Forex traders from different countries may have different trading experiences due to the gaps in technology and regulations. Here's a guide on how to choose the best forex brokers by country.
With the vast revolution of technology and the high use of social media, forex trading has become a global phenomenon. The high volatility of the currency market has attracted many traders from all around the globe for decades. In the past few years, we've seen a drastic improvement in the industry, making it more popular in many parts of the world.
Even though the market is more inclusive and connected than ever, it also contains a lot of geographical inequality. The trading experience and the ease of trading may be different for each trader depending on where they live.
In some countries, forex trading is very easy to do and facilitated by many trusted brokers. While in some others, there are loads of hurdles and heavy regulations that traders should obey. Many people wrote articles on the internet implying that all traders in the world have the same access to knowledge, technology, tools, and resources to the forex industry. But the truth is actually far from reality.
- Geographical Distribution of Forex Brokers
- Payment Options in Many Countries
- Is Forex Trading Legal?
- Where is the Best Place to Trade Forex?
- Final Words
Geographical Distribution of Forex Brokers
The unbalanced distribution of forex brokers is arguably the leading cause of the huge gap among traders. Most forex brokers are located in the United States, Europe (specifically the UK and Cyprus), Asia (Australia, Japan, and Singapore), and the Middle East. In contrast, there is almost none that exists in the Africa region.
As a result, traders who live in a country where there is no physical brokerage available for them should trade with offshore brokers and follow the agencies' regulations that supervise these brokerage companies. The following are the detailed description for each location:
The United States
The United States is one of the biggest markets in the world for online trading. In fact, the US market is often seen as the center of the financial world and plays a crucial role in balancing the global economy and peace.
But since the 9/11 tragedy and particularly the financial crisis in 2008, the US government decided to make stricter rules and revise the policies regarding how the US companies could do business with foreign entities. This action resulted in the shutting down of many accounts from countries that were blacklisted by the OFAC (US Office of Foreign Assets and Control). To this day, traders from those countries are still unable to open an account and register with US forex brokers.
Strict regulations are imposed on global brokers that wish to enter the US market. A few requirements should be fulfilled, including getting a license from the National Futures Association (NFA) and having at least a 20 million dollars deposit. Many brokers find these terms highly costly and not worth it.
Another issue is the US tax law or the Foreign Assets Tax Compliance Act (FATCA). The law basically requires US citizens to declare any income made outside of the US, including any profits earned from forex trading with foreign brokers. FATCA also requires all foreign companies to report to the IRS on US traders that have trading accounts with them. This and the costly NFA license are the main reasons why many brokers from Europe and Asia just simply close their doors to US traders.
As a result, only a few global brokers operate in the US and accept US traders. If you're from the US, you may not find a lot of foreign broker options to choose from. Thus, the best option for US traders would be to trade with US forex brokers.
There's not much to miss though, because many giant brokers are actually originated from the US. The technology that these brokers have is usually sophisticated. The regulatory environment which the brokers operate under is also excellent. Not only that, the US market is also widely known to be very robust. In fact, New York is often recognized as one of the major trading hubs. The virtual private servers and data centers are also well constructed and properly co-located.
That being said, even though the options for US traders are limited to US brokers only, they are still enough to catch up with the rest of the world and make significant profits from forex trading.
Europe is another important center region in forex trading. The two major trading hubs in Europe are located in London and Cyprus. Several other major hubs are also gradually emerging in Central and Eastern Europe, including Malta, Russia, Bulgaria, and Romania.
The UK is widely known to have an excellent regulatory environment. The most vital authority in charge of regulating forex brokers is the Financial Conduct Authority (FCA). The FCA has proven to have strict regulations aimed to make sure that traders will be provided with fair conditions and their funds will not be subject to frauds and scams.
Cyprus is another major trading hub in Europe due to its investment-friendly policies which have attracted many forex brokers to register there. One of the advantages is that there are no restrictions on the traders that each broker can accept (except banning US traders to avoid compulsory reporting to the US IRS). One of the top-tier regulators, the Cyprus Securities and Exchange Commission (CySEC) is also based in this country. There are, however, some criticisms about the CySEC for being a bit too lax with enforcement, but the regulator has made some strategic changes to strengthen their regulations.
See Also: Comparing CySEC Vs FCA Regulation
Asia and Australia
In recent years, forex trading in Australia and Asia, particularly in Japan and Singapore, has skyrocketed higher than before. Recently, the Bank of International Settlements announced that Singapore has become the next top forex trading hub worldwide after London and New York. In addition, Taiwan earned a new title as one of the countries with the largest forex reserves due to the massive investment flows in the past years.
Forex brokers in China have also stepped up the game by netting trading volumes of 90,000 lots per month. Several Asian regulators have begun to enhance the forex markets in their countries to adapt better to local environments within their regulations.
Regulators in Japan and Australia have also started cooperative efforts to ensure that forex brokers in each country pay more attention to the local markets and promote better regulations and compliance with local practices.
Payment Options in Many Countries
Another thing that makes trading in each country different is the payment method options. Nowadays, the number of payment methods has expanded a lot, ranging from credit cards and bank wire to modern digital wallets. These methods are designed to make it more convenient for forex traders to deposit and withdraw their funds in terms of speed and cost. However, not all forex traders can use every single one of these methods.
In many countries, traders are prohibited from using credit/debit cards, as well as digital wallets due to financial blacklisting. Thus, they are only allowed to deposit or withdraw via bank transfer which is relatively more complicated, slow, involves a lot of paperwork, and inconvenient for many types of traders.
Such issue shows an equality gap that hasn't been formally addressed by the authority. There have been some attempts to create country-specific e-wallets to address this issue, but the scope of this effort is still very limited. As the financial technology continues to improve, there will hopefully be a quick and effective way to solve this problem, so the gap can be minimalized.
Is Forex Trading Legal?
To answer the question above, let's map forex trading legality in many countries around the world:
Countries that Allow Forex Trading
- United States
- United Kingdom
- Most countries in Central and Eastern Europe.
Countries that Restrict Forex Trading
Forex trading is technically legal in these countries, but there are certain restrictions from the central government. These restrictions limit the amount of funds that can be transferred to a broker, how much can be kept in foreign currency in a domiciliary account, and how forex is accessed for trading purposes. The restrictions are also related to anti-money laundering laws.
- South Africa
Countries that Ban Forex Trading
In these countries, forex trading is completely banned or illegal:
- North Korea
- Bosnia Herzegovina
- Countries with strict Sharia laws such as Pakistan.
Where is the Best Place to Trade Forex?
Essentially, the overall trading experience will be based on where you live or domiciled. But if we see this matter objectively, there are several criteria of the best and ideal country to trade forex:
- Have easy access to major trading hubs.
- Have a speedy internet connection and network system.
- Have a strong technology base that can support the placement of servers and systems aimed to enhance the forex trading experience.
- Have easy and unlimited access to any payment system offered by the brokers.
- Have no restrictions on forex trading activity.
- Have a strong financial technology availability.
There may be only a small number of countries that match the criteria, but if a country can fulfill at least 4 out of the 6 aspects mentioned above, then it is considered good enough as a place to trade forex.
In conclusion, although it seems that the forex market has matured so much in the past decade and has become more inclusive to any trader in the world, the truth is there are still some gaps among them. It's undeniable that living in certain countries that fully support forex trading with strong regulations and sophisticated technology is much more convenient than in other countries. As a result, traders in some countries may find themselves unable to compete on the same level as traders from well-developed countries due to a lack of technology, knowledge, tools, and government support.
While the gap can indeed affect the traders' trading performance, it can be minimalized by choosing the right broker that offers certain tools to manage it. For instance, some brokers have developed the forex virtual private server technology which allows traders in certain countries to get above the limitations and still trade as if they're in resource-rich countries.
In the end, it's best to acknowledge these issues while at the same time keep improving your trading skills in order to fulfill your trading goals and be successful. Train your skills in a demo account then try to apply them in a real account only after you succeed in gaining consistent profits virtually.