Every year, Forex trade has demonstrated steady growth and is becoming more accessible to regular people interested in the business. Nowadays, everyone can become a foreign exchange trader. It’s even enough to take a look at advertising of different broker companies: Do you have only a few bucks saved up? You can open an account with just a dollar. No money at all? Here is a no deposit bonus! Brokers do their best to encourage people interested to start trading.
These changes also affect the notorious Forex bank trading, which used to be something special, prestigious, and inaccessible to regular people. Today, everyone who has a thousand dollars can open bank account online and join the “elite club” of Forex bank trading. Many people would consider Forex trading through a bank account to be an ideal solution. Indeed, what could be more convenient and reliable? The only thing is that Forex has many nuances you should know about before getting started. So let’s figure out all the ins and outs of Forex trading through a bank.
What is Forex Bank Trading
Forex bank trading implies trading in the foreign exchange market directly from your bank account. This means that your bank acts as an intermediary between you and the interbank market. Forex trading through a bank can often be more reliable, transparent, and solid. Of course, there is some truth in this. In many cases, banks outperform retail brokers by capitalization. Banks are also licensed and regulated by the Central Bank of their countries. For banks, Forex is rather an additional service, since banking itself is the main function of these financial institutions. Therefore, banks are more likely to maintain their image, which should positively affect the quality of the service.
Benefits of Forex Trading through a Bank Account
In addition to reliability, there are other reasons to entrust foreign exchange operations to a bank:
- A wide range of trading services, from a usual currency pairs trading to the options trading and authoritative processing centers.
- Objective pricing and execution of orders. Banks usually offer competitive spreads and show excellent statistics of completed orders.
- Currency trading through large banks can provide a greater level of liquidity than trading with a broker.
- Some banks provide their customers with reliable and efficient trading platforms.
Disadvantages of Trading through Banks
Despite a number of obvious reasons for Forex trading through a bank, it has two main drawbacks:
- Strict tax control. Banks strictly obey the tax laws of a country in which they are located. A bank also acts as a tax agent. It withholds tax on profit. By paying tax up to 40% of your profit, you deprive yourself of almost a half of your earnings. At the same time, when trading with independent brokers, you are responsible for your taxes and have the right to file a tax return on your own.
- A large deposit is required. Some advertisement says you will need only $1,000 dollars to start trading. However, in most cases, this is far from the truth. For example, in the Deutsche Bank, a minimum deposit is $75,000. If you only have $1,000 you will be able to trade only through online banking or bank’s affiliated companies.
As you can see, Forex trading directly through a bank can be attractive to those traders who managed to acquire large accounts and are eager for maximum control of regulatory bodies in order to protect themselves from possible fraudulent operations.