FOREX

Foreign exchange market

2007-12-05T10:36:00.001-08:00

From Wikipedia, the free encyclopedia
Jump to: navigation, search
Foreign Exchange

Exchange Rates
Currency band
Exchange rate
Exchange rate regime
Fixed exchange rate
Floating exchange rate
Linked exchange rate

Markets
Foreign exchange market
Futures exchange

Products
Currency
Currency future
Non-deliverable forward
Forex swap
Currency swap
Foreign exchange option

See also
Bureau de change

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion.[1] Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams[2] [3].

Contents
[hide]

* 1 Market size and liquidity
* 2 Market participants
o 2.1 Banks
o 2.2 Commercial companies
o 2.3 Central banks
o 2.4 Investment management firms
o 2.5 Hedge funds
o 2.6 Retail forex brokers
* 3 Trading characteristics
* 4 Factors affecting currency trading
o 4.1 Economic factors
o 4.2 Political conditions
o 4.3 Market psychology
* 5 Algorithmic trading in forex
* 6 Financial instruments
o 6.1 Spot
o 6.2 Forward
o 6.3 Future
o 6.4 Swap
o 6.5 Option
o 6.6 Exchange Traded Fund
* 7 Speculation
* 8 References
* 9 See also
* 10 External links

[edit] Market size and liquidity

The foreign exchange market is unique because of

* its trading volumes,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours: 24 hours a day (except on weekends),
* the variety of factors that affect exchange rates.
* the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)

According to the BIS,[1] average daily turnover in traditional foreign exchange markets is estimated at $3,210 billion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:

This $3.21 trillion in global foreign exchange market "traditional" turnover was broken down as follows:

* $1,005 billion in spot transactions
* $362 billion in outright forwards
* $1,714 billion in forex swaps
* $129 billion estimated gaps in reporting

In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

Average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market. [4]

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. RPP

The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $100,000.

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e. 0.0003). Competition has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 2 pips.

[edit] Market participants
Financial markets

Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt

Stock market
Stock
Preferred stock
Common stock
Stock exchange

Foreign exchange market
Retail fdsd44565
]]

Options
Futures
Forwards
Swaps

Other Markets
Commodity market
OTC market
Real estate market
Spot market

Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v • d • e
Top 10 Currency Traders % of overall volume, May 2007 Source: Euromoney FX survey[5] Rank Name % of volume
1 Deutsche Bank 19.30
2 UBS AG 14.85
3 Citi 9.00
4 Royal Bank of Scotland 8.90
5 Barclays Capital 8.80
6 Bank of America 5.29
7 HSBC 4.36
8 Goldman Sachs 4.14
9 JPMorgan 3.33
10 Morgan Stanley 2.86

Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips only for major currencies like the Euro). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.

[edit] Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

[edit] Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

[edit] Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

[edit] Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

[edit] Hedge funds

Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

[edit] Retail forex brokers

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25–50 billion daily, which is about 2% of the whole market and it has been reported by the CFTC website that inexperienced investors may become targets of forex scams.

[edit] Trading characteristics
Most traded currencies[1]
Currency distribution of reported FX market turnover Rank Currency ISO 4217
code Symbol % daily share
(April 2004)
1 United States dollar USD $ 88.7%
2 Eurozone euro EUR € 37.2%
3 Japanese yen JPY ¥ 20.3%
4 British pound sterling GBP £ 16.9%
5 Swiss franc CHF Fr 6.1%
6 Australian dollar AUD $ 5.5%
7 Canadian dollar CAD $ 4.2%
8 Swedish krona SEK kr 2.3%
9 Hong Kong dollar HKD $ 1.9%
10 Norwegian krone NOK kr 1.4%
Other 15.5%
Total 200%

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. A joint venture of the Chicago Mercantile Exchange and Reuters, called FXMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.

The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.

The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

* EUR/USD: 28 %
* USD/JPY: 18 %
* GBP/USD (also called sterling or cable): 14 %

and the US currency was involved in 88.7% of transactions, followed by the euro (37.2%), the yen (20.3%), and the sterling (16.9%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.

Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

[edit] Factors affecting currency trading

See also: Exchange rates

Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.

Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

[edit] Economic factors

These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).

Economic conditions include:

Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.

Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.

Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

[edit] Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets.

For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

[edit] Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.

Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [6]

"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[7] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.

Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns. [8]

[edit] Algorithmic trading in forex

Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. There is much confusion about the technique. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.

[edit] Financial instruments

[edit] Spot

A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.

[edit] Forward

One way to deal with the Forex risk is to engage in a forward transaction. 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 duration of the trade can be a few days, months or years.

[edit] Future

Main article: Currency future

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. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

[edit] Swap

Main article: Forex 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. These are not standardized contracts and are not traded through an exchange.

[edit] Option

Main article: Foreign exchange option

A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

[edit] Exchange Traded Fund

Main article: Exchange-traded fund

Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weaknes versus a specific Currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.

[edit] Speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators.

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.[9]

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.

Rupee to.................

2007-11-20T13:40:00.001-08:00

Top stories

Rupee to appreciate on a long term: Morgan Stanley
20 Nov, 2007, 1839 hrs IST
Morgan Stanley today said Indian currency will appreciate further to reach the level of Rs 36-37 per dollar by the end of next year.

Jumpy Re: Right time to send money to India?
20 Nov, 2007, 1830 hrs IST,Akhilesh Tilotia & Ramganesh Iyer

The case of dealing with a historical exposure is like determining the right proportion of currencies that you should have in your portfolio. Day in Pics

Rupee could weaken: Treasury managers
20 Nov, 2007, 1522 hrs IST,Preeti R Iyer

Slowdown in inflows and oil prices are major factors behind weakening of rupee in short run, but long-term outlook is bullish. Renaissance IPO for long term

Rupee seen easing, inflows may slow
20 Nov, 2007, 0930 hrs IST
The rupee could start lower on Tuesday on concerns a drop in regional stocks may slow down capital inflows.

Rupee seen up on fund inflows into stocks
19 Nov, 2007, 1027 hrs IST
The rupee is expected to nudge higher on Monday, helped by fund flows into the stock market but central bank intervention and high oil prices could limit gains.

Rupee ends flat, RBI to auction bonds
17 Nov, 2007, 0152 hrs IST
After market closing hours, the Reserve Bank of India announced that it would auction bonds worth Rs 11,000 crore.

Rupee eases on equity inflow worries
16 Nov, 2007, 1044 hrs IST
The rupee dropped on Friday as a fresh bout of risk aversion struck Asian stock markets, raising the spectre of slower capital flows into local shares.

Rupee may ease as Asian stocks down
16 Nov, 2007, 0901 hrs IST
Rupee may open lower on Friday as local shares could fall in line with Asian stocks, translating into lesser fund inflows. Asian stocks dropped on renewed concerns about the US economy.

RBI halts Re rise, bond yields high
16 Nov, 2007, 0126 hrs IST
The rupee continued its rise against the dollar on Thursday, only to be halted by intervention from the central bank, coupled with heavy purchases of dollars made by oil refiners.

Rupee ends slightly better at 39.30/31 vs dollar
15 Nov, 2007, 1829 hrs IST
The rupee ends slightly better at 39.30/31 and unchanged from the day's opening level against the US currency in an otherwise range bound trade.

Forex Technical Analysis For 11/05- 11/9 Week........

2007-11-04T01:27:00.000-07:00

EUR/USD trend: sell.
GBP/USD trend: sell.
USD/JPY trend: buy.
EUR/JPY trend: hold.

Floor Pivot Points:
Pair 3rd Sup 2nd Sup 1st Sup Pivot 1st Res 2nd Res 3rd Res
EUR/USD 1.4255 1.4315 1.4409 1.4469 1.4563 1.4623 1.4717
GBP/USD 2.0273 2.0401 2.0647 2.0775 2.1021 2.1149 2.1395
USD/JPY 112.02 113.02 113.93 114.93 115.84 116.84 117.75
EUR/JPY 161.88 163.08 164.86 166.06 167.84 169.04 170.82

Woodie's Pivot Points:
Pair 2nd Sup 1st Sup Pivot 1st Res 2nd Res
EUR/USD 1.4324 1.4427 1.4478 1.4581 1.4632
GBP/USD 2.0401 2.0647 2.0775 2.1021 2.1149
USD/JPY 113.02 113.93 114.93 115.84 116.84
EUR/JPY 163.08 164.86 166.06 167.84 169.04

Camarilla Pivot Points:
Pair 4th Sup 3rd Sup 2nd Sup 1st Sup 1st Res 2nd Res 3rd Res 4th Res
EUR/USD 1.4419 1.4462 1.4476 1.4490 1.4518 1.4532 1.4546 1.4589
GBP/USD 2.0688 2.0791 2.0825 2.0860 2.0928 2.0963 2.0997 2.1100
USD/JPY 113.80 114.32 114.50 114.67 115.03 115.20 115.38 115.90
EUR/JPY 165.00 165.82 166.09 166.37 166.91 167.19 167.46 168.28

Fibonacci Retracement Levels:
Pairs EUR/USD GBP/USD USD/JPY EUR/JPY
100.0% 1.4528 2.0902 115.92 167.26
61.8% 1.4469 2.0759 115.19 166.12
50.0% 1.4451 2.0715 114.97 165.77
38.2% 1.4433 2.0671 114.74 165.42
23.6% 1.4410 2.0616 114.46 164.98
0.0% 1.4374 2.0528 114.01 164.28

2007-10-19T06:44:00.000-07:00

Live Trading Room Summary - September 28, 2007

Today’s Summary, by Pawan Tamta:

Before we get into the trade setups, I want to go over a couple of very important points. We had covered several important topics this week - Money Management, Risk Management, Correct Use of Stops, Position Sizing, how much to risk in your trades, and other topics - all of these topics are designed to encourage our members to follow a trading plan and money management policies, incorporating both risk management and money management together in their trading. Without it, your trading plan is incomplete.

Incorporating money management into technical analysis and day to day trading requires taking advantage of technical systems and strategies which enable us to follow these principles. Before you take the trade, you are in control - once you pull the trigger, however, the market takes over and you are no longer in control of the outcome. Trading a game of probabilities - so you should control whatever factors you can. The only factors still in our hands after a trade is initiated are Risk Management and Money Management.

If you have watched our recaps in the past, you will find that we do not place too much emphasis on our indicators. We believe indicators are just that - indications of price behavior, and not an ultimate confirmation. We take advantage of particular characteristics of certain indicators and put them to work on particular pairs, while keeping our various Rules of Thumb in mind.

On the intraday basis, USD/JPY had a Bearish Divergence on the 1h timeframe. Price was making higher highs, stochastics giving lower highs. Use of indicators in this case is restricted only to the Stochastic Oscillator - we use it for determining the presence of Divergence. Beyond this, we do not refer to the Stochastics in this case and limit ourselves to Fibonacci numbers.

We are very big followers of Fibonacci-based tools, and price has an uncanny way of respecting these Fibonacci numbers. Believe me, it would be worth your while to study Fibonaccis. We were anticipating a movement down to the confluence of the Fibonacci Fans and Fibonacci Retracements. Price came down in an A-B-C Correction, and stopped precisely at the confluence level.

Using such technical tools gives traders the confidence that you are getting maximum profit from your trades. You are also well aware of the steps a trade is taking, enabling you to lock in your profits each step, by following your price with trailing stop.

Lets have a look at another example. On the AUD/USD we had a bullish move, triggered by a Bullish Hidden Divergence on 15m. If you are not sure what a Hidden Divergence is, I strongly suggest you study it - join us in our Live Forex Trading Room, and we will show you how to use this powerful tool.

We had a higher low, stochastics pulling down to the same level. The setup was ultimately confirmed by Fibonacci Fans, and we determined our target levels using the Fibonacci Expansions. Price stopped precisely at the 127% Fibonacci Expansion level - Fibonacci numbers really do work, and the charts speak for themselves.

On the GBP/USD, 4h charts, based on Fibonacci Fans, we were anticipating an uptrend. We were expecting Longs, and though we did not capture the entire move, we did capture a large part of the uptrend. We use the CCI in this setup only for a specific purpose - if you used the Stochastics here, you would have seen a completely overbought situation, but with CCI you can see that there is still room for further upwards momentum. Price has stopped precisely at the 161.8% Fibonacci Retracement level.

So you see, you use your indicators only as a first step. Use your Fibonacci numbers, determine the trend, wait for price to give you a confirmation, get into the trend, and believe me, you will walk away with profits.

Next let us look at a trade that did not go as anticipated. It is important to know that not all systems work all the time. There will be times when the market will move against you. We were looking at USD/CAD, anticipating some pullbacks and moves up, an uptrend channel. We did not enter as we were using our Fibonacci Fans as confirmation - if price remains within the fan levels, we would have gone long, but it has broken out and not given us the expected bullish movements, instead conforming to a bearish mode again.

Do you think we would have lost out on a Short trade waiting for a Long to happen? Possibly. But as I always say, I would rather be out of a trade wishing I was in it, than being in a trade wishing I was out of it! Staying out is also a position.

What I have covered today are the basics - the fundamental stepping stones of what we follow here in our Live Forex Trading Room - and next week we will return to cover more trades based on our techniques, more setups, and more interesting discussions.

Forex Currency Trading by Pawan Tamta......

2007-10-03T08:23:00.001-07:00

You can develop into a better and more profitable trader by applying some of the more imperative forex currency trading rules consistently with an appropriate amount of discipline. There are few principles that can help to perk up your chances of success if they are understood, practiced, and implemented in your trading on a regular basis and these rules have been learned in the trenches, mostly through testing and scrutinizing the common mistakes nearly every trader makes when starting out in the forex currency trading business. The first step is to set up and apply specific goals and objectives.

The majority of forex traders who often find themselves on the losing end of a trade make the same common and recurring mistakes. Most forex traders dont have a clear direction, never take the time to develop a sound business plan and lack a formal written strategy for putting a well thought out plan in place. In forex currency trading, the primary goal is clearly to make money, but its important to have goals that are not strictly money related as well. Your personal objectives and ambitions should be very specific and measurable to you, but they should include the characteristics that are needed for the trading.

Having a clear-cut idea of what you want to accomplish in your trading and the precise time frame you want to achieve it, make your efforts more focused. In order to establish a track record of winning trades, you need to develop discipline and a personal forex currency trading system that makes sense for you. The spread generally referred to as the bid/ask spread is what brokers charge instead commission fees. Forex brokers are typically linked with large banks due to the large amount of capital that is required to operate in the forex market. Leverage is a ratio of total capital available to actual capital which is the amount of money a broker will lend you for trading. Finally you should select a trading account that fits your budget.

Basic Forex trading strategy begins with fundamental and technical analysis. Fundamental analysis is mainly used to anticipate and better understand long-term trends in the currency market. Technical analysis is widely used to examine the forex because it identifies and measures sustained trends. Successful traders use a combination to make more accurate predictions. Once you have the knowledge of how the forex currency trading works open a demo account and paper trade to practice until you have what it takes to make a consistent profit. Its important to take the time to build, test and implement a sound trading plan before you put capital at risk.

2007-09-28T00:45:00.000-07:00

Introduction
Although the foreign exchange market is the largest traded market in the world, its reach to the retail sector pales in comparison to the Equity and Fixed Income markets. This is in large part due to a general lack of awareness of FX in the investor community, along with as a lack of understanding of how and why currencies move. Adding to the mystique of this market is the lack of a physical central exchange akin to the NYSE or the CME. It is this very lack of structure that enables the FX markets to operate on a 24-hour basis, beginning the trading day in New Zealand and continuing through the time zones.

Traditionally, access to the FX market was limited to the bank community that traded large blocks of currencies for commercial, hedging, or speculative purposes. The creation of well-capitalized firms like FXDD has opened the door of Forex trading to such institutions as funds and money managers, as well as to the individual retail trader. This sector of the market has grown exponentially over the past several years.

--------------------------------------------------------------------------------

What is Foreign Exchange?
For active traders and investors, foreign exchange should be no different than other investment products such as equities, commodities or fixed-income. Because of globalization in the economic world and consolidation of whole economic regions (i.e., the European Union), including currencies in a portfolio helps to diversify assets and can reduce risk.

Just like other investment alternatives, foreign exchange offers traders/investors a market where they can buy or sell an investment product. In this case it is a specific Currency Pair. The currency pair may be the Euro versus the US Dollar, the US Dollar versus the Japanese Yen, the British Pound versus the US Dollar, the Euro versus British Pound, or a number of other currency combinations.

The different currency combinations represent nothing more than the value of one currency versus the value of another. That relationship is represented by a single price. In foreign exchange, the price of a currency pair is the market’s expectations (at that time) of the value of that currency measured against another currency given the current and expected economic and political situation in the two economies. In equity terms, it is the price of the stock.

If, for example, an economy’s inflation/interest rates are low and stable, if its output is growing strongly, or if its politics are stable and expectations are for more of the same, then one can expect (in general) for that country's currency to remain strong versus a less fundamentally favorable currency.
Contrasting that with an equity, if the domestic and global economy is strong, if inflation is not rampant, if competition is not taking away market share or eating into margins, if product demand and growth are strong, of if the companies internal "politics" are such that the workers are happy and productive, and expectations are for more of the same, then you can expect that company’s stock to remain strong versus a company with less favorable fundamentals.

Similar to equities there are other factors that determine the short term value of a product including technical analysis, short term supply and demand, seasonal capital flow patterns, the current price of the instrument, etc. It is these universal dynamics that will move a currency’s value up or down. By analyzing the pricing dynamics and combining that with sound money management and discipline, the investor can ensure greater success in his or her foreign exchange trading.

--------------------------------------------------------------------------------

The Liquid Currency Pairs
Currencies, like equities and bonds, have pairs that are very liquid and those that are not so liquid. The liquid currencies can be characterized as those that are the most stable economically and politically. They include the countries that form the G7 - the United States, Japan, Great Britain, France, Germany, Italy, and Canada.

Since the unification of the European currencies into the EURO, the currencies that are most liquid now include the US Dollar, the Japanese Yen, the British Pound, the Euro, and the Canadian Dollar. It is estimated that activities in these currencies comprise more than 80% of the daily foreign exchange volume.

--------------------------------------------------------------------------------

Foreign Currency Symbols
Currencies, like equities, have their own symbols that distinguish one from another. Since currencies are quoted in terms of the value of one against the value of another, a currency pair includes the "name" for both currencies, separated by a "/". The "name" is a three letter acronym. The first two letters are in most cases reserved for identification of the country. The last letter is the first letter of the unit of currency for that country. For example,

USD = United States Dollar
GBP = Great Britain Pound
JPY = Japanese Yen
CAD = Canadian Dollar
CHF = Confederatio Helvetica (Latin for Swiss Confederation) Franc
NZD = New Zealand Dollar
AUD = Australian Dollar
NOK = Norwegian Krona
SEK = Swedish Krona

Since the European Euro has no specific country attached to it, it goes simply by the acronym EUR.

By combining one currency, EUR, with another USD, you create a currency pair EUR/USD.

--------------------------------------------------------------------------------

The Base and Counter Currency
One currency in a currency pair is always dominant. It is called the Base Currency. The base currency is identified as the first currency in a currency pair. It also is the currency that remains constant when determining a currency pair's price.

The Euro is the dominant base currency against all other global currencies. As a result, currency pairs against the EUR will be identified as EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, etc. All have the EUR acronym as the first in the sequence.

The British Pound is next in the hierarchy of currency name domination. The major currency pairs versus the GBP would, therefore be identified as GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD. Apart from the EUR/GBP, expect to see GBP as the first currency in a currency pair.

The USD is the next dominant base currency. USD/CAD, USD/JPY, USD/CHF would be the normal currency pair convention for the major currencies. Since the EUR and the GBP are more dominant in terms of base currencies, the dollar is quoted as EUR/USD and GBP/USD.

Knowing the base currency is important as it determines the values of currencies (notional or real) exchanged when a foreign exchange deal is transacted.

The Counter Currency is the second currency in a Currency Pair notation.

--------------------------------------------------------------------------------

The Value of Currencies
The base currency is ALWAYS equal to one of the currency's monetary unit of exchange (i.e., 1 Euro, 1 Pound, and 1 Dollar). When an investor buys 100,000 EUR/USD, he is said to be buying (or receiving) the EURO or the Base Currency and selling (or paying for) the USD or Counter Currency. The amount of the Base Currency he is buying is equal to 100,000 Euros. Note that this is true no matter the current exchange rate at the time. The base currency amount remains constant.

The Counter Currency equivalent amount that the investor is selling (or paying), on the other hand, will fluctuate with the exchange rate for the Currency Pair. It is equal to:

(Amount of Base Currency x Market Foreign Exchange Rate)

Since the Counter Currency is the part of the currency pair that fluctuates higher or lower, it determines the strength or weakness of both currencies in a currency pair. As one currency goes up, the other must go down.

Currencies trade in fractions of a full unit. The smallest fraction is called a "pip". Currencies trade in pips because exchanges of currencies for speculative reasons are generally for large amounts. This is because of the leverage that is available when trading Foreign Exchange.

FXDD provides a Maximum Trading Leverage Ratio of 100:1for standard accounts. At that ratio, a 100,000 EUR position would require $1,200 of Margin at an exchange rate of 1.2000. This is calculated by taking the US$ equivalent of 100,000 EUR or US$120,000 and dividing by the 100:1 leverage ratio.

Margin Required = $120,000 / 100 = $1,200

To determine the value of a pip for the deal above the following calculation would be made:

Value in US$ = 1.20 x Par Amount of Base Currency = $120,000
Value in US$ + a pip = (1.20+.0001) x Par Amount of Base Currency = $120,000

The value of a pip in dollars is equal to $120,000 - $119,990 or $10.

When a currency pair goes from a low price to a higher price, the Base Currency is said to have strengthened or gotten stronger. The converse is true for the Counter Currency. That is, it has weakened or gotten weaker as the Base Currency has gotten stronger.

Since Exchange Rates represent what a fixed amount of currency is equal to in terms of another currency, we have seen there is just one price for the Currency Pair. The movement of that price determines whether a currency is getting stronger or weaker.

If the EUR/USD exchange rate goes from 1.2000 to 1.2024, we have concluded that the EUR got stronger, the USD weaker. Why?

When looking at Foreign Exchange Rates (or prices) an action to Buy the Currency Pair implies buying the Base Currency, or EUR, and selling the Counter Currency, or USD. If the EUR/USD exchange rate moves higher, as expected, the trader can now sell the EUR/USD at a dearer/higher price. The difference represents a Profit to the trader that was Long, or who bought the EUR/USD Currency Pair.

Another way of looking at it is at 1.2000, an investor/trader could exchange 1 EUR for $1.20. At 1.2100, however, that same single EUR can now be exchanged for a higher amount of USD, in this case $1.21 USD. The EUR has strengthened or gotten stronger.

--------------------------------------------------------------------------------

Transacting Foreign Exchange Fundamentals
Buying and Selling Foreign Exchange
What exactly do you buy or sell when you make a foreign currency transaction?

In reality, you are doing both actions - buying and selling. A transaction of Buying the EUR/USD at 1.2000 is actually buying the Euro and selling the Dollars at 1.2000 cents. If the Euro increases in value in relation to the dollar, the price would increase and the investor will make money.

If for whatever reason, a trader could not execute an order using FXDD, a verbal order to a broker could be the following:

"I buy 100,000 Euros and sell the dollar at the Market"
or
"I buy 500,000 EUR/USD on a 1.2100 stop"
or
"I buy 100,000 Euros vs. the Dollar at the market"

What is required on all verbal orders is the amount, the Currency Pair, the rate and/or the type of order. Simply saying "I buy the Dollar at the Market" is not good enough as it does not say what currency the trader wants to sell.

--------------------------------------------------------------------------------

The Bid/Ask Price
Like equities, foreign exchange has a Bid price and an Ask price. The bid is where the market maker will buy. The ask is where the market maker will sell. For investors, the reverse is true. The bid price is where an investor can sell, while the ask is where an investor can buy.

The bid price is always less than the ask price. This makes logical sense as a market maker, like any investor, wants to buy low and sell high.

The spread between the bid and the ask is called the Bid/Ask Spread or Dealing Spread. The bid/ask spread is the premium that market makers charge to provide constant liquidity to a retail client base. For example, the bid and ask might be 1.2050/1.2055. The spread is 5 pips.

Paralleling foreign exchange trading to equities, a market maker, like FXDD, is the equivalent of a specialist on the floor of the exchange.

A specialist is always willing and able to make a market (i.e. provide liquidity) to the market/investor. For this service, he will have a bid where he buys the stock and an offer or ask, where he will sell the stock. The bid/ask spread the specialist charges will fluctuate with the general liquidity of the underlying stock.

That same principle applies to FXDD's Bid/Ask Spreads.

Dealing Spreads for the major currencies pairs on FXDD are 2-3 pips wide. Some less liquid currencies will be a bit wider. This reflects the relative liquidity/risk in the professional market for that particular currency pair. The dealing spreads that we quote reflect a normal market making spread given the risks we take and the costs we incur for servicing our clients' business.

Obviously, if the volatility and risk of making a market increase because the markets become less liquid, it stands to reason that our spreads will increase as well. These are universal realities of market makers and should not come as a surprise to knowing investors/traders.

2007-09-23T13:36:00.000-07:00

Forex Trading - Opportunities for Individuals
Forex Trading-How Can Individual Investors Benefit?

Indeed large multinational and individual banks and other major financial institutions have dominated FX trading (also known as Forex trading), but there is a paradigm change in the nature and type of investing. According to one estimate, in the new millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new technologically driven economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy in Forex trading.

We know Forex trading is direct access trading of currencies. In the past, foreign exchange trading was limited to large banks and institutional traders but recent advancements in technology have allowed small traders to take advantage of the many benefits of Forex trading using online trading platforms to trade. Virtually Forex trading is done 24 hours day and almost 5 ? days of a week. In the recent times, online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor.

The Forex trading is perhaps the largest financial market in the world, with a daily average turnover of approximately $1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example EUR/USD or USD/JPY or USD/INR etc.

In the new millennium, the Forex trading has become accessible for an individual investor or small group of investors. In the current scenario, investors reap many benefits from Forex trading than stock market, e-mini futures and such other trading. Today mostly traders are choosing Forex trading than stock trading because there are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500 are listed on the NASDAQ. In spot Forex trading, you have 4 major markets, 24 hours a day 5.5 days a week. If you are so inclined, you have approximately 34 second-tier currencies to look at in your spare time. You can concentrate on the major forex and can find your trade. When you are investing in forex you can spend your afternoon on the golf course or with your spouse watching movie or celebrating holidays-in short it is easy and hassle free than stock/future market.

Not only is it an accessible, easy and less capital-intensive business opportunity, but it is much more cost efficient too to invest in the Forex market, in terms of both commissions and transaction fees. Generally, commissions for stock trades range from a low of $7.95-$29.95 per trade with on-line brokers to over $100 per trade with traditional brokers. Opposite to that, typically stock commissions are directly related to the level of service offered by the broker. At the high end, traditional brokers offer full access to research, analyst stock recommendations, etc. In contrast, on-line Forex brokers charge significantly lower commission and transaction fees.

FOREX

2007-08-15T23:01:00.001-07:00

Saturday, May 19, 2007

forex
These are jobs in insurance. Insurance is a trillion dollar business that employs more than 2.5 million people in the United States alone. As the population ages and wealth grows, the demand for insurance professionals will increase dramatically. This is great news for you if your thinking of going in to insurance. Jobs in insurance involve helping individuals and business manage risk to protect themselves from catastrophic losses and to anticipate potential risk problems. Work in this area is not only personally rewarding, but can be financially rewarding as well. You will help clients understand their insurance needs, explain their options to them and hopefully help them purchase appropriate insurance policies. You could work in a variety of areas in insurance including as an underwriter, a sales representative, an asset manager, a customer service rep or an actuary. A theme that is constantly emphasized by insurance professionals is that the industry is ultimately about helping people when they need it the most. The stereotype of a slick, sleazy, fast-talking insurance salesman is largely a figment of the past. The Business is About Risk Transfer Insurance companies are in the business of assuming risk by writing policies which transfer risks from customers to themselves. This work is challenging, complex and likely to continue to prosper.There are a Variety of Key Business AreasInsurance companies are in the business either of providing property and casualty insurance (protect owners of cars, business and homes against loss and injury); life insurance or health insurance.Insurance is one of Finance's Best Kept SecretsInsurance may be one of the best kept secrets in the field of finance. Most students do not realize the high growth and enormous potential for personal development and advancement that this field offers.People-oriented Types Who Can Listen Do WellThe field of insurance and risk management is well-suited for those who are good listeners, who enjoy people and are comfortable with quantitative analysis of risks.Most People in Insurance Don't Sell Many people avoid insurance careers because they perceive that the business is about selling and slickness. Certainly, part of the business involves selling but keep in mind that insurance policies help people, especially in times of need. Moreover, most jobs in the field do not involve direct selling .

NEW FOR FOREX........
This Free Forex e-Book which reflect years of experience in Forex Trading and Forex platform
operation. parallel to Forex education including seminars, printed publications and academic
studies will show you every thing you need to start Trading Forex. Download your copy now
Posted by vinod ji at 3:04 AM 0 comments
Subscribe to: Posts (Atom)