FOREX

INVESTMENT ASPECT

Thesis
By
Vyacheslav Tsoy

Submitted in Partial fulfillment

Of the Requirements for the degree of
Bachelor of Science
In
Business Administration

State University of New York

Empire State College
2016

Reader: David Starr-Glass

 ACKNOWLEDGEMENT

First and foremost, I would like to express warm thanks to my ESC mentor Mr. David Starr-
Glass for the continuous support of my thesis study and research, for his patience, enthusiasm,
and immense knowledge. His guidance helped me in all the time of research and writing of this
thesis. I could not have imagined having a better advisor and mentor for my thesis study. I am
glad that I had an opportunity to work on my thesis with such a clever, wise, knowledgeable
man, author of a numerous amount of published works. Owing to the experience and
knowledge of my mentor, the thesis looks as it does now, many thanks to you Mr.Starglass for
navigating me into the right path and helped me not only in structuring my work, but also to
stick to the plan, providing useful suggestions and where to place emphasis, all of that was
probably the most difficult task in writing my work, and you have tremendously helped in that.

Thanks to the authors whose books and articles I have used for writing this work, their products
really helped me to form a sound point of view and come to certain conclusions

I want to thank my professors at UNYP (Prague, Czech Republik), OmSU (Omsk, Russian
Federation) and FHWS (Wurzburg, Germany) for that knowledge that they provided me with,
for their patience and understanding.

An addition to that, I want to thank my friends in UNYP, and in Omsk (Russia) for the
stimulating discussions, for the sleepless nights then we were working together before
deadlines, and for all the fun we have had in our students years.

And I would like to thank my parents Igor Tsoy and Svetlana Tsoy, for providing me with an
excellent opportunity in the first place and supporting me spiritually throughout my life, my
sincere thanks also goes to other members of my family: Gennady Tsoy, Tatiana Tsoy, Lilia
Speranskaya for their support.

Last but not the least, I also want to thank my younger brother Leonid Tsoy, for his love and
amusing childish motivation quotes that have numerous times helped me to accomplish my
work today.

TABLE OF CONTENT:
ABSTRACT ............................................................................................................................... 4
1. The Location of the Forex Market in the System of International Finance Markets. ............ 7
1.1 The understanding and history of introduction of the Forex market. .............................. 7
1.2 Forex foreign exchange market importance in the global economy and its distinct
characteristics. ................................................................................................................ 11
2. The analysis of the functioning of the retail segment of the Forex market in Russia and
abroad .................................................................................................................................. 20
2.1 Features of the international Forex market products ..................................................... 21
2.2 Status of the Forex market products in Russia............................................................... 32
2.3 Characteristics of the risks of investing in the Forex market......................................... 39
3. The implementation of trading strategies and controlling of resources on the Forex
market ................................................................................................................................. 50
3.1 Fundamental and technical analysis of currency markets .............................................. 50
3.2 Methods of Investment Management in the Forex market ............................................ 59
3.3 Implementation of the author's trade strategy in the Forex market ............................... 67
CONCLUSION ........................................................................................................................ 78
Bibliography ............................................................................................................................ 82
APPENDIX 1 – DIFFERENCES OF FOREX FROM FUTURES CURRENCY
MARKET ....................................................................................................... 87
APPENDIX 2 - MAJOR BROKERS OF RUSSIAN FOREX MARKET .............................. 89
APPENDIX 3 - CHANGES IN REGULATION OF FOREX MARKET IN RUSSIA .......... 89
APPENDIX 4 - TYPES OF INVESTMENT RISKS BY FORMS OF
MANIFESTATIONS ..................................................................................... 91
APPENDIX 5 - KEY FACTORS OF FUNDAMENTAL ANALYLYSIS............................. 94
APPENDIX 6 - SCHEMES OF ORGANIZATION OF FOREX-DEALING IN RUSSIA .... 95
 ABSTRACT

Mankind has long experienced a need for a universal means of payment, by means of which it
would be possible to obtain all possible goods and services. Over time, we have moved from barter,
bimetallism, monometallism to paper money. But none of that existed in the history of mankind
currencies could become universal to every corner of the Earth. But with the development of the
world economy, the global monetary system changed, in adjustment to the economy. However, in
the presence of its own currency, members of the international community will always be in need
of the exchange of currencies between themselves.

In 1971, a significant event occurred in the history of the world economy. On August the 15th, the
US President Richard Nixon announced the end of free conversion of US dollars into gold.
Subsequently, the Jamaican currency system was formed. As a result, stable under the gold
standard currencies of developed countries have started to float freely under the influence of supply
and demand forces. Currencies have become a full-fledged product with a free pricing relative to
each other. Particularly, for this reason, appeared the interbank market with exchange rates at free
market prices, or "Foreign Exchange Market", abbreviated as Forex.

Undergoing reforms, organization and optimization, as well as increasing the volume of the
operations, the Forex market has become not only a market where there is an exchange of
currencies but a necessary tool for banks, companies and nations for operations in other countries.
As well as, for hedging purposes, currency regulation and speculation. Notably, the speculations
in the Forex market are a possible target for investment, with a perspective to profit.

The relevance of this topic emphasizes that the former Soviet Union's space there is a persistently
high interest in investing in the Forex market. In Russia, there is a successful functioning of a large
number of brokers, dealing and training centers, aimed at attracting customer funds on the currency
market. It is worth mentioning, that investments in commodity markets for our country are a
relatively new phenomenon, in contrast to the developed countries of the West. Also, in our view,
the relative ease of entry into the market could cause additional suspicions of possible investors
and create a field for illegal operations.
In the name itself, the Forex market in the daily use of Russian dialogue is more synonymous with
the words of deception and fraud. At the same time, companies and the free traders brought serious
means to ensure confidence into potential investors. Therefore, there is a great interest in the study
of the mechanisms of profit from investments in the Forex market.

4
Elaboration of this theme in the literature is extremely low, due to the fact that in comparison with
the stock and commodity markets, the Forex market is still rather young. It includes a number of
features that distinguish it from other markets. At the same time itself investing in the Forex market
is not practically approached by the Russian scientific literature. At the same time, investments in
securities and derivative financial instruments to Russian citizens are still an unusual way to
generate income.

The aim of this study is to analyze the Forex market conditions in Russia as well as abroad, and
the development of investment strategy for the retail investor in the Forex market, including
analysis of the input methods on the market, the study of trading strategies, and finally risk analysis
when investing. An important objective is also to further improve the author's own trading strategy
and the evaluation of the financial and scientific results.

From the established goal the following tasks are to be approached:

• explore the concept and history of the origins of the Forex market
• explore the market value in the world economy and the differences of the market from the
analogous markets;
• review the legal framework and practical aspects of forex dealing abroad;
• explore the Forex market in Russia;
• Develop proposals for improving the Forex market in the Russian Federation;
• an analysis of possible risks;
• analyze the way of investment and management tools;
• consider the possibility of fundamental and technical analysis of trading in the Forex market;
• Consider ways to manage investments in a given market;
• improve own trading strategies based on the technical analysis;
• evaluate the results of own trading strategy.
As a working hypothesis that suggests the Forex market is a profitable and competitive market of
investment, and that its market products in Russia allow obtaining a good return on investment.

The object of study in this thesis is the international Forex market, and the subject is the investment
attractiveness of the Forex international market, as well as investing strategies and management.
In the course of this work, the following research methods were used: analysis, synthesis, and

comparison. The sources of information in writing this thesis were the following works of

5
Ognivtseva SB and Movsisyan AG, Cornelius Luca, L. Krasavina. Research material also included

works of agencies such as Interfax, Alpari BCS, InstaForex, and Teletrade. Internet websites

devoted to Forex trading such as tradelikeapro.ru, learntotradethemarket.com, and

forexfactory.com.

The first chapter of this thesis examines the location of Forex market in the international financial

markets, including the concept and the history of the market, and its importance in the global

economy.

The second chapter describes the operation of the retail forex market segment. Moreover, it also

analyzes the mechanism of functioning, as well as features of the organization dealing in the

market abroad, and finally the characteristics of the organization in Russia within the existing

problems and their possible solutions. Specifically, attention is placed on the analysis of the

possible risks that potential investors face in the Forex market and ways of minimizing them.

The third chapter discusses trading strategies and ways of managing resources in the Forex market.

We also consider the fundamental and technical analysis of currency markets, investing in PAMM-

account, the use of trading robots, and independent trade. In the third paragraph, the author

examines in a more detail its own trading system and reveals the results of his operations.

In conclusion, we are presented with a summary of the carried out work, and in particular, with

the assessment of the implementation of goals and objectives. Moreover, we are provided with a

detailed derivation for the conducted research.

6
 1. THE LOCATION OF THE FOREX MARKET IN THE SYSTEM OF
INTERNATIONAL FINANCE MARKETS.

The international Forex market plays an essential role in the modern economic relations. It
connects multinational corporations, international banks and governments in a unified global
network for buying and selling currencies. It is difficult to imagine a modern economic system
without this essential element of the binder. This market is designed as the stock exchange. Like
many other stock markets, the Forex market in the modern day attracts significant volumes of
investments for the purpose of making a speculative profit.

Before further consideration of the Forex market, as a mechanism for making a speculative profit,
it is necessary to study the origins of the market, its importance in the modern world economy and
the mechanisms of its work. Analysis of this information will allow us to better understand the
possible mechanisms of investment and give a more detailed look at the interbank currency
exchange market itself.

1.1 The understanding and history of introduction of the Forex market.

For the analysis of the Forex market, it is crucially important for us to study the evolution of the
world monetary system and currency relations since it is the evolution and development of these
and other factors that have led to the possibility of the appearance of the interbank foreign
exchange market. But first, we will consider the very concept of the Forex market in English-
speaking and Russian-speaking resources. At the same time, the history of the emergence of this
market will allow us to better analyze the mechanisms of work and its very nature.

Around the actual name of the market, there are several views. According to the online Forex
broker Alpari1, the Forex in The Russian language is a borrowing from the English term Forex.
The Oxford English Dictionary points out that it is only an abbreviation of Foreign exchange2, that
is the foreign currency exchange. In turn, the online English business dictionary
‘businessdictionary.com’3 defines the Forex market as a system of trade and currency conversion
from the currency of one country in another country; as well as the global market for the exchange
of convertible currencies. According to economists, Sheffrin, and O'Sullivan 4 , the term is

1 Official website of Alpari - http://www.alpari.ru/

2 Oxford Online Dictionary - http://www.oxforddictionaries.com/
3 Online dictionary of business terms - http://www.businessdictionary.com/
4Arthur O' Sullivan, Steven M. Sheffrin Economics: Principles in action. — Upper Saddle River, New Jersey 07458: Pearson

Prentice Hall, 2003. — 551p.

7
understood as the Forex currency market in general and the process of currency trading in
particular.

The Russian online business dictionary ‘businessvoc.ru’5defines Forex as a currency exchange

market - the OTC market of international convertible currencies. At the same time it is worth
noting that due to the lack of regulation in the Russian Federation, the term Forex often obtains a
shade of the general concept of unfair and often fraudulent organization of the brokerage
companies.

Thus, both in foreign and in domestic literature, the Forex most commonly is referred to as the
international OTC market exchange of convertible currencies, which functions as a network of
international contractors.

Undoubtedly, the emergence of the global monetary system was largely due to the development
of international economic relations and most importantly trade. In turn, this leads to the
development of active exchange between the participants. According to Dralin and Mikhnevo6,
currency relations – are relationships that have been developing between the participants in the
functioning of the international exchange of money in foreign exchange turnover. It is the
development of currency relations on an international scale, in our common interpretation, is a
catalyst for the development of the world monetary system7.

During the export and import of various goods and services, it became necessary to determine the
exchange rate, i.e. the rate of national currency units to each other. This need consequently has
launched the process of forming the world monetary system. At a time when national currencies
of the course were gold, subsequently in international practice established the gold standard. The
spontaneously established practice was legalized in 1867 at the Paris conference, with the
conclusion of the interstate agreement, recognizing the gold as the only form of world money. In
accordance with the agreement, international payments were applicable with national gold coins,
but the significance was not their face value, but their weight.

5Online dictionary of business terms - http://www.businessvoc.ru/

6International Economic Relations: Textbook / AI Dralin, SG Mihneva. - Ed. 2nd, Revised. and add. - Penza: Information
and Publishing Center of PSU, 2006. - S. 39
7Kritzer, A. (2012). Forex for Beginners. [electronic resource] : A Comprehensive Guide to Profiting from the Global

Currency Markets. Berkeley, CA :Apress : Imprint: Apress, 2012.

8
"Gradually, the gold standard has become obsolete, because it did not match the scale of the effort
nor economic ties, nor the conditions necessary for the further development of the economy" -
argues Movsesian andOgnivtsev8. The crisis was accelerated by the onset of the First World War.
Since the beginning of the war, the central banks of the governments –the participants of the
system, stopped exchanging banknotes for gold and increased their emissions to cover military
expenses, which provoked a strong inflation and chaos of currency relations. The solution was
found after the end of the war in the establishment of the gold-standard motto, based on gold and
major currencies convertible into gold. The motto became acknowledged in foreign currency,
intended for international calculations. The new device of the world monetary system was legally
enshrined by the interstate agreement at the Genoa International Economic Conference in 1922.

During the war, currency restrictions were imposed both by belligerent and neutral countries.
Frozen official exchange rates remained virtually has remained unchanged, while the purchasing
power of money has constantly been decreasing due to the inflation. Again, increased the role of
gold as a global reserve and means of payment, and military and strategic goods could be bought
only for gold. Accordingly, the exchange rate has lost an active role in economic relations.
Cornelius Luca9states that the war has deepened the crisis of the Genoese currency system; the
development of the draft of the new monetary system had already begun during the war by the
British and American experts, as states feared a recurrence of the 30s currency crises.

Experts working on the project sought to develop the principles of the monetary system capable
of ensuring economic growth, and limit the negative social and economic consequences of crises.
The basis was subsequently taken by the American variant, and the third world monetary system
was formalized during monetary UN conference in Bretton Woods in 1944. At the end of the 60s,
occurred the crisis of the Bretton Woods monetary system, the essence of which was a
contradiction between international and the global nature of international economic relations and
their implementation using national currencies that were subject to depreciation (mainly dollars).

According to the textbook edited by L.N.Krasavina10, patterns of development of the monetary

system are defined by reproductive criteria and reflect the main stages in the development of
national and world economy. This criterion is manifested in periodic non-compliance of the
principles of the world monetary system; changes in the structure of the world economy and the

8Movsesian AG, Ognivtsev SB International monetary relations: Textbook. - M .: INFRA-M, 2006. - S. 71

9 Trading in world currency markets / Cornelius Luca. Trans. from English. - 2nd ed. - M .: Alpina Business Books, 2005. -
716 p.
10 International monetary and financial relations: Textbook / Ed. LN Krasavina. - M .: Finance and Statistics, 2000. - S. 98

9
balance of forces between its major centers. In this context, there is a recurring crisis of the world
monetary system. It is an explosion of currency contradictions, severe disturbance of its
functioning, which manifests itself in non-compliance of the structural principles of organization
of the world's exchange rate mechanism to the changed conditions of production, world trade, and
the balance of forces in the world.

After the collapse of the Bretton Woods system was a great turning point event in the history of
the world monetary system. For the first time in the history, the world's leading currencies were
released into the free economic flow, and from then on the prices were formed purely under the
influence of natural supply and demand. This was made possible after the ratification of the
Jamaica agreement in 1976. And at that point, the history of the interbank market exchange rates
began.

According to Cornelius Luca11, the formed system of floating exchange rates has resulted in three
significant results:

• Importers, exporters, and the banks institutions serving them were forced to become regular
participants in the foreign exchange market as the currency exchange rates may affect the financial
results of their work both in the positive and negative manner.

• The central banks were able to have an impact on the currency and the impact on the economic
situation in the country by market methods, rather than just administrative.

• The exchange rates of the most liquid national currencies are formed on the basis of the pursuit
of market equilibrium point between the current demand and supply available,whereby changes in
demand and supply in the market cause displacement of the exchange rate in one direction or
another.

The emergence of the Forex market has become one of the most significant stages in the formation
of a modern system of world economy. According to the author the emergence of a new global
market such as the Forex market has both positive and negative sides.

On the positive side we may include:

11 Trading in world currency markets / Cornelius Luca. Trans. from English. - 2nd ed. - M .: Alpina Business Books, 2005.
- S. 129
10
• The ability to freely exchange for i.e. economic needs
• Pricing currency based on the supply and demand of a large number of participants
• Creating a global network of TNB and TNC
• Strengthening economic ties between the participating parties
• Increased globalization

The negative sides of the origin of the Forex market may include:
• Simplification of speculators activities in relation to globalism and relative openness of the
market
• Government loss of control of the issuers over the exchange rates

Thus, in this section, we have found out, what is the concept of the Forex market and the fact that
it had appeared as a result of the global monetary system and the global monetary relations. Its
existence was impossible until 1976 when Jamaican agreement was concluded, it became the basis
for the modern world monetary system in which exchange rates began to be formed through free
supply and demand for currencies of the countries in the world.

Despite the emergence of a huge positive impact the Forex market had on the global economy, in
strengthening economic ties honey participants the opportunity to free and fair exchange, its
appearance also helped to reduce the control over exchange rates, and the revitalization of
speculators in the foreign exchange market.

1.2 Forex foreign exchange market importance in the global economy and its distinct
characteristics.

The interbank currency exchange market plays an essential role in the modern economy. The Forex
market - is the international market of OTC transactions. It is a decentralized, self-regulating
market, which in contrast to the stock market or futures market there is no central trading or
banking clearinghouse12. With this structure, no commission is charged for trading and clearing,
thereby reducing transaction costs. According to the Reuters news agency, in April 2013, the
average daily turnover in the Forex market amounted to 5.345 trillion USD13. Thus, it is the largest

12 Information on the financial markets - http://www.markets.com/

13 Official site of the agency Reuters - http://www.reuters.com/
11
market in terms of turnover in the world. For instance, world GDP in 2013 has estimated to 74
trillion USA dollars14.

In the market of OTC transactions involving Forex, there are a variety of actors who have their
own needs and interests, and who transact directly with each other. They fall into two main groups:
those that are traded on the interbank market, and the second - the retail.

According to P. Kryukov and V. Kryukovoy15transactions in the interbank market are divided into
three categories: the transaction is conducted between the central banks, between commercial
banks and financial institutions.

Central Banks - national central banks (The SDF United States or the European Central Bank) play
a principal role in the Forex market. The role of the central bank, as the chief of the competent
authority in the monetary world, is to achieve price stability and economic growth. To this end,
central banks regulate the money supply of the country that sets interest rates and reserves
requirements. The central bank controls the money supply and the country that it can use to
influence the situation on the market and exchange rates.

Commercial banks - these banks (such as Deutsche Bank and Barclays) provide liquidity in the
Forex market, thanks to their daily trade. According to Monakhova and Ovcharov16, part of this
trade is the conversion of foreign currency for bank customers and often produce department of a
bank's own operations for speculative purposes.

Financial institutions - financial institutions such as fund managers, investment and pension funds
and brokerage houses, engaged in foreign exchange trading, and operate the most basic obligation
to their clients - to find the most profitable investment opportunities. For example, the manager of
international investment portfolio will be obliged to trade foreign exchange to purchase and sell
foreign stocks.

14Official site of the IMF - http://www.imf.org/

15P. Kryukov, V. Kryukov Tendencies of development of the foreign exchange market Forex // Actual problems of the
humanities and the natural sciences. 2012. № 5. - S. 107-113.
16Monakhova IV, Ovcharov A. The international currency market Forex // Novomoskovsk Institute of Russian Chemical-

Technological University. DI. Mendeleev. Advances in chemistry and chemical technology. 2009. - № 12. C. 14-17
12
According to Article D. Rybalkina17, the retail segment of the Forex market is considered to be
the part of it, where the deals are made between small investors and stockbrokers. These
transactions are Forex brokers, which in this case serve as intermediaries between the retail and
interbank markets. Trading on the retail market involves hedge funds, corporations, and
individuals.

Table 1.1
Forex biggest market participants in may 2014.

The
proportion of
Position Name of the bank turnover (%)
1 Deutsche Bank 15.18%
2 Citi 14.90%
3 Barclays Investment Bank 10.24%
4 UBS AG 10.11%
5 HSBC 6.93%
6 JPMorgan 6.07%
7 Royal Bank of Scotland 5.62%
8 Credit Suisse 3.70%
9 Morgan Stanley 3.15%
Bank of America Merrill
10 Lynch 3.08%

Source: Compiled by the author based on data from

the official website of the IMF- http://www.imf.org/

Table. 1.1 presents estimates of the share of the largest players in the foreign exchange transactions
in the Forex market. From the data, it follows that the main players in this market are multinational
banks in Europe and the United States.

Forex is not a "market" in the traditional sense of the word. He has no specific place of trade, such
as currency futures. Trading takes place via telephone and computer terminals simultaneously in
hundreds of banks around the world. The Forex market is open 24 hours a day, and currency
exchangest hroughout the working week do not stop. The countdown time zones beginning from
the Prime Meridian, passing through Greenwich on the outskirts of London, and the time is called
the world or GMT (Greenwich Meridian Time)18.

17RibalkinD. Possibilities of investing temporarily surplus funds // Herald of Orel State Agrarian University. 2012. - № 5.
C. 123-125.
18Popov, V. (2011). Exchange Rate in a Resource-Based Economy in the Short-Term: The Case of Russia. IUP Journal Of

Monetary Economics, 9(3), 20-49.

13
The volume of trade of a currency in the foreign exchange market is directly proportional to its
participation in international transactions. The most popular trades in currencies have recognized
the status of reserve currencies. These include the US dollar, the euro EU, Japanese yen, British
pound, Australian dollar and so forth. The information on the proportion of currencies in the Forex
market is presented in Table 1.2
Table 1.2

The involvement of major currencies in trading on the forex market in April 2013.

Position Currency Сurrency The percentage of transactions involving

symbol currency in daily turnover
1 U.S. dollar USD 87.0%
2 Euro EUR 33.4%
3 Jena JPY 23.0%
4 Pound sterling GBP 11.8%
5 Australian AUD 8.6%
dollar
6 Swiss frank CHF 5.2%
7 Canadian Dollar CAD 4.6%
8 Mexican Peso MXN 2.5%
9 Yuan CNY 2.2%
10 The New NZD 2.0%
Zealand
dollar
11 Swedish Krona SEK 1.8%
12 Russian ruble RUB 1.6%
13 Hong Kong HKD 1.4%
Dollar
14 Singapore dollar SGD 1.4%
15 Turkish Lira TRY 1.3%
Others 12.2%

Source: three year investigation of the Bank for International Settlements - Triennial Central Bank Survey
Foreign exchange turnover in April 2013: preliminary global results https://www.bis.org/

Table. 1.2 shows that the vast majority of transactions in the foreign exchange market are due to
the US dollar, ie, 87%. The popularity of other currencies is much more modest: Euro EU - 33.4%,
Japanese yen - 23%, UK Pounds - 11.8%. This can be attributed to the significant role of the US
dollar in today's global economy. Hence, most of the currency exchange involves an exchange
with the US dollar for local currency and vice versa.

14
 Table 1.3
Shares of major currency pairs in total turnover in 2014

Currency The proportion of of

pair total turnover
EURUSD 37%
USDJPY 13%
GBPUSD 12%
AUDUSD 6%
USDCHF 5%
USDCAD 4%
EURJPY 2%
EURCHF 2%
Source: Official website of Eurostat - http://epp.eurostat.ec.europa.eu/

Table. 1.3 speaks of the high volumes of foreign exchange transactions between the major
currencies. Thus, the share trades on the euro - US dollar up 37% of the total volume of trading in
the Forex market. This is due to high development and interconnection of economies of these
countries, and the role of currencies in the foreign exchange reserves of the world.
Table 1.4
Shares of trading floors trading on the Forex market

Trading floors Share of trade

London 37%
New York 18%
Tokyo 6%
Zurich 5%
Singapore 5%
Hong Kong 5%
Sydney 4%
Other 20%
Source: Official website of the Bank for International Settlements - http://www.bis.org/

Table. 1.4 shows that the most active exchange takes place in the centers of world trade - London
and New York. In fact, most of the activity of the American markets account for the time that they
are working together with London.

Business Day of exchange dealers in western commercial banks usually starts at 7.30 am local
time. By eight o'clock in the morning, the market consisting of individual dealers develops tactics
and behavior as a whole and begins to include the operation of the global foreign exchange market,
giving new impetus to a vigorous movement of the exchange rate.

15
According to the V. Tsibulnikovoy 19 various territorial markets can provide the following
characteristics of the average typical activity during the day:

• Far East. Here, the most active transaction market conversion transactions dollar to the Japanese
yen, the dollar against the euro and the euro against the yen to Australian dollar. At this time,
fluctuations in exchange rates are often negligible, but there are days when currencies, especially
the dollar against the yen, make breath flights. This happens when Japan's central bank conducts
a monetary intervention. In Moscow, at this time you are able to work with Tokyo and Singapore
untill noon.

• Western Europe. At 10.00, Moscow time, the market opens in the European financial centers -
Zurich, Frankfurt, Paris and Luxembourg. But the really powerful movement of the exchange rate
of the dollar against other major currencies starts after 11.00 Moscow time when the London
market opens. This continues, usually for two to three hours, after which the dealers of European
banks go to lunch –have lunch and the market activity is slightly reduced.

• North America. The situation revived again with the opening of the market in New York at 16.00
Moscow time, when they start morning work, dealers of American banks, and while European
dealers return from lunch. The forces of European and American banks are approximately equal,
so the fluctuations on average do not go beyond the usual European fluctuations. However, foreign
exchange dealers are eagerly waiting for the opening of the New York market to get fresh data on
the possible movement of the course (especially if the European market has been sluggish).
However, after the closure of the European market (about 19 to 20 pm Moscow time), aggressive
American banks, left alone to "thin" market, could lead to a drastic change in the exchange rate of
the dollar to other currencies.

The main participants in the foreign exchange market are commercial banks, currency exchanges,
central banks, firms engaged in foreign trade transactions, investment funds, brokerage companies
and individuals such as the following:

• Commercial banks have the bulk of foreign exchange transactions. The banks keep the expense
of other market participants, carrying with them the necessary conversion operations. Banks
accumulate (through transactions with customers), total market demand for the currency

19Tsibulnikova VY The problem of effective functioning of the broker-dealer companies in the segment of Forex market in
Russia // The priority research areas: from theory to practice. 2012. № 2. - S. 146-150
16
conversion, as well as attracting and placing funds, and leaving them to other banks. In addition
to meeting clients' requests, banks can operate independently and at their own expense.

• Currency Exchange. In contrast to the stock exchanges and stock exchanges on currency
transactions for the period, place and time of currency exchanges are not precisely defined. With
the development of telecommunications technology, most of the leading financial institutions in
the world stock exchanges, use the services directly and through resellers around the clock.

• The central banks. Their functions include the management of foreign exchange reserves,
currency intervention affecting the level of the exchange rate, as well as the regulation of interest
rates on investments in the national currency.
• Companies engaged in foreign trade transactions. Companies participating in international trade,
stable demand for foreign currency (importers) and supply of foreign currency (exporters). At the
same time, these organizations have direct access to the currency markets, and as a rule, do not
tend to expend on conversion and deposit transactions via commercial banks.

• Investment Funds. These companies, represented by various international investments, pensions,

mutual funds, insurance companies and trusts funds, and implement policies diversified portfolio
management, placing funds in securities of governments and corporations of different countries.

• Brokerage. Their functions include the reduction of the buyer and seller of foreign exchange and
the implementation of the conversion operation between them. For its mediation, brokerage firms
charge a brokerage fee. In the Forex, market there is usually no fee as a percentage of the
transaction amount or a predetermined certain amount. As a rule, dealers brokerage company listed
with the currency spread, which is already laid down their commissions.

• Individuals. Individuals carry out a wide range of non-commercial operations in the part of
foreign tourism, transfers of salaries, pensions, royalties, as well as buying and selling foreign
currency. It is also the largest group of conducting currency transactions for speculative purposes.

As we know, the Forex market is an international market for the purchase and sale of currencies.
Specifically as one of the trade tools are considered the currency pairs. The currency pair is a
financial instrument for trading in the Forex market. The two currencies, basic and quoted, formed
17
the exchange rate. The most liquid currency pairs in the market Forex: EUR-USD, GBP-USD,
USD-CHF, USD-JPY, USD-CAD, AUD-USD, NZD-USD20.

On the international market, the Forex market has several types of foreign exchange transactions.
There are transactions with immediate delivery and forward transactions. Following is a more
detailed look at these types of transactions:

Spot transaction - a transaction for where the full settlement between the seller and the buyer, takes
place on the day after the "signing" of the agreement. The exception is the spot transaction with
the Canadian dollar. For them, all calculations are performed on the day of the agreement 21 .
Nowadays, the spot transactions have become so popular and highly demanded in the international
currency market; know as the "spot rate", which is the ratio of the value of two currencies at the
time of the transaction. It shows how high market participants assess a particular national currency
outside the State of the issuer. In this instance, the spot exchange rate is an important indicator,
when trading in the Forex market22.

Forwards are characterized by delayed settlement date, which shall be approved by agreement of
the parties and is prescribed in the contract. Forward transactions are divided into several types.

Futures - a contract for buying and selling currencies at predetermined conditions (the date of
purchase, the number of currencies, its value), which cannot be changed. Until the end of the
transaction, the buyer is advised to carefully monitor the movement of the exchange rate on the
acquisition it concluded, futures, and be ready, if necessary, to resell its obligations.

Forward - are the exchange deals concluded for the future delivery, of the subject matter. These
contracts may be involved not only in currency transactions, but also for the sale of any material
goods, or promotions. The main uses of forward transactions are insurance risks.
Option - currency transaction where the buyer has the right to buy a currency at a predetermined
amount, for a pre-agreed price. If desired, the customer can simply refuse to buy, and the
transaction will be canceled.

20Official site of Forex Broker - http://forex-bcs.ru/

21Brooks, K. (2013). Kathleen Brooks On Forex : A Simple Approach to Trading Foreign Exchange Using Fundamental and
Technical Analysis. Petersfield, GBR: Harriman House. Retrieved from http://www.ebrary.com
22Collins, D. P. (2005). Forex-only funds go mainstream: despite that recent history has shown the benefit of

diversification in managed futures programs, sector specific--particularly forex programs--are growing at a rapid pace.
These programs are responding to customer demand for forex and benefiting from some of the asset classes unique
attributes. Futures (Cedar Falls, Iowa), (5). 62.
18
Currency swap - a subspecies of a forward contract in currencies are both bought and sold for
foreign currency in the same amount, but with different dates committing the final settlement
(value date). Currency swap has other popular names: overnight and rollover. Traders who trade
on the Forex, often carry out currency swaps, to make a difference in exchange rates. That is why
the swaps are so popular, and they account for a huge portion of all foreign exchange transactions
in the market.

According to the Forex broker Alfaforeks23there are 4 types of transactions that occur in the Forex
market:
• trade operations - are operations that aim to buy or sell currencies of other countries;
• speculations - are operations that aim to extract speculative profit or positive difference in prices
(first buy cheap and sell expensive);
• hedging– are operations, whose goal is to establish and fix the price of purchase (sale) of currency
at a certain level; About 90% of all transactions on the international Forex roar pursue speculative
purposes.
• arbitration transactions – are speculative transactions that allow profiting with no risk of loss or
with minimal risk.

Table 1.5
The share of the main types of foreign exchange transactions
in the Forex market turnover

Type of transaction Year

2010 2013
Spot transactions 37 38
Operations outright 12 13
Forex swaps 44 42
Foreign exchange swaps 1 1
Options and others 5 6
Source: http://www.bis.org/ Triennial Central Bank Survey

As we may evidence from Table 1.5, the main instruments in the Forex market are spot transactions
and the so-called Forex swaps that are inherently a combination of spot and forward transactions.
Given that more than 90% of transactions in the Forex market are transactions for speculative
purposes, these types of deals are the most comfortable for speculation.

23 Official site of the broker Alfaforeks - http://www.alfa-forex.ru/

19
In this section, we found that the Forex market plays a central role in the global economy. It serves
the interests of the vast number of participants in the processes of exchange between them. Forex
is the largest market in the world. Average daily turnover exceeds $ 4 US trillion dollars. Its
participants include banks, corporations, governments, foundations and private individuals. The
most liquid currencies in the Forex market are currencies of the most economically developed
countries. The absolute leadership belongs to the US dollar, due to its role in the modern global
economy. Its share is 87%. In addition to that, the EU euro, British pound, Japanese yen and so
forth, play significant roles. The most active participants are multinational banks based in Europe
and the United States24. The most active markets are based in London and New York trading
sessions. More frequently, there is an exchange between the currencies of developed countries. In
particular between the US dollar and the EU euro, whose share in total trading volume consists of
37%. Forex has some differences from other markets. In particular, the market for currency futures
distinguish it immediately (within 2 days), as well as the OTC markets the device.

The existence of Forex market was not possible until 1976. Only after the agreement concluded in
Jamaica, which became the basis for the modern world monetary system and the exchange rates
began to be formed through free supply and demand for currencies of the countries in the world.
The market has had an enormous positive impact on the economic relations between its members,
and contributed to globalization and process of unification, improving the efficiency of the global
economy.

At the same time, the global nature weakened the control of the monetary policies of the
participating countries, contributed to the emergence of speculative operations. Forex is the largest
market ever existing on the planet. It combines the bidders into a huge global network. At the same
time, there is an exchange between the most liquid assets – the currency of member states. The
market has a number of significant differences, mainly related to its OTC nature. This contributes
to the activities of speculators and, unfortunately, often fraudulent schemes. At the same time, the
global nature of the market, its identity and an opportunity for speculation bring interest to the
study of a market investment.
2. THE ANALYSIS OF THE FUNCTIONING OF THE RETAIL SEGMENT OF THE
FOREX MARKET IN RUSSIA AND ABROAD

24Chapter 3: THE FOREX MARKET. (2007). Complete Guide to Currency Trading & Investing: How to Earn High Rates of
Return Safely & Take Control of Your Investments (pp. 67-94). Atlantic Publishing Company.
20
In the previous chapter, we examined the origins of the Forex market, its importance in the global
economy, as well as the participants of the foreign exchange market participants. In this chapter,
it seems necessary to consider the Forex market as a way of investment.

We will look at features of investing in the Forex market, its differences from the stock market,
the main methods of investments in the Forex market, such as manual trading, the transfer to the
trust management and automated trading. Moreover, this chapter attempts to assess the
development of the Forex services in the territory of Russia.

2.1 Features of the international Forex market products

In this section, we consider it necessary to analyze the practical aspects of investing in the Forex
market and how it differs from analogous markets. In the previous chapter, we have focused on
the description of the market on the scale of the global economy. In this section, we present basic
information concerning the international Forex market products, i.e. the retail segment of the Forex
market.

Owing to the excellent stock and commodity markets nature, the Forex market has its major
investment in the Forex market and the conditions for entry into the market. Let's consider the
main differences between the Forex market and the stock market25.

According to the official website of Alpari26 among the major differences in investing in the Forex
market are the following:
• Another aspect of the transactions - currency pairs
• No additional rights on the acquisition of assets
• Extensive use of margin lending
• Differences in the use of technology
• No georeferencing ties
• Alternative meaning and the role of brokers
• Hour mode
• Low entry threshold
On the stock markets traded securities. A security - is evidence of the ownership of capital, the
right of disposal that transferred to a permanent or temporary basis to others for the right to

25Goss, B. A. (2013). Futures markets. [electronic resource] : their establ. and perf. New York : Routledge, 2013, c1986.
26 Official website of Alpari - http://www.alpari.ru/
21
participate in the profits generated by this capital27. In other words, buying a security, we put our
money into something that we expect to be profitable. Thus, the equity instruments - are documents
that contain any of ownership28.

If we talk about the actions they are the main type of securities and determine the ownership rights
of the holder in the profits of the company. The holder of the shares, in fact, has a stake in the
company. It is also worth noting that the shares give their holders the right not only to the capital
but also the right to receive dividend income. The dividend component is one of the striking
differences from one market to another. These benefits partially reduce the risk of losses of
working in the stock market29.

The stock market is not so common for the use of margin lending, as it takes place in the foreign
exchange market Forex. Customarily, the client would purchase shares with full security of the
transaction. After all, the shares may be purchased not only for the purpose of speculation. As
mentioned above, the shares are entitled to the capital of the organization, which allow
participating in voting at the general meeting of shareholders, and the dividends are paid
correspondingly. Therefore, you can buy shares not only with a perspective of their subsequent
sale30.

To work successfully in the stock market is not enough to use mechanisms for analysis,
characteristic for the currency market. Technical analysis and fundamental analysis may also be
used to predict the change in quotations of shares, but the microeconomic factors affecting the
company's operations, are also important31. To make the right decision for purchase/sale of shares
it is necessary to have access to the financial statements, information on personnel changes, and
government’s orders for its products. When it comes to foreign companies, such information is
only available from foreign sources: television, newspapers, magazines, and the most published
financial statements. Naturally, this information is published in a foreign language, which
introduces significant difficulties in its study and understanding32.
In contrast to the Forex, stock and commodity markets are geographically restricted. The venue is
a trading stock or commodity exchange. Stock and commodity exchanges are located in major

27MANCINI, L., RANALDO, A., & WRAMPELMEYER, J. (2013). Liquidity in the Foreign Exchange Market: Measurement,
Commonality, and Risk Premiums. Journal Of Finance, 68(5)
28 Trading in world currency markets / Cornelius Luca. Trans. from English. - 2nd ed. - M .: Alpina Books, 2005. - 716 p.
29 Information about Forex - http://www.forexmoney.com
30 Official website of the brokerage department of VTB - http://onlinebroker.vtb24.ru
31SOLODKY, N. A. (2013). Futures market -- important factor of price stab. Economy Of AIC, (12), 44-48.
32Ribalkin DA Possibilities of investing temporarily free funds // Herald of OSA University. 2012. - № 5. S. 123-125.

22
financial centres around the world. Forex does not have a centralized trading place. In contrast to
the currency market, which operates around the clock, the stock market has a certain opening and
closing hours. These timings are determined by the time the work of the relevant stock exchange.
If you use the Internet for trading on the Stock Exchange, and are not in the same time zone as the
stock exchange, it brings some inconvenience to trading. Opening hours of stock exchange may
operate at night in your area, which leads you to maintain nocturnal lifestyle. Therefore, in the
Forex market, at the expense of round the clock work, you have more opportunities for trading33.

As a novice investor the quite natural question that arises: "Is the broker truly performing the
purchase and sale of currencies on my behalf on the interbank foreign exchange market?”
Specifically, for traders, the basics of successful trading are a reliable intermediary (broker- dealer)
and counterparty, as well as transparency and uniqueness of currency quotes 34 . And here the
market certainly has an advantage. Without going into the terminology, on the stock exchange, a
trader is playing against another trader, and not a dealing centre Forex. Amongst that trader sees
real online offers for purchase and sale of other traders and can be sure that his orders will be
executed at this market price. Consequently, any discrepancies quotations cannot take place, as it
happens in the Forex when one dealing centre gives you certain quotes, and other Forex dealer at
the same time gives the quotation differing from the first DC35.

In other words, the company independently establishes dealer quotes and supply purchased by the
client currency exchange on its own behalf and at its own expense, usually the general results of
operations for a sufficiently long period of time. As a rule, the client has "leverage" (e.g. 1: 100)
for the possibility of carrying out transactions in an amount greater than it actually contributed to
the account. Conformity of dealer quotations to the real market price depends on the particular
company. Thus, dealing companies from different information centres and banks provides
currency quotes. By making slight changes, they form a data stream that is made available to their
clients. The software commonly known as trading platforms carries out this practice36.
Further, the author believes it is important to elaborate on the concept of dealing centre. Dealing
centres - are companies that provide its customers with access to Forex, and act as intermediaries
in the commission of transactions. At the same time traders in their accounts may have a relatively
small amount, in accordance with regulation of margin trading.

33Monakhova IV, Ovcharov A. The international currency market Forex // Novomoskovsk Institute of Russian Chemical-
Technological University. DI. Mendeleev. Advances in chemistry and chemical technology. 2009. - № 12. C. 14-17
34Lambert, E. (2011).The futures. [electronic resource] : the rise of the speculator and the origins of the world's biggest

markets. New York : Basic Books, 2011.

35 Information about the financial markets - http://promarkets.info/
36 Online encyclopedia BibleForex - http://bible-forex.ru/

23
 Primarily dealing centre offers its customers the opportunity to enter into commercial
transactions in the foreign exchange market Forex. To this end, the trader is required to open a DC
account and provide certain amount of money on it, which will operate in the commission of the
purchase and sale of foreign currency transactions. At the same time dealing centres provide
margin trading with leverage, allowing you to trade currencies, even with a small deposit37.

Some dealing companies offer their services to traders with a minimum deposit of no more than $
100. Once on the client's account contains the necessary sum of money, DC installs on his
computer special software that allows you to get quotes and currency analysis of the state of the
currency market. With these trading platforms speculators, also concludes and terminates the
transaction.

In reality, the traders operating under the direction of dealing centre do not have access to currency
exchange. The dealing centres collect the orders from its customers to open or close positions.
With these data, DC comes out on the Forex on their own behalf representing the interests of
traders. The latter allows them to set their own exchange rates different from those at the foreign
exchange market. In practice, most companies make the difference insignificant, and even one
broker quotes can vary, depending on the characteristics of a particular type of trading account 38.

Many brokers offer trading accounts that operate on technology ECN - Electronic
Communications Network - ECN Forex-Broker provides technology mutual clearing of orders of
different clients to each other without the intervention of a broker, as one of the parties to the
transaction. ECN-Forex-Broker for private traders - it is a platform where everyone finds their
order or counter-order in the company or the counterparty ECN-broker, which is for him the
liquidity provider. Customarily, it is the major US and European companies or banks. ECN-broker
clients trade with each other and are protected against non-market risks that arise when trading via
the market maker. One of the main requirements for ECN-broker is the presence of a high domestic
liquidity, providing the possibility of making a significant part of the transactions of traders with
each other within the company. In the case where the client transaction ECN-broker cannot find a
company in the broker, it is turned to the broker's company, this technology is called STP (Straight
Through Processing). Trading with ECN-Broker, ECN-broker clients can often see liquidity and
execute transactions. ECN-trading has advantages compared to trade through brokers who are

37CORNELL, B., & REINGANUM, M. R. (1981). Forward and Futures Prices: Evidence from the Foreign Exchange Markets.
Journal Of Finance, 36(5), 1035-1045.
38 Online encyclopedia about the financial markets - http://www.babypips.com/

24
market makers, because the ECN-brokers Forex-traders' transactions are not executed against the
broker, and have their counterpart either in the form of another client ECN-broker or in the form
of liquidity, provided by ECN-broker partner39.

For further analysis, we will consider the methods of obtaining dealing a profit centre. In practice,
all dealing centres are commercial organizations, whose activities are aimed at making a profit.
The main source of income is the difference between the exchange rates at the currency exchange
and one that set the DC for their clients. It incorporated not only the income of dealing companies,
but also the share of the partner bank, which provides leverage. Despite the fact that the difference
between quotations on the stock exchange and dealing centre is not large (less than 5 points), but
when you consider the amount of committed commercial transactions, the result is quite a decent
amount. Especially considering that the company gets their profits regardless of winning or losing
party of stock exchange transactions40.

The second source of profit for DC is payments for the granted credit - swap. Marginal trading
that is carried out on the Forex market involves the use of leverage, which provides higher yield
trader in case of a positive operation. If the agreed deal retains its activity for a few days, then for
each of them, it will remain unclosed position, the swap is paid. It represents the difference
between interest rates on loans, established for each of the selected currency pairs. It should be
noted that the swap could have both negative and positive impact, as in the first case it is paid to
the trader. Part of the swap attributable to equity dealing company is given to the bank for
providing leverage, and the other uses on your own. There are dealing centres, in which the swap
is intended only as a payment for a loan for the banking organization. Such a position of DC leads
to a significant reduction in the costs of its customers41.

Another source of revenue for the dealing companies are payments called spread, which are
expelled by traders who use credit provision at the opening of its position in the market. Owing to
the loan provided, punter may enter into commercial transactions for amounts far in excess of their
own capital investment. DC receives profit no matter how successful the operation was held for
the trader42.

39 The official website of the company Instaforex - https://www.instaforex.com/

40Doolin AN DA Ribalkin Selection of the optimal strategy for a trader to make decisions in the Forex market // Herald of
the South-Russian State Technical University. Socio-economic sciences. 2011. - № 4. S. 41-47
41Kolodko GV Nonstationarity and self-similarity of Forex // Management of economic systems: electronic scientific

journal. 2012. № 39. - S. 26

42 Online encyclopedia BibleForex - http://bible-forex.ru/

25
The dealing companies can also obtain its profits subject to the provision of a number of paid
services. This can be an analytical review of the foreign exchange market, consulting, training,
forecasting of possible market situations, etc. While much of the DTS provides this information
for free.

Figure 2.1

Swap-credits Commission

Training and
Spread analytical
Profit of materials
dealing
center

Fig. 2.1. The scheme of distribution of profit dealing center..

Source: Compiled by the author based on the online encyclopedia
of data on financial markets - http://www.babypips.com/

Operations considered by us during this research paper, are essentially financial in nature, and
therefore may be subject to government regulation, the nature of which depends on the country
where the operations are conducted. Immediately we can note that, in its nature, the provision of
“services dealing in the Forex market” is never subject to separate licensing. These operations are
usually considered in a broader context (foreign exchange transactions, futures transactions,
operations of a gambling nature), in accordance with which, and subject (or not) to state
supervision and regulation43.

Evidently, the operation on the market of foreign currencies may fall under the provisions of the
exchange control legislation. These provisions vary greatly depending on the country.
In strong currency countries, like the US and EU, foreign exchange control as such is absent. In
countries with non-convertible or partially convertible currency, on the other hand, operations with
foreign currencies are confronted with serious constraints, which of course prevents the
organization of dealing44.

43Legal and financial consulting - http://www.roche-duffay.ru/

44Chang, Y., Chen, Y., Chou, R. K., &Gau, Y. (2013). The effectiveness of position limits: Evidence from the foreign exchange
futures markets. Journal Of Banking And Finance, 374501-4509. doi:10.1016/j.jbankfin.2013.02.033
26
Despite the fact that the operations in the foreign exchange market seemingly have much in
common with the operations of the stock market, assets traded in these two markets are
fundamentally different. Unlike stocks, the "quality" of traded currencies, as a rule, does not
require special state control. Therefore, the principles of stock market control do not apply to the
foreign exchange market, and typically various government bodies often carry out these two types
of control. The exception includes the futures market and futures contracts, which have virtually
the same character in both cases and, therefore, in many countries governed by one body45.

There is one clever solution for organization of dealing, which takes issue in an entirely different
legal plane. Note that often, dealing for small companies, as we have already noted, is not in fact
the matter of the actual transactions of purchase and sale of currency. All customer transactions
are recorded in a computer dealer company that takes customer orders to the foreign market only
in exceptional cases when there is a significant imbalance between orders for purchase and sale.
For the most part customers simply play against each other and against the dealer's, establishing
quotes. In this case it is actually about the "economic game", but for real money. In fact, the client
bets a particular change in the relative exchange rates and either wins or loses. This pattern of
operations suggests that this activity can be regarded as a kind of gambling and is carried out on
the basis of a license. This, of course, is only possible in countries where the concept of gambling
is determined by the law is broad enough so as to include this type of operation46.

For large Forex market operators such decision, of course, is unacceptable because it does not
correspond to the essence of their work, in which a significant portion of customer orders (net) is
displayed on the external market. In addition to that, legislation in developed countries, as a rule,
clearly separates gambling from the financial business.

The special issue is taxation operations. In most national legislations, the company’s earnings
received worldwide, are subject to taxation at the place of its registration. But, in addition to that,
the incomes of the same company, obtained through a permanent establishment in the other
country are also subject to tax in that country. Therefore, it is necessary to bear in mind the
possibility of taxes in different countries, in order to avoid double taxation, in the presence of the
relevant treaties between States.

45 PA Kryukov, V. Kryukov Trends in the development of Forex // Actual problems of the humanities and natural sciences.
2012. № 5. - S. 107-113.
46 Legal and financial consulting - http://www.roche-duffay.ru/

27
In most developed countries such as the US or the EU, the OTC foreign exchange market, in
general, is not regulated. This means that both residents and non-residents may freely purchase
and sell foreign exchange for national currency, without any state control. It allows small
businesses to engage in activities dealing without a license47.

But the futures market is often subject to regulations, due to high risks associated with such
transactions. Note that commonly used in dealing operations on the Forex market with orders
passing delivery date, are also contracts with deferred delivery, which brings closer their futures.
Consequently, these operations may be subject to state regulation. According to D. Kolodko, in
the United States all major Forex market operators registered in the Futures Commission (CFTC
- US Commodity Futures Trading Commission), obtain a license for operations with futures (as
FCM - Futures Commission Merchant), and are members of the National Futures Association
(NFA - National Futures Association). Formally, this association is a non-governmental self-
regulatory body, but in practice, working closely with the Commission essentially performs part
of the regulatory functions. Any foreign companies that offer dealing services to Americans also
pass registration, licensing and membership in the association. In doing so, it is necessary to meet
certain requirements (including exams) and pay the appropriate fee48.

In the UK, the financial services industry are regulated by the Committee on Financial Services
(FSA - Financial Services Authority). It is formally independent and non-governmental agency,
but by law is delegated with regulatory functions, where the board of directors is appointed by the
Treasury (Ministry of Finance) of Great Britain. The Committee, inter alia, regulates the
investment business in the market of securities and derivatives, to which the law assigned options,
futures, contracts different contracts and related contracts of purchase and sale of foreign currency
with the passing delivery date. Accordingly, the major operators of Forex markets are registered
in the British FSA. In connection with the specifics of regulation in the UK, dealings are commonly
carried out companies that also provide brokerage and investment services in the securities
market49.

Similarly, in most developed countries, the major market operators are licensed or registered in a
particular state or semi-public body. At the same time, smaller operators, especially those targeted

47Online Library "Librarian» - http://www.bibliotekar.ru/

48Mutlu, E., & Arık, E. (2015). Interaction Between Single-Stock Futures and the Underlying Securities: A Cross-Country
Analysis. Emerging Markets Finance & Trade, 51(3), 647-657. doi:10.1080/1540496X.2014.998568
49Kolodko GV Nonstationarity and self-similarity of Forex // Management of economic systems: electronic scientific

journal. 2012. № 39. - S. 26

28
to non-resident investors can often work without a license, but must be careful in the wording of
contracts not to fall under the prohibitions.

Of course, corporate income, including those received from operations with foreign customers
shall be taxable at the place of registration of companies. Suppose now that the dealings are
conducted on behalf of the offshore company. Most offshore regulation of financial activity is
much milder than in developed countries. Although the banking, investment, and other activities
in almost all offshore zones, have recently been controlled much more actively than in the past,
operations on the Forex market, as a rule, are not regulated. Accordingly, to obtain a license for
the company's place of registration is usually not necessary. Foreign exchanges restrictions (for
offshore companies under foreign currency transactions) are also absent. However, it should be
borne in mind that, when proposing their services, for instance to US customers, the company may
be subject to US laws with all its consequences, such as the need for the US licensing50.

The alternative option is the creation of an offshore company in the area, which has a license to
conduct gambling. However, it is not possible everywhere. Examples of so-called gambling
jurisdictions may serve as Antigua or Barbuda, or Belize. If the formation of the legislation allows
us to consider dealing operations as a kind of sports betting, gambling license can serve as a legal
basis for the provision of services to clients51.

Creating a company with gaming license even offshore - is quite a costly practice. For example,
in Antigua and Barbuda, annual payments only in the form of state licensing and registration fees
amount to 55,000 USD, not counting the cost of maintaining the company itself. In Belize, the
annual license fees amount to 50,000 USD. And in addition to that, you are required to deposit
500,000 USD. The licensee, of course, must meet certain requirements. It is usually assumed to
appoint a local director, account opening, the creation of the office, installing the server, and etc.
in the country of incorporation of the company52.

The retail segment of the Forex market is speculative. Assessing the role of Forex speculators, in
favour of their activities to the public, it is necessary to consider the role of speculators in general.
Speculators are often criticized since to public their activities seem useless, and they do not see

50Online encyclopedia BibleForex - http://bible-forex.ru/

51Sui,L., & Sun, L. (2016). Spillover effects between exchange rates and stock prices: Evidence from BRICS around the
recent global financial crisis. Research In International Business And Finance, 36459-471. doi:10.1016/j.ribaf.2015.10.011
52Tsibulnikova VY The problem of effective functioning of the broker-dealers in the Forex market segment in Russia //

Priority research areas: from theory to practice. 2012. № 2. - S. 146-150

29
any sense in it. The most obvious feature is that people often overlook, criticizing the speculators
- their ability to prevent deficiency. Deficiencies are dangerous as they lead to price spikes and/or
rationing of resources. If the drought kills half of the grain harvest this year, it is natural to expect
that the price of corn will double in fall. However, on the scale of the economy as a whole, these
deficits are not so easily defined. That is why the speculators in the commodity markets are helping
to monitor the complete production, recognizing the deficiencies and the movement of goods to
the place of supply, through intermediaries that use futures contracts to manage their expenses. In
that sense, speculators act as financiers to enable the intermediary to keep the level of supply
around the world.

More than mere financial intermediaries, speculators impact on commodity prices, exchange rates,
and other market assets using trading tools to balance inventory and demand. It is only for the
reason that we want to purchase cheap crude oil or cocoa, we must not blame the speculators in
the rise of prices. Most other factors, such as OPEC or tropical storms, increase the risks of more
volatile prices in the future, so the increase in prices by speculators now smoothens the potentially
higher price increases in the future. Higher price cools the current demand, reducing consumption
and increasing stimulating suggestions.

Journalist as well as a trader Andrew Beattie argues that while society may recognize the role of
speculators in the prevention of deficiency and smoothing of prices, very few associate speculation
with protection against manipulation. In markets with healthy competition, where there are many
different players, it is much harder to carry out large-scale manipulation and much more expensive
(especially in the case of failure). A typical example is "Black Thursday," the copper market,
where on-going manipulation by YasuoHamanakai (known as "Mr. Copper"), in the end result,
have failed due to the fact that a large number of market speculators have played against him. To
avoid manipulation of the markets, you need to increase the number of speculators, rather than a
decrease.
In a thin market, prices are bound to be more volatile, hence the possibility for manipulation
increases, as a few big players can have a greater impact. In markets without speculators,
possibilities to manipulate prices transfer from manufacturers to resellers / customers, and vice
versa, depending on the current conditions. As a result, this leads to a lot of volatility, reflected in
the variation in consumer prices.

Returning to the world's largest financial market - Forex market, we will see how speculators are
important to prevent manipulation. Governments are among the most obvious manipulators.
30
Governments want more money to fund their programs while having a strong currency for
international trade. These conflicting interests are pushing the government to restrict their
exchange rates, inflationary weakening their cost, so as to be able to cover domestic spending.
Precisely these currency speculators, through their transaction, restrain the government from such
steps, accelerating the effects of inflationary policies.

Thus, in this section, we have analysed the main differences between the Forex market from other
markets, and especially the practical and legal aspects of investing. Among the main differences
were identified tool of transactions. On the Forex market are those of currency pairs. That has its
impact on associated aspects of such operations. During transactions conclusion, concomitant to
obtain additional acquisitions of property rights are not performed. Working hours of the market
are limited to only 2 days off, although periods of activity during the working week alternate with
periods of calmness.

Forex tends to widespread use of margin lending. This is due to the fact that the potential market
for investors, due to its ease of entry, does not always have sufficient funds for the contract. At the
same time, the range of price changes in the Forex market instruments allows you to use high
leverage without significant risks.

In contrast to the interbank Forex market segment, the retail Forex market does not usually perform
purchase and sale of real currencies. That is, contracts can largely be characterized as a transaction
for the difference. Albeit, with reservations on the specifics of the market.

Choosing a reliable dealing centre in many respects is a fundamental factor of success when
entering the market. Because an object of transactions is foreign exchange, there may be some
difficulties in their operation. Commonly, dealing centres are offshore companies. Hence, the
contractual relationship with them goes beyond the scope of the investor's country of jurisdiction.

Profit of dealing centres is based on commissions, spreads, and swaps credits. At the same time
analytical and training materials are usually provided free of charge or with some restrictions on
the size of the deposit.

Transactions are usually cleared within dealer’s company. That is, dealing centre offsets customer
transactions, and based on its discretion displays transactions on the interbank market. At the same
time when using accounts running on VPS technology, transactions are displayed in the network
31
in this way connecting many private traders, and already there the transaction between them are
concluded.

In world practice, the legal aspect of this market is heavily dependent on the currency legislation
of any country. That is free currency conversion facilitates the activities of dealing centres. At the
same time registration in offshore zones is evidently significantly eases and cheapens activities of
dealing centres and allows customers to evade tax.

Thus, in spite of the legal vulnerability of the market in some countries compared with other
markets, it is a completely reliable way to invest, subject to choosing a reliable broker and the
required type of trading account.

We can say that speculation markets bring more benefit than harm, transferring risks to those who
can take them on themselves. Despite the confusion and negative attitude towards the speculators,
the potential of high returns continues to attract people to this area. With all the negative reviews
of the activities of speculators, we should not forget that their actions support prices, prevent
deficiencies and reduce risks for the other members of the business process. It is important that the
public accurately evaluates the role of speculators and understands that they essential for a healthy
market economy.

2.2 Status of the Forex market products in Russia.

In the previous section, we discussed the basic practical and legal aspects of the retail Forexmarket
in the world. We deemed necessary to further consider the realities of Forex market for potential
investors in Russia, including an analysis of the legal basis, the volumes and market participants,
as well as the login process itself on the Forex market53.

As is known, Russia has a law on currency control, namely the law of the Russian Federation of
10.12.2003 number 173-FZ "On Currency Regulation and Currency Control" and regulations of
the Central Bank, is designed to protect the national currency from the negative influence of
external financial markets. A settlement between residents in foreign currency, as a rule, is
prohibited, unless one of the parties is not a bank. Payments in foreign currency between residents
and non-residents are under state control. Foreign exchange transactions related to the movement

53Teplova,T. V., & Rodina, V. A. (2016). Does stock exchange consolidation improve market liquidity? A study of stock
exchange acquisition in Russia.Research In International Business And Finance, 37375-390.
doi:10.1016/j.ribaf.2016.01.016
32
of capital, as a rule, require special permission of the Central Bank of the Russian Federation. In
this case, the payment in foreign currency to non-residents to purchase foreign currency under the
law apply to operations involving the movement of capital, since it is not included in the closed
list of current operations54.

It would seem that these circumstances create almost insurmountable obstacles in the way of
legitimate business organizations for dealing in the Forex market. Nevertheless, the number of
dealing centres in Russia only grows. However, their legal status is quite different: some operate
on the basis of completely legal, the others - on a shaky footing, using certain gaps in the legislation
or non-obvious interpretation of regulations, some of the activities are absolutely illegal 55.

The only type of license, which gives the full right to conduct foreign exchange transactions in
Russian - is the currency-banking license. Thus, one hundred percent can be considered legitimate
only dealing centres, organized by the bank or banks. The Bank has full authority to open and
maintain foreign currency accounts, sales to customers of one currency for another, as well as
foreign exchange transactions related to the orders of their breeding traders on the foreign market,
if necessary. It is also responsible for the performance of their capital of client orders and has
qualified for the conduct of dealing operations.

The alternative - to provide dealing services based on the bookmaker's license. Russian legislation,
introducing the concept of the bookmaker does not give a clear definition of what events are taking
bets. Usually refers to sporting events and the like, but, in principle, nothing prevents to take bets
on changes in exchange rates, as the law does not forbid it. Of course, in this case, we are not
talking about the actual operations with currency in the Forex market, but rather for their imitation
since transactions are not really happening. All settlements between company and customer-dealer
are conducted at the same time only in rubbles.

Another possibility, related to "simulated Forex": a contract with the client is similar to the normal
treaty dealing in the Forex market, but it involves the supply of currency acquired by the trader,
not in kind, but in rubbles. Formally, in this case, there are no foreign currency transactions or
accepting bets, so that there is no need to license. However, in this case, the legal basis of the
company can be described as very precarious, as the economic sense of the on-going operations,
to put it mildly, is not obvious.

54 10.12.2003 number 173-FZ "On Currency Regulation and Currency Control"

55 Official site Broker - http://bcs.ru/
33
Another option is when the services are available to Russian residents outside the Russian territory,
in particular, the offshore company with an account in a foreign bank. If all of its activities are
carried out in Russia, Russian law does not violate it, although all calculations are carried out in
this currency. At the same time, we do take out the brackets of the possible violations of the
customer, related to the withdrawal of funds in foreign accounts and receiving them back. Thus,
in this case, the company's customers are themselves obliged to monitor compliance with the
legislation subject to the operations on the output and input of funds from their accounts.

With regard to the taxation of the company's customers, the bookmaker is not currently required
to withhold tax on the winnings. The Customer shall pay the income tax at the rate of 13% for the
year. Income received through the dealing desk at the bank, as taxed income. If we are talking
about transactions with foreign companies, originating from a foreign customer account, or, worse,
with settlement in cash, this activity, as we shall see, very little is related to the Russian legislation.
Accordingly, it is unlikely to seriously discuss its taxation. In practice, this means that in fact the
state cannot keep track of such an operation, hence the payment of taxes is made only at the request
of the account holder. In practice, the payment of taxes in most cases is not actually performed56.

In general, working schemes of dealing centres and Forex brokers in Russia are as follows57:
• Licensed foreign company
• A licensed offshore company
• Russian Bank
• A foreign or offshore company plus a representative office in Russia
• A foreign or offshore company plus a Russian partner
• Bookmaker's office
Following, we shall consider these schemes in more detail in Appendix 7.

Further, the author considers it necessary to examine in more detail the state Russian Forex-
services market. Identify quantitative and qualitative data of this market. For this, we consider the
characteristics of the market of Russian Forex search criteria and position of the main players in
the Russian segment of the retail foreign exchange market.

56Dosikov VS The Forex market in Russia: problems of accounting and analytical support and legal regulation of the main
participants // Bulletin of Moscow State Academy of Business Administration. Series: Economy. 2012. № 6. - S. 182-188.
57Legal and financial consulting - http://www.roche-duffay.ru/

34
According to experts, the news agency Interfax, the market Forex retail services companies in
Russia continues to be one of the most secretive and non-transparent financial market segments.
This is largely due to the lack of state regulation of the market, which would imply the duty of its
members to publish data on the volume of transactions. As a result of such information, the opacity
of many market participants uses as an additional trump card in the competition. Consequently,
small companies often place advertising information, positioning them as a market leader, which
misleads clients due to the impossibility of checking the accuracy of data. These bona fide market
participants are also not in a hurry to disclose accounting data, because they understand that
customers on the background of excessive small companies will not adequately perceive them.

Consider information on the Russian Forex market as of 201458:

• Market size - 4.2 trillion. USD. Per year. (23.8% drop)
• A number of active customers - 421 thousand (an increase of 5%).
• The amount of funds on deposits of clients - about US $ 450 million.
• The most common schemes of work - An offshore company with a partner in Russia, a division
of the Bank of Russia
• The average monthly turnover per customer - US $ 0.827 million (down 23.8%)
Thus, the volume of the Russian Forex market suggests the high popularity of this type of
investment in the Russian Federation. In this case, the total amount of funds raised is about the
volume of deposits attracted by the 90th largest bank in Russia. The Russian market is now
attracting considerable capital, and in the near future, it will only progress. At the moment, the
Russian segment of the retail Forex market already accounts for about 1% of the global Forex
market.

Russia is one of the most promising markets for the promotion of Forex brokers services. In the
next 5-10 years, the Russian segment of the Forex market can expect multiple growths, which can
hardly even be influenced by the difficult economic situation in the world. Among the distinctive
features of the market of brokerage services in access to Forex in Russian: a huge growth potential,
a large amount of savings of the population, low availability of alternative investment
instruments59.

58Official site of Interfax - http://www.interfax.ru/

59 Official site Roboforex - http://www.roboforex.ru/
35
For further analysis, we will consider the situation of the major players on the Russian Forex
market presented in Table 2.1. Table 2.1 shows that the leaders of the Russian Forex market are
the company Alpari, ForexClub and Teletrade. Together, they occupy about 65% of the total
market by the number of active users and about 69% of total turnover. That is 262 thousand of
active clients and an average turnover of 300 billion USD per month. Therefore, these companies
may be considered in terms of the benchmark companies in the current market in Russia. All three
companies are offshore companies with a network of mutually independent partners in the Russian
Federation.

Consider the dynamics of the main indicators of Forex products of the Russian market for the last
3 years:
Тable 2.1
The dynamics of the Russian market indicators Forex

Year 2012 2013 2014

Turnover
(in trl. dol. US) 2,64 5,2 4,2
Quantity of customers
(in thousand of people) 306 400 421
The turnover per
customer (in mln. dol.
USA) 8,63 12,96 9,924
Source: compiled by the author based on data from Interfax News Agency

The table 2.1 shows that the Forex market products stagnated in 2014. According to experts of
Interfax, there are the following explanations: First, the low volatility of the exchange rates of the
developed economies reduced the profitability and investment attractiveness of currency
speculation. Second, the collapse of the rubble occurred gave citizens an alternative way to make
money by investing in cash that distract them from the accounts of investment FOREX-companies.
Third, the growing financial and economic crisis in Russia forced to think the many currency
speculators about a more conservative investment options and savings.
About the effect of changes in legislation, concerning the organization of the Forex market in
Russia, see Appendix 3.

The crisis moods in the Russian economy are compounded. In May, the central bank announced
its intention to increase gold reserves up to 500 billion USD, in the next 2-3 years. This means a
potential game against the Central Bank of the rubble in the pair with the US dollar. According to
the author, this can potentially even reduce the low attractiveness of the Russian stock market. In
this situation, the population and companies will demand investments in US dollars. At the same
36
time investing in the Forex market is not a conservative manner savings schemes, but relatively
risky investment for profit. Thus, investing in the Forex market initially has other purposes and is
unlikely to divert large sums of money from the real economy. At the same time with an increase
in crisis sentiment, increasing unemployment and decreasing real incomes, support economic
niches that can provide people with hope for additional income, which can essentially reduce social
tensions.

At the same time, the entrance to the simplicity of the Forex market makes it one of the most
effective ways of raising people's financial culture and increases competition in other financial
markets, which may have a positive impact on the quality of financial services in our country.

Thus, based on the above mentioned we can identify the main problems inherent to the broker-
dealer companies in the Forex market segment in Russia. First and foremost is the lack of an
appropriate legal framework and clear mechanisms for the licensing of the activity. Application of
dealership schemes of work leads to increased risk, as the customers’ transactions are not available
to the general pool of stock exchange transactions, but turnover just inside the brokerage firm.
Broker carries significant risks, since considering the marginal lending is compelled to provide all
the earnings of its clients from its own funds. And to use stock market scheme of such companies
in Russia cannot be fully due to the lack of a legal basis, as well as the work of established
mechanisms. Some broker-dealer companies are trying to reduce this risk by connecting to foreign
suppliers of liquidity, and provide customers the conclusion of transactions in the foreign market.
But this scheme in Russia also presents a number of difficulties, since in fact such a company is
not registered in Russia.

There is a lack of development of the use of various risk management mechanisms, some dealers
focus on gains from losses in the transactions of their clients. In the Forex market industry are
many unscrupulous companies that affect the image of the industry, and there are no mechanisms
of influence on such companies. In this connection, there is a low degree of confidence in the
Forex market for Russian citizens. There are no legal mechanisms for Forex market usage, in order
to commit Entities operations. Problems are also created by the inexperience of Russian citizens
and companies in the utilizing of derivative financial instruments.

Deposits from customers in dealing centres are opened in foreign currency. But according to
Russian law, contractors are required to perform calculations on the territory of the Russian
Federation in rubbles. Companies bypass the ban by registering a company in offshore zones. It
37
also avoids dealing centres from obtaining a banking license on Russian territory. Offshore areas
not only enable companies to avoid the Russian legislation but also prevent the collection of taxes
on income recipients on the territory of the Russian Federation.

Amongst the popular schemes of the organization of dealing businesses organizations, on the
territory of the Russian Federation, stands out the schemes with registration in offshore zones. This
gives rise to difficulties in the first place for potential investors, as the resolution of disputes in
such cases is not subject to local law and the investor is less secure.

Despite the presence of factors that increase the risk of investing in Forex products in Russia, such
as the absence of legal framework, offshore jurisdiction and so on. The Russian retail Forex market
is projected to grow. Already today raised approximately $ 450 million USD. The turnover is about
1% of the total Forex international market. The largest player in the Russian market is the company
Alpari with a share of approximately 30% of the market. Three major players include Alpari,
ForexClub, and Teletrade covering about 70% of the Russian market. Despite the potential risks,
the Russian market distinguishes the high quality of services in the view of a large number of
companies and, as a result of high competition. As a result, players are forced to create a safe
investment environment to attract and retain the customer base.
There was a change of the Federal Law "On securities market" in 2014. The main players accepted
the amendments in a positive manner, as it was the first time when the government decided to
regulate this market in Russia60. The changes have affected the nature of transactions in the market,
the basis for self-regulation of the market, protection against unscrupulous companies. Specific
quantitative requirements and restrictions have been introduced. In particular, the minimum capital
of the company was established in the amount of 100 million RUB. Leverage of 1 to 50. Both
requirements have been criticized. The first is much higher demands on the players in the stock
market (35 million. RUB). Limiting the leverage amount of 1 to 50, many players feel unfairly
inflated. According to a survey of Forex-dealers managers, such a requirement could deter even
conscientious company and get them to change the jurisdiction, as happened in the United States.
Leverage size 1 to 100, is what the most participants would feel most comfortable with.

According to the agency Interfax agency, the Russian segment of the Forex market is one of the
most highly competitive in the world, and in 2014, the competition only continues to grow. At the

60Uziakov,M. N., &Uziakov, R. M. (2014). Key Determinants of a Long-Term Forecast of Russia's Economic Development.
Problems Of Economic Transition, 56(10), 39-56.

38
same time, the competitive environment characterized by heterogeneity - the market consists of
both large serious companies, and those who work with minuscule amounts, and the business that
does not fully conform to the concept of professional activity in the financial market. At the same
time it should be noted that one of the trends of recent times has been some improvement in the
quality of the competitive environment - in 2014 several new players and a number of smaller
companies appeared on the market and unscrupulous left it, due to which large companies have
joined the ranks of their clients61.

The Russian market of Forex services is one of the most competitive in the world. In the coming
years, it expects a rapid development since it is still far from saturation. Attempts to regulate the
market by the state are a positive signal for the players and participants in this market. And if the
governor and legislators are not overstated the bar for bona fide companies, the market is expecting
rapid growth, increasing the reliability and quality of services. Currently, despite the positive
signal from the government, significant changes in the market will not follow, because working
conditions for companies with offshore jurisdiction is much more attractive.

2.3 Characteristics of the risks of investing in the Forex market

When deciding on an operation in the financial market, be aware that investing in securities and
other financial instruments carries a risk of non-receipt of expected income, loss of part or all of
the funds invested. The magnitude of the risk assumed by investing, is determined by the
possibility of adverse changes in many variables, not all of which lend themselves to forecasting.

Investment activity in all forms and types is interfaced with risk. Investment risk is the probability
of occurrence of unforeseen financial losses in the situation of uncertainty in investment
conditions.

The following features can classify investment risks62 - by areas of appearance:

• Technical-technological
• Economic
• Political
• Social
• Environmental

61Lizunov, P. V. (2015). Russian Society and the Stock Exchange in the Late Nineteenth and Early Twentieth
Centuries.Russian Studies In History, 54(2), 106-142. doi:10.1080/10611983.2015.1117893
62 Advice on risk issues - http://www.risk24.ru/

39
• Legislative-legal
A description of each group are listed in Appendix 4

In forms of manifestation of the investment risks are divided into63:

o Real investment risks that may be associated with the following factors:
• Disruptions in the supply of materials and equipment;
• Increase in prices of capital goods;
• Choice of unqualified or unscrupulous contractor and other factors, delaying the input object in
exploitation or reduce income in the process of exploitation.

o Financial investment risks that are associated with the following factors:
• Ill-conceived choice of financial instruments;
• Unanticipated changes in investment conditions, etc.

In this analysis of risks, the most important for us is the risk of financial investment associated
with the poorly thought-out choice of financial instruments, changes in investment conditions due
to changes in trade regulations, such as changing the size of spreads, increased fees, and so on.

According to sources, the emergence investment risks are divided into64:

• Systematic (market, non diversifiable) risk arises for all participants of the investment activity
and all forms of investment. Determined by the change of stages of the economic cycle, the level
of effective demands, changes in tax laws, and other factors, which the investor cannot affect
when choosing investment object.
• Unsystematic (specific, diversifiable) risk, which is characteristic of a particular investment
object or activity, for a particular investor. It may be associated with the company's management
staff competencies; increased competition in this market segment; irrational structure and other
capital. Unsystematic risk can be averted by diversification projects, choosing the optimal
portfolio or the effective management of the project.

Systematic risk is almost impossible to neutralize. Commonly, it does not depend on a particular
investor action and it is exposed to the entire industry Forex investment in general. Choosing a

63 Risk Disclosure Alpari - http://www.alpari.ru/

64 Risk Disclosure Company Foreksklab - http://www.fxclub.org/
40
reliable broker located in jurisdictions with established legislation in the field of Forex-dealing
avoids part of the risk65.

Unsystematic risk depends on the investor or trader's actions. In general, actions aimed at
minimizing the risk of this group can be divided into 3 parts:
• Trading Strategy
• Wealth management (money-management)
• Psychological resistance

The main purpose of a trading strategy is to provide the trader a statistical advantage in trade. The
statistical advantage is a sign of a statistical model of trading in the market, which allows on a
representative statistical sample of historical data quotes to get the total income in excess of the
total loss. This is achieved by creating rules of entry and exit from the market as a profit or a loss.
Rules are based on statistical laws, working on a particular sample. For example, the point of entry
is determined based on the most likely move toward the opening position. A position is determined
based on the closing of the less probable continuation movement of the quotes66. A more detailed
analysis of trading strategies used in the Forex market will be discussed in Chapter 3 of the thesis.

Regardless of the general characteristics of the strategy, whether it is a strategy based on the
fundamental or technical analysis it is important to determine the level of acceptable profit and
loss, which is when the automatic exit from the transaction will be carried out. Therefore, the so-
called take profit and stop loss orders are exposed.
Figure 2.3
Limitation of damages

65SCHMIDT, A. B. (2016). Impact of Trading in the Multi-Dealer Spot Foreign Exchange.Journal Of Trading, 11(1), 68-75.

66 Financial Dictionary - http://smart-lab.ru/

41
 Source: Screenshot by the author
Fig. 2.3 shows that regardless of the further movement of the currency pair, our losses will be
limited to the level of stop loss.

Proper money management strategy is one of the 3 most important elements of the control means
in the Forex market. The main purpose of capital management strategy is to preserve the deposit
of trade with emerging drawdown. No system in the world can provide 100% winning entries to
the market. A negative outcome of the transaction there is a "drawdown" is measured in% of the
size of the account.
Figure 2.4
Properties of the PAMM-accounts

Source: Official website of the company Alpar - http://www.alpari.ru

42
Fig. 2.4 shows the parameters of the PAMM Mackwoods, opened at Forex broker Alpari. A string
of maximum relative loss is the meaning of the maximum drawdown of trading accounts in% for
the entire account history. For the account figure is 26.59%.
This means that the maximum possible loss of investor or manager in the entire history of the
account does not exceed this value.

Drawdown is the inevitable consequence of trading in any financial markets, including the Forex
market. Money management system should provide comfort to investors and traders drawdown,
which allow continuing to trade, to use the terminology of the traders to "stay on the market." The
maximum amount of risk per trade should be adjusted precisely according to this criterion.

Psychologist Dr. Van Tharp, a specialist in the psychology of trading, is famous primarily due to
decomposition process making trading decisions into 3 categories, which we mentioned above.

The importance of these categories, he estimated as follows:

• Trading Strategy - 10%
• Money Management - 30%
• Psychology - 60%
In accordance with the ideas of Tharp, psychological, human attitudes and way of thinking in the
trade are the most important factor for success in trading, regardless of the market in which a trader
involved in the transactions.The fact that the trading strategy itself by Tharp is regarded as the
least important, suggests that, regardless of the success of a trading strategy in itself, psychology
is the key to success.

Trader as well as a writer Brett Stinbardzher writes: "I can not imagine a more important
psychological characteristics for success in trading in the long run than the psychological stability.
Sustainability is defined in several ways, in some cases, as a process, in other cases, as a
characteristic feature. In all cases, sustainability involves the impact of stressful conditions and the
ability to maintain a high level of social, emotional and professional operation for a given
exposure. My experience with traders shows that even the most successful of them go through
periods of drawdown. Sometimes the trader is experiencing subsidence quite a long time and lost
a considerable amount of money. Some traders recover from these losses, others do not"67.

67SelfTrader Psychology, equipment, tactics and strategy / Brett Stinbardzher; Trans. from English. - M .: Alpina
Publisher, 2012. - 328 p.
43
Emotions in trading that bare negative impact on the result are greed and fear. These emotions
cause the trader to deviate from his plan, which can lead to additional problems such as ego and
"trade retaliation."

When a trader is afraid of losses, he tries to avoid them. This, in fact, may even increase the loss.
For example, a trader can open a position and set a stop-loss order, say, 20 points from the price,
based on the strategy used. In other words, there is justification in terms of technical or
fundamental analysis to establish it where it is.

However, the trader, who is affected by fear, can close the deal early, simply because of the fact
that it is temporarily unprofitable. So, if the position is in the red at, say, 10 points, then the
transaction will result in a loss of 10 points. If the deal itself would have been profitable, the trader
has just turned profitable trade in a losing one simply because of fear.

Another scenario: the trader closes the position at the moment when it becomes profitable, because
of the fear of losing profits. If the transaction would have continued and reached a level of profit,
the trader would have just turned a good deal winning in a much smaller profit. This behaviour, in
the end, turns profitable strategy in the loss-making, since the trader reduces the number of
winning trades and / or reduces the total profit due to the fear of loss68.

When a trader is experiencing greed, he is trying to get too much profit and deviates from its
strategy. For example, a trader can set the level of profits in accordance with the strategy. This
means that - as in the case of stop-loss - there is an explanation of this action in terms of technical
or fundamental analysis69.

However, when the trader is affected by greed, he does not close the position at a moment in which
it should have been for him in the strategy, - he is trying to get more. After that, luck can turn away
from him, that will eventually, lead to a decrease in profits, or, even worse, losing trade. This
means that, in fact, they reduce the profitability of the strategy due to the fact that greed causes
them to try to increase profits.

68PROAÑO, C. R. (2013). MONETARY POLICY RULES AND MACROECONOMIC STABILIZATION IN SMALL OPEN
ECONOMIES UNDER BEHAVIORAL FX TRADING: INSIGHTS FROM NUMERICAL SIMULATIONS*. Manchester School
(14636786), 81(6), 992-1011.
69 Information about Forex - http://ru.tradimo.com/

44
Another scenario: After losses on the apparent perfect transaction, the trader will not look for a
suitable option for the next on the basis of the strategy. Instead, he will continue to make
transactions on the basis of his original analysis, believing in what he was absolutely right.

Trading under the influence of the ego does not want to admit their mistakes. For example, if the
transaction does not go very well, instead of closing it, as suggested by the strategy, he will leave
it open and suffer much greater losses because he cannot admit that he was wrong.

Trade in revenge - is the pursuit of the losses that the trader incurred. He was so focused on getting
his money back, he could not understand that he is trading without a clear strategy, and each
transaction leads to another loss.

The main recommendation for avoiding these problems is to comply with the strictest discipline:
• Work only with the proven, tested strategy (as other traders and a trader himself).
• Take the risk.

Thus, in this section, we have found that when taking a decision on carrying out operations in the
financial market, it is necessary to be aware that investing in securities and other financial
instruments carry a risk of non-receipt of expected income, loss of part or all of the funds invested.
The magnitude of the risk assumed by investing is determined by the possibility of adverse changes
in many variables, not all of which lend themselves to forecasting70.If we classify the risks in the
spheres of existence, the distinction is made between technical and technological, economic,
political, social, environmental, legislative and legal risks.

The most important when trading in the Forex market, according to the author, are technical and
technological, economic and legislative and legal risks. Choosing a reliable broker, high-quality
software and hardware allow avoiding technical and technological issues, while economic and
legislative and legal risks cannot be avoided.

If we consider the risks of the forms of manifestation, then evident are the risks of real investment
and financial investment risks. The most significant is the second group because investing in the
Forex market represents investments in financial assets with a view to profit. They represent a risk

70Mehrling, P. p. (2013). Essential hybridity: A money view of FX. Journal Of Comparative Economics, 41(2), 355-363.

45
of financial loss if ill-conceived choice of currency pairs and incorrect predictions of movements,
as well as unforeseen changes in spreads, commissions, financial force majeure.

According to sources, the emergence emits systematic and unsystematic risk. The first level is
impossible and they are inherent in the system as a whole, slightly yielding to the control of the
individual investor, while the latter beyond the control of the parties.

Unsystematic risk depends on the investor or trader's actions. In general, actions aimed at
minimizing the risk of this group can be divided into 3 parts:
• Trading Strategy
• Wealth management (money-management)
• Psychological resistance

The trading strategy71 is a system of rules of entry, exit, and control position. It must provide the
statistical advantage. While capital management regulates the distribution of risks between
individual transactions, allowing you to stay in the market during the period of subsidence.
Psychological resistance protects the trader or investor from acts contrary to the previous two
components.
It is understood that the Forex market is a risky way to invest capital. For preserving capital, a
more suitable way would be conservative. The full risks of the Forex market can not be removed,
but there are a number of rules that avoid or minimize them:
• Choosing a reliable broker;
• Providing high-quality software and hardware;
• Robust trading strategy;
• Money Management System;
• Psychological resistance.

On the Forex market72 instrument, trades are currency pairs. During transactions, concomitant to
obtain additional acquisitions of property rights is not performed. Also, the Forex market is
peculiar to the widespread use of margin lending. This is due to the fact that the potential market
for investors, due to its ease of entry, does not always have sufficient funds for the contract. At the

71Kodres, L. E. (1996). Foreign exchange markets: structure and systemic risks. Finance & Development, 3322-25.
72Harvey, R. r. (2013).The legal construction of the global foreign exchange market.Journal Of Comparative Economics,
41(2), 343-354.

46
same time, the range of price changes in the Forex market instruments allows you to use high
leverage without significant risks.

In contrast to the interbank Forex market segment, the retail Forex market does not usually
purchase and sells real currencies. That is, contracts can largely be characterized as a transaction
for the difference. Albeit, with reservations on the specifics of the market. Choosing a reliable
broker in many respects is a fundamental success factor in the market entrance. As a rule dealing
centres are offshore companies. And a contractual relationship with them is beyond the scope of
the investor's country of jurisdiction. Income dealing centres are based on commissions, spreads,
and swap credits. At the same time analytical and training materials are usually provided free of
charge or with some restrictions on the size of the deposit.

Transactions are usually cleared within-dealer. Thus, dealing centre offsets customer transactions,
and has, at its discretion displays transactions on the interbank market. At the same time when
using the accounts, working by ECN technology, the transaction is placed on a network that
connects many private traders, and there the transaction between them is performed.
In world practice, the legal aspect of this market is heavily dependent on the currency legislation
of any country. Thus, free currency conversion facilitates the activities of dealing centres. At the
same time registration in offshore zones significantly eases and demeans activities of dealing
centres and allows customers to evade tax. At the same time, legislation in many countries licensed
brokerage in the Forex market. And in spite of the legal vulnerability of the market in some
countries compared with other markets, it is a completely reliable way to invest, subject to
choosing a reliable broker and the required type of trading account.

In the Russian practice is first necessary to identify the absence of an appropriate legislative
framework and clear mechanisms for the licensing of the activity. Application dealership schemes
of work lead to increased risk, as customers of the transaction, are not available to the general pool
of stock exchange transactions and the turn just inside the brokerage firm. Broker carries
significant risks, since when considering the marginal lending he is compelled to provide all the
earnings of its clients from its own funds. And to fully use stock market scheme of such companies
in Russia cannot due to lack of a legal basis, as well as the work of established mechanisms. As a
general rule, taxation of profits does not happen.

In the Forex market industry, there are many unscrupulous companies that affect the image of the
industry, and there are no mechanisms of influence on such companies. In this connection, there
47
is a low degree of confidence in the Forex market for Russian citizens. There are no legal
mechanisms for Forex market usage, in order to commit Entities operations. Problems are also
created by the inexperience of Russian citizens and companies in the utilizing of derivative
financial instruments.

Deposits from customers in dealing centres are opened in foreign currency. But according to
Russian law, contractors are required to perform calculations on the territory of the Russian
Federation in rubbles. Companies bypass the ban by registering a company in offshore zones. It
also avoids dealing centres from obtaining a banking license on Russian territory. Offshore areas
not only enable companies to avoid the Russian legislation but also prevent the collection of taxes
on income recipients on the territory of the Russian Federation.

Despite the apparently high risk of investing in Forex products in Russia, such as the lack of a
legislative base, offshore jurisdiction and so on., The Russian retail Forex market is projected to
expect strong growth. Already it attracted about $ 450 million. The turnover of the Russian retail
market is about 1% of the Forex international market. The largest player in the Russian market is
the company Alpari with a share of approximately 30% of the market. Three major players take
about 70% of the Russian market. Despite the mixed reputation and potential risks, the Russian
market is quite different from the high quality of the services provided.

There was a change of the Federal Law "On securities market" in 2014. The main players accepted
the amendments in a positive manner, as it was the first time when the government decided to
regulate this market in Russia. The changes have affected the nature of transactions in the market,
the basis for self-regulation of the market, protection against unscrupulous companies. Specific
quantitative requirements and restrictions have been introduced. In particular, the minimum capital
of the company was established in the amount of 100 million RUB. Leverage of 1 to 50. Both
requirements have been criticized. The first is much higher demands on the players in the stock
market (35 million. RUB). Limiting the leverage amount of 1 to 50, many players feel unfairly
inflated. According to a survey of Forex-dealers managers, such a requirement could deter even
conscientious company and get them to change the jurisdiction, as happened in the United States.
Leverage size 1 to 100, is what the most participants would feel most comfortable with. Thus, we
can assume that in future Russian jurisdiction will choose only a small number of Forex brokers,
or companies will register its subsidiaries in the Russian Federation in order to attract additional
customers. In this chapter, we found that taking a decision on carrying out operations in the
financial market, be aware that investing in securities and other financial instruments carry a risk
48
of non-receipt of expected income, loss of part or all of the funds invested. The magnitude of the
risk assumed by investing at determining the possibility of adverse changes in many variables, not
all of which lend themselves to forecasting.

Psychologist Dr. Van Tharp, a specialist in the psychology of trading, is famous primarily for
decomposition process making trading decisions into 3 categories, which we mentioned above.
The importance of these categories, it is estimated as follows:
• Trading Strategy - 10%
• Money Management - 30%
• Psychology - 60%

All 3 elements are the criteria to achieve a positive return to the trader in the long-term perspective.
In fact, specific algorithms of getting into the transaction by many traders and authors considered
not as important as those are the system of money management and private psychological stability.

49
 3. THE IMPLEMENTATION OF TRADING STRATEGIES AND CONTROLLING OF
RESOURCES ON THE FOREX MARKET

In the previous chapters of this thesis, we found that in modern conditions the retail part of the
international currency market Forex is a very promising way to invest in order to get speculative
profit. We also looked at ways to enter the market and methods of invested funds management.
There is a need to further consider trading strategies that may be used to trade in the Forex market,
and in more detail investigate the process of the Investor capital management.

3.1 Fundamental and technical analysis of currency markets

Regardless of which method of investing in the market, we will consider the most appropriate, it
is necessary to examine the existing types of analysis of financial instruments in the Forex market.

Depending on the data used for the analysis of financial markets, there is a distinction between
fundamental and technical analysis. Fundamental analysis is based on an analysis of information
coming from the outside. It may be macroeconomic statistics, the news background of a political
or economic nature. Technical analysis is based on the analysis of charts of financial instruments,
as well as indicators of the analysis of chart patterns. In this section, we take a closer look at the
fundamental analysis of the Forex market.

Obviously, for the efficient operation of the securities market, investors need to not only to have
the largest possible amount of information but also to analyse the incoming information. One type
of such an analysis is fundamental analysis, which is used quite often and has many
modifications73.

Fundamental Analysis – a term for methods of forecasting the market value of the asset, based on
the analysis of the financial and operating performance of the company. With regard to the foreign
exchange market are estimated macroeconomic and political indicators that are able to affect the
movement of a currency relative to the currencies of other countries74.

73 Zhdanov OA Basics of fundamental analysis // Universum: economics and law. 2014. - № 5 (6). S. 6.
74 Online Dictionary - http://www.bibliotekar.ru/
50
Fundamental analysis assesses the following conditions of the state economies:
• Political
• Economic
• Financial and credit.

Fundamental analysis is one of the most important pieces of trader and investor jobs in the Forex
market. And regardless of the strategies used, you must have knowledge of this part of the analysis
and incorporate it into their activities.

Fundamental analysis is the base for determination of the driving forces of the market. Financial
analysis may include the speeches of politicians (presidents, directors of large banks, the heads of
financial institutions), the results of important committee meetings (the International Monetary
Fund (IMF), the summit of the European Union, etc.), important economic news (tracked
frequency, there is a comparison with expectations and the previous index value - changes in
interest rates, etc.), as well as some other factors i.e. all that is associated with the economy and
social situation of the inhabitants of a country.

The goal of fundamental analysis is to determine the dependence of the value of the national
currency within the country from the external factors. For example, take the currency pair
EURUSD. At 16.00 came the news - the index of Consumer confidence in the US economy was
worse than the forecast. This is harmful to the US economy, as it reduces the number of people
who will spend money in the country, therefore, it is expected that the dollar's value is to reduce.
As a result, traders are buying the euro, hoping to fall in the US dollar75.

The same fundamental analysis indicators can in different circumstances; with the different
combination of factors, have different effects on the value of currencies. It is necessary to
understand which indicator and what impact on the value of currencies. It is important to also take
into account the dynamics of the other fundamental factors.

Basic economics include a huge amount of data, which is reflected in the various events,
statements, political and economic reports, the conditions and other information. Even the
reduction of the credit rating should be regarded as fundamental information.

75 Advice on investment in the Forex market - http://forex-invest.tv/

51
Typically, this information leads to significant changes in the economic environment (more
precisely, the economic mindset), the consequence of which is to determine the reaction of
investors and speculators. There were even instances where the situation the report itself has not
exerted a certain influence, but only its expectation. This is another example of the fundamental
information.

In general, economic indicators make up a large part of the information used in fundamental
analysis. They are like a fire alarm that responds to the smoke and heat. And it indicates how
sturdily is developing an economy of any state. Ultimately, it is the behaviour of traders that creates
fluctuations in the price of a particular asset.

More than anything in the exchange rate the following fundamental factors have an effect76:
• the level of interest rates
• gross domestic product
• Trade and Balance of Payments
• statements of the key figures of the state
• rumours (what they call on the market)
• the employment rate
• other indicators of the state of the economies
Let us consider in detail each of these factors in Appendix 5.

News can have a dramatic impact on the quotations of currencies in the Forex market. Let us pay
attention to the figure below.
Figure 3.1

Source: Screenshot by the author

76ANLuzgin Theories and perspectives of forecasting the currency and equity markets as a socio-economic phenomena //
Bulletin of Irkutsk State Economic Academy (Baikal State University of Economics and Law). 2013. - № 2. S. 7.
52
Fig. 3.1 shows a sharp change in the daily quotation of the Swiss franc to the US dollar. January
15, 2015, the Central Bank of Switzerland announced the cancellation rate peg to the euro, as a
result of a sharp rise followed by the Swiss franc's value in other currencies.

Unlike fundamental analysis, technical analysis completely ignores information that comes from
outside. The only source of information for further analysis of the price movement is the price
itself. The wide use of technical analysis used by traders began only in the last few decades. About
30 years ago a small group of traders applied it in their trading77.

According to the well-known trader and author Mark Douglas, currently, the situation is quite the
opposite. Almost all experienced traders in one form or another use technical analysis in their
trading systems. Only a few exceptions in some academic and scientific circles, pure fundamental
analysis are almost never used.

Technical analysis is the study of the dynamics of the market, often through charts, in order to
predict the future direction of the price movement78.

Formulate three postulates upon which technical analysis lies:

1. The course (price) takes into account everything. Any factor influencing the price is already
considered by the market and included in the price. Therefore, all that is required for prediction, it
is to study the price chart.

2. Price movement is subject to trends. The main purpose of drawing up the price dynamics of the
charts is to identify these trends at an early stage of their development and trade according to their
direction.

3. History repeats itself. Axiom is based on the immutability of the foundations of the human
psyche, and hence, the applicability of the analysis worked in the past, to the events of the present.

For a full understanding of the technical analysis of currency markets, it makes sense to reach out
to those who stood at the origins of the technical analysis of financial markets. One of them was

77M. Douglas - "Trading in the Zone", the electronic version - http://theignatpost.ru/magazine/

78Forex in the first person. Currency markets for beginners and professionals // A. Vedikhin, G. Petrov, Boris Shilov. - 3rd
Ed. Ster. - M.: SmartBuk, 2010. - 408 p.
53
Charles Dow. He wrote a number of editorials, which spelled out the theory to serve as a barometer
of business activity of the market. Only later, these theories have been converted to a possible
forecast of market movements. It was Dow who the first to find that the, there are three different
types of movements that exist on the market simultaneously, and has also provided the classic
definition of the trend79.

Theorem, which brought fame Charles Dow, states that "averages meanings take into account
everything" and "markets are a combination of the known information and the prevailing
emotion." It remains the cornerstone of technical analysis - all known and unknown factors already
taken into account the dynamics of prices.

The main provisions of the Dow theory are as follows80:

1. The index takes into account everything
2. There are three types of trends existing on the market.

According to Dow’s theory, any factor that could somehow affect the demand or supply will
always be reflected in the dynamics of the index. Of course, these events are unpredictable,
however, they are immediately taken into account by the market and affect the dynamics of the
indices.
Figure 3.2

Sourse: Charles Dow

Through the upward trend, each subsequent peak is higher than the previous, and each subsequent
decline also higher than the previous. During the downward trend, each successive peak is lower
than the previous, and each subsequent "base" is lower than the previous one. At the horizontal

79Doroholsky VV Prediction of market behavior based on the integrated use of fundamental and technical analysis //
News of Donetsk natsіonalnogo unіversitetu Economy itorgіvlі IM. MykhailoTugan-Baranovskogo. 2013. - № 4 (60). Pp
142-147.
80 John J.. Murphy. Technical analysis of futures markets. Theory and practice = Technical Analysis of the Futures Markets:

A Comprehensive Guide to Trading Methods and Applications. - M .: "Alpina Publisher", 2011. - 616 with
54
trend (eg, flat) each successive peak (and decline) is approximately at the same level as the
previous ones.
Dow has also distinguished three categories of trends: primary, secondary and small. The highest
value he attached to it is the primary, or main trend that lasts more than a year, and sometimes
even for several years. The secondary, or intermediate trend is a correction to the main trends and
usually lasts from three weeks to three months. Such interim amendments (kickbacks) constitute
from one to two-thirds (often half) of distance travelled by the prices during the previous (main)
trend. Small or short-term trends do not last for more than three weeks and are within the short-
term fluctuations in the intermediate trend.

The trend (or tendency) - the direction of price movement in one direction or another81. For some
reason, it is assumed that prices can only rise or fall, but rather a significant portion of the time the
currencies are traded in the narrow price ranges. Therefore, it would be more correct, in full
compliance with the Dow theory, highlight three types of trends:
• «Bull" (or upward) - prices are rising (the definition came from a comparison with a bull, who
with its horns raises production);
• «Bear" (or bearish) - prices are falling (in this case a bear "leans" with all his body over the price
and "crushes" it beneath itself);
• «Flat» (or lateral) - prices are in narrow price ranges. Commonly, market consolidation occurs
before the subsequent rapid growth or fall in the price.

Depending on the specific tools utilized in technical analysis, distinguished are the following types
of technical analysis82:

1) Graphical analysis.
Based on the figures that are loomed by quotes. Figures are separated by the trend continuation
and its reversal. There are only general criteria for the formation of various shapes. This introduces
uncertainty into the classical graphical analysis. There are figures of continuation and reversal
patterns of the trend.

2) Indicator analysis.

81Neely, C. J. (2002). The temporal pattern of trading rule returns and exchange rate intervention: intervention does not
generate technical trading profits. Journal Of International Economics, 58(1), 211-232.
82 Blog about Forex - http://blog-forex.org/

55
The basis of this analysis the taken indicators are commonly the trending and oscillatory ones. The
choice of indicators depends on the individual trader preferences. The indicators are based on a
large number of mathematical tools such as sliding averages. On the basis of the indicators, traders
make conclusions about the individual price movements.
3) Wave analysis.
Analysis of individual groups of motions on the basis of the Wave Analysis Market Theory.

4) Analysis of the Futures and Options levels.

For the analysis of the Forex market, the information from the market of currency futures and
options is used, as they allow the use of so-called "Order book", i.e. it has the opportunity to see
the positions of other traders, in contrast to the Forex market.

5) The analysis of trading volumes.

Assessment subjected to physical trading volumes in regular intervals at certain price levels.

We will begin the study of technical analysis with the building of trend lines. Recall that the
upward trend - it is the dynamic price, at which each successive bedplate above the previous peak
and each subsequent is well above the previous. In the case of the upward tendency, the trend line
is built on bottoms. The trend line, built only on two points, will have less certainty than the trend
line, built by three or more points.
Figure 3.3

Source: Screenshot by the author

As can be seen in Fig. 3.3 the current market is formed by downward trend i.e. "Bearish" because
next price peaks are lower than previous.

56
Line resistance and support are the bases of classical trend analysis. All trend line (channel),
reversal graphical patterns and continuation of the trend - is only the combination of support and
resistance lines.

The price, at which the increase began, is called the level of support and is actually tangent to the
minimums of the price. It is believed that when the price falls to the level of support from the bulls
(buyers) further drop in prices is strong resistance, i.e. price "supported" by the further falling.
Therefore, most likely, that the price having reached the level of support will rebound and begin
to rise.
Figure 3.4

Source: Screenshot by the author

Fig. 3.4 presents a significant price level, indicated by 100,359. The level is close to the round
price level of 100, the price not once changed its direction having reached the level, consequently,
bidders consider it in its trade and further price action near the level largely assumes the character
of a self-fulfilling prophecy, when the bidders act in a certain way in anticipation of a particular
price movement, and as a result of prices move in this exact direction.
Figure 3.5

Source: Screenshot by the author based on material - tradelikeapro.ru

57
Fig. 3.5 we see an example of strategy on the basis of the indicator analysis. There are two rates
of graphics tools - in this case EURUSD with the timeframes M1 (one minute) and M5
(five minutes). Each graph uses a set of indicators: trending and oscillatory, based on the evidence
and directions that we take a decision on the opening and closing deals.

In this section, we found that there are two basic methods of analysis of the currency markets:
fundamental and technical. Fundamental analysis is the analysis of information affecting the
market from outside. This information is an economic and political nature and can significantly
change the direction of currency quotes and tools movements.

Technical analysis is the analysis of only the information that can be obtained using the price chart
of this instrument, in our case the currency pairs. The following types of technical analysis of
currency markets include:
• Graphical
• Indicatory
• Wave
• Analysis of the Futures levels
• An analysis of trading volumes

Using each of the types separately, or combining them it is possible at the output to obtain a trading
strategy that allows receiving stable profit in the Forex market83.

According to the trader and the author of book, Mark Douglas, a massive shift to the technical
analysis took place at the turn of the 70’s 80’s of XX century, since fundamental analysis of the
market is much less predictable, while technical analysis allows you to specify exactly (though not
always correctly) the direction of further movement. The existing tools of technical analysis of
currency markets, such as trend analysis, analysis of levels, and graphical analysis largely show
good results largely to the fact that they are popular among traders and analysts, i.e. it triggered
the mechanism of so-called "Self-fulfilling prophecy."

83Garbuzova,Maria; Madlener, Reinhard.Mitigation & Adaptation Strategies for Global Change.Apr2012, Vol. 17 Issue 4,
p387-413. 27p. DOI: 10.1007/s11027-011-9332-8. , Database: Environment Complete

58
There are many trading strategies developed by traders from around the world. Many of them are
numbered among the classics of technical analysis while the constantly emerging new effective
trading schemes in Forex are appearing. Part of them has the potential to exist for a long time, and
part is often able to make a profit only in determining the nature of movements in foreign exchange
markets.

A trading system is a crucial element of success in Forex trading. But it is necessary to understand
that even a stable trading system in the hands of inept and bad money management system cannot
solve all the problems arising in the course of trade.

3.2 Methods of Investment Management in the Forex market

In the previous section, we analysed the Forex services of the Russian market. In this section, our
attention will focus on ways of managing the invested assets including self-trade, transfer of asset
management and the use of automated systems.
Tabl. 3.1
Comparison of methods for managing capital.

Type of Extent of control over the Availability of The psychological

investment trade process programming knowledge burden on the
investor
Self- Total control of trade Not required High
management algorithms and position-
sizing
Automated Control of position sizing Required creating their own Low
trading and selection tools systems
Transfer in trust The lack of direct control Not required Low
Source: Compiled by the author

On the basis of personal preference and skill level, the potential investor should determine the
most convenient way for him to enter the market. Below, we will look at each of the methods
presented in more detail84.

It is necessary to draw a distinction between the ways of investing in the Forex market. In the first
place, a potential investor is faced with the question whether the speculations in the Forex market
will have an effect on his principal activity, through which it provides itself. At the same time, it
is important if a potential investor has sufficient knowledge in the field of programming, in order
to create custom automated trading systems. Moreover, bears an importance the psychological

84Mamonov, M., &Vernikov, A. (2015). Bank ownership and cost efficiency in Russia, revisited. BOFIT Discussion Papers,
(22), 1-52.
59
characteristic of the investor. Accordingly, the potential investor chooses the most appropriate for
himself or herself way of participation in speculative transactions in the Forex market.
Self-management of invested funds involves private managing of investor trading process. Thus,
it involves the establishment of the sizes and positions of the entry points into the market. This
whole process is fully consistent with the concept of "trading". But the investor, in this case, is
called the "trader".

According to the business vocabulary Trading – according to banking term, means the sale and
subsequent purchase of the same securities, in order to gain profit due to changes in their market
value85.

According to the site of the famous Trader A. Gerchikov trading is the trader's direct work, which
includes analysis of the current market situation and the conclusion of commercial transactions.
Usually, the term refers to trade in securities (stocks, bonds, futures, options) on the stock
exchange. Traders are also called dealers in the currency and commodity markets86.

The main advantages of an independent trade include:

• Full control over trading algorithms
• The ability to attract partners for capital increase

The main disadvantages are:

• High psychological stress
• Time costs
• The need for training

The algorithm input into the market would be as follows:

1. Register your personal account on the dealing site centre
2. Open a Trading Account
3. Deposit funds
4. Installation of the terminal and its configuration

It should be noted that independent commerce is the most psychologically complex type of
investment Trading - a profession that requires learning. Few have a set of qualities that enable

85 Online Business Dictionary - http://www.businessvoc.ru/

86Официальный сайт А.Герчика - http://gerchik.ru/
60
them to consistently earn income from this activity. Only 5% of those who started their own trade
on the Forex market will have a stable income. Therefore, this type of investment is the most
difficult for the investment87.

The most common way of transferring funds in trustworthy management in the retail Forex market
is the PAMM-account. PAMM-account (Percent Allocation Management Module) is a specific
mechanism for the functioning of the trading account, technically simplifies the process of
transferring funds to the trading account in reliable Trustee selected for operations on financial
markets88.

The funds from the PAMM-account are not transferred to the account manager, managed account
belongs to the principal (the investor), and the manager has no right to withdraw funds. A manager
produces operations with its own account, risking the money on it. This should reduce the
likelihood of irresponsible governance. This market risk usually assumes the principal in its
amount, but in some systems part of the risk may be borne by the manager. All trading operations
are duplicated in investor accounts. Duplication happens proportionally to the size of the account,
if the investor's deposit of 2 times the control of the deposit, the size of copied trades will also be
2 times more.

Trustee (Account Manager, managing trader) is usually a trader who publishes statistics of its
transactions, and who is trusted to manage funds by other traders or investors. One trader may
have several PAMM accounts. Using the PAMM-account itself does not guarantee profitability.
The main purpose of such a system is the technical simplification of the interaction between
manager and trustee, which includes automatic monitoring of PAMM accounts receipt and refund,
the distinction of owner’s equity trades and funds of trustees. The broker provides equity
accounting, provides equal rights to all principals, allows you to select at any time the portion of
the assets managed, which belongs to each of the principals individually89.

Trading Platform can be considered PAMM-account as a whole, rather than a plurality of

individual trustees and managing accounts. In this case, the conduct of any transaction changes
the overall balance. At the end of the trading period, the profit obtained in the PAMM-account
proportionally is distributed among the participants of the PAMM-account. In addition to the share

87Wang, G., &Xie, C. (2016). Tail dependence structure of the foreign exchange market: A network view. Expert Systems
With Applications, 46164-179. doi:10.1016/j.eswa.2015.10.037
88Official website of Alpari - http://www.alpari.ru/
89Ponsi Ed The Ed Ponsi Forex Playbook: Strategies and Trade Set-Ups. — John Wiley and Sons, 2010. — P. 75

61
of the profits in proportion to their capital, manager additionally receives compensation for its
activities under the contract.

The loss is also apportioned between accounts. In some systems, the loss can be distributed
primarily to the manager with the limited level of losses for the investor. Typically, the amount of
loss does not change remuneration of the manager. The broker in an automatic mode performs the
distribution of the results between the participants of the PAMM-account.

Benefits of PAMM-accounts for control are as follows:

• All positions which are opened on its account manager, distributed to principals' accounts as a
percentage of their current balance ratio, and each account carries the same level of risk, regardless
of the size of the account;
• A single trading accounts for unlimited number of principals
• The ability to generate income in the form of interest from customers and from proprietary trading
• The ability to install trading conditions PAMM-account in its sole discretion
• Managing a profitable trade can raise an unlimited number of principals, which will increase the
income of the control in the form of management fees.

Benefits of PAMM-accounts for the investor:

• Presence of own equity of the manager in the PAMM-account, who acts as a guarantee of
compliance with the clients' interests
• Security system that does not allow the administrator to withdraw their principals, but allows
you to make transactions on the account;
• the ability to input and output means from control at any time;
• the possibility of diversification of investments by posting them on the PAMM accounts of
different managers;

Thus, we found out that the main advantages of the transfer in trust by the PAMM-account in
relation to the investor are:
• Low psychological load
• No need to analyse the market
• Choice of Governing

The main disadvantages are:

62
• Lack of control over trading algorithms
• The need to monitor potential control accounts
• The need for payment of compensation to the manager

The algorithm input into the market will be as follows:

1. Register your personal account
2. Open a Trading PAMM
3. Deposit funds
4. Implementation of conditions for attracting investors

On Web sites of Russia's largest Forex brokers, is available for review and selection of rated some
of the most successful PAMM-accounts according to presiding managers’ opinions. For a given
rating we will use the site of the largest Forex brokers in Russia - Alpari.
Tabl. 3.2
Best PAMM-Accounts of Alpari

Profitability, in%
PAMM-accounts For 1 year For 6 months
Petrov_Ivan 15,5 51,6
Suzuka 12 289,3 101,3
Lego 45,4 84,2
Desatnik 54,4 22,5
Navalny – 31,9
Samurayi – 494,3
Serg4g – 44,3
Carlson 150,9 123,3
Gorri 311,9 28,9
Mr.Green 65,3 25,1
Average profitability 133,25 100,74
Source: Compiled by the author based on data www.alpari.ru

Among the best accounts according to companies’ opinion, some accounts exist for less than a
year; hence, there is no way to reflect their profitability over the past year. The table shows that
the average yield for the last 6 months is 100.74%, and over the past year - 133.25%. The result is
much higher than the more commonly known methods of generating income from investments,
such as deposits and mutual funds. However, to the result should only be treated as indicative,
because the only ones that showed the best profitability among the best accounts is shown. During
investment, it is worth to perform a more detailed analysis of the PAMM-accounts.
Investing through a PAMM-account is a reliable way to generate income, with the right approach.
This method is much less psychologically costly for the investor, in view of the fact that there is
63
no need to independently control the process of concluding transactions. At the same time, it is
necessary to approach the selection process control, examine the accounts statistics and, if
possible, to diversify the portfolio managers.

Another way of managing the invested assets is the use of automated systems. Mechanical Trading
System (MTS), as well as automated trading system (ATS), whereby a trading robot is a program
designed for full or partial automation of the trading process. The level of automation can be
different i.e. from helping a trader in decisions to an autonomous nomination and removal of
applications on the stock exchange. Also, the program may perform additional functions such as
control of exposed applications, monitoring of transactions, trading analysis providing graphs and
reports90. Using MTS as part of this work, the author considers it necessary only in the framework
of algorithmic trading.

Algorithmic trading is a formalized process of making deals in the financial markets for a given
algorithm using specialized computer systems. Thus, in this case, the trade is fully automated and
only requires from an investor the presence of a stable connection with the market, and some
control.

Algorithmic trading is widely used as institutional investors, for the effective execution of large
orders, and private traders and hedge funds for speculative income. In 2012, the share of high-
frequency algorithmic trading accounted for about 80% of the total volume of trading in shares in
the United States. According to RTS, in 2013 the share of trading robots in the turnover on the
RTS FORTS futures market accounted for about 60%, and their share in the total number of
applications at certain times reached 90%.

The use of MTS in the Forex market is not fundamentally different from the use of those other
markets. There are many systems, successfully operating on a wide variety of markets. At the same
time, it is necessary to take into account some features of the price movements in the currency
market.

To invest in the Forex market in Russia and the subsequent management via the MTS, the investor
can both choose a specific system and start installing it, or use the services of partners dealing
centres, actively offering their own and widely available on the Internet develop networks.

90Shumkov EA, Kozlov DN Construction of MPS based on the frequency and time analysis Japanese candlesticks //
Southern Federal University. Technical science. 2010. № 2. - S. 236-242.v
64
The investor can have already prepared to use MTS or a fully formalized trading algorithm. In the
second case, it can resort to the help of programmers, in the absence of the necessary skills. If you
have programming skills, it is possible to create their own MTS using the built-in Metatrader
terminal capabilities91.

For a smooth operation of the MTS, it would be highly useful to use VPS-server services, i.e.
virtual private servers. For a fee of 4 to $ 25 per month, they provide dedicated server, with the
possibility of installation of a number of trading terminals with a permanent connection to the
Internet, which guarantees the smooth operation of the MTS.

The algorithm of entering into the market will be as follows:

1. Register your personal account
2. Open a Trading Account
3. Deposit funds
4. Selection of MTS and its acquisition (in the case of pay-proliferation)
5. Set the terminal and MTS VPS-server or a personal computer and their configuration

Using the PBX to a certain extent is a combination of the previous methods of investing. Robots
increasingly capture the modern market and are now the dominant way of trading on world stock
exchange and OTC markets. Partuclarly during the short-term trading strategies. With proper
selection of the PBX and the proper control of its trading process, the investor receives a steady
income and avoids the disadvantages of trading and transfer to trust management.

Thus, in this section, we have analysed the possible ways to invest in the retail Forex market. We
considered a separate trade, the transfer of trust management, and the use of ATS.Self-Trade is the
most sophisticated method of investing in the Forex market. Trading is the only way to enter the
market, 100% allowing maintaining control over transactions. At the same time, the trading - it is
a profession that requires special knowledge, continuous learning, effective trading strategy.
About 95% of new traders lose their deposits. This is mainly due to psychological stress, and
making wrong trading decisions, even contradictory to trading strategies of a trader. Therefore, an
independent trade is not for everyone. At the same time learning the craft trader may take the
investor a few years, which is not acceptable for short-term investments.

91 Official site Metaquotes - http://www.metaquotes.net/

65
The transfers of funds in trust in the Forex market is most often realized by the PAMM-accounts,
which allow apportioning risks and profits between the investor and the manager. PAMM-
accounts, compared with trading, allow avoiding the strong psychological stress, a long learning
process. According to the website of Alpari, among the top 10 of the PAMM-accounts in the past
6 months, the average yield was 100.74%. Among the 7 existing more than a year, the yield for
the last year amounted to 133.25%. This is much higher than bank deposits and investments in
mutual funds. Diversification of the PAMM-account portfolio allows the investor to obtain a stable
income in both the short and long term. At the same time, there is a need to control remuneration
in the amount of 50 to 25% of total earnings, as well as a low level of control to make transactions.

ATS are widely used in today's trading on the exchange and OTC markets. From 60 to 80% of the
volume of trading on the world's stock markets are provided with trading robots. It is no exception
for the Forex market. A private investor can be used as a ready-PBX, available for download or
purchase, or formalize an algorithm derived with the help of programmers or with own help. The
key to success when working on the Forex market with a PBX is a right choice, configuration, and
control of the operation of the system.

Today, there are 3 of the most popular ways of managing the invested assets: independent trade
and the transfer of the trust management and use of ATS. The control method depends largely on
the psychological portrait of the investor. Having free time and expertise. Trading is the most
difficult way, because of the psychological stress and the need for investment of time. The use of
ATS is a reliable way of investing, with a suitable choice of the most PBX, its proper setting and
subsequent monitoring.

Investing in the PAMM-account is the most convenient way in today's realities of investing in
order to obtain speculative profits. According to the information of the largest players in the
Russian market, Alpari, the annual yield of 7 best currently accounts amounted to 133.25%. This
is much higher than the yield of bank deposits and mutual funds. With this form of investment,
the investor needs with due diligence to investigate existing PAMM-account and create its own
portfolio or use ready-made solutions.
Thus, the Forex market is an acceptable way to generate income from the financial markets. It
provides a wide range of operating and investment instruments. Despite the legal vulnerability of
the market in Russia and in other countries it is licensed and regulated. The growing momentum

66
of the Russian segment of the market, as well as a significant amount of funds on the accounts of
Russian investors, is increasing its popularity and attention from regulators.

3.3 Implementation of the author's trade strategy in the Forex market

As we have found in the previous section, there are 3 ways to invest in the Forex market:
• Self Trade
• Investing in the PAMM-accounts and structured products
• Using the PBX

Each of the methods has it is own advantages and disadvantages. In this section, we are going to
analyse authorial strategy of independent trade on Forex market based on technical analysis.

The author of the thesis has for the first time discovered the Forex market in 2012. Over the year
occurred the acquaintance with the fundamentals of the market, trading platform, types of orders
and basic strategies in the Forex market. After studying the strategies the auuthor followed a
trading on a demo account of Alpari in terminal MetaTrader 4. For the past 2 years, trade is
conducted on a real account. During these 2 years, the author has repeatedly changed his trading
strategy. As a result, the author, largely based on the strategy and articles of other traders, had
developed its own trading strategies based on technical analysis.
Consider the main characteristics of the trading system of the author:
Table 3.4

Type of
analysis used Technical
Basic analysis Analysis of the trends, key price levels, graphic figures on the basis of the
tools "Japanese candlesticks"
Timeframe D1 (Daily Candle)
Auxiliary
indicators No
EURUSD, GBPUSD, AUDUSD, NZDUSD, USDCHF, USDCAD, USDJPY,
Currency EURJPY, GBPJPY, AUDJPY, EURCAD, EURAUD, AUDNZD, AUDCAD,
pairs GBPCHF, EURCHF
Source: compiled by the author

Commonly, technical analysis of charts is used for the trade of currency pairs. Fundamental
analysis, including the account of the upcoming release of the news, is completely ignored.

67
Trend analysis involves the construction of trend lines based on the rules listed in the first
paragraph of this chapter. At an increasing upward trend entrance only for the purchases, with the
downward is for the sale, with a horizontal trend possible entry is both for the purchase and sale.

The entrance is only near the key price levels, we shall pay special attention to the round price
level, such as 1.10000, 1.25000, and so forth. In this case, these levels will serve us as a "support"
when buying and "resistance" during the sale.

When you trade using charts with D1 «timeframe," i.e. one candle shows price movement of the
currency pair in one day.

Trade is conducted on the 16 trading instruments, which are all currency pairs. Employed are the
currency pairs of developed countries with an open market economy and a floating exchange rate.
Movement on these currency pairs are formed by supply and demand, so the traffic on them are
relatively smooth and predictable in nature, which makes them easy to trade. Among these 7 major
currency pairs and 9 so-called cross rates, which are currency pairs without the participation of the
US dollar.

The basis of the analysis is the figures, the so-called "Patterns" candlestick, which are actively
used by many traders to trade. The basis of the studied strategy methods of famous traders, such
as Steve Nison, an author of a series of books about the analysis on the basis of the "candlestick"
trader James16, who described its strategy in the famous forum Forex traders forex factory92, trader
Niall Fuller, author of Forex blog ‘learn to tradet hemarket’93, as well as Russian trader Pavel
author of the blog ‘trade like a pro’94.

The above traders use the so-called Price Action trade. Price Action is primarily based on an
analysis of price movement. No indicators are used, all the information about trades is read only
by a price chart.

The author in the trade uses the following candlestick patterns:

• Pinbar
• Internal bar

92 http://www.forexfactory.com/
93 http://www.learntotradethemarket.com/
94 http://tradelikeapro.ru/

68
• A false breakout level

Consider the given figures in greater detail.

Figure 3.6
Source: compiled by the author

Fig. 3.6 presents a pin bar pattern. The name of the pin bar is derived from the name of reduction
Pinocchio bar, due to its specific form. It is a candle with a long shadow, bred in the opposite
direction from the previous movement, and a small body, as generally disposed of in the range of
the previous bar.

According to reputable traders, pin bar tells us that the price could not fix to a certain level, thus
it returned. Hence, we can assume that there are market participants, who are interested in the fact
that the price has not passed a certain price level and started to move in the opposite direction from
the shadow of a candle. This situation leads to the formation of a candle in the form of a pin bar.
The author’s strategy of Pinbar is traded, if complied with a number of conditions:
• Visually long shadow
• Located in the range of the previous candlestick
• Stands out from the surrounding candles (the shadow is in the extreme values for the last
few days or weeks)
• The tail is directed against the current medium-term or long-term, the trend and the
direction of the short-term trend.
• The closing price is below the resistance level for sales and above the support level and
visually close to this level.

69
 Figure 3.7

Source: compiled by the author

Fig. 3.7 presents the inside bar pattern. The pattern is formed when one or a few candles did not
go beyond the range of the previous candle.

The pattern may be indicative of several events:

1) The price cannot pass a particular level; subsequently, the level of the sample can serve
as a good signal for the resumption of the trend.
2) After the breakdown level "parent" candle, inside bars are slowing down before
resuming the trend.
Author's strategy involves trading with internal bar only in the second case; the following
will be more fully illuminated entry mechanism with an internal bar.
Figure 3.8

Source: compiled by the author

70
Fig 3.8 presents pattern differentiations of "false breakdown level." The pattern arises in situations
where the price could not be fixed for the price level. Figure on the left indicates a reversal in a
single day, to the right - in two days. In general, reversal may take up to 4 days.

When analysing this pattern an important role is played by the force level at which it is formed.
The highest quality patterns are formed near the Round price levels (for example, 1.10000,
1.50000).

The deal opens in the direction of the current long-term or medium-term trend and against short-
term (i.e. after the "correction").

It is worth mentioning that the pin bar is a special case of a false breakdown level except that the
name of the pin bar does not necessarily imply the presence of a level, although the author does
are not traded without it.

The trend in is the direction of priority movement indicators. In the frame of the technical analysis
is implied a direction of price movement, or index values. Charles Dow noted that during an
upward trend the subsequent peak in the graph should be higher than the previous, and following
declines in the chart should be below the previous in a downtrend. As noted earlier, there is a
distinction between upward, downward and horizontal trend.

The success of the transaction rises directly during the trade in the trending direction. At the same
time, the price rarely moves continuously in one direction, for a long time. Market participants,
who opened a deal in the aspect of the current directions, are forced to close the transaction in
order to lock in profits. It causes a short-term change in the direction of price movement and is
called "correction". Correction is a short-term movement against the main trend.It is the end of the
correction is used in this strategy as the most suitable place to enter into the transaction.

Money management or capital management is one of the three elements of successful trading along
with a trading strategy and psychology. In using this term, we mean the following:
• The maximum risk per trade
• The ratio of potential profit and potential loss

Tabl. 3.6
71
 Characteristics of money management author's trade strategy
The risk to the transaction, in % of the capital ≈3
The size ratio of the take-profit to the stop-loss >1,5
Source: compiled by the author

In the current strategy, the risk of the transaction constitutes approximately 3%. This value
provides an acceptable level of drawdown at a reasonable profit. The ratio of potential profit to
potential loss (i.e. the size of the take-profit / stop loss size) is from 1.5 and above.

At the risk of 3% per trade on the total capital trading account, money management strategy is
close to conservative. Thus, it implies a gradual increase of the deposit and a small drawdown on
the account.

Psychological state, attitude, and discipline are the most important components of successful
trading in the Forex market. The ability to follow Sway strategy despite any stimuli is the most
important criterion for a profitable trade in the market. In the previous chapters, we discussed the
psychology of trading as one of the components of the risk when trading in the Forex market. In
this section, the author aims to practically describe the psychological aspect of trading.

The major psychological barriers to profitable trade in the opinion of the author are:
• Fear (trade entry, capital losses)
• Greed (desire to make big profits in the short term)

Both factors have an influence on the decision-making process in the course of trading. Consider
the impact of these factors during the decision-making process:
Table 3.7

The effect of psychological factors on the decision-making process

The psychological factor Phase of trade

Login to deal open position management
Fear Ignoring the time to enter Premature closure of the transaction,
the potentially lucrative preserving the potential for profit
deal. growth.
Greed Entrance to the transaction Ignoring the need for closing deals,
that are contrary to the lost potential profit growth.
strategy.
Source: compiled by the author

72
Fear can prevent opening a potentially lucrative deal and cause premature closure of the deal,
which has not yet lost its potential for profit growth. At the same time, greed is unreasonable
strategy inputs and prevents closing a potential lost deal.

Discipline and self-selected strategies are the most effective ways to minimize the impact of these
factors on their trade.

A trading system without formal criteria of entry and exit will always be the cause of certain
psychological problems because there is the human factor in the interpretation of a particular
market situation. In general, the success of the favored, developed by the author, techniques to
trade include:
• The potential deal should not be ashamed to put on a trading journal
• Any failed transaction is the opportunity to become better as a professional and a person.

Further stages will consider the trading analysis of the situation, the decision-making process and
the basic open position management techniques within this trading strategy.

The author singles out the following steps in the analysis of the current market situation and trade:
1. Analysis of the current market situation i.e. search of a potential moment to enter the market
2. Defining a potential entry into the marketplace
3. Install warrant levels of take-profit and stop-loss
4. Management of an open position

Analysis of the current market situation presents an analysis of currency charts and search for
potential locations for the transaction. The author views currency graphs at about 22:00 o’clock
according to time in Omsk for preliminary analysis, and after the opening of the day candle
according to EET time, in the summer coincides with a time of 3:00 for issuing orders and entrance
into a deal.

73
 Figure 3.9

Source: compiled by the author

Fig. 3.9 shows schematically a potential place to enter into a transaction. The criteria for expecting
transactions in this price zone are:
• The prevailing trend
• The resulting correction
• The presence of significant price level
Figure 3.10

Source: compiled by the author

After determining the location of potential entry into the market, we define a stop-loss and take
profit. Level stop loss the author often exhibits beyond the extreme of the signal candle. Take-
profit does not usually go beyond the range of motion that is greater than the previous level of stop
loss of more than 1.5 times.

74
Further, there is already an open position control, which consists of monitoring the transaction
and, sometimes, requires the forced closure of a position if the objectives remain at a small
distance.
Figure 3.11

Source: compiled by the author

The above figure represents an example of the transaction by the author's strategy. There was a
pattern of pin-bar for sale, with the trend under the key level and near it. As a result, the price went
a considerable distance along the trend, and the potential profit exceeded the potential risk of more
than 4 times.

The author is a practitioner trader with 2 years experience of trading on a real account. Trader’s
Occupation in the first place attracts a free schedule of work, the absence of submission of
someone else. At the same time, many find in this profession in need of continuous self-
development, the search for new ideas and strategies, which together with the possibility to
instantly apply their ideas and see the result in practice, is very attractive.

At the same time, trading psychology plays a crucial role. Even with the simplest analysis it is
possible to make a profit when you have a good money management system and the right mental
attitude. More than 95% of traders in the Forex completely lose their money and leave the market.
Trading is a profession that you want to learn. Having spent no time in training, and getting a
stable profit is almost impossible.

The trading system of the author is based on technical analysis. At the core is the analysis of
candlestick patterns, trends, and key levels. The system is author's modification of the trading
method Price Action. Ideas are borrowed from the following traders: James16, Niall Fuller
tradelikeapro site and its main author - Pavel.

75
The point of the system is to look for candlestick patterns at the levels of support and resistance at
the extreme short-term trend towards the medium-term or long-term trend.

During 3 months of trading, a live account yield reached 179.6%, with 32.49% maximum loss.
The average daily gain was 6.57%, with an average daily loss of 3.32%.Part of the money earned
by the author has been withdrawn from the account. Some have been reinvested to increase the
trading deposit. Thus, in practice, the author examined the attractiveness of the Forex market for
investment.

According to the author and trader Mark Douglas, a massive shift to the technical analysis took
place at the turn of the 70’s and 80’s of XX century, since fundamental analysis of the market is
much less predictable, while technical analysis allows you to specify exactly (though not always
correctly) the direction of further movement.

The existing tools of technical analysis of currency markets, such as trend analysis, levels of
analysis, graphical analysis largely show good results thanks to the fact that are popular among
traders and analysts, i.e. It triggered the mechanism of so-called "Self-fulfilling prophecy.”

There are many trading strategies developed by traders from around the world. Many of them are
numbered among the classics of technical analysis while the constantly emerging new effective
trading scheme in Forex roars. Part of them has the potential to exist for a long time and is often
able to make a profit only in determining the nature of movements in foreign exchange markets.

A trading system is a crucial element of success in Forex trading. But it is necessary to understand
that even a stable trading system in the hands of inept and bad money management system can not
solve all the problems arising in the course of trade.

Self-Trade is the most sophisticated method of investing in the Forex market. Trading is the only
way to enter the market, 100% allowing maintaining control over transactions. At the same time,
the trading - it is a profession that requires special knowledge, continuous learning, effective
trading strategy. About 95% of new traders lose their deposits. This is mainly due to psychological
stress, and making wrong trading decisions, even contradictory to trading strategies of a trader.
Therefore, an independent trade is not for everyone. At the same time learning the craft trader may
take the investor a few years, which is not acceptable for short-term investments.

76
The transfers of funds in trust in the Forex market is most often realized by the PAMM-accounts,
which allow apportioning risks and profits between the investor and the manager. PAMM-
accounts, compared with trading, allow avoiding the strong psychological stress, a long learning
process. ATS are widely used in today's trading on the exchange and OTC markets. From 60 to
80% of the volume of trading on the world's stock markets are provided with trading robots. It is
no exception for the Forex market. A private investor can be used as a ready-PBX, available for
download or purchase, or formalize an algorithm derived with the help of programmers or with
own help. The key to success when working on the Forex market with a PBX is a right choice,
configuration, and control of the operation of the system.

Today, there are 3 of the most popular ways of managing the invested assets: independent trade
and the transfer of the trust management and use of ATS. The control method depends largely on
the psychological portrait of the investor. Having free time and expertise. Trading is the most
difficult way, because of the psychological stress and the need for investment of time. The use of
ATS is a reliable way of investing, with a suitable choice of the most PBX, its proper setting and
subsequent monitoring.Investing in the PAMM-account is the most convenient way in today's
realities of investing in order to obtain speculative profits. According to the information of the
largest players in the Russian market, Alpari, the annual yield of 7 best currently accounts
amounted to 133.25%. This is much higher than the yield of bank deposits and mutual funds. With
this form of investment, the investor needs with due diligence to investigate existing PAMM-
account and create its own portfolio or use ready-made solutions.

During a period of over 2 years, the author developed its own trading system, whose results and
descriptions are presented in this chapter. Achieved profits and derived profits suggest that the
Forex market is an attractive way to invest in order to generate income. At the same time, to
achieve the desired results requires an analysis of the PAMM-accounts, the selection, and control
of the PBX work, learning about the trading of materials and the development of their own trading
system.

Thus, the Forex market is an acceptable way to generate income from the financial markets. It
provides a wide range of operating and investment instruments. Despite the legal vulnerability of
the market in Russia and in other countries it is licensed and regulated. The growing momentum
of the Russian segment of the market, as well as a significant amount of funds on the accounts of
Russian investors, is increasing its popularity and attention from regulators.

77
 CONCLUSION

Mankind has long experienced a need for a universal means of payment, by means of which it
would be possible to obtain any potential goods and services. Over time, we have moved from
barter, bimetallism, and monometallism to paper money. But not a single currency, in the history
of mankind, which have ever existed, could become universal to every corner of the Earth. But
with the development of the world economy, the global monetary system changed, adjusting to it.
But in the presence of own currencies by the members of the international community, there will
always be a need for the exchange of currencies between themselves.

The Forex market is an integral part of modern international economic relations. Forex is a system
in which trillions of international dollars are exchanged daily. When writing this thesis, the set
goal was to explore ways of investing money in the Forex market in order to make a profit.

To accomplish this goal were systematized data about the history of the Forex market. Its role in
the modern economy has been investigated. The value of the retail segment of the market has been
given special attention. Thus, the legal framework has been analyzed in the world and in Russia.
Investigated the practical aspect of currency trading device. There has also been systematization
of data management techniques embedded in the Forex market means.

The study reached the following conclusions:

1. The concept of Forex originally meant only international interbank currency exchange market.
However, due to the increasing popularity of market speculators, Forex is currently also referred
to as retail Forex-products market, which has access to small investors.

2. Forex regularly appeared as a result of the global monetary system and global currency relations.
Its existence was not possible until 1976 after Jamaica concluded an agreement, which became the
basis for the modern world currency system in which exchange rates began to be formed by the
free supply and demand for currencies of the countries of the world.

3. Despite the tremendous positive impact the emergence of Forex market on the global economy,
strengthening the economic ties between participants, the possibility of free and fair exchange rate,
its appearance also helped to reduce control over exchange rates, and the revitalization of
speculators in the foreign exchange market.

78
4. Forex market serves the interests of the vast number of participants in the process of exchange
of currencies between themselves. Forex is the largest market in the world. The average daily
turnover is more than 4 trillion U.S. dollars. Its participants include banks, corporations,
governments, foundations and private individuals.

5. The most liquid currencies in the Forex market are the currencies of the most economically
developed countries of the world. The absolute leadership belongs to the US dollar, due to its role
in the modern global economy. Its share constitutes 87%. The European Union euro, British pound,
Japanese yen also play a high role.

6. The most active trading participants are multinational banks based in Europe and the United
States. The market is most active during the London and New York trading sessions. Most
frequently, there is an exchange between the currencies of developed countries. In particular
between the US dollar and the euro EU accounts for 37% of the total trading volume.

7. Forex contains some differences from other markets. This is primarily a tool of transactions i.e.
currency pairs. Also, it is differentiated from the currency futures is it immediate delivery (within
2 days), as well as the OTC market device.

8. During the conclusion of transactions in the retail Forex market, it does not perform concomitant
to obtain additional acquisitions of property rights. In contrast to the interbank Forex market
segment, the retail Forex market usually does not actually purchase and sell currencies. Thus,
contracts can largely be characterized as a transaction for the difference. Albeit, with reservations
on the specifics of the market.

9. Forex market is peculiar to the widespread use of margin lending. This is due to the fact that the
potential market for investors, due to its ease of entry, does not always has sufficient funds for the
contract. At the same time, the range of price changes on the instruments in the Forex market
allows you to use high leverage without significant risks.

10. Choosing a reliable dealing center in many respects is a fundamental factor of success when
entering the market. Since an object of transactions is a foreign exchange, there may be some
difficulties with the functioning of the dealing centers in certain countries, including Russia.
Commonly, dealing centers are offshore companies. Thus, a contractual relationship with them
79
goes beyond the scope of the investor's country of jurisdiction. Profit of dealing centres is based
on commissions, spreads, and swaps credits. At the same time analytical and training materials are
usually provided free of charge or with some restrictions on the size of the deposit.

11. Transactions are usually cleared within dealing company. Thus, dealing centre offset customer
transactions, and has, at its discretion displays transactions on the interbank market. At the same
time when using the accounts, working at ECN technology, transaction output to a network
connects many private traders, and already there the transaction between them is performed.

12. In international practice, the legal aspect of this market is heavily dependent on the currency
legislation of any country. Thus, free currency conversion facilitates the activities of dealing
centers. At the same time registration in offshore zones significantly eases and demeans activities
of dealing centers and allows customers to evade tax.

13. First of all the basic problem of the Forex market in Russia is the lack of an appropriate legal
framework and clear mechanisms for the licensing of the activity. Application of dealership
schemes of work leads to increased risk, as customers of the transaction are not available to the
general pool of stock exchange transactions and the turn just inside the brokerage firm.

14. Broker carries significant risks, since considering the marginal lending is compelled to provide
all the earnings of its clients from its own funds. And to use stock market scheme of such
companies in Russia cannot be fully due to the lack of a legal basis, as well as the work of
established mechanisms. Some broker-dealer companies are trying to reduce this risk by
connecting to foreign suppliers of liquidity, and provide customers the conclusion of transactions
in the foreign market. But this scheme in Russia also presents a number of difficulties, since in
fact such a company is not registered in Russia.

15. In the Forex market industry are many unscrupulous companies that affect the image of the
industry, and there are no mechanisms of influence on such companies. In this connection, there
is a low degree of confidence in the Forex market for Russian citizens. There are no legal
mechanisms for Forex market usage, in order to commit Entities operations. Problems are also
created by the inexperience of Russian citizens and companies in the utilizing of derivative
financial instruments.

80
16. Deposits from customers in dealing centers are opened in foreign currency. But according to
Russian law, contractors are required to perform calculations on the territory of the Russian
Federation in rubbles. Companies bypass the ban by registering a company in offshore zones. It
also avoids dealing centers from obtaining a banking license on Russian territory. Offshore areas
not only enable companies to avoid the Russian legislation but also prevent the collection of taxes
on income recipients on the territory of the Russian Federation.

17. Amongst the popular schemes of the organization of dealing businesses organizations, on the
territory of the Russian Federation, stands out the schemes with registration in offshore zones. This
gives rise to difficulties in the first place for potential investors, as the resolution of disputes in
such cases is not subject to local law and the investor is less secure.

18. The retail FX market is projected to expect strong growth. Already today raised approximately
$ 450 million USD. The turnover is about 1% of the total Forex international market. The largest
player in the Russian market is the company Alpari with a share of approximately 30% of the
market. Three major players include Alpari, ForexClub, and Teletrade covering about 70% of the
Russian market. Despite the potential risks, the Russian market is quite different from the high
quality of the services provided.

19. Independent trade is the most sophisticated method of investing in the Forex market. About
95% of new traders lose their deposits. This is mainly due to psychological stress, and making
wrong trading decisions, even contradictory to trading strategies of a trader. Therefore, an
independent trade is not for everyone. At the same time learning the craft trader may take the
investor a few years, which is not acceptable for short-term investments.

20. The transfers of funds in trust in the Forex market is most often realized by the PAMM-
accounts, which allow apportioning risks and profits between the investor and the manager.
PAMM-accounts, compared with trading, allow avoiding the strong psychological stress, a long
learning process. According to the website of Alpari, among the top 10 of the PAMM-accounts in
the past 6 months, the average yield was 100.74%. Among the 7 existing more than a year, the
yield for the last year amounted to 133.25%. This is much higher than bank deposits and
investments in mutual funds. Diversification of the PAMM-account portfolio allows the investor
to obtain a stable income in both the short and long term. At the same time, there is a need to
control remuneration in the amount of 50 to 25% of total earnings, as well as a low level of control
to make transactions.
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21. ATS are widely used in today's trading on the exchange and OTC markets. From 60 to 80% of
the volume of trading on the world's stock markets are provided with trading robots. It is no
exception for the Forex market. A private investor can be used as a ready-PBX, available for
download or purchase, or formalize an algorithm derived with the help of programmers or with
own help. The key to success when working on the Forex market with a PBX is a right choice,
configuration, and control of the operation of the system.

The above factors allow systematizing the information on the Forex market, which will be useful
for the investor. In the coming years, the retail Forex market both in Russia and abroad expects
steady growth. In Russia, interest in the Forex market increases largely against the backdrop of
growing interest to the market as securities and derivative financial instruments.

In summary of this work it is worth noting that with proper approach investment in the retail Forex
market, it is a lucrative way to generate income. And in the coming years in the Russian Federation
will be observed an increased interest in the market.

The key to successful investing is primarily the choice of method of investment management.
Depending on the personal qualities, availability of resources, and time, the investor must decide
whether he will devote himself a trader profession, whether he will trust funds managing PAMM-
accounts or acquire ATS.

The second step is to select a reliable dealing center. In view of a large number of unscrupulous
companies, especially in the early stages of their appearance in Russia, this market has an
extremely ambiguous reputation. Lack of legal framework and offshore jurisdiction in most
companies also leaves its mark on the attitude of potential investors to this market. At the same
time, the quality of services provided by the Russian Forex market leaders is at a very high level.

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Normative legal acts:

46. 10.12.2003 number 173-FZ "On Currency Regulation and Currency Control"

Electronic resources:
47. Official website of Alpari - http://www.alpari.ru/
48. Oxford Online Dictionary - http://www.oxforddictionaries.com/
49. Online dictionary of business terms - http://www.businessdictionary.com/
50. Online dictionary of business terms - http://www.businessvoc.ru/
51. Information on the financial markets - http://www.markets.com/
52. Official site of the agency Reuters - http://www.reuters.com/
53. Official site of the IMF - http://www.imf.org/
54. Official site of Forex Broker - http://forex-bcs.ru/
55. Official site of the broker Alfaforeks - http://www.alfa-forex.ru/
56. Information about Forex - http://www.forexmoney.com
57. Official website of the brokerage department of VTB - http://onlinebroker.vtb24.ru
58. Information about the financial markets - http://promarkets.info/
59. Online encyclopedia BibleForex - http://bible-forex.ru/
60. Online encyclopedia about the financial markets - http://www.babypips.com
61. The official website of the company Instaforex - https://www.instaforex.com/
62. Legal and financial consulting - http://www.roche-duffay.ru/
63. Online Library "Librarian» - http://www.bibliotekar.ru/
64. Official site Broker - http://bcs.ru/
65. Official site of Interfax - http://www.interfax.ru/

66. Official site Roboforex - http://www.roboforex.ru/

67. Advice on risk issues - http://www.risk24.ru/
68. Risk Disclosure Alpari - http://www.alpari.ru/
69. Risk Disclosure Company Foreksklab - http://www.fxclub.org/
86
70. Financial Dictionary - http://smart-lab.ru/
71. Information about Forex - http://ru.tradimo.com/
72. Advice on investment in the Forex market - http://forex-invest.tv/
73. M. Douglas - "Trading in the Zone", the electronic version -
http://theignatpost.ru/magazine/
74. Online Business Dictionary - http://www.businessvoc.ru/
75. Official site A.Gerchika - http://gerchik.ru/
76. Official site Metaquotes - http://www.metaquotes.net/

APPENDIX 1 – DIFFERENCES OF FOREX FROM FUTURES CURRENCY MARKET

There is a necessity to compare the Forex market and currency futures market in the view of their
similarity on tool trades. As we know - currency futures are considered an obligation contract, for

87
 the supply of currency in the future. The main differences of markets according to certain criteria
are presented in Table:

Comparison of the forex market and the currency futures market.

Criterion Forex-market Futures-currency market
Organization non-referring to exchange referring to exchange
Quotes Quotes of broker / bank Market Exchange quotations
Minimum deposit amounts No Yes
The use credit leverage to 1: 1000 often to 1:50
In the presence of market opportunities (up to several
Time of completion Few seconds minutes)
The ability to diversify Low High
Duration deals Not limited Forced closure according to the specification
Source: compiled by the author.

The table shows that there is a high number of differences between the two markets. Basically,
they are all related to the fact that the futures market - the stock and forex market - over the counter.
In this regard, there are high chances of brokers and banks in the Forex market in determining the
current market price, trade rules, etc. Also, it is worth noting that on the futures market there is a
real purchase and sale of assets, ie, futures. While the Forex market is often present inside broker
clearing. The futures market is more flexible, because the prices there are formed on the basis of
expectations, therefore, allows comfortable diversification, hedging and spreading, in contrast to
the spot market.A future trading is very similar to Internet trading on Forex. In the futures markets
the same principles of fundamental and technical analysis, the same stop and limit orders,
indicators, charts, financial news, and other tools are used. Any trader working on Forex can begin
trade futures, but has to consider some of the features of futures trading.In online trading currency
futures have a number of advantages over the Forex market. This is why experienced traders often
prefer to trade in the futures market. Clearing on the futures takes place centrally, and only on the
stock exchange on which the contract is traded. Orders are given to the broker through the trading
terminal client, the broker, in turn, always redirects the client orders to the stock exchange, stock
docks deal of customer with the opposite transaction of another client, then the client transaction
appears to open its terminal. When trading futures electronic client terminal directly connected to
the broker server, which is connected to the electronic system of the exchange. The Exchange and
the broker do not earn a client's loss, which is even theoretically impossible. Earnings of broker
and stock exchange are a commission, as well as a huge number of customer transactions, the
minimum commission for a client to get them a good income. Neither the Exchange nor the brokers
are interested in client’s loss, since the more customers perform transactions there more profitable
are the exchanges and brokers. On the contrary, the exchange and brokers are interested in
customers to earn and perform as many transactions as possible, hence tend to provide all
88
conditions for this i.e. the constant improvement of terminals, improvement of the clearing system,
the introduction of new order types and other innovations.

APPENDIX 2 - MAJOR BROKERS OF RUSSIAN FOREX MARKET

The following are the largest players in the Russian forex market:

The number of active

The average monthly turnover
clients

The average turnover

Organization
Thousand, Share of Billion, Share of per 1 customer per 1
№ №
roubles. market US dollars market month,
in mln. US dollars

Alpari 1 117,4 29,13% 1 133,6 30,78% 1,14

Forex Club 2 79,4 19,70% 2 89,8 20,69% 1,13
TeleTRADE 3 65,3 16,20% 3 76,3 17,58% 1,17
Forex4you 4 29,1 7,22% 4 22,6 5,21% 0,78
Insta Forex Group 5 21,9 5,43% 7 17,1 3,94% 0,78
Alfa-Bank 6 9,8 2,43% 5 20,2 4,65% 2,06
VTB 24 7 9 2,23% 6 18,5 4,26% 2,06
RoboForex 8 8,4 2,08% 20 1,6 0,37% 0,19
FBS 9 8 1,99% 15 3,3 0,76% 0,41
FOREX MMCIS
10 7,6 1,89% 9 5,9 1,36% 0,78
group
Admiral Markets 11 6,1 1,51% 11 4,4 1,01% 0,72
Finam IK 12 5,5 1,36% 12 4,4 1,01% 0,80
Aforex 13 5,3 1,32% 13 4,2 0,97% 0,79
FIBO 14 5,1 1,27% 14 4 0,92% 0,78
Saxobank 15 5 1,24% 8 11,7 2,70% 2,34
NordFX 16 4,9 1,22% 19 1,9 0,44% 0,39
PROFIT Group 17 4,3 1,07% 23 0,7 0,16% 0,16
GKFX 18 3,6 0,89% 16 2,8 0,65% 0,78
FreshForex 19 3 0,74% 17 2,8 0,65% 0,93
Brokerkreditservis 20 2,1 0,52% 10 4,9 1,13% 2,33
Akmos Trade 21 1,9 0,47% 18 2,1 0,48% 1,11
EXNESS 22 1,7 0,42% 25 0,5 0,12% 0,29
FOREX TREND 23 1,3 0,32% 22 1 0,23% 0,77
FXOpen 24 1,2 0,30% 21 1,4 0,32% 1,17
Real Trade 25 0,8 0,20% 24 0,6 0,14% 0,75
Source: Official site of Interfax - http://www.interfax.ru/

APPENDIX 3 - CHANGES IN REGULATION OF FOREX MARKET IN RUSSIA

One of the major anticipated events of 2014 in the Forex market dealer services in Russia, of
course, was the adoption of the law on state regulation in this segment of the financial market. In
the first reading of the draft federal law "On Amendments to the Federal Law" On the Securities
Market 'and Certain Legislative Acts of the Russian Federation (with regard to the legal regulation
89
of dealer activity in the OTC Forex market) "was passed by the Parliament in June 2013, the
second reading was held December 9, 2014, the third reading - December 16, 2014. The Federation
Council approved the law of 25 December 2014. And December 29, 2014, Federal Law № 460-
FZ "On Amendments to Certain Legislative Acts of the Russian Federation" was signed by the
President of Russia and published on the official portal of legal information.

Over the past year and a half, the law has experienced a large number of amendments, including
conceptual. Among the important observations can be noted the following:
• A description of the content and legal nature of the transactions in this market;
• a proposal for the direct provision of judicial protection transactions in the Forex market;
• a description of the organization of Forex-dealers relations with customers (the requirement of
the contract);
• a description of the main protection against unscrupulous companies abuse mechanisms;
• clarification of the provisions on self-regulation in the Forex market;
• establishment of the regulatory requirements to the activities of companies of the market in law;
• Expansion of powers in the Bank of Russia to the Forex market regulation.

The introduction of regulation is necessary to improve transparency and market civilization, in

particular, the creation of protective mechanisms acting in the interests of customers and
companies - market participants. Currently, the Russian Forex market, a high level of competition,
along with the companies that are aware of our responsibility to our customers, there are some
unscrupulous dealers whose activities have a negative impact on the reputation of the industry as
a whole. One of the main functions of the regulator in the face of the CBR task is to protect
customers from unscrupulous service providers in the Forex market and explain to potential
investors particularly high-risk operations in this market. Therefore, adoption of the law will
contribute to the care of unscrupulous companies.
Experts point out that the introduction of the market into the legal framework is the current stage
of its development is perhaps the timeliest. The negative overall economic situation in the present
leads to market contraction due to the reduction in available funds at the disposal of potential
customers, so the amount of work that will need to perform the central bank as the Forex market
regulator is not so great as it could be in a growing economy.

Of course, Forex dealers are hoping for a balanced and adequate solutions to Russian legislators
and regulators in terms of regulation of the market, which will contribute to the sustainable
development of the business and ensure the interests of customers. However, they present a
90
number of concerns related to specific aspects of the new law. The law assumes that the Forex
dealer has the right to carry out their activities only after the entry into self-regulating organization
Forex dealers and obtain a license. In turn, the license may, subject to certain organizational, legal
and financial requirements. The first category includes the disclosure requirements, requirements
to the procedure of working with clients, in particular, the requirements for the framework
agreement between the Forex dealer and the customer, etc. With regard to these requirements, the
bona fide market participants agree that they need, and are willing to comply with them.

The second category may include financial ratios, in particular, determining the size of the equity
capital of the company and the size of the maximum leverage. According to the law, the size of
the Forex dealer's own funds shall be not less than 100 million. Rubles in case if the volume of
retail deposits in its accounts does not exceed 150 million. Rubles. Otherwise, the equity is
increased by 5% of the amount exceeding 150 million Rubles.

In addition, it is established that the ratio of collateral provided by an individual Forex dealer, and
the size of the obligations of physical persons cannot be less than 1 to 50. The Bank of Russia has
the right to change this ratio by increasing the size of the obligations of physical persons, not more
than 2 times (ratio of 1 to 100).

And if in general with the idea of compulsory licensing of market participants and their mandatory
entry into CPO agree almost all the experts who participated in the study, in relation to the degree
of stringency that will be presented to the company's financial performance, the opinions are
divided.

Needless to strict regulation could harm the market and lead to customer care, for example, in
various foreign or offshore companies as happened in countries that have such a regulation was
introduced. Experts point out that one of the areas of customer churn can be, in particular, the
market of Belarus, where government regulation is a much more liberal, including tax incentives
provided for customers forex dealers and for the companies themselves. In general, according to
some experts, it is currently the Forex market regulation option, introduced in Russia, closer to the
American model, which provides for very strict conditions.

APPENDIX 4 - TYPES OF INVESTMENT RISKS BY FORMS OF MANIFESTATIONS

A more detailed look at each type of risk in relation to investments in the forex products.Technical
and technological risks associated with the uncertainties that affect the technical and technological
91
components of the project activities, such as equipment reliability and predictability of production
processes and technologies, their complexity, level of automation, the pace of modernization of
equipment and technologies, etc.

With regard to the topic of the thesis, there is always the risk of faults in the equipment. It can
occur at 3 levels:
• Problems with the system at the market level
• Problems with broker systems
• Hardware Problems investor / trader

Failure of computers at all three levels can lead to varying degrees of financial losses. As a rule,
failures at the first two levels are extremely rare. In many ways, they can be avoided at the stage
of selecting a broker. Reliable Broker has potential and is ready to spend a lot of resources to
maintain the stability of the servers.

Malfunctions in the computer and software, as well as an internet connection, is much more likely
to happen at a particular investor or trader. To avoid their possible choice of reliable equipment,
ATE tests before displaying them on the market. Also, it makes sense to use VPS-server (English
virtual private server -. Virtual private server), if necessary, a stable connection to the network 24
hours a day. Virtual servers provide continuous operation of the PBX in the Forex market.

Economic risk is associated with the uncertainties that affect the economic component of the
investment activity in the state and activity of the subject of the economy in the implementation
of the investment project within the target installation to achieve general economic equilibrium of
the system and the acceleration of the growth rate of its gross domestic product by the production
of competitive products on the world market, the choice of rational combination of shapes, and the
industries of the state measures on counter-cyclical regulation of the economy, etc.

Economic risk includes the following uncertainties: the state of the economy; conducted by the
state budget economic, financial, investment and tax policy; market and investment conditions;
the cyclical development of the economy and the phases of the economic cycle; government
regulation of the economy; the dependence of the national economy; possible failure to fulfill the
state's obligations (partial or total expropriation of private capital, various defaults, termination of
contracts and other financial shocks), etc.

92
With regard to the Forex market, this group of factors has an impact on the Forex market products
itself in the country. Will the Forex products market growth? As far as the new market appearance
and development will be integrated into the overall economic system of the country?

Political risks are associated with the following factors of uncertainty that affect the political
component in the implementation of investment activity: the elections of various levels; changes
in the political situation; ongoing changes in the state policy; political pressure; administrative
restriction of investment activities; Foreign pressure on the state; freedom of speech; separatism;
the deterioration of relations between states that can badly affect the activities of joint ventures,
etc.

Social risks associated with the uncertainties that affect the social component of investment
activities, such as social tensions, strikes, implementation of social programs. The social
component is due to the desire of individuals to create social networks, to help each other, abide
by the mutual obligations; the role they play in society; service relationship; moral and material
incentives; existing and potential conflicts and traditions, etc.

An extreme case of social risk is a personal risk, which is associated with the inability to accurately
predict the behavior of individuals in the course of their activities, and due to the human factor.
Does it matter if the transfer of funds in trust, because a potential investor can not predict the
behavior of the control.
Environmental risks associated with the following factors of uncertainty that affect the state of the
environment in the country, the region and influencing the activity of the invested include
environmental pollution, radiation environment, environmental disasters, environmental programs
and environmental movements as the "Green peace", etc. In general, the least significant group of
risks.

Legislative and legal risks associated with the following factors of uncertainty that affect the
implementation of the investment project: changes in the current legislation; inconsistency,
incompleteness, incompleteness, inadequacy of the legal and regulatory framework; legal
guarantees; lack of independence of the judiciary and arbitration; incompetence or lobbying
interests of certain groups of individuals in making laws; the inadequacy of the existing tax system
in the country, etc.

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First of all, one of the main drawbacks of the Russian forex market is the lack of appropriate
legislation, with the result that the majority of Russian market players operating in the territory of
offshore zones. This directly puts investors at risk due to a possible non-return of invested funds.
At the same time, still unresolved question of taxation of income earned in the Forex market, which
also reduces the investment attractiveness and increases the potential risk.

APPENDIX 5 - KEY FACTORS OF FUNDAMENTAL ANALYLYSIS

The level of interest rates - is the interest rate at which the central bank lends to commercial banks
of the country means. Its growth leads to an increase in the cost of credit resources, which leads
to economic stagnation, the growth of the industry is unprofitable, and most of the population.
Falling leads to devaluation of the national currency, as well leads to an outflow of capital from
the country, is not profitable for financial intermediaries.

Optimal reasonable balance between the interests of all stakeholders. The analysis is important not
so much the absolute value, and its change, and the difference in interest rates of countries.

For example: If all countries cut their interest rates by 0.25% at the same time, the foreign exchange
market would react to this calmly, because the difference in interest rates has not changed. In
practice, interest rates vary on an individual basis. This leads to a change in the difference in
interest rates and exchange rates. It has not little importance, which led the country's central bank
to change interest rates. If the causes of a political, not economic, the markets are likely to go
against the central banks. Minimum change of this index - 0.25%.

Gross domestic product - the sum of all goods and services produced in a country during a certain
period, usually a year.

The report on gross domestic product is published quarterly and is the main indicator that reflects
the state of the economy.
The report comes in three versions:
• a briefing on the report
• Preliminary Report
• Final version

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GDP is expressed as an index relative to the previous period. GDP growth leads to an increase in
the national currency. In addition to the GDP and the GDP deflator are used - the ratio of the
current value of GDP to its base value. The GDP deflator allows us to estimate the inflationary
component in the value of GDP.

The trade balance - the difference between exports and imports. If the value of exported goods
more than the cost of imported, we have a positive balance, or vice versa. The surplus, or reduction
of the negative leads to an increase in the national currency or vice versa. Balance of payments -
is the amount of payments received from abroad, minus the sum of payments gone abroad. The
surplus, or reduction of the negative leads to an increase in the national currency and vice versa.

Statement by the heads of governments and central banks, usually immediately affects the value
of the currency. Often the performance of these persons can greatly change the situation on the
market. For example: speech by the US Federal Reserve, the meeting of leaders of countries the
Group of Seven, etc. Most often, the date and time of performance are known in advance, so the
market is preparing for this, there are predictions, rumors ...

Rumors cause a chain reaction of market participants, and this leads to the active movement of
prices, which acts to confirm or refute the hearing. After that happens increasingly price movement
in the opposite direction. At this point, everyone is trying to "turn around.
The employment rate shows the percentage of the number of unemployed to the total labor force.
So at the same time with the indicator Number of new jobs, not counting agriculture. The market
reacts to changes in these indicators. With the growth of the unemployment rate, the rate falls, and
vice versa.

It is also worth noting the role of some other indicators:

• Consumer price index
• Orders for durable goods
• Construction of new homes
• Applications for unemployment benefits

APPENDIX 6 - SCHEMES OF ORGANIZATION OF FOREX-DEALING IN RUSSIA

Licensed foreign company is currency-dealing services that may be offered to clients in Russia by
a foreign company, specialized in this activity in the country. This company has all the necessary

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licenses at home and Russian clients are only an additional market. However, the company may
initially be created, based primarily on the Russian clients (for example, by Russian immigrants
in the US), but all the same it is based abroad and the same to be licensed, office staff, etc. Legally,
the company does not conduct any activities in Russia. Customer transactions with currencies are
performed through the system of remote access to the account or by giving directions on the phone
dealer.

All calculations are carried out with customers in only cashless: The customer transfers money to
the account of the company from its foreign exchange bank account, and there also receives
earnings from the company's accounts. Questions of legality in terms of the opening of the Russian
right customer accounts or conduct transactions on it is not the company concerned and not
interested.

In Russia, the company can promote their services, for example, using the website in Russian. It
may be presented, and a Russian partner, but in this case has only the status of "representing"
(introducing representative), that is, giving potential customers only information-dealer (for which
he received a commission), without having the right to enter into contracts on its behalf, to make
money, etc.

Licensed offshore company - a variant having a resemblance to the first. Services may be offered
to clients in Russia a company registered in one of the offshore jurisdictions. In this case, we are
referring to are serious companies, usually established by residents of developed countries.
Depending on the specifics of its activities, the company may have a license or in the developed
countries, where it actually works (eg, the FCM license in the United States) or in the country of
registration - for example, the gaming license in Belize.

Typically, such a Russian company is also just one of its services markets, although often basic.
The nature of representation in Russia, settlement and account management is similar to that
discussed in the previous section.

Russian Bank - as already mentioned, the only completely legal variant of the organization of the
foreign exchange dealing in Russia - through a bank. The Bank may establish fixed and dealing
centers, equipped with the appropriate terminals, and provide remote access via the Internet
accounts. The Bank may provide dealing services independently or through a separate dealing
company or network of companies. However, it is the bank opened and maintained with the foreign
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currency accounts of clients. Dealing company, however, can manage bank accounts of their
clients on the basis of a power of attorney from the client and instructions received from him by
remote access system. Adding money to the account and withdrawals from the account of the
client can be a wire transfer or in cash through the cashier of the bank.

The foreign (offshore) company plus a representative office in Russia - Russian entrepreneurs who
do not have at their disposal a banking license, but wishing to organize a genuine currency dealing,
usually create for this purpose a foreign company to make a meaningful activity outside the
Russian jurisdiction.

As a rule, it is the offshore, that is tax-free company. The country of its registration in this case is
almost irrelevant, since the use of tax treaties, etc. out of the question. Much more practical
importance is the location of the company's account - it does not have to be in the same country
where the company is incorporated.

Often, however, to improve the representativeness of business is created, instead of offshore, or in

addition to it, the company tax jurisdictions such as the US or the UK. This company carries out
pure branding features and is designed only to impress clients. Of course, the licensing in place of
incorporation, not made: it would be disastrous to weight scheme almost without creating real
advantages. Moreover, often the income of such company neofshornoy received from dealing, are
not included in its filings with the place of registration, as otherwise they would have to pay taxes.
Of course, it is illegal, but if the company's account opened outside the country of its registration,
then bring perpetrators to justice for the tax authorities of the country is almost impossible.

With regard to the accounts of the company, whether offshore or neofshornaya, it must be said
that for this kind of clients' open it in a first-class western bank is almost impossible, unless one
of the developed countries is not being a real business and not obtained a license. In view of the
expense of the company usually opens in the Baltic States.

In Russia, a registered or non-registered representative of a foreign company in order to attract

customers. Basically, to avoid tax consequences in Russia, the powers of such offices should be
as narrow as possible. In practice, however, a widespread opinion in this representation dealing
contracts on behalf of the company and even receive cash, including currency. The latter, of
course, is absolutely illegal. The legal form of settlements with clients - only wire transfers through
foreign account.
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Clients conduct their operations with the help of a remote access system. At the same from a
technical point of view, locate the server on which operations are carried out, it does not matter. It
can be both in Russia and abroad. However, as mentioned above, its location may be relevant for
tax purposes as well as for the image.

The foreign (offshore) company plus a Russian partner - an improved version of the previous
scheme. A major shortcoming of the previous version is a dubious legal and tax status of a foreign
company in the Russian representative. Officially, the company may carry on business in Russia,
only if it is accredited and registered office. This includes the payment of fees for accreditation, as
well as, of course, bookkeeping, tax returns, etc. It is not always justified, since the conduct of
meaningful activity is assumed abroad. Moreover, the income received by the company from
operations with Russian clients, Russian tax authorities for income can be attributed, in principle,
obtained through the registered office and, accordingly, may be taxed.

To avoid legal uncertainty, the foreign company refuses to "personal" presence in Russia. At the
same time it transmits a function to attract customers to the Russian partner, just as it is done in
circuits without partners and representative offices. The only difference is that in this case a foreign
company is usually controlled by the same Russian businessmen, as her "partner". Russian and
foreign companies are linked by contractual relations. The Russian company should not conclude
contracts on behalf of the dealing of foreign, as This would give it the status of a dependent agent
and, consequently, a permanent establishment, but can carry out, including for a fee, various
support functions, such as training to work with a terminal program.

Similar to the previous point, the reception means of the Russian company to be credited to the
account of a foreign illegal, although quite widespread. In other respects similar to the previous
scheme is also on our list.

Bookmaker - in this case, despite the fact that all operations are conducted externally by the trader
exactly the same way as in the "real" Dealing, their economic nature is quite different. We are
from a legal point of view is not about buying and selling of foreign currencies, and the adoption
rate relative to changes in their courses. Naturally, this requires the development of an entirely
different agreement with the client.

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Note that if the "real" Dealing company sets its own rates of purchase and sale of foreign currency,
in this case, we should talk more about the courses, obtained from some independent source
(Reuters, etc.). Otherwise, it defeats the purpose of betting is betting on some unpredictable events
in advance.

This option gives the possibility of organizing a legal stationary "dealing center". It allowed cash
payments, but only in rubles. Of course, the bookmaker is obliged to apply the normal tax and
other reporting.

Tax on gambling, as already mentioned, is charged at a fixed rate for each cash office. If you have
a branch network, a branch is considered a separate insurance fund subject to taxation, when it
made a separate calculation of wins (rather than centrally across the network). The issue of
mandatory application of cash registers is somewhat controversial. The law does not provide for
their mandatory use in the gaming industry, and provide the CBR instruction. Court proceedings
in the case on the subject usually supports the entrepreneur.

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