The foreign exchange market is an uncontrollable market, no one knows when it turns up and when it falls. The foreign exchange market is enforced from the classic/old forex market. But because we have the internet and modern technologies today, forex trading became easier, and you can trade from the comfort of your home.
Because of the use of the internet, Electronic Communication Networks showed up and existed with the intention of electronic trading. Why? Forex trading is a high-risk pursuit that could lead to considerable losses, which is why plenty of countries see forex trading as illegal and banned it. Meanwhile, several countries have crucial restrictions in their nation in connection to forex trading.
If you want to why some countries ban forex trading and which countries consider it illegal, then keep on reading!
Understanding How FX Trading Works
Forex Trading also referred to as FX trading, is a trading method that capitalizes on fluctuations in currency exchange rates. According to U.S. News, Professor Robert Johnson of the Creighton University’s Heider College of Business says the FX market does not place a currency’s absolute value but instead identifies the value of one currency parallel to another. He also added that you may take a position in virtually any prime currency against another prime currency in the FX market.
For example, you can bet on the Japanese yen versus the Mexican peso. Or the U.S. dollar versus the Japanese yen. Although the activities that are mostly done in the forex markets are by multinational corporations to restrict natural positions, individual investors sometimes make theories or guesses on currency movements. This is why FX trading is a risky matter.
Is Forex Trading Illegal?
FX trading is actually a legal business such as stocks, futures, or commodities trading. However, forex traders should be regulated in the countries where their jurisdiction is. Forex trading is a risky business and may cause huge losses, the reason why a few counties have considered FX illegal for unregulated brokers. Some countries have imposed strict restrictions on Forex trading. Countries such as Canada, China, Belarus, India, Iran, Japan, Saudi Arabia, South Korea, Turkey, have many restrictions and traders must operate only through domestically licensed brokers.
Common Reasons Why Forex Trading is Banned to Some Countries
- Safety. Forex trading is not completely safe and can bring losses. There is data that indicates how the forex market is among the riskiest retail traders, with new traders that will most likely lose.
- Loss and Quit are High. According to forex.in.rs, statistics show that a huge portion of traders fails in Forex trading. A few estimates indicate that 96% of the Forex traders produce a loss and quit FX trading. This reason makes the market dangerous. But if you have great skills and you know how to manage risks with a clear strategy, then you’d be successful. However, the truth is, there is only 4% of traders thrive in the long term.
- High losses. Since we’ve already mentioned the high losses in Forex trading, this is one of the reasons why many countries don’t want their citizens to invest their hard-earned money in FX and end up losing them. Thus, a lot of countries set new rules and regulations for trading, and they are the ones who regulate forex trading. Forex trading risk can be compared to gambling risk, this is why some countries want to protect their citizens, avoid financial losses, and restrictions are implemented.
- Fixed currencies. There are a few countries that have an exchange rate system that is fixed, and their government collaborates with the central bank to maintain the stability of the currency price. Having a fixed currency rate system is one of the main reasons why some countries impose restrictions on forex trading. Normally, countries that have floating exchange rate will impose little restrictions while trading FX than countries where they have a fixed exchange rate since having stable rates are essential for fixed exchanged rates.
Countries That Have Restrictions on Forex Trading
Here’s a list of countries that allow trading of FX but they need to follow major restrictions:
China
FX trading is allowed in China. However, Chinese traders are not permitted to open their accounts with foreign brokers because of demanding controls on capital. The traders who are based in China are the ones who are only allowed to open their accounts with Chinese brokers. International forex brokers can establish their local branches in China if they want to attract Chinese traders.
Japan
Competitions for FX trading in Japan for smaller traders are plenty, and the market is rapidly growing. The agency that manages financial services allows retail FX traders in Japan to trade only through brokers licensed within their country, and they are not allowed to register with other brokers. They also implement restrictions on margin trading, normally 1:25 for major currency pairs.
India
FX trading is allowed in India but it should only be directed through registered exchanges only. Legally, Indian traders are not allowed to finalize spot transactions for currency trading. Also, Indian traders should only trade in currency pairs with the Indian rupee. This means that Indian traders won’t be able to trade in currency pairs without the INR which is a big disadvantage for Indian Forex traders.
South Korea
Traders in South Korea cannot open their Forex account with foreign brokers. Their restrictions in South Korea combine the ones of China and Japan. The maximum leverage the traders are allowed for FC is fairly low at 1:10.
Turkey
Traders in Turkey are not permitted to utilize non-regulated foreign brokers’ services. The local broker must be able to get a license for managing forex from Turkey’s board for Capital markets. A trader must make a deposit with a minimum amount of 50,000 Turkish Lira.
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