Inexperienced traders who choose the Forex market for trading often even don’t realize how insidious it can be.
There are a lot of pitfalls, obscure details that can lead to disastrous consequences for your account not because you will lose your deposit, but because of other reasons.
In this article, we will tell you how Forex works in reality.
Who are dealers of the over-the-counter market and Forex brokers?
Is it possible to find the best Forex broker 2020?
Who is reliable, and who is not?
We will answer those questions a little bit later and will give some tips on Forex trading for beginners on how to start your career in the Forex market.
What Is Forex?
Simply speaking, Forex is an interbank currency market, but not the gamble process.
With its help, you can buy or sell any currency in the world which is traded there.
Forex Dealers and Forex Brokers
Access to the Forex market can be provided by two types of legal organizations: Forex dealer and Forex broker.
A Forex dealer - a company that offers intermediary services on searching counterparts for its clients on the Forex market.
The deals are formed on behalf of the company and at its expense through the establishment of financial obligations in the agreements between clients and the dealing company.
As payment for the work, this financial agent takes fees which he sets up on his own in the form of spreads (the distance between bid and ask) from the currency price.
The harder it is to find the counterpart (a person that acts as the second party), the bigger the spread is.
For the operations of the best Forex broker 2020, it is necessary to get the license in accordance with the requirements of the Central Bank of the country where this Forex dealer wants to register.
In case of an argument, the trial will be held in the jurisdiction of the country where this company is registered, but now where the client lives.
For some unfair Forex dealers, it gives an opportunity to avoid responsibility following misconduct against the client, because the client needs to press charges in Cyprus, which is a very expensive process.
Only affected clients with big deposits can afford judicial proceedings in another country.
Normal clients with deposits up to $10,000 simply unable to pay court costs.
And we have the first advice on Forex trading for beginners.
For this activity, there is a range of conditionalities, and if the company doesn’t correspond to them, it will not get the license.
And if there is a license for trading but the company became out of step with any of the requirements, it will be disbarred.
And here is the second pitfall!
They review everything once a year, usually.
That is why not the best Forex broker can cheat until the moment he loses the license.
To check this info is enough to visit the relevant section on the Central Bank website.
Also, you can search this info on the Internet on Forex forums. Very often users write about unfair dealers to warn others.
Basically, a Forex broker is different from the Forex dealer because of legal details. But the main difference is that the broker offers only intermediate functions on entering the Forex market.
In other words, a Forex dealer can form a clients’ quotations base and mate them among themselves. He can act as a counterpart without putting the money into the inter-bank market.
All of this should be accompanied by specific treaties with clients that form derivatives, obligations on which are formed in relation to deals.
At the same time, a Forex broker just pulls out clients’ requests to the Forex market, acting as a counterpart, no more.
And here is one more pitfall!
In these agreements, you can find subtleties of intra-company deals.
Also, there can be mentioned legally correct formulations of advanced functions against the client. For example, the slippage (sharp enough one-way price movement) of quotations which will lead to closing your opened position to the stop.
So, what is better - a Forex dealer of a Forex broker?
Here it depends on you and on your requirements.
Of course, it is better to choose the best Forex broker 2020 from your country with all the necessary licenses, permissions and opportunity to trade in the inter-bank market.
But, such companies have very exaggerated claims to which an ordinary client cannot relate. For example, a minimal sum of the deposit is $10,000 with the maximum leverage of 1:4.
Of course, if you have a small deposit from $300 to $3,000, a Forex dealer will give you an opportunity to withdraw small sums. It is possible within the company. Let’s say that you can take $1,000-$2,000 every month, but if you need more, there can be a risk that your account will be frozen. We will tell you the reason for it later.
Now it’s time to talk about dealing centers.
Actually they are the same as Forex dealers but they have a very low threshold, they don’t put deals to the Forex market and this is actually a game against the company.
And here is one more pitfall!
Very often they work through the company affiliation but are registered in other countries, and this moment doesn’t give you an opportunity to protect your rights in case of company fraud.
The main features of dealing centers are:
A low threshold - from $10;
Large leverages: some of DC give 1:1000, and when the price shifts, your deposit resets only to 0,1% for the company;
Dedicated Client Retention Units that, in case you lose all your money, try to persuade you to put more money and assure you will definitely earn a lot next time;
Fraudulent schemes with money loss;
An invoice for a deposit to an offshore company;
Price quotations manipulations. For example, sharp movement of the price in any direction, that is not observed in the real market;
Refusal to profit under various pretexts;
Freezing of the account under various pretexts for long proceedings. But, in such cases, you can boldly forget about your money. You could randomly check the box in your contract, where there is a condition that you accidentally fulfill, and, according to the contract, the company can block your account. In the end, clients can say goodbye to the money, because there is no point in litigating.
There were some cases when clients decided to sue with the dealing centers and they won. In such cases, dealing centers are punished by revocation of the license.
The cost of such licenses for Forex trading in Cyprus, for example, is $100,000.
A lot of fraudulent companies in such situations just change their names and buy this license one more time, continuing to cheat clients.
Tips for Beginners
So what should beginner traders who choose the Forex market do?
We will give you some simple advice on Forex trading for beginners in order to avoid being trapped and to be able to trade on Forex even with the minimal opportunities.
Let’s start with the deposit amount.
The higher it is, the better the Forex broker you are able to choose.
It is very important to work only with experienced and reliable brokers.
Start from small sums and leverages.
And the last Forex trading for beginners recommendation.
Good luck with trading!