Forex Deposit with Credit Cards

Research suggests that the global Forex market posts a turnover of $4 trillion on an almost daily basis. Such mass trading is not possible with only passive traders who buy a lot of currency for long term investment purposes and then disappear from the market for a long period. The fluctuating prices and active trading are major factors behind the exceptionally high turnover. But more importantly, it is the plastic money that has made it possible to trade millions of Forex during a couple of business hours. Do you think it would be possible otherwise if you had to rely on wire transfers that take up to 3-5 days to get funds in your trading account?

Regardless of the profit these cards haves brought to the Forex industry, deposit via credit cards in Forex trading accounts has always been a hot topic of debate in the business and financial society. Even today, many entities are against the facility to deposit funds in trading accounts via this method. Here is a comprehensive analysis on the popularity and application of credit cards in currency trading from different perspectives.

Benefits for the Traders and Brokers

Like every other company, Forex industry depends upon the end users for survival. It would seize to operate if traders back out and stop putting in more funds. These are the most important people in the foreign currency market and must be given high priority. Considering the importance of traders and their preference for easy trading, almost all the brokers in the Foreign exchange industry allow deposit of funds through this method.

The first and foremost benefit for traders is the simple procedure that allows them to make deposits via cards in their trading account and that it provides instant deposit of funds. Unlike other methods, you are not required to open any new account to avail this facility. The only requirement is to have an active Credit card to your name. Moreover, the procedure to deposit funds in your account via this method is more or less the same for every broker. Just login to your trading account, access the account deposits or fund transfer page and hit ‘Deposit’. Select Credit/Debit cards from the available options to deposit funds in your account. Fill in your card information and that’s it, the requested amount would be deposited in your trading account instantly.

Some brokers would require you to submit a copy of your card. Don’t worry this does not imply any kind of fraudulent activity or misuse of your trading account. They just need to match your trading account name with that on the card plus the first and last four digits of the card number. Just make sure to hide the CVV/security code printed at the back of the card and the middle eight digits before submitting it to the broker. Contact your broker for the specific account and deposit related policies.

Banks’ Concern on Deposit via Credit Card

That was about the customers of the Foreign exchange market. Now let’s have a look on the other side of the arena. Deposit via Credit cards involves 3 parties, the card holder, issuing bank and the Forex broker. The first and last one shares the same opinion. A credit card allows them to earn from the market opportunities and fluctuating nature of Forex. The traders don’t even have to pay instantly. They trade on credit basis in hopes to recover the investment even before the due date for paying the card balance. Here is what the credit card issuing authorities think of plastic money in the field of Forex.

Surprisingly, they have a completely opposite view on this issue. They say that credit cards increase the percentage of defaulters and non performing loans. The initial deposit required to open up a trading account is feasible via card since that amount is very low. However, later on when they involve millions of currency trading and Forex deals, deposits via card pose a risk to the bank. Forex is a highly fluctuating market. Sometime depositors even exceed their account margin requirements just on the basis of sentiment analysis. Suppose a high net worth individual sells a big lot of a currency pair. This would increase the supply of that specific currency thereby lowering its value in the market. This is a common practice in the financial industry. Investors buy/sell millions of foreign exchange to artificially inflate or deflate its price or to make their rivals lose in some way. In either case, it is the bank that has transferred the funds on credit basis and is now exposed to the risk of losing those funds.

And The Debate Continues…

The application of Credit cards in the Forex industry is still under serious debate (read more). However no one can deny the importance and amazingly high trading volume generated by this financial tool in the foreign exchange market. Also this source of depositing funds in an account has become so popular among Forex traders that disallowing it now may cause an unrecoverable blow to this industry. In a nutshell, the overall benefits of deposit via Credit Cards in Forex outweigh the probability of loss associated with it. The card issuers should come up with some strict validation procedures and margin requirements to minimize their loss. Banning the use of Credit cards in Forex as proposed by some bankers a couple of months back is not a practical solution to their problem.