Forex Trading

Categories Of Gold Investors

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Essentially, there are three broad categories of gold investors:

1. Those who wish to hedge uncertainty and possible financial disaster

2. Those who wish to simply make a profit.

3. Those who wish to combine hedging with potential profit

How to Buy Gold in Five Easy Steps

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1. Familiarize yourself with our selection of gold coins and bullion.

2. Call our Trading Desk for current gold prices and portfolio consultation.

3. Lock in your order at current prices over the phone.

4. Remit payment.

5. Sit back and relax while we fulfill your order.

It's that easy!

Gold Coin Images

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GOLD BULLION COINS, GOLD BARS

American Buffalo gold bullion coins

Australia Kangaroo gold bullion coins

Austria Philharmonic gold bullion coins

Austria 100 Corona (restrike) gold bullion coins

Canada Maple Leaf gold bullion coins

South Africa Krugerrand gold bullion coins

United States Eagle gold bullion coins

Chinese Panda gold bullion coins

Mexico 50 pesos (restrike) gold bullion coins

Gold Bars various

UNITED STATES GOLD STANDARD COINAGE (pre-1933)
[shop for U.S. gold coins online!]

United States $5 gold coin (Liberty)

United States $5 gold coin (Indian)

United States $10 gold coin (Liberty)

United States $10 gold coin (Indian)

United States $20 gold coin (Liberty)

United States $20 gold coin (St. Gaudens)

GRADED U.S. $20 GOLD PIECES
[shop for U.S. gold pieces online]

Graded U.S. $20 gold pieces, U.S. silver dollars

Graded U.S. Liberty $20 gold piece

Graded U.S. St. Gaudens $20 gold piece

GOLD STANDARD COINAGE
European, North & S. American pre-1933 Gold Coins
[shop for world gold coins online]

Argentina 5 pesos gold coin (Argentino)

Austria trade ducat gold coin

Austria 100 schilling gold coin

Belgium 20 francs gold coin (Leopold)

Belgium 20 francs gold coin (Albert-Military)

Brazil 10000 reis gold coin (Pedro II)

Brazil 20000 reis gold coin (Pedro II)

British Half Sovereign gold coins (assorted)

British Sovereign gold coin (Young Victoria)

British Sovereign gold coin (Jubilee)

British Sovereign gold coin (Veil Victoria)

British Sovereign gold coin (Edward, George)

British Sovereign gold coin (Canada)

British Sovereign gold coin (India)

Chile gold coin (100 pesos)

Colombian 5 pesos gold coin (Simon Bolivar)

Denmark 10 kroner gold coin ('Mermaid')

Denmark 20 kroner gold coin ('Mermaid')

Denmark 20 kroner gold coin (Frederik VIII & Christian X)

Finland 20 markkaa gold coin

France 20 francs gold coin (Napoleon Bonaparte)

France 20 francs gold coin (Louis XVIII)

France 20 francs gold coin (Louis Philippe)

France 20 francs gold coin (Ceres)

France 20 francs gold coin (Napoleon III)

France 20 francs gold coin (Angel)

France 20 francs gold coin (Rooster)

France 40 francs gold coin (Napoleon Bonaparte)

France 50 francs gold coin (Napoleon III)

France 100 francs gold coin (Napoleon & Angel)

German 20 marks gold coin (Hamburg)

Germany 20 marks gold coin (Wilhelm I)

Germany 20 marks gold coin (Friedrich III)

Germany 20 marks gold coin (Wilhelm II)

Germany 20 marks gold coin (Military)

Hungary 20 korona gold coin (Franz Joseph)

Italy 20 lira gold coin (Vittorio Emanuele II)

Italy 20 lira gold coin (Umberto I)

Mexico 5 pesos gold coin

Mexico 10 pesos gold coin (Miguel Hidalgo)

Mexico 20 pesos gold coin

Mexico 50 pesos gold coin

the Netherlands trade ducat gold coin

the Netherlands 10 guilders gold coin (Willem)

the Netherlands 10 guilders gold coin (Young Wilhelmina)

the Netherlands 10 guilders gold coin (Wilhelmina)

the Netherlands 10 guilders gold coin (Elder Wilhelmina)

Peruvian One Libra gold coin

Russia 10 roubles gold coin (Nicholas II)

Saudi Arabia Guinea gold coin

Sweden 10 kronor gold coin (Oscar II)

Sweden 20 kronor gold coin (Oscar II)

Switzerland 20 francs gold coin (Confederatio Helvetica)

Switzerland 20 francs gold coin (Helvetia)

Tunisia 20 francs gold coin

Uruguay 5 pesos gold coin

Venezuela 20 bolivares gold coin

Gold Coin

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A gold coin is a coin made mostly or entirely of gold. Gold has been used for coins practically since the invention of coinage, originally because of gold's intrinsic value. In modern times, most gold coins are intended either to be sold to collectors, or to be used as bullion coins — coins whose nominal value is irrelevant and which serve primarily as a method of investing in gold.

Gold Guilder

Portuguese Gold Coin, sixteenth century.

Double Eagle

Ducat

Gold and Silver

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Have you been watching gold and silver? Both of these precious metals have captured the attention of many investors, including those who have never before traded commodities. Whether you believe that gold and silver prices will continue to rise, or will decline to more historically typical levels, commodity futures and options provide a way to speculate in these markets.

Unfortunately, the increased volatility accompanying the higher price levels of gold and silver has made buying and selling a traditional futures contract too expensive for many investors. For example, to buy or sell one COMEX® gold contract requires $5,399 in margin while a COMEX silver contract requires $8,100 in margin. (Source: NYMEX, a division of CME Group. Values are as of July 3, 2009. Values may change.) Higher implied volatilies have, in turn, inflated option premiums as well, making considerable the cost of a simple put or call option purchase. How then can the beginner who wishes to limit risk or the average investor with only modest risk capital participate in the precious metal markets?

Gold Future Options - The Basics

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Futures options are an excellent way to trade the futures markets. Many new traders start by trading futures options instead of straight futures contracts. There is generally less risk and volatility when using options instead of futures. Actually, many professional traders only trade options.

What are Futures Options?

An option is the right, not the obligation, to buy or sell a futures contract at a designated strike price. For trading purposes, you buy options to bet on the price of a futures contract to go higher or lower. There are two main types of options - calls and puts.

Calls – You would buy a call option if you believe the underlying futures price will move higher. For example, if you expect corn futures to move higher, you will want to buy a corn call option.

Puts – You would buy a put option if you believe the underlying futures price will move lower. For example, if you expect soybean futures to move lower, you will want to buy a soybean put option.

Premium – You are obviously going to have to pay some kind of price when you buy an option. The term used for the price of an option is premium. You can think of the pricing of options as a bet. The bigger the long shot, the less expensive they will be. Oppositely, the more sure the bet is, the more expensive it will be.

Contract Months (Time) – Options have an expiration date, which means they only last for a certain period of time. When you buy an option, you cannot hold it forever. For example, a December corn call expires in late November. You will need to close the position before expiration. Generally, the more time you have on an option, the more expensive it will be.

Strike Price – This is the price at which you could buy or sell the underlying futures contract. For example, a December $3.50 corn call allows you to buy a December futures contract at $3.50 anytime before the option expires. Most traders do not convert options, they just close the option position and take the profits.

Example of Buying an Option:

Let’s say you expect the price of gold futures to move higher over the next 3-6 months. It is currently January, so you would probably buy an August gold call to give yourself enough time. Gold is currently trading at $590 per ounce. You expect the price to climb to $640 within 6 months.

You purchase: 1 August $600 gold call at $15

1 = number of options you are buying
August = Month of option contract
$600 = strike price
Gold = underlying futures contract
Call = type of option (bet on price moving higher)
$15 = premium ($1,500 is the price to buy - 100 ounces of gold x $15 = $1,500)

Gold Futures and Other Information

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Market Specifications
Market:	Gold
Exchange:	NYMEX
Category:	Metals
Hours (Local):	8:20 - 13:30
Contract Size:	100 oz
Months:	G,J,M,Q.V.Z
Min. Fluctuation:	$0.10/Oz = $10

Month Codes
Month	Code
January	F
February	G
March	H
April	J
May	K
June	M
July	N
August	Q
September	U
October	V
November	X
December	Z

Exchange Codes
Code	Exchange
CBOT	Chicago Board of Trade
CME	Chicago Mercantile Exchange
KCBOT	Kansas City Board of Trade
LIFFE	London International Financial Futures Exchange
LME	London Metals Exchange
MGE	Minneapolis Grain Exchange
NYBOT	New York Board of Trade
SFE	Sydney Futures Exchange
SGX	Singapore Exchange

Invest in Gold Futures

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Gold is a favorite of investors, whether they have a few hundred dollars or millions. An investment in gold coins and bars (known as bullion) is a good hedge in uncertain economic times. If you take the time to learn the factors that affect the price of gold, it’s relatively safe and can be quite profitable. If you are wiling to take risks, you may want to invest in gold futures. Strictly speaking, trading in gold futures isn’t investing; it is speculating (a polite word for gambling). The lure is understandable--people can and have become millionaires. But be warned. Most first-time traders in gold futures lose their money.

Forex Softwares

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StockReflex: Stock Market Analysis Tool

StockReflex is a stock market analysis tool that allows you practice trading by replaying historical stock data in various market sectors. This software is equipped with the Trend Lines that will help you to see when a stock breaks out or breaks down, Technical Indicators like EMA, RSI, Stochastics, Bollinger bands, MACD and DMI. Another features are Virtual Money, Moving Averages, Alerts, Short Selling, and more.

NinjaTrader Trading Software Reviews

NinjaTrader is a trading software that supports forex, futures and equities. Equipped with full system development, backtesting and automation features. You can trade through over 100 brokerages world wide. NinjaTrader is a free application for advanced charting, market analytics, system development and trade simulation.

Novativa Streamster: Free Forex Software from Marketiva

Novativa Streamster is a free forex software that specially designed for Marketiva's traders. This software enables you to learn how to trade forex on a Virtual Trading Desk, and then allows you a painless switch to the Live Trading Desk when you are experienced enough.

APS Automatic Pattern Search: Discover Stock, Futures and Forex Trading Systems Automatically
APS Automatic Pattern Search enables you to develop and analyze stock, futures and forex trading systems.

This software finds price patterns that fulfill user-defined performance statistics and risk/reward parameters by searching historical data in a fully automated way.

APS is equipped with an intuitive interface where its user can specify historical data files and the performance criteria the price patterns must fulfill. User is not required to write any code. Code is generated automatically for the price patterns so that they can be implemented in Tradestation, Metastock, Wealth-Lab or TeleChart.

MMExplorer: Trade, Analyze, and Screen Market from Your Cell Phone

If you want to keep up to date with your portfolio, latest news, and stock prices when you are not on the computer, or if you want to do charting and technical analysis at any time and anywhere you are, you can try MMExplorer on your mobile phone (such as Nokia, Samsung, LG, Blackberry, Windows Mobile, Sony Ericsson and more).

Profiles of Market Gurus

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Traders & Trading Industry

Jesse Livermore, Bernard Baruch, WD Gann, Jay Gould, Tom Baldwin, Charlie D, Ed Seykota, Lewis Borsellino, David Kyte, Martin "Buzzy" Schwartz, Bill Lipschutz, Jimmy Cayne

Hedge Fund Managers

George Soros, Phil Falcone, Toby Crabel, Alfred Winslow Jones, Julian Robertson, Stevie Cohen, Jim Rogers, John Arnold, Blair Hull, John Paulson, Jim Simons, Ken Griffin, Dan Loeb, T. Boone Pickens, Paul Tudor Jones, Chris Hohn, Noam Gottesman, Alan Howard, Stanley Druckenmiller, Ray Dalio, Louis Bacon, Israel Englander, Jeffrey Gendell, Dinakar Singh, Chase Coleman, John Griffin, Andreas Halvorsen, Bill Ackman, Jim Chanos, James Dinan, Eddie Lampert, Raj Rajaratnam, Dan Och, Richard Perry, Larry Robbins, Tim Barakett, John Burbank, Stephen Feinberg, Stephen Mandel, Jim Pallotta, Chris Shumway, Jonathan Lourie, William Von Mueffling, David Tepper, John Zwaanstra, Nicola Horlick

Great Investors

Sir John Templeton, Benjamin Graham, Warren Buffett

Technical Analysts

Munehisa Homma, Ralph Nelson Elliott, Welles Wilder, Charles Dow, George Lane, Robert Prechter, J. Peter Steidlmayer, Jack Schwager

Economists

Alan Greenspan, Arthur Pigou

Mathematicians

Benoit Mandelbrot

Innovators

Richard Sandor, Leo Melamed, Jimmy Wales

Groups

Market Technicians Association - MTA

The International Federation of Technical Analysts - IFTA

Certifications

Chartered Market Technicians Certification

Articles

Black Days and Legendary Trades

How Forex Works

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How does the off-exchange currency market work?

The off-exchange forex market is a large, growing and liquid financial market that operates 24 hours a day. It is not a market in the traditional sense because there is no central trading location or “exchange.” Most of the trading is conducted by telephone orthrough electronic trading networks. The primary market for currencies is the “interbank market” where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates. The true interbank market is only available to institutions that trade in large quantities and have a very high net worth. In recent years, a secondary OTC market has developed that permits retail investors to participate in forex transactions. While this secondary market does not provide the same prices as the interbank market, it does have many of the same characteristics.

How are foreign currencies quoted and priced?

Currencies are designated by three letter symbols. The standard symbols for some of the most commonly traded currencies are EUR Euros, USD United States dollar, CAD Canadian dollar, GBP British pound, JPY Japanese yen, AUD Australian dollar, and CHF Swiss franc. Forex transactions are quoted in pairs because you are buying one currency while selling another. The first currency is the base currency and the second currency is the quote currency. The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency. For example, if EUR/USD has an ask price of 1.2178, you can buy one Euro for 1.2178 US dollars. Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receivein exchange for one unit of the base currency (the bid price) andthe second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). In other words, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. A dealer may not quote the full exchange rate for both sides of the spread. For example, the EUR/USD spread discussed above could be quoted as 1.2170/78. The customer should understand that the first three numbers are the same for both sides of the spread.

What transaction costs will I pay?

Although dealers who are regulated by NFA must disclose their charges to retail customers, there are no rules about how a dealer charges a customer for the services the dealer provides or that limit how much the dealer can charge. Before opening an account, you should check with several dealers and compare their charges as well as their services. If you were solicited by or place your trades through someone other than the dealer, or if your account is managed by someone, you may be charged a separate amount for thethird party’s services. Some firms charge a per trade commission, while other firms charge a mark-up by widening the spread between the bid and ask prices they give their customers. In the earlier example, assume that the dealer can get a EUR/USD spread of 1.2173/75 from a bank. If the dealer widens the spread to 1.2170/78 for its customers, the dealer has marked up the spread by .0003 on each side. Some firms may charge both a commission and a mark-up. Firms may also charge a different mark-up for buying the base currency than for selling it. You should read your agreement with the dealer carefully and be sure you understand how the firm will charge you for your trades.

Forex vs. Equities

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If you are interested in trading currencies online, you will find that the Forex market offers several advantages over equities trading.

24-Hour Trading: Forex is a true 24-hour market, which offers a major advantage over equities trading. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls.

After hours trading for U.S. equities brings with it several limitations. ECN's (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers - when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

Superior Liquidity: With a daily trading volume that is 50x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the FX markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.

Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.

100:1 Leverage: 100:1 leverage is commonly available from online FX dealers, which substantially exceeds the common 2:1 margin offered by equity brokers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the Forex market. This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.

The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over.

Lower Transaction Costs: It is much more cost-efficient to trade Forex in terms of both commissions and transaction fees. FOREX.com charges NO commissions or fees whatsoever, while still offering traders access to all relevant market information and trading tools. In contrast, commissions for stock trades range from $7.95-$29.95 per trade with online discount brokers up to $100 or more per trade with full service brokers.

Another important point to consider is the width of the bid/ask spread. Regardless of deal size, forex dealing spreads are normally 3-4 pips (a pip is .0001 US cents) in the major currencies. In general, the width of the spread in a forex transaction is less than 1/10 that of a stock transaction, which could include a .125 (1/8) wide spread.

Profit Potential In Both Rising And Falling Markets: In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling market.

The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

The Foreign Exchange Market

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Foreign exchange,’ ‘Forex’ or ‘FX’ is the home of the inter-bank and wholesale market for exchanging one currency for another and thrives in what is an enormous sea of money. It trades across the globe in over 100 currency pairs in the largest of the world’s financial markets!

Institutional FX

Basically, Institutional Forex is the big end of town when it comes to foreign exchange. Here, we are talking about a market with daily transactions in excess of 3 trillion dollars. To be ‘big’ in this business is to talk about huge amounts of funds being traded in an instant. While it is standard to trade in 5 to10 million dollar parcels, quite often 100 to 500 million dollar parcels get quoted. But what is important (and comforting) to note, is that even financial institutions are vulnerable to market moves and they are also subject to market volatility. In a practical sense, what this means is that because the market is simply too big, no one player can hope to control this largest of the world’s financial markets.

No one is bigger than the market – not even the major global brand name banks can lay claim to being able to swing the markets. Thus, so-called ‘insider’ information is not only very hard to come by, it is quite doubtful that even if someone had it would it be anything but a ‘blip on the screen’ with minimal value.

The Participants

Banks

Whether big or small scale, banks participate in the currency markets from the point of view of managing their own foreign exchange risks and that of their clients. They also speculate in the currency markets should their dealer/traders have a particularly strong view of the market. What probably distinguishes them from the other players is their unique access to the buying and selling interests of their clients. This knowledge can provide them with insight to the likely buying and selling pressures on the exchange rates on a particular day or other small timeframe.

Deals are transacted by telephone with brokers (we will talk about these people later) or via an electronic dealing terminal connection to their counter party. The usual transaction time is somewhere between 5 and 10 seconds. The skills of the foreign exchange dealer demands agility of reflexes and decisiveness, particularly when we are talking about transaction sizes of multi-million dollar amounts.

The ostensible role of the foreign exchange dealing desk in a bank or other financial company is to make profits trading currency directly and in the managing of in-house and clients’ trading positions. However, their roles will also include periodic hedging or arbitrage opportunities.

Brokers

The foreign exchange broker acts as an agent in the same way that a stockbroker acts in the equities market. The slight difference being that they usually confine their activities to acting between interbank market participants and they do not accept orders from corporate clients.

Through their extensive and direct electronic contacts with the banks, brokers take and match currency buying and selling orders of their bank clients. Of course, this is done for a fee. The value to the banks using this service is that it is usually done quickly because orders can be placed and dealt in a matter of seconds, and it avoids the bank having to deal on a competitor’s price and pay the ‘spread’ on the transaction.

Many of these brokering functions have been significantly computerized, cutting out the need for human handling of the orders.

Central Banks

The majority of developed market economies have a central bank. The role of a central bank tends to be diverse and can differ from country to country. In Singapore for instance, it is the Monetary Policy of Singapore (or MAS for short) and is charged with the responsibility of maintaining an orderly market for the national currency, which is known as the Singapore dollar.

In a practical sense this involves monitoring and checking the prices dealt in the inter-bank market. Sometimes, they even ‘test’ market price by actually dealing to check the integrity of the quoted prices. In extreme circumstances where the central bank feels prices are out of alignment with broad fundamental economic values, the central bank may ‘intervene’ in the market to influence its level directly. The intervention can take the form of direct buying to push prices higher or selling to push prices down. Another tactic that is adopted is stepping into the market and ‘jawboning,’ or commenting in the media about its ‘preferred’ level for the currency.

Bankers, fund managers and companies all tend to respect the opinions of the central banks (if not always agreeing) as their sheer financial power to borrow or print money gives it a huge say in the value of a currency. The opinions and comments of a central bank should never be ignored and it is always good practice to follow their comments, whether it in the media or on their website.

Corporations

As the name implies, this represents companies and businesses of any size from a small importer/exporter to a multi-billion dollar cash flow enterprise that are compelled by the nature of their business to engage in commercial or capital transactions that require them to either purchase or sell foreign currency.

Fund Managers

These participants in the currency markets are basically international and domestic money managers. They tend to deal in the hundreds of millions, as their pools of investment funds tend to be very large. Because of their investment charters and obligations to their investors, they are constantly seeking the best investment opportunities for those funds.

In short, they invest money across a range of countries and class of investments on behalf of a range of clients including pension funds, individual investors, governments and even central banks. This segment of the foreign exchange market has come to exert a greater influence on currency trends and values as time moves forward.

Hedge Funds

This is a special class of fund manager and has come to be referred to by their more appropriate name of ‘absolute return funds.’ These high-end funds are generally more concerned with managing the total risk of a pooled investment, than just relative performance, which preoccupies traditional fund managers. They tend to be more aggressive in their investment approaches, and will be found adopting investment strategies such as borrowing to realize leverage potential and will exploit the use of derivatives. But they are relatively small (though high in profile) in comparison to traditional funds.

Major Dealing Centers

This list of participants does not necessarily reside in the one geographic center. Indeed, as the global Forex clientele is quite dispersed and, as a consequence, so is the market as a whole. When it comes to Forex it is simply not possible, as is the case for the equities markets, to be located on particular formal exchanges or national center points. In practice, the foreign exchange market is made up of a network of dealers and traders clustered in various hubs around the globe. They are linked via computer terminals, telex, telephone and even the Internet or Internet-based dealing platforms to form a diverse global market where prices and information are freely exchanged. Simply put, there is no single ‘center’ in this market.

Despite this, the foreign exchange market has prominent and major dealing centers located in London, New York and Tokyo. We generally call these the ‘major centers,’ not just because of the sheer size of the volumes and number market participants in their vicinity, but also because the happenings in these places tend to influence other dealing centers around the world.

These other smaller centers include such cities as Sydney, Singapore, Hong Kong, Switzerland and Frankfurt and they tend to take up the remaining balance of traded global currency flow. Thus, these three main and five minor trading centers are the major regions that set the pace of currency transaction across the globe.

Now, it is also worth mentioning that this list has practical implications for Forex dealing regardless of ones level of sophistication. It forces everyone, including the small retail trader to be aware of the most recent leading center’s trading activity. In the case of a Forex trader in Asia, it means at the start of the trading day, looking to the U.S. market action will give some clue as to the likely direction of the local morning session. A few hours into the session, it is normal to keep an eye on the course of action emanating from the Tokyo market, which is to our north as it takes its part in influencing the course of Asian currency trading trends.

Do not forget, the above applies not just to market activity, but also inactivity. So if these centers are together or separately on holiday, do not be surprised when trading tends to go quiet. Holidays, like economic statistics have a bearing on the general flow or lack of business and price activity. Hence it is a good idea to keep a calendar of major international holidays near when doing your market research and within easy reach to help you recall them in planning particular trades.

The Inter-Bank World and Direct Dealing

To be considered a foreign exchange market marker, a bank must be prepared to quote a two-way price (i.e. a bid and offer). Of course, the bid is the market makers ‘buying’ price and their offer price is their ‘selling’ prices to all enquiring market principals, whether or not they are themselves market makers in a particular currency. The price rates are quoted over the telephone, electronically via digital dealing platforms or, less frequently nowadays, by telex to dealers in other countries.

Market markers ‘earn’ their money by the difference between their buying price and their selling price, which is called their ‘spread’ and these spreads are extremely fine for large inter-bank parcels. For instance, in the $Australian dollar on a parcel of say 10 million $US dollars, the spread is only ‘5’ in the fourth decimal place. In such a case, it is quoted as 0.8005 / 10, the difference between the two prices adds up to $5,000 (US) dollars profit to the market maker.

This is an example of a typical Reuter’s terminal based conversation. It shows how clipped the conversations sometimes are between inter-bank dealers. It may also look a little like jargon. However it not really that hard to follow once you understand the basic intention of either side.

Briefly, Bank A in this conversation is the price taker, that is, he/she is asking for Bank B’s price in the Australian dollar versus the US dollar, simply by saying ‘oz.’ The amount that they wish to transact is 10 million Australian dollars as the base currency in the quote.

The answer that Bank B provides is simply the two-way price quote as the last two decimal places. In this case, it is ‘5 –10.’ However to avoid ambiguity, Bank A has requested confirmation of the big figure of the price. Bank B responds with 8005- 10, which is the long form of the price.

At this point Bank A states what ‘side’ it would like to deal; ‘at 5’ meaning the bid side. Now, we know that Bank A wants to sell 10 million Australian dollars at 0.8005 US per Australian dollar. Bank B confirms the deal as ‘done’ and politely thanks him. Bank A simply replies with ‘bye bye for now’ short formed to ‘bibifn.’

The New Generation of FX Brokering and Trading

One of the great challenges to the institutional foreign exchange market ha s been the emergence of the Internet and Internet based trading platforms. Not just in terms of enabling access to Forex markets for the retail trader and investor, these changes have challenged the very domain of the institutional investor and how they handle their foreign exchange business.

On the electronic brokering side, systems like EBS, which is short for ‘electronic brokering system’ and price information vendors like Reuters are providing computer platforms where bank dealers and traders can input their prices directly into the computer without the need for a human broker to take their prices down. This is the process of collecting prices from all contributing banks automatically. And because of the instantaneous method of these platforms, prices are not just indicative, but they are the actual dealing prices. This has, in turn, significantly increased the speed of the process of price discovery and also contributed to the market’s overall transparency, while at the same time reducing the costs to participating banks.

Online Portals and the Rise of Electronic Brokers

As if the changes in the Forex brokering industry were not enough, increasingly and with the unstoppable advances in technology, as evidenced by the emergence of electronic brokering platforms such as EBS and Reuter’s dealing systems, the task of customer/order matching is being systematized. This has led to the entire human element of the brokering process being virtually dispensed with altogether. This does not mean that humans do not decide to put on an order or take them off – that still stays – but the people involved between when an order is put to the trading system up until when it is dealt and matched by a counter party is being reduced by technology. This is called ‘straight through processing’ or, in other words, the automatic processing of an order as soon as it becomes ‘live.’

Forex Internet portals do this automated processing and, in doing so, they have made Forex trading available to a much wider audience of traders and not just bank traders either. Because of the competitive pressures of the market place, Forex participants of all types are being given a choice of available trading and processing systems for all scales of transactions. Some these new trading platforms include FXall, FXconnect, Atriax, hotspotfx.com, and all of them are easily available on the web for your further research.

These portals provide a crucial step for the retail trader. They allow foreign exchange market participants (importantly the corporations and fund managers) to by-pass bank dealers in being able to access the market for foreign exchange directly. This cuts out the middleman and reduces costs substantially.

These platforms are undeniably in their market infancy and for this reason, they exhibit a large diversity of available structures. For example, a bank usually manages a bi-lateral Forex platform, but the prices that displayed are those of its customers. Conversely, a multi-lateral system has no managing bank or agent and is purely an unofficial foreign exchange trading system. Naturally, there are regulatory and privacy issues in dealing with these innovative platforms and their offerings, but certainly in the absence of a worldwide ban, they have emerged as a market fact of life that is probably here to stay. One thing is certain though; the marketplace for foreign exchange has changed allowing the retail Forex trader to participate and to actively trade Forex.

Conclusion

The global currency markets are inhabited, but not necessarily controlled by banks. Other players include brokers, corporations, fund managers, hedge funds and central banks as well as retail investors. Though their scale is huge compared to the average retail Forex trader, their concerns are not dissimilar to those of the retail speculators. Whether a price maker or price taker, both seek to make a profit out of being involved in the Forex market.

We saw how market makers in the financial markets are forced to provide competitive twoway prices to their clients and are not immune to the technological changes afoot in the industry. These changes pave the way for a lot of interbank dealing now being brokered electronically using various platforms. A phenomenon that merely mirrors what is already seen at the retail level of Forex trading as the benefits of the new technologies spread democratically.

Forex Trading Regulation

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Other Issues to Consider

In addition to understanding how the off-exchange forex market works and some of the risks associated with this product, there are other unique features about the market that you need to understand before you decide whether to invest in this market and which dealer to use.

Who regulates off-exchange foreign currency trading?

The CFTC has some regulatory authority over retail off-exchange forex markets. The Commodity Exchange Act (CEA) allows the sale of OTC forex futures and options to retail customers if, and only if, the counterparty (the person on the other side of the transaction) is a regulated entity. These regulated entities include the following: financial institutions, such as banks and savings associations, registered broker-dealers and certain of their affiliates, registered futures commission merchants (FCMs) and certain of their affiliates, certain insurance companies and their regulated affiliatess financial holding companies, and investment bank holding companies. Under the CEA, the CFTC has the authority to shut down any unregulated entity that acts as a counterparty to forex futures oroptions transactions with retail customers. The CFTC also has the authority to take action against registered FCMs and their affiliates for violating the anti-fraud and anti-manipulation pro-visions of the CEA in connection with OTC forex transactionsinvolving retail customers, but the CFTC cannot adopt rules toregulate these transactions. NFA has rules to protect customers in the retail off-exchange forex market. As mentioned later in this article, firms that introduce customers to forex dealers do not have to be regulated enti-ties. NFA’s rules provide, among other things, that a forex dealer FCM must take responsibility for the activities of unregulated entities that solicit retail customers. Additionally, NFA’s rules require forex dealer FCMs to: observe high standards of commercial honor and just and equitable principles of trade in connection with the retail forex business; supervise their employees and agents and any affiliates that act as counterparties to retail forex transactions; maintain a minimum net capital requirement based on the value of open customer positions; and collect security deposits from those customers. NFA’s forex rules do not apply to all FCMs and their affiliates, however. Therefore, you should ask the dealer if NFA regulates its forex activities.

The Risks of Trading in the Forex Market

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Although every investment involves some risk, the risk of loss in trading off-exchange forex contracts can be substantial. Therefore,if you are considering participating in this market, you should understand some of the risks associated with this product so you can make an informed decision before investing. As stated in the introduction to article, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital – i.e., funds you can afford to lose without affecting your financial situation. There are other reasons why forex trading may or may not be an appropriate investment for you, and they are highlighted below.The market could move against you. No one can predict with certainty which way exchange rates will go, and the forex market is volatile. Fluctuations in the foreign exchange rate between the time you place the trade and the time you close it out will affect the price of your forex contract and the potential profit and losses relating to it. You could lose your entire investment You will be required to deposit an amount of money (often referred to as a “security deposit” or “margin”) with your forex dealer inorder to buy or sell an off-exchange forex contract. As discussed earlier, a relatively small amount of money can enable you to hold a forex position worth many times the account value. This is referred to as leverage or gearing. The smaller the deposit in relation to the underlying value of the contract, the greater the leverage. If the price moves in an unfavorable direction, high leverage can produce large losses in relation to your initial deposit. In fact, even a small move against your position may result in a large loss, including the loss of your entire deposit. Depending on your agreement with your dealer, you may also be required to pay additional losses. You are relying on the dealer’s creditworthiness and reputation. Retail off-exchange forex trades are not guaranteed by a clearing organization. Furthermore, funds that you have deposited to trade forex contracts are not insured and do not receive a priority in bankruptcy. Even customer funds deposited by a dealer inan FDIC-insured bank account are not protected if the dealer goes bankrupt.There is no central marketplace Unlike regulated futures exchanges, in the retail off-exchange forex market there is no central marketplace with many buyers and sellers. The forex dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price. The trading system could break down If you are using an Internet-based or other electronic system to place trades, some part of the system could fail. In the event of a system failure, it is possible that, for a certain time period, you may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. A system failure may also result in loss of orders or order priority. You could be a victim of fraud. As with any investment, you should protect yourself from fraud. Beware of investment schemes that promise significant returns with little risk. You should take a close and cautious look at the investment offer itself and continue to monitor any investment you do make.

Calculating Profit and Loss

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For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is derived.

To illustrate a typical FX trade, consider the following example.

The current bid/ask price for EUR/USD is 1.2320/23, meaning you can buy 1 euro with 1.2323 US dollars or sell 1 euro for 1.2320 US dollars.

Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.

So you make the trade: to buy 100,000 euros you pay 123,230 dollars (100,000 x 1.2323). Remember, at 1% margin, your initial margin deposit would be $1,232 for this trade.

As you expected, Euro strengthens to 1.2395/98. Now, to realize your profits, you sell 100,000 euros at the current rate of 1.2395, and receive $123,950.

You bought 100k Euros at 1.2323, paying $123,230. You sold 100k Euros at 1.2395, receiving $123,950. That’s a difference of 72 pips, or in dollar terms ($123,950 - $123,230 = $720).

Total profit = US $720

(TIP: When trading EUR/USD or any Euro cross e.g. EUR/JPY, each pip is worth $10, per 100,000 trade).

Understanding Forex Quotes

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Reading a foreign exchange quote may seem a bit confusing at first. However, it's really quite simple if you remember two things: 1) The first currency listed first is the base currency and 2) the value of the base currency is always 1.

The US dollar is the centerpiece of the Forex market and is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair. For example, a quote of USD/JPY 110.01 means that one U.S. dollar is equal to 110.01 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote we previously mentioned increases to 113.01, the dollar is stronger because it will now buy more yen than before.

The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.7366, meaning that one British pound equals 1.7366 U.S. dollars.

In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one Euro is equal to 127.95 Japanese yen.

When trading forex you will often see a two-sided quote, consisting of a 'bid' and 'offer'. The 'bid' is the price at which you can sell the base currency (at the same time buying the counter currency). The 'ask' is the price at which you can buy the base currency (at the same time selling the counter currency).

Profiles of the Major Currencies: The Euro (EUR)

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Economic Overview

The Euro is the official currency of the 12 European Union member states. These are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Slovenia is scheduled to join the Eurozone in 2007.

The Euro is the single currency for more than 300 million people in Europe.

The European Union (EU) is an intergovernmental and supranational union of 25 democratic member states. It is the world's largest confederation of independent states, established under that name in 1992 by the Treaty on European Union (the Maastricht Treaty). However, many aspects of the Union existed before that date through a series of predecessor relationships going back to 1951.

Leading Export Markets for the EU are:

1. The United States
2. Switzerland
3. Japan
4. Poland
5. China

Leading Import Countries:

1. The United States
2. Japan
3. China
4. Switzerland
5. Russia

Like the US, the EU is primarily a services oriented economy.

The European Central Bank (ECB) is one of the world's largest central banks and is in charge of monetary policy for the the Euro. The ECB was established on June 1, 1998 and is headquartered in Frankfurt, Germany.

In 1999 Wim Duisenberg, the former president of De Nederlandsche Bank, and former finance minister of the Netherlands became the first president of the ECB.

In November 2003 Jean-Claude Trichet followed and is still president today.

The ECB strives to achieve price stability. Price stability is defined as an increase of the Harmonized Index of Consumer Prices (HICP) of below 2%.

HICP is an inflation indicator provided by Eurostat used by the European Central Bank. Eurostat has published the index since 1995. The ECB aims to keep consumer price inflation in a range of 0 to 2 percent.

The second main measure of monetary growth is M3.

M3 is a measure used to guage the entire supply of money within an economy. The ECB closely monitors M3 as it is seen as an important indicator of inflation.

The ECB has a "reference value" of 4.5% annual growth for M3.

The ECB holds a Council meeting every other Thursday to make announcements on interest rates. At each first meeting of the month, the ECB holds a press conference where it presents its outlook on monetary policy and the economy as a whole.

If considered a single unit, the European Union has the largest economy in the world, with a GDP of 12,427,413 million USD (2005) using Purchasing power parity (PPP) equivalence.

The EU's economy is expected to grow further over the next decade as more countries join the union — especially given that the new states are normally poorer than the EU average, and can grow at a higher rate.

EU member states have agreed a program called the Lisbon Strategy which aims at making "the EU the world's most dynamic and competitive economy" by 2010.

As the Euro has become a more established currency and the EMU has increased it's members, the Euro's importance as a reserve currency has increased. Foreign banks are expected to increase their reserves of Euro holdings, which should cause an increased demand for the currency.

At the end of the 1990's, 65% of all world reserves were held in US Dollars - however a shift has started to favor the Euro as a foreign reserve currency.

Characteristics of the Euro

The ECB’s refinancing rate is the Bank’s key short-term interest rate used for managing liquidity. The difference between the refinancing rate and the US Fed Funds rate is a good indicator for the EUR/USD.

The EUR/USD cross is the most liquid currency. Its movements reflect the economic wellbeing of the European and US economies. EUR/JPY and EUR/CHF are also highly liquid and reflect the state of the Japanese and Swiss economies.

The spread between the US Ten Year Note and the German Bund can give some insight into the movement of the euro. If the bund interest rate is higher, and increasing, this is bullish for the euro.

The euro interbank offer rate or Euribor is another useful interest rate to watch. The Euribor is the rate offered from one large bank to another on interbank term deposits. Comparing the rates between Eurodollar futures and Euribor futures can give an idea of the movement of the Euro - as the spread widens in favor of Euribor this suggests money will flow into the Euro.

The EUR/USD exchange rate is sometimes impacted by movements in cross exchange rates (non-dollar exchange rates) such as EUR/JPY or EUR/JPY. For example EUR/USD could fall as a result of significantly positive news in Japan, that filters through a falling EUR/JPY rate. This is known as the 'cross rate effect'.

Economic Indicators

The largest countries in the EMU are France, Germany and Italy. It is particularly important ot watch GDP, inflation and unemployment for these countries.

The most important economic data is from Germany, the largest economy, and from the euro-wide statistics.

German Industrial Production

Importance: Highest.
Published by: Federal Statistics Office, Germany.
Frequency: Monthly.
Release Time: 11 AM Continental Time during the Second Week of the Month
Coverage: Activity of two months prior.
Web: http://www.destatis.de/indicators/e/tkpi111x.htm
Revisions: Cover the two prior months, if there are any.

The German Industrial Production release reflects the industrial output of Europe's largest economy and is an important leading indicator of Europe's economic wellbeing. Further, as the world's second largest exporter, German Industrial Production is an indicator of global importance.

German IFO Business Survey

Importance: High.
Published by: IFO Institute for Economic Research.
Frequency: Monthly.
Release Time: 10 AM Continental Time during the Final Week of the Month
Coverage: Same month as the release.
Web: http://www.cesifo-group.de/portal/page?_pageid=36,34759&_dad=portal&_schema=PORTAL
Revisions: Rare

The German IFO Business Survey provides an assessment of the current and upcoming economic climate - and is derived from the feedback of over 7,000 German Business Leaders. It is seen as a leading indicator of both the German and the European economy's wellbeing. The data in the report is fresh - covering the same month as it's release.

The report includes the total IFO Business Climate Index and two subcomponents - the present situations index (which covers current economic conditions) and the expectations index (which attempts to forecast economic conditions). The European markets are most sensitive to the expectations index.

German Consumer Price Index (CPI)

Importance: High.
Published by: Federal Statistics Office, Germany.
Frequency: Monthly.
Release Time: 7 AM Continental Time. The Preliminary CPI is published around the 25th of each month and the final numbers are released two weeks later.
Coverage: Preliminary CPI covers the same month and Final CPI covers the prior month.
Web: http://www.destatis.de/indicators/e/pre110je.htm
Revisions: The report may contain revisions for prior months.

This release is the principle price inflation gauge for Germany. The German Consumer Price Index influences the European economy and also the the policies of the European Central Bank (ECB), which sets short term interest rates in Euroland.

Compiled by the Federal Statistics Office, CPI measures the average change in prices for all goods and services bought by households for the purpose of consumption. Normally the markets are most sensitive to the preliminary release - this is because these numbers seldom differs much from the final numbers.

From Germany in particular, the IFO survey is a very important indicator of business confidence.

Also important are the budget deficits of the individual countries, which according to the Stability and Growth Pact, must be kept below 3% of GDP. Countries also have targets for reducing their deficits further, and failure to meet these targets will be bearish for the euro.

Profiles of the Major Currencies: The US Dollar (USD)

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Economic Overview

The United States has the worlds largest national economy. Gross Domestic Product (GDP) for 2005 was valued at 12.42 trillion dollars. The major sectors that make up US GDP are services (79.4%), industry (19.7%), agriculture (0.9%).

The highly liquid US equity and fixed income markets has increasingly attracted foreign investors. If foreign investors withdraw their US investments to seek better returns elsewhere, this will cause a drop in the value of the USD.

The US has the highest volume of imports and exports in the world.

The principle US export partners are Canada 24%, Mexico 14%, Japan 7%.

The principle US import partners are Canada 20%, Mainland China 15%, Mexico 10%, Japan 9%, Germany 5%.

Currently the US is experiencing a very large current account deficit. Funding the deficit has become a larger problem as foreign reserve banks consider exchanging dollar reserve assets for euros.

The US represents approximately 20% of world trade. A weaker dollar could boost exports and a stronger dollar may stiffle demand for US exports.

Monetary Policy

The US Central Bank, th Federal Reserve (Fed) sets the monetary policy for the US and makes decisions through the Federal Open Market Committee (FOMC).

Current Members are:

* Ben Bernanke, Board of Governors, Chairman
* Timothy F. Geithner, New York, Vice Chairman
* Susan Schmidt Bies, Board of Governors
* Jack Guynn, Atlanta
* Randall S. Kroszner, Board of Governors
* Donald Kohn, Board of Governors
* Jeffrey M. Lacker, Richmond
* Frederic S. Mishkin, Board of Governors
* Sandra Pianalto, Cleveland
* Kevin M. Warsh, Board of Governors
* Janet L. Yellen, San Francisco

The Fed's objective is to contain inflation and encourage long term economic growth. To achieve this the Fed uses Open Market Operations and the Fed Funds Rate.

Open market operations refer to a central bank controling its national money supply by buying and selling government securities, or other instruments. The Fed buying government securities raises bond prices and decreases interest rates, and the Fed selling government securities does the inverse.

The federal funds rate is the most important interest rate and refers to the rate at which depository institutions lend balances to each other for overnight loans. The Fed increases this rate in order to contain inflation, or decrease it to stimulate growth.

The USD in the Forex Market

Over 90% of currency deals include the dollar. The most liquid currency pairs all include the dollar: eur/usd, usd/jpy, gbp/usd and usd/chf.

The USD has an inverse relationship with Gold. One of the major reasons for the rally in gold prices is a result of dollar depreciation stemming from issues of geopolitical instability, notably the attacks of 9/11 2001. Prior to 9/11 the USD had a stronger reputation as a safe haven currency.

Many emerging markets currencies are pegged to the USD. Here, the governments agree to buy or sell any amount of their currency at a fixed rate for the reserve currency of US dollars. The governments are obliged to hold reserves in dollars at least equal to the amount in circulation. As a consequence the central banks of these countries are large holders of US dollars. If these central banks diversify their reserves with euros this will have a negative effect on the value of the dollar.

The difference in bond yields between US and foreign bonds is important to follow. Investors are naturally looking for the highest yields, and if for example US yields decline investors will sell their US bonds and buy foreign bonds - to do this they will need to sell US dollars and buy the foreign currency which will force the dollar lower.

The US Dollar Index

The US Dollar Index (USDX) is a futures contract offered by the New York Board of Trade. It is a trade-weighted average of six foreign currencies against the dollar. Currently, the index includes euros (EUR), Japanese yen (JPY), British pounds (GBP), Canadian dollars (CAD), Swedish kronas (SEK) and Swiss francs (CHF).

USDX broadly reflects the dollar's standing compared to the other major currencies of the world. It is widely used to hedge risk in the currency markets or to take a position in the US Dollar without having the risk exposure of a single currency pair.

The US Dollar Index allows the fx trader a feel for what is going on in the currency market globally at a glance. If the Dollar Index is trending lower, then it is likely that a major currency that is a component of it is trading higher.

Relationship of the Financial Markets to the Dollar

A strong US equities market is bullish for the dollar, as the dollar is bid up by foreigners buying it to participate in the market. High yields in the fixed income market will also attract foreign investment and boost the dollar. The Dow 30 has the greatest influence on the dollar, and closest positive correlation.

Cross Rate Effect

A cross is a curency pair that does not include the dollar. The dollar’s value against one currency can be influenced by another currency pair that may not involve the dollar. For example, a sharp rise in the yen against the euro (falling EUR/JPY) may cause a broad decline in the euro, including a fall in EUR/USD.

3-month Eurodollar Deposits

A Eurodollar is a dollar denominated deposit held in a bank outside of the United States. The interest rate on 3-month dollar-denominated deposits held in banks outside the US is a valuable benchmark for determining interest rate differentials to help estimate exchange rates. Taking for example USD/JPY, the greater the interest rate differential in favor of the eurodollar against the euroyen deposit, the more likely USD/JPY will receive a boost.

10-year Treasury Note

FX markets usually refer to the 10-year note when comparing its yield with that on similar bonds abroad such as the Bund - the German 10-year bond, the 10-year JGB in Japan and the 10-year gilt in the UK (10-year gilt).

The difference in yields between that of the US 10-year Treasury note and that of other bonds impacts the dollar exchange rate. A higher US yield usually strengthens the dollar as it attracts international investment.

Economic Indicators to Follow.

The most timely and broad indicator of economic activity and overall economic health is the Employment Report.

Importance: Highest.
Published by: Bureau of Labor Statistics, U.S. Department of Labor.
Frequency: Monthly.
Release Time: First Friday of the month at 8:30 ET
Coverage: Prior Month.

The most important economic indicator. The most closely watched parts of this report are the nonfarm payrolls number and the unemployment rate.

Market Reaction:

Event	Fixed Income	Equities	Dollar
Payroll Employment Up	Bond Market Down	Stock Market Up	Dollar Up
Unemployment Rate Up	Bond Market Up	Stock Market Down	Dollar Down
Payroll Employment Down	Bond Market Up	Stock Market Down	Dollar Down
Unemployment Rate Down	Bond Market Down	Stock Market Up	Dollar Up

The most important quarterly release is Gross Domestic Product (GDP) - the best overall barometer of economic activity.

Release Date: Last Day of the Quarter
Release Time: 8:30AM EST
Coverage: Previous Quarter
Released By: Commerce Department

Market Reaction:

Event	Fixed Income	Equities	Dollar
GDP Up	Bond Market Down	Stock Market Up	Dollar Up
GDP Down	Bond Market Up	Stock Market Down	Dollar Down

The Consumer Price Index (CPI) is seen by many as the most important measure of inflation. The Consumer Price Index measures the price level of a fixed basket of goods and services purchased at a consumer level. This US indicator is closely watched by FX traders because it can cause alot of activity.

Importance: Moderate
Volatility: Moderate
Source: Bureau of Labor statistics, U.S. Department of Labor
Release Time: 8:30 ET, about the 13th of each month.
Coverage: Prior Month.
Web: http://stats.bls.gov/news.release/cpi.toc.htm

Market Reaction:

Event	Fixed Income	Equities	Dollar
CPI Up	Bond Market Down	Stock Market Down	Uncertain
CPI Down	Bond Market Up	Stock Market Up	Uncertain

The Relationship between Commodities and the Foreign Exchange Market

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Gold and oil in particular have an important relationship with the forex market, and can be used as leading indicators in forex trading. Four major currencies are considered to be the closest tied to commodity prices - the Australian Dollar, the Canadian Dollar, the New Zealand Dollar and the Swiss Franc.

Gold and it's relationship to the Forex Market

While the US is the world's second largest producer of gold, after South Africa, gold normally does not move in line with the US Dollar, rather they tend to have an inverse relationship. This is because during periods of geopolitical uncertainty traders tend to migrate away from the US Dollar and towards gold as a safe haven.

In the world of Forex, no major currency is considered to be as safe and stable as the Swiss Franc. The political neutrality of the Swiss and the fact that 40% of its currency reserves were previously backed by gold underpin the Swiss Franc's image as being a safe haven during periods of uncertainty. For these reasons the CHF/USD has a strong positive correlation with gold prices.

The AUD/USD, NZD/USD, USD/CHF currency pairs tend to trade in line with gold the closest, due to the other currency having close political and natural ties to gold.

Oil and it's relationship to the Forex Market

Canada's total crude oil reserves stand in second place behind Saudi Arabia. The Canadian Dollar is the currency most influenced by rising oil prices- if oil prices rise the CAD is likely to closely follow. Rising oil prices benefit the Canadian economy as it takes in more money for oil and raises profits for domestic oil companies. The US imports 85% of Canada's oil exports. Rising oil prices have in part caused the Canadian dollar to rise to a 28 year high against the US dollar.

Using Currency Correlations in Forex Trading

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Very often currency pairs are closely related to one another - and this is something that can be used to the Forex Traders advantage. Correlation analysis helps you understand these relationships. Positive and negative correlations between currency pairs are measured in decimal form - and they serve to reflect the extent to which the pairs 'trade in line' or diverge with eachother.

The closer the number is to 1, the stronger the positive correlation. Conversely - the closer the number is to -1 the stronger the negative correlation. Currency correlations are measured over a specific time periods, and it is important to bear in mind that these relationships reflected in the numbers will change over time.

Correlations can help a forex trader manage their risk exposure - by using a pair with a negative correlation as a hedge. A positive correlation between two currency pairs can be used as a leading indicator.

Indicators that most influence the dollars value

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1. Employment Report

Market Reaction:

Event	Fixed Income	Equities	Dollar
Payroll Employment Up	Bond Market Down	Stock Market Up	Dollar Up
Unemployment Rate Up	Bond Market Up	Stock Market Down	Dollar Down
Payroll Employment Down	Bond Market Up	Stock Market Down	Dollar Down
Unemployment Rate Down	Bond Market Down	Stock Market Up	Dollar Up

Employment news stongly impacts the dollar. A positive jobs report could drive interest rates higher, making the dollar interesting to foreign investors and increasing demand for the greenback. A weak jobs report is bearish for the stock market and puts a downward pressure on interest rates, both of which make the dollar less appealing to foreign investors.

2. International Trade Report

Importance: Moderate
Volatility: Moderate
Source: The Census Bureau and the Bureau of Economic Analysis of the Department of Commerce.
Release Time: 8:30 ET around the 20th of the month.
Coverage: Two months prior
Web: http://www.census.gov/foreign-trade/www/press.html

This report reflects trends in the overall trade balance. Export data reflect a strengthening competitive position at home and may also indicate that growing economies abroad are aiding U.S. growth. Imports reflect domestic demand, however this report is relatively late among consumption indicators. The volatility in the monthly trade balance can impact GDP forecasts. The Trade Report gives an early indication of the net export performance each quarter, a somewhat volatile component of GDP.

Event	Equities	Dollar
Trade Balance Up	Stock Market Up	Dollar Up
Trade Balance Down	Stock Market Down	Dollar Down

An improvement in the trade balance is favorable for the dollar - an increase in demand for US goods and services from foreigners will mean more dollars needed by the foreigners to pay for the US products and services.

A worsening trade deficit is bearish for the dollar - in order to buy foreign goods and services Americans have to sell dollars to buy the goods in the local currency.

3. Gross Domestic Product

Release Date: Last Day of the Quarter
Release Time: 8:30AM EST
Coverage: Previous Quarter
Released By: Commerce Department

GDP represents the total market value of all final goods and services produced in a country in a given year. It includes consumption, government purchases, investments, and the trade balance (exports minus imports). It is the broadest indicator of the economic output and growth, and probably the most important indicator of the economic wellbeing of a country.

Event	Fixed Income	Equities	Dollar
GDP Up	Bond Market Down	Stock Market Up	Dollar Up
GDP Down	Bond Market Up	Stock Market Down	Dollar Down

A strong US economy reflected in the GDP report is bullish for the stock market and could drive interest rates higher. Foreign investors will be attracted to opportunities in the stock market and also by the interest rates offered by higher yielding Treasury bills and bonds and these factors will increase demand for the dollar.

Tax Strategies for Forex Traders

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Forex, the foreign currency exchange market, can be a lucrative one indeed for traders skilled in its dynamics. This worldwide network of government central banks, commercial and investment banks, hedge funds, international corporations and brokerage firms enables traders to capitalize on the rise and fall of a currency dollar volume that exceeds $1.4 trillion every day, making it the largest and most liquid of the world markets.

But when income tax time rolls around, currency traders receive special treatment from the Internal Revenue Service, the subtleties of which can sometimes trip up the unsuspecting.

Here's a look at the tax landscape for forex traders, and why it may be a good idea to have a Traders Accounting tax professional help guide you through the twists and turns.

Futures and Cash Forex

Forex is traded in two ways: as currency futures on regulated commodities exchanges, which fall under the tax rules of IRC Section 1256 contracts, or as cash forex on the unregulated interbank market, which fall under the special rules of IRC Section 988. Many forex traders are active in both markets.

Because futures and cash forex are subject to different tax and accounting rules, it is important for forex traders to know which category each of their trades fall into so that each trade can be reported correctly to receive optimum tax advantage.

Section 1256: The Advantageous Split

Forex traders receive a significant tax advantage over securities traders under Section 1256: reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) allows you to split your capital gains on Schedule D, with 60%
taxed at the lower long-term capital gains rate (currently 15%) and 40% at the ordinary or short-term capital gains rate of up to 35%. That combined rate of 23% amounts to a 12% advantage over the ordinary (or short-term) rate.

If you trade exclusively in forex futures, it's smooth sailing come tax time; your trades fall under Section 1256 and automatically receive the 60/40 split.

But things get a little more complicated tax-wise if you dabble in cash forex, which is subject to Section 988 (Treatment of Certain Foreign Currency Transactions).

Section 988: To Opt Out or Not?

Section 988 was enacted as a way for the IRS to tax companies that earn income from fluctuations in foreign currency exchange rates as part of their normal course of business, such as buying foreign goods. Under this section, such gains or losses are reported and treated as interest income or expense for tax purposes, and do not receive the favorable 60/40 split.

Because forex futures do not trade in actual currencies, they do not fall under the special rules of Section 988. But as a currency trader, you are exposed daily to currency rate fluctuations, hence your trading activity would fall under the Section 988 provisions.

But because currency traders consider these fluctuations part of their capital assets in the normal course of business, the IRS enables you to opt out of Section 988, and thereby retain the favorable 60/40 split for these gains under Section 1256.

The IRS requires that you note "internally" your intention to opt out of Section 988 before making the trades; you are not required to notify the IRS. Obviously, some traders bend this rule based on their year-end outcome, and there seems little inclination on
the part of the IRS to crack down, at least so far.

As a rule of thumb, if you have currency gains, you would benefit (reduce your tax on gains by 12 percent) by opting out of Section 988. If you have losses however, you may prefer to remain under Section 988's ordinary loss treatment rather than the less favorable treatment under Section 1256.

Tax Time: Tougher for Currency Traders

Forex futures traders tend to breeze through tax time; their brokerage firm sends them an IRS Form 1099, on which their aggregate profit or loss is listed on Line 9.

But since currency traders don't receive 1099s, you are left to find your own accounting and software solutions. Don't be tempted to simply lump your currency trades in with your Section 1256 activity, a common temptation; these trades need to be separated
into Section 988 reporting, and in cases of loss, you could wind up paying more tax than necessary.

As a fast-growing market segment, forex trading is almost certain to come under greater IRS scrutiny in the future. An experienced Traders Accounting tax professional can help you file in full compliance with IRS rules and make the most of your tax advantages.

Chosing a Forex Broker - What to Look For

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Tight Spreads: Look for competitive spreads. This is the difference between the bid and offer and is measured in pips. This is what it will costs to enter a trade, since it is not possible to buy on the bid or sell on the offer in the Forex market.

Forex brokers are usually tied to large banks due to the large amounts of capital required for the leverage that they provide. While the forex market is unregulated, reputable brokers will be registered with the NFA.

Leverage is necessary because the price fluctuations are so small. It reflects the ratio between usable trading capital and the actual capital in your account. Some brokerages offer leverage as high as 250:1 – so in this case the broker is lending you 250 for every 1 dollar in your account.

When signing up for a forex trading account you will be required to sign a margin agreement. This states that due to the fact that you are trading with borrowed funds the brokerage has the right to interfere with your trading to protect its interests.

Forex Trading Systems

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Here are a few of the trading systems and signal services that cater to the Forex Market:

Global Forex Signals Real Time Forex Signals.

Fractal Finance Cubed Fractal Finance CUBED is the culmination of years of work in developing fractal based indicators, trading tools and techniques. As our flag ship product, Fractal Finance CUBED is designed for professional money managers, floor traders and speculators. Designed with the professional trading community in mind, Fractal Finance CUBED is modular and can be customized for specific trading applications.

TradeGuider Trading software and investment software that shows supply and demand based trading signals in any market, including stocks, forex & commodities. Our trading software gives you a significant edge over other traders and investors.

FXMaster.net Offers daily forex forecasting reports and SMS signals. Auto trading of Fxmaster signals is now available.

MCFX Features thousands of indicators and support for writing your own, strategy back-testing, high performance and reliability.