Forex trading learn and experience: What are the opportunities and risks in the largest online trading market in the world? What should be considered when choosing an online broker? What are the options for investors who suffer losses in Forex trading?
This guide is written for 3 groups of investors:
- Clients of Forex Trading providers,
- Investors who have suffered losses through Forex trading and
- interested investors.
Regardless of which group you belong to, we recommend that you read this guide to Forex Trading to the end.
Did you lose money while trading Forex? Our lawyers will explain to you how you can reclaim deposited funds and what mistakes you should avoid.
The law firm Herfurtner, based in Munich and Hamburg, advises clients from Germany, Austria and Switzerland. Would you like to make an appointment with a lawyer? Then please click here for the contact form.
Forex Trading is the term for trading with foreign currencies (forex), which is often referred to as FX Trading. The term is composed of the English words “Foreign” and “Exchange”.
Forex trading involves speculation on changes in the exchange rate of one currency in relation to another. It is characteristic that you always buy one currency (base currency) and sell another currency (quote currency) at the same time. Trading is always indicated with A/B (base currency/price currency).
In Forex trading, investors can bet on different currency pairs, which are more or less prominent and can be categorized as follows
Forex Majors (major currency pairs)
The main currency pairs are characterized by the fact that either the base or quote currency is always given in US dollars. This includes:
The Forex Majors generally have the lowest spread and the largest liquidity. By far the most commonly traded currency pair in the Forex market is EUR/USD with a share of about 30%.
Cross currency pairs (cross-currency pairs)
Cross or sub currency pairs in Forex trading are combinations where either the base currency or the quote currency is given in one of the three currencies Euro (EUR), GBP (British Pound) or JPY (Japanese Yen).
Exotic currency pairs
So-called exotic currency pairs are combinations in which one side is a major currency and the other a less strongly traded currency such as the Mexican peso (MXN) or Chinese yuan (CNH).
The “exotic currency pairs” are subject to greater volatility and therefore represent greater opportunities and risks in Forex trading. They have lower volumes and correspondingly less liquidity, which is why the trading costs are usually higher.
The foreign exchange market, also called currency market or Forex, is the largest financial market in the world. The global daily turnover in 2013 was approximately 5.3 trillion US dollars. This means that the Forex trading market is also significantly larger than the stock market.
There are several reasons why Forex Trading and FX-Broker have become more and more popular with private investors in the last few years.
How does Forex Trading work?
Foreign exchange trading takes place around the clock because currencies are traded globally. This means that every private investor can participate in Forex trading conveniently, even in his free time. Forex trading is also characterized by high liquidity in foreign exchange trading.
With a daily volume of over 5 trillion US dollars, there is so much liquidity in the market that you do not have to wait long for your order to be executed.
The price quotations for the individual currencies are based on supply and demand. Depending on the direction in which “the scales tilt”, prices adjust – and rise or fall. Factors influencing this are the economic situation of states, inflation and deflation, political events and interventions by central banks in interest rate policy.
Spot FX Market
By far the largest trading movements (almost 50 %) in Forex trading take place on the so-called Spot FX market. This is where “spot exchange transactions” are concluded.
A spot transaction in the form of a currency swap is involved if there is a period of a maximum of two bank working days between the day of the transaction and the day on which the mutual claims are settled. An exception is the USD/CAD currency pair – here the period is limited to one day.
On the day of settlement, the seller delivers the sold currencies to the agreed account. The buyer of the foreign exchange has to pay the agreed equivalent value. Because the majority of trading on the spot market is carried out by banks, this is often referred to as interbank trading.
Forex trading what is that?
This question is posed by many investors who are looking for alternatives to less profitable investments such as call money or building society savings. This is because many trading platforms on the Internet focus on Forex trading or offer it alongside other options such as CFD trading or trading with crypto currencies.
If you are a newcomer to the subject, you can learn Forex Trading by looking at the learning materials offered by various online brokers, where you can find a Forex Trading explanation, for example.
Often these are webinars, tutorials or a Forex Trading Wiki. Some of these are also available in German language.
In order to get a feel for the topic, you can open a forex trading demo account, which is available from some providers. This account is in most cases free of charge and can be used over a certain period of time to gain experience.
It can also be worthwhile to search online for a Forex Trading forum. This is where investors exchange their experiences, discuss trading tips and, for example, also give their opinion on the individual providers.
However, a certain amount of caution should always be exercised here. The online platforms often have enormous financial possibilities, which allow them to influence reporting within the framework of online marketing measures.
It is therefore by no means certain that contributions to Forex Trading in blogs or forums have always been written with the necessary neutrality.
Forex trading books are another way of approaching the subject. Many of them have a subheading like “Forex Trading for Beginners” or “Forex Trading for Beginners” and explain principles and approaches. This way you can approach your own Forex trading strategy step by step.
Ist der Devisenhandel legal?
Forex trading on the Internet is becoming increasingly popular. On the one hand, the online providers promise above-average returns. On the other hand, the product “currencies” appears to be more transparent and more comprehensible to many than, for example, Contracts for Difference.
In addition, currencies are known from everyday life, so they are less abstract than other products. And in times of brexite and other global hotspots, one can observe how the exchange rates of currencies change – and how one can theoretically profit from them.
Well-known banks such as Bank of America, JPMorgan Chase, Hong Kong and Shanghai Banking Corporation (HSBC), Royal Bank of Scotland, UBS are engaged in Forex trading.
Numerous platforms enable Forex trading around the clock. But are they all reputable and licensed?
Is there any experience in Forex Trading that indicates rip-off and fraud? Lawyer Patrick Wilson takes a stand in this video:
The following aspects of FX trading offer fraudsters and dubious platforms starting points for dubious transactions:
- The Forex market is not centrally regulated.
In Forex trading, currencies are traded via computer networks in fractions of a second. One speaks here of so-called OTC transactions between traders (over-the-counter).
- With the help of the leverage effect, a very high return can be achieved with a small capital investment. As a rule, the market does not fluctuate more than 1% per day. For inexperienced traders or traders with small accounts, however, a total loss can easily occur. Because basically a leverage is nothing more than a trading credit from a broker.
Forex Trading – BaFin Warning
The Federal Financial Supervisory Authority warns against entering into transactions on Internet trading platforms operated by unlicensed providers. This applies in particular to the following transactions:
- financial Contracts for Difference / CFDs
- binary options
- forex trading
Quote BaFin: “A German Internet presence of the trading platform and customer service in German language with indication of German telephone numbers does not mean that these companies have a registered office in Germany […]. In many cases, known offshore mailbox addresses are given as the registered office […] As a rule, the operating companies do not have a permit to do business on the German market.
Interested investors should therefore always check carefully which provider is behind the respective offer, where it is based and whether it has the necessary licenses and permits.
It can also be important that the platform has staff available as contact persons with whom one can communicate in German. Otherwise, it can be difficult for the investor, especially if problems arise, to describe the facts of the case and find a solution.
Forex trading experience – money lost through fraud?
The Forex market is basically a legitimate and legal trading place for currencies from countries all over the world. Therefore, Forex trading is not fraud per se.
Without the Forex market, it would not be possible in a globalized world to trade currencies effectively and quickly, which are necessary for the cross-border exchange of goods and services.
One of the biggest risks in Forex trading is betting on the wrong price development. Exchange rate changes are so unpredictable these days that the chances of betting on the right exchange rate development are often equal to the chances of winning the lottery or casino.
One example of this is the sudden rise in the value of the Swiss franc in 2015, which has cost investors and bank customers over 7 billion euros in Germany alone.
Advertising for dubious Forex brokers
You can find a lot of information about Forex trading on the Internet. But mostly the authors of the articles, forum contributions and other publications pursue purely financial interests.
There are few neutral and objective sources of information that are not advertising by FX traders. That is why there is little information about the risks involved in Forex trading.
A further major risk when trading these products are dubious Forex brokers. On numerous online evaluation and comparison portals, interested investors can find a lot of information about the individual forex brokers.
But even this information is usually hidden advertising and should be used with caution. Interested investors should therefore always find out more about the operators of forex trading platforms and answer the following questions:
- How long has the supplier been on the market?
- In which country is the Forex trading provider located?
- Does the trading platform have a license?
- Are there any warnings about the platform?
Forex Trading Software
The fact that FX Brokers offer round-the-clock trading from any location through their online presence may have another drawback.
This is because many platforms offer their clients their own software. Here and there a Forex Trading Bot is also used, i.e. a program that automatically executes actions and recognizes Forex trading signals independently.
But a software for Forex Trading can be manipulated easily and unobtrusively. This is shown by the findings of many individual cases that we have.
The lawyers of the Herfurtner law firm are receiving more and more inquiries from investors who have suffered considerable losses in the course of Forex Trading and suspect fraud.
Forex trading taxes
In the context of online trading transactions, the so-called flat rate withholding tax applies. It states that income from capital investments is taxed at a flat rate of 25%.
The solidarity surcharge and – if applicable – the church tax are added to this. The final withholding tax applies to income from funds, shares, bonds or profits from Forex Trading.
Losses are set off against profits, and there are also tax allowances that can be claimed from the bank via an exemption order. If one trades with a German provider, the latter automatically pays the final withholding tax to the tax office; the investor does not have to take action himself.
The situation is different with foreign providers. Because the taxes are not automatically paid, you have to declare your income yourself in your tax return and pay taxes to the relevant tax office.
Forex trading without margin call?
Anyone interested in online trading is often confronted with the question of the obligation to make additional contributions. Often, trading platforms allow their clients to execute trades against deposit of a security (margin) and to benefit from a leverage effect that increases profits.
In the case of Forex trading with leverage, one virtually borrows money from the provider in order to be able to speculate with x times the actual deposit.
However, the leverage also applies to possible losses: if prices develop differently than expected and the loss exceeds the deposit, a “margin call” can occur. This means that the broker demands further funds in order to be able to continue to execute the trade – in other words, you have to “top up” the money.
For CFD trading, BaFin has prohibited German providers from requiring private investors to make additional deposits in the summer of 2017. Many trading platforms have adapted their offers accordingly and now exclude the obligation to make additional contributions for their customers.
Investors should pay particular attention to this point and carefully examine how such agreements are structured.
Online Forex Trading – Security thanks to government regulation?
Government regulation plays an important role in online trading platforms and trading in general. Many operators of Forex trading services are based in Cyprus and are subject to government regulation, which is governed by the laws of Cyprus.
Many investors wonder whether the government regulation can guarantee control and quality standards or whether a certain amount of caution is still necessary.
The lawyers of the law firm Herfurtner in Munich recommend to always act cautiously in financial transactions and to thoroughly check platforms for Forex Trading and especially their terms and conditions.
Numerous scandals on the financial markets and at many banks in recent years have clearly shown that state regulation cannot be a clearance certificate.
In addition, there are a large number of providers on the Internet that are based outside the EU, for example on the Marshall Islands, Vanuatu or St. Vincent and the Grenadines. Accordingly, these platforms are not subject to control and supervision, which should be a warning sign for investors.
Forex currency trading and manipulation
Manipulations in Forex trading can never be excluded with certainty. This is also shown by the foreign exchange trading scandal uncovered in 2013.
Thereby, foreign exchange traders of twelve internationally active major banks manipulated certain currency rates and thus also Forex Trading in such a way that they were able to make larger profits on the price bets they made.
This action harmed other market participants and caused illegal price shifts in the billions. Several financial supervisory authorities were involved in the manipulations – the German Federal Financial Supervisory Authority (BaFin), the British Financial Conduct Authority (FCA) and the Swiss Financial Market Supervisory Authority (FINMA).
The investigations have provided important insights into Forex trading and related manipulation practices. As a result of the investigations, the British and U.S. authorities imposed fines totaling USD 4.3 billion in November 2014.
Forex Trading App for platforms
In recent years, many Forex trading platforms have developed practical and customer-friendly apps. This makes Forex trading much easier. More and more investors are using these apps and can therefore trade on the go.
The app alone from Dukascopy Bank SA already has over 100,000 Android users installed on Google Play by April 2019. The app has also been downloaded thousands of times by iPhone users.
But not all reviews and ratings are positive – some report malfunctions and crashes and advise against installing the app. There are some apps that have already been installed over 100,000 times at Google Play. But even there you can find many bad ratings and reviews.
The law firm Herfurtner and its lawyers advise investors on Forex Trading and Forex Brokers throughout Germany, Austria and Switzerland and support them in the examination and enforcement of their claims.
Contact us now!
Legal possibilities – the example of Switzerland
In accordance with the Federal Act on Combating Money Laundering and Terrorist Financing (AMLA) adopted by the Federal Assembly of the Swiss Confederation, banks in Switzerland must fulfil special due diligence obligations.
In particular, the background and purpose of the transaction must be examined in connection with Forex Trading if it appears unusual or involves an increased risk. Corresponding to this obligation, organisational measures must be taken to prevent money laundering. The law expressly provides for “controls” in this respect.
The Ordinance of the Swiss Financial Market Supervisory Authority on Combating Money Laundering and Terrorist Financing in the Financial Sector (MLO-FINMA) also requires banks to develop criteria for detecting transactions with increased risks.
This corresponds to the obligation under the Ordinance on Combating Money Laundering and Terrorist Financing (MLO) to check the background of a transaction in forex trades if it is conspicuous and there are indications of money laundering.
According to the regulation, the account holder must be questioned about the purpose of the transfer and this information from the account holder must also be critically checked for plausibility. The GmV-FINMA also stipulates that extensive further checks are to be initiated by the bank in the event of anomalies.
In 2017, the supervisory authority in Switzerland (FINMA) withdrew profits amounting to approximately CHF 6,500,000 from a bank that failed to comply with these obligations: Enforcement Report 2017.