What is 1:1 Leverage When Trading Forex?
The concept of leverage in the online forex trading market can be one of the most challenging to understand. This is especially the case as it relates to the concept of margin. We’ve been approached by several of our clients who are curious to understand how 1:1 leverage works when trading forex. Given how often this question comes up in discussions, we’d like to share a detailed answer with our global audience.
1:1 leverage simply means that one is trading forex without any type of leverage at all. In practical terms 1:1 leverage means that if you were to 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 find yourself at the airport currency exchange booth. If you’ve ever exchanged money at an airport before, then you are essentially trading on 1:1 leverage.
Taking the example further, let’s say that you exchange 500 worth of Euro for US dollars during a visit to the United States. Unfortunately, let’s imagine that you misplace the money you exchanged, only discovering it in your clothing after returning from your holiday. When you look at the exchange rate of the dollars you purchased, you discover that the dollar strengthened significantly during your travels, so when you exchange your money back at your bank, you receive 580 Euro, netting a small profit.
In this hypothetical example, you made a trade on 1:1 leverage. Most likely you wouldn’t look at it in this way but in essence, you fully exchanged one sum of money for another – that is essentially 1:1 leverage, which in other words means no leverage at all.
The Advantage of Leverage When Trading Forex
The reason that leverage in the forex market exists is due to the fact that the price of currencies do not exhibit major price fluctuations on a daily basis. Generally speaking, the Euro only moves 1 or 2 cents from day to day against the US dollar. For this reason, there is little potential for financial gain when exchanging 100, or even 500 Euro on a short term basis. Going back to our example, a profit of 80 Euro was made which is a rather extreme case for even a couple weeks of trading.
The only way to realize any significant financial profit when trading forex online is to trade a larger amount such as 1,000 or 10,000. This is where the concept of leverage enters the picture. Via leverage, investors are able to maximize returns (and also losses) by having more available capital at their disposal.
Let’s consider another example. Imagine trading with a broker that is offering 100:1 leverage. Essentially, 100:1 leverage would allow an investor to trade up to 100,000 units of currency (US dollars, Euro, or British pounds). The beauty of leverage is that the investor in our example would only need to deposit $1,000 of their own money as margin in order to control up to 100,000 of purchasing power! This is why it doesn’t make sense for a broker to offer 1:1 leverage. Imagine for a moment that leverage wasn’t available, if an investor wished to perform the same transaction on 1:1 leverage, they would need to have $100,000.
Forex Consulting – Consultation Services for New and Experienced Traders Alike
We hope this article was helpful in your understanding of leverage. If you are new to trading forex online and looking for the right broker to partner with, we are happy to assist you.
Due to our strong network and industry experience, we are glad to connect you to several We are more than happy to 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?
Both experienced traders and even those relatively new to online forex trading have most likely noticed that a significant number of forex brokers are regulated on the island of Cyprus. This discovery prompts traders of all backgrounds to ask: why are so many forex brokers located in Cyprus? The answer, as we’ll discuss in today’s column, is rather straightforward.
Why Are There So Many Forex Brokers in Cyprus?
The reason there are so many forex brokers located on the island of Cyprus is that it happens to be the quickest and easiest country in the European Union to obtain a forex broker license. CySEC, the regulator which oversees forex trading in Cyprus, has by far the most experience and longest track record when it comes to forex regulation throughout the European Union.
A new forex broker looking to establish a presence in the Europe will usually obtain a license in Cyprus due to the ease and relatively fast license approval process. Although it’s technically possible to obtain a forex broker license in any EU member state, most countries in the European Union have limited experience approving these type of licenses, resulting in a much more drawn out and costly application process.
The reasons above explain why it is rare to find any licensed forex brokers in countries like Italy, Romania, or Hungary to name just a few examples. Cyprus, on the other hand, has established itself as the defacto EU member state for FX & CFD regulation in Europe which is why most brokers obtain a license in Cyprus instead of other countries in Europe.
Passporting Considerations – An Additional Reason Cyprus is a Popular Destination for Forex Broker Regulation
The ability to “passport” a license to all EU member states is another reason why there are so many forex brokers in Cyprus.
How exactly does passporting work? In short, the concept of passporting means that a broker licensed in one EU country, like Cyprus, can offer their services to all EU member states without the need of having local regulations or an office.
Due to passporting, it doesn’t necessarily matter where an FX broker obtains its first license; it can be in any EU member state. Once the license is approved, the forex broker can target investors across the entire European Union. Because Cyprus was one of the first EU member states to quickly grant forex broker licenses, it emerged as the standard in Europe for FX broker licensing due to the ability to passport into other EU member states.
Forex Consulting Services – Guidance in Selecting the Best Forex Brokers in Europe & Around the Globe
In the last decade, Cyprus has emerged as a globally recognized jurisdiction for the regulation of forex & CFDs. Due to its positive reputation, there are now hundreds of forex brokers regulated on the island of Cyprus. The variety of brokers to choose from poses a challenge for those new to forex & CFD trading; selecting the best forex broker, even among the regulated options, can be overwhelming.
Whether you are looking to trade with a regulated forex broker in Cyprus, or another licensed part of the globe, our team of experienced consultants can provide guidance in selecting a broker that is the best fit for your specific needs.
Don’t hesitate to reach out to our team of consultants today, we are happy to help in selecting a regulated forex broker to partner with.
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 & CFD trading, you may have heard of swap free or Islamic trading accounts before. Given the abundance of jargon in the world of forex and CFD trading, beginners often find themselves uncertain where to begin. Today, we’ll define exactly what a swap free / islamic account is and provide some examples to aid in understanding this concept.
The Definition of a Swap Free / Islamic Account
A swap free / Islamic forex trading account is defined as an account that is not subject to daily rollover or swap charges. This also means that a swap free account does not participate in any positive rollover credits as well.
Why Are Swap Free Accounts Often Referred to as Islamic Accounts?
Shariah law is the main reason that swap free accounts are often known as Islamic accounts. Followers of Islam adhere to shariah law, which prohibits the earning of interest. This presented a problem for FX traders of the Muslim faith since it would be against their religious belief to be subject to rollover charges. The solution was to introduce the concept of a swap free account. Instead of swaps or rollover being charged to the account, traders who follow Islam will pay some type of maintenance fee or commission charge instead.
Do Forex Swap Free / Islamic Accounts Incur Other Charges?
Every forex broker handles swap free / Islamic accounts differently. In general, if a swap fee is not assessed, then a commission or account maintenance fee is charged instead. In some cases, forex brokers will offer new clients a grace period from any type daily maintenance charges as an incentive for the client to try out the broker. It’s important to highlight that the reason a forex broker must charge some type of fee is that the broker itself is still subject to swap/rollover charges and must pass some of those costs along to the trader.
How Do I Register for a Swap Free Forex Trading Account?
Each forex broker is unique in their approach to swap free accounts. This means that there is no set industry standard or policy as it relates to swap free trading. If you require guidance in finding a broker that offers swap free / Islamic trading, we are happy to assist you.
Forex Consulting Services – Guidance in Obtaining Swap Free / Muslim Forex Trading Accounts
If you are searching for a reputable forex broker that offers swap free trading accounts, our consultation team remain at your disposal. Due to our vast network of regulated and trustworthy forex brokers, we are confident we can help you find a broker that will be the perfect match for your needs.
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 for Forex Brokerages
How do Custodian Services for FX Brokers Work?
To get started in understanding how custodian services work for FX brokerages, let’s begin with something we are all familiar with: bank accounts. At some point all of us have executed transactions in our bank accounts through different methods (cards, cheques, wire transfers, etc) and subsequently obtained a summary of the activities, usually online or via a mobile application. In this simple narrative, the bank is the custodian of your asset.
A custodian, in simple terms, can be understood as any entity (usually a financial institution) that holds securities and assets for customers either in electronic or physical form. In addition to overseeing and guaranteeing transactions on behalf of clientele, custodians may offer a range of other financial services, including collecting dividends, paying out interests, and in the case of this article, custodial services for FX brokerages.
Custodian Services in the Online FX Trading Industry
When trading forex & CFDs, investors access the market through their brokerages. These brokerages normally collateralize funds with a liquidity provider, 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, at a risk liquidation. In the event that a broker’s account is liquidated, the investor or trader suffers the brunt of the downfall and in most cases receives pennies on the dollar, if anything.
The idea behind a custodial account is to protect customers against the risk of their brokerage becoming insolvent. It is essentially an escrow account in the customer’s 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. Note that specific terms will vary from firm to firm.
Why Consider Opening a Custodial Account for your Forex Brokerage?
- Protection and Security – A custodian account protects the investor from unforeseen events such as unsavory risk management strategies of the brokerage. This can help be a useful solution for traders who are concerned about the safety of their funds.
- Fund Segregation and Management – The client has unfettered information regarding their equity rather than an ambiguous report of mingled brokerage funds. Once again, this is advantageous in helping certain clients feel more comfortable working with your brokerage.
- Alternative Banking Solution – Currently it is very difficult to obtain banking solutions for unregulated brokers, especially those operating out of St. Vincent and the Grenadines. A custodian account is a potential compromise over a forex broker license since it will offer a banking solution but not require the cost and red tape involved in licensing. It is also a much better solution than the options currently available to non-licensed forex brokers.
To Learn More About Custodian Services for Forex Brokers, Contact Us Today!
If your broker would like to learn more about custodian services, our team is happy to be of assistance. Simply fill out our contact form in order to speak with an experienced consultant who can help your brokerage better understand the pros and cons of working with a forex custodian.
What is Forex & CFD Spread Betting? – A Simple Definition of Spread Betting
If you’ve been browsing through forex & CFD related websites, especially in the UK, you may have come across the term spread betting. The idea of spread betting often raises several questions from our clients: What exactly is spread betting? What is the difference is between spread betting and traditional CFD and FX trading?
What is Spread Betting & How Does it Differ from Forex & CFD Trading?
If you are a resident of the United Kingdom, then you have the unique ability to open up a spread betting account. On paper there is no difference in functionality between a forex / CFD trading account and a spread betting account. The main difference is financial.
United Kingdom residents who open a spread betting account do not have to pay taxes on profits. A simple definition of spread betting would then be forex & CFD trading without the need to pay taxes. It’s worth emphasizing that everything else in a spread betting account remains the same: margin, leverage, available pairs for trading and the software as just a few examples.
Limitations of Forex & CFD Spread Betting
Now that we’ve covered the definition of spread betting, it’s worth exploring some of its limitations. Spread betting is a service limited to residents of the United Kingdom. Our team has performed research on this topic and have yet to discover another country in the world offering a service similar to spread betting. This means that you cannot participate in spread betting unless you have residency in the United Kingdom.
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, 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
We hope you found our definition of spread betting useful. If you are interested in trading forex & CFDs, we can assist you in finding the most trustworthy and reliable brokers in the marketplace. Additionally, we can also recommend some spread betting firms to consider trading with as well. We look forward to hearing from you!
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 traders 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. Don’t be fooled, these companies are not on your side!
How to Tell if a Binary Options Wealth Recovery Firm is a Scam?
1) You are asked to pay money up front.
2) You called the phone number on the website and it didn’t work or it wasn’t the same company found on the website.
3) The owners and directors of the business are not easily found on the website or non existent.
4) The company claims to be regulated but you cannot find their business name listed on the regulator website.
5) A Google search of the company addresses doesn’t appear correct.
6) 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. Unfortunately, if you suffered a financial loss by trading binary options, there is no way to recover these funds back. Any company promising to recover your funds is just a binary options firm in disguise, trying to scam you one more time!
Binary Options Fraud
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.
