Study on the new financial products traded on the Forex Market

• Author: Baranga L.P.
• Pages: 179-188

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 9 (58) No. 1 - 2016

Study on the new financial products traded

on the Forex Market

Laurenţiu Paul BARANGA1

Abstract: This paper puts forward an analysis of the new trends in terms of foreign

currency transactions and, implicitly, the new financial products traded on the Forex market

with a view to identify the category they belong to, namely foreign currency transactions or

foreign exchange derivative transactions. Also, the implications of including the new

products traded on the Forex market into one of the two categories have been taken into

account, both in terms of market microstructure and in terms of investor-wise implications.

Thus, the analysis showed that, by changing the destination of the amounts deposited by

clients into the settlement account of the Forex services provider, i.e. from amounts

deposited in order to cover the equivalent of purchased foreign currencies into amounts

deposited in order to cover any price difference, financial products such as currency pa irs

and rolling spot Forex acquire features similar to those of derivatives (such as Contracts

For Difference - CFDs).

Further, acknowledging these financial products of the Forex market (currency pairs and

rolling spot Forex) as derivatives would determine a series of transformations of the

microstructure of the market they are traded on, changes that would contribute to a better

protection of investors and to improved monitoring and prevention by the supervisory

authorities of the potential risks induced by such transactions o n the financial market.

Key-words: currency pairs, rolling spot Forex, Forex market, CFD

1. Introduction

Over the last few years, there has been an increase in offers coming from Forex

services providers to conduct transactions with Forex market specific products, such

as: CFDs, FX forward contracts and “rolling spot” contracts. Also, such Forex

operations have been gaining importance because:

• The Forex market is attracting important financial flows from the capital

market (financial instruments market) and, implicitly, these new Forex

products are competing with the derivatives recognized by MiFID (e.g.:

futures contracts on EUR/USD);

1 Transilvania University of Braşov,