Is forex trading illegal?
Forex, also known as FX, trading takes advantage of the fluctuations in currency exchange rates. "The FX market does not set a currency's absolute value but rather determines the value of one currency relative to another," says Robert Johnson, professor of finance at Creighton University's Heider College of Business. "You can take a position in virtually any major currency against another major currency in the FX market."
Investing in currencies, whether traditional currencies or cryptocurrencies, is fundamentally different than investing in stocks, bonds or real estate," Johnson says. "Over the long term, investing in the stock market is a positive-sum game" because the value of stocks rises over the long term.
"On the other hand, over both the short and long term, investing in currencies is a zero-sum game," Johnson says. "When the U.S. dollar strengthens versus the yen, those holding U.S. dollar positions win and those holding yen positions lose an equal and opposite amount."
While on its face forex is legal, "there are many potential bad actors in the space, and it is a prime atmosphere for spoofing, ghosting and/or front-running," says Braden Perry, a regulatory and government investigations attorney with Kennyhertz Perry LLC, based near Kansas City, Missouri.
Spoofing and ghosting are when a trader manipulates the market by placing a large order the trader doesn't plan to execute in order to create the impression of interest in the position. Front-running occurs when a broker, knowing a client is going to be placing a big order, places an order for the broker's own account ahead of the client's.
The rise of internet-based trading platforms has only exacerbated the risks, creating more opportunities for fraudulent promotional schemes, overstatement of returns and the failure to pay out for wins, Perry says. "Furthermore, some actors are using manipulative software to rig the system."
The main issue with forex trading is a lack of transparency and unclear regulatory structures with insufficient oversight. However, there are forex products listed on exchanges that have regulatory oversight. Likewise, there are legitimate brokers making a business in the market as well.
MetaTrader 4, also known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by MetaQuotes Software and released in 2005. The software is licensed to foreign exchange brokers who provide the software to their clients. The software consists of both a client and a server component. The server component is run by the broker and the client software is provided to the broker’s customers, who use it to see live streaming prices and charts, to place orders, and to manage their accounts.
The client is a Microsoft Windows-based application that became popular mainly due to the ability of end-users to write their own trading scripts and robots that could automate trading. In 2010, MetaQuotes released a successor, MetaTrader 5. However, uptake was slow and as of April 2013, most brokers still used MT4. While there is no official MetaTrader 4 version available for Mac OS, some brokers provide their own custom developed MT4 variants for Mac OS.
The company is registered in the offshore zone of Cyprus from where it provides sales, marketing, and technical support.