Forex trading is the biggest financial market in the world, dwarfing the stock market.  Although the numbers vary from source to source, all agree that Forex trading is larger than the combined value of what is traded daily on the New York, London, and Tokyo markets.  Think upwards of 5 trillion dollars—that’s the daily volume for Forex, or foreign currency, trading.

But is Forex trading legal? It depends on where you are. There are countries that allow Forex trading with no or very few restrictions. But there are some that either impose significant restrictions or ban foreign exchange trading completely.

If you’re looking to get into Forex trading, you should first know where you can legally do so.

Can You Trade Foreign Currencies Where You Are?

For the most part, the majority of countries around the world allow retail Forex trading by individuals if they work with a regulated broker. There are a handful of countries that ban or severely restrict Forex trading due to its speculative nature, as well as due to religious beliefs.

Countries That Allow Forex Trading

If you live in the following countries, then you are in luck because you can get into Forex trading without too many restrictions:

• Australia
• Bulgaria
• Canada
• Cyprus
• Germany
• Indonesia
• Italy
• Malta
• Romania
• Switzerland
• United Kingdom
• United States

Aside from these countries, you can also do Forex trading in most South, Central American and Central and Eastern European nations.

No-Holds-Barred?

If you live in these countries, does it mean that you are free to do anything you want? Not really. For example, the United States does impose some rules on Forex trading participants.

According to Investopedia, these regulations will help protect you from any untoward incidents such as a brokerage suddenly closing down and running away with your money. Or intermediaries feel the temptation to charge exorbitant fees, or get into scams and other financial irregularities.

There are several regulators working together, as well. The National Futures Association, for one, upholds the integrity of Forex and other derivatives markets. It is the one in charge of providing licenses to brokers and of setting and enforcing capital requirements, fighting fraud, or ensuring compliance with reporting and record-keeping requirements.

Also, there are several rules in place. For instance, only individuals with less than $10 million in assets, as well as small businesses, have protection by regulated Forex brokerage accounts. You are required to deposit two percent of the value of your Forex transactions for major currencies. That leverage can go up to five percent for minor currencies.

There are other rules for those who work with US-based brokerages. The thing is that regulations like these differ by country. Some countries allow brokerages to offer higher leverage and lower brokerage charges. If you’re using a non-US brokerage, it will help if you familiarize yourself with the regulations in that jurisdiction before taking the plunge.

The Forex brokerage regulators in some countries include:

• Australian Securities and Investments Commission (Australia)
• Cyprus Securities and Exchange Commission (Cyprus)
• Federal Financial Markets Service (Russia)
• Financial Sector Conduct Authority (South Africa)
• Financial Services Authority (United Kingdom)
• Swiss Federal Banking Commission (Switzerland)

Countries That Restrict Forex Trading

In some countries, it is legal to engage in Forex trading, but there are some restrictions imposed by a central authority. Some of these countries include:

• China
• Egypt
• Israel
• Nigeria
• Russia
• South Africa
• Ukraine

According to this article, some restrictions in certain countries include:

• In China, it is legal to trade currencies, but you cannot open an account with a foreign broker. You will need to work with a locally based broker in order to get into Forex trading in the country.
• In India, you can only trade via registered exchanges, and you cannot finalize spot transactions. Traders are also limited to exchanging currencies with the Indian rupee. For instance, you cannot trade American dollars with euros.
• For those trading in South Korea, you cannot open a trading account with foreign brokers, and there is a cap on the maximum leverage that you can use.
• Meanwhile, the Turkish government has made it illegal for you to work with non-regulated foreign brokers.

Countries That Have Banned Forex Trading

Belgium has banned all forms of speculative and leveraged Forex trading. Meanwhile, North Korea has decreed that its won is only for citizens. Similar measures to varying degrees are also in place in France, the Philippines, and Bosnia Herzegovina.

Why Do Some Countries Ban Forex Trading?

While there are several reasons why countries disallow Forex trading, there are two more prevalent justifications for doing so: safety and a fixed currency system.

For Investors’ Protection

Forex trading can be a disaster for those who do not know what they’re doing. When you ask trading experts or visit credible investment-related websites, you get the same answer: Forex trading is very risky. The thing is that currency trading is subject to several risks: leverage, interest rate fluctuations, transaction-related, country, and counterparty risks, among others.

In fact, less than 1 out of 4 retail traders make money. With such a high potential for failure and the number of risks involved, some countries opted to just ban currency trading altogether, while others have a long list of restrictions. Also, some countries might see Forex trading as gambling.

However, Forex is the biggest market with more than $5 trillion worth of currencies being traded every single day. It’s also very liquid, and the markets are open 24/7. You also get substantial leverage from Forex trading.

As such, currency trading attracts many people. If you’re one of them, it helps to learn about successful trading strategies so to minimize failure. Fortunately, there are online courses that can help you get your mind around Forex trading.

Fixed Currency Rates

Countries with fixed currency rates often ban Forex trading. In such a system, the central bank will change the currency’s value to keep it stable.

In these countries, you can expect Forex trading to be banned because there will be too many people who are interfering with their monetary policies. What’s more, if the currency is kept stable, there is practically no draw for you to invest in it, hoping that you can get out a few dollars richer in the process.

A Gray Area: Shariah Law and Forex Trading

In countries that adhere to the Islamic Shariah law, such as Pakistan, there are restrictions that keep tabs on the amount of money that you can give to a broker for trading, the amount of foreign currency you can keep in a local account, and how you can access Forex for trading.

Shariah law prohibits earning from interest earned on a loan. Shariah law also prohibits getting into very risky investments because of uncertainty. This means that a Muslim cannot invest in futures, options, short sells, and forwards because these are highly speculative, and there is no guarantee on returns.

Feed and Charges Waivers

In these countries, Forex brokers have come up with special accounts for those who want to trade foreign exchange. Compared to regular accounts, these will have two main differences in that they impose:

• No interest charges or commission wherein the broker will not earn a commission, and interest charges are waived. However, this account might have wider spreads, hidden fees, and more limitations on the length of time before a trade can be carried over. The broker will want to find ways to cover his or her expenses.
• No rollover fees. Forex contracts settle within 48 hours, and brokers close every account each evening and open the same for the next day’s trading to avoid settlement during the night. The banks will charge a swap fee for this, which the broker will then pass on to the investor. But Islamic accounts do not get charged with this rollover fee. To minimize losses, brokers often set a limit on the number of open positions an investor may have.

But if it seems that these are just workarounds to the law, do not worry. There are many Muslim jurists who say that Forex trading is or should be legal, according to this article. In general, Forex trading is what they call “halal,” or lawful. Just as long as brokers keep the leverage, they give investors interest-free and it doesn’t veer too close to gambling.

If you are a Muslim and you are interested in Forex, then you should consult jurists and experts in your country to see if it’s halal or haram (forbidden). Or you can take advantage of Islamic accounts being offered by brokers to make sure that you are abiding both with your country’s laws and your faith.

Why It’s Important to Know If Forex Trading Is Legal in Your Country

Long story short: Forex trading is generally legal in countries that allow you to import or export money. Going to the bank and exchanging your dollar for euros to use during an upcoming vacation is a Forex transaction. However, the problem with Forex trading is that unlike other markets, it doesn’t have a central exchange that handles all these transactions.

It is a very risky market, and you may not fully appreciate just how easy it is to lose everything in your account if you’re not careful. As such, there are countries that heavily regulate Forex trades among individual investors.

It will be instructive for you to check out each country’s regulations and restrictions, as there are watchdogs who are out to protect retail investors like yourself. And learn more about Forex trading before you dive in.