Forex Digested

A brief look at FX and how a payment management platform can support online operators
July 14, 2020 | Expertise

A brief look at FX and how a payment management platform can support online operators

Forex is the portmanteau for Foreign Exchange and the largest market in the world; it is the global marketplace for exchanging currencies with trillions of dollars traded daily. The mechanics behind trading are simple, you acquire an asset – in this case, a currency –  and you expect to get rid of the asset for a favorable price.

Why are currencies exchanged? Currencies need to be exchanged in order to conduct foreign trade and business. Here are some basic forex (FX) facts:

  • The foreign exchange, known also as FX or forex is a global marketplace for exchanging fiat currencies (to make it even more dynamic some brokers, like eToro, are now accepting cryptocurrencies for FX trading but that’s a whole other blog post.)

  • Due to its global reach and 24/7 action, forex tends to be the largest and most liquid market in the world.

  • Currencies trade against each other in pairs for example, EUR/GBP.

  • Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.

  • Traders use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios.

The forex market is one of the most accessible in the world. You do not need large funds to start trading and there are plenty of providers that operate exclusively online, so all you need to do is register, submit your documents (KYC checks,) and deposit your funds. 

Forex providers need to accept deposits – so that people can start trading –  but they also need to be able to offer payouts. Operators that use a payment orchestration platform with a risk management engine will be able to provide secure payouts and apply the four-eyes principle, set review rules and automatic notifications when a specific sum has been exceeded. In using a risk management engine businesses will have increased control on their risk rules and actions giving them the protection that they need and want. Choosing a partner that has provisions for third-party risk protection software integration allows for increased protection. This proactive approach helps tackle serious issues such as money laundering, one of the biggest threats to the industry.

The Foreign Exchange’s accessibility should not distract from the fact that the forex is highly volatile. This volatility is also what makes it, to some, so attractive; the more volatility the larger the reward.

What causes forex to fluctuate?

  • Inflation

  • Interest Rates

  • Trade

  • Political Stability (we all saw what happened to the pound after Brexit…)

This volatility and fluctuation make the FX a high-risk sector, like iGaming or cryptocurrencies, and is the reason why payment providers can be hesitant to work with them. Forex trading is heavily monitored, and many brokers are regulated by more than just one authority. This is due to the fact that traders have the potential to make or lose a lot of money in a very short space of time.

As mentioned above forex is a global business that is operating 24 hours a day seven days a week. With traders from all over the world, it is essential that broker sites are connected and able to accept deposits, in as many currencies as possible. A simple and effective way to do this is to use a payment management platform. A payment platform will enable operators to connect to multiple payment service providers (PSPs); giving them the best rates for local currencies and access to preferred local and alternative payment methods (APMs). One with a smart transaction routing engine, will ensure geographical optimization and give operators the ability to create rules, so that they are able to route the transactions to the PSP that will give them the best deal. If a PSP is out of action, fallback routing will kick-in and automatically send it to an alternative provider and as FX is considered high-risk, operators can make use of the cascading function which will send the transaction to providers one after another until it is accepted, these two functions reduce declined transactions, increase conversion, and improve customer retention. A payment orchestration platform that has a PCI Compliant card vault will allow operators to store payment data securely and avoid issues such as provider lock-in. 

The area of Foreign Exchange is a complex beast which is why having a payment orchestration platform that allows for transparency, flexibility and security is especially advantageous. When operating in a fast-paced, high-risk environment, trust is essential and making sure operators and users interests are looked after equally helps build that trust. If you are a forex operator and looking at how you can optimize your payment solutions by using a payment orchestration platform, get in touch with our sales team. They will be able to organise a demonstration of our platform and address any questions you may have.

About IXOPAY

IXOPAY is a payments orchestration platform enabling independent, flexible and global payment processing. As a highly scalable and PCI-DSS certified “fintech enabler”, IXOPAY fulfills the needs of large merchants as well as those of “white label” clients: payment service providers (PSPs), acquirers and independent sales organizations (ISOs). The modern, easily extendable architecture offers smart transaction routing & cascading, state-of-the-art risk & fraud management, fully automated reconciliation and settlements processing, comprehensive reporting as well as plugin-based integration of acquirers, payment service providers and alternative payment methods (APMs).

IXOPAY is part of the IXOLIT Group, founded in Vienna, Austria in 2001. With local entities in Austria and the USA, IXOLIT supports national and international customers across various industry verticals. The owner-led and -financed company has grown from 2 to more than 65 employees and is focused on building innovative solutions for eCommerce.

Please find more information about IXOPAY here: https://www.ixopay.com

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