Foreign currency represents banknotes, which are legal tender in the respective state. They are exchanged for each other within the framework of the foreign exchange market, namely, the system of economic relations between banks, their customers, professional participants and state institutions. Sales transactions here are concluded exclusively in non-cash form.
OTC Market
Foreign exchange trading can be conducted in two areas: in the organized and over-the-counter markets.
OTC transactions are concluded directly between the buyer and seller of the currency. As a rule, commercial banks play this role. Moreover, they can both conclude transactions on their own behalf and for their own needs, and represent the interests of customers. The buyer and seller in the negotiation process determine the terms of sale of foreign currency, which include the amount, exchange rate, timing and settlement procedure. A feature of trading on the OTC market is that both parties assume certain risks (after all, any of them may at any time abandon their obligations), therefore such operations are carried out between partners who fully trust each other.
Organized Foreign Exchange Market
Exchange trading in the foreign exchange market presupposes the presence of a third party, namely, the organizer of trading - the currency exchange. In this case, as such, there is no negotiation process between the buyer and seller. Each of them submits applications to the exchange indicating the terms of the transaction that suit them. If at some point in time the interests of the buyer and seller coincide, the operation is carried out automatically. The exchange not only greatly simplifies the transaction process itself, it is also a kind of guarantor. Therefore, it does not matter to the buyer or the seller who exactly acts as the second party. A transaction can be concluded only if each of its participants has at its disposal the necessary amount of the corresponding currency.
There is another option for carrying out such operations, when negotiations between counterparties go directly, and all payments go through the exchange. This is done in order to exclude the risk of non-fulfillment by one of the parties of its obligations under the transaction.
MICEX: history of occurrence
Moscow Interbank Currency Exchange is the main trading platform of Russia. The MICEX group includes the stock and commodity exchanges, the MICEX CJSC, the clearing center, the national depository, as well as regional settlement centers.
The MICEX was founded in 1992. Currency operations from the very beginning were the main focus of its activities. The stock, bond, commodity and derivative trading sections were organized later.
At the end of 2011, two sites of the Russian stock market merged - MICEX and RTS. This combined structure is called Moscow Exchange. Since then, currency trading on the MICEX has been held within the framework of a single exchange space.
Technical evolution of foreign exchange transactions
Initially, trading on the MICEX took place in the form of auctions. The so-called “broker” collected applications from buyers and sellers indicating the amount of foreign currency and the exchange rate. Then a competition was held, according to the results of which the winner was determined.
Since June 2, 1997, foreign exchange trading on the MICEX began to be conducted in the electronic trading system (SELT). It was SELT that became the first such system of the stock exchange market in Russia. This was a truly revolutionary breakthrough in the field of organized trade. With its help, buyers and sellers were able to conclude an unlimited number of transactions during the entire trading session in real time.
Conclusion of transactions on the MICEX
Operations on the MICEX are conducted through an electronic trading system. Its meaning lies in the fact that each participant submits an electronic application indicating the amount of currency bought or sold and the price at which he is ready to conclude a deal. All of them come in a single system. When two purchase and sale orders have the same prices, they are executed automatically. The volume of the transaction will be equal to the smaller of the two executed orders.
Unfulfilled applications that have been queued can be withdrawn at any time if the exhibitor who wants to queue them wants to change their conditions.
It is SELT that allows you to conduct currency trading in real time. Submission, modification and cancellation of applications, as well as the conclusion of transactions at the current rate are reduced to a simple click of a button. For the convenience of participants, orders already issued are displayed on the computer screen. This allows you to evaluate the current state of the market and to predict its possible direction of movement.
The procedure for the execution of electronic instructions
If the bid price does not correspond to the current level, then one of the following options occurs with it:
- For an application for the purchase of foreign currency. If its price is lower than the current market rate, it is put in the queue and will be executed if the quotation drops to a certain level. If higher - it is executed on the market.
- For applications for the sale of foreign currency. If its price is below the market rate, it will be satisfied at the current quote. If higher, it will be queued until the value of the currency rises to the level indicated in the application.
Trading Schedule
Foreign exchange trading is conducted in accordance with the approved schedule. Transactions with today settlements for the dollar-ruble pair are concluded from 10:00 to 17:15 hours Moscow time, for the euro-ruble pair - from 10:00 to 15:00 Moscow time. Trades in other instruments (Belarusian ruble, Kazakh tenge, Ukrainian hryvnia and Chinese yuan) are held for only one hour, from 10 to 11 hours Moscow time.
The MICEX also offers its participants the opportunity to conclude transactions in the so-called off-system transactions mode. They combine elements of the exchange and over-the-counter markets. The parties to the transaction directly agree on all its conditions. But the purchase and sale operation itself is carried out within the electronic space of the exchange. The buyer and seller submit targeted applications. Only a specific participant can become a second party to it, for which she is exposed. The conclusion of such transactions for all currency pairs is possible up to 23-50 Moscow time.
Importance of an organized foreign exchange market
Organized foreign exchange trading within the framework of the MICEX platform performs several very important functions at once.
First, with their help everyone can take part in the pricing process. This can be done both by a professional participant, having direct access to exchange trading, and absolutely anyone who has no relation to the world of finance. To do this, he needs to conclude an appropriate agreement with a broker who has direct access to the MICEX exchange. In this case, he will already represent the interests of his client.
Secondly, the Central Bank as a state body regulating monetary policy has an impact on the current rate of the national currency by conducting interventions within the framework of the MICEX platform. In addition, the results of foreign exchange trading are taken into account when the Bank of Russia establishes official exchange rates against the ruble.
The MICEX is, without exaggeration, the main platform of the stock exchange market in Russia. Currency trading on the MICEX today is one of the instruments of state monetary policy. It is this platform that gives its participants the opportunity to conclude transactions in real time. The volume of foreign exchange trading is constantly growing. In 2002, they amounted to 65 billion dollars, in 2008 - 2.7 trillion dollars, in 2014 only in January, this figure amounted to more than 13 trillion rubles.