FOREX TRADING

Forex Market vs. Stock Market Useful Information

2009-11-24T00:21:00.001-08:00

The FX market is likewise better-known as the foreign exchange market. Dealing that takes place between two nations even if they have unique currencies thanks to the foundation of the FX market as well as the backdrop for the the dealing in this marketplace The forex marketplace is over 30 years old, founded in the early 1970’s that is not established on trading stock of any single business but the trading and selling of currencies.The main difference between the fx market and the stock market is the incredible amount of trading that takes place an amazing two trillion dollars or more can be traded each day A much higher amount than the money traded on any given country’s stock market. The forex market is one that involves multiple financial institutions within a country and those that are comparable to another countries institutions

Forex Tester 1.12a

2009-11-24T00:17:00.000-08:00

ForexTester is a professional software simulator of the Foreign Exchange Market (FOREX). This Forex Training Software is an excellent tool for studying trading in a fast and convenient way, to gain and improve trading skills without risking real money. As a trading simulator, it allows to make trades on history data, develop and test trading strategies. The speed of price updating is conveniently regulated, forward and backward options. We believe that it is the best for manual testing of trading ideas based on classical technical analysis. Provides trading statistics, etc. Includes popular indicators. Intuitive-friendly interface. Saving your time, taking away the necessity to wait hours and even days in real-time conditions for situation to turn out, it will open your eyes on market behaviour. You will be more progressive and effective in day-to-day life style. Time saving and fresh mind environment are more suitable to develop and examine trading strategies and acquire necessary trading skills

ENLAND FOREX BANK

2009-11-24T00:15:00.001-08:00

Dollar Lending Rates Rise
Dollar lending rates rose on the interbank forex market despite the announcement of plans for the US government to bailout the failing Citigroup bank. The LIBOR (London Interbank Offered Rate) rate for three month loans in dollars rose slightly from 2.16% Friday to 2.17 on Monday, Nov, 24th, 2008.
Increase in LIBOR Rate
The increase in the LIBOR rate is important for the interbank forex, the financial sector, and the wider economy. The LIBOR determines rates for loans to households, and businesses. Many mortgages and student loans are tied to the LIBOR rate and can have wide ranging effects on the day to day economy. The rate increase suggests that banks are worried that other financial institutions could collapse in a chaotic global economy

FOREIGN EXCHANGE MARKET

2009-11-24T00:11:00.001-08:00

Forex or Foreign Exchange market is the largest financial market in the world. This market has a daily average turnover of US$1.9 trillion dollars a day which is greater than the combined volume of all U.S. equity markets.

Foreign Exchange is a cash market in foreign currencies made by large banks. In this market, currencies are bought and sold and exchange rates are determined. Unlike the Stock Market, Forex works on a 24 hour clock allowing for after hours trading. The Forex Market allows you the freedom and flexibility to build your portfolio on your timetable not the Stock Exchanges.

Forex market trading does not occur on the Stock Exchange and is considered an Over The Counter market as is the NASDAQ. These transactions can occur electronically or over the phone

Smart Tips on Forex Trading Currency

2009-11-24T00:08:00.000-08:00

Trading in forex markets is essentially engaged with foreign stocks, currency and the products of these nations. The value of one country’s currency is weighed against the currency in a different foreign marketplace to decide the overall value. The final value of that currency is documented on every last trade made in the forex stock markets. It is sound that every last foreign market will assume possession over the worth of that countries value, involving the currency, or money. Those investing in the forex markets include banks, large business enterprises, governments and other financial firms

Currency Forex: Learn Online Trading Basics

2009-11-24T00:00:00.000-08:00

If you are interested in Forex trading, there are some basic things that you need to know before you actually sit down at the table and start working. The first and arguably most important of these things is that Forex trading can be done through long and short positions, allowing you to take a particular currency and either buy more of that currency or sell what you have of the currency in order to try and catch a particular trend that might be forming at that very moment. It is a volatile and difficult discipline to master, but fortunately for the millions of people that now trade Forex online from the comfort of their own homes, the entry level to become a Forex trader is not at all difficult to achieve.

The basic anatomy of Forex is mathematical in nature. Currency values within Forex are usually reported to the forth decimal figure as most of the currencies of the world have a sub-currency unit that is worth 0.01 of the overall currency. This therefore means that currency values within Forex are reported to the 1/100 of a cent (or other equivalent sub-currency unit) and that particular quantity is also known as a pip. Pips are the main mathematical unit within Forex trading and if you want to become a successful Forex trader over the long term you are going to have to get used to hearing about things talked about in terms of pips. Pip movements are what Forex trading is all about. If you have a currency valued at 1.0000 and that currency then moves to 1.0001, it is said to have made a pip movement of +1. Likewise, a move to 0.9999 would be a pip movement of -1.

When you sign up for a standard Forex online account, you are given the chance to deposit into your online account. Generally speaking, depositing around $3000 into that account will allow you to leverage on that amount and wager in the Forex market with around $100,000, most of which is loaned to you through the broker through a margin loan. If you do the math, you’ll be able to figure out that investing with $100,000 in the Forex market will mean that every pip is worth $10. If you gain 10 pips before you close the deal, you will have gained $100 in cash due to the fact that you were able to leverage the amount of money that you put into the system.

In the online world however, a standard account is not the only Forex account that is available for people to use. Online Forex brokers also offer micro accounts which are accounts that allow you to deposit an amount in the neighbourhood of $300 in order to control a larger amount of $10,000 when you make your investments. Pips in this area are worth $1, but the smaller amount of minimum deposit required to control these accounts makes them ideal as starting positions for novice Forex traders looking to get their feet wet in investing.

Global Forex Trading Understanding How The World Market Works

2009-11-23T23:27:00.000-08:00

If there is one truly significant difference between the Forex markets of the world and their counterparts in stocks, bonds, futures, commodities or any other trading market you can think of, it would have to be the fact that the Forex market is truly international. When you are trading stocks there are always going to be hurdles to investing in foreign companies and the same is true for futures, commodities and even land because the government has direct control over all of those things and it can exercise that control whenever it feels the situation warrants it.

The Forex market on the other hand is simply about exchanging one currency or another. Aside from limiting the amount of currency they have available and therefore limiting the liquidity in the marketplace, governments can do absolutely nothing to prevent international exchanges of currencies and for that reason when you trade with Forex, you are truly participating in global Forex trading in the most basic sense of the term.

Another advantage that the Forex market has that places it apart from all of the other trading markets is that it works around the clock. This is related to the point made in the previous paragraph about Forex trading being truly international. If you wake up at two in the morning and decide you want to sell or buy some stock in a company, you are out of luck until the start of the business day a full seven hours later.

You may be able to buy or sell the stock of companies in countries that are in their trading hours at the current moment in time, but even there you are going to be restricted as most countries place restrictions on how much of their private sector can be owned by foreign nationals. This is certainly true in the case of both the United States and China and they collectively represent more market share internationally than all of the other countries combined. Forex markets on the other hand are truly international and this means that when the United States is finished with its business day, the business day of countries in Asia is just starting. You can trade Forex around the clock if you want to and for someone looking for day trading opportunities that is a very helpful factor indeed.

In conclusion, it is important to appreciate the harmonization and synchronicity of the global Forex market because there is absolutely nothing else like it in any financial sector. The uniqueness of Forex trading is precisely what allows you to trade Forex from the comfort of your own home in your bathrobe and it is that same uniqueness that makes Forex trading so popular. The popularity of this type of trading injects more liquidity into the markets, making them look even more attractive and bringing in new investors in a self-perpetuating positive feedback loop. No other trading market in world history has ever had as stable a growth curve as the overall Forex market. And this, in the end, is what makes global Forex trading so special.

Risks of forex Trading

2009-11-23T23:19:00.000-08:00

mmon ways of minimizing risk when placing an entry order. A stop-loss order contains instructions to exit your position if the currency price reaches a certain point. If you take a long position (expecting the price to rise) you would place a stop loss order below current market price. If you take a short position (expecting the price to fall) you would place a stop loss order above current market price.

As an example, if you take a short position on USD/CDN it means you expect the US dollar to fall against the Canadian dollar. The quote is USD/CDN 1.2138/43 - you can sell US$1 for 1.2138 CDN dollars or sell 1.2143 CDN dollars for US$1.

You place an order like this:

Sell USD: 1 standard lot USD/CDN @ 1.2138 = $121,380 CDN
Pip Value: 1 pip = $10
Stop-Loss: 1.2148
Margin: $1,000 (1%)

You are selling US$100,000 and buying CDN$121,380. Your stop loss order will be executed if the dollar goes above 1.2148, in which case you will lose $100.

However, USD/CDN falls to 1.2118/23. You can now sell $1 US for 1.2118 CDN or sell 1.2123 CDN for $1 US.

Because you entered the transaction by selling US dollars (buying short), you must now buy back US dollars and sell CDN dollars to realize your profit.

You buy back US$100,000 at the current USD/CDN rate of 1.2123 for a cost of 121,223 CDN. Since you originally sold them for CDN$121,380 you made a profit of $157 Canadian dollars or US$129.51 (157 divided by the current exchange rate of 1.2123).

FOREX versus Futures Market

2009-11-23T23:14:00.000-08:00

There are several factors to consider when choosing between forex trading and futures contracts. We will review a few of these in this section.
Futures, the Futures Market and Futures Contracts

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

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

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

In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date. For example: A farmer agrees to deliver 1000 bushels of wheat to a baker at a price of $5.00 a bushel. If the daily price of wheat futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.

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

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

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

FOREX

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

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

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

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

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

forex Trading Fundamentals

2009-11-23T23:09:00.000-08:00

Online FOREX trading is a huge business

The Foreign Exchange Market – better known as FOREX - is a world wide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market Established

The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at 'floating' rates determined by supply and demand. The FOREX grew steadily throughout the 1970's, but with the technological advances of the 80's FOREX grew from trading levels of $70 billion a day to the current level of $1.5 trillion.

The FOREX is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange. There is no centralized location of FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' – loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.
There are many advantages to trading in FOREX.

· Liquidity - Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.
· Accessibility – The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.
· Open Market – Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no 'insider trading' in FOREX.
· No commission – Brokers earn money by setting a 'spread' – the difference between what a currency can be bought at and what it can be sold at.

How does it work?

Currencies are always traded in pairs – the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.

Top 10 Myths about Forex

2009-11-23T23:06:00.000-08:00

Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.

Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:

1. Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
2. "I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
3. "I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
4. "I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
5. No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
6. Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
7. "I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
8. "I need to use a very complex strategy to be successful in Forex." It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
9. "I need to have a lot of starting capital to get profit in Forex." Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
10. Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.

Knowledge is power — so it’s better for you to learn distinguishing some stereotypical myths from the real thing. Don’t fall for the promises of getting some easy profits in Forex, but don’t be afraid of the market just because some people think it’s not possible to earn there. Be rational — this quality will help you either if you are going to trade in Forex or not.

Top Ten Basic Terms in Forex Trading and Their Definitions

2009-11-23T22:07:00.000-08:00

Forex refers to the foreign currency exchange market, the world’s largest financial trading market. Some terms that help a person understand Forex trading include:

Bid – to buy

Ask – to sell

Liquidity – financial ease of transaction, i.e. cash

Trading volume – the amount traded

Bid/ask spread – the difference between the proposed buying price and the actual selling price

OTC – over the counter

Exchange rate – the difference between currency values; for instance, a Canadian dollar is valued at .86 of a US dollar

Hedge funds – large mutual funds companies that control vast amounts of money and are able to manipulate the value of a currency through speculation

Central bank – the national bank of a nation, which usually exerts control over the value of that currency

Forex trading is in essence the investment in the currency of one country. Large international corporations that do business in many nations find value in keeping their cash reserves in a variety of nations, and holding their funds in a variety of ways. For example, a US company may have a percentage of its working capital in US dollars, but if it does quite a bit of business in Europe may also find it beneficial to keep a percentage of its money in Euros, in European banks. Many individual investors over the years have discovered that there is profit to be made in investment and speculation in the currency or forex markets.

As an example, during the 1970’s the German deutchmark was changing rapidly in value. It was worth anywhere from 1.7 marks to the US dollar to 2.5 US marks to the dollar. When the mark was worth 2.5 it was beneficial to spend dollars buying marks, since the mark would buy more goods or services at that rate. When the mark was only worth 1.7 to the dollar there was less incentive.

The forex market itself is not unified. There are many small forex markets specializing in trading various currencies. The most commonly traded currencies in forex trading are the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro. The values of these currencies will vary depending on the market in which an investor is looking, so there is really no such thing as a single, unified dollar rate, but instead there are several dollar rates, which are different according to the market where the trade is occurring. The major cities in which trades occur are London, New York and Tokyo. This covers a 24 hour clock. When Asian trading ends, European trading beings, and when European trading ends, then American trading opens. Of course when American trading ends, it is time for Asian trading to open again, and so on.

The most commonly traded currency is the US dollar, involved in 89% of all trades. This is followed by the Euro involved in 37% of all trades, then by the yen in 20% and the pound in 17%. The fastest rising currency in trade is the Euro, but the US dollar is still widely considered the anchor point, and the currency to watch to judge how others will react. Differences in value of currencies come form the daily news. Changes n gross domestic product growth, in inflation, interest rates, budget and tirade deficits, surpluses and other economic conditions will cause changes in currency values. Investors and traders for this reason follow the news very closely. In fact, there are 24 hour cable news channels and many web sites devoted to news of value to currency traders.

It wasn’t long ago that the nation of Iran removed its currency from European investment banks. In anticipation of rising world tensions they removed their currency to become less vulnerable to freezing of their assets and to economic warfare, of which forex trading could be a part. The forex market is very susceptible to rumors. In fact the central banks of some countries have at times manipulated the value of their currency by spreading rumors about hikes in interest rates and other economic news that could have an impact on the value of the currency. When this news is false it is called a dirty float

FOREX TRADERS GUDIENCE

2009-11-14T02:06:00.000-08:00

I am still acting moderator for Tradingsuccess blog as some urgent matters have claimed our mentor to fly off again.
Since the August seminar at SMU is just over from last weekend, my post is aimed at the newbies again.
Many of the attendees may not be familiar with the history or terms for forex trading.
Forex or FX are terms used to describe the trading of the world’s many currencies. The Forex Market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative with a low percentage of market activity representing governments’ and companies’ fundamental currency conversion needs.
There is also another aspect to fixed income market. The term fixed income is used to describe a collection of securities which have predefined pay-out terms. An example is the CD or Certificate of Deposit when one deposits an amount of money and receives a given amount of money which includes both the original deposit plus interest earned at maturity.
Fixed income securities come in various maturity dates. Those with initial maturities of one year or less trade in what is the Money Market. This term comes from short-term instruments which are very liquid and often trade between banks. Money market instruments include Banker’s Acceptance or a Draft or Bill of Exchange, Municipal Notes, Certificates of Deposits, Treasury Bills, and Commercial papers.
Most of these instruments are out of the realm of the individual traders but a handful can be traded via the futures markets.
Since the fixed income market is driven by interest rates, ie prices are inversely related to yields, there are factors which impact on rates to influence prices. The biggest driver of these rates is monetary policy, which central banks make in respect to the level of domestic interest rates. Central banks directly control interest rates in the short-term at least, and they do have a heavy influence over the direction of interest rates.
Other less direct influencers are fiscal policy, general economic growth, employment, inflation and currency exchange rates and trades.

Foreign Exchange

2009-11-14T01:58:00.000-08:00

Foreign Exchange :- This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online. There are also two scenarios describing the implications of trading in a bear as well as bull market to better acquaint you with some of the risks and opportunities in the largest and most liquid market in the world.As an additional aid for those who are new to Forex, there is also a glossary at the bottom of this text which explains some of the terms used in connection with currency trading.
Overview : Foreign exchange, forex or just Forex are all terms used to describe the trading of the world’s many currencies. The forex market is the largest market in the world, with trades amounting to more than $1.5 trillion every day. This is more than one hundred times the daily trading on the NYSE (New York Stock Exchange). Most forex trading is speculative, with only a few percent of market activity representing governments’ and companies’ fundamental currency conversion needs.Unlike trading on the stock market, the forex market is not carried out by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.

MARKET SIZE AND LIQUIDITY

2009-11-14T01:38:00.000-08:00

Presently, the foreign exchange market is one of the largest and most liquid financial markets in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.
FX 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).
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 have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms). 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 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey. 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 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".
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 is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

HISTORY OF FOREX TRADING

2009-11-14T00:45:00.000-08:00

FOREX TRADING HISTORY:-
The history and evolution of the Foreign Exchange may be traced back to the early stages of human history. In the early days the goods were exchanged between individuals and the value of one good was expressed in terms of other goods. The limitations of this barter system encouraged traders to use other mediums such as stones, teeth etc. to determine the value of goods. These mediums soon to be replaced by precious metals in particular silver and gold thus providing an accepted way of payment in exchange of goods. It also had the many advantages such as storage and durability. The introduction of Roman gold coin followed by the silver one played a key role in the development of the trade and foreign exchange during the biblical times. Both coins gained a wide acceptance in Middle East and other parts of the world forming an elementary international monetary system.By the middle Ages, increased usage of bills encouraged the foreign exchange to become a function of international banking.The evaluation of the foreign exchange as briefly mentioned above was affected by many historical events. Study of such historical events is a personal choice. However with the attempts of governments to create a more stable economic environment for global trading and exchange, the last century witnessed some measures and events that shaped the current foreign exchange markets. The Gold Standard, 1816-1933;- Throughout the history, people began to realize the advantages of paper currency against the exchange of precious metals. Consequently stable governments eventually adopted paper currency and backed its value with gold reserves. This led to the introduction of gold standard.The 'gold standard' used the physical weight of gold as the standard value for the money and making it directly exchangeable in the form of the precious metal. In 1816 for instance, the pound sterling was defined as 123.27 grains of gold on its way to becoming the foremost reserve currency and was the principal component of the international capital market. This led to the expression 'as good as gold' when applied to the Sterling, as the Bank of England at the time gained stability and prestige as the premier monetary authority.Before the First World War, most Central banks supported their currencies with convertibility to gold. Paper money could always be exchanged for gold. However, for this type of gold exchange, a central bank coverage backing up the government’s currency reserves was not necessarily needed. When a group mindset fostered a disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks”. The combination of a greater supply of paper money without the gold to cover, led to devastating inflation and political instability.As economies strengthened, heavy import of gold was required until the gold reserves reached the required level to back the existing paper money. Gold import was leading shrinking of money supply, high interest rates and slow economic activity to the point of recession. Ultimately, prices of goods had hit bottom, appearing attractive to other nations, which would rush into buying sprees that injected the economy with gold until it increased its money supply, and drive down interest rates and recreate wealth into the economy. Such boom-bust patterns prevailed throughout the gold standard until the outbreak of World War I interrupted trade flows and the free movement of gold.The US dollar adopted the gold standard late in 1879 and became the standard-bearer replacing the British Pound when Britain and the other European countries came off the system with the outbreak of World War I in 1914. Eventually, though, the worsening international depression lead even the dollar off the gold standard by 1933 marking the period of collapse in international trade and financial flows prior to World War II. The Bretton Woods System, 1944-73;-Towards the end of World War II (July 1944) with the initiative of US, 45 countries met in a conference held in Bretton Woods, New Hampshire. The conference aimed to formulate a new international financial framework in order to prevent the reoccurrence of events such as the 1930s world depression and ensuring prosperity in the post war period. During the conference, John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar was rejected. Instead, it resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis. The Bretton Woods system formalized the role of the US dollar as the new 'global' reserve currency with its value fixed into gold and the US assuming the responsibility of ensuring convertibility while other currencies were pegged to the dollar. The post World War II period saw the British economy and confidence in ruins with infrastructure bombed, and their currency at a low. On the other hand, the US with its physical isolation was left relatively unharmed by war. This then has lead to the dollars rise to prominence becoming the reserve currency of choice and staple to the international financial marketsThe establishment of the Bretton-Woods Accord is usually thought to have marked the beginning of foreign exchange. It was made to stabilize the global economy after World War II. It not only created the concept of pegging currencies against each other, but also created the International Monetary Fund (IMF) as well.The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suited as the sole international currency when it was under severe pressure from increasing US budget and trade deficits. Up until its failure in 1971, the Bretton-Woods Accord did manage to stabilize the economies in Europe and Japan. The End of Bretton Woods and Floating Exchange Rates;- When Nixon suspended the gold convertibility in 1971, and the US dollar was no longer convertible into gold the Bretton Woods system finally went the way of history at the same time growing structural imbalances among the economies leading to mounting volatility and speculation in a one-year period, from June 1972 to June 1973. At the time the UK, facing deficit problems initially floated the Sterling, then devaluating further on in February of 1973 loosing 11 per cent of its value along with the Swiss Franc and the Japanese Yen. This eventually led to the European Economic Community floating their own currencies as well.By 1973, currencies of major industrialized nations became more freely floating, controlled mainly by the forces of supply and demand which acted in the foreign exchange market. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s, giving rise to new financial instruments, market deregulation and trade liberalization. The Introduction of the Euro;- The Europeans were already very comfortable with the concept of forex trading, where much of the rest of the world were still unfamiliar with the territory. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest for currency stability continued in Europe with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. The euro was the first single-currency used as legal currency for the member states in the European Union. It became the first currency able to rival the historical leaders in the Foreign Exchange market and create the stability that Europe and the forex market had long desired. In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in the latter part of 1997, where currencies were forced to float. Currency after currency was devalued against the US dollar. The devaluation of currencies continued to plague the currency trading markets, and confidence in the open market of forex trading was not sustained. Leaving other fixed exchange rates in particular in South America also looking very vulnerable. While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The size of the FOREX market now dwarfs any other investment market.The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values. In the 1980s, cross-border capital movements accelerated with the advent of computers and technology, extending market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later. Smithsonian Agreement and the European Joint Float;- At the core of Bretton Woods problems were deteriorating confidence in the dollars ability to maintain full convertibility and the unwillingness of surplus countries to revalue for its adverse impact in external trade. In 1971 and 1972 two more attempts at free-floating currency against the U.S. dollar, namely the Smithsonian Agreement and the European Joint Float were made. The first was just a modification of the Bretton-Woods accord with allowances for greater fluctuation, while the European one aimed to reduce dependence of their currencies on the dollar. After the failure of each of these agreements, nations were allowed to peg their currencies to freely float, and was actually mandated to do so by 1978 by the IMF. The free-floating system managed to hold out for several years, but many denominations had failed against the strong currencies.Several times efforts for reestablishing controlled systems were undertaken with varying levels of success, the most well known of which Europe's Exchange Rate Mechanism of the 1990's that eventually lead to monetary union and today's 12 nation Euro. By that time the currency trading opportunities had begun to be enjoyed by not only those familiar with the Foreign Exchange market, but to people interested in investing in new markets.