Over the last 5 years, Forex trading has exploded in popularity and currently, over 10 million people are involved in this activity. In a nutshell, Forex stands for foreign exchange market where people trade with currencies.
That is possible due to the difference in the value of the currencies. The Forex market is said to be the world’s largest market in which various banks, governments, and individuals can participate. It is a global decentralized market that is open 24/7, unlike the stock market.
If you have ever traveled to another country and exchanged your money into the currency of the country you are going to, you also traded one currency to another, meaning that you also participated in the forex market. The main idea behind trading on the forex market is to buy currency and hope its price will go up so that you can sell it for more than you bought it.
When it comes to the foreign exchange market, every country adopted a different approach. In this article, we will focus on one of the most affluent countries, and more precisely Israel where strict regulations started back in 2015.
Regulatory Framework in Israel
Under the latest Amendment 42 of the Securities Law from 2015, Forex trading in Israel is legal. This legislation passed mainly due to the increasing number of brokers that were operating on the Israeli market with a foreign license and thus, leaving many local retail traders vulnerable to fraudulent offshore companies. Current trading regulation and brokers are geared towards protecting traders from disappointing experience.
As for now, Forex brokers that would like to operate on the Israeli market, are required to obtain a license from the Israel Securities Authority (ISA). To do so, they need to prove that they can handle market volatility by presenting a stable operational capital that is no less than US$200,000. Furthermore, licensed brokers need to present reports regarding the trading activities they conduct on a monthly basis.
To acquire a full license, the companies need to present an initial capital of US$380,000 and partner with liquidity providers also known as market makers. Brokers who would like to obtain the highest degree of license need to present a capital of US$1 million that should be kept in reserves. The licensed brokers are subject to strict control and they need to pay a tax for their licenses depending on the degree of their license.
In addition to that, the ISA should comply with certain requirements regarding the transparency of their operations in order to protect minors. What is more, brokers are responsible for explaining the risks associated with forex trading to the individuals. Another important thing to mention is that the ISA requires forex traders to have two different accounts – one for the money they receive and another one for the money they pay.
In that way, the ISA caters to protecting traders from significant losses. What is more, the Israeli regulator imposed limitations on the maximum leverage that is determined by the volatility of the traded assets. Under the Israeli law, brokers are not allowed to give financial advice and recommendations to traders.
The Israel Securities Authorities’ Goals
The Israel Securities Authorities was founded in 1968 and it is the country’s financial regulatory body. Its main goal is to fight fraudulent activities that could be harmful for the Israeli market. For that reason, the ISA introduced strict regulations regarding the Forex trading market. What is more, the regulator is dedicated to protecting Israeli traders’ interests.
Another priority of the ISA is to maintain a high transparency level and observe if its licensees stick to the regulatory policies. The ISA has a website where you can find the licensed brokers that are allowed to operate on the Israeli market. Currently, there are 4 licensed brokers, and more precisely Artrade Ltd, FXCM Trading Ltd, TGL Colmex Capital Markets Ltd, and Plus500IL Ltd.
Results from the Israeli Tough Measures
According to experts, Israel managed to regulate the forex trading market in an adequate way, but there is still some room for improvement. It is believed that the strict measures and the whopping taxes might also have a negative effect on the Israeli market as many offshore-licensed brokers will keep on servicing the traders.
This, on the other hand, brings back the same situation from years ago, when traders’ interests were unprotected due to the country’s liberal approach towards Forex trading. In that sense, some market insiders believe that Israel needs to consider the possibility to relax the regulations and lower the taxes imposed on the licensed brokers.