Understanding the Scope of Forex Exchange

Conceptualized in 1971, the forex market has witnessed steep rise in its trade since then. It provides a platform to the traders, of all over the world, to exchange their currencies as they stipulate it according to their needs and profits. The average daily exchange accounts for a bulky volume of 1.5 trillion U.S. dollars; of which one billion traders daily pack in the same amount at the end of the day.

A little knowledge of the forex can earn you a substantial amount of profits. The market deals with the exchange of currency of one nation with the other; or one can also define “foreign exchange” as the way a currency is bought or sold (valued) with respect to another currency. Sometimes, it is also regarded as the way by which debts between two nations that use different currencies are paid.

The scope of the term “foreign exchange” is not limited to a basic definition; rather it covers in several aspect including:

• Forex Exchange Rate: The forex exchange rate determines the value a particular currency holds with respect to another. You can also state it as the purchasing power of currency A with respect to currency B of some other nation. For example, 1.30 Canadian Dollar is equivalent to a U.S Dollar.
  
  
• Foreign Exchange Services: It can be regarded as the various services that let you get linked with the forex trading market. It is basically the communication network that establishes your link with the same.
  
  
• Foreign Exchange Markets: These can be looked up as those business centers where in the actual process of buying and selling of the various currencies are carried out. It is important to note here that forex is not some central trade market, rather it is operated through banks, corporations, individual’s and other such organizations located all over the world. There is no chief trading center or head office of the forex. However, the major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. These operate by telephone lines or via Internet, for complete 24hrs a day servicing only for 5 days a week.

Trading in the Forex Requires Some Caution

Whether it is in the millions or thousands, trading in the Forex is a bit risky. There are a lot of players involved and if you don't arm yourself properly with knowledge about the Forex you may just get swamped.

The Forex is the largest most vibrant market in the whole wide world. The financial world has never had a market that involves so much transaction. Over a trillion dollars worth of different currencies exchange hands everyday. Some losing in the trade, while some hit the jackpot and make tons of money. The Forex is characterized by its unpredictability and the liquidity because it deals with foreign currencies and each one's value influenced by their own country. That's why anyone who is greatly considering joining the Forex trade should think twice, thrice and maybe even ten times before doing so. This is not an arena for the weak and nervous.

The Forex is a very complex financial arena and only those with enough knowledge, experience and financial capability can join the foray. Managing the risk factors is a priority task for those professionals who do this everyday. They direct and manage accounts from their investors, full confidence is placed on them and their client's success is also their success. Some professional Forex brokers have placed high-value on their credibility. The more clients they have the more they earn as well. They make a profit by eating a slice of their client's profit. If they have made a name for themselves in the Forex trade, they don't need to go look for clients; the clients will look for them and invest.

There are those however who wants to manage their own portfolios. A word of caution though, educate yourself first about the trade. Learn the ropes and tricks of the game before throwing your hat in the ring. Try to gain access to many self learn and self study websites that can impart their knowledge with you. Try out the website of the federal Commodities Futures Trading Commission (CFTC), there they offer consumer reports as well as articles about applicable laws in Forex trading. Many Forex management firms maintain a website that offers free online tutorials and brochures. You may need all the educational information about the Forex that you can get your hands on.

They may not outright say it, but the best and the finest and most skilled Forex traders have learned all the secrets of the game. From trading signals technical indicators, and theories that could explain about the market behavior. When you have mastered these skills, you can have a more accurate prediction of the direction of the market resulting to lower risks and higher profits. Even when dealing with money managers they have to be knowledgeable about the trade so they can be on top of their investments. Have a constant conversation with your broker and be updated about your account.

For the self-traders, some of them are very admirable to have the courage to act as their own money managers. As with any business, success will come only after hard work and diligent research. With Forex trading you should always be on your toes for developments. A wise Forex trader knows that that learning and educating about Forex trading never ceases.

By Sara Jenkins
http://www.ezinearticles.com

The Major Requirements in Forex Software

Forex trading is possible via its specially designed software that is available in two modules and forms; one is an online form while the other is client server software. Forex software is type of software that is especially designed for smooth transactions and trading of customers from all over the world to trade currencies online in a real time, secure, private and efficient manner.

A Forex software is designed keeping in view the following factors and issues and it has to address them as much as possible, the first major thing for the software whether it is an online module or a client server module that it should be based over the real time rates that are running in the market right now. Because these are the rates on which the investors play and they must be as accurate and as based on real time as possible. These rates are known as tradable Forex quotes because that is on which you trade over a currency. That is hence the major factor for any Forex Softwrae that it should provide the latest update with in seconds so that when a buyer wants to invest money it can lock a rate and trade over that.

The second major important factor required for forex software is it’s been Secure, can handle privacy and data integrity – because these are major issues for any one who is investing and trading money online. As the forex is all value games, so no sort of negligence is accepted as everything needs to be in the perfect condition for the people. Because if there is difference in the central market Forex system and the client system, then forex trading system may not be of any use.

Keeping in view the two major requirements, a lot of Forex trading software are running in the market right now that mainly come in the two forms, either in the form of online websites or client side forex software, both have their own pros and cons and must be designed for the highest level of data security, integrity and privacy.

Revealed - Million Dollar Forex Investing Mistakes

Anytime that you are investing in the Forex market, you are going into the Market blind. You don’t know what point of the investing trend you are entering in at.

You might be investing in a Forex stock just before the trend changes. Smart investing means you need to protect your trading float and set up a stop loss.

This needs to be done before you enter a trade, so that there is no room for error, or last minute indecision.

A stop loss is simply a predefined point at which you exit the stock.

Effectively, it’s like drawing a line in the sand underneath the share price, saying, “If the share price falls below this line, then the stock hasn’t done what I thought it was going to do, and I’ll exit the position.”

This allows you to protect your investing trading plan, because it cuts your losses short, and guards against an all too human tendency to want to believe you must be right.

95% of investing in an entry Forex position means you are expecting to profit from the trade.

If, however, the share-investing price goes against you, you might feel the need to justify why you bought the stock by holding onto it until it turns a profit.

You might have heard the idea that all big investing losses once started as small losses. Well, while the share price continues to go in the wrong direction, those losses grow in lockstep.

This is why you need to have a stop loss in place – it’s like having an ejector seat that tells you when to abort the mission.

One of the most common question I’m asked when traders are introduced to a stop loss is “How wide should I set my stop?”

In other words, how much room should I give the stock to move? There are no definitive answers to this question because it depends on what time frame you’re investing in.

If you’re a shorter-term investing trader, you’re going to have a stop loss that’s set closer to the share price. If you’re a longer-term investing trader, you’ll give the share price a little bit more room to move and set your stop loss lower.

Once you’ve identified what time frame you’re looking at trading, you need to be able to remove the normal market noise (volatility) in that particular time frame.

You don’t want to have to close out of an investing position just because a share price moved a little bit due to its normal trading volatility.

In fact, there are some serious drawbacks to setting tight stops.

First, you’ll decrease the reliability of your system because you get stopped out more often.

Second, and probably a little bit more importantly, you dramatically increase your transaction costs, because you’re trading transaction costs make up a major proportion of your business expenses.

To give yourself a fighting chance, you want to trade a system that doesn’t chew through excessive brokerage fees.

This is one of the major reasons I steer my clients into developing a trading system that runs over a slightly longer time frame. With the correct system in place, and your investing risk minimized, you are well positioned to maximize your trading profits.

By David Jenyns
http://www.forex-tips-and-techniques.com

Origins of the Foreign Exchange

In order to gain a complete understanding of what Foreign Exchange or Forex is, it is useful to examine the reasons that lead to its existence in the first place.

Exhaustively detailing the historical events that shaped the Forex Market - Foreign Exchange Market into what it is today is of no great importance to the forex trader and therefore we happily will omit lengthy explanations of historical events such as the Bretton Woods accord in favor of a more specific insight into the reasoning behind foreign exchange as a medium of exchange of goods and services.

Originally our ancestors conducted trading of goods against other goods this system of bartering was of course quite inefficient and required lengthy negotiation and searching to be able to strike a deal. Eventually forms of metal like bronze, silver and gold came to be used in standardized sizes and later grades (purity) to facilitate the exchange of merchandise. The basis for these mediums of exchange was acceptance by the general public and practical variables like durability and storage. Eventually during the late middle ages, a variety of paper IOU started gaining popularity as an exchange medium.

The obvious advantage of carrying around 'precious' paper versus carrying around bags of precious metal was slowly recognized through the ages. Eventually stable governments adopted paper currency and backed the value of the paper with gold reserves.

This came to be known as the gold standard. The Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, president Nixon suspended the convertibility to gold and let the US dollar 'float' against other currencies.

Since then the foreign exchange market has developed into the largest market in the world with a total daily turnover of about 1.5 trillion USD. Traditionally an institutional (inter-bank) market, the popularity of online currency trading offered to the private individual is democratising foreign exchange and widening the retail market.

by Nicholas H. Bang
http://www.marksforex.com

Introduction To Fundamental Analysis: Forex

FOREX traders almost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis – technical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading.

Fundamental analysis refers to political and economic conditions that may affect currency prices. FOREX traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.

Currency prices on the FOREX are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.

Indicators

Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.

Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.

Interest Rates - can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.

International Trade – Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

Other indicators include the CPI – a measurement of the cost of living, and the PPI – a measurement of the cost of producing goods. The GDP measures the value of all goods and services within a country, while the M2 Money Supply measures the total amount of all currency.

There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so FOREX traders should be aware of them when preparing strategies. Up-to-date information is available on many websites and many FOREX brokers supply this information as part of their trading service.

By John Sanderson
http://www.hotlib.com

How to Proceed for Successful Mini Forex Trading

Before analyzing any aspects related to FOREX, one should provide a reliable definition of what FOREX actually stands for. Thus, FOREX is a short name for foreign exchange. Furthermore, it is important to mention that anytime a FOREX market customer refers to FOREX profit or loss, he is actually talking about the percentage with which the value of an investment increased or decreased, during a certain period of time, as a result of unpredicted currency.

Before starting an investment on the FOREX market, one has to carefully analyze the steps that will take him or her towards a profitable experience on this market. Opening a Mini FOREX account is one of the most essential steps for any new trader who does not have the necessary financial resources able to allow him to open a regular trading account.

The great thing is that opening a mini FOREX account does not require an investment more substantial than $250, while, on the other hand, a regular FOREX account could require as high as a $2500 investment. Obviously, in order to maximize as much as possible the trading potential of your account, you have to constantly invest money as the potential is directly influenced by the sum of money available in your account.

Due to the nowadays incredible technology, you can open a mini trading account by simply filling in an online application form. In what concerns the size of the contracts that take place on the mini FOREX market, you should be aware of the fact that, as a general rule, they are approximately 1/10 of the size of a contract that takes place on the regular FOREX market.

Many traders, especially the ones who are new on the market are wondering whether there are any advantages that come along when opening a mini FOREX account, instead of a regular one. The answer can only be positive, due to the fact this type of account entitles the trader to perform the same actions on the market, as if he had a regular FOREX account. In other words, with a small investment of only $250 you can trade currency that worth $10,000, as, on this market, the so called “leverage” system is very popular, allowing traders to invest more money than their account normally permits them.

Due to the mentioned characteristics, mini FOREX accounts can be considered reliable investment options.

History of the Forex market: The Jamaican currency system. How Forex appeared.

By the end of the 50s - beginning of the 60s the balance of payments of the USA turned out to be negative in increasing frequency, gold reserves of the USA were exhausted, and the amount of dollars outside the country increased. Central banks of other countries created an increasing demand for gold, and the USA were obliged to satisfy it according to Bretton-Wood agreement. For the USA the necessity to exchange dollars for gold gradually resulted in detriment to the gold reserves (the USA had to sell gold at the fixed price of 35 dollars for ounce).

In August 1971 Richard Nixon (the president of the USA) cancelled the gold standard, and the limit of fluctuations of the face-value of currencies against the dollar was established at a level of 2.25 %. Currency markets were overwhelmed with a tide of instability.

The increasing of deviation interval of exchange rates up to 4.5% in December of the same year became the last attempt to keep Bretton-Wood system. However central banks could not keep this interval either, despite of massive interventions. Soon afterwards the USA declared devaluation of the dollar in 10 %.

In February 1973 the floating rate of the national currency was declared by Japan, and in March it was made by the European Union. Since this moment the mode of floating exchange rates became informally prevailing. The currency system passed in the category of "floating with the intervention of central banks" (dirty float). On the whole, it resulted in the increase of volatility of the world currencies.

In 1976 in Kingston (Jamaica) a new currency system was officially established and free fluctuation of exchange rates was legalized. In April 1978 a new charter of IMF came into force. There it was registered that the countries-participants of the fund can use floating exchange rates. Those countries which nevertheless left an affixment of national currencies to the dollar now established a corridor of fluctuations in 4.5 % and at any moment could pass to the mode of floating exchange rate.

In the basis of the new system refusal from the gold standard was incorporated first of all, no currency possessed gold content. Market of gold passed from the category of monetary one to the category of commodity. A new kind of international payment document was introduced - SDR (special drawing rights) - a unit of account of International monetary fund. Each country received share of SDR in conformity with its share in IMF.

However a number of countries continued the tradition of affixment of their national currencies to another currencies (some adhered their rates to the "baskets of currencies", 16 countries adhered their currency to SDR, 38 - to the dollar, 13 countries to the French franc, and 5 more countries to another currencies).

In 1978 nine participants of the European community established separate European monetary system which was "cross-rates scale" with boundary values. The system reminded of Bretton-Wood one, except that there was no gold in it, and instead of the dollar as reserve currency, the DM was used. Inside European monetary system (EMS) a new unit of account was introduced - European currency unit - ECU, which was founded on the basket of currencies of the countries-participants of the agreement. Borders of fluctuations for all currencies except for the Italian lira were established at a level of 2.25 %. In time ECU from a unit of account gradually changed into a physical one (circular cheques and deposits in banks appeared). In 1990 Great Britain joined the mechanism of exchange rates, and in 1992 after a significant collapse of pound sterling caused by speculative sales and inability of the Bank of England to keep the rate neither by interventions, nor by discount rate, the pound was removed from European monetary system. After the removal of the pound sterling from the agreement in 1993 in connection with strong devaluation of other European currencies the limit of fluctuations was increased up to 15 %.

In 1999 the Euro was introduced (instead of ECU). 11 states that satisfied certain parameters in inflation and deficiency of the state budget participated in the agreement.

On January, 1st, 2002 Euro was put into cash circulation that also considerably affected the currency market.

FX Market Participants

FX WHOLESALE MARKET PARTICIPANTS – WHO ARE THEY, WHAT DO THEY DO AND HOW DO THEY DO IT?

Introduction

The foreign exchange market is the world’s largest capital market, with daily transaction volumes between the various wholesale participants averaging $1.9 trillion. This guide will give the reader a basic idea of who these participants are, and how they go about their business.

Who are the key participants?



• Banks. Primarily in the business of the distribution of money (whilst retaining some of it for themselves), banks act in several capacities dependant on situation.

• Investment Managers: Investing client money in the world’s equity and fixed income markets, investment managers are required to effect foreign exchange transactions on a daily basis in order to deal with the flow of their client monies from country to country.

• Hedge Funds / CTA’s: Similar to investment managers, but with greater license to use ‘non vanilla’ instruments such as derivatives.

• Corporate Users: Any large or medium sized company transacting business in more than one country.

• Retail Brokers: Aggregating smaller retail sized trades and offsetting their risk in the wholesale markets.

• Central Banks: Managing the economic needs of their countries by action (direct or indirect) in the foreign exchange and interest rate markets.

• High-value private individuals: If an individual trader’s account and deal size is large enough they can access wholesale liquidity but this is a reasonably select band of people.


Why do they trade foreign exchange?

The reasons for trading FX vary from participant to participant. Some will have varying reasons to trade, and varying styles when they do. But the reasons can be broadly broken down into 7 main categories.


• Speculative trading. Trading in the anticipation of short / medium term gain. Timeframes typically minutes, hours and days.

• Investment. Activity designed to take advantage of longer-term trends. Timeframes of weeks and months.

• Equity / Fixed Income ‘flow’ trades. Investment managers trading to support traditional investment activity.

• Hedging. Trading to limit or completely mitigate currency exposure (risk) acquired as a result of some other aspect of the participant’s business activity.

• Cross border cashflow. Where business activity takes place across borders, fx transactions are often necessary. Typically this will apply to corporate activity.

• Official central bank operations. Action taken either by single central banks or on a concerted basis typically to restrict excessive volatility.

• Liquidity provision / market making. Banks, in addition to trading for themselves, service their customers, providing them with the ability to trade large amounts.

Participants in more detail

Banks



Market Making: The banks fulfil several roles within the FX market, but their chief and most visible activity is market making. As market makers they quote prices (either 'two way' or specifically to buy or sell a given currency) to a variety of counterparties. Typically all banks will have ‘internal’ customers (small branches, finance departments, other product trading desks) that require access to the FX market. Some smaller banks may only have these types of counterparties, medium sized banks will, in addition have external customers (pension funds, CTA / Hedge funds, corporate customers and occasional private individuals). Larger banks will service all of these customers and will also have relationships with central banks / supranational organisations (OECD etc) as well as providing liquidity for other banks large and small).

The size of the bank in question will affect its ability to service these clients, both in terms of number of specialist market makers they employ and size / breadth of transaction they can comfortably support. In addition to supplying pricing for customers, the banks will run an order book enabling clients to leave both limit and stop-loss orders with them (often on a 24 hour basis). The larger banks are able to use the current state of their order books as a proxy for the state of the market in general, and will adjust their own trading activity accordingly, if and when they see a large imbalance between buyers and sellers emerging. This leads neatly onto the second of the activities carried out by the banks.

Speculative Trading: This activity is generally divided between the market makers on a trading desk, and the bank’s specialist proprietary traders. In many cases the market makers will approach their trading with a view based on the state of their order book, while the prop traders often take a view based to a greater extent on technical factors with, on average, a slightly longer timeframe in mind. There are however no real hard and fast rules about this.

Hedging: In addition, banks occasionally act in the market for hedging purposes (hedging trading book local currency P+L, hedging wage / bonus costs etc) but this is very much a tertiary part of what they do. Market making and speculative activity form the bulk of their trading.

Investment Managers

The investment management community is one of the key drivers of the foreign exchange market. Active every day of the year, the larger investment managers are, more often than not, responsible for most of the larger ticket trades in the market from week to week (hundreds of millions of dollars per trade in some cases). Their activity falls under three categories;

Equity / Fixed income ‘flow’ transactions; The day to day activity of investment managers in the FX markets largely revolves around currency conversion to either provide foreign currency for equity / bond purchases or to repatriate sale proceeds. This take the form either of steady day to day trading activity (when for example pension funds are engaged in small scale re-balancing of their portfolios moving maybe 1% out of Japan and into Australia etc) or alternatively the activity can be larger scale, supporting program trading (typically occurring when a chunk of money is invested in / withdrawn from a fund)

Hedging transactions; As investment managers are (traditionally) primarily in the business of stock and bond picking, they will typically look to mitigate some or all of the exchange risk inherent in holding foreign investment products. So for example if a U.S. fund has a Japanese portfolio (composed of varying amounts of stocks, bonds and cash deposits) worth say 100 Million Yen, they will sell this Yen and buy Dollars (in the forward or futures market rather than for immediate spot delivery). This forward transaction might be for maturity in say 6 months. This doesn’t affect when they actually sell the instruments in question. If this occurs sooner they can close out the forward transaction. If the holding period is longer than the duration of the hedge trade, they will ‘roll over’ the trade when it approaches maturity.

As the value of the equity and fixed income holdings rises and falls, periodic smaller adjustments are required to keep the hedge size appropriate for the portfolio. Exactly how frequent and precise this is lies at the discretion of the fund manager and can be dictated by the relevant investment mandates received from the client. If the profit on these hedges increases to a point where the amount of cash they represent is too high for the investment mandate in question, the fund may choose to ‘abrogate’ the trade, cancelling it outright and taking the discounted present value of this profit and re-investing it (as many funds have upper limits dictating how much of the fund can be held in cash).

Investment Activity; While, as has already been stated, the investment managers are primarily in the business of stock picking, taking a longer term view on the currency markets in an active fashion is (especially in the present climate of relatively low equity volatility) an increasingly frequently used weapon in their armoury. Typically, although the funds have the ability to express their currency views in the spot market, they prefer to do so by adjusting the extent to which their portfolios are hedged. So, reverting to the previously discussed JPY example, if the fund manager believed that the Yen is likely to strengthen vs the Dollar, they may choose to sell only 90% of the value of the Japanese portfolio in the forward market (thus effectively taking a 10% overweight Yen position overall). Such positions can be taken either when the original forward position is instigated, or later on by adjusting the hedge amount to reflect the desired view. Increasingly, some investment managers are also looking to use options (both vanilla and exotic) to assist in both their hedging and speculative activities.

Hedge Funds/CTA Accounts

While Hedge funds and CTAs are able to call upon a wider range of products and styles than more ‘traditional’ investment managers, their trading bears at least some similarity to their ‘real money’ counterparts. They will hedge positions where necessary (although many hedge funds with an equity component are so called long/short funds and as such have far less (if any) overall market exposure requiring a hedge to be put in place). They will of course have flow related activity when purchasing / selling foreign assets and they are able to place longer term bets on the market’s direction (again either directly or by use of options). In addition they are far more likely to use their sophisticated models to take shorter term positions (often based more on a technical than fundamental view). Such short term trades are often key drivers of the market intra-day, especially in less liquid currency pairs (EUR/JPY being a good example of a favoured model fund currency play).

Corporates

Any company that desires to transact business across borders is likely to require access to the foreign exchange markets. Import / Export, raw materials flow and other similar day to day corporate activities form a large part of the modern foreign exchange market. Many larger corporations have increasingly sophisticated and market literate treasury arms, some of which have branched out into outright speculation. They will typically carry out their activities in the following ways;

Commercial Transactions; The primary reason for corporate fx activity. This as stated before can be pure import / export related or it could be sourcing of raw materials. It can be conducted on a one off, ad hoc basis (typically in the spot market) or it can be more systematic (where future cashflow can be accurately identified in advance). This is more often effected via the forward market.

Hedging Transactions; Where future assets / liabilities are an absolute known quantity (yearly wage bills in foreign branches, large, fixed due date product orders for big ticket items such as aircraft etc), the corporation may choose to hedge against adverse currency effects. As with investment management this can be a full or partial hedge, again at the discretion ultimately of the treasurer.

Speculative Trading; Increasingly, larger corporations are taking a greater interest in the speculative side of the market. Again, as before they have the option to express their views on future rate movements either directly in the spot market, via vanilla or exotic options, or by adjusting the hedges they put on to cover future cashflow.


Retail Brokers

The retail brokers supply liquidity to the retail trading community (as well, in some cases, as some smaller hedge funds). They will clear the positions that they acquire from this trading either by direct market access (using Interbank trading platforms such as EBS and Reuters) or by their relationship with bigger banks (either by conversational dealing or via these banks’ own e-commerce trading platforms). Some will also take speculative proprietary positions while others are wholly reliant on ‘spread retention’ and intelligent market making to earn their money.

Central Banks

Responsible, along with the relevant political bodies, for management of a country’s currency, the central banks will intervene from time to time (either unilaterally or on a concerted basis) to stem excessive volatility in the market. Most active in recent years has been the Bank of Japan, which has intervened fairly regularly and aggressively whenever excessive Yen strength threatens to cause economic difficulties. Central banks will in addition trade in smaller amounts as part of their day to day currency management operations but the effects of these smaller trades are rarely felt outside the banks with whom they deal.

High-Value Private Individuals

While most private traders access the market via a retail broker, those with larger accounts (typically an average trade size of USD 1 Million or greater) have the option of dealing directly with a single bank’s sales desk (either via the telephone or delivered directly in the form of a streaming e-commerce platform). Rarely a market mover in themselves, they are worthy of note mainly because the majority of traders with this size of account have a greater degree of trading acumen than the average retail trader and their activities are often watched with great interest by the banks with whom they have relationships.

Summary

The wholesale foreign exchange market is a deep, liquid and efficient one. This is largely due to the diverse nature of participants, many operating on a variety of levels at different times with differing expectations. While traditionally dominated by the interbank market makers, the exponential increase in volume of business executed by the large pension funds, combined with the increase in number and sophistication of the hedge funds has served to tip the balance away from these traditional institutions in recent times. Narrowing spreads, improved technology and even moves towards centralised settlement will ensure that this trend remains in place for the foreseeable future.

GammaJammer - Dec 24, 2004
http://www.trade2win.com

Forex Versus Futures

The origins of today's futures market lies in the agriculture markets of the 19th century. At that time, farmers began selling contracts to deliver agricultural products at a later date. This was done to anticipate market needs and stabilize supply and demand during off seasons.

The current futures market includes much more than agricultural products. It is a worldwide market for all sorts of commodities including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds. A futures contract states what price will be paid for a product at a specified delivery date.

When the futures market is played by speculators, the actual goods are not important and there is no expectation of delivery. Rather, it is the futures contract itself that is traded as the value of that contract changes daily according the market value of the commodity.

In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date.

For example: A farmer agrees to deliver 1000 bushels of wheat to a baker at a price of $5.00 a bushel. If the daily price of wheat futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.

At the end of the contract period, the contract is settled. If the price of wheat futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost the same amount. However, the baker now buys wheat on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of wheat. Similarly, the farmer must sell his wheat on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.

The baker, however, is still in effect buying the wheat at $5.00 a bushel, and if he hadn't entered into a futures contract he would have been able to buy wheat at $4.00 a bushel. He protected himself against rising prices but he loses if the market price drops.

Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise or by buying short (from the seller) if they expect prices to fall.

FOREX

The foreign exchange market (FOREX) has several advantages over the futures market. FOREX is a more liquid market – as the largest financial market in the world it dwarfs the futures market in daily exchanges. This means that stop orders can be executed more easily and with less slippage in the FOREX.

The FOREX is open 24 hours a day, 5 days a week. Most futures exchanges are open 7 hours a day. This makes FOREX more liquid and allows FOREX traders to take advantage of trading opportunities as they arise rather than waiting for the market to open.

FOREX transactions are commission-free. Brokers earn money by setting a spread – the difference between what a currency can be bought at and what it can be sold at. In contrast, traders must pay a commission or brokerage fee for each futures transaction they enter into.

Because of the high volume of trading FOREX transactions are almost instantly executed. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade – not necessarily the price of your transaction.

The FOREX is less risky than the futures market because of built-in safeguards in the trading system. Debits in futures are always a possiblility because of market gap and slippage.

By Mark Humphrey
http://www.articlebiz.com

Forex Trading: Making Money With Money

Forex trading is one of the fastest-growing markets for making money in today’s world economy.

If you are part of the forex trading game, you need well-thought-out and planned strategies. You also need up-to-the minute information and reliable data to help you along the way.

With this said, in order to be successful with forex, you'll want to invest in high-quality products to help you analyze, watch and track the forex market. No little project at all. The good news to you is that there are options out there to help you do just that.

First of all, realize that forex trading is an excellent market to trade in. It has the ability to make you money without a whole lot of investing. And, you can trade with whatever you have, not necessarily millions of dollars.

To get into the forex market, it makes sense to pay attention to the numbers for some time. Then, you’ll have a good feel for it long before your dollars are involved.

But, once you do get in, you’ll need up-to-the minute information.

Consider the purchase of and use of valuable forex trading software programs.

These programs can help you to track what is happening and in some, it will help you to better analyze the information as well. Of course, this in turn will help you to make the right decisions about your investments.

While market trading is always risky, many find that forex trading, when done right, is one of the most profitable without much start up investment opportunities out there.

With the ability that you have to monitor and respond virtually instantly to the world’s market in forex, you are better able to make the right decisions which will then lead to those gains you are seeking.

By Leon Chaddock
http://www.forex-tips-and-techniques.com

Forex Trading Strategy

Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint. ACM does not manage accounts, nor does it give market advice, that is the job of money managers and introducing brokers. As market professionals, we can however point the novice in the right direction and indicate what are correct trading tactics and considerations and what is total nonsense.

Anyone who says you can consistently make money in foreign exchange markets is being untruthful. Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very 'fast market' which is naturally inconsistent. Following that precept, it is logical to say that in order to make a successful trade, a trader has to take into account technical and fundamental data and make an informed decision based on his perception of market sentiment and market expectation. Timing a trade correctly is probably the most important variable in trading successfully but invariably there will be times where a traders' timing will be off. Don't expect to generate returns on every trade.

Let's enumerate what a trader needs to do in order to put the best chances for profitable trades on his side:

Trade with money you can afford to lose: Trading fx markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are 'involved with your money' the harder it is to make a clear-headed decision. Money you have earned is precious, but money you need to survive should never be traded.

Identify the state of the market: What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that's forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade.

Determine what time frame you're trading on: Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind's eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.

Time your trade: You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur. We will look at technical analysis in more detail later.

If in doubt, stay out: If you're unsure about a trade and find you're hesitating, stay on the sidelines.

Trade logical transaction sizes: Margin trading allows the fx trader a very large amount of leverage, trading at full margin capacity (in ACM's case 1% or 0.5%) can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket. ACM offers the same rates regardless of transaction sizes so a customer has nothing to lose by starting small.

Gauge market sentiment: Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term 'the trend is your friend', this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak.

Market expectation: Market expection relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently.

Use what other traders use: In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.

by Nicholas H. Bang
http://www.marksforex.com

Forex Trading Guide- How to Deal With Forex Trading

Buying and selling of different currencies of the world is known as forex trading. Forex or foreign exchange market is the largest trading market in the world. Forex trading market deals with more than US$2 trillion everyday. It has become favorite option for currency traders. Foreign exchange market is extremely different from stock exchange market. Currency trading is always done in pairs like USD/EUR or USD/GBP etc. Forex trading market works 24 hours a day.

Several investors and traders are joining forex trading every day. First time investors should keep in mind that forex trading works on certain principles. They should remember that it is an investment not an income. Currency can fluctuate at any time so right time investment is the best investment in forex trading. You should have another source of income while dealing in forex trading. If you are a first time investor don’t believe in demo trading because it can be dangerous in long run. After getting all information about broker’s system you can start forex trading with small amounts. You should always invest that amount for which you can bear profit or loss.

Sometimes forex trading is a risky business but the trader can reduce the risk by following best trading strategy. Trader should know the right time to enter and exit the market. Forex trading is an easy and simple trading business. You can do forex trading while sitting in your home. It requires a PC with Internet connection and a bit of time. You can perform all the transactions online with a small fee and the best thing of forex trading is that you don’t have to pay large amounts to professional. Forex trading market offers a large number of online options for currency trading. Before joining it you’ve to search for the best option to achieve your goals.

Beginners can use forex trading software programs to track and analyze market conditions. These programs will help you in finding the best investment opportunities. Forex trading software enables you to make right decisions about investments. Beginners shouldn’t try to predict the forex trading markets because currency fluctuation may occur anytime. You can handle forex trading by using trading system and money management strategy.

Don’t be emotional in forex trading. You should behave like a businessman that can efficiently test the market data. Testing system and best money management strategy lets you to invest your capital in the best way. While paying minor attention to the ups and downs of the forex trading market you can easily maximize your profits. You can make profitable trades by focusing on the hours when market generally makes their biggest moves.

With some research, a lot of skill and a bit of luck you can enjoy forex-trading market completely. You’ve to be smart at the time of making choices and taking risks. The trading process is so simple and can be done with a small amount. You don’t have to wait for the opening and closing of stock market because it works for twenty-four hours. Several trading companies are providing free information online. You can search for required information before making any decisions. Some companies also offer free trail periods; you can also check it out.

By Sardool Sikandar
http://www.ezinearticles.com

FOREX Trading

The Foreign Exchange market, also referred to as the "FOREX" or "FX" market is the largest financial market in the world, with a daily average turnover of US$1.9 trillion - thirty times larger than the combined volume of all the United States equity markets. The FOREX website defines Foreign exchange as “the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY)”.

The FOREX market was launched in the 1970s, when free exchange rates were introduced. Only the participants of the market determine the price currencies against one another. This depends on proceedings from supply and demand. Influence by a single participant in the market is practically out of the question. This is because FOREX is more of an objective market. If some of its participants would like to change prices for some manipulative purpose, they would have to operate with tens of billions dollars.

FOREX is part of the bank-to-bank currency market known as the 24-hour Interbank market. The Interbank market literally follows the sun around the world, moving from major banking centers of the United States to Australia, New Zealand to the Far East, to Europe then back to the United States.

Speculations on the FOREX exchange market give the biggest profit of all legal types of transactions. Everyday fluctuations of currencies allow FOREX traders an opportunity to make money on these changes. It is the world’s biggest liquid financial market. Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. In every time zone across the world there are dealers who will quote currencies. The major currencies traded in FOREX, are Euro (EUR), Japanese Yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).

There are many advantages to trading in the FOREX market. These include:

• The biggest number of participants and the largest volumes of transactions
• Superior liquidity and speed of the market: transactions are conducted within a few seconds according to online quotes
• The market works twenty four hours a day, five working days a week
• A trader can open or close an account for any amount of time he wants
• No restrictions as accounts with very low account balances
• There are no fees. The only payment is the difference between buying and selling prices
• Opportunities exist to achieve a larger profit from an investment
• It is possible to turn FOREX trading into a professional and qualified activity
• It is possible to make deals any time at the convenience of ones home
• It is not obligatory to buy some currency first in order to sell it later
• It is possible to open positions for buying and selling any currency without actually having it, usually involving established Internet brokers
• The superior liquidity allows the traders to open and/or close positions within a few seconds
• The time of keeping a position is arbitrary and has no limits - from several seconds to many years
• FOREX speculative interests can be satisfied without a real money supply, which in turn decreases overhead costs for money transfers
• It gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies
• Most transactions must continue, since currency exchange is a required mechanism needed to facilitate world commerce

By Dave Markel
http://www.articlebiz.com

Forex Software

Trading in foreign currency has grown in popularity in the last years and it is now the most secure financial market in the world. This market never closes! Millions trade are made daily, all over the world. The global economy is host of new trading opportunities and online currency trading is the faster way to do it.

Using forex software it is easy to invest in devises and actions, on line and without supplementary costs.

Online currency trading is convenient and understandable, allowing the opportunity to find efficient investment. You can manage al your trades from the comfort of your home computer.

Using the appropriate software, the trading services are available for any customer, from individuals to most important institutions.

Regardless of the size of the client, the software application is the same; the resources have the same quality for the independent investor to large institutional clients.

The easy-to-use quality of the online currency trading makes an important grow in online currency trading number.

This must be a powerful tool, with standard features. It manages foreign currency trades using many security features, in real time.

The software dedicated to online forex operations is allowing keeping track of clients’ transactions, editing orders or canceling them. It is possible also to customize the dashboard to allow the possibility to monitor the trades while simultaneously working in other projects.

An appropriate software package for forex trading is completely customizable and its intricate tools will allow to customers to build its own technical indicators for the forex trades.

It must serve the beginners and the professional traders as well.

The software application receives and interprets live data generated all over the world, transforming it into some easy to understand visual parts. The main directions are to calculate the fundamental indicators about the overbought or oversold conditions, trend direction or strength for the main currency pairs (USD / EUR, USD /JPY, USD / GBP, USD / CHF).

In the same time, the software package must handle the techniques to allow the strategic risk and money management techniques.

Hire is a quote from George Soros:

"It doesn't matter how often you are right or wrong - it only matters how much you make when you are right, versus how much you lose when you are wrong."

Any software package will allow an efficient illustration for the current market condition

Forex Market Participants

In the last years, the Foreign Exchange Market has expanded from one where banks would execute transactions between themselves to one in which many other kinds of financial institutions like forex brokers and market-makers participate including non-financial corporations, investment firms, pension funds and hedge funds. Its' focus has broadened from servicing importers and exporters to handling the vast amounts of overseas investment and other capital flows that currently take place. Lately foreign exchange day trading has become increasingly popular and various firms offer trading facilities to the small investor.

Foreign exchange is an 'over the counter' (OTC) market, that means that there is no central exchange and clearing house where orders are matched. Geographic trading 'centers' exist around the world however and are: (in order of importance) London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris and Hong Kong. Essentially foreign exchange deals are made between participants on the basis of trust and reputation to deliver on an agreement. In the case of banks trading with one another, they do so solely on that basis. In the retail market, customers demand a written legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade.

Some market participants may be involved in the 'goods' market, conducting international transactions for the purchase or sale of merchandise. Some may be engaged in 'direct investment' in plant and equipment, or may be in the 'money market,' trading short-term debt instruments internationally. The various investors, hedgers, and speculators may be focused on any time period, from a few minutes to several years. But, whether official or private, and whether their motive be investing, hedging, speculating, arbitraging, paying for imports, or seeking to influence the rate, they are all part of the aggregate demand for and supply of the currencies involved, and they all play a role in determining the exchange rate at that moment.

by Nicholas H. Bang
http://www.marksforex.com

Forex Market Dynamics

The breadth, depth, and liquidity of the fx market are truly impressive. It has been estimated that the world's most active exchange rates like EURUSD and USDJPY can change up to 18,000 times during a single day. Somewhere on the planet, financial centers are open for business, and banks and other institutions are trading the dollar and other currencies, every hour of the day and night, aside from possible minor gaps on weekends. In financial centers around the world, business hours overlap; as some centers close, others open and begin to trade.

The Foreign Exchange Market follows the sun around the earth. Each business day arrives first in the Asia-Pacific financial centers; first Wellington, New Zealand, then Sydney, Australia, followed by Tokyo, Hong Kong, and Singapore. A few hours later, while fx markets remain active in those Asian centers, trading begins in Bahrain and elsewhere in the Middle East. Later still, when it is late in the business day in Tokyo, fx markets in Europe open for business. Subsequently, when it is early afternoon in Europe, trading in New York and other U.S. centers starts. Finally, completing the circle, when it is middle or late afternoon in the United States, the next day has arrived in the Asia-Pacific area, the first fx markets there have opened, and the process begins again.

1. Spot rate

A spot transaction is a straightforward (or outright) exchange of one currency for another. The spot rate is the current market price or 'cash' rate. Spot transactions do not require immediate settlement, or payment 'on the spot'. By convention, the settlement date, or value date, is the second business day after the deal date on which the transaction is made by the two parties.

2. Bid & ask

In the foreign exchange market (and essentially in all markets) there is a buying and selling price. It is important to perceive these prices as a reflection of market condition.

A market maker is expected to quote simultaneously for his customers both a price at which he is willing to buy (the bid) and a price at which he is willing to sell (the ask) standard amounts of any currency for which he is making a market.

ACM quotes very competitive spreads to customers, to site an example if a trader is interested in a transaction in EURUSD then he can trade on a bid/ask of say 0.9150 / 0.9153. This means that ACM is willing to buy from him a pre-determined amount at 0.9150 or inversely to sell to him at 0.9153.

Generally speaking the difference between the bid and ask rates reflect the level of liquidity in a certain instrument. On a normal trading day, the major currency pairs EURUSD, USDJPY, USDCHF and GBPUSD are traded by a multitude of market participant every few seconds. High liquidity means that there is always a seller for your buy and a buyer for your sell at actual prices.

3. Base currency and counter currency

Every foreign exchange transaction involves two currencies. It is important to keep straight which is the base currency and which is the counter currency. The counter currency is the numerator and the base currency is the denominator. When the counter currency increases, the base currency strengthens and becomes more expensive. When the counter currency decreases, the base currency weakens and becomes cheaper. In telephone trading communications, the base currency is always stated first. For example, a quotation for USDJPY means the US dollar is the base and the yen is the counter currency. In the case of GBPUSD (usually called 'cable') the British pound is the base and the US dollar is the counter currency.

4. Quotes in terms of base currency

Traders always think in terms of how much it costs to buy or sell the base currency. When a quote of 0.9150 / 53 is given that means that a trader can buy EUR against USD at 0.9153. If he is buying EURUSD for 1'000'000 at that rate he would have USD 915'300 in exchange for his million Euro. Of course traders are not actually interested in exchanging large amounts of different currency, their main focus is to buy at a low rate and sell at higher one.

5. Basis points or 'pips'

For most currencies, bid and offer quotes are carried down to the fourth decimal place. That represents one-hundredth of one percent, or 1/10,000th of the counter currency unit, usually called a 'pip'. However, for a few currency units that are relatively small in absolute value, such as the Japanese yen, quotes may be carried down to two decimal places and a 'pip' is 1/100th of the terms currency unit. In foreign exchange, a 'pip' is the smallest amount by which a price may fluctuate in that market.

6. Euro cross & cross rates

Euro cross rates are currency pairs that involve the Euro currency versus another currency. Examples of Euro crosses are EURJPY, EURCHF and GBPEUR. Currency pairs that involve neither the Euro nor the US dollar are called cross rates. Examples of cross rates are GBPJPY and CHFJPY. Of course hundreds of cross rates exist involving exotic currency pairs but they are often plagued by low liquidity. Ever since the Euro the number of liquid cross rates have decreased and have been replaced (to a certain extent) by Euro crosses.

by Nicholas H. Bang
http://www.marksforex.com

Forex Development History

Foreign exchange development history - exchange market evolution foreign exchange development history - exchange market evolution gold remittance system and Bretton woods agreement.


In 1967, a Chicago bank rejected to provide pound loan to a professor named Milton Friedman, because his purposed was to use this fund to sell short the British pound. Mr. Friedman realized excessively that the price ratio from the British pound to US dollar at that time was high, he wanted first to sell the British pound, after the British pound fell he buys back the British pound to repay the bank again. This family bank rejects the loan offer based on the "Bretton woods Agreement" which was established 20 years ago. This agreement has fixed the various countries' currency to US dollar exchange rate, and the price ratio between the U.S dollar and the gold is also fixed to 35 US dollars to each ounce of gold.

The Bretton Woods Agreement was signed in 1944, the purposed was to prevent the currency to escape between countries, and also to limit the international speculation, thus to stabilize the international currency. Before this agreement was signed, the gold remittance standard system which was widely used since 1876 - was leading the international economy system until the First World War. In the gold remittance system, the currency was at the stable level under the support of the gold price. The gold remittance system has abolished the old time king and the ruler which depreciates the currency value unlawfully, which will lead to inflation.

But, the gold remittance standard system is certainly imperfect. Along with a country economic potentiality enhancement, it can import massive products from overseas, until it exhausts the gold reserve of certain country. It resulted the supply of the currency reduces, the interest rate raises, the economic activity will start to decline until it reaches the recession limit. Finally, the commodity price falls to the valley, gradually attracts other countries to stream in, massively rushes to purchase this country commodity. This will pour gold into this country, this will increase this country currency supplies quantity, and it will reduce the interest rate, and will create the wealth. This is so called the "the prosperity - decline” pattern and is the circulation of the gold remittance standard system, until the trade circulation and the gold freedom was broken by the First World War.

After several catastrophes wars, the Bretton Woods agreement has appeared. The countries which signed the treaty agreed to maintain the domestic currency to US dollar exchange rate, as well as the necessity of the corresponding ratio of the gold, and only allow a small fluctuation. Countries are prohibited to depreciate the currency value for the gain trade benefit, only allows the country to depreciate not more then 10%. Enters the 50's, the continuous growth of the international trade causes the fund large-scale shift which produces because of the postwar reconstruction, this causes Bretton Woods system which establishes the foreign exchange rate to lose stability.

This agreement was finally abolished in 1971, US dollar no longer could convert to gold. Until 1973, each major industrialized nation currency exchange rate fluctuation has been more freely, mainly regulates by the foreign exchange market through the currency supplies and demand quantity. The business volume, the transaction speed as well as the price variability, have achieved a comprehensive growth in the 1970's, come along with the emerge of price ratio fluctuation, the brand-new financial tool, then only the market liberalization and the trade liberalization could be achieved.

In the 1980s, along with the published of the computer and correlation technology, the international capital has flow rapidly, and strongly related the Asia, Europe and America market. Foreign exchange business volume from 80's rises daily from 70 billion US dollars to 150 billion US dollars after 20 years.


European market inflation

One of the reasons why the foreign exchange developed rapidly was the rapid development of the Euro dollar market. In a Euro dollar market, US dollar is stored beyond the border of America banks. Similarly, the European market is refers to property depositing outside the currency rightful owner country market. A Euro dollar market was formed at first in the 50's, at that time Russia deposited its petroleum income beyond the US border, avoid being freeze by the US government. This has formed a large offshore US dollar national treasury which is beyond the control of the US government. The American government has formulated a law to prohibited US dollar from lending money for the foreigner. Because the degree of freedom of the Euro dollar market is bigger and the rate of return is bigger, therefore it has large attraction. Starting from the 80's, the American company starts to borrow loan from the offshore market, they discovered that the European market is a wealth center which consists of large amount of floating capital which could provide short-term loan.

London once was (until now still is) one of the main offshore market. In the 80's, the Bank of England in order to maintain its global finance industry center dominant position, using US dollar as England pound substitution to make loan, thus to become a Euro dollar market center. London's convenient geographical position (is situated between Asian and Americas market) also helps to maintain the European market as the dominant position.

Forex Course

Forex Course - Forex Courses for Currency Trading

In 1995, instead of just banks and multi national companies, FOREX market opened up a gate of opportunity for all of the individuals who wished to trade in the foreign market. As a result of that, the number of traders inside the FOREX market had significantly increased since then and therefore, more and more FOREX courses are appearing everywhere nowadays.

Actually, although some may already know, it is advisable, and sometimes required for an individual to actually have an adequate FOREX knowledge before they open up an account and start trading in the FOREX. The reasoning behind this is because, there are certain things an individual must know before trading in FOREX which are things such as the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, more and more people are either enrolling into FOREX courses or purchasing different kind of books regarding FOREX trading.

There are actually some advantage and disadvantages for enrolling into a FOREX course nowadays. For now, let us examine into some of the advantages in a FOREX course. For starters and beginners to FOREX trading, enrolling into a FOREX course would be the most suitable and fast method in grasping the ins and outs of FOREX trading. In addition to that, rather than asking your neighbour about the details of FOREX trading, by enrolling into a FOREX course, an individual can acquire a more accurate and detailed explanation regarding the operation of trading in FOREX. Besides that, by taking a FOREX course, an individual can learn how the FOREX market is being analyze by experts all around the world, in another sense, this means that an individual can acquire a better understanding in how to analyze all the graphs and chars which previously seemed so foreign to them.

Although there are a lot of benefits for enrolling into a FOREX course, we still can not disregard the downside of enrolling into a FOREX course. First of all, most of the FOREX courses out there in the market are very expensive as most of the courses are conducted or written by experts in FOREX trading. This means that, before an individual even start to earn a single penny in FOREX market, he had to pay out a huge sum of money beforehand. Aside from that, for a person who had undertaken a course in FOREX, he may become too accustomed to the logic thinking and analyzing behind FOREX and as a result, he might forget the fact where nothing is predictable in the FOREX market. Although in FOREX trading, it is undeniable where we could gain an upper hand if we can understand and acquire more information, however, the FOREX market is simply unpredictable as there are a lot of issues and unknown factors affecting the whole financial flow in the market, such as political issues.

FOREX course, having its pros and cons, is still continuing to prosper in the society today due to the fact where when there is demand, there is opportunity. People around still tend to enroll into FOREX courses or getting their hands on guide books for FOREX trading as this is considered the safest way for beginners to get involved in the FOREX market. This is because, some people in the FOREX market learnt the ins and outs of trading based on harsh experiences such as suffering a massive amount of losses at the beginning of investment in FOREX. Having compared to them, enrolling into a FOREX course in the beginning can be considered as a safer and risk free method for most of the individuals out there.

http://www.forex.labuan.net

Forex And Daytrading

Day Trading

Day Trading had its heyday during the bull market of the 1990's. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.

FOREX Trading

The Foreign Exchange Market (FOREX), the world's largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.

Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.

As a matter of fact, it's advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.

There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.

The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.

The best advice would be to do some background research on the FOREX market first, and then enroll in a course.

by Frank Hague
http://www.hotlib.com

Forex And Daytrading

Day Trading

Day Trading had its heyday during the bull market of the 1990's. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.

FOREX Trading

The Foreign Exchange Market (FOREX), the world's largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.

Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.

As a matter of fact, it's advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.

There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.

The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.

The best advice would be to do some background research on the FOREX market first, and then enroll in a course.

by Frank Hague
http://www.hotlib.com

FOREX 101: Make Money with Currency Trading

For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.

FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.

How FOREX Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Investment Strategies: Technical Analysis and Fundamental Analysis

The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis.

Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.

A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.

Make Money with Currency Trading on FOREX

FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.

By Rich McIver
http://www.ezinearticles.com

Floating And Fixed Exchange Rates

Did you know that the foreign exchange market (also known as FX or forex) is the largest market in the world? In fact, over $1 trillion is traded in the currency markets on a daily basis. This article is certainly not a primer for currency trading, but it will help you understand exchange rates and why some fluctuate while others do not. What Is an Exchange Rate? An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your own. If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for example, and the exchange rate for USD 1.00 is EGP 5.50, this means that for every U.S. dollar, you can buy five and a half Egyptian pounds. Theoretically, identical assets should sell at the same price in different countries, because the exchange rate must maintain the inherent value of one currency against the other. Fixed There are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen, or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged. If, for example, it is determined that the value of a single unit of local currency is equal to USD 3.00, the central bank will have to ensure that it can supply the market with those dollars. In order to maintain the rate, the central bank must keep a high level of foreign reserves. This is a reserved amount of foreign currency held by the central bank which it can use to release (or absorb) extra funds into (or out of) the market. This ensures an appropriate money supply, appropriate fluctuations in the market (inflation/deflation), and ultimately, the exchange rate. The central bank can also adjust the official exchange rate when necessary. Floating Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting", as any differences in supply and demand will automatically be corrected in the market. Take a look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and thus stimulating demand for local goods and services. This in turn will generate more jobs, and hence an auto-correction would occur in the market. A floating exchange rate is constantly changing. In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency does reflect its true value against its pegged currency, a "black market" which is more reflective of actual supply and demand may develop. A central bank will often then be forced to revalue or devalue the official rate so that the rate is in line with the unofficial one, thereby halting the activity of the black market. In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation; however, it is less often that the central bank of a floating regime will interfere. The World Once Pegged Between 1870 and 1914, there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well as global stability in currencies and trade; however, with the start of World War I, the gold standard was abandoned. At the end of World War II, the conference at Bretton Woods, in an effort to generate global economic stability and increased volumes of global trade, established the basic rules and regulations governing international exchange. As such, an international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries and therefore that of the global economy. It was agreed that currencies would once again be fixed, or pegged, but this time to the U.S. dollar, which in turn was pegged to gold at USD 35/ounce. What this meant was that the value of a currency was directly linked with the value of the U.S. dollar. So if you needed to buy Japanese yen, the value of the yen would be expressed in U.S. dollars, whose value in turn was determined in the value of gold. If a country needed to readjust the value of its currency, it could approach the IMF to adjust the pegged value of its currency. The peg was maintained until 1971, when the U.S. dollar could no longer hold the value of the pegged rate of USD 35/ounce of gold. From then on, major governments adopted a floating system, and all attempts to move back to a global peg were eventually abandoned in 1985. Since then, no major economies have gone back to a peg, and the use of gold as a peg has been completely abandoned. Why Peg? The reasons to peg a currency are linked to stability. Especially in today's developing nations, a country may decide to peg its currency to create a stable atmosphere for foreign investment. With a peg the investor will always know what his/her investment value is, and therefore will not have to worry about daily fluctuations. A pegged currency can also help to lower inflation rates and generate demand, which results from greater confidence in the stability of the currency. Fixed regimes, however, can often lead to severe financial crises since a peg is difficult to maintain in the long run. This was seen in the Mexican (1995), Asian and Russian (1997) financial crises: an attempt to maintain a high value of the local currency to the peg resulted in the currencies eventually becoming overvalued. This meant that the governments could no longer meet the demands to convert the local currency into the foreign currency at the pegged rate. With speculation and panic, investors scrambled to get out their money and convert it into foreign currency before the local currency was devalued against the peg; foreign reserve supplies eventually became depleted. In Mexico's case, the government was forced to devalue the peso by 30%. In Thailand, the government eventually had to allow the currency to float, and by the end of 1997, the bhat had lost its value by 50% as the market's demand and supply readjusted the value of the local currency. Countries with pegs are often associated with having unsophisticated capital markets and weak regulating institutions. The peg is therefore there to help create stability in such an environment. It takes a stronger system as well as a mature market to maintain a float. When a country is forced to devalue its currency, it is also required to proceed with some form of economic reform, like implementing greater transparency, in an effort to strengthen its financial institutions. Some governments may choose to have a "floating," or "crawling" peg, whereby the government reassesses the value of the peg periodically and then changes the peg rate accordingly. Usually the change is devaluation, but one that is controlled so that market panic is avoided. This method is often used in the transition from a peg to a floating regime, and it allows the government to "save face" by not being forced to devalue in an uncontrollable crisis. Although the peg has worked in creating global trade and monetary stability, it was used only at a time when all the major economies were a part of it. And while a floating regime is not without its flaws, it has proven to be a more efficient means of determining the long term value of a currency and creating equilibrium in the international market.

By Reem Heakal

www.investopedia.com