Decentralization is the hallmark of the forex market. A trader does not buy and sell currencies from a central location. The market makers and currency dealers provide currency quotes to forex traders on the interbank forex market. The sections can be accessed via the internet from anywhere in the world.
Unregulated forex markets allow market makers and dealers to set the quotes however they choose, regardless of where the sections are coming from. A reputable financial authority must regulate brokers operating in the forex market.
Never deal with an unregulated forex broker or an unregulated forex market intermediary. Unregulated markets have several advantages.
There is no limit on price changes
It is rare for the price of a forex contract to remain static for long periods, as it does in other financial markets. For example, a stock price may rise or fall more than 10% within a few minutes, and various exchanges will automatically stop trading.
Significant news about a company can cause fluctuations in the stock price, such as;
- A regulatory action that may negatively affect the core operations of the company
- A merger or acquisition announcement can result in excessive buying
- A significant development regarding the company’s core product
- Changes in the financial health of a company that is unexpected
Trading halts occur by market conditions returning to normal before trading resumes. In this situation, brokers cannot take part in trading shares on their accounts or on behalf of clients. Stock prices freeze until the suspension ends.
A trading halt can occur to allow the market to adjust to newly released news or as a way to acclimate. Suspension of trading allows demand to match the stock supply, ensuring seamless trade execution.
Putting an end to trading lets the market and traders acclimate to the news release and eliminates any potential arbitrage opportunities. Consequently, traders and investors may have lost huge profits if trading in such volatile conditions had been legal.
On the other hand, the forex market does not have such halts. Any level of fluctuation can occur in the price of currency pairs.
A forex trader can benefit from abnormally extreme market news that produces abnormal volatility when the market is unusually volatile. The extreme volatility of the forex market can thus be beneficial to traders.
Trade bear markets freely in forex
In this important respect, forex traders benefit from the fact that there is relatively less regulation on the foreign exchange market compared to the stock market. If you can find a price you like, you can go long or short on almost any currency pair.
Shorting stocks is the act of selling a store that you don’t own after its price goes down. Rather, they should wait until a stock ticks upward before shorting it.
The forex market does not have such a restriction. The forex market continues to be open to both bull and bear markets, unlike stock markets with restrictions on short selling.
No short-selling restrictions in a bear market
Trading on the financial market involves going long when the price is likely to rise and shorting when it aims to fall. Forex traders are free to trade long and short if the open market. Other financial markets cannot make the same claim.
The law prohibits investors from taking short positions during pandemics, natural disasters, and calamities. In almost every country, capital market regulators have temporary bans on short selling based on specific scenarios.
Short selling implies a fall in market confidence, which is why it’s illegal. This can lead to irreversible market crashes that may ripple through national and international economies. Shares trading during these conditions halts, but other markets like those for commodities like platinum rarely suffer disruptions.
Ease of trading
There are no restrictions on trading on the forex market, regardless of what is happening worldwide. Under any condition, when the forex market is open and you have internet connectivity, you can short-sell a currency pair.
A natural disaster, calamity, or pandemic that results in a sharp decline in the price of the currency cannot suspend short selling.
Bottom line
An unregulated forex market means the forces of supply and demand determine the price. There is no external interference in these market prices. They react directly to any news that affects the market. The central bank can, however, sometimes stabilize a country’s currency by intervening in the foreign exchange market.
