Forex trading loan is a process of giving money in terms of currencies, securities or commodities to another party in exchange for future repayment of the principal amount in conjunction with the generated interest or other forms of financial charges. This loan may be for a pre-defined one time amount or can be accessed as an open-ended line of credit up to a particular boundary.
The terms surrounding a forex trading loan is based on the agreement of each party involved (the lender and the borrower) in the forex transaction before any money, currency or commodity changes hand. If the lender needs a collateral to be deposited, then it is stated in the loan agreement leaflets. Forex trading loans are made up of the maximum amount of interest required and the length of time specified for the repayment of the amount of money loaned.
WHO GIVES OUT FOREX TRADING LOANS?
Forex trading loans and commercial loans can come from forex traders, investors/individuals, corporations, financial bodies, forex banks and the government. These loan parties provide a medium to increase the overall money supply in an economy, expand forex business operations and opens up financial competitions. The interest and fees generated from forex trading loans are seen as primary sources of revenue and income for the above listed loan participants.
These forex trading loan participants are companies affianced with businesses that deal with financial transactions like deposits, loans, currency exchange and investments. Forex trading loan participants are in the likes of banks, trust companies, insurance companies, brokerage firms and investment dealers. Forex banks provide the most universally recognized and frequently used monetary services, provides savings accounts, offers certificated of deposit, home mortgages and other types of loans for a large number of forex traders by means of credit cards, transfers and currency exchange. Forex banks facilitate monetary transactions among forex traders.
Investment banks provide forex trading loans by facilitating forex trading operations such as capital expenditure, financing and equity offerings. These forex trading loans offered by investment banks also comes in form of brokerage services for forex traders and investors. They also act as forex market makers for trading forex.
Insurance companies are non-bank financial institutions that provide forex trading loans in form of insurance for forex traders. It also offers protection of accepts and protection against monetary risk as a form of forex trading loan secured through insurance products.
TYPES OF FOREX TRADING LOANS
SECURED AND UNSECURED FOREX TRADING LOANS
Forex trading loans can be secured or unsecured. Secured forex trading loans can be defined as loans that can be backed up or safeguarded by collaterals. Examples are mortgages and car loans. Unsecured forex trading loans are those forex loans which are not backed up or safeguarded with collateral. These unsecured forex trading loans actually have a greater amount of interest rates attached to them. Increased interest rate of unsecured loans is due to the fact that they are riskier for the lenders. In a secured loan, the lender can have a possession of the collected collateral in case of a default in repayment by the borrower and this makes this type of forex loan less risky.
REVOLVING AND TERM LOANS
Forex trading loans can also be seen as revolving or term loans. Revolving forex trading loans are those loans that can be spent, repaid and spent again while term forex trading loans are those loans that are paid off in equal proportion and on monthly instalments over a specific period of time known as a term.
REVIEWS ON FOREX TRADING LOANS
Forex trading loans are excellent futures for forex traders who have little or no capital to either start up a forex trading carrier or advance further in forex trading. It provides means of capital increment and availability enabling them to solve common forex trading difficulties in the forex market. With forex trading loans, a forex trader can comfortably take part in a day to day trading scenario. However, most forex trading loan participants have high interest rates which may have a great impact in the creation of dramatic losses.
HOW INTEREST RATES AFFECT FOREX TRADING LOANS
Interest rates have a high effect on forex trading loans. Forex trading loans which have high interest rates stands to have an increased monthly payment or take a long time to pay off than forex trading loans with low interest rates. For example, if a forex trader borrows 4,000 dollars on the basis of an installment or term loan with a 3.5 percent interest rate, he/she will be faced with a monthly payment of 58.33 for the next 5 years.
In conclusion, in forex trading loans, the higher the interest rates, the higher the amount to be paid while the lower the interest rate, the lower the amount to be paid.