What is 1:1 Leverage When Trading Forex?
The concept of leverage can be one of the most challenging to understand, especially as it relates to margin. We’ve been asked by several clients how 1:1 leverage works when trading FX. Given the frequency of the question, we’d like to share the answer with our audience.
1:1 leverage simply means that one is trading forex without any type of leverage. In practical terms this means that if you exchange 1,000 Euro for the equivalent in dollars, you would need to exchange the full amount.
How Does 1:1 Leverage Work In the Forex Market?
To better understand this concept, let’s imagine that you are at the airport currency exchange booth. If you’ve ever exchanged your money here, you are essentially trading on 1:1 leverage. Taking the example further, let’s say that you exchange 500 worth of Euro for dollars during a visit to the United States. Unfortunately, you misplace the money you exchanged, only discovering it in your pocket at the airport. When you look at the exchange rate, you discover that during your visit the dollar strengthened significantly, so when you exchange your money back, you receive 580 Euro, netting a small profit. In this hypothetical example, you made a trade on 1:1 leverage because you exchanged the full amount.
The Advantage of Leverage When Trading Forex
The reason leverage exists is that currency valuations are small in nature from day to day. Generally speaking the Euro only moves 1 or 2 cents from day to day. With leverage, though, investors are able to maximize returns (and also losses) by having more money at their disposal.
As an example, a broker offering 100:1 leverage would allow a trader to leverage up to 100,000 units of currency (US dollars, Euro, or British pounds) but only have to put up $1,000 in margin. This is why it doesn’t make sense for a broker to offer 1:1 leverage since it is rare that someone would wish to put up the full $100,000 to trade.
Forex Consulting – Consultation Services for New and Experienced Traders Alike
If you are new to FX trading and are looking for the right broker to partner with, we are happy to assist you. We are more than happy to refer you to several reliable and trustworthy forex brokers. Get in touch with us today to explore this opportunity further!
Why Are There So Many Forex Brokers in Cyprus?
Forex traders that have been trading for even a little bit of time have most likely noticed that a fairly large number of forex brokers hold licenses in Cyprus. This leads traders to ask why so many forex brokers are located in Cyprus?
The reason there are so many forex brokers located in Cyprus is that Cyprus happens to be the quickest and easiest country in Europe to obtain a forex broker license. CySec, the regulator which oversees forex trading in Cyprus, has the most experience in all of Europe when it comes to regulation. A new broker that is looking to establish a presence in Europe will ususally obtain a license in Cyprus due to the ease and time required for approval. Although it’s possible to obtain a forex broker license in any European country, Cyprus has established itself as the defacto country for FX regulation in Europe.
The other reason that Cyprus is the most recognized jurisdiction in Europe has to do with the passporting options the license affords FX brokers. How does passporting work? In short, the concept of passporting means that a broker licensed in one EU country, like Cyprus, can offer services to all EU member states. Due to passporting, it doesn’t necessarily matter where a broker obtains its initial license in Europe. Because Cyprus began to quickly regulate many forex brokers, it emerged as the standard region in Europe for licensing.
Forex Consulting Services – We Provide Guidance in Selecting the Best Forex Brokers to Trade With
Due to its long history in regulating forex trading, Cyprus has become a globally recognized region for FX regulation in Europe. With that said, not all brokers are the same and there happen to be many FX brokers to be found in Cyprus.
If you are looking to trade with a broker in Cyprus but require help in determining the best option, don’t hesitate to contact us. Our team of forex consultants are happy to guide you in the right direction!
Can US Citizens Trade Forex Overseas? Is it Illegal for US Residents to Trade with Offshore Forex Brokers?
Rules and regulations as it pertains to forex trading in the United States are often confusing, prompting the question as to whether it is possible for American citizens to trade forex overseas. The short answer is that no, it is not illegal for US citizens to open an account with an offshore broker, however, it is against the law for a non-US forex broker to open the account.
At first this may appear confusing so we’ll explain further. If a US citizen were to somehow open an account with an offshore forex broker, there would be no penalty or action taken against the investor. Instead, the penalty falls upon the broker. In short, it is against US law for non US brokers to solicit or offer trading accounts for US clients.
The United States government has strict laws pertaining to forex regulation overseas. The NFA, which is a regulatory group overseeing online forex trading in the US makes this very clear on their website: “All other off-exchange futures and options transactions with U.S. retail customers are unlawful unless done on or subject to the rules of a regulated exchange. In layman’s terms this essentially states that
Are There Any Offshore Forex Brokers Accepting US Clients?
There will always be offshore forex brokers willing to undertake huge risk and thereby support US clients. We cannot emphasize that the risk in opening an account is massive. First, there is a very high probability that the broker will go out of business or be shut down, which may come first. Because the broker is unregulated, there is little, if any chance of recovering your funds. Secondly, because regulation does not extend outside of US borders, there is little if any help for you as an investor should you have a complaint with this broker. Finally, banking options for unregulated brokers are difficult to come by so there is a chance that any withdrawal of funds could be blocked or returned due to US law.
The Risks are Not Worth the Reward
As experts in the field of forex consultation, it’s our view that the risks of opening an account offshore as a US citizen are not worth the potential reward. The chances of the broker being shut down and other complications as it relates to the withdrawal of funds are two major red flags.
Finally, we strongly discourage any US citizen from attempting to refer clients as an IB to an offshore FX broker. Not only is operating outside the country without a license illegal, the penalties can include massive fines and in some cases a prison sentence.
Fixed Spreads Vs. Variable/Floating Spreads in Forex Trading. Which is Better?
There is an ongoing debate in trading communities regarding fixed spreads vs floating (variable) spreads. Depending on whom you talk to, some will say that fixed spreads are better when trading forex while others will claim the best way to trade is via floating spreads.
When Trading Forex, Are Fixed Spreads Better?
The answer really depends. Before diving in, let’s provide a quick definition for fixed spreads so those new to fx can understand the meaning behind the term “fixed spreads.” In essence, a fixed spread broker will lock in the spread value at a certain level so that the spread price never moves. For example, the spread on EUR/USD may be “fixed” at 1 pip regardless of the time or day.
As a general rule, forex brokers offering fixed spreads are operating as market makers. It’s easier for market making firms to offer fixed spreads since the prices are not coming from an external source, ie a liquidity provider.
Some traders prefer fixed spreads. For example, when trading around news events, spreads often widen with brokers offering floating / variable spreads. This spread widening often makes it very difficult to trade around news. Not only can spreads widen around news but during off hour market times such as EUR/GBP at 3:00 AM in Europe.
Advantages of Floating / Variable Spreads
Some traders do indeed prefer trading with floating spread brokers. One reason is that these firms are generally STP brokers, meaning there is no conflict of interest between trader and broker. Additionally, floating spread brokers often have very competitive spreads during active market conditions, which means that spreads can often be lower than those offered by a fixed spread broker. Finally, traders who are quite active in the market may be able to receive even lower spreads when they transact a certain volume. Such a luxury isn’t possible with a broker offering fixed spreads.
Forex Consulting Services – We’ll Help You Find the Best Forex Broker in the Industry
If you are looking for a broker offering strictly variable spreads, our team of experts can help you select the best from the pack. Furthermore, if you prefer to trade with a broker offering fixed spreads, we can also help.
Contact our team of experts today to explore our consultation services in more detail.
What are Swap Free / Islamic Accounts in the Forex Market?
If you are new to forex trading, you may have heard of swap free accounts before, also known as Islamic accounts. With so many terms to cover when trading forex, it can be confusing for newcomers to wade through all the acronyms and terms, which is why we cover these topics in our blog.
The Definition of a Swap Free / Islamic Account
A swap free / Islamic forex trading account is defined as an account that pays no daily rollover or swap charges. This also means that the account does not participate in positive swap charges as well. There is no set rule on how these accounts are established, which means that each broker approaches them on a case by case basis.
Why Are Swap Free Accounts Often Referred to as Islamic Accounts?
The main reason these accounts are often known as Islamic accounts, relates to the shariah law, which is the religious law that all Muslims adhere to. Shariah law prohibits the earning of interest. This presents a problem for FX traders of Muslim faith. In order to accommodate traders whose religious beliefs prohibit the earning of interest, swap free accounts were introduced.
Do FX Swap Free Accounts Incur Other Charges?
Each broker handles swap free / Islamic accounts differently. In general, if a swap is not charged then a commission fee or account maintenance fee is charged instead. The reason is that forex brokers are still subject to swap fees so must make up for this loss in some fashion.
How Do I Register for a Swap Free Forex Trading Account?
Each broker is unique in their approach to swap free accounts. If you require guidance in finding a broker that offers swap free trading, we are happy to assist you, simply contact us. Otherwise, you can search specifically for these brokers and engage their support teams.
Forex Consulting Services – Guidance in Obtaining Swap Free / Muslim Forex Trading Accounts
If you are searching for an FX broker that offers swap free accounts, our consultation team can be of assistance. Feel free to contact us today for guidance in selecting several reputable forex brokers offering swap free trading accounts.
How Do I Become a Certified Forex Trader?
A common question that our team receives is how to become a certified forex trader? Because regulation in the forex trading industry is new when compared to long established markets like stocks, bonds, and futures, much of the rules and regulation are being written literally as we speak.
The short answer is that there is no specific license or certification required to become a certified forex trader. If you’d like to trade forex either as a hobby or professionally, all you need to do is open up a trading account, that’s it.
How To Gain Credibility as an FX Trader
With this in mind, there are various ways to prove your credibility as successful forex trader. For example, if you are interested in managing funds on behalf of investors, it helps to have a public record of your trading performance. An excellent site that is well recognized in the FX industry is MyFXBook. By using MyFXBook you can build a following over time which will help in both the credibility of your business and the ability to gain more followers.
Additionally, many forex brokers offer social trading technology as part of their overall offering. If you have a solid track record via a site like MyFXBook, you may be able to participate in these programs which are another avenue to building your credibility in the forex market.
Beware of Companies Offer Forex Certification Classes!
As a final thought, if a firm is offering a paid service to certify you as an FX trader, it may be a scam. As mentioned, there is no legal requirement or law to trade FX, don’t be fooled by a company offering such a service. Additionally, if you are concerned about a company asking you to pay money for certification, feel free to contact us for a free evaluation of the service.
Finally, if you are interested in exploring social trading applications as either an investor or a trader, don’t hesitate to reach out to our team. We are more than happy to assist you in finding the best forex social trading platform in the industry. We can also assist you in finding both reputable and regulated FX brokers to trade with.
Custodian Services in Foreign Exchange
What is a custodian?
If you own a bank account, you must have executed transactions through different means (cards, cheques etc) on that account, and obtained a summary of your activities from the bank at some point. In this simple narrative, the bank is the custodian of your asset. A custodian is any entity (usually a financial institution) that holds securities and assets for customers either in electronic of physical form. In addition to overseeing and guaranteeing your transactions, custodians may offer a range of other services, including collecting your dividends, paying you interests, and custodian service in FX.
Custodian Services in FX
In foreign exchange, customers access the market through brokerages. Brokerages are collaterized at a Prime broker with the deposits from their clients for liquidity, and must comply with regulatory requirements, one of such being; to maintain capital position equal at all times to the gross dollar deposits of their customers, or risk liquidation. If a brokerage gets liquidated, the customers suffer the brunt and receive pennies on the dollar.
A custodial account protects customers against the risk of brokerages becoming insolvent. It is essentially an escrow account in the customers name but administered by the custodian through a power of attorney. The custodian is authorized to debit or credit the account for profits or losses within 24 hours of the close of trading day.
Advantages of a Custodial account
- Protection and Security: This account type protects the client from unforeseen events; including unsavory risk management strategies of the brokerage.
- Fund Segregation and Management: The client has unfettered information regarding their equity rather than an ambigous report of mingled brokerage funds
There are a number of Custodial services on offer in the FX industry. Contact Consulting Forex to help determine your eligibility and establish the best custodial offer for your business.
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What is Spread Betting in the Forex & CFD Industry? – A Simple Definition of Spread Betting
If you’ve been browsing forex related websites in the UK especially, you may have come across the term spread betting before. We are often asked what the difference is between spread betting and traditional CFD and FX trading? Furthermore, what is the definition of spread betting? The answer is very simple.
If you are a resident of the United Kingdom, you have the ability to open up a spread betting account. On paper there is no real difference in functionality between a forex or CFD trading account and spread betting. The main difference is financial. UK residents who hold a spread betting account do not have to pay taxes on profits, which is a lucrative incentive for the UK forex industry. With this exception, though, the rest is exactly the same: trading pairs, software, margin, etc.
Limitations of Forex & CFD Spread Betting
Spread betting is a service limited to residents of the United Kingdom, so unless you hold residency there, it’s not possible to open a spread betting account from abroad. Furthermore, spread betting is not a global product. Currently, spread betting is only available in the United Kingdom and to our knowledge we don’t know of a complementary type of service in other countries that offer the same tax advantages that a spread betting account offers.
As a final thought, spread betting can also apply to the non-forex & CFD markets as well. For example, it’s possible to open a spread betting account to place wagers on sporting or political events. From our perspective though, the largest share of spread betting accounts are in the forex & CFD market.
Forex Consultation Services – Guidance in Selecting the Best Forex, CFD, and Spread Betting Broker
If you are interested in trading forex & CFDs, we can assist you in finding the best and most reliable brokers in the industry. In addition, we can also recommend several spread betting firms that are worth considering. To learn more, don’t hesitate to contact us today!
Beware of Binary Options Wealth Recovery Scams
If You Lost Money Trading Binary Options, Beware of Wealth Recovery Companies
We are here to warn any former binary options client to steer clear of firms purporting to offer wealth recovery services. Due to the demise of binary options brokerages, many of these former shops have turned themselves into businesses pretending to be on the side of the client. Any business offering to recover money lost to a binary options broker via a chargeback or refund is attempting to take advantage of former clients who are desperate to try to recover their losses.
How to tell a Binary Options Wealth Recovery Firm is a Scam?
- You are asked to pay up front.
- You called the phone number on the website and it didn’t work or it wasn’t the same company found on the website.
- The owners and directors of the business are not easily found on the website or non existent.
- The company claims to be regulated but you cannot find their business name listed on the regulator website.
- A Google search of the company addresses doesn’t appear correct.
- There are generic reviews of the company that sound like this: “I lost money trading binary options, but thanks to (Company A) I received my money back, email them here: (Email Address)
How to Get Your Money Back From Binary Options
If you lost money trading binary options, we warn you to stay away from any wealth recovery firm, especially those asking for upfront payments. The chances of successfully receiving lost money from a binary options lawyer or wealth recovery firm are incredibly low. Consider this recent example, where the operator of wealth recovery firm based in the United States was sentenced to three years in prison for pretending to be an official of the SEC. There are still plenty of fake wealth recovery firms out there that have yet to be exposed. We warn anyone engaging these firms to steer clear of them, as they are simply pretending to be on your side.
Do You Need a License to Start Your Own Forex Broker?
A common question we are often asked by our clients is whether or not a license is required to initially launch a new forex brokerage. The short answer is no, you do not need a license to start your own forex brokerage. With this point in mind, we strongly recommend considering a forex broker license, even if it is something that happens a couple of years down the road.
Does It Make Sense to Obtain an FX Broker License Before Starting my Own Forex Broker?
From our experience, forex brokers come in all shapes and sizes. Sometimes we speak to firms that wish to manage funds for a small circle of friends or family members. In this case, a license is helpful, however, if the investors already know and trust the fund manager due to a familial or friendship relation, then a forex broker license might not be necessary.
On the other hand, new forex brokers that wish to target a specific region or jurisdiction may have no choice but to obtain a license. For example, if a new forex broker is interested in expanding into Europe which involves local marketing, attending expos and establishing a physical office, then a license is an absolute necessity. It may not be clear, but establishing an office in Europe and running an unregulated forex brokerage is a violation of law in Europe as well as most countries.
The Pros and Cons of Operating an Unlicensed Brokerage
If you wish to launch a forex broker in the most cost effective way possible, then a license isn’t required. Most brokers will establish their company offshore, in a region that doesn’t require specific regulation such as St. Vincent or the Marshall Islands. In other cases a new broker may initially start as a referral partner or introducing broker, and only launch the business until the revenue justifies it.
The most cost effective way to launch a forex broker is to start unlicensed. It may surprise you to learn this but many of the larger brokers in the industry also began this way. As the business grew, the revenue justified the investment in the license, which further propelled the growth of the broker.
Bear in mind though that operating a forex broker without a license poses challenges. First, many high net work and corporate entities may not wish to trade with your firm due to the unlicensed nature of the business. Secondly, it is more difficult to secure banking and payment options when the broker is unlicensed. Finally, many liquidity providers may not partner with your brokerage until a license is obtained as local regulatory policy prohibits such firms from partnering with unregulated brokerages.
Forex Broker License & White Label Consultation Expertise
If you are interested in starting your own forex brokerage but aren’t certain if you require a license, feel free to reach out to us.
Our team of experts are more than happy to guide you along each step of the process.