What forex is in simple terms: the market, the dealer and the bucket shop

What forex is in simple terms

The name was put together from two English words: FOReign EXchange, the exchange of foreign currency. Trading is always done in pairs. When you buy EURUSD, you simultaneously buy euros and sell dollars. The first currency in a pair is the base currency, the second is the quote currency, and the price shows how much of the quote currency is given for one unit of the base currency: a rate of 1.0820 means that the euro costs 1.0820 dollars.

Income comes from the difference between the entry price and the exit price, which is why such trades are called speculation: money comes from a change in the rate, not from owning the currency. The rate itself is driven by central bank rates, economic statistics, demand from exporters and importers, and large fund trades. Predicting this movement is the whole job of a trader.

The chart shows one buy trade: entry at 1.0820, exit at 1.0870. The difference is 50 pips. A pip on EURUSD is the fourth decimal place, 0.0001, and on one lot (100,000 euros) it is worth $10. That means 50 pips gave $500 per lot.

Between entry and exit, the price first moved against the position by 20 pips, meaning the account showed a loss of $200. Enduring such a drawdown and not closing the trade manually is harder than guessing the direction.

The currency market and the forex market: who trades on it

They are the same thing. The currency market, the forex market, the interbank market, FX are different names for currency exchange trades outside an exchange. According to estimates by the Bank for International Settlements, in April 2025 $9.6 trillion passed through it per day, 28% more than three years earlier.

Exchange "right at the current rate" accounts for less than a third of turnover. The rest comes from trades with a term: swaps, forwards and options, with which banks and businesses hedge currency risk.

Shares of turnover according to the Bank for International Settlements, April 2025, rounded to whole numbers.

A retail trader is almost invisible in these statistics. Half of the turnover comes from deals between dealer banks and other financial institutions, 46% from deals between dealers, and only 5% falls to non-financial clients, that is, businesses that are simply exchanging currency.

The market has no single venue, and this is written into Russian law: forex dealer transactions are concluded "not on organized trading." On the stock market this is not the case: there, stocks and bonds go through an exchange with its schedule and clearing. Currency transactions go through financial centers in different time zones: 38% of turnover through the UK, 19% through the US, 11.8% through Singapore. As long as at least one center is open, the rate changes, hence the familiar "forex works 24 hours."

The dollar remains on one side of 89.2% of all transactions, the euro on 28.9%, the yen on 16.8%. All ten of the most popular pairs are with the dollar, and pairs without it, like EURGBP, are called cross rates.

Where Your Order Goes: Interbank or Internal Account

When you click "buy," the terminal sends the order not to an exchange but to an intermediary. Then comes a fork, and it determines who profits from your loss.

First path: the intermediary routes the trade to the interbank market and earns on the spread and commission. Your result is indifferent to them.

Second path: the intermediary itself becomes the counterparty to the trade. When a broker keeps your trade on its own books, traders call this model a bucket shop: your loss becomes its income, and your gain becomes its expense.

The model itself does not equal fraud. Russian law describes it directly: a forex dealer concludes contracts "in its own name and at its own expense," meaning it is your counterparty, and it is permitted to hedge its risk through separate transactions with legal entities. Things turn bad where the intermediary obstructs your ability to earn: widening the spread at the right moment, delaying execution, not allowing money to be withdrawn.

A client cannot verify from the inside whether your trade was routed to the market or not. So you should look not at promises, but at the license, the registry, and which court you would litigate in.

Forex dealer: who it is and what to check before the first payment

A forex dealer is a professional participant in the securities market with a separate license from the Bank of Russia. Article 4.1 of the law "On the Securities Market" describes its work as follows: it concludes contracts with an individual in its own name and at its own expense, not on organized trading. At the same time, the client may assume obligations exceeding the deposited collateral, and this is the leverage.

A dealing center is a name from the 2000s, when such intermediaries operated without separate regulation. This phrase does not exist in the law: there is only a forex dealer, and even the word "forex" in a name may be used only by it.

In the Bank of Russia's "List of Forex Dealers" as of 23.10.2026 there are four active licenses: Alfa-Forex, Brokercreditservice, Finam Forex and VTB Forex. The requirements for them are set out in the same law: own funds of at least 100 million rubles, mandatory membership in a self-regulatory organization of forex dealers. A client files a claim under the contract in Russia, at their place of residence.

Leverage is also limited by law. A client without qualified investor status is given no more than 1:40 on currency pairs, from January 1, 2027 it will be 1:30; on other underlying assets it is already 1:30. A qualified investor is allowed up to 1:50. Before the first trade, a non-qualified client takes a test on understanding risks.

There are many illegal intermediaries. As of 23.10.2026, the Bank of Russia's list of entities with signs of illegal activity in the financial market contained 27,545 entries. Of these, 7,929 had signs of an illegal professional participant in the securities market: this is exactly the category to which the regulator assigns illegal forex dealers. In 2026, the list was supplemented with 915 such entries.

The advertising law requires that any advertisement calling for entering into transactions with forex dealers contain the verbatim phrase:

The contracts or financial instruments proposed for conclusion are high-risk and may result in the loss of the deposited funds in full. Before entering into transactions, you should familiarize yourself with the risks associated with them.

If this phrase is missing from an ad, the ad already violates the law. And advertising of financial services by anyone who does not have a license or an entry in the register is prohibited entirely, so we do not advertise on these pages any intermediary or any trading platform.

Currency trading: lot, point, spread and leverage

Currency trading is calculated not in rubles or percentages, but in lots. A standard lot is 100,000 units of the base currency. At a rate of 1.0820, one EURUSD lot is an obligation of $108,200. You don't need that much of your own money: by law, the margin can be 40 times less. Leverage is exactly that difference - you hold a position larger than the amount in your account.

Calculation based on a rate of 1.0820 and a point value of $10 per lot. This is an example, not an income forecast.

Leverage does not increase profit in money terms: 50 points bring the same $500 in both columns. It reduces the amount in the account, and therefore the same $500 turns from 0.5% into 18%. Loss works in exactly the same way: a 2.5% move against you with 1:40 leverage wipes out the entire margin.

The spread is the difference between the buy price and the sell price at a single moment. A transaction opens with a small minus: a one-point spread on one EURUSD lot is $10 that must be recovered before any profit. The swap is the fee for carrying a position over to the next day; it is calculated from the difference in interest rates on the two currencies of the pair and can be either a debit or a credit.

When the margin is no longer sufficient to cover open positions, they are closed forcibly: this is a stop out. The dealer does this itself and is not obliged to ask. In the European Union, the regulator has required closing a retail client's positions when half of the minimum margin remains in the account.

Forex trading: how much private traders lose

What forex trading is in practice: you open an intermediary's terminal, choose a pair, volume and direction. Two buttons, no selection and no diploma. Because of this simplicity, the statistics on retail accounts look grim.

The European regulator ESMA collected data from national supervisors on CFDs, contracts for difference, which also include transactions in currency pairs. 74-89% of retail client accounts were in the red, with an average loss ranging from €1,600 to €29,000 per person.

Source: ESMA, 23.03.2018. The percentages are taken from the regulator's decision as is.

After these figures, ESMA banned the sale of binary options to retail clients and capped leverage on CFDs: from 30:1 on major currency pairs to 2:1 on cryptocurrencies.

The Bank of Russia looked at the same picture from its side. In an interview on 21.02.2019, Central Bank Deputy Chairman Vladimir Chistyukhin named the average lifespan of a forex account: 2-3 months, and during that time a client who does not deposit new money usually loses everything. By that point, the regulator had already revoked the licenses of five forex dealers out of nine.

Forex for beginners: where to start

Forex for beginners starts with arithmetic, not with choosing a broker. Calculate the pip value at your volume and estimate how many pips against you the account can withstand. If the answer is "twenty", there is nothing to trade with.

Trading is earning from price differences, and currency pairs are just one of the instruments here: for more on who a trader is and how they differ from an investor, see the article what is trading. Where to set the exit level and how to calculate position size is covered in the article about stop-loss and take-profit.

Then in order: a month on a demo account with a trade journal, checking the broker's name in the registry, a test with the dealer, and only then the first money. The amount on the account is based on what you are prepared to lose entirely, not on the minimum deposit in the ad.

Three ways to trade currency: your own account, a dealer, or a prop firm

The first way is your own account with a licensed forex dealer. You set the rules, the profit is entirely yours, but all the money in the account is at risk, and leverage is capped at 1:40.

The second way is an unlicensed intermediary. The 1:40 limit doesn't apply to them, but you have no protection either: no registry, no court in Russia, no clear counterparty.

The third way is a prop firm account. You pay for the challenge, trade by someone else's rules, and get a share of the profit if you pass the evaluation. The maximum loss is known: you only lose the fee for the attempt.

The figures in the table are medians of 46 two-stage programs in the PropMarketCap catalog as of 25.10.2026. A two-stage challenge on a $10,000 account at Era Trade costs $99: targets of 8% and 5%, daily loss limit of 5%, overall 10%, the trader gets 80% of profit. Leverage on such an account is 1:100, terminals are MetaTrader 5, TradeLocker and Bybit, payment by card, via SBP or crypto. The prop firm accepts traders over 18 and does not name restricted countries. A challenge of the same size at FTMO costs 89 euros, but Russia, Belarus, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan are on its list of restricted countries: it admits traders from Armenia, Azerbaijan, Moldova and EU countries.

A prop account does not make a price forecast more accurate. It only changes the price of a mistake and adds limits that cannot be violated. How the stages and payouts work is explained in the article what is prop trading, and you can compare the terms of all seven prop firms in the catalog in the PropMarketCap rating and in the prop firm catalog.

Summary

Forex is the exchange of currencies outside an exchange, where your counterparty is almost always an intermediary rather than another trader. In Russia there is only one legal path: a forex dealer licensed by the Bank of Russia, leverage up to 1:40 and a test before the first trade. Start with arithmetic and the basics: free lessons from the PMC Academy cover position size, drawdown and the rules that decide everything both on your own account and on a prop account. If you are choosing between your own deposit and a challenge, compare prices and limits in the challenge calculator. This article is not investment advice.