Forex (Forex, sometimes FX, from the English. FOReign EXchange - «foreign exchange") - the market of interbank currency exchange at market prices (the quote is formed without restrictions or fixed values). Generally use a combination of "forex market" (English Forex market, FX-market). Forex term commonly used to refer to the mutual exchange, not the totality of foreign exchange.
In an English-speaking word Forex is usually called the foreign exchange market, [1] as well as currency trading (English trades currencies) [2]
In Russian the term Forex is usually used in the narrower sense - I mean extremely speculative currency trading by commercial banks and dealing centers, which is conducted with the use of leverage, ie margin trading currency. More details are described in the sections "Currency market participants." The term "international forex" and "international forex market" are incorrect, because the «foreign exchange» initially involves international trade currency.
Operations in the Forex market on the objectives may be trademarks, speculation, hedging, regulatory (foreign exchange intervention of central banks).
History of Forex
August 15, 1971, U.S. President Richard Nixon announced the decision to cancel the free convertibility of the dollar into gold (the gold standard abandoned), thus rejecting the unilateral implementation of the Bretton Woods agreements (under which the dollar backed by gold and all other currencies the dollar). In December 1971, in Washington, the Smithsonian has been reached an agreement whereby, instead of 1% currency fluctuations against the U.S. dollar were allowed fluctuations of 4.5% (9% for non-dollar currency pairs). [3] It has destroyed the system of stable exchange rates and was the culmination of a crisis of the postwar Bretton Woods monetary system. Replaced by a Jamaican currency system, the principles which were laid in March 1971 on the island of Jamaica with the participation of the 20 most developed countries of the non-block. The essence of the changes was to more liberal policy on gold prices. If earlier exchange rates were stable by virtue of the gold standard, after making such a floating rate of gold has led to the inevitable fluctuations in exchange rates between currencies. This gave rise to a relatively new field of activity - currency trading, [4] when the exchange rate began to depend not only on the gold equivalent currency, but also on market demand / supply it. Fast enough, there were some issues to discuss that in 1975 the French President Valery Giscard d'Estaing and Chancellor Helmut Schmidt (both - the former finance minister), proposed to the heads of other leading Western countries to gather in a narrow range for informal communication, face to face. The first summit of the "Big Eight" (then only six participants) was held in Rambouillet with the U.S., Germany, UK, France, Italy and Japan (in 1976 the work of the club joined Canada, and in 1998 - Russia). One of the main topics of discussion was the structural reform of the international monetary system.
January 8, 1976 at the meeting of IMF member countries in Kingston (Jamaica), adopted a new agreement about the structure of the international monetary system, which took the form of amendments to the charter of the IMF. System replaced the Bretton Woods monetary system. Many countries actually declined to peg the currency to the dollar or to gold. However, only in 1978, the IMF formally allowed such a failure. [3] From this point on freely floating exchange rates have become the main way to exchange currencies.
The new monetary system finally there was a refusal of the principle of determining the purchasing power of money based on the value of their gold equivalent (gold standard). Money countries participating in the agreement ceased to have official gold content, the exchange began to occur in the free exchange market (Russian foreign exchange market, forex) at market prices.
Becoming a system of floating exchange rates has led to three significant results:
Importers, exporters and service their banking institutions have been forced to become regular participants of the currency market, as changes in exchange rates may affect the financial results of their work with both positive and negative sides.
Central banks could have an impact on the currency and the impact on the economic situation in the country by market methods, not just administrative.
Rates of the most liquid national currencies are formed on the basis of the search market equilibrium point between current demand and available supply, and demand and supply in the market exchange rate causes a shift in one direction or another.
Daily turnover
It is believed that the daily turnover in the forex market was as follows: [1]
in 1977 - $ 5 billion
in 1987 - 600 billion dollars
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 on the FOREX market fluctuated, according to various estimates, from 2 to 4.5 trillion
in 2010 - $ 4 trillion. [5] In this case, a further increase in the intraday turnover to $ 10 trillion in 2020.
The BIS conducts periodic large-scale study of the Forex market every three years, starting in 1989. The final report contains information on the turnover of the market, the structure and dynamics. The last report was released in December 2010 and is available on the official website. [6]
However, no accurate data as it is the OTC market, and there is no requirement of compulsory registration and publication of trades. Part of this volume provides a margin trading, under which contracts are allowed for amounts significantly exceeding actual capital transaction participant. Regardless of the nature and purpose of transactions, large daily turnover is a guarantee of high liquidity of the market.
Currency market participants
Main article: Currency market participants
Forex is the foreign exchange market. Operations are carried out through a system of institutions: central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, multinational corporations, etc. Volume of one contract with real currency delivery at the second working day (spot market) is usually about 5 million U.S. dollars or its equivalent. The conversion price of one payment is from 60 to 300 dollars. In addition, have to bear the cost of up to 6 thousand dollars a month for interbank informational trading terminal. Because of these conditions, the Forex market is not carried out direct conversion of small amounts. To do this, cheaper to apply to financial intermediary (bank or exchange broker), who will make the conversion for a certain percentage of the transaction amount. With a large number of clients and countervailing applications from intermediaries regularly arise situations of internal clearing (brokerage "kitchen"), because of what is not always necessary to carry out the conversion in real trading. But they get their commissions from clients at all times. It is because of the fact that the Forex does not fall all the client application, resellers can offer customers a commission that significantly lower than the cost of direct operations on Forex. At the same time, if you eliminate intermediaries, the cost of converting to the end client is bound to increase.
Current quotations currency used for a large number of operations that do not necessarily have direct access to Forex. An example is the change of the national currency the state bank, which has to preserve the aspect ratio between the foreign exchange rate in accordance with their proportions on Forex even if the real supply / demand in the country is not consistent with the trends in the Forex market. For example, if the domestic market there is excess supply of euros, but in forex price euro against the dollar increases, the central bank will have to raise the price as well, and not to reduce the pressure of excess supply.
Another striking example - the marginal speculative currency trading, which is focused on fixing the current forex quotes, but by its terms is not the actual delivery. Almost all the intermediaries on currency market offer customers not only services for direct conversion, but speculative trading with leverage. In most cases, fees for such transactions is lower than for direct conversion, because of scale and short transactions need real conclusion of contracts for the delivery occurs less frequently. Very often take the form of commissions spread - fixed difference between the purchase price and sale price currency at the same time. In most cases between Forex and speculator built a chain of several intermediaries, each of which takes a commission.
Margin Transactions can (but do not necessarily) to the emergence of a real additional demand or supply in the foreign exchange market, especially in the short period of time. But the overall trend movements in exchange rates, they do not form [citation needed 956 days].
Recently begun to receive Forex spread trading system aimed at reducing the impact of the broker (Electronic Communication Network, ECN).
Forex and government regulation
Forex trading is based on the principle of free convertibility of currencies, which implies the absence of government intervention at the conclusion of foreign exchange transactions (not the official exchange rate, there are no restrictions on the direction of prices and volume of transactions), and the guarantees of freedom of such operations. At the same time, usually set rules and regulations for the provision of mediation services, which regulate primarily customer relationships (trader) and the intermediary (broker).
Office of the Financial Services Authority (English Financial Services Authority, FSA) performs regulatory functions in the financial markets in the UK.
The U.S. regulator of the foreign exchange market is the government's "Commission on futures trade in goods" (born Commodity Futures Trading Commission, CFTC). In addition, a lot of work on the development of bidding rules, the terms of the brokerage and conflict resolution NGO conducts "National Futures Association" (English National Futures Association, NFA). The organization also collects and analyzes specific statements, that are required to provide brokers - the members of the association. The requirements NFA listen not only to the United States as U.S. private traders and funds beware open accounts in a company that does not fulfill them.
NFA rules and requirements are more stringent than the requirements FSA. Sometimes they are not so much help and protect as limiting the trader. A recent example - require close customer transactions required by the rule of FIFO (first in - first out). [7]
On July 15, 2011 restrictions Dodd - Frank (born Dodd-Frank Wall Street Reform and Consumer Protection Act), under which U.S. citizens (individuals and businesses) are prohibited OTC transactions in financial instruments.
[Edit]
In Russia and Ukraine
Monitoring of currency transactions in Russia and in Ukraine is the central bank and the National Bank, respectively. However, free unlimited conversion operations of their legislation does not provide. In Ukraine, as of July 2009 as there is no legislative basis for margin trading. Due to the nature of currency and tax laws registered in Russia or Ukraine-brokers usually do not have the legal rights to provide financial services. Most often, they act on the basis of a license for sports betting. Most major dealing centers generally have a foreign registration, and the local offices do not bear any legal responsibility or they do not officially registered. A client of a company usually has no real opportunity to contest its validity in any way and to get legal protection in conflict situations.
Almost does not bother anyone that your professional mediator will be legally in the coverage of offshore regulation, or, for example, that all disputed issues customers have to settle no closer than the London Court of Arbitration. And as guarantee the safety of customer deposits from fraudulent attacks will be the license of the Federal Agency for Physical Culture, Sports and Tourism on - please! - The organization and content of the betting and gambling establishments. In general, in the Russian market of access to Forex reigns almost complete freedom.
You can often hear the objection that the West purely FOREX offices are not subject to direct government regulation. They say that the market is a special, free in nature, OTC. Trade it is done by phone and internet. Each company-dealer, in fact, the market itself to its customers. In general, the actual purchase and sale of foreign currency is not the case, so the handle-almost nothing. The game is such, recklessly and economic, not for outsiders, and for intellectuals.
Dissemble such liberals. Currency market itself globally regulated, indeed, can not be. But here is a broker relationship with the customer in decent countries - very. Financial transactions from gambling clearly separated. [8]
Magazine «D` »№ 10 (13) October 2, 2006
Gradually, however, the currency trade in Russia is becoming more organized. One of the first in the direction of the development of law and the protection of human traders was established in 2003, "Regulatory commission of the financial markets" (KROUFR). [9] KROUFR Decisions are binding only for organizations that are part of it, but for the rest they are recommendations. February 5, 2009 at the RTS stock exchange began trading currency futures. [10]
Russian legislation currently does not provide any description of the legal status of organizations doing business in the Forex market. The forex market is not an activity of professional participants of the securities market. The Federal Service for Financial Markets of Russia (№ 09-VM-02/16341 letter dated July 16, 2009) clearly indicated that the activity of the participants of the Forex market does not apply to the activities of professional participants of the securities market and is not regulated as specified by Federal law, and legal FSFM of Russia. The letter states:
Relations associated with the activities of the foreign exchange market, including activities to raise funds for operations in the Forex market is not regulated by the regulations of the FFMS of Russia, licenses issued by FFMS of Russia, does not grant the right to carry out these activities.
In March 2012 the Ministry of Finance of the Russian Federation held a first discussion of the possibility of regulating the Forex market with the appropriate Russian companies. At the end of the 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 the market. [11]
August 3, 2012 the National Bank of Ukraine adopted the Resolution № 327, according to which only banks have the right to provide services for arbitrage transactions with currencies and precious metals on the terms of margin trading, [12] and to carry out similar operations in their purposes. The order contains an express prohibition on such transactions for businesses and entrepreneurs. Activities of organizations that are registered outside Ukraine, this resolution does not regulate.
Especially tax
Activities of Russian organizations providing dealing services in full, subject to Russian taxes. Dealing Center (or bank) subject to income taxes, and bookmaker - a tax on gambling (Moscow - 100 minimum wages per month with every cash bookmaker). Revenues from value added services (training, advice, training, etc.) are also subject to income tax and VAT. Foreign company pays tax on the income from services rendered in the Russian Federation, only if they are provided through a permanent establishment of the company. Otherwise - Russian taxes, the company does not arise. [13]
Income clients dealing centers taxed at personal income tax rate of 13%. If the broker is a Russian organization, the obligation to calculate, withhold and pay the client the amount of tax is passed on to the shoulders of a broker for a client who acts as the fiscal agent. Otherwise, the client is obliged to calculate, declare and pay personal income tax.
In an English-speaking word Forex is usually called the foreign exchange market, [1] as well as currency trading (English trades currencies) [2]
In Russian the term Forex is usually used in the narrower sense - I mean extremely speculative currency trading by commercial banks and dealing centers, which is conducted with the use of leverage, ie margin trading currency. More details are described in the sections "Currency market participants." The term "international forex" and "international forex market" are incorrect, because the «foreign exchange» initially involves international trade currency.
Operations in the Forex market on the objectives may be trademarks, speculation, hedging, regulatory (foreign exchange intervention of central banks).
History of Forex
August 15, 1971, U.S. President Richard Nixon announced the decision to cancel the free convertibility of the dollar into gold (the gold standard abandoned), thus rejecting the unilateral implementation of the Bretton Woods agreements (under which the dollar backed by gold and all other currencies the dollar). In December 1971, in Washington, the Smithsonian has been reached an agreement whereby, instead of 1% currency fluctuations against the U.S. dollar were allowed fluctuations of 4.5% (9% for non-dollar currency pairs). [3] It has destroyed the system of stable exchange rates and was the culmination of a crisis of the postwar Bretton Woods monetary system. Replaced by a Jamaican currency system, the principles which were laid in March 1971 on the island of Jamaica with the participation of the 20 most developed countries of the non-block. The essence of the changes was to more liberal policy on gold prices. If earlier exchange rates were stable by virtue of the gold standard, after making such a floating rate of gold has led to the inevitable fluctuations in exchange rates between currencies. This gave rise to a relatively new field of activity - currency trading, [4] when the exchange rate began to depend not only on the gold equivalent currency, but also on market demand / supply it. Fast enough, there were some issues to discuss that in 1975 the French President Valery Giscard d'Estaing and Chancellor Helmut Schmidt (both - the former finance minister), proposed to the heads of other leading Western countries to gather in a narrow range for informal communication, face to face. The first summit of the "Big Eight" (then only six participants) was held in Rambouillet with the U.S., Germany, UK, France, Italy and Japan (in 1976 the work of the club joined Canada, and in 1998 - Russia). One of the main topics of discussion was the structural reform of the international monetary system.
January 8, 1976 at the meeting of IMF member countries in Kingston (Jamaica), adopted a new agreement about the structure of the international monetary system, which took the form of amendments to the charter of the IMF. System replaced the Bretton Woods monetary system. Many countries actually declined to peg the currency to the dollar or to gold. However, only in 1978, the IMF formally allowed such a failure. [3] From this point on freely floating exchange rates have become the main way to exchange currencies.
The new monetary system finally there was a refusal of the principle of determining the purchasing power of money based on the value of their gold equivalent (gold standard). Money countries participating in the agreement ceased to have official gold content, the exchange began to occur in the free exchange market (Russian foreign exchange market, forex) at market prices.
Becoming a system of floating exchange rates has led to three significant results:
Importers, exporters and service their banking institutions have been forced to become regular participants of the currency market, as changes in exchange rates may affect the financial results of their work with both positive and negative sides.
Central banks could have an impact on the currency and the impact on the economic situation in the country by market methods, not just administrative.
Rates of the most liquid national currencies are formed on the basis of the search market equilibrium point between current demand and available supply, and demand and supply in the market exchange rate causes a shift in one direction or another.
Daily turnover
It is believed that the daily turnover in the forex market was as follows: [1]
in 1977 - $ 5 billion
in 1987 - 600 billion dollars
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 on the FOREX market fluctuated, according to various estimates, from 2 to 4.5 trillion
in 2010 - $ 4 trillion. [5] In this case, a further increase in the intraday turnover to $ 10 trillion in 2020.
The BIS conducts periodic large-scale study of the Forex market every three years, starting in 1989. The final report contains information on the turnover of the market, the structure and dynamics. The last report was released in December 2010 and is available on the official website. [6]
However, no accurate data as it is the OTC market, and there is no requirement of compulsory registration and publication of trades. Part of this volume provides a margin trading, under which contracts are allowed for amounts significantly exceeding actual capital transaction participant. Regardless of the nature and purpose of transactions, large daily turnover is a guarantee of high liquidity of the market.
Currency market participants
Main article: Currency market participants
Forex is the foreign exchange market. Operations are carried out through a system of institutions: central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, multinational corporations, etc. Volume of one contract with real currency delivery at the second working day (spot market) is usually about 5 million U.S. dollars or its equivalent. The conversion price of one payment is from 60 to 300 dollars. In addition, have to bear the cost of up to 6 thousand dollars a month for interbank informational trading terminal. Because of these conditions, the Forex market is not carried out direct conversion of small amounts. To do this, cheaper to apply to financial intermediary (bank or exchange broker), who will make the conversion for a certain percentage of the transaction amount. With a large number of clients and countervailing applications from intermediaries regularly arise situations of internal clearing (brokerage "kitchen"), because of what is not always necessary to carry out the conversion in real trading. But they get their commissions from clients at all times. It is because of the fact that the Forex does not fall all the client application, resellers can offer customers a commission that significantly lower than the cost of direct operations on Forex. At the same time, if you eliminate intermediaries, the cost of converting to the end client is bound to increase.
Current quotations currency used for a large number of operations that do not necessarily have direct access to Forex. An example is the change of the national currency the state bank, which has to preserve the aspect ratio between the foreign exchange rate in accordance with their proportions on Forex even if the real supply / demand in the country is not consistent with the trends in the Forex market. For example, if the domestic market there is excess supply of euros, but in forex price euro against the dollar increases, the central bank will have to raise the price as well, and not to reduce the pressure of excess supply.
Another striking example - the marginal speculative currency trading, which is focused on fixing the current forex quotes, but by its terms is not the actual delivery. Almost all the intermediaries on currency market offer customers not only services for direct conversion, but speculative trading with leverage. In most cases, fees for such transactions is lower than for direct conversion, because of scale and short transactions need real conclusion of contracts for the delivery occurs less frequently. Very often take the form of commissions spread - fixed difference between the purchase price and sale price currency at the same time. In most cases between Forex and speculator built a chain of several intermediaries, each of which takes a commission.
Margin Transactions can (but do not necessarily) to the emergence of a real additional demand or supply in the foreign exchange market, especially in the short period of time. But the overall trend movements in exchange rates, they do not form [citation needed 956 days].
Recently begun to receive Forex spread trading system aimed at reducing the impact of the broker (Electronic Communication Network, ECN).
Forex and government regulation
Forex trading is based on the principle of free convertibility of currencies, which implies the absence of government intervention at the conclusion of foreign exchange transactions (not the official exchange rate, there are no restrictions on the direction of prices and volume of transactions), and the guarantees of freedom of such operations. At the same time, usually set rules and regulations for the provision of mediation services, which regulate primarily customer relationships (trader) and the intermediary (broker).
Office of the Financial Services Authority (English Financial Services Authority, FSA) performs regulatory functions in the financial markets in the UK.
The U.S. regulator of the foreign exchange market is the government's "Commission on futures trade in goods" (born Commodity Futures Trading Commission, CFTC). In addition, a lot of work on the development of bidding rules, the terms of the brokerage and conflict resolution NGO conducts "National Futures Association" (English National Futures Association, NFA). The organization also collects and analyzes specific statements, that are required to provide brokers - the members of the association. The requirements NFA listen not only to the United States as U.S. private traders and funds beware open accounts in a company that does not fulfill them.
NFA rules and requirements are more stringent than the requirements FSA. Sometimes they are not so much help and protect as limiting the trader. A recent example - require close customer transactions required by the rule of FIFO (first in - first out). [7]
On July 15, 2011 restrictions Dodd - Frank (born Dodd-Frank Wall Street Reform and Consumer Protection Act), under which U.S. citizens (individuals and businesses) are prohibited OTC transactions in financial instruments.
[Edit]
In Russia and Ukraine
Monitoring of currency transactions in Russia and in Ukraine is the central bank and the National Bank, respectively. However, free unlimited conversion operations of their legislation does not provide. In Ukraine, as of July 2009 as there is no legislative basis for margin trading. Due to the nature of currency and tax laws registered in Russia or Ukraine-brokers usually do not have the legal rights to provide financial services. Most often, they act on the basis of a license for sports betting. Most major dealing centers generally have a foreign registration, and the local offices do not bear any legal responsibility or they do not officially registered. A client of a company usually has no real opportunity to contest its validity in any way and to get legal protection in conflict situations.
Almost does not bother anyone that your professional mediator will be legally in the coverage of offshore regulation, or, for example, that all disputed issues customers have to settle no closer than the London Court of Arbitration. And as guarantee the safety of customer deposits from fraudulent attacks will be the license of the Federal Agency for Physical Culture, Sports and Tourism on - please! - The organization and content of the betting and gambling establishments. In general, in the Russian market of access to Forex reigns almost complete freedom.
You can often hear the objection that the West purely FOREX offices are not subject to direct government regulation. They say that the market is a special, free in nature, OTC. Trade it is done by phone and internet. Each company-dealer, in fact, the market itself to its customers. In general, the actual purchase and sale of foreign currency is not the case, so the handle-almost nothing. The game is such, recklessly and economic, not for outsiders, and for intellectuals.
Dissemble such liberals. Currency market itself globally regulated, indeed, can not be. But here is a broker relationship with the customer in decent countries - very. Financial transactions from gambling clearly separated. [8]
Magazine «D` »№ 10 (13) October 2, 2006
Gradually, however, the currency trade in Russia is becoming more organized. One of the first in the direction of the development of law and the protection of human traders was established in 2003, "Regulatory commission of the financial markets" (KROUFR). [9] KROUFR Decisions are binding only for organizations that are part of it, but for the rest they are recommendations. February 5, 2009 at the RTS stock exchange began trading currency futures. [10]
Russian legislation currently does not provide any description of the legal status of organizations doing business in the Forex market. The forex market is not an activity of professional participants of the securities market. The Federal Service for Financial Markets of Russia (№ 09-VM-02/16341 letter dated July 16, 2009) clearly indicated that the activity of the participants of the Forex market does not apply to the activities of professional participants of the securities market and is not regulated as specified by Federal law, and legal FSFM of Russia. The letter states:
Relations associated with the activities of the foreign exchange market, including activities to raise funds for operations in the Forex market is not regulated by the regulations of the FFMS of Russia, licenses issued by FFMS of Russia, does not grant the right to carry out these activities.
In March 2012 the Ministry of Finance of the Russian Federation held a first discussion of the possibility of regulating the Forex market with the appropriate Russian companies. At the end of the 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 the market. [11]
August 3, 2012 the National Bank of Ukraine adopted the Resolution № 327, according to which only banks have the right to provide services for arbitrage transactions with currencies and precious metals on the terms of margin trading, [12] and to carry out similar operations in their purposes. The order contains an express prohibition on such transactions for businesses and entrepreneurs. Activities of organizations that are registered outside Ukraine, this resolution does not regulate.
Especially tax
Activities of Russian organizations providing dealing services in full, subject to Russian taxes. Dealing Center (or bank) subject to income taxes, and bookmaker - a tax on gambling (Moscow - 100 minimum wages per month with every cash bookmaker). Revenues from value added services (training, advice, training, etc.) are also subject to income tax and VAT. Foreign company pays tax on the income from services rendered in the Russian Federation, only if they are provided through a permanent establishment of the company. Otherwise - Russian taxes, the company does not arise. [13]
Income clients dealing centers taxed at personal income tax rate of 13%. If the broker is a Russian organization, the obligation to calculate, withhold and pay the client the amount of tax is passed on to the shoulders of a broker for a client who acts as the fiscal agent. Otherwise, the client is obliged to calculate, declare and pay personal income tax.