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Is It Necessary to Restrict Forex Financial Trading? A Modified Model

Author

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  • Moeeni , Shahram

    (University of Isfahan)

  • Tayebi , Komeil

    (University of Isfahan)

Abstract

The Central Bank of Iran banned online currency trading through Forex brokers in November 2016. However, some Iranian speculators still trade in the online Forex market. Is this prohibition on Forex trading reasonable? According to reports, the majority of Forex day traders fail and leave the market within six months to a year. Some scholars attribute this failure to the changeable characteristics of the losing traders, including low startup capital, failure to manage risk, lack of discipline, and impatience. The purpose of this study was to explore why the majority of traders fail and to investigate the relationship between the Forex market features and the risk of failure. We developed a previous model to address this issue. Given the Forex market is a zero-sum game; the break-even point of the representative player was formulated. The model and simulation results indicated that the expected likelihood of loss is directly related to market features such as leverage, volatility, and the frequency of trading. The minimum rate of expected return, high volatile days, and spread were the other factors affecting the risk of loss. In conclusion, the study confirms the extremely high level of risk in Forex trading, which is inappropriate for the majority of individual investors. Moreover, policymakers need to consider the high risk of loss in this market, and some appropriate regulations seem reasonable on the Forex trading.

Suggested Citation

  • Moeeni , Shahram & Tayebi , Komeil, 2018. "Is It Necessary to Restrict Forex Financial Trading? A Modified Model," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(1), pages 63-80, January.
    • Handle: RePEc:mbr:jmonec:v:13:y:2018:i:1:p:63-80
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    References listed on IDEAS

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    Cited by:

    1. Golnaz Shahtahmassebi & Lascelles Wright, 2021. "Profit and loss manipulations by online trading brokers," Papers 2107.14055, arXiv.org.

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    More about this item

    Keywords

    Forex Financial Market; Market Microstructure; Game Theory; Volatility; Regulation.;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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