The Russian Retail Forex Market has always been a fascinating one for Forex Brokers. Many Forex Brokers that have originated out of Russia have done quite well and it is considered to be a very healthy market. Traders from Russia are themselves very familiar with the Forex Market and are also considered to be highly educated. Unlike China which has left retail Forex as one giant gray area, Russia has now established a regulator and has ruled in place for Brokers that want to operate within its borders.
The question arises what will the existing brokers do and will this new regulatory environment bring in or chase away new Forex Brokers? With the case of the United States, we saw what happens when regulators step in and make the environment less competitive for Forex Brokers. First of all implementing a net capital requirement that for the most part made the cost of business in the US for Forex too high. The net capital requirement was set at $20 million the US and forced most brokers to go off shore. Another reason the US became so unpopular for Retail Forex was the implementation of anti-hedging rules. Hedging is a common trading strategy and to just take it away was the last straw for many traders.
There are some requirements from the Russian Forex Law that also may be considered anti-competitive. The net capital requirements for one is 100 million rubles which are pretty steep and higher than many existing regulatory jurisdictions. Like the U.S. Russia has also limited leverage that brokers can offer to 50:1. This is something that may drastically affect the Retail Forex Market in Russia. There is still debate as to whether or not this will change and the word is that the Bank of Russia has the authority to increase leverage to 100:1 the global norm.
One of the most interesting and some feel positive aspects of the new law is that disputes between traders and brokers will be settled in court. This is far different from other location that either uses arbitration or have a disputes resolution body to handle these issues. Forex Brokers that relocated in an “offshore” jurisdiction will not be permitted to set-up in Russia under the new law. This includes some common places where brokers may be setup like Belize, BVI, Panama, and Seychelles to mention a few. Interesting that Cyprus is not on that list and probably good for most operating Russian Brokers. If Forex Brokers are looking to set up in Russia they will also be required to have a physical office with staff.
Depending on where they are with the leverage issue it will be interesting to see if these rules and the new regulator attract or push away Forex Brokers.
Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.