Forex Trading in Russia in 2023.
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| Forex Trading in Russia in 2023. |
How to Trade Forex in Russia in 2023?
We often hear about how people make money on Forex, but we don't always understand the principles of trading here. In this article, we will describe Forex and discuss whether it is possible to make money on it.
What is Forex in simple terms?
The word "Forex" has long become a generic term in Russia. It is associated with earning money through currency trading. Some platforms associated with this market promise incredible profits. However, in reality, Forex market players often lose money. In this article, we will delve into what Forex is and whether it is possible to earn money on it regularly.
Forex is a shortened word for "Foreign Exchange," which means currency exchange in English. Forex refers to the international currency market. It is characterized by high turnover since significant participants are involved, including central banks, private credit organizations, investment funds, and large private investors.
Such an international currency market began to actively develop in the 1970s. This is related to the collapse of the Bretton Woods monetary system and the transition to freely convertible currencies. It was officially established in 1978 when the International Monetary Fund fixed free currency exchange rates.
The daily turnover of the Forex market ranges from 5 to 7 trillion dollars. This is more than the combined total of all global stock exchanges. However, the minimum transaction amount for a currency pair is 1 million dollars, which filters out many aspiring participants.
Wait! If the currency market has such high stakes, how do hundreds of thousands of ordinary traders trade there?
The thing is, Forex is not only a currency market with real currency transactions. The virtual financial platform with the same name allows traders to place bets on currency exchange rate movements. Anyone can participate, and this market is organized by Forex dealers.
How do Forex Dealers work?
There are three groups of dealers operating in the Forex market:
- Dealers operating legally based on a license from the Central Bank of Russia. They comply with the requirements of Russian legislation and act responsibly.
- Foreign companies without a Russian license. These can even be large and respected market participants, but there are risks for Russian citizens. In disputed situations, it will be difficult to defend their rights: they will have to resort to a foreign court.
- Scammers. These are companies that actively lure new clients to "try their luck and predict exchange rate fluctuations." However, in reality, you will not receive real profits from your transactions: you can deposit funds, but withdrawing them will be problematic.
If a Forex dealer refuses to pay out money and ignores requests, contact law enforcement agencies and file a fraud complaint.
How to Start Trading on Forex?
- Choose a broker or dealer. Read below on how to do it.
- Download a specialized program on your computer or a mobile application on your smartphone. Keep in mind that stable internet access is required for trading on Forex platforms as all transactions are conducted online.
- If you do not have the status of a "Qualified Investor," you will have to undergo special testing. Without positive test results, you will not be allowed to trade. But don't worry, it's mostly a formality. Passing the test is not difficult since the number of attempts is unlimited.
Dealers and brokers are highly interested in keeping the entry barrier to the currency market low and accessible to almost everyone. After all, the more people enter the market, the higher their income will be. At the same time, how successful the newly minted trader will be is not very important to them. Intermediaries earn commissions that you will have to pay regardless of the profitability of your trades.
- Gain experience on a demo account. It simulates participation in real trading, but the money involved is virtual. In theory, by playing on a demo account, you can gain experience, understand the mechanics of transactions, and grasp strategies.
- Fund your dealer account. Unlike the international currency market, trading through Forex dealers does not require a large amount of money. Some traders enter Forex with as little as 1000 rubles. However, brokers recommend starting with a minimum amount of $200. Otherwise, you will have to trade "on leverage," meaning borrowing.
Now you are ready for real trading. We wish you good luck; you will need it.
How to Choose a Forex Broker?
Essentially, choosing the right broker is a determining factor for a trader's success in the currency market. The Forex market "smells like money," which means it is full of scammers. They present themselves as intermediaries on the exchange, but in reality, they profit from your losses.
To avoid falling victim to scammers, the following criteria should be considered when choosing a Forex broker (or dealer):
- Broker's tenure in the currency market. The longer it is, the more reliable the intermediary. Caution should be exercised with companies that have been in operation for less than five years.
- Asset size. Larger brokers are much more concerned about their reputation as they have more to lose. According to Russian legislation, Forex dealers must have capital of at least 100 million rubles.
- Jurisdiction and regulation. A reliable company will be registered in Russia or developed countries. It is risky if the broker (dealer) has obtained its license from a securities commission of an offshore country, such as Cyprus.
Always verify the company's details and clarify the legality of its operations in Russia. Otherwise, law enforcement agencies will not even attempt to help you in unfavorable circumstances.
Certainly, one should not trust unfamiliar individuals who do not represent any organization and act as individuals.
How to Choose a Strategy to Minimize Risks?
The general trading mechanism is as follows: you place an order to buy a currency pair at a specific exchange rate. The exchange rate then either strengthens or weakens. If you correctly predict the direction of movement, you make a profit, and the trade is closed. Only the difference you gained during the trading is credited to your account.
For example, let's say you decide to trade the US dollar against the Swiss franc. As of March 14, 2023, one unit of the American currency is worth 0.91 francs. You bet on the appreciation of the dollar.
Three days later, one dollar is worth 0.95 francs. This means it has appreciated by 4.4%. With $1000, that's a $44 profit. However, the actual profit will be reduced by the commission you pay to the broker/dealer.
You can only withdraw money after closing all trades. The amount in your account assures the dealer that you will fulfill your obligations, at least partially.
To reduce risks, it is advisable to use a stop-loss. When a certain exchange rate level is reached, the system automatically closes the trade. Stop-loss is one of the main tools for traders, and it should not be neglected in any potential trade.
It is difficult to make money in Forex trading if you rely solely on your instincts. Throughout the day, currency pair fluctuations are small, so it is worth playing with larger volumes.
Usually, the minimum lot starts from 1000 units of the base currency. Therefore, traders often resort to leverage, which means borrowing money from a Forex dealer for trading.
The maximum leverage that a licensed company can provide is 1:50. In practice, it ranges from 1:10 to 1:40, depending on the chosen instrument. Companies without a license may offer leverage of 1:100 or even 1:300. With such parameters, it is very easy to lose your deposit even with a small movement in the opposite direction.
Trading with leverage in Forex is risky and can lead to a rapid loss of your deposit.
Trading on the Forex market step by step:
- First, choose a Forex dealer. To minimize the risk of fraud and protect your rights when trading on Forex, work with market participants licensed by the Central Bank of Russia.
- If you are an unqualified investor, take a qualification test. You have unlimited attempts; the important thing is to grasp the basic principles of Forex trading.
- After that, you can fund your account. However, we recommend starting with a demo account to test how successful your trading approach is.
What is better: Forex or the stock market?
Understanding the motivation of people working in Forex is difficult because there is an alternative - trading on the stock market. The stock market has more advantages:
- Instrument selection: Stock markets offer access to stocks, bonds, funds, futures, and other instruments. In Forex, predominantly currency pairs are available.
- Tariffs: Exchange and broker commissions are minimal. Many brokers do not charge for maintaining a brokerage account. Forex dealers usually have higher fees in practice.
- Ability to play on your own: It is more reasonable to play on your own in the stock market because there are instruments with a wide range of fluctuations. Stocks can rise or fall by 5-10% in a day, allowing for good trading margins (returns).
There is a risk of losing everything in Forex. This is due to aggressive trading with leverage and possible fraud. Therefore, trading on the stock market is safer.
To trade successfully on the stock market, open an account with a reliable broker like "Sovcombank Investments". You will get favorable service conditions and a wide selection of instruments, including stocks, bonds, and funds. Submit an online application for your brokerage account.
Trading conditions on the Forex market in Russia in 2023:
Trading in the currency markets in Russia is governed by Federal Law No. 39 of 1996. Since its issuance, it has undergone numerous changes. In 2014, provisions were introduced in this law that directly regulate the activities of any participants in the Forex market under Russian jurisdiction.
In particular, Article 4.1 "Forex Dealer Activity" was introduced. Every beginner trader should study it. It helps to filter out scammers and questionable individuals when choosing a Forex dealer.
Now, at the legislative level, an important requirement for such an exchange intermediary is established. Before starting activities in the Forex market, the dealer must become a member of a self-regulatory organization (SRO). They are also required to make a contribution of at least 1 million rubles to the organization's common fund. These funds serve as an insurance fund.
In the event of a dealer's bankruptcy, traders will be able to recover at least a portion of their money.
Since 2016, Forex dealers are also required to obtain a license from the Central Bank of Russia.
As for online currency trading in Russia, there will be no changes in 2023. The strategies for earning in Forex should remain the same. They are universal and fundamental.
Do not forget that traders are obligated to pay a 13% tax on profits made on the Forex market. The Federal Tax Service (FNS) closely monitors this and has control tools in place.