WHAT IS FOREX INDUSTRY?
Foreign Exchange Industry also is known as Forex Industry is a huge market where the currencies of different countries are bought and sold. In simpler words, various national currencies are traded. For instance, suppose, you want to buy something from Japan then you have to make payment in Japanese Yen as your country’s currency is different and is not acceptable. So, now in order to make this payment, you have to buy Japanese Yen by paying an equivalent amount in your country’s currency. And to fulfill this purpose you require a broker who will buy it on your behalf from the Foreign Exchange Market.
With this, we can state that foreign exchange is converting one country’s currency into another country’s currency. In recent years forex trading has emerged as a very popular and approachable type of financial trading. Every day in fact every minute many more traders are investing and earning a pretty good amount of profit. According to the stats, this booming industry is worth $1.93 quadrillion!! There are more than 170 different currencies around the world that are traded.
The foreign exchange market, also known as the forex market, facilitates the buying and selling of currencies around the world. Like stocks, the end goal of forex trading is to yield a net profit by buying low and selling high. Forex traders have the advantage of choosing a handful of currencies over stock traders who must parse thousands of companies and sectors. In terms of trading volume, forex markets are the largest in the world. Due to the high trading volume, forex assets are classified as highly liquid assets. The majority of foreign exchange trades consist of spot transactions, forwards, foreign exchange swaps, currency swaps, and options. However, as a leveraged product, there is plenty of risks associated with forex trades that can result in substantial losses.
If you are forex broker or dealer who wants to fund their trading accounts from their clients then you need a high-risk Forex trading merchant account. It should be noted that forex industry is labeled as high risk by financial institutions so it is a tricky task to get a merchant account approval from them.
For your information, Forex trading merchant account is a type of online account that allows your business to accept payments by debit or credit cards. Retailer, a merchant bank and payment processor make settlement of credit card/debit card through an agreement finalized by them for a merchant account. While there are businesses that are at higher risk than others. Such businesses have to go with a high-risk merchant account, which simply means that the merchant has to face various restrictions and high fees.
WHY FOREX INDUSTRY FLAGGED AS HIGH RISK?
This is a very common mistake done by the majority of forex merchants; they apply for a traditional merchant account without knowing that their business is flagged as high risk. There are various grounds why a processor might label a forex merchant as “high risk”.
Main reasons why forex industry is labeled as high risk in payment processing are as follows:
- High average transaction amounts: Transactions in the forex industry are usually high as it deals in different currencies. There are many transaction fees involved in foreign exchange that’s why foreign exchange companies earn high income on each customer. Considerable high average transaction amounts make forex industry high risk because any fraudulent activity or chargeback may cost very high to cover.
- Very high volume of chargebacks: Across the globe, forex brokers are facing the problem of the high volume of chargebacks. Chargebacks have been a problem for all types of business but industries like the foreign exchange industry are likely to attract a high volume of chargebacks because of the nature of work and its wide range of transactions across the globe.
- You are an international merchant: If you are an international merchant, deals in multiple currencies, outside the U.S., Japan, India, Canada, China, or any other country than you are considered as high risk. And forex is all about international transactions that is why many financial institutions do not provide a merchant account to them. Only experienced merchant account provider like iPayTotal offers high-risk forex merchant accounts.
- Number of years in business: To get a merchant account you need to have good credit card history especially when you are into high-risk business type. Many new brokers get rejected because of the same. As no bank wants to take extra risk, they ask for a healthy credit card history.
- The high rate of frauds: Many cases of fraud brokers as well as from forex brokers were reported recently. Foreign exchange is prone to fraud which makes it a high-risk industry. Financial institutions take this very seriously as it ruins their reputation in the market. They are very selective in approving a merchant for a high-risk forex merchant account
- Fluctuation risk involved: There is uncertain constant currency fluctuation for forex traders which makes it risky.
There are a few other risks involved in Forex Trading and we are here to inform you about it.
1. Uncontrollable Market Risk
Market risk in the forex market is capable of directly affecting the currency pairs involved in trading. One should have proper exposure to the market risk before trading in order to make profits by taking advantage of there is a price difference, this can also be termed as ‘Market Volatility’. With Volatility, traders are able to make trades with profit, but there is a high risk of market goes against you.
2. Leverage Risk
you can see to it as the biggest advantage of the biggest risk of Forex trading. Investors like you and I use leverage on the investments to increase their returns. But also in opposite way leverage increases the losses as well.
3. Counterparty Risk
The Counterparty is the body along which you perform opening and closing of trading positions in the Forex Market. The risk here is that the counterparty goes bankrupt and does not pay you are may be you are not paid because of the poor regulatory implementation.
4. Liquidity Risk
There are many traders/investors in the liquid market. There is a time of low liquidity in the forex market during weekends and a bank holiday which may result in losses.
5. Online Transactions
The investors are supposed to invest in the Forex Market through the Forex merchant account which can also be risky due to the involvement of a variety of currencies. There are chances of fraud occurring during online transactions.
These are some of the risks involved in Forex Business, which has resulted in categorizing the Forex Business as a High-Risk Business.
PRECAUTIONS FOREX TRADING COMPANIES SHOULD TAKE?
By owning a high-risk business doesn’t mean you cannot get a merchant account. You just have to be a little careful about things and take certain measures.Forex trading merchant accounts can be set up with ease if the process is followed properly.
- You really need to have a first-hand business experience because that shows your potential to face fraud and risk. Learn from your work and past experiences.
- Maintain a healthy credit card history.
- Clear all your dues on time and prevent liens, judgments, and bankruptcies.
- If you had a merchant account earlier also then it will work as an indicator for your new merchant account provider. So be honest about previous merchant accounts and its reason for termination.
- As you know you are flagged as a high-risk industry then you should be willing to pay higher fees than traditional merchant account because very few merchant account provider will be ready to provide you high-risk forex merchant account.
- Try all possible ways to avoid chargebacks. Use up-to-date security measures, use a recognizable descriptor.
- Lastly, do proper research and then only choose a merchant account provider because it plays a very important part of your payment processing. Go through the reviews, customer feedbacks, past experience, and then select the most suitable high-risk merchant account provider, like iPaytotal.