Best Forex Brokers in China

History of Forex Trading Brokers in the People’s Republic of China

Starting in 1949, China’s currency was unconvertible, making countertrade the only form of exchange, meaning that rather than the purchase of currency, the exchange of goods was the employed form of international trade, after which People’s Bank of China was founded and started trading with western countries. It was the only institution at that time that was allowed to handle financial transactions with the management of foreign exchange as one of its major roles. This period was also marked by a low foreign direct investment (FDI) of less than $300 million as a result of a closed economy which was characterized by anti-foreign policies. Starting in 1980, an open-door policy was initiated by Deng Xiaoping which was focused on encouraging foreign investment and trade. Reforms were made in China’s economy, which liberalized trade contributing to its massive growth.

Also, the establishment of special economic zones which were meant to register rapid economic growth by allowing both domestic and international trade to be conducted without the approval of the Chinese central government led to an increase in the FDI.  Challenges in converting the Renminbi (RMB) into other currencies saw the birth of a dual currency system in China which involved of issuance of Foreign Exchange Certificates (FECs) which worked like currency to foreigners. The FECs worked in such a way that foreigners were required to exchange their currencies for FECs which they would later use to make payments similar to how the citizens would use RMBs. From the 1980s, efforts were made to make all forex trade under the management of the State Administration of Exchange Control (SAEC) to increase the People’s Republic of China’s foreign reserves, mitigating forex speculation, and prohibiting the entry of foreign goods into China.

China’s FX system, however, met challenges in the swap market system which mainly involved the exchange of economic instruments. In addition, the irreversible nature of the RMB posed more difficulties, not forgetting the difference in currency values caused by the existence of the black market. The constraints seemed to be unending as more investors in the People’s Republic of China continued investing overseas, as the black market blossomed, the swap rates even became lower than the set official rates, eventually leading to a rapid flow of assets out of PRC’s economy.

This saw several reforms being made in China’s forex market in 1994, whereby the Renminbi was devalued by 33%. Forex certificates were eliminated and a new inter-trade banking system was established. The system was known as China Foreign Exchange Trading System (CFETS). The system was introduced in a bid to meet market demands at different levels. CFETS’ setup presented a foreign exchange trade system for the US Dollar, Hong Kong Dollar, and the Japanese Yen against the Renminbi by 1996. In the same year, credit lending systems started via the CFETS. 1997 was a remarkable year for PRC’s FX market as it is when interbank bond trading started, followed by RMB voice broking in 2001. Foreign exchange broking services began in 2002 which resulted in a trade of the Euro and the RMB.

China still maintains a closed economic system and for this reason, the movement of assets in and out of the country has to be by strict regulations. Which is aimed at fostering sound economic development by developing foreign exchange administration and striking a balance in payments. This has ensured a substantial level of stability in the PRC’s financial institutions.

People’s Republic of China’s Forex Brokers Regulations

As China surges forward towards a more pliable currency system, there is still a need to protect the existing one. For this reason, there is a need for forex brokers, which are firms or companies that avail access to trading platforms for currency traders, to adhere to regulations put in place by the State Administration of Foreign Exchange (SAFE).

The following are some of PRC’s FX regulatory bodies

China Banking Regulatory Commission (CBRC)

CBRC is a regulatory agency that has been approved by the State Council of the People’s Republic of China to modulate the banking sector of the country except for special administration areas such as Macau and Hong Kong. It came into existence back in 2003 as a result of business malpractices in China as a way of combatting financial crimes.

 CB RC's duties are:

1. To come up with regulations that will be used to manage the banking institutions.
2. To carry out surveillance both on and off-site and take action on groundbreaking behaviors
3. Provide suggestions on resolutions to be employed by the regulations in the event of a problem
4. Management of supervisory boards as assigned by the State Council

National Internet Finance Association of China (NIFA)

NIFA is a regulatory organization that is aimed at safeguarding internet finance, established by the People’s Bank of China in 2015. It works under the stipulations set in (2015 No.221) driven towards nurturing healthy growth in internet finance.

NIFA’s responsibilities include:

1. Safeguarding the Internet finance industry by encouraging equitable competence and carrying out research and finding ways to curb problems
2. Formulate anticipated code of conduct in the business and manage its implementation
3. Coordinate interactions between NIFA, members, and the relevant authorities in a bid to enhance the implementation of regulations by acting as a link
4. Directing its members in attaining knowledge on internet finance policies and implementing them

China Insurance Regulatory Commission (CIRC)

The China Insurance Regulatory Commission (CIRC) has been in operation since 1998 with its main function being to ensure sound management and operations of the insurance industry in the PRC, having 31 offices situated in all the provinces. The agency is also approved by the State Council of China. Its core functions are to:

1. Supervise the insurance industry by formulating laws, rules, and regulations.
2. Regulate insurance prices
3. Set a guide for speculation, risk, information, and supervision for the industry
4. To keep an eye on malpractices and give consequential punishment to non-compliance

China Securities Regulatory Commission (CSRC)

CSRC is a public institution that is a ministry-based agency with an obligation to serve regulatory functions over the securities market of the PRC.  Its core function is to ensure that future markets and securities are in order and that legal activities are maintained in the capital markets. CSRC is obligated to;

1. Create policies in light of future markets and securities and also give suggestions on modification of rules associated with regulation of the markets.
2. Ensure that the companies live up to the rules and laws of the particular industry and govern their behavior
3. Ensure competence in the management of securities and futures markets in alignment with the regulations put in place.
4. Observe international operations of domestic firms and ensure that they are by the regulations set

What does it take to become a forex broker in China?

Some requirements cannot be overlooked when becoming an FX broker in China.

Extensive knowledge of the market saturation

A broker must be familiar with the competition in the forex market. The market is already flocked. Knowledge of the market will help in designing ways in which a broker can gain a competitive advantage.

Partners

To guarantee the success of an FX broking firm, investment in a reliable consultant is paramount. Brokers should be very careful in selecting partners and consultants whose focus is not on siphoning financial benefits from your company. Partners are vital for the smooth flow of operations of a forex broker.

Regulations and company setup

For a forex broker to kick-start its operations, it needs to be licensed and incorporated by an approved regulatory body. This is where the partners come into play. They will advise on the most beneficial organization to get incorporated in.

Bank and payment accounts

Every broker requires a means of making deposits and withdrawals. While it is challenging to find a bank that is willing to open accounts for FX brokers, it is essential to note that most of them are more confident in facilitating businesses for companies incorporated in organizations with tight regulatory measures.

Trading platforms

One may be spoilt for choice in selecting a trading platform to work with. However, a broker must settle for one with both popularity and effective functionality.

Limitations in comparison to other countries/ scams

The peculiar nature of PRC’s foreign exchange trade regulations has seen the economy attract several scams as the traders aim to keep up with most Western countries. Some of them are:

Avoidance of foreign exchange laws

Chinese regulatory laws limit individuals to only being able to withdraw a maximum of $50,000 annually in foreign exchange. Well, this has proven to be a problem, especially for the rich population. They have in turn been forced to become innovative in finding alternatives that will enable them to withdraw more than the stipulated amount. People are using methods such as splitting money among friends and family, making it way easier to withdraw excess amounts. Another way is employing the services of underground money changers. Also, private banking has been used as a means of moving money, whereby one opens a private account with the same bank overseas and transfers the money. Last but not least, risk enthusiasts, prefer hauling with cash.

Restrictions on overseas cash withdrawal

China reinforced regulations on the withdrawal of funds from overseas using PRC bank cards. The regulations state that one may only be able to withdraw a maximum of US$15,530 which is an equivalent of RMB 100,000 in a year, the consequences being a ban from withdrawal that lasts a year. The restrictions have been set to mitigate terrorism, tax evasion, and money laundering.

Popular forex brokers in China

ETX Capital

ETX Capital boasts access to over 5000 FX markets that uses an MT4 platform designed by experts. ETX Capital’s platform allows automated trading and offers customizable charts to suit individual traders’ preferences. ETX has won financial awards, something that just proves how effective and efficient it is for FX trade.

IG

IG is an FX broker that has earned the trust of over 185, 000 users who enjoy an MT4 trade platform that is ProRealTime. IG has availed extensive trading options for forex traders by designing powerful applications that facilitate trade on gadgets on the go. IG is also regulated by the Financial Conduct Authority in the UK and has a reliable support team that works round the clock to offer assistance and ensure the service satisfaction of the traders.

Plus500

Plus500 is a UK-based FX broker that offers traders leverage and reliable execution of orders. It is regulated by the Financial Conduct Authority which boasts a client base that is over 1 million who are offered Contracts for Difference which delivers services on forex among other instruments.