FX "Brokers risk" be aware some pointers

#1
Hello
Keeping aside if FX margin trading ( Over The counter Market) is legal or not in India
Few points India based traders should consider
If you already know this please ignore it
This is for those who are new and area attracted by all the razzle dazzle of this "Financial Instrument" trillion dollar industry!

First of all be aware of not just market risk ( which every trader takes) but BROKER risk and other aspects of such semi or un regulated market place
What I mean is this
Al over the world Over the counter market ( Fx Margin/ CFD and worst of all Binary Option) has lot of bad press because of few reasons
- It is not centrally regulated ( except Currency futures in US and in India and may be few other strong Equity based TRUE Exchanges)
-Conflict of interest with some of the broker business models.

Simply put Equity markets and up to some extent Futures markets have some sort of CLIENT MONEY SAFETY provisions + entry barrier to be a broker is better regulated countries are HIGH as compared to opening a FX margin "Brokerage" in lightly regulated countries
To make matters worst some brokers based in countries like Malta/ BVI/ Cyprus can claim EU Regulations so those in Asia who have not studied this in detail get mesmerised when they see ( we are EU regulated)

So who is worst of the lot...!
I wont suggest names but look for these things

- FCA in UK cover of insurance
- CFTC membership ( US based)
- If not at least Australian licence
I do not enough about Germany / Franc and SWISS regulations and how they protect client money is such a case
- Ask about client money safety "In case broker going out of business"
A answer saying yah but that is unlikely to happen is not god enough
A answer saying you money is segregated and is kept in tier one back is not really good enough because first of al it would be pooled with other trader and second if broker commits fraud who you can be a " unsecured creditor"

Market Maker model or ECN/ STP model
Actually most of FX brokers are really act as their Own exchanges meaning offsetting a buyer and seller.. but if there is a imbalance then they have to take the opposite position against you in a Market maker model.. THERE is conflict of interest.. For you to win they got to loose. With True ECN brokers

Now compare this to a Equity Broker ( India/ US whenever) The EXCHNAGE I ALWAYS THE COUNTERPARTY TO TEH TRADE NOT TEH BROKER AND IF BROKER GOES BURST THERE IS fscs ( UK ) or SIPC or in Australia ASX guarantee fund coverage

SO traders in India be aware of this ( offcourse first one has to sort out is it legal at all for Indian residents but that I won't know ask a lawyer! )
 
#2
Hello
Keeping aside if FX margin trading ( Over The counter Market) is legal or not in India
Few points India based traders should consider
If you already know this please ignore it
This is for those who are new and area attracted by all the razzle dazzle of this "Financial Instrument" trillion dollar industry!

First of all be aware of not just market risk ( which every trader takes) but BROKER risk and other aspects of such semi or un regulated market place
What I mean is this
Al over the world Over the counter market ( Fx Margin/ CFD and worst of all Binary Option) has lot of bad press because of few reasons
- It is not centrally regulated ( except Currency futures in US and in India and may be few other strong Equity based TRUE Exchanges)
-Conflict of interest with some of the broker business models.

Simply put Equity markets and up to some extent Futures markets have some sort of CLIENT MONEY SAFETY provisions + entry barrier to be a broker is better regulated countries are HIGH as compared to opening a FX margin "Brokerage" in lightly regulated countries
To make matters worst some brokers based in countries like Malta/ BVI/ Cyprus can claim EU Regulations so those in Asia who have not studied this in detail get mesmerised when they see ( we are EU regulated)

So who is worst of the lot...!
I wont suggest names but look for these things

- FCA in UK cover of insurance
- CFTC membership ( US based)
- If not at least Australian licence
I do not enough about Germany / Franc and SWISS regulations and how they protect client money is such a case
- Ask about client money safety "In case broker going out of business"
A answer saying yah but that is unlikely to happen is not god enough
A answer saying you money is segregated and is kept in tier one back is not really good enough because first of al it would be pooled with other trader and second if broker commits fraud who you can be a " unsecured creditor"

Market Maker model or ECN/ STP model
Actually most of FX brokers are really act as their Own exchanges meaning offsetting a buyer and seller.. but if there is a imbalance then they have to take the opposite position against you in a Market maker model.. THERE is conflict of interest.. For you to win they got to loose. With True ECN brokers

Now compare this to a Equity Broker ( India/ US whenever) The EXCHNAGE I ALWAYS THE COUNTERPARTY TO TEH TRADE NOT TEH BROKER AND IF BROKER GOES BURST THERE IS fscs ( UK ) or SIPC or in Australia ASX guarantee fund coverage

SO traders in India be aware of this ( offcourse first one has to sort out is it legal at all for Indian residents but that I won't know ask a lawyer! )
There is no question about it.

FX OTC trading is ILLEGAL in India.


I hope that makes it clear to everyone here on the forum.
 

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