Many online brokers offer their services to individuals to speculate on currencies. Here are the main precautions to take to start without losing your shirt.
Very liquid, deep and not very volatile, the foreign exchange market has many advantages. Formerly reserved for professionals, this compartment is now accessible to individuals. But making money regularly by speculating on currencies is a difficult exercise. The currency charts come useful there.
We do not become a trader in ten minutes, as claimed by some advertisements touting and deceptive broadcast on the Internet. Here are the basic rules to follow before embarking on this risky but potentially lucrative adventure.
Understanding the rules of the foreign exchange market
The foreign exchange market, which specialists also call the Forex (Foreign Exchange), is the most liquid market in the world. Every day there are many actors involved: banks, central banks, investment companies, hedge funds, large companies. The amounts exchanged daily to reach the equivalent of 5,300 billion dollars, according to figures published in April 2013 by the Bank of International Regulations (BIS).
Unlike the stock market, the foreign exchange market is not an organized market. Transactions are made over the counter between parties connected to the interbank market via electronic trading platforms such as EBS (Icecap) or Fall (Thomson Reuters). Currencies are quoted in real-time against each other, 24 hours a day, from Sunday evening to Friday evening. Brokers offering their services to individuals are linked to these platforms. Some of them send these quotations directly to their customers. Others, called market makers, display their own range of quotations.
Choose an authorized broker
- The first thing to do, check the approvals of financial intermediaries with the regulatory authorities. In France, the French Prudential Supervisory and Resolution Authority (ACPR) deals with this issue. The register of financial agents, available on the Internet, provides information on all authorized service providers. Nevertheless, you must remain on your guard.
- Indeed, since the adoption of the European passport, brokers have found the trick to circumvent the requirements of the French regulator. They are simply registered and licensed by a regulatory authority of another member country of the European Union. Many of them are based in Cyprus and empowered by CYSEC, the local regulator. Equipped with this sesame, they have automatically registered the database. And voila.
But even worse, Internet sites offer individuals speculation on Forex without authorization, not even in Cyprus. The ACPR and the AMF distribute and regularly update the blacklist of these pharmacies.
In summary, never respond to the unsolicited mail that encourages you to invest in Forex. Most of the time, these messages are sent by crooks. To avoid disappointment, we recommend you to deal with brokers located in France, approved by the ACPR and whose legal representatives, well-identified, speak French. By visiting the websites of brokers, you will find the general conditions, to read absolutely before you commit.
When the commercial terminal is already examined you can work with the real account which will give you the opportunity to earn money. Invest in trading only your own money. In any case, do not sell, borrow or take money on credit. You will have a great risk of staying without money and with indebtedness. Be prepared for the fact that trading on a demo account and a real deposit technically similar, but totally different from psychological stress.