forex trading

Why Traders use Credit Cards for forex trading

Why Traders choose Credit Card as a payment method used to fund a trading account? To pay with Credit Card (CC) for investing in Forex and other speculative products or investment is illegal and considered a crime in the USA. Yet in the other parts of the world Traders use this payment method because it offers Convenience and Access to larger investment capital (due to a credit loan).

Today traders find an overwhelming variety of Account funding options offered by forex brokers. The deposit options proposed by the broker depend on their clients’ personal preferences, location etc., with the most popular ones being Credit Card deposits, Bank wire transfer or by using alternative Payment Service Providers (PSPs). The credit card payments are widespread. With this payment method traders fund their accounts either directly through the deposit page on their broker’s website, or by depositing first into their PSP wallet account and then transferring the funds to the brokerage.

Here are the several reasons we could think of, as to why Traders choose to use Credit Cards over other methods when it comes to Deposit in an FX Broker:

First, convenience and speed of deposits and withdrawals – traders need to just log in to their Forex accounts, input their credit card data and the fund transfer will usually be processed on the same business day.

Second, insufficient cash on hand – as some traders may not have a particular amount, which they intend to deposit, in cash, so they prefer to borrow money from their bank.

On the receiving side, Brokers are quite fine with this because it helps them get the client, while they hold him excited on the phone.
However, using Credit card payments in Forex and other highly speculative services and products add more risk for the person.

Credit cards represent a form of borrowing. If we take into account the cannonade of fees as well as the average annual interest rate (15-19%), which credit card holders are charged, this raises a key question – whether a trader’s annual return from trading activities is sufficient to cover all the expenses on his/her credit card, let alone to make a living.

What should raise an even deeper concern is the scenario, where a trader loses his/her entire deposit (credit card limit) due to poor money management, inappropriate trading approach or psychological mindset and is unable to make his/her monthly payments on the credit card in time. If the trader misses payments, a multitude of fees and constantly increasing interest rates will be charged by his/her credit card issuer, while his/her credit score will worsen. As a result, the trader could end up being so heavily indebted.