CFD and Forex transactions are defined by the fact that the investor, also called trader, relies on the price development of certain underlying values.
The base values of the CFD are stocks, indices, currencies, such as: USD, EUR, YEN. If the price development determined with the trade corresponds to the actual price development, the customer wins. If not, he loses.
With a relatively low capital investment (margin), a considerable volume of trading transactions is usually made possible (leverage), which means that very high risks of loss are offset by high opportunities for profit.
Statistically speaking, most investors lose (in the long run!) And as a rule almost everything they have invested. This makes it irrelevant for most investors what is relevant when obtaining permits for the initiators of the trading platforms, depending on whether they are only conveying the trades to investors themselves, or whether they are even the investor’s opponents, namely: How much of money is to be deposited.
Many investors do not realize:
Derivative securities transactions, such as CFD and Forex, or commodity futures, crypto currency are not traded on a state-monitored stock exchange, but on a so-called secondary market.
Buying and selling prices are set by the trading platform operating companies. At best, these operating companies are state-licensed securities dealers.
These trading platforms act in the secondary market either (only) as a so-called “introducing broker” or as a broker with a “large broker license”. Introducing brokers (in German also “intermediaries”) mediate transactions with another securities trading company, the so-called “market maker”. Or the operating company of the trading platform itself has a large broker license. Then the trading platform is usually also the investor’s betting opponent, as it has the right to enter itself. The contractual partners of the trade are thus the financial service providers themselves who are under financial supervision at their headquarters as the operating company of the respective trading company, e.g. in Germany the supervision of the Federal Financial Supervisory Authority (BaFin). Either as an intermediary for derivative transactions or as a contractual opponent. A large number of forex brokers have their operating companies in Cyprus in such a way that the Cyprus Securities and Exchange Commission (Cysec) has the supervision. A number of operating companies are located in (non-European) foreign countries and are not under supervision. According to the site https://1broker.org The latter offshore societies are urgently to be avoided. Simply because the operators, if at all possible, are very difficult to prosecute legally. As a result, those responsible for these trading platforms often practice fraud models that merely pretend the possibility of derivatives trading (even if perfectly represented on the virtual customer account). This, but without any repayments to the investor, or the actual real trading via the representation on the virtual customer account are planned.
These off-shore trading platforms (also known as the black capital market) are often operated by highly criminal subjects. There are and still were isolated examples of operators who also conduct commercial business in Germany without state permission without the permission of the German or European supervision.
Therefore, the trader should make sure that the contracting partner for CFD transactions is looking for a trading platform with an operating company as the contracting partner who is based as a licensed securities trader in Germany, or at least in Europe.
But even with licensed securities dealers, CFD trades remain high risk for reasons that I don’t think most traders are aware of, because:
The business does not take place on an exchange.
These transactions are carried out on the so-called secondary market itself, i.e. at best by one or more licensed securities dealers outside the stock exchange. In contrast to the exchange, in which all admitted exchange participants are liable for the fulfillment of the transactions, the individual trading transactions are only transactions on the secondary market. And even if the securities dealers who operate the trading platform are authorized and supervised by supervision, the conclusion or brokerage of individual transactions is not. The price formation on the trading platforms themselves, i.e. the settlement of the trades, is not specified by a clearing system with regard to the individual trading transactions as on a state stock exchange. The settlement of the buying and selling prices is done by the operators of the trading platforms. There is thus a risk of manipulation.
In the case of the exclusive forwarding from a trading platform to so-called further trading platforms that are market makers, the market maker or the trading taking place from his trading platform dictates the price formation.
There is thus a risk of manipulation.
Those in charge of the operating companies earn either from costs and commissions, or directly from the loss of customers. This is because they are allowed (depending on the form of the officially granted permission of the financial supervisory authority) the so-called self-entry (if so-called “large broker license granted”).
In doing so, those responsible for the trading platforms are pursuing the goal of ensuring that as many investors as possible conduct as many trading transactions as possible.
Through advertising promises by the operators of the trading platforms, or the possibility of making profits with CFD you and derivatives trading, which is highly touted on the Internet, there may be a risk that a consumer is subject to serious errors.
Namely, that one or the other consumer comes to the not harmless conclusion that there is an objective possibility to generate sustainable income. This is when the right trading techniques, such as stopping at loss, prevent market analyzes, recognize market trends early through the use of robots and thus not only optimize profit opportunities efficiently, but also exclude losses. In individual cases I became aware that those responsible for trading platforms had repeatedly recommended the trader unsolicited to trade certain values through so-called market analysts, agents or personal advisers, or even had “literally led the hand” in transactions by exerting an appropriate influence. So hold onto your money!
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