Forex, or the Foreign Exchange Market, is a global marketplace for exchanging national currencies for the purposes of foreign trade, business and travel. The Forex Trading Market is conducted electronically via computer networks around the world and provides liquidity and speed for the casual investor all the way up to large corporations. However, with all of the pros of Forex, there are still countries that ban their citizens from participating in it.

Countries where Forex trading is illegal include:

  • India
  • Belgium
  • North Korea
  • France
  • Philippines
  • 15 Countries under Sharia Law

While the reasoning differs, all 20 of these countries consider forex trading illegal and provide swift damages for anyone who breaks that restriction. But with all of the pros of trading on the forex market including self-regulation, no position limits or uptick rules, why would these countries not want to participate? Let’s take a closer look at Forex and why these countries refuse to engage in it.

Related: Yes, You Can Make a Living Trading Forex

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Countries Where Forex Trading is Illegal

If you are interested in getting involved in Forex Trading, it is important to do your due diligence to research your countries’ laws and regulations around it. Laws have changed frequently around foreign exchange trading and will continue to do so as we learn more about how it affects our market and investors. Check this list to see if your country bans forex trading and why.

India

India has very strong reservations regarding Forex Trading due to the effects it has had on them in the past. At one point in the late 90’s, the foreign reserves where very low for India and the demand for Forex was high. Traders used to fund margins through Indian Banks which put stress on the Indian Forex Reserves.

As a result of this strain, India has banned International retail Forex Trading and has placed restrictions on local trading. If you reside in India you may only trade in seven pairs:

  • USDINR
  • GBPINR
  • EURINR
  • JPYINR
  • EURUSD
  • GBPUSD
  • USDJPY

You may also only do so through approved brokers:

  • New York Stock Exchange (NYSE)
  • Bombay Stock Exchange (BSE)
  • Metropolitan Stock Exchange (MSEI)
  • Securities and Exchange Board of India (SEBI)

It is the hope that by allowing several cross-country trades through supported outlets that India can prevent Forex Trading.

Belgium

Belgium has an entire army of people fighting against the Forex Trading market and its effects on their population. After a string of unauthorized forms soliciting clients, Belgium got the local government to ban retail online trading in forex, binary options and CFD’s. This was made official in a Royal Decree by The Financial Services and Markets authority in 2016.

Belgium feels that online retail products are marketed aggressively and have proven to be risky because they lack a real connection to the economy. Belgium has also been exposed to unregulated firms outside their country targeting their residents and they hope that the steps they have put into place will slow that assault.

There are three elements involved in the ban:

  • The ban only applies to over-the-counter (OTC) derivatives and not to trading on a regulated exchange or on a multilateral trading facility.
  • The ban is meant to supplement a Belgium distribution ban that was in place for products such as financial instruments with Bitcoin or cryptocurrencies.
  • The third element addresses aggressive sales tactics such as cold calling from external centers, inappropriate forms of remuneration, false gifts, etc.

The goal of several country officials, including the Minister for Employment Kris Peeters, is to better protect their consumers from financial products that are speculative, risky and aggressive.

North Korea

The country of North Korea is a tightly controlled command economy run by a communist government. The government alone is in charge of planning and coordinating the economy, which includes currencies that can be used, goods that can be produced and the price at which these goods can be sold.

Up until recently, North Korea allowed a wholesale market run by its people to ensure that needs for food and supplies were being met after the government failed to meet the demand. But after the North Korean currency, the won, started to fail and decline in value, the government placed a ban on all foreign currency.

Any trader on the forex platform will see that the won is banned from being traded and North Korea still demands that its people trade in all of their foreign currency for won in the hopes of returning the won to its full value. The North Korean government states that the won is worth ten times more in value than its current market price and this move will guarantee that return.

The people of North Korea are not convinced and continue to trade in foreign currency as many of their business depend on it. North Korea is an example of a country that can be targeted by forex scams, so traders should be cautious if deciding to invest with a broker.

France

Forex and binary options brokerage are enemy number 1 in France after almost 4 billion dollars was solicited from French residents over a 6-year period of time by fraudulent brokers. The French National Assembly decided to take action and passed the Sapin II bill which bans the advertisement of binary options and CFD’s with a leverage of greater than 1:5.

After a rise in complaints against the forex trading market, France implemented a ban that includes any form of advertisement or communication from investment service providers, including:

  • Email campaigns
  • Online banner ads
  • Radio advertisements
  • Television commercials

Even sponsorship of sports teams is now included in the ban.

Due to the bans on advertising, France has seen a dramatic drop in forex trading investments and a rise in new-to-market traders. While stocks may not always prove to be as lucrative as forex trading, France sees long-term growth potential and safer investments than the risky forex market.

While forex trading is not explicitly banned in France, the country has seen to it that everything pertaining to forex trading is, leaving their residents to be less educated and less likely to participate in an activity the country cannot ban outright.

Philippines

Unlike the other countries we have examined, the forex trading market is banned in all of its forms in the Philippines. As of October 30, 2018, the SEC released the following advisory:

“The public is hereby advised to STOP engaging in Foreign Exchange Trading and to STOP investing in foreign-registered investment platforms of commodity futures, contracts for difference, indices, binary options and the like. Further, the SEC advises the public that persons and entities acting as brokers, salesman or agents of these securities have NO LICENSE to engage or deal in any manner with these securities and should therefore be AVOIDED or IGNORED.”

The Philippines decided to take a strong stance against forex trading after a large percentage of their retail sector reported fraud and heavy losses because of their investments. As of March of 2020, the Philippines has now suspended FX and bond trading until further notice.

15 Countries Under Sharia Law

Sharia laws govern Muslim lives and were derived from the Qur’an and sayings from the prophet Muhammad from the Hadith. Sharia Law applies to all aspects of life including:

  • Public Behavior
  • Private Behavior
  • Personal Beliefs

Under Sharia Law, all human actions are regulated and are broken into five categories:

  • Obligatory: actions that are mandatory
  • Forbidden: actions that should not be performed
  • Recommended: actions that should be performed but aren’t required
  • Permitted: neither encouraged nor discouraged
  • Disliked: looked down upon but not expressly forbidden

In total, there are 15 countries that fall under Sharia Law and are subject to its teachings. These 15 countries are:

  • Afghanistan
  • Egypt
  • Indonesia
  • Iran
  • Iraq
  • Malaysia
  • Maldives
  • Mauritania
  • Nigeria
  • Pakistan
  • Qatar
  • Saudi Arabia
  • Sudan
  • United Arab Emirates
  • Yemen

Three of the most prominent conflicts between forex trading and Sharia Law are:

  • Earning interest on loans of money
  • Forbidding of gambling
  • Excessive Risk

All three of these elements are key components in the forex trading market which is what makes it such a controversy in the 15 countries under Sharia Law.

Options, futures and other derivatives are generally not used in Islamic finance because they involve borrowing money to buy what is being traded. The underlying tone of all this is speculation; any activity that revolves around speculation is considered haram or forbidden under Sharia Law.

Residents of the 15 countries are allowed to trade in foreign currency but they must only do so through established banks where speculation is not a consideration. There are some brokers who have tried to go around Sharia Law and offer interest-free accounts for their clients, but then they are charged a setup fee instead which could still be considered interest and therefore, haram.

Is the Forex Market Illegal?

Currency trading is a concept that has been around since the creation of money and travel. If you live in the United States but travel to another country, you must exchange U.S. Dollars for the currency of the country you are visiting in order to make purchases. The Forex Market became an entity after the accord at Bretton Woods in 1971 when major currencies were allowed to be exchanged freely against one another.

The Forex Market is not illegal provided you live in a country that allows your participation in it. Many countries allow access to the Forex Market freely, whereas some countries place restrictions or even bans on it. The Forex Market is supervised by a global panel of supervisory bodies including:

  • United States: National Futures Association, Commodities Futures Trading Commission
  • United Kingdom: Financial Conduct Authority
  • Australia: The Australian Securities and Investments Commission
  • Japan: The Financial Services Agency
  • Canada: The Investment Industry Regulatory Organization of Canada
  • Cayman Islands: Cayman Islands Monetary Authority
  • Hong Kong: The Securities and Futures Commission
  • Singapore: The Monetary Authority of Singapore

It is their job to regulate forex by setting the standards that all brokers under their jurisdiction must comply with. Current standards include:

  • Must be registered and licensed with the regulatory body
  • Be ready to undergo regular audits
  • Communicating service charges to their clients
  • Any additional standards that ensure trading is ethical and fair

Forex is currently traded in 180 countries by over 200,000 traders daily. With that amount of volume and exposure, operating the Forex Market illegally would be next to impossible. 

Why Would a Country Ban Forex Trading?

Each of the countries examined today have their own reasons for banning part or all access to forex trading. Whether those reasons are financially driven, religious or personal, there are two main underlying reasons that a country would ban forex trading:

  • Safety: foreign exchange is not the safest or easiest of markets to get involved in, especially for new traders. Most forex traders lose money and end up quitting the market altogether, making forex trading high-risk.

With high risk comes high returns which makes forex trading so appealing compared to the stock market or stock investments. This is why the governing body over the forex trading market keeps a watchful eye on investment activities and makes recommendations for restrictions if they see any questionable actions.

Because forex trading is an unregulated online platform, it becomes only too easy for unlicensed forex brokers to capture their clients trust and money before landing them on the short end of the investment stick. This is exactly the type of actions that caused France to put a ban on all forex trading advertisements in their country.

It is always important that investors go through licensed and bonded brokers that are approved through their country. Most countries consider forex trading gambling because the market uses leverage to help trade with the money you don’t have. This creates the illusion that the trader is in control when really, they are putting themselves at huge risk.

  • Fixed Currencies: a country can either have a fixed exchange rate or a floating exchange rate; fixed is determined by the supply and the demand for the currency whereas floating changes based on several different factors.

The main benefit of having a fixed currency system is it allows the government to keep the price of their currency as stable as possible. We saw an example of this with North Korea, the won and their attempts at banning all other foreign currency in their country.

Forex trading is typically illegal in countries with fixed currency because it interferes with their monetary policies. It is also the belief by the governments that if they can keep their currency more stable, there will be less of a draw to invest in it which protects the currency of that country and does not place a drain on their reserves.

What Power do Countries have over Foreign Trading?

A question that comes to mind when examining countries that ban foreign trading is “how do these countries have the power to limit a person’s investment activities?” If the forex trading market is online, how can governments track or have a say in their residents’ activities?

The government over each country is provided with the power over foreign exchange control which allows them to intervene in the foreign exchange market by banning or restricting the sale or purchase of local currencies, by local or non-local residents.

There are five main areas of control a government can exercise over foreign trading:

  • Banning or limiting purchases of foreign currency within the country
  • Banning or restricting the use of foreign currency within the country
  • Setting exchange rates instead of allowing the market to dictate the value
  • Restricting currency exchange to retailers approved by the government
  • Limiting the amount of money that may be imported or exported

If we look at the bigger picture outside of just forex trading, our global economy thrives and survives on the ability to do business with other countries in their currencies. We are fortunate now that most countries do not restrict forex trading or foreign currencies because without that, many of our international companies could not survive.

In addition to this, if a country imposes these restrictions on foreign trading this can also increase the costs of forex trading which would cut even more into the profit that traders are looking to gain in their involvement with it.

Don’t Take the Risk for the Reward

Laws governing forex trading and investments have changed dramatically over the last decade and will continue to do so as we learn more about the market and its capabilities. The 20 countries that currently consider forex trading illegal could potentially lift those bans in the future if certain risks were to change.

In addition to the 20 countries that have made forex trading illegal, there are even more countries that have imposed restrictions on what you can and cannot do in the forex market. Just because this market operates freely on the internet does not mean you are able to do so.

Before you take any step towards becoming a trader on the forex market, you should check with your countries’ laws to ensure you are in compliance. There are plenty of brokers out there that would be happy to take your money and run despite your countries’ laws but in this case, the risk is not worth no reward.