While the global forex market is one of the most liquid entities of its type in the world, this sector remains at the mercy of numerous challenges and misconceptions.
Incredibly, the practice is even illegal in some jurisdictions, with some authorities believing them to be highly damaging and vulnerable to rigging in the worst-case scenario.
But what are the legalities of forex trading, and where is this practice prohibited? Let’s find out!
Forex and its Regulations – An Introduction
Not only is the forex market one of the largest and most liquid financial sectors in the world, but it’s also among the fastest-growing.
For example, the forex market saw an estimated $6.6 trillion traded globally daily at the end of last year, with this number up from just $5.1 trillion as recently as 2016 (and $1.2 trillion back in 1995).
In terms of its function, the forex market facilitates the buying, selling, and exchange of international currencies, which are traded in pairs and as derivative assets that allow investors to speculate on price movements and profit without assuming ownership of the underlying instrument.
As a result of this, forex is defined as a legal business that has much in common with futures, stocks, or commodities trading.
However, forex trading and its brokers aren’t regulated globally or by a single authority, with local entities (such as the FCA in the UK) responsible for overseeing the practice in specific jurisdictions.
This creates significant variance and regulatory loopholes, which in some cases creates an opportunity for questionable marketing techniques, scams, and rogue operators who promise secret trading formulas that falsely guarantee success for novice traders.
It’s such instances that partially inform people’s opinions of forex trading, causing some jurisdictions to impose more stringent regulations and, in some cases, complete bans.
Considering Forex Losses and the Countries Where Forex Trading is Illegal
Another issue that continues to plague forex trading is its reputation for driving significant losses, with some broad estimates suggesting that some 96% of currency investors ultimately lose money over a concerted period.
However, even estimates of 90% are thought to be a little inflated in the age of online and digitised trading, with most experts claiming that as many as 70% of forex traders lose more than they earn.
The latter number is more indicative of a hazardous and high-risk marketplace, albeit a fair one, and can be successfully navigated by resourceful traders with knowledge, expertise, and a keen sense of determinism.
Countries that understand this seek to legalise forex trading and regulate it stringently, to safeguard traders and ensure that brokers provide a transparent and reputable service.
However, in countries where the authorities believe that as many as 96% of traders lose money, there’s a tendency to make the practice illegal or impose incredibly harsh restrictions that create a considerably less open marketplace.
In France, for example, authorities have sought to heavily restrict both the delivery and promotion of forex and binary options, with brokerage sites that offer leverage higher than 1:20 likely to be prohibited from marketing their services through digital media.
The Belgian authorities have gone even further, by formally banning OTC forex, CFDs, and binary options and suggesting that any such derivatives have no place in Belgium’s financial marketplace.
Similar forex restrictions exist in Belarus, Canada, China, India, Japan, Iran, Pakistan, Saudi Arabia, South Korea, and Turkey, with the latter country having recently introduced rules that prevent traders from using non-regulated or overseas brokerage sites.
Israel and Malaysia are also countries that have actively banned forex trading, citing forex as a potential scam and unregulated practice that lacks transparency despite its immense levels of liquidity.