Recommended Forex brokers
Best Forex services for copying trades:
CopyFX
Share4you
Best Forex cashback services:
Cashback Forex
Premium Trading
FxCash

Currency market

Go to navigation Go to search
Financial markets
CDS volume outstanding.png
Stocks and bods market
Derivative financial instruments
Currency market
capital market
Money market
Mutual investment fund (PIF)
Market of precious (banking) metals
Real estate market
Insurance market

The foreign exchange market (Forex market) is a system of stable economic and organizational relations that arise when carrying out transactions for the purchase or sale of foreign currency, payment documents in foreign currencies, as well as operations for the movement of capital of foreign investors [1] [2].

In the foreign exchange market, the interests of investors, sellers and buyers of currency values ​​are coordinated. Western economists characterize the foreign exchange market from an organizational and technical point of view as an aggregate network of modern means of communication connecting national and foreign banks and brokerage firms [3].

Operations in the forex market for purposes can be trading, speculative, hedging and regulating (currency interventions of central banks).

Illustration of the idea of ​​converting currency pairs

Story  

Prerequisites for the formation of the foreign exchange market  

Currency exchange operations existed in the ancient world and in the Middle Ages. However, modern currency markets emerged in the 19th century. The main prerequisites that contributed to the formation of the foreign exchange market in the modern sense were the following [2]:

Developing national currency markets and their interaction formed a single world currency market, in which the leading currencies began to circulate freely in the world's financial centers.

Development of operations in the foreign exchange market  

Historically, two main methods of payment were distinguished in international circulation: tracing and remittance, which were used in international circulation before the First World War and partially (to a lesser extent) between the First and Second World Wars [2].

The term "tracing" is associated with the use of a bill of exchange  - drafts. When paying by this method , the creditor issues a bill of exchange for the debtor in his currency (for example, a creditor in London presents a debtor in Chicago with a demand for payment of a debt in dollars) and sells it on his foreign exchange market at the buyer's bank rate. Thus, when tracing, the creditor acts as an active party, he sells a bill in the currency of the debtor in his foreign exchange market.

When remitting, the debtor acts as an active person: he buys the currency of the creditor in his foreign exchange market at the rate of the seller.

In the early years after World War II until the late 1950s, when foreign exchange restrictions were in place, spot (with immediate delivery of currency) and " forward " forward transactions dominated in industrialized countries .

Since the 1970s, futures and options currency transactions began to develop. This kind of transactions provided new opportunities for all participants in the foreign exchange market, both for currency speculators and for hedgers, that is, to protect against currency risks and receive speculative profits. Banks began to make foreign exchange transactions in combination with interest rate swaps.

The modern forex market  

On August 15, 1971, US President Richard Nixon announced a decision to abolish the free convertibility of the dollar into gold (abandoned the gold standard), thus unilaterally refusing to implement the Bretton Woods agreements (according to which the dollar was backed by gold, and all other currencies by the dollar).

In December 1971, the Smithsonian Agreement was reached in Washington, according to which, instead of 1% fluctuations in the exchange rate against the US dollar, fluctuations of 4.5% (by 9% for non-dollar currency pairs) began to be allowed [4]. This destroyed the stable exchange rate system and was the culminating event in the crisis of the post-war Bretton Woods monetary system. It was replaced by the Jamaican currency system, the principles of which were laid down in March 1971 on the island of Jamaica with the participation of 20 most developed states of the non-communist bloc. The essence of the changes that took place was reduced to a looser policy regarding the price of gold. If earlier exchange rates were stable due to the gold standard, then after such decisions, the floating rate of gold led to inevitable fluctuations in exchange rates between currencies. This gave rise to a relatively new field of activity - currency trading [5], when the exchange rate began to depend not only on the gold equivalent of the currency, but also on the market supply / demand for it.

A number of problems quickly emerged, and in 1975, French President Valéry Giscard d'Estaing and German Chancellor Helmut Schmidt (both former finance ministers) suggested that the heads of other leading Western states gather in a narrow informal circle for face-to-face communication. The first G7 summit (then only six participants) was held in Rambouillet with the participation of the USA, Germany, Great Britain, France, Italy and Japan (Canada joined the club in 1976, from 1998 to 2014 Russia was a member of the club). One of the main topics of discussion was the structural transformation of the international monetary system.

On January 8, 1976, at a meeting of ministers of the IMF member countries in Kingston (Jamaica) , a new agreement was adopted on the structure of the international monetary system, which had the form of amendments to the IMF charter. The system replaced the Bretton Woods monetary system. Many countries have actually abandoned the peg of the national currency to the dollar or to gold. However, it was only in 1978 that the IMF officially allowed such a refusal [4]. Since that moment, freely floating rates have become the main method of currency exchange.

In the new monetary system, the principle of determining the purchasing power of money based on the value of their gold equivalent (Gold Standard) was finally abandoned. The money of the countries participating in the agreement ceased to have an official gold content, the exchange began to take place on the free foreign exchange market (English  foreign exchange market, forex) at free prices.

The formation of the floating rate system led to three significant results:

  1. Importers, exporters and banking structures serving them were forced to become regular participants in the foreign exchange market, since changes in exchange rates can affect the financial results of their work, both positively and negatively.
  2. Central banks got the opportunity to influence the national currency rates and influence the economic situation in the country by market methods, and not just administrative ones.
  3. The rates of the most liquid national currencies are formed on the basis of the market's search for a point of balance between current demand and the available supply, and a change in supply and demand in the market causes a shift in the exchange rate in one direction or another.

Characteristics of modern world currency markets  

Modern world currency markets are characterized by the following main features [2].

  1. The international nature of the currency markets based on the globalization of world economic relations, the widespread use of electronic means of communication for transactions and settlements.
  2. The continuous, non-stop nature of transactions during the day alternately in all parts of the world.
  3. Unified nature of foreign exchange transactions.
  4. The use of operations in the foreign exchange market for the purpose of protection against foreign exchange and credit risks through hedging.
  5. A huge share of speculative and arbitrage transactions, which are many times greater than foreign exchange transactions associated with commercial transactions. The number of currency speculators has increased dramatically and includes not only banks and financial and industrial groups, TNCs, but also many other participants, including individuals and legal entities.
  6. Volatility of exchange rates, which does not always depend on fundamental economic factors.

The modern currency market performs the following functions [2]:

  1. Ensuring the timeliness of international payments.
  2. Creation of opportunities for protection against currency and credit risks.
  3. Ensuring the interconnection of world currency, credit and financial markets.
  4. Creation of opportunities for diversification of foreign exchange reserves of the state, banks, enterprises.
  5. Market regulation of exchange rates based on the interaction of demand and supply of currencies.
  6. The possibility of implementing monetary policy as part of the state economic policy. The possibility of implementing coordinated actions of different states in order to achieve the goals of macroeconomic policy within the framework of interstate agreements.
  7. Providing opportunities for foreign exchange market participants to receive speculative profits through arbitrage transactions.

Currency market instruments  

In the modern foreign exchange market, the following types of transactions can be distinguished.

Currency transactions with immediate delivery ("spot")  

Spot transactions are transactions for the purchase and sale of currency on the terms of its immediate delivery by counterparty banks no later than the second business day from the date of the transaction, during which the sale / purchase rate is fixed.

Currency transactions with immediate delivery are the most mobile element of a currency position and involve a certain risk. With the help of the "spot" operation, banks meet the needs of their clients in foreign currency by transferring capital, including "hot" money, from one currency to another, and carry out arbitrage and speculative operations.

Forward transactions with foreign currency  

Forward currency transactions include forward, futures and option transactions, as well as currency swaps.

Forward transactions  

Forward transactions include currency purchase and sale transactions, at which the price (purchase and sale rate ) is determined at the time of the transaction, and the supply of currency, that is, the fulfillment of obligations by the parties, is provided for in the future.

Forward transactions are made under contracts, the terms of which (purchase/sale volume, term and place of fulfillment of obligations) are individual and not standard.

Futures deals  

Futures transactions include standard contracts for the sale and purchase of currencies traded on the stock exchange. Such transactions are made on the terms that the exchange develops and which are binding on everyone who makes transactions with futures. Futures have standard maturity dates. The most common is the three-month futures.

The leading exchanges for trading futures contracts are the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), London (LIFFE), Singapore (SGX), Eurex, Paris (MATIF). Since April 1998, at the Chicago Mercantile Exchange (CME), with the technological support of the MICEX , ruble futures contracts (nominal value of 500 thousand rubles, a period of six months) began to be concluded for the first time. The exchange rate of the ruble against the dollar, which is formed on the MICEX, is used to assess the trading positions of participants in mutual offsets. Physically, rubles are not exported. The one who predicts the exchange rate correctly wins. Futures trading is carried out througha clearing house, which is a seller for every buyer and a buyer for every seller [2].

Forex Options  

An option (from Latin  optio, optionis  - choice) is a derivative financial instrument, an agreement under which the buyer of an option acquires the right, but not the obligation, to buy or sell a certain amount of currency in the future at a fixed price (strike price). The buyer of an option, upon paying the premium on the option to the seller, which is essentially the price of the option, acquires the right to either buy (call deal - call option) or sell (put deal - put option) on any day if it is an American option; or on a certain date once a month, if it isEuropean option).

Currency option contracts are traded by: the world's largest Chicago Board Options Exchange, the European Options Exchange in Amsterdam - EOE (European Options Exchange), the Austrian Futures Options Exchange in Vienna - OSTOV (Oesterreichische Terminboerse) [2] Options.

Currency swaps  

A currency swap (English  swap  - exchange, exchange) is a transaction that combines the purchase and sale of two currencies on the terms of immediate delivery with a simultaneous counter-transaction for a certain period with the same currencies. Each party is both a seller and a buyer of a certain amount of currency. A currency swap is not a standard exchange contract.

For swap operations, the cash transaction is carried out at the spot rate, which in the counter transaction (urgent) is adjusted taking into account the premium or discount , depending on the dynamics of the exchange rate. At the same time, the client saves on margin - the difference between the rates of the seller and the buyer for a cash transaction. Swap operations are convenient for banks: they do not create an open position (the purchase is covered by the sale), they temporarily provide the necessary currency without the risk associated with a change in its exchange rate.

Daily turnover  

Volume of transactions in the foreign exchange market, billion US dollars

It is believed that the daily turnover in the forex market was [6]:

  • in 1977, $5 billion.
  • in 1987, $600 billion.
  • at the end of 1992, $1 trillion.
  • in 1997 - $1.2 trillion
  • in 2000, $1.5 trillion.
  • In 2005-2006, the volume of daily turnover in the FOREX market fluctuated, according to various estimates, from 2 to 4.5 trillion dollars.
  • in 2010 - 4 trillion dollars [7].
  • in 2013 - 5.3 trillion dollars [8].
  • in 2016 - 5.1 trillion dollars [9].
  • in 2019 - 6.6 trillion dollars [10].

By 2020, further growth of intraday turnover in the forex market may reach 10 trillion dollars [11].

The Bank for International Settlements periodically conducts a large-scale study of the forex market every three years, since 1989. The final report contains information on market turnover, structure and dynamics. The latest report was released in September 2019 and is available on the official website [12].

However, there is no exact data, since this is an over-the-counter market, and there is no requirement for mandatory registration and publication of transaction data. Part of this volume is provided by margin trading, under the terms of which it is allowed to conclude contracts for amounts that significantly exceed the actual capital of the participant in the transaction. Regardless of the nature and purpose of transactions, a large daily turnover is a guarantee of high liquidity of this market.[ source not specified 1110 days ].

Foreign exchange market participants  

The participants of the foreign exchange market are: central banks, commercial banks, firms, currency exchanges, currency brokers and, indirectly, other economic agents.

Central banks  

Central banks - their function is to manage government foreign exchange reserves and ensure the stability of the exchange rate. To implement these tasks, both direct foreign exchange interventions and indirect influence can be carried out - through regulation of the level of the refinancing rate, reserve requirements, etc.

Commercial banks  

Commercial banks - they carry out the bulk of foreign exchange transactions. Other market participants hold accounts in banks and carry out conversion and deposit-credit operations necessary for their purposes through them. Banks concentrate the total needs of the commodity and stock markets in currency exchange, as well as in attracting / placing funds. In addition to satisfying customer requests, banks can conduct operations on their own at their own expense. Ultimately, the international currency exchange market ( forex) is a market for interbank transactions.

The largest influence is exerted by large international banks, whose daily volume of transactions reaches billions of dollars. The volume of one interbank contract with real delivery of currency on the second business day (spot market) is usually about 5 million US dollars or their equivalent. The cost of one conversion payment is from 60 to 300 dollars. In addition, you have to bear the costs of up to 6 thousand dollars per month for the interbank information and trading terminal. Because of these conditions, Forex does not carry out conversions of small amounts. To do this, it is cheaper to turn to financial intermediaries (a bank or a foreign exchange broker).), which will convert for a certain percentage of the transaction amount. With a large number of clients and multidirectional orders, a situation of internal clearing regularly arises, when the intermediary does not need to contact a third-party counterparty (there is no need to carry out a real conversion through Forex). But intermediaries always receive their commissions from customers. Due to the fact that not all client orders get to Forex, intermediaries can offer clients commissions that are significantly lower than the cost of direct Forex operations. At the same time, if intermediaries are eliminated, the conversion cost for the end client will inevitably increase.

Currency exchanges  

Currency exchanges - in a number of countries there are national currency exchanges, whose functions include the exchange of currencies for legal entities and the formation of a market exchange rate. The state usually actively regulates the level of the exchange rate, taking advantage of the compactness of the local exchange market.

Currency brokers  

Currency brokers  - their function is to bring together the buyer and seller of foreign currency and the implementation between them of a conversion or loan and deposit operation. For their mediation, brokerage firms charge a brokerage commission as a percentage of the transaction amount. But the amount of this commission is often less than the difference between the bank's loan interest and the bank deposit rate. Banks can also perform this function. In this case, they do not issue a loan and do not bear the corresponding risks.

Firms  

Firms engaged in foreign trade operations  - total applications from importers form a stable demand for foreign currency, and from exporters  - its supply, including in the form of foreign currency deposits (temporarily free balances in foreign currency accounts). As a rule, firms do not have direct access to the foreign exchange market and conduct conversion and deposit operations through commercial banks.

Other legal entities  

International investment companies, pension and hedge funds, insurance companies  - their main task is diversified asset portfolio management, which is achieved by placing funds in securities of governments and corporations of various countries. In dealer slang, they are simply called funds (English  funds). This type can also be attributed to large transnational corporations that carry out foreign production investments: the creation of branches, joint ventures, etc.

Private individuals  

Individuals  - citizens carry out a wide range of operations, each of which is small, but in total they can form a significant additional demand or supply: payment for foreign tourism; money transfers of wages, pensions, fees; purchase/sale of cash currency as a store of value; speculative foreign exchange transactions.

Regulation of speculative trading  

Forex is based on the principle of free currency conversion, which implies the absence of government interference in the conclusion of foreign exchange transactions (there is no official exchange rate, there are no restrictions on the direction, prices and volumes of transactions), and on guarantees of freedom of such operations. At the same time, rules and restrictions on the provision of intermediary services are usually established, which regulate, first of all, the relationship between the client (trader) and the intermediary (broker) [13].

Great Britain  

In the UK, regulatory functions in the financial markets are performed by the Financial Services Authority (FSA) [ 14]. 

USA  

In the US, the regulator of the foreign exchange market is the government's " Commodity Futures Trading Commission " [15]. In addition, a lot of work on the development of trading rules, conditions for the provision of brokerage services and conflict resolution is carried out by the non-governmental National Futures Association (NFA) .  This organization also collects and analyzes special reporting that brokers - members of the association are required to provide. It is not only in the USA that NFA requirements are heeded, as American private traders and funds are wary of opening accounts with a company that does not comply with them [16].

The NFA's rules and regulations are more stringent than the FSA's. Sometimes they do not so much help and protect as limit the trader. One of the latest examples is the requirement to close client transactions without fail according to the FIFO rule (first in, first out) [17].

Since July 15, 2011, the limitations of the Dodd -Frank Wall Street Reform and Consumer Protection Act have been in force, according to which US citizens (individuals and legal entities) are prohibited from over-the-counter transactions with financial instruments [18].  

Ukraine  

Control over the conduct of foreign exchange transactions is usually carried out by the National Bank of Ukraine. However, the laws of these countries do not provide for free unlimited conversion operations. Ukraine as of May 2015 did not even have a legal basis for margin trading. Due to the peculiarities of currency and tax legislation, both Russian and Ukrainian dealing centers usually do not have the legal right to provide financial services. Most often, they operate on the basis of a license for betting activities. Most of the large dealing centers have foreign registration. At the same time, they do not have local representative offices or “representatives” are third-party consultants who do not have official registration in the name of this company. Local representative offices are never legally liable for customer disputes with the parent company.[ source not specified 1110 days ].

Almost no one is embarrassed that your professional intermediary will be legally located in the offshore regulation zone, or, for example, that all disputes will have to be resolved by clients no closer than in the London Arbitration Court. And as a guarantee of the safety of the client deposit from fraudulent attacks will be a license from the Federal Agency for Physical Culture, Sports and Tourism for - attention! – organization and maintenance of sweepstakes and gambling establishments. In general, almost complete freedom reigns in the Russian market in access to Forex.

You can often hear objections that in the West, purely forex offices are not subject to direct state regulation. Say, the market is special, free in its essence, over-the-counter. Trading on it is carried out through telephones and the Internet. Each dealer company, in fact, is its own market for its customers. In general, there is no real buying and selling of currency here, so there is almost nothing to regulate. This is such a gambling-economic game, not for the marginalized, but for intellectuals.

Liberals are lying. The currency market itself on a global scale is, indeed, not subject to regulation. But the relationship between a broker and a client in decent countries is very good. Financial operations are clearly separated from the gambling business [19]

On August 3, 2012, the National Bank of Ukraine adopted Decree No. 327, according to which only banks are entitled to provide services for arbitrage transactions with currencies and bank metals on the terms of margin trading [20], as well as to conduct such operations for their own purposes. The resolution contains a direct ban on such operations for non-banks (legal entities and private entrepreneurs). The activities of organizations registered outside of Ukraine are not regulated by this resolution. On March 3, 2015, a draft law [21] regulating the activities of forex dealers on the territory of Ukraine was registered in the Parliament of Ukraine under the number 2290. [22]

Russia  

Currency trading in Russia is getting more and more organized forms. One of the first in the direction of developing rules and protecting the rights of traders was the Commission for the Regulation of Relations of Financial Market Participants (KROUFR), established in 2003. [23] The decisions of the KROUFR are binding only for the organizations that are part of it, and for the rest they are advisory. On February 5, 2009, trading in currency futures began on the RTS stock exchange [24].

The forex market is not an activity of professional participants in the securities market. The Federal Financial Markets Service of Russia (letter No. 09-VM-02/16341 dated July 16, 2009) clearly stated that the activities of forex market participants do not apply to the activities of professional participants in the securities market and are not regulated by either the specified Federal Law or legal acts of the FFMS of Russia. The letter states:

Relations related to activities in the foreign exchange market, including activities to raise funds for operations in the foreign exchange market, are not regulated by the regulatory legal acts of the Federal Financial Markets Service of Russia, licenses issued by the Federal Financial Markets Service of Russia do not provide the right to carry out these types of activities.

In March 2012, the Ministry of Finance of the Russian Federation held the first discussion of the possibility of regulating the forex market with the relevant Russian companies. As a result, representatives of the Ministry of Finance did not make any statements. During the discussion, the participants did not come to a consensus on the principles and mechanisms of regulation of this market [25].

Legislative uncertainty allowed the creation of companies imitating Forex brokers. Often such companies offer to invest funds by transferring money to the company or selected traders, promising to place funds on the Forex market, but in fact this is not done. After a while the company disappears. In 2012, 11 such companies were identified in Russia, and the same number in 2013; in 4 months of 2014, 6 such companies were identified [26].

On December 9, 2014, the State Duma of the Russian Federation adopted in the second reading a draft law on regulating the work of dealers in the forex market [27]. The Law "On the Securities Market" was supplemented with the article "Activities of a Forex Dealer". Such activity is the conclusion on its own behalf and at its own expense of contracts at unorganized auctions with individuals who are not individual entrepreneurs. Obligations under such contracts depend on the change in the exchange rate of one currency against another currency (the price of a currency pair).

The text of the contract between the forex dealer and the physical. the person must be registered with the SRO (Self-Regulatory Organization of Forex Dealers). Claims arising from such an agreement are subject to judicial protection. A forex dealer has the right to carry out its activities only after joining the SRO. SRO forms a compensation fund for payments in case of non-fulfillment or improper fulfillment of obligations by members of the association. The entrance fee to this fund in the amount of 2 million rubles. forex dealers produce upon joining the SRO. Forex dealer's own funds must be at least 100 million rubles[ source not specified 1110 days ].

The amendments regulating the forex market in Russia come into force in 2 stages: from October 1, 2015 and from January 1, 2016. Starting from October 1, new companies will not be able to start operating in the forex market, and those companies that already operate must obtain the appropriate licenses. Companies that do not have licenses as of January 1, 2016 will not be able to operate on the territory of the Russian Federation. [28] [29] [30]

At the beginning of 2016, not a single company providing currency trading services on the forex market complied with the requirements of the law. So far, only one company has managed to obtain a license from the Bank of Russia, and several more have submitted relevant applications. However, a license is not the only condition that allows you to work on Forex. In addition, companies had to join a self-regulatory organization (SRO). A contradiction arose, since the regulator required to join the SRO from January 1, and the law defining the procedure for accreditation of SROs in the Bank of Russia began to operate only from January 11. In this regard, many market players, in order not to violate the requirements of Russian legislation, were forced to act through offshore companies [31].

Revocation of licenses  

On December 27, 2018, the Central Bank of Russia decided to cancel the licenses of the five largest Russian forex dealers: Forex Club, Fix Trade, Trustforex, Alpari Forex and Teletrade Group. The main reason given was the fact that forex dealers used their licenses for aggressive advertising. Citizens who got caught by this advertisement, as a rule, left with an agreement concluded not with a Russian licensed forex dealer, but with one of the foreign companies operating under a similar brand [32].

Features of taxation  

The activities of Russian organizations providing dealing services in full are subject to Russian taxation. A dealing center (or a bank) pays income tax, and a bookmaker's office pays a gambling tax (Moscow - 100 minimum wages per month from each bookmaker's cash desk). Income from additional services (training, consultations, trainings, etc.) is also subject to income tax and VAT. A foreign company pays tax on income from services provided in the territory of the Russian Federation only if they are provided through a permanent representative office of the company. Otherwise, the company does not have Russian taxes [33].

The income of clients of dealing centers is subject to taxation at the personal income tax rate of 13%. If the broker is a Russian organization, then the obligation to calculate, withhold from the client and pay the amount of tax is shifted to the shoulders of the broker, who acts as a tax agent for his client. Otherwise, the client is obliged to independently calculate, declare and pay personal income tax[ source not specified 1110 days ].

Until recently, Russian tax legislation had a number of shortcomings - in particular, for transactions with derivatives for raw materials, commodities, currencies and other assets, profitable (positive) transactions were not added to unprofitable (negative), and the tax was calculated exclusively from positive transactions. However, in practice, in the name of common sense, brokers calculated personal income tax taking into account negative transactions [34].

Since 2010, amendments to the Tax Code of the Russian Federation have come into force [35]. Now the tax base for financial instruments of forward transactions is calculated with netting (positive and negative results are summed up), losses are carried forward to the following periods. However, the instruments of the Forex market do not belong to the instruments of futures transactions for tax purposes, the netting of losses is impossible [36].

Malaysia  

In February 2012, the Malaysian National Fatwa Council ruled that trading in the foreign exchange market (forex) is prohibited for Muslims. Than Council Chairman Sri Abdul Shukur Husin stated[ source not specified 1093 days ]:

A study by the committee found that such trading involves currency speculation, which is contrary to Islamic law.

For this reason, the national fatwa council has decided that it is haram for Muslims to engage in such trading.

The ban applies primarily to individuals. Banks and specialized exchangers will continue to work without restrictions [37].

Risks  

  • The use of leverage leads not only to an increase in the profitability of operations, but also to a proportional multiple increase in the risk of losses [38].
  • Fluctuations in exchange rates are simultaneously influenced by a huge number of contradictory and multidirectional factors that are difficult to predict, but which can have a significant impact on the results of speculative trading, especially when using a large leverage [38].
  • The broker may manipulate prices, which will differ from independent sources of quotes.

In 2007, the US Commodity Futures Trading Commission (CFTC), the regulator of the US foreign exchange market, noted an increase in fraud in the non-banking currency trading industry. Moreover, the main object of fraud is a private trader. In Russia... the level of fraud is much higher [38].

  • A problematic point may be the mechanism for processing orders for transactions at predetermined prices (order processing), which does not guarantee the obligatory execution of an order.
  • When a broker goes bankrupt, its clients most often cannot receive their funds from their trading accounts.

Sometimes the fraudulent actions of dealing centers are prosecuted. In the United States, the courts equate to fraud "the promise of constant profits, non-disclosure of information about risks for traders, the assignment of non-existent titles and permits" and seek the closure of violating companies, indemnification, compensation [39]. Even in offshore zones, due to “a threat to the national security of the republic and protection of its reputation as a center of financial services”, some unscrupulous brokers have their licenses suspended [40].

Most often, fraudulent schemes are found in the field of trust management of funds in the forex market. Civil Code of the Russian Federation in Art. 1013 does not allow trust management of exclusively monetary funds. Due to the lack of reliable information and legislative regulation, it becomes possible to easily manipulate the money entrusted to management [41]. Today, many trading platforms have special tools to provide the owner of capital with the possibility of external permanent control over the state of the account, which is in trust management of the trader, which reduces the possibility of fraudulent actions, but does not reduce legal problems in disputable situations.

Forex kitchens  

Kitchen  - in brokerage jargon, the designation of internal clearing, when clients' orders for transactions are satisfied due to counter orders of other clients of the same broker or by the broker itself. This allows you to increase the speed and reduce the cost of operations. Internal clearing has become widespread not only in the over-the-counter segments of the stock and currency markets, but is also widely used in settlements using plastic cards.[ source not specified 1110 days ].

If the broker does not have a counter order and no external operation is carried out, the broker independently acts as the opposite side in the transaction and a conflict of interest arises  - the client's profit turns into a loss for the broker, and the client's loss turns into the broker's profit. The only guarantee of the absence of such a conflict of interest is the conduct of all contracts through the exchange, which leads to an increase in overhead costs[ source not specified 1110 days ].

"Kitchen" is legally prohibited in a number of countries: it can be considered fraud [42] [43] and be criminally punishable [44]. But such liability applies to those assets that are traded on stock exchanges. A number of experts believe [45] that the legislative prohibitions on many forms of internal clearing, introduced at the beginning of the 20th century, are outdated and should be abolished.

Forex is by its nature an over-the-counter market with little or no government regulation. Some forex brokers work with extensive use of internal clearing (according to the “kitchen” scheme) [46] [47]. There is no requirement to publish reports on forex transactions, which does not allow for reliable external monitoring. Because of this, there is no way to prove or disprove the extent of the use of internal clearing by forex brokers.

Criticism  

Exchange trading expert Alexander Elder believes that there are honest brokers in the forex market, but they are extremely few [48]. D. V. Timofeev, lecturer at the Perm branch of the Higher School of Economics , believes that retail forex has no market or social benefits, it is a gambling game, an expensive lottery, has much in common with a casino, and it is easier to close it than to try to regulate [49].

see also  

Notes  

  1. Brian Butler, Brian Johnson, Graham Sidwell et al. Currency market // Finance. Dictionary. 2nd ed. - M.: "INFRA-M", Publishing house "Ves Mir" . — 2000.
  2. Jump back:1 2 3 4 5 6 7 Krasavina L. N. and others. Currency markets and currency transactions//International monetary and credit and financial relations. - 3rd ed. -M.: Finance and statistics, 2005. - 576 p. ISBN 5-279-02117-2..
  3. Knyazeva E. G., Mokeeva N. N., Rodicheva V. B., Zaborovsky. VE International currency market and currency dealing. - Yekaterinburg: Ural University Press, 2014. - P. 88. - 120 p. ISBN 978-5-7996-1228-3.
  4. Jump back:1 2 Cornelius Luca. Trading in the global currency markets = Trading in the Global Currency Markets. - 2nd. -M.:Alpina Business Books, 2005. - S. 41-43. — 716 p. -2000 copies.  -ISBN 5-9614-0206-1.
  5. Cornelius Luca. Trading in the global currency markets = Trading in the Global Currency Markets. - 2nd. - M.: Alpina Business Books, 2005. - S. 31. - 716 p. - 2000 copies.  - ISBN 5-9614-0206-1.
  6. Cornelius Luca. Trading in the global currency markets = Trading in the Global Currency Markets. - 2nd. - M.: Alpina Business Books, 2005. - S. 21-23. — 716 p. - 2000 copies.  - ISBN 5-9614-0206-1.
  7. Anchalee Worrachate. Global Currency Trading Will Grow to $10 Trillion a Day by 2020, UBS Says, Bloomberg  ( 26 October 2010). Retrieved January 2, 2015.
  8. Monetary and Economic Department. Bank for International Settlements  (English), BIS (September 2013).
  9. Triennial Central Bank Survey: Foreign exchange turnover in April 2016  (11 December 2016). Retrieved September 20, 2019.
  10. Foreign exchange turnover in April 2019  (English) (September 16, 2019). Retrieved: 20 September 2019.
  11. Abdullaev A. Sh., Saadueva M. M. The concept, essence and functioning of the forex market  // Approbation. - Makhachkala, 2016. - S. 35-38.
  12. ↑ Triennial Central Bank Survey of foreign exchange and OTC derivatives markets in 2019 - Forex activity as of  September 2019 
  13. Forex for beginners - Kulikov A. A. - Study guide. institutiones.com. Date of access: 22 September 2019.
  14. Abramov A. Great Britain: a radical reform of the bodies regulating the financial market (inaccessible link). Depositarium. www.nsd.ru (October 1999). Retrieved 22 September 2019. Archived from the original on 22 September 2019. 
  15. Kaitukova M. V. The current state of the world market for term financial instruments  // Gramota Publishing House. - Tambov, 2008. - No. 3. - S. 86-90. ISSN 1993-5552. Archived from the original on November 24, 2019.
  16. Alan Roth, Alexander Zakharov, Yakov Mirkin, Richard Bernard, Peter Barenboim, Brooksley Bourne. Fundamentals of the public financial market. - M.: Legal house "Justitsinform", 2002.
  17. NFA. Official announcement of changes to RULE 2-43 regarding the processing of orders in the FOREX market. April 13, 2009  (English)
  18. Dyuryagin Andrey Vladimirovich. The value of the Dodd-Frank law for improving the transparency of the financial system  // Russian Foreign Economic Bulletin. - 2012. - Issue. 12. ISSN 2072-8042.
  19. Forex in Russia, Magazine "D`" No. 10 (13) October 2, 2006
  20. Elena Gubar. The foreign exchange market received an arbitrator Archival copy dated October 31, 2013 on the Wayback Machine NBU will control arbitrage transactions // Newspaper "Kommersant Ukraine", No. 134 (1624), 05.09.2012
  21. Draft law of Ukraine No. 2290 dated 03.03.2015, On the activity of forex dealers in Ukraine. search.ligazakon.ua. Date of access: 27 April 2020.
  22. Law on Forex in Ukraine 2015. "White Collar" (March 10, 2015).
  23. the Commission on regulation of relations of participants of financial markets
  24. Forex in RTS
  25. The Ministry of Finance of the Russian Federation discussed its regulation with forex market participants // RIA Novosti on March 27, 2012
  26. The Central Bank complained about the growth of Forex scammers // Izvestiya May 30, 2014
  27. The Forex market in Russia has officially become regulated. "White Collar" (December 26, 2014). Retrieved: 28 May 2015.
  28. Forex: welcome to Russia. expert.ru. Retrieved: 28 October 2015.
  29. Federal Law of December 29, 2014 N 460-FZ (as amended on July 13, 2015) “On Amendments to Certain Legislative Acts of the Russian Federation” / ConsultantPlus. www.consultant.ru Retrieved: 28 October 2015.
  30. Forex will improve the image. vestifinance.ru Retrieved: 28 October 2015.
  31. Forex brokers found a way to continue working in Russia
  32. The Central Bank explained the decision to revoke the licenses of the largest forex dealers VIEW, December 27, 2018
  33. FOREX Market: Legal Issues and Practical Solutions Archived February 20, 2019 at the Wayback Machine, roche-duffay.ru
  34. New standard for Forex trading in Russia Archived December 23, 2012 at the Wayback Machine, kroufr.ru
  35. Federal Law of the Russian Federation of November 25, 2009 N 281-FZ "On Amendments to Parts One and Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation"
  36. Letter of the Ministry of Finance of Russia dated December 11, 2012 N 03-04-05 / 4-1383 (inaccessible link). Retrieved 7 October 2019. Archived from the original on 10 April 2014. 
  37. bigness.ru How Islamists disliked Forex
  38. Jump back:1 2 3 Nekrasov Yu. V. You can't make money in Forex. Journal "Banking Technologies", No. 05-2007, p. 54. Samizdat magazine (May 23, 2013). Retrieved: 28 May 2015.
  39. Roulette named FOREX, "Mirror of the Week", No. 6 (635) February 17, 2007
  40. Oleg Petrovsky, BroCo Investments was left without licenses // RBC daily 12/24/2010
  41. The trust that burst Archival copy of February 9, 2014 at the Wayback Machine, aferizm.ru
  42. Cal. Corp. CODE § 29100: California Code - Section 29100. Retrieved February 20, 2013. Archived from the original on February 27, 2013.
  43. RCW 9.47.090: Maintaining bucket shop - Penalty. Retrieved February 20, 2013. Archived from the original on February 27, 2013.
  44. Cal. Corp. CODE § 29102: California Code - Section 29102. Retrieved February 28, 2013. Archived from the original on March 12, 2013.
  45. Bucket Shops - Sumner Law (link unavailable). Retrieved February 28, 2013. Archived from the original on March 12, 2013. 
  46. Best Forex Brokers, Forex Broker Reviews, Forex Broker, Forex Justice (link not available). Retrieved February 28, 2013. Archived from the original on March 12, 2013. 
  47. ↑ Forex game : a scam or a way to get rich // KP.RU. Retrieved April 2, 2013. Archived from the original on April 3, 2013.
  48. Serg212121. Elder on Forex DCs (October 9, 2010). Date of access: 23 April 2019.
  49. Timofeev D.V. RETAIL FOREX: A USELESS AND EXPENSIVE LOTTERY. Research University Higher School of Economics. Permian.

Literature  

  • Piskulov D. Yu. Theory and practice of currency dealing.
  • Mark Galant, Brian Dolan. Forex for dummies = Currency Trading For Dummies. - M.: "Dialectics", 2008. - 336 p. - ISBN 978-5-8459-1695-2.
  • Yakimkin, VN The Forex market is your way to success. M.: Svetoch L, 1999.