulatory bodies in the world that issue licenses for brokerage in the Forex market, but each of them has different requirements. The rules and requirements for licenses in different countries should not be generalized. Our overseas Forex support will allow you to choose the best jurisdiction based on your plans and local conditions.
Jurisdictions that issue foreign exchange brokerage licenses are often classified according to certain parameters from category A (most stringent requirements, higher costs, maintenance is mandatory, waiting period longer) to category E (simple registration, reasonably low costs, minimum maintenance requirement ).
Let’s look at some offshore examples.
- Moheli (M) – inexpensive (small deposit), fast and easy registration procedure, the license is of two types and can cover crypto transactions.
- Belize (Germany) – Licensing is carried out by the BFSC (Belize Financial Services Commission), takes 3-4 months, opening a bank account is a difficult task.
- Latvia (E) is a traditional back office for the industry with a simple procedure for opening bank accounts for Forex activities and the ability to reapply, licenses are trusted by clients from the EU and CIS countries.
- Estonia (E) – licensing is carried out within 2-3 months by the Financial Supervision Authority, plus you need to register with the securities regulator.
- Cyprus (C) requires a local office and local taxes, and a reasonable amount of reporting. Forex companies are regulated by the CySEC (Securities and Exchange Commission). Opening an account with European banks is easy.
Whatever the license, its presence is a guarantee of a positive reputation (and your progress). The document confirms that the company complies with all norms and requirements, including reducing risks and protecting the interests of its customers.
If you feel you are ready to open an FX brokerage firm, you should not pass up the opportunity to maximize your chances of success by relying on the expertise and experience of our professional experts.
What are the main advantages of Forex Trading?
The main goal of trading is making a profit. The main advantages of the forex market are the ability to quickly increase the start-up capital. The average bank deposit rate in US dollars does not exceed 5%. At the same time, successful traders can receive up to 100% profit in a month. No other investment method like this (apart from binary options, whose brokers usually provide access to the Forex market at the same time) brings such a significant income.
But the advantages of forex trading are not limited to high profits:
- Low start-up capital requirements. Large investments are required to open an offline business. The advantages of forex brokers are in the minimum requirements for the size of the deposit. Some brokers allow you to trade in cent accounts with a few dollars of capital. To quickly increase the deposit, a trader can use leverage – a broker’s funds that allow opening transactions of a larger volume. This feature increases the profitability of trading.
- Free work schedule. Traders work for themselves. But this is not all the advantages of forex trading. Unlike private entrepreneurs who need to work with clients on a daily basis, a trader only trades if the markets are right. Weekends are traditionally considered free from trading, and on weekdays nothing prohibits the player from setting up trading operations and waiting for profits while doing other things.
- The ability to work from anywhere in the world. Trading in the foreign exchange markets today is carried out via the Internet. The trader has access to all tools via a laptop or smartphone. Most brokers provide access to such applications as technical analysis indicators, analytical mailing, online trader’s calculator, without time limits. Therefore, forex players can combine market analysis with hobbies and travel.
Adam is an internationally recognized author on financial matters, with over 328.2 million answers views on Quora.com and a widely sold book on Amazon
