Analysis: how Forex actually works and what you need to know about currency trading on the stock exchange to minimize risks

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A year ago, the Central Bank of Russia canceled the licenses of five major forex dealers. Among them were the well-known companies in our country, Alpari Forex, Teletrade Group and Forex Club.

In a new article, we will talk about why this was supposed to happen, and how the real exchange currency market differs from what many unscrupulous companies offer.

Note: any investment activity on the exchange is associated with a certain risk, this must be taken into account. In addition, to use the methods described in the article, you will need a brokerage account, you can open it online. You can study trading software and practice performing operations using test access with virtual money.

How Unscrupulous Forex Companies Actually Work

The regulator’s main complaint against Russian Forex dealers was that in fact they did not conduct any activity other than advertising to attract new customers. Then these clients were “redirected” to companies registered in offshore jurisdictions. And already with the help of software from these companies, customers made operations with currencies.

According to statistics published by RBC, the companies that lost their licenses attracted only 2 thousand customers, and no more than 470 of them are active. Moreover, the main expense item for Russian subsidiaries of foreign dealers is advertising. As a result, year after year, companies officially attracted an insignificant number of users, declared massive losses, but persistently continued to work. Why is such a business possible?

Because in fact, the business of Forex dealers is completely different from how companies that provide access to trading on the stock exchange make money. They do not display clients' applications for foreign markets, but only imitate such activities, in fact being a kind of casino.

It works like this: on a real exchange, transactions are concluded between two counterparties who need a particular currency for a specific purpose. In the case of Forex dealers, the other side of the transaction is most often this company itself. Customers usually explain the system like this:

The risk management system of a company (registered on the BVI or Cayman Islands), calculates risks and sends to the real OTC market not all client orders, but only their aggregated component exceeding a certain size. And the firm reduces the remaining orders with opposite orders received from other clients. That is, if the client has an order for 10 thousand dollars, then it will be executed inside the forex broker, if 100 thousand dollars, then it will be executed – by its counterparty, a large international bank that will take this order to its position . But if the client has an order for $ 1 million, then he will certainly be sent "to the exchange" and executed only there.

What is the problem of this circuit

In reality, no orders are displayed on any exchange; money is recorded in the dealer’s account and converted at changing exchange rates. The second party to the transaction is the Forex dealer itself.

As a result, it turns out that if the client makes money, the dealer loses, he is not at all interested in this. It is no coincidence that the Central Bank claims against Forex companies include falsification of data transmitted to trading terminals of clients. All this for the sole purpose of quickly showing them that they have suffered losses due to "unsuccessful" investments.

Does the client have a chance to make money

Another distinguishing feature of Forex dealers is the provision of significant leverage, that is, the ability to trade with borrowed funds. They explain to customers that with a conditional leverage of 100 to complete transactions for $ 1 million, they will need to have only $ 10 thousand. As a result, a much larger income is possible than using only $ 10 thousand. But this is in theory, and in reality, the use of leverage on Forex leads to inadequately increasing risks.

Imagine that you took advantage of a leverage and bought a million dollar currency. At the same time, a simple look at the quotes chart for the euro / dollar currency pair says that daily fluctuations in quotes can be from plus to minus from 0.1% to 0.5%. In the case of a million dollars, even 0.1% is $ 1 thousand. That is, you can lose all the money in just a few days of adverse price movements. In this case, the client’s position will be forcibly closed.

Not surprisingly, according to statistics, Forex brokers lose their money at a rate of 60-80% per quarter. This means that about 70% of the funds brought by clients within 3 months migrate into the pockets of the owners of forex brokers. Even in a casino, the chances of making money are higher.

In fact, using the services of Forex dealers, clients do not participate in investment activities. Their applications are not displayed on any external exchange, no one selects a counterparty for them. Dealers make transactions within their systems according to opaque schemes, acting as the second side of these operations, and the provision of a huge leverage only accelerates the loss of customer money.

There is no investment, real currency trading. This is essentially a sweepstakes when people just bet on the exchange rate. It's just that bookmaking is clothed in the form of filing a trade order.


Aggressive advertising of Forex dealers was aimed at attracting people with low financial literacy. They were simply deceived, trying to steal money.

At the same time, there is a possibility of a real purchase and sale of currency, including for the purpose of investing. There is a currency market on the Moscow Exchange, access to which can be obtained by opening an account with a brokerage company (this can be done remotely).

At the same time, brokers providing access to exchange trading are licensed by the Central Bank, which closely monitors their activities. All orders submitted through the trading terminal go to the exchange and are displayed in the order line (“glass”) – no complicated schemes with the output of “aggregated components”. There is always a counterparty, and the exchange itself acts as the guarantor of the fulfillment of obligations under the transaction. And, of course, it is simply impossible to imagine any leverage of 100 or more on the exchange.

Therefore, if you plan to invest in various currencies – use reliable platforms for this, that is, real exchanges.

Useful links on the topic of investment and stock trading:

  • Open a brokerage account online
  • Test account with virtual money
  • Software for trading on the exchange: trading terminal, mobile applications
  • Structural Products
  • Model Portfolios

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