Modern Forex
If you learn anything about modern FOREX, it should be that it is part of a regulatory mechanism. For all practical purposes, money as it is created today is a fic-tion. Assets backing much of the world’s currency do not actu-ally exist, although government authorities will beg to differ! Whether we examine operations of the U.S. Federal Reserve(affectionately called the FED),or look at western
European cen-tral banks operating under the Maastricht Treaty, the principlesand facilities are designed to achieve the same results—regulatemoney in circulation. Efficient Economic Theory in Modern Currency TradingRecall our first discussion of barter and the evolution of money. We know monetary value is associated with the ratio of a unit ofcurrency such as $1 and the amount it can buy.
What is theamount it can buy? Obviously, we must know the referencecommodity. Is it an amount of gold or sugar? Assume it is sugar. Suppose $1 can buy 10 pounds of white sugar. Assume £1 canbuy 20 pounds of sugar. It stands to reason that £1 will have avalue of $2. It is simple algebra.
This simplistic algebraic relationship was expressed by Navarro Martin de Azpilcueta who lived during the time of Christopher Columbus (1492—1586). He postulated that the val-ues of the same goods in different countries created a ratio for theMoney, Currency, and Foreign Exchange relative value of different currencies.
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Sunday, August 30, 2009
Monday, August 24, 2009
The Critical Aspect Of Forex Traders
FOREX:
Currency demo trading is a critical part of online forex trading.
Online foreign currency trading is comparable to the futures markets in that investors are proficient to organize hefty amounts of assets for a comparatively minute deposit, or margin.
As with all investments, devoid of appropriate jeopardy administration, elevated degrees of influence can show the way to great losses as well as gains. The influence in online foreign currency trading is superior to a stock bought on fringe and a typical futures bond. For a putdown of just $1,00 an financier can control $10,000 value of foreign exchange or $10 control for each $0.1 invested.
Trade a stock on fringe only allows $3 control for every $1 invested and a representative futures agreement consents to around $16 control for each $1 invested. Secondly, for the reason that you entrée the foreign exchange markets straight throughout an online foreign currency trading stage, you disburse nil exchange fees.
And like futures, you are able to roll over foreign legal tender positions for an indefinite period. Online foreign currency trading is a 24 hour market that factually pursues the sun in the order of the globe, allowing you to buy and sell when you desire to. Unlike stocks, there are no boundaries on small selling in online foreign money trading. Sell or buy- it doesn't matter which method you participate in the marketplace when you spend in foreign currencies.
And at the end of the day, the enormous numeral and assortment of investors concerned in online foreign legal tender trading make it more fluid than both stocks and commodities. Now, even with all this, you still need to have a solution where you can engage the market at the start and learn all you can about the ins and outs of the Forex market without actually getting any debris on yourself for all the failures.
The best way you can learn about the market, is to be in the market yourself and from there, you can grow and mature as a trader. There are many brokerages out there who are offering demo trading accounts as a start and you can sign up with them for a 30 day free trial. The best thing about these demo accounts is that they allow you to learn all you can about the basics of trading and see for yourself just how apt you are to trade in the Forex market.
While there are dozens of reasons why trading with Forex is a good idea, you have to understand that not everyone can take all the risks and be a competent Forex trader from the start. In the end of the day, once you can experience the full onslaught of the market, then will you understand the kind of trading mettle you need to have to fully take advantage of the billions of dollars that are being moved on a daily basis. This is why a currency demo trading account is so critical for all new Forex traders.
Currency demo trading is a critical part of online forex trading.
Online foreign currency trading is comparable to the futures markets in that investors are proficient to organize hefty amounts of assets for a comparatively minute deposit, or margin.
As with all investments, devoid of appropriate jeopardy administration, elevated degrees of influence can show the way to great losses as well as gains. The influence in online foreign currency trading is superior to a stock bought on fringe and a typical futures bond. For a putdown of just $1,00 an financier can control $10,000 value of foreign exchange or $10 control for each $0.1 invested.
Trade a stock on fringe only allows $3 control for every $1 invested and a representative futures agreement consents to around $16 control for each $1 invested. Secondly, for the reason that you entrée the foreign exchange markets straight throughout an online foreign currency trading stage, you disburse nil exchange fees.
And like futures, you are able to roll over foreign legal tender positions for an indefinite period. Online foreign currency trading is a 24 hour market that factually pursues the sun in the order of the globe, allowing you to buy and sell when you desire to. Unlike stocks, there are no boundaries on small selling in online foreign money trading. Sell or buy- it doesn't matter which method you participate in the marketplace when you spend in foreign currencies.
And at the end of the day, the enormous numeral and assortment of investors concerned in online foreign legal tender trading make it more fluid than both stocks and commodities. Now, even with all this, you still need to have a solution where you can engage the market at the start and learn all you can about the ins and outs of the Forex market without actually getting any debris on yourself for all the failures.
The best way you can learn about the market, is to be in the market yourself and from there, you can grow and mature as a trader. There are many brokerages out there who are offering demo trading accounts as a start and you can sign up with them for a 30 day free trial. The best thing about these demo accounts is that they allow you to learn all you can about the basics of trading and see for yourself just how apt you are to trade in the Forex market.
While there are dozens of reasons why trading with Forex is a good idea, you have to understand that not everyone can take all the risks and be a competent Forex trader from the start. In the end of the day, once you can experience the full onslaught of the market, then will you understand the kind of trading mettle you need to have to fully take advantage of the billions of dollars that are being moved on a daily basis. This is why a currency demo trading account is so critical for all new Forex traders.
Sunday, August 16, 2009
Forex Softwares
Consider Getting a Foreign Currency Trading Sofware
Forex trading usually requires 24 hours and 7 days a week of your focus and time. But let's face it, you're only human and you also have other things to think about. You cannot completely give up your social life just for the sake of doing forex business. This is where the use of a foreign currency trading software comes in handy. It gives you an automated assistance to scan the market even while you sleep or attend to other more important things in your life.
Forex trading usually requires 24 hours and 7 days a week of your focus and time. But let's face it, you're only human and you also have other things to think about. You cannot completely give up your social life just for the sake of doing forex business. This is where the use of a foreign currency trading software comes in handy. It gives you an automated assistance to scan the market even while you sleep or attend to other more important things in your life.
Reasons to Get FX Software
Reasons to Get a Foreign Currency Trading Software
One of the most important reasons why you should get such a software is that it automates your business. It keeps you ahead of the game because all you have to do is key in your requirements and set the peripherals of your trading game. Another great thing about this software is that you can also equip it with a backup program as a fail safe device that keeps on going in spite of the glitches that may occur.
When you have a currency trading software program, you can make your forex business go on autopilot mode without having to sacrifice the opportunities that you might come across with. The software is also more focused when it comes to conducting your business. Since it is made from complex programs that are precise and accurate, the chances of error in terms of exchange rates and calculations needed are kept to a very low minimum if not none at all.
Another thing about these software programs is that they usually come with other benefits as well. By purchasing them you can be made eligible for free training or other activities where you can foster growth in the forex business. You can also gain access to other online portals which may prove to be very beneficial for budding forex business enthusiasts.
One of the most important reasons why you should get such a software is that it automates your business. It keeps you ahead of the game because all you have to do is key in your requirements and set the peripherals of your trading game. Another great thing about this software is that you can also equip it with a backup program as a fail safe device that keeps on going in spite of the glitches that may occur.
When you have a currency trading software program, you can make your forex business go on autopilot mode without having to sacrifice the opportunities that you might come across with. The software is also more focused when it comes to conducting your business. Since it is made from complex programs that are precise and accurate, the chances of error in terms of exchange rates and calculations needed are kept to a very low minimum if not none at all.
Another thing about these software programs is that they usually come with other benefits as well. By purchasing them you can be made eligible for free training or other activities where you can foster growth in the forex business. You can also gain access to other online portals which may prove to be very beneficial for budding forex business enthusiasts.
The Right Software
Choosing the Right Foreign Currency Trading Software
It can' be denied though that there are lots of trading software programs available in the market today. Some of them come for free while others can push you to make a worthwhile investment. Amidst all of these, you should always remember to exercise due caution when choosing the foreign currency trading software which you will end up using. You should get the right program that can help boost your business.
One of the most important considerations you needed to make are the currencies you would want to grow. Your business in forex relies heavily on the currencies you are willing and most comfortable to trade. Should you want to dabble on other currencies to expand your expertise, make sure that the software you will choose would also be able to cover these currencies well enough especially if they are quite risky in terms of rate value.
Customer support is also an important aspect of forex that you should take note of. Your forex software should be able to provide you assistance at the most immediate time because the business thrives in a fast paced environment.
It can' be denied though that there are lots of trading software programs available in the market today. Some of them come for free while others can push you to make a worthwhile investment. Amidst all of these, you should always remember to exercise due caution when choosing the foreign currency trading software which you will end up using. You should get the right program that can help boost your business.
One of the most important considerations you needed to make are the currencies you would want to grow. Your business in forex relies heavily on the currencies you are willing and most comfortable to trade. Should you want to dabble on other currencies to expand your expertise, make sure that the software you will choose would also be able to cover these currencies well enough especially if they are quite risky in terms of rate value.
Customer support is also an important aspect of forex that you should take note of. Your forex software should be able to provide you assistance at the most immediate time because the business thrives in a fast paced environment.
Saturday, August 15, 2009
Trading Techniques -
Forex: Understanding Fundamental and Technical Analysis
Technical analysis
Focuses on price patterns and uses charting to differentiate them. Technical analysis focuses on price action and market behavior. With the use of various indicators, you will be able to locate and combine pattern recognition with your favorite indicator for confirmation to take a trade.
The indicators are available on most trading software, and all calculations are done automatically within the software.
The problem with trading indicators only is that, first they are lagging price, and then you are only looking at the right side of your chart, waiting to see what will happen. What about the left side, or the side of your chart that is telling you what has already happened? This is a very important aspect of trading. A good chart is priceless if it helps to identify a great opportunity.
Momentum analysis is a measure of the change in Forex trading trends over a certain period of time. Certain momentum indicators will show if a currency is overbought or oversold, and these are common and very helpful tools for technical analysis.
Fundamental analysis
Regards price behavior as a product of economic and political events. Fundamental analysis involves the use of economic data, critical political decisions or the different social issues that influence prices. Interest and employment are major economic data that could move the market considerably. Fundamental trading is a very effective way to forecast economic conditions, but not necessarily exact market prices.
Don't fill your mind with too much information, the best way to trade is the simple way. However, it is very important to understand fundamental and technical analysis in order to use them for your Forex trading.
Technical analysis
Focuses on price patterns and uses charting to differentiate them. Technical analysis focuses on price action and market behavior. With the use of various indicators, you will be able to locate and combine pattern recognition with your favorite indicator for confirmation to take a trade.
The indicators are available on most trading software, and all calculations are done automatically within the software.
The problem with trading indicators only is that, first they are lagging price, and then you are only looking at the right side of your chart, waiting to see what will happen. What about the left side, or the side of your chart that is telling you what has already happened? This is a very important aspect of trading. A good chart is priceless if it helps to identify a great opportunity.
Momentum analysis is a measure of the change in Forex trading trends over a certain period of time. Certain momentum indicators will show if a currency is overbought or oversold, and these are common and very helpful tools for technical analysis.
Fundamental analysis
Regards price behavior as a product of economic and political events. Fundamental analysis involves the use of economic data, critical political decisions or the different social issues that influence prices. Interest and employment are major economic data that could move the market considerably. Fundamental trading is a very effective way to forecast economic conditions, but not necessarily exact market prices.
Don't fill your mind with too much information, the best way to trade is the simple way. However, it is very important to understand fundamental and technical analysis in order to use them for your Forex trading.
Macro Assesment
Forex: Fundamental Analysis In Forex trading
How can one predict market movements in Forex trading?
Fundamental analysis forecasts future price movements based on economic, political, environmental and other relevant factors, like seasonal cycles, supply and demand, government policy. Fundamental analysis is a macro assessment of where a currency should be traded based on the movement of the currency's price itself.
The economic conditions of the country, monetary policy and other fundamental elements play an important role on this assessment. Many profitable forex trades are made moments prior, or shortly after, major economic announcements.
Fundamental analysis considers the intrinsic value of an investment when making a decision as to its future activity. There are some who feel that this is an excellent method of making decisions in the Stock market as a lot of data can be gathered and studied concerning the value of a Company.
The economy of a country goes through a basic business cycle, and there are a lot of indicators available to the investor to measure where a particular economy stands at any given time. Such indicators are followed by traders worldwide. The analysis would involve matching the stage of the cycle with its impact on the value of the currency.
The normal economic cycle consists of periods of inflation and deflation with peaks and troughs in between. Certain indicators such as the Gross National Product (GNP), Employment Report, Consumer Price Index and current prime interest rates can give a good idea of the stage of the economy at any given time.
Each of these indicators would tend to impact currency valuation in different ways, and sometimes would even vary from country to country. In the United States, rising interest rates are normally associated with currency deflation, for example, and it is factors such as this that are the heart of fundamental analysis.
This analysis can become quite detailed, but the focus remains on the country and its economy. Every factor that impacts the country and its economy can play a role in the value of the currency, and understanding these factors are the tools the fundamental analyzers use to guide their investment strategy.
How can one predict market movements in Forex trading?
Fundamental analysis forecasts future price movements based on economic, political, environmental and other relevant factors, like seasonal cycles, supply and demand, government policy. Fundamental analysis is a macro assessment of where a currency should be traded based on the movement of the currency's price itself.
The economic conditions of the country, monetary policy and other fundamental elements play an important role on this assessment. Many profitable forex trades are made moments prior, or shortly after, major economic announcements.
Fundamental analysis considers the intrinsic value of an investment when making a decision as to its future activity. There are some who feel that this is an excellent method of making decisions in the Stock market as a lot of data can be gathered and studied concerning the value of a Company.
The economy of a country goes through a basic business cycle, and there are a lot of indicators available to the investor to measure where a particular economy stands at any given time. Such indicators are followed by traders worldwide. The analysis would involve matching the stage of the cycle with its impact on the value of the currency.
The normal economic cycle consists of periods of inflation and deflation with peaks and troughs in between. Certain indicators such as the Gross National Product (GNP), Employment Report, Consumer Price Index and current prime interest rates can give a good idea of the stage of the economy at any given time.
Each of these indicators would tend to impact currency valuation in different ways, and sometimes would even vary from country to country. In the United States, rising interest rates are normally associated with currency deflation, for example, and it is factors such as this that are the heart of fundamental analysis.
This analysis can become quite detailed, but the focus remains on the country and its economy. Every factor that impacts the country and its economy can play a role in the value of the currency, and understanding these factors are the tools the fundamental analyzers use to guide their investment strategy.
Start To Trade in Forex
Forex: Finding The Best Time To Trade
Here, if you know how, when, and what to trade, you can be sure that you can earn huge amounts of profit. It is a fact that a lot of people who traded in this financial market became successful and became very rich almost overnight.
The Forex market is the largest and the most liquid financial market in the world. Unlike the stock market and other financial market, Forex has no centralized location as it operates 24 hours a day at different locations around the world. Trades in this financial market are done through an electronic network.
Forex was only limited to large multinational corporations and financial institutions, such as banks. However, because of the advancement of the communications technology and also the existence of high speed internet, Forex in the late 90s is now available for everyone who is interested in trading in the Forex market.
For a beginner trader, is simply the buying and selling of different currencies of the world. This may seem simple enough for everyone, but you should also consider that a lot of inexperienced traders and some experienced traders have suffered huge financial losses in Forex.
Keep in mind that aside from the fact that Forex can give you a great money-making potential, Forex also has equal risks. Therefore, before you enter this market and trade, you should first consider a few things in order for you be successful in this money making venture.
First of all, you have to know how to trade currencies. In Forex trading, all you need is a personal computer with an active internet connection, a funded Forex account and a Forex trading system. There are numerous websites that offer Forex trading. In order to start trading, you have to open and fund an account first with your chosen website. After that, you can now start trading in the most liquid market in the world.
You need to have a fast internet connection in order to keep up with the updates and price movements and prevent slippages from happening. Another thing you have to consider is that as much as possible, you should register in a Forex website that offer dummy accounts so that you can practice your skills and strategies in Forex trading.
Here, if you know how, when, and what to trade, you can be sure that you can earn huge amounts of profit. It is a fact that a lot of people who traded in this financial market became successful and became very rich almost overnight.
The Forex market is the largest and the most liquid financial market in the world. Unlike the stock market and other financial market, Forex has no centralized location as it operates 24 hours a day at different locations around the world. Trades in this financial market are done through an electronic network.
Forex was only limited to large multinational corporations and financial institutions, such as banks. However, because of the advancement of the communications technology and also the existence of high speed internet, Forex in the late 90s is now available for everyone who is interested in trading in the Forex market.
For a beginner trader, is simply the buying and selling of different currencies of the world. This may seem simple enough for everyone, but you should also consider that a lot of inexperienced traders and some experienced traders have suffered huge financial losses in Forex.
Keep in mind that aside from the fact that Forex can give you a great money-making potential, Forex also has equal risks. Therefore, before you enter this market and trade, you should first consider a few things in order for you be successful in this money making venture.
First of all, you have to know how to trade currencies. In Forex trading, all you need is a personal computer with an active internet connection, a funded Forex account and a Forex trading system. There are numerous websites that offer Forex trading. In order to start trading, you have to open and fund an account first with your chosen website. After that, you can now start trading in the most liquid market in the world.
You need to have a fast internet connection in order to keep up with the updates and price movements and prevent slippages from happening. Another thing you have to consider is that as much as possible, you should register in a Forex website that offer dummy accounts so that you can practice your skills and strategies in Forex trading.
Traded Currencies
Forex: Traded Currencies
You can make a a decision on dealing this game. The thing you need to know is what to trade. The Forex market involved different currencies from all over the world. It is also traded in forms of currency pairs. Here are the different currency pairs that you should consider trading in the Forex market:
* EUR/USD * USD/JPY * GBP/USD * USD/CHF * AUD/USD * USD/CAD * NZD/USD * EUR/GBP * EUR/JPY * GBP/JPY * CHF/JPY * GBP/CHF * EUR/AUD
These are the most commonly traded currency pairs in the Forex market. It is up to you to determine which currency pair you want to trade depending on market conditions. If you do it right, you can be sure that you can earn a substantial amount of income.
The next and last thing you should consider is when you have to trade in the Forex market. Since the Forex market is open 24 hours a day, you can trade whenever you like. And, since it is the most liquid, you can get out whenever you like. It is just a matter of knowing if the market condition is profitable or if it is falling.
Forex traders are mostly speculators who try to predict which currency is going to increase in value and which currency will decrease in value. Speculators use Forex charts to spot a trend and determine when a particular currency will increase or decrease in value.
Now that you know how to trade in the Forex market, you can now open a funded account and start trading currencies.
Always remember that in all trades done in the financial market, you should also expect to suffer from losses. You should be prepared to deal with it and accept it. This is why you need a substantial amount of money to trade in Forex.
You can make a a decision on dealing this game. The thing you need to know is what to trade. The Forex market involved different currencies from all over the world. It is also traded in forms of currency pairs. Here are the different currency pairs that you should consider trading in the Forex market:
* EUR/USD * USD/JPY * GBP/USD * USD/CHF * AUD/USD * USD/CAD * NZD/USD * EUR/GBP * EUR/JPY * GBP/JPY * CHF/JPY * GBP/CHF * EUR/AUD
These are the most commonly traded currency pairs in the Forex market. It is up to you to determine which currency pair you want to trade depending on market conditions. If you do it right, you can be sure that you can earn a substantial amount of income.
The next and last thing you should consider is when you have to trade in the Forex market. Since the Forex market is open 24 hours a day, you can trade whenever you like. And, since it is the most liquid, you can get out whenever you like. It is just a matter of knowing if the market condition is profitable or if it is falling.
Forex traders are mostly speculators who try to predict which currency is going to increase in value and which currency will decrease in value. Speculators use Forex charts to spot a trend and determine when a particular currency will increase or decrease in value.
Now that you know how to trade in the Forex market, you can now open a funded account and start trading currencies.
Always remember that in all trades done in the financial market, you should also expect to suffer from losses. You should be prepared to deal with it and accept it. This is why you need a substantial amount of money to trade in Forex.
Thursday, August 13, 2009
Standard System
Forex: Gold-Exchange Standard System
The FX market was not always quick to respond to changing events. For most of the 20th century, the exchange rates were fixed, or kept constant, according to the amount of gold for which they could be exchanged. This was called the gold-exchange standard.
Under another system, the gold standard, U.S. households and businesses could exchange their dollars for gold. This practice was abandoned in 1933 during the Great Depression to allow freer expansion of money supply. However, foreign governments were still able to exchange their dollars for gold until 1971, when the United States terminated the gold-exchange standard entirely.
Under this system, the value of all currencies was fixed in terms of how much gold for which they could be exchanged.
For example, if one ounce of gold was worth 12 British pounds or 35 U.S. dollars, the exchange rate between dollars and pounds would remain constant at just under three to one.
There were many advantages of the gold-exchange system:
* It served as a common measure of value
* It helped keep inflation in check by keeping money supply in the gold-exchange standard economies fairly stable
* Long-term planning was easier as rate changes were infrequent
This system was put in place in 1944, when the leaders of allied nations met at Bretton Woods, New Hampshire, to set up a stable economic structure out of the chaos of World War II. The U.S. dollar was fixed at $35 per ounce of gold and all other currencies were expressed in terms of dollars.
The FX market was not always quick to respond to changing events. For most of the 20th century, the exchange rates were fixed, or kept constant, according to the amount of gold for which they could be exchanged. This was called the gold-exchange standard.
Under another system, the gold standard, U.S. households and businesses could exchange their dollars for gold. This practice was abandoned in 1933 during the Great Depression to allow freer expansion of money supply. However, foreign governments were still able to exchange their dollars for gold until 1971, when the United States terminated the gold-exchange standard entirely.
Under this system, the value of all currencies was fixed in terms of how much gold for which they could be exchanged.
For example, if one ounce of gold was worth 12 British pounds or 35 U.S. dollars, the exchange rate between dollars and pounds would remain constant at just under three to one.
There were many advantages of the gold-exchange system:
* It served as a common measure of value
* It helped keep inflation in check by keeping money supply in the gold-exchange standard economies fairly stable
* Long-term planning was easier as rate changes were infrequent
This system was put in place in 1944, when the leaders of allied nations met at Bretton Woods, New Hampshire, to set up a stable economic structure out of the chaos of World War II. The U.S. dollar was fixed at $35 per ounce of gold and all other currencies were expressed in terms of dollars.
Options Transaction
FOREX: Buying foreign Currency
To address the lack of flexibility in forward transactions, the foreign currency option was developed. An option is similar to a forward transaction. It gives its owner the right to buy or sell a specified amount of foreign currency at a specified price at any time up to a specified expiration date.
For a price, a market participant can buy the right, but not the obligation, to buy or sell a currency at a fixed price on or before an agreed upon future date. The agreed upon price is called the strike price.
Depending on which—the option rate or the current market rate—is more favorable, the owner may exercise the option or let the option lapse, choosing instead to buy/sell currency in the market. This type of transaction allows the owner more flexibility than a swap or futures contract.
Option to buy currency = Call option
Option to sell currency = Put option
Suppose a trader purchases a six-month call on one million euros at 0.88 U.S. dollars to a euro.
* During the six months the trader can either purchase the euros at the 0.88 rate, or purchase them at the market rate
* Option can be sold and resold many times before the expiration date
* Options serve as an insurance policy against the market moving in an unfavorable direction
To address the lack of flexibility in forward transactions, the foreign currency option was developed. An option is similar to a forward transaction. It gives its owner the right to buy or sell a specified amount of foreign currency at a specified price at any time up to a specified expiration date.
For a price, a market participant can buy the right, but not the obligation, to buy or sell a currency at a fixed price on or before an agreed upon future date. The agreed upon price is called the strike price.
Depending on which—the option rate or the current market rate—is more favorable, the owner may exercise the option or let the option lapse, choosing instead to buy/sell currency in the market. This type of transaction allows the owner more flexibility than a swap or futures contract.
Option to buy currency = Call option
Option to sell currency = Put option
Suppose a trader purchases a six-month call on one million euros at 0.88 U.S. dollars to a euro.
* During the six months the trader can either purchase the euros at the 0.88 rate, or purchase them at the market rate
* Option can be sold and resold many times before the expiration date
* Options serve as an insurance policy against the market moving in an unfavorable direction
Forward Transactions
FOREX: One Way to Deal with the FX risk
In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future and the transaction occurs on that date, regardless of what the market rates are then. The date can be a few days, months or years in the future.
Futures
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. These contracts are traded on a separate exchange set up for that purpose.
Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date.
Japan Yen
Forex: Swap Transaction How it works?
Suppose a U.S. company needs 15 million Japanese yen for a three-month investment in Japan.
* It may agree to a rate of 150 yen to a dollar and swap $100,000 with a company willing to swap 15 million yen for three months
* After three months, the U.S. company returns the 15 million yen to the other company and gets back $100,000, with adjustments made for interest rate differentials
In all of these transactions, market rates might change. However, the buyer and seller are locked into a contract at a fixed price that cannot be affected by any changes in the market rates. These tools allow the market participants to plan more safely, since they know in advance what their FX will cost. It also allows them to avoid an immediate outlay of cash.
Suppose a U.S. company needs 15 million Japanese yen for a three-month investment in Japan.
* It may agree to a rate of 150 yen to a dollar and swap $100,000 with a company willing to swap 15 million yen for three months
* After three months, the U.S. company returns the 15 million yen to the other company and gets back $100,000, with adjustments made for interest rate differentials
In all of these transactions, market rates might change. However, the buyer and seller are locked into a contract at a fixed price that cannot be affected by any changes in the market rates. These tools allow the market participants to plan more safely, since they know in advance what their FX will cost. It also allows them to avoid an immediate outlay of cash.
Exchange Risk
FOREX: Spot Transaction
Suppose a U.S. company orders machine tools from a company in Japan.
* Tools will be ready in six months and will cost 120 million yen.
* At the time of the order, the yen is trading at 120 to a dollar.
* U.S. company budgets $1 million in Japanese yen to be paid when it receives the tools (120,000,00 yen ¸ 120 yen per dollar = $1,000,000)
There is no guarantee that the rate will remain the same six months later.
Suppose the rate drops to 100 yen per dollar:
* Cost in U.S. dollars would increase (120,000,000 ¸ 100 = $1,200,000) by $200,000.
Conversely, if the rate goes up to 140 yen to a dollar:
* Cost in U.S. dollars would decrease (120,000,000 ¸ 140 = $857,142.86) by over $142,000
One alternative for a company is to pay for the foreign good right away to avoid the exchange rate risk. But no one wants to part with money any sooner than necessary—if the company does pay the money in advance, it loses six months’ interest and risks losing out on a favorable change in exchange rates.
Transactions
FOREX: Spot transactions
This type of transaction accounts for almost a third of all FX market transactions. Two parties agree on an exchange rate and trade currencies at that rate.
* A trader calls another trader and asks for a price of a currency, say British pounds.
This expresses only a potential interest in a deal, without the caller saying whether he wants to buy or sell.
* The second trader provides the first trader with prices for both buying and selling (two-way price).
* When the traders agree to do business, one will send pounds and the other will send dollars.
By convention the payment is actually made two days later, but next day settlements are used as well.
Although spot transactions are popular, they leave the currency buyer exposed to some potentially dangerous financial risks. Exchange rate fluctuations can effectively raise or lower prices and can be a financial planning ordeal for companies and individuals.
This type of transaction accounts for almost a third of all FX market transactions. Two parties agree on an exchange rate and trade currencies at that rate.
* A trader calls another trader and asks for a price of a currency, say British pounds.
This expresses only a potential interest in a deal, without the caller saying whether he wants to buy or sell.
* The second trader provides the first trader with prices for both buying and selling (two-way price).
* When the traders agree to do business, one will send pounds and the other will send dollars.
By convention the payment is actually made two days later, but next day settlements are used as well.
Although spot transactions are popular, they leave the currency buyer exposed to some potentially dangerous financial risks. Exchange rate fluctuations can effectively raise or lower prices and can be a financial planning ordeal for companies and individuals.
Networks of traders
The Money Makers
Banks are a major force in the FX market and employ a large number of traders. Trading between banks is done in two ways—through a broker or directly with each other.
Brokers:
If a U.S. bank trades with another bank, a FX broker may be used as an intermediary. The broker arranges the transaction, matching the buyer and seller without ever taking a position and charges a commission to both the buyer and seller. About a third of transactions are arranged in this way.
Direct:
Mostly banks deal with each other directly. A trader "makes a market" for another by quoting a two-way price i.e. he is willing to buy or sell the currency. The difference between the two price quotes (the spread) is usually no more than 10 pips, or hundredths, of a currency unit.
Most currencies are quoted in terms of how many units of that currency would equal $1. However, the British pound, New Zealand dollar, Australian dollar, Irish punt and the Euro are quoted in terms of how many U.S. dollars would equal one unit of those currencies.
The currencies of the world’s large, industrialized economies, or hard currencies, are always in demand and are actively traded. In terms of trading volumes, the FX market is dominated by four currencies: the U.S. dollar, the euro, the Japanese yen and the British pound. Together these account for over 80 percent of the market.
It is not always easy to find a market for all currencies. The demand for currencies of less developed countries, soft currencies, is a lot less than for the hard currencies. Weak demand internationally along with exchange controls may make these currencies difficult to convert.
Banks are a major force in the FX market and employ a large number of traders. Trading between banks is done in two ways—through a broker or directly with each other.
Brokers:
If a U.S. bank trades with another bank, a FX broker may be used as an intermediary. The broker arranges the transaction, matching the buyer and seller without ever taking a position and charges a commission to both the buyer and seller. About a third of transactions are arranged in this way.
Direct:
Mostly banks deal with each other directly. A trader "makes a market" for another by quoting a two-way price i.e. he is willing to buy or sell the currency. The difference between the two price quotes (the spread) is usually no more than 10 pips, or hundredths, of a currency unit.
Most currencies are quoted in terms of how many units of that currency would equal $1. However, the British pound, New Zealand dollar, Australian dollar, Irish punt and the Euro are quoted in terms of how many U.S. dollars would equal one unit of those currencies.
The currencies of the world’s large, industrialized economies, or hard currencies, are always in demand and are actively traded. In terms of trading volumes, the FX market is dominated by four currencies: the U.S. dollar, the euro, the Japanese yen and the British pound. Together these account for over 80 percent of the market.
It is not always easy to find a market for all currencies. The demand for currencies of less developed countries, soft currencies, is a lot less than for the hard currencies. Weak demand internationally along with exchange controls may make these currencies difficult to convert.
Traders
Forex: Trading Deal
Traders in the foreign exchange market make thousands of trades daily, buying and selling currencies while exchanging market information. The $1.2 trillion that is traded everyday may be used for varied purposes:
"Yoshi, it’s Maria in New York. May I have a price on twenty cable."
"Sure. One seventy-five, twenty-thirty."
"Mine twenty."
"All right. At 1.7530, I sell you twenty million pounds."
"Done."
"What do you think about the Japanese yen? It’s up 100 pips."
"I saw that. A few German banks have been buying steadily all day…."
* For the import and export needs of companies and individuals
* For direct foreign investment
* To profit from the short-term fluctuations in exchange rates
* To manage existing positions or
* To purchase foreign financial instruments
In the volatile FX market, traders constantly try to predict the behavior of other market participants. If they correctly anticipate their opponents’ strategies, they can act first and beat the competition.
Traders make money by purchasing currency and selling it later at a higher price, or, anticipating the market is heading down, selling at a high price and buying back at a lower price later.
Trader purchases a lot of currency = long on the currency (e.g. long dollar, long yen)
Trader sells a lot of a currency = short on the currency (e.g. short sterling)
To predict the movements of currencies, traders often try to determine whether the currency’s price reflects its fundamental value in terms of current economic conditions. Examining inflation, interest rates, and the relative strength of the country’s economy helps them make a determination.
Currency underpriced = price will go up
Currency overpriced = price will go down
Traders in the foreign exchange market make thousands of trades daily, buying and selling currencies while exchanging market information. The $1.2 trillion that is traded everyday may be used for varied purposes:
"Yoshi, it’s Maria in New York. May I have a price on twenty cable."
"Sure. One seventy-five, twenty-thirty."
"Mine twenty."
"All right. At 1.7530, I sell you twenty million pounds."
"Done."
"What do you think about the Japanese yen? It’s up 100 pips."
"I saw that. A few German banks have been buying steadily all day…."
* For the import and export needs of companies and individuals
* For direct foreign investment
* To profit from the short-term fluctuations in exchange rates
* To manage existing positions or
* To purchase foreign financial instruments
In the volatile FX market, traders constantly try to predict the behavior of other market participants. If they correctly anticipate their opponents’ strategies, they can act first and beat the competition.
Traders make money by purchasing currency and selling it later at a higher price, or, anticipating the market is heading down, selling at a high price and buying back at a lower price later.
Trader purchases a lot of currency = long on the currency (e.g. long dollar, long yen)
Trader sells a lot of a currency = short on the currency (e.g. short sterling)
To predict the movements of currencies, traders often try to determine whether the currency’s price reflects its fundamental value in terms of current economic conditions. Examining inflation, interest rates, and the relative strength of the country’s economy helps them make a determination.
Currency underpriced = price will go up
Currency overpriced = price will go down
Stock Investing
Earning Money as an Investors
* The currency of a growing economy with relative price stability and a wide variety of competitive goods and services will be more in demand than that of a country in political turmoil, with high inflation and few marketable exports.
* Money will flow to wherever it can get the highest return with the least risk. If a nation’s financial instruments, such as stocks and bonds, offer relatively high rates of return at relatively low risk, foreigners will demand its currency to invest in them.
* FX traders speculate within the market about how different events will move the exchange rates.
For example:
News of political instability in other countries drives up demand for U.S. dollars as investors are looking for a "safe haven" for their money.
A country’s interest rates rise and its currency appreciates as foreign investors seek higher returns than they can get in their own countries.
Developing nations undertaking successful economic reforms may experience currency appreciation as foreign investors seek new opportunities.
* The currency of a growing economy with relative price stability and a wide variety of competitive goods and services will be more in demand than that of a country in political turmoil, with high inflation and few marketable exports.
* Money will flow to wherever it can get the highest return with the least risk. If a nation’s financial instruments, such as stocks and bonds, offer relatively high rates of return at relatively low risk, foreigners will demand its currency to invest in them.
* FX traders speculate within the market about how different events will move the exchange rates.
For example:
News of political instability in other countries drives up demand for U.S. dollars as investors are looking for a "safe haven" for their money.
A country’s interest rates rise and its currency appreciates as foreign investors seek higher returns than they can get in their own countries.
Developing nations undertaking successful economic reforms may experience currency appreciation as foreign investors seek new opportunities.
Demand and Supply
Exchange rates respond directly to all sorts of events, both tangible and psychological
* Business cycles;
* Balance of payment statistics;
* Political developments;
* New tax laws;
* Stock market news;
* Inflationary expectations;
* International investment patterns;
* And government and central bank policies among others.
At the heart of this complex market are the same forces of demand and supply that determine the prices of goods and services in any free market. If at any given rate, the demand for a currency is greater than its supply, its price will rise. If supply exceeds demand, the price will fall.
The supply of a nation’s currency is influenced by that nation’s monetary authority, (usually its central bank), consistent with the amount of spending taking place in the economy. Government and central banks closely monitor economic activity to keep money supply at a level appropriate to achieve their economic goals.
Too much money è inflation è value of money declines è prices rise.
Too little money è sluggish economic growth è rising unemployment.
Monetary authorities must decide whether economic conditions call for a larger or smaller increase in the money supply.
* Business cycles;
* Balance of payment statistics;
* Political developments;
* New tax laws;
* Stock market news;
* Inflationary expectations;
* International investment patterns;
* And government and central bank policies among others.
At the heart of this complex market are the same forces of demand and supply that determine the prices of goods and services in any free market. If at any given rate, the demand for a currency is greater than its supply, its price will rise. If supply exceeds demand, the price will fall.
The supply of a nation’s currency is influenced by that nation’s monetary authority, (usually its central bank), consistent with the amount of spending taking place in the economy. Government and central banks closely monitor economic activity to keep money supply at a level appropriate to achieve their economic goals.
Too much money è inflation è value of money declines è prices rise.
Too little money è sluggish economic growth è rising unemployment.
Monetary authorities must decide whether economic conditions call for a larger or smaller increase in the money supply.
Foreign Exchange Rates
Most common contact with foreign exchange occurs;
When we travel or buy things in other countries.
It would seem logical that if the dollar weakens, the trade balance will improve, as exports would rise. However, this does not always happen. U.S. trade balance usually worsens for a few months.
The J–curve explains why the trade position does not improve soon after the weakening of a currency. Most import/export orders are taken months in advance. Immediately after a currency’s value drops, the volume of imports remains about the same, but the prices in terms of the home currency rise. On the other hand, the value of the domestic exports remains the same, and the difference in values worsens the trade balance until the imports and exports adjust to the new exchange rates.
Exchange rates are an important consideration when making international investment decisions. The money invested overseas incurs an exchange rate risk.
When an investor decides to "cash out," or bring his money home, any gains could be magnified or wiped out depending on the change in the exchange rates in the interim. Thus, changes in exchange rates can have many repercussions on an economy:
* Affects the prices of imported goods
* Affects the overall level of price and wage inflation
* Influences tourism patterns
* May influence consumers’ buying decisions and investors’ long-term commitments.
Suppose a U.S. tourist travelling in London wants to buy a sweater.
Price tag is 100 pounds.
Current exchange Price of sweater in
rate dollars
$1.45 to £1 100 x 1.45 = $145.00
$1.30 to £1 Pound falls 100 x 1.30 = $130.00
$1.60 to £1 Pound rises 100 x 1.60 = $160.00
Thus, small changes in exchange rates may not seem significant. But when billions of dollars are traded, even a hundredth of a percentage point change in exchange rates becomes important.
Stronger US dollar implies;
1. U.S. can buy foreign goods more cheaply ------Cost of purchasing foreign goods falls
2. Foreigners find U.S. goods more expensive and demand falls -----Does not help firms that produce for exports
Weaker U.S. dollar implies;
1. Foreigners buy more U.S. goods -------Helps firms that rely on exports
2. Foreign goods become more expensive ------Demand for imports falls
When we travel or buy things in other countries.
It would seem logical that if the dollar weakens, the trade balance will improve, as exports would rise. However, this does not always happen. U.S. trade balance usually worsens for a few months.
The J–curve explains why the trade position does not improve soon after the weakening of a currency. Most import/export orders are taken months in advance. Immediately after a currency’s value drops, the volume of imports remains about the same, but the prices in terms of the home currency rise. On the other hand, the value of the domestic exports remains the same, and the difference in values worsens the trade balance until the imports and exports adjust to the new exchange rates.
Exchange rates are an important consideration when making international investment decisions. The money invested overseas incurs an exchange rate risk.
When an investor decides to "cash out," or bring his money home, any gains could be magnified or wiped out depending on the change in the exchange rates in the interim. Thus, changes in exchange rates can have many repercussions on an economy:
* Affects the prices of imported goods
* Affects the overall level of price and wage inflation
* Influences tourism patterns
* May influence consumers’ buying decisions and investors’ long-term commitments.
Suppose a U.S. tourist travelling in London wants to buy a sweater.
Price tag is 100 pounds.
Current exchange Price of sweater in
rate dollars
$1.45 to £1 100 x 1.45 = $145.00
$1.30 to £1 Pound falls 100 x 1.30 = $130.00
$1.60 to £1 Pound rises 100 x 1.60 = $160.00
Thus, small changes in exchange rates may not seem significant. But when billions of dollars are traded, even a hundredth of a percentage point change in exchange rates becomes important.
Stronger US dollar implies;
1. U.S. can buy foreign goods more cheaply ------Cost of purchasing foreign goods falls
2. Foreigners find U.S. goods more expensive and demand falls -----Does not help firms that produce for exports
Weaker U.S. dollar implies;
1. Foreigners buy more U.S. goods -------Helps firms that rely on exports
2. Foreign goods become more expensive ------Demand for imports falls
Brokers
There are four types of market participants;
Banks, Brokers, Customers, Central banks.
* Banks and other financial institutions are the biggest participants. They earn profits by buying and selling currencies from and to each other. Roughly two-thirds of all FX transactions involve banks dealing directly with each other.
* Brokers act as intermediaries between banks. Dealers call them to find out where they can get the best price for currencies. Such arrangements are beneficial since they afford anonymity to the buyer/seller. Brokers earn profit by charging a commission on the transactions they arrange.
* Customers, mainly large companies, require foreign currency in the course of doing business or making investments. Some even have their own trading desks if their requirements are large. Other types of customers are individuals who buy foreign exchange to travel abroad or make purchases in foreign countries.
* Central banks, which act on behalf of their governments, sometimes participate in the FX market to influence the value of their currencies.
With more than $1.2 trillion changing hands every day, the activity of these participants affects the value of every dollar, pound, yen or euro.
The participants in the FX market trade for a variety of reasons:
* To earn short-term profits from fluctuations in exchange rates,
* To protect themselves from loss due to changes in exchange rates, and
* To acquire the foreign currency necessary to buy goods and services from other countries.
Banks, Brokers, Customers, Central banks.
* Banks and other financial institutions are the biggest participants. They earn profits by buying and selling currencies from and to each other. Roughly two-thirds of all FX transactions involve banks dealing directly with each other.
* Brokers act as intermediaries between banks. Dealers call them to find out where they can get the best price for currencies. Such arrangements are beneficial since they afford anonymity to the buyer/seller. Brokers earn profit by charging a commission on the transactions they arrange.
* Customers, mainly large companies, require foreign currency in the course of doing business or making investments. Some even have their own trading desks if their requirements are large. Other types of customers are individuals who buy foreign exchange to travel abroad or make purchases in foreign countries.
* Central banks, which act on behalf of their governments, sometimes participate in the FX market to influence the value of their currencies.
With more than $1.2 trillion changing hands every day, the activity of these participants affects the value of every dollar, pound, yen or euro.
The participants in the FX market trade for a variety of reasons:
* To earn short-term profits from fluctuations in exchange rates,
* To protect themselves from loss due to changes in exchange rates, and
* To acquire the foreign currency necessary to buy goods and services from other countries.
Thursday, August 6, 2009
Potential Profits
What is the contract size of each trade and how do you calculate profits ?
The minimum size of a contract of the major currencies is the value of $100,000 USD (1% margin=$1000). But the value of each currency relative to the USD is different each minute, so the actual US dollar value fluctuates, and that's where you make your profit. The usual contract size is about 100,000 Euros, 62,500 pounds, 187,500 Swiss Francs, 12.5 million Yen, all with an initial margin of $1000 on deposit, making it the cheapest way to own large quantities of assets.
For example, today Mr. and Mrs. Joe Public buy a FOREX contract of £62,500 at the exchange rate of $1.4225 (USD) per pound, while using for that purchase only US dollars of $1,000. Five hours later poor US economic indicators are released, the Fed lowers interest rates again, NYSE and NASDAQ both tumble, and the dollar falls 1.5 cent against the pound sterling.
The price of the pound is now worth $1.4375. After discussion with their broker, Mr. and Mrs. Joe Public quickly decide to close their contract, taking $937 profit and almost 100% return of their initial investment of only $1000 in buying one contract of £62,500 five hours ago. $1000 will enable you to buy (or sell) one contract of any major currency, making FOREX the quickest way to make a profit.
The minimum size of a contract of the major currencies is the value of $100,000 USD (1% margin=$1000). But the value of each currency relative to the USD is different each minute, so the actual US dollar value fluctuates, and that's where you make your profit. The usual contract size is about 100,000 Euros, 62,500 pounds, 187,500 Swiss Francs, 12.5 million Yen, all with an initial margin of $1000 on deposit, making it the cheapest way to own large quantities of assets.
For example, today Mr. and Mrs. Joe Public buy a FOREX contract of £62,500 at the exchange rate of $1.4225 (USD) per pound, while using for that purchase only US dollars of $1,000. Five hours later poor US economic indicators are released, the Fed lowers interest rates again, NYSE and NASDAQ both tumble, and the dollar falls 1.5 cent against the pound sterling.
The price of the pound is now worth $1.4375. After discussion with their broker, Mr. and Mrs. Joe Public quickly decide to close their contract, taking $937 profit and almost 100% return of their initial investment of only $1000 in buying one contract of £62,500 five hours ago. $1000 will enable you to buy (or sell) one contract of any major currency, making FOREX the quickest way to make a profit.
Currency
Forex : Putting your money into other currencies
Forex trading is all about putting your money into other currencies, so you can gain the interest for the night, for time period or the difference in trading money all around. Forex trading does involve other assets along with money, but because you are investing in other countries and in other businesses that are dealing in other currencies the basis for the money you make or lose will be based on the trading of money.
Constant trading is done in the forex markets as time zones will vary and the markets will open in one country while another is near closing. What happens in one market will have an effect on the other countries forex markets, but it is not always bad or good, sometimes the margins of trading are near each other.
Forex trading is all about putting your money into other currencies, so you can gain the interest for the night, for time period or the difference in trading money all around. Forex trading does involve other assets along with money, but because you are investing in other countries and in other businesses that are dealing in other currencies the basis for the money you make or lose will be based on the trading of money.
Constant trading is done in the forex markets as time zones will vary and the markets will open in one country while another is near closing. What happens in one market will have an effect on the other countries forex markets, but it is not always bad or good, sometimes the margins of trading are near each other.
Forecast Currency
Forex: Factors affecting the value of a currency
Are FX price movements random chance, and the market a gamble?
There are technical and fundamental factors affecting the value of a currency. Most currencies define their price relative to the US dollar. Micro price fluctuations are unavoidable and unpredictable. However there is nothing like a special FX-sensitive event to drive the market all one way -- like elections, interest-rate changes, publication of economic indicators, Fed Chairman Greenspan's speech.
Anyone however humble who correctly forecasts the market can make sizeable profits. One day in October 1992, financier George Soros correctly judged the British pound was indefensibly overpriced. He fearlessly sold sterling against the dollar and made 2 billion dollars of profit within a few hours.
The FOREX market is so immense no individual can manipulate prices, not even the central banks. But private individuals can correctly identify then anticipate price trends thus making large profits employing small leveraged capital, depositing only 1% margin upfront. Actual price movement of a currency is normally very small, so we give you 100 times leverage to make significant profit levels possible.
Are FX price movements random chance, and the market a gamble?
There are technical and fundamental factors affecting the value of a currency. Most currencies define their price relative to the US dollar. Micro price fluctuations are unavoidable and unpredictable. However there is nothing like a special FX-sensitive event to drive the market all one way -- like elections, interest-rate changes, publication of economic indicators, Fed Chairman Greenspan's speech.
Anyone however humble who correctly forecasts the market can make sizeable profits. One day in October 1992, financier George Soros correctly judged the British pound was indefensibly overpriced. He fearlessly sold sterling against the dollar and made 2 billion dollars of profit within a few hours.
The FOREX market is so immense no individual can manipulate prices, not even the central banks. But private individuals can correctly identify then anticipate price trends thus making large profits employing small leveraged capital, depositing only 1% margin upfront. Actual price movement of a currency is normally very small, so we give you 100 times leverage to make significant profit levels possible.
Center of trading
Forex: Should you get Involved in Forex Trading?
A forex market will be present when two countries are involved in trading, and when money is traded for goods, services or a combination of these things. Currency is the money that trades hands, from one to another. Often times, a bank is going to be the source of forex trading, as millions of dollars are traded daily. There is nearly two trillion dollars traded daily on the forex market.
If you are already involved in the stock market, you have some idea of what forex trading really is all about. If you, as an individual want to be involved in forex trading, you must get involved through broker, or a financial institution. Individuals are also known as spectators, even if you are investing money because the amount of money you are investing is minimal compared to the millions of dollars that are invested by governments and by banks at any given time.
This does not mean you can't get involved. Your broker or investment advisor will be able to tell you more about how you can be involved in forex trading. In the US, there are many regulations and laws in regards to who can handle forex trading for US citizens so if you are searching the internet for a broker, be sure you read the print, and the information about where the company is located and if it is legal for you to do business with that company.
A forex market will be present when two countries are involved in trading, and when money is traded for goods, services or a combination of these things. Currency is the money that trades hands, from one to another. Often times, a bank is going to be the source of forex trading, as millions of dollars are traded daily. There is nearly two trillion dollars traded daily on the forex market.
If you are already involved in the stock market, you have some idea of what forex trading really is all about. If you, as an individual want to be involved in forex trading, you must get involved through broker, or a financial institution. Individuals are also known as spectators, even if you are investing money because the amount of money you are investing is minimal compared to the millions of dollars that are invested by governments and by banks at any given time.
This does not mean you can't get involved. Your broker or investment advisor will be able to tell you more about how you can be involved in forex trading. In the US, there are many regulations and laws in regards to who can handle forex trading for US citizens so if you are searching the internet for a broker, be sure you read the print, and the information about where the company is located and if it is legal for you to do business with that company.
Currency Risk
Are fortunes made and lost in FX and who trades on the FOREX market?
Profit potential is enormous in the spot currency market. Potential losses can be capped by STOP-LOSS orders automatically executed by computerized dealing systems the moment price levels pre-set by the client are reached in a currency's fluctuation.
Profits on the other hand can be left to run on and on. You can let the profits run and cut your losses short. Trading strategy, assisted by our consultants and traders on request, is entirely up to the client's free choice, being tailored to fit varying preferences of market participation, hedging, or risk tolerance level.
Unfortunately, too many people enter the forex market and expect to get rich quick. Forex trading is not gambling, it's a skill which can return good profits if you enter with the correct mindset and are prepared to learn the various tricks and techniques.
In any form of investment where the potential profit is high, then so too are the potential losses. Even the most skilled and experienced traders will lose money and should not be put off when you do. The important thing is to make more gains than losses, so start small and learn from your mistakes.
Always trade with a stop loss, particularly if you are using any form of automated trading software, this will protect you from huge losses if the market should suddenly turn against you.
Profit potential is enormous in the spot currency market. Potential losses can be capped by STOP-LOSS orders automatically executed by computerized dealing systems the moment price levels pre-set by the client are reached in a currency's fluctuation.
Profits on the other hand can be left to run on and on. You can let the profits run and cut your losses short. Trading strategy, assisted by our consultants and traders on request, is entirely up to the client's free choice, being tailored to fit varying preferences of market participation, hedging, or risk tolerance level.
Unfortunately, too many people enter the forex market and expect to get rich quick. Forex trading is not gambling, it's a skill which can return good profits if you enter with the correct mindset and are prepared to learn the various tricks and techniques.
In any form of investment where the potential profit is high, then so too are the potential losses. Even the most skilled and experienced traders will lose money and should not be put off when you do. The important thing is to make more gains than losses, so start small and learn from your mistakes.
Always trade with a stop loss, particularly if you are using any form of automated trading software, this will protect you from huge losses if the market should suddenly turn against you.
Monday, August 3, 2009
The Bretton Woods system
The Bretton Woods system began to weaken in the 1960s, when foreigners accumulated large amounts of U.S. dollars from post World War II aid and sales of their exports in the United States. There were concerns as to whether the U.S. had enough gold to redeem all the dollars.
With reserves of gold falling steadily, the situation could not be sustained and the U.S. decided to abandon this system. In 1971, President Nixon announced that U.S. dollars would no longer be convertible into gold. By 1973, this action led to the system of floating exchange rates that exist today. Currently, currencies rise and fall in value according to the forces of demand and supply.
With reserves of gold falling steadily, the situation could not be sustained and the U.S. decided to abandon this system. In 1971, President Nixon announced that U.S. dollars would no longer be convertible into gold. By 1973, this action led to the system of floating exchange rates that exist today. Currently, currencies rise and fall in value according to the forces of demand and supply.
Foreign Exchange Market
The Basics of Foreign Trade and Exchange
To buy foreign goods or services, or to invest in other countries, companies and individuals may need to first buy the currency of the country with which they are doing business. Generally, exporters prefer to be paid in their country’s currency or in U.S. dollars, which are accepted all over the world.
When Canadians buy oil from Saudi Arabia they may pay in U.S. dollars and not in Canadian dollars or Saudi riyals, even though the United States is not involved in the transaction.
The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.
The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens—there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions—United Kingdom, United States, and Japan.
Transactions in Singapore, Switzerland, Hong Kong, Germany, France and Australia account for most of the remaining transactions in the market. Trading goes on 24 hours a day: at 8 a.m. the exchange market is first opening in London, while the trading day is ending in Singapore and Hong Kong. At 1 p.m. in London, the New York market opens for business and later in the afternoon the traders in San Francisco can also conduct business. As the market closes in San Francisco, the Singapore and Hong Kong markets are starting their day.
The FX market is fast paced, volatile and enormous—it is the largest market in the world. In 2001 on average, an estimated $1,210 billion was traded each day—roughly equivalent to every person in the world trading $195 each day.
To buy foreign goods or services, or to invest in other countries, companies and individuals may need to first buy the currency of the country with which they are doing business. Generally, exporters prefer to be paid in their country’s currency or in U.S. dollars, which are accepted all over the world.
When Canadians buy oil from Saudi Arabia they may pay in U.S. dollars and not in Canadian dollars or Saudi riyals, even though the United States is not involved in the transaction.
The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.
The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens—there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions—United Kingdom, United States, and Japan.
Transactions in Singapore, Switzerland, Hong Kong, Germany, France and Australia account for most of the remaining transactions in the market. Trading goes on 24 hours a day: at 8 a.m. the exchange market is first opening in London, while the trading day is ending in Singapore and Hong Kong. At 1 p.m. in London, the New York market opens for business and later in the afternoon the traders in San Francisco can also conduct business. As the market closes in San Francisco, the Singapore and Hong Kong markets are starting their day.
The FX market is fast paced, volatile and enormous—it is the largest market in the world. In 2001 on average, an estimated $1,210 billion was traded each day—roughly equivalent to every person in the world trading $195 each day.
Sunday, August 2, 2009
Trade Volume
Forex: Rate of Growth of Foreign Exchange Markets
Figures for daily turnover in foreign exchange trading
In the early 1970s, the daily turnover in foreign exchange markets was $18 billion.
Transaction volume increased more than fourfold between 1977 and 1980 and fourfold again between1980 and 1983. Trading doubled between 1983 and 1986, and tripled between 1986 and 1989, when it reached the sum of $590 billion. It increased by almost 40% between 1989 and 1992, when it amounted to $820 billion a day.
The 1995 daily foreign exchange trading figure of $1.19 trillion represents an increase of 45% on that for 1992 (or 30%, taking into account the depreciation of the dollar). The volume of foreign exchange trade has therefore increased by roughly 83 times in the last 30 years.
This massive increase in the volume of trade is due to the break up in the early 1970s of the Bretton Woods system of fixed parities among major currencies and a move to floating exchange rates. It is also due to the growing liberalisation of financial markets, and the introduction of electronic trading, which makes it possible to deal with a greater volume of trade.
FIGURES 1998:
BIS calculated that the global turnover in traditional foreign exchange markets in 1998 had reached an estimated daily average of $1.5 trillion, a growth of 26% on the figures for 1995. This slowing of the rate of growth is attributable to the introduction of the euro, and economic problems in Asia.
Global daily turnover in foreign exchange derivatives contracts traded over-the-counter was estimated at $961 billion in April 1998 (up a huge 66% since 1995). Exchange-traded currency derivatives amounted to another $12 billion daily.
The notional amount outstanding on all OTC (over-the-counter) foreign exchange derivatives in June 1998 was estimated at $22 trillion. The gross market value of these contracts was $982 billion. BIS calculated that the turnover in notional amounts of exchange-traded currency futures and options for 1998 was another $3.5 trillion.
Therefore the total figure for daily foreign exchange trading in 1998 can be estimated at $2.473 trillion, or $593.5 trillion for the year.
Figures for daily turnover in foreign exchange trading
In the early 1970s, the daily turnover in foreign exchange markets was $18 billion.
Transaction volume increased more than fourfold between 1977 and 1980 and fourfold again between1980 and 1983. Trading doubled between 1983 and 1986, and tripled between 1986 and 1989, when it reached the sum of $590 billion. It increased by almost 40% between 1989 and 1992, when it amounted to $820 billion a day.
The 1995 daily foreign exchange trading figure of $1.19 trillion represents an increase of 45% on that for 1992 (or 30%, taking into account the depreciation of the dollar). The volume of foreign exchange trade has therefore increased by roughly 83 times in the last 30 years.
This massive increase in the volume of trade is due to the break up in the early 1970s of the Bretton Woods system of fixed parities among major currencies and a move to floating exchange rates. It is also due to the growing liberalisation of financial markets, and the introduction of electronic trading, which makes it possible to deal with a greater volume of trade.
FIGURES 1998:
BIS calculated that the global turnover in traditional foreign exchange markets in 1998 had reached an estimated daily average of $1.5 trillion, a growth of 26% on the figures for 1995. This slowing of the rate of growth is attributable to the introduction of the euro, and economic problems in Asia.
Global daily turnover in foreign exchange derivatives contracts traded over-the-counter was estimated at $961 billion in April 1998 (up a huge 66% since 1995). Exchange-traded currency derivatives amounted to another $12 billion daily.
The notional amount outstanding on all OTC (over-the-counter) foreign exchange derivatives in June 1998 was estimated at $22 trillion. The gross market value of these contracts was $982 billion. BIS calculated that the turnover in notional amounts of exchange-traded currency futures and options for 1998 was another $3.5 trillion.
Therefore the total figure for daily foreign exchange trading in 1998 can be estimated at $2.473 trillion, or $593.5 trillion for the year.
FOREX
What is FOREX?
Foreign Exchange trading
(also called Forex, FX or currency trading) describes trading in the many currencies of the world. It is the largest market, which provides a large amount of liquidity to traders.
Each day the markets trade over $1.5 trillion, if you compare the New York Stock Exchange which trades $27 billion a day you can begin to see how massive this market really is.The spot Forex market trades are settled within two banking days.
There is no central exchange like futures, and most of the trades are done electronically. The big boy's in this game are the Banks, Hedge Funds and financial organisations.
The forex market
The volume in the foreign exchange market is massive, with around $4 trillion dollars being traded every single day. The international banks and financial investment companies are the main players but especially now with the internet and high speed connections, the market has opened up to the small private investors who are entering the market in their droves. The constant fluctuation in price between currencies provide a lucrative market for the shrewd investor.
Foreign Exchange trading
(also called Forex, FX or currency trading) describes trading in the many currencies of the world. It is the largest market, which provides a large amount of liquidity to traders.
Each day the markets trade over $1.5 trillion, if you compare the New York Stock Exchange which trades $27 billion a day you can begin to see how massive this market really is.The spot Forex market trades are settled within two banking days.
There is no central exchange like futures, and most of the trades are done electronically. The big boy's in this game are the Banks, Hedge Funds and financial organisations.
The forex market
The volume in the foreign exchange market is massive, with around $4 trillion dollars being traded every single day. The international banks and financial investment companies are the main players but especially now with the internet and high speed connections, the market has opened up to the small private investors who are entering the market in their droves. The constant fluctuation in price between currencies provide a lucrative market for the shrewd investor.
Currency trading
What is Currency trading?
Currency trading is simply buying and selling currencies and making a profit from a positive price change between two different currencies involved in a trade. The two currencies involved in a trade are known as the forex pair. The most common currency involved in forex trading is the US dollar which is involved in 85% of all trades.
A forex trader will monitor the financial markets and react to trends in the movement in price between one currency and another. He makes a profit if he buys or opens a trade at a low price and sells or closes at a higher price. The skill is being able to understand what is happening in the market and correctly anticipate the upward or downward movement of currency prices.
There are many tools available to help with the analysis of the market - the most common being a variety of charts which show historical trends and patterns. Increasingly, there are new trading software packages entering the market which automates much of this process
Currency trading is simply buying and selling currencies and making a profit from a positive price change between two different currencies involved in a trade. The two currencies involved in a trade are known as the forex pair. The most common currency involved in forex trading is the US dollar which is involved in 85% of all trades.
A forex trader will monitor the financial markets and react to trends in the movement in price between one currency and another. He makes a profit if he buys or opens a trade at a low price and sells or closes at a higher price. The skill is being able to understand what is happening in the market and correctly anticipate the upward or downward movement of currency prices.
There are many tools available to help with the analysis of the market - the most common being a variety of charts which show historical trends and patterns. Increasingly, there are new trading software packages entering the market which automates much of this process
Forex Trading
How to Begin Forex Trading
For the average newbie, the Forex market can be a very scary place. Taking the time to carefully learn about the different currencies can allow you to really maximize your efforts while you are investing. The best course of action that you can take is going to the effort to actually determine how the Forex market can be beneficial to you.
The benefits that the market has for some consumers and investors may not be the best benefits though for you, it is important to determine which you are most concerned with before you start investing in the market though so that you can keep a clear perspective on your investments.
What is the minimum deposit I need to begin trading?
You can start trading with regular Individual Account with a minimum deposit of $2,000, and with a Mini-account with as little as $500. Regular accounts trade in $100,000 lots, and Mini-accounts trade in $10,000 lots.
For the average newbie, the Forex market can be a very scary place. Taking the time to carefully learn about the different currencies can allow you to really maximize your efforts while you are investing. The best course of action that you can take is going to the effort to actually determine how the Forex market can be beneficial to you.
The benefits that the market has for some consumers and investors may not be the best benefits though for you, it is important to determine which you are most concerned with before you start investing in the market though so that you can keep a clear perspective on your investments.
What is the minimum deposit I need to begin trading?
You can start trading with regular Individual Account with a minimum deposit of $2,000, and with a Mini-account with as little as $500. Regular accounts trade in $100,000 lots, and Mini-accounts trade in $10,000 lots.
Wall Street
Advantages Forex Trading Has Over Stock Investing
Wall Street has shown us that corporate companies do not necessarily tell their investors everything and can 'simulate' growth while nothing is there. Have more control about the aspects that affect the market, and although Forex is affected by so many possibles in the world - at least you know about them.
Another thing of course is the liquidity of the market. Nobody can deny that a market as large in transaction volumes is liquid.Its very over the counter nature has made it so and this is why the Forex trade is so popular with the casual home user.
This means that investment decisions can be translated into action and profits or the avoidance of a disaster within a much shorter time that traditional markets like stock investing. Administrative procedures can be a killer - a few hours could mean the difference in points, which means you can lose money while you wait for your broker to clear your investments to be sold.
How does FX trading differ from stocks on Wall Street?
FX trades are opened then closed typically within days, sometimes within hours or minutes. A margin of only 1% is required to initiate a Forex trade with our managed accounts as opposed to 50% margin required for trading stocks. $10,000 would enable you to buy or sell $1 million worth of any currency (including US dollar).
When you sell a foreign currency against the dollar, you are buying the dollar equivalently in hopes that the dollar would rise in value and you can then cash in and close your position for a handsome profit.
Wall Street has shown us that corporate companies do not necessarily tell their investors everything and can 'simulate' growth while nothing is there. Have more control about the aspects that affect the market, and although Forex is affected by so many possibles in the world - at least you know about them.
Another thing of course is the liquidity of the market. Nobody can deny that a market as large in transaction volumes is liquid.Its very over the counter nature has made it so and this is why the Forex trade is so popular with the casual home user.
This means that investment decisions can be translated into action and profits or the avoidance of a disaster within a much shorter time that traditional markets like stock investing. Administrative procedures can be a killer - a few hours could mean the difference in points, which means you can lose money while you wait for your broker to clear your investments to be sold.
How does FX trading differ from stocks on Wall Street?
FX trades are opened then closed typically within days, sometimes within hours or minutes. A margin of only 1% is required to initiate a Forex trade with our managed accounts as opposed to 50% margin required for trading stocks. $10,000 would enable you to buy or sell $1 million worth of any currency (including US dollar).
When you sell a foreign currency against the dollar, you are buying the dollar equivalently in hopes that the dollar would rise in value and you can then cash in and close your position for a handsome profit.
Currency Market
Volatility in the currency markets
Is an undeniable and unavoidable daily occurrence. With a daily turnover in excess of $1.5 billion and an uncountable number of factors playing into which way the market will move, it is impossible to forecast currencies with 100% accuracy. While large corporations employ market professionals to manage billions of dollars worth of currency risk, private individuals are often left at the whim of this massive market feeling uneducated and at risk.
Is FX in a bear market now or heading for one?
There is no such thing as a bear market in FX. Every major corporation, export-importer and every government in the world needs foreign currency every day to pay their bills. There is always FX trading around the world (200 times the size of NYSE daily volume).
As one currency goes down, another necessarily goes up. Anticipation is the challenge, serendipity being helpful as well.
Currency trading, foreign exchange trading, forex trading or Fx trading are just four different titles often given to act of investing in the currency exchange market. If you are interested in investing in the foreign exchange market, then you need to understand the currency trading basics.
Is an undeniable and unavoidable daily occurrence. With a daily turnover in excess of $1.5 billion and an uncountable number of factors playing into which way the market will move, it is impossible to forecast currencies with 100% accuracy. While large corporations employ market professionals to manage billions of dollars worth of currency risk, private individuals are often left at the whim of this massive market feeling uneducated and at risk.
Is FX in a bear market now or heading for one?
There is no such thing as a bear market in FX. Every major corporation, export-importer and every government in the world needs foreign currency every day to pay their bills. There is always FX trading around the world (200 times the size of NYSE daily volume).
As one currency goes down, another necessarily goes up. Anticipation is the challenge, serendipity being helpful as well.
Currency trading, foreign exchange trading, forex trading or Fx trading are just four different titles often given to act of investing in the currency exchange market. If you are interested in investing in the foreign exchange market, then you need to understand the currency trading basics.
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