forex: 2009

Friday, September 25, 2009

FOREX Trading Strategy - The Secret of Timing

Once you¡¯ve identified a trading opportunity, the next step is to decide EXACTLY when to buy - and this is where many traders go wrong.

Here we explain how to incorporate better market timing into your FOREX strategy - so that you can make bigger profits.

Most traders time their entry levels incorrectly, so here¡¯s the right way to do it:

Using Support and Resistance Correctly

A basic wisdom of market timing is ¡°buy low, sell high¡± - well, the reality is, if you try this in FOREX trading, you¡¯ll end up losing money. First, let¡¯s define what support and resistance means

A support level is a historical price that traders come in, and buy to ¡°support the market¡± ¨C and the more times it¡¯s tested, the more valid the support will be.

Conversely, a resistance level is a level on the charts that ¡°resisted prices from moving higher¡±- again the more times it¡¯s tested, the more significant it becomes.

Why Buy Low and Sell High doesn¡¯t Work

¡°Buy low, sell high¡± is accepted wisdom by the majority of traders - but this logic is fundamentally flawed - use it in FOREX trading, and you¡¯re asking for trouble. Why? - If you wait for a pullback, you¡¯re going to miss some of the biggest moves.

Think about it - what if a currency starts to trend and doesn¡¯t pullback? (How often have you seen this?) If you¡¯re waiting for a pullback that never comes, you¡¯ll never get in on the trade ¨C and you¡¯ll miss a major opportunity.

You Need to Feel Uncomfortable

When Trading in the FOREX market, you should usually feel uncomfortable (and that¡¯s why most traders don¡¯t make these trades) - as no one likes to buy or sell after the market has started trending - but doing this will make you money.

The fact is, the more comfortable you feel when entering a trade at support, the less likely the trade will be a big winner.

During any given year, most of the big moves in currencies, take place from new MARKET HIGHS with NO pullback.

If you base your FOREX Trading strategy around waiting for a warm comfy entry, at key support, you¡¯re going to miss the biggest and most profitable trades ¨C so step away from the losing majority of traders.

Your FOREX trading strategy should give you a different mindset - most traders ¡°buy low and sell high¡± - so you should ¡°buy high and sell higher¡± ¨C i.e. you should be doing the opposite of what the crowd are doing.

Don¡¯t worry - most traders lose money, and their FOREX Trading strategy is based on the flawed logic we have just discussed - so not doing what they do makes total sense. Therefore, look for breakouts through support and resistance - and sell and buy respectively.

Its Tough Mentally - But it Makes Money!

Sure, it¡¯s hard to do - the majority don¡¯t agree with you - and no one likes to go against the majority. However, it¡¯s the right thing to do, to make your FOREX trading successful. Think about what we¡¯ve just said, and you¡¯ll see it makes logical sense.

Has this Happened to You?

How many times do traders buy into support, and the market breaks support, stops them out and continues to decline. On the other hand, another common scenario is, price never get to support - it simply goes higher - and the trader misses the chance to get in on the trend.

This type of trading is tough mentally - that¡¯s why 90% of traders don¡¯t do it - they want to be comfortable - well being comfortable is great, but you¡¯ll lose money.

Breakouts work, and if you use them in your FOREX Trading strategy, you won¡¯t be comfortable on entry - but you¡¯ll make money - and that will more than compensate.

The way to succeed in FOREX trading is to do what the losing majority don¡¯t do - then you can join the elite 10% of traders who make the big profits - try it and see!

Easy Income Source that can be happening in One Day

Did you ever think about making money in Forex trading as a Business Opportunity? I did and I was let down in the beginning, however, after doing some home effort, I was utterly certain with this brainstorm. I consider my initial losses in Forex nothing but a startup cost that's coupled with any venture you can imagine. Gone forever all my regrets.

One detail that I like about the Fx trading business is that you can rehearsal at no cost for as long as you wish, and one more thing is that you can accumulate as much information regarding as you can possibly come to grips with before you leap into this undertaking. Understanding, preparation and some little startup money is all you need. If you do not hold the latter, or the vital funds to start an account then all you get to do is study to be advantageous in demo account and prove to a wealthy pal of yours to go in dual scheme with you, many are doing this. You control the account for your wealthy acquaintance who's capital is collecting nil but dust someplace even in the bank account your friend's stash would hardly formulate him 5 per cent a year. if you grow to be a victorious Currency trading trader you can brew your buddy this form of gain every solo business day instead of an whole year after you pocket yours. A Forex account director is entitled to more than 30 per cent of all proceeds on original invested funds.
You can be taught Forex trading by visiting unbiased resources that provide loads of information in relation to Currency trading all at no charge, you can get the ready demonstrated system or wait until you develop yours.

One such prepared systems that you can go ahead and grab it to relegate the time needed to grow to be a triumphant international currency trader is the Forexbody system. This technique is so effortless that anyone without even the slightest idea about Fx trading can learn, first by visiting the helpful unprejudiced information and watching the free videos on the forexbody website. Special lexis about the Forexbody videos, these measures are not for babypips boys and kids, these videos give you an idea about strikingly very hard-hitting forex trading that can only be done by those who have become very good at the game well. Picture an account equity increased twice the original size in 7 minutes, yes real videos on Forexbody website illustrate just exactly this sort of drudgery, but on the other hand over, as student you get cautious guidance on the site and instructions on trading the stress-free mode to achievement.
The website has Currency trading signal by sms that you can take a crack at for free. the signal has a success rate of over 94% and if you are to be contented with just the great 10 pip yield limit per trade the success rate would exceed 96 %. Even trades that turn out to be losers go round to winners when given time. There a large quantity of information on how to be thriving using Forexbody twice a day signal and there are 10 rules you have to bear by and according to Forexbody author, you can double your account every 45 days with low risk trading behavior. all you need is self discipline and a resilient will to tug the trigger instantly upon receiving trading signal.

To be able to sustain never-ending returns you need to put into practice the low risk methodology, with this tactic a small account can be on track and full-grown over the time of 4 to 6 months to a acceptable mass where it can engender as much as $3000 in steady earnings, once more without enchanting lofty risks, while leaving room for further increase for additional and unrestricted expansion in takings.

The Conclusion, If you ever thought about having your own business and working from the comfort of your own house, you got to give this a stab, It will not cost you any money to test all on implicit accounts that you can get free from hundreds of Forex brokers All over the world, but you have possibility to be your own boss in a short time and the attempt on achieving the American desire, stop commuting and throw that dress rules away.

Forex Trading - 3 Power Strategies

If you want to catch the serious profit in forex dealing you need to trend watch forex trends which are worse term. here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every superior forex trend and lead you to long-term term currency dealing success.

Most beginner traders don't bother trying to trend following forex lengthier term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profit however as most short term moves are random, this leads to equity eliminate.

The other alternatives are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long-term term trends that last for months or years. These moves can and do yield serious profit - present we will outline a simple method to get them.

Breakouts

By far the best way of catching the serious moves is to use a forex dealing strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most leading moves start from new highs or lows.

While it might appear that you are not buying or selling at the greatest level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The grounds for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is ruined, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the greater the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout keeps and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your dealing signal.

These indicators give you an estimation of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the greatest are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop points are easy with breakouts - Simply behind the breakout point.

If you have a serious trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a huge move, trailing stops should be held a long-term way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a serious back, as that's the nature of trading forex. Keep in mind if you got 50% of all leading trend you would be very rich. When you are long-term term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend watch forex and catch the high odds moves that yield the serious profit. If you are learning forex dealing and want a simple method that is robust and will help you get every major move, then you should base your dealing on the above method.

Wednesday, September 23, 2009

forex

Foreign exchange markets - they have been touted as some of the hardest to conquer and succeed in, but for those who have done it correctly, huge profits are abound. This unique market is able to offer investors opportunities which they would never find elsewhere. However, whilst large amounts of money can be earned, equally large amounts of money can be lost. For this reason, you need to know what you are doing.

Defining The Broker’s Role

The broker’s primary role is to serve as the vehicle through which you either buy or sell stock. When I talk about brokers, I’m referring to organizations such as Charles Schwab, Merrill Lynch, E TRADE, and many other organizations that can buy stock on your behalf.

Dubai Property Rentals Scenario

Dubai is one of the fastest growing economies of the world. The metropolis has earned a name as a business and pleasure center. Since May 2002 Dubai has opened up its properties for investment, to foreigners.

Benefits of Real Estate Investments Strategies

The security of real estate investments is becoming more and more increased these days. Real estate investment is a safe way to start making your personal wealth and retirement finance provided if you act wisely. Real estate investing offers excellent long term returns and sometimes even short term gains. Real estate investing can bring you high profits if you follow certain tips.Many countries offer wide real estate investment opportunities. Real estate investors can easily find excellent profits in rentals, rehabs and high-end properties. Buying properties to use as rentals is very successful real estate investment strategy. The high-end properties have powerful demand among real estate investors, especially in the most desirable areas, such as Paris. The most successful real estate investment strategy is rehabs. Rehabs are also the most risky form of real estate investments. If there is huge demand for finished real estate properties, the opportunity for real estate investors increases widely. Finished real estate properties provide excellent opportunity for real estate investors who are willing to rehab and then rent or sell properties. Real estate investors who want to sell a property after grasping it for only a few years can benefit from this type of real estate investment strategy. Real estate investors who rehab properties can either sell or rent the rehabbed properties for a worthy premium. Real estate investors can buy a run-down property in a main location at a cheap price, remodel or modernize it and then resell or rent it successfully.

Flipping, Bargain purchase investment strategy, Increase value investment strategy, Double-digit cap rate investment strategy, and Commercial Real Estate Investment strategy are the other real estate investment strategies. Flipping involves buying and selling real estate property without actually taking ownership of the property. Flipping enables you to make money with real estate without possessing the property. Bargain purchase investment strategy involves purchasing real estate property for at least 20% less than the current market value. Increase-value investment strategy involves buying a real estate property for its current market value, remodeling the property in order to increase its value by at least 20%, and then selling it. Double-digit cap rate investment strategy involves buying a property having a capitalization rate of 10% or more. Commercial Real Estate Investment involves buying commercial properties that are bigger than a 4 unit apartment building. It is better for the real estate investors who are beginners in the field to avoid commercial real estate investment strategy. On the other hand, if you have experience in real estate investments, you can go for commercial real estate investment as the competition is much less.

Different real estate strategies require different amounts of time. For example rehab is really time-consuming. Real estate investors must not choose a time-consuming investment strategy if you cannot spend much time for real estate business. Some real estate strategies require huge amounts of cash. For example, to buy foreclosure properties whereas buying a property at auction requires little or no cash. The different real estate investment strategies provide different benefits. It is up to you to choose the strategy you feel more comfortable with. But make sure you choose the right strategy that best suits you, and work accordingly.

Forex Trading: Calculating Profit and Loss in Foreign Currency Trading

The foreign exchange market, or Forex market, is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in currency pairs. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political events. Using a hypothetical Forex investment, this article shows you how to calculate profit and loss in Forex trading.To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are always expressed in pairs. In the following example, your pair of currencies are the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The currency to the left of the "/" (USD in this example) is referred to as base currency and its value is always 1. The currency to the right of the "/" (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central currency of the Forex market, and it is always treated as the base currency in any Forex quote where it is one of the pairs.

Let's go now to our hypothetical Forex investment to show how you can profit or come up short in Forex trading. In this example, your pair of currencies are the U.S. Dollar and the Euro. The Forex rate of EUR/USD on August 26, 2003 was 1.0857, which means that one U.S. Dollar was equal to 1.0857 Euros, and was the weaker of the two currencies. If you had bought 1,000 Euros on that date, you would have paid $1,085.70.

One year later, the Forex rate of EUR/USD was 1.2083, which means that the value of the Euro increased in relation to the USD. If you had sold the 1,000 Euros one year later, you would have received $1,208.30, which is $122.60 more than what you had started with one year earlier.

Conversely, if the Forex rate one year later had been EUR/USD = 1.0576, the value of the Euro would have weakened in relation to the U.S. Dollar. If you had sold the 1,000 Euros at this Forex rate, you would have received $1,057.60, which is $28.10 less than what you had started out with one year earlier.

As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the currency exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you.

UPDATE: Chipotle Profit Hit By U.S. Economy, Food Costs

By Matt Andrejczak

SAN FRANCISCO (Dow Jones) -- Chipotle Mexican Grill, Inc. warned Friday its third-quarter profit and sales will be hurt due to cash-strapped U.S. consumers and surging food costs. Its shares tumbled 18% in early trading.
The U.S. restaurant industry is facing leaner times as consumers are spending less money to eat out. So far, casual sit-down restaurants have been harder hit than the fast-food sector.
Chipotle, which sells burritos, tacos and other quick-service dishes, said it expects third-quarter net income to fall slightly below the year-ago figure of 62 cents a share. Analysts polled by FactSet Research had expected Chipotle to earn 72 cents a share in the quarter.
Denver-based Chipotle (CMG) said it faces further sales deceleration at its 775 fast-food outlets. The company said comparable restaurant sales, or sales at outlets open at least one year, will be in the "mid to low single digits."
Its previous forecast called for mid-single-digit increase. To combat rising costs for food-ingredients, Chipotle also said it plans to implement a national pricing strategy for its menu.

BOND REPORT: Treasurys Gain On Dismal Jobless Data, 10-year Auction

By Deborah Levine

Treasury prices gained ground Thursday, pushing yields lower, following more gloomy data on U.S. employment, and after a successful government auction of 10-year bonds.
The Treasury sold nearly $16 billion of 10-year bonds at a high yield at 2.67% , the lowest-yield ever offered by the government in a 10-year auction, a silver lining of mounting debt to pay for bailouts of banks, mortgage-buying agencies, insurers and possibly, auto manufacturers.
The previously lowest-yield auction was in March, at 3.51%.
The bid to cover ratio stood at 2.44, an indication of firm demand.

Advantages of Forex Trading

Are you new to trade currency? Are you giving up due to your past trade? Get yourself to know the primitive advantages of Forex trading. And you are also essentially advised to refer to the risk-bearing.

Two Way Market where traders can trade in Bull and Bear market
Margin Trading 100 : 1 leverage
Low Account Balance for entry
Can work in odd work due to 24 hours a day from Sunday night to Friday noon
Flexible transaction sizes
Very dynamic and trendy
No worry about bad fills due to price gaps
Can practice at online simulation until you become expert

What are the Secrets in Forex Trading?

More than 100 million people in the world are looking for profitable investment. We love talking investment because this is the energyless but high profit gain business. Forex Trading is the world's largest financial market with an estimated daily average turnover between $1.5 trillion to $2.5 trillion that we cannot doubt. If we want to make profit from this investment, there are some related knowledges that we definitely need to know.

Use Future data to justify market trend.
Pivot Program shows entry & exit signals.
Familiar Chart Patterns and Trend lines.
how big dogs are doing?
euro vs USD Tricks.
Be Smart to Filter Various Currency pairs.
Confident to Control Up and Down Trendy.
Avoid Pitfalls of Dumb money.
Intelligent stop loss strategies implementation.
AIME methodology
History is your tips.
Hedge currency Trades .

How did the taipans and billionaires get so filthy rich?!

Besides the more obvious hard work and diligence and always saving little by little in their piggy banks, the really rich guys know how to work up the foreign exchange.

Basically, foreign exchange trading or simply FOREX trading is just the buying and selling of the world’s currencies. Money today is not the same as money tomorrow. Money has time value. The worth of a currency can go up or down.

There is one secret that FOREX traders live by. And it is buy low, sell high. Don’t ever forget that rule.

However, the trick is to know when to buy and when to sell. In FOREX trading, everything is by speculation. Sure, there are graphs to aid decisions. Business pages also give out strategies for the day. But the next step is always a guess based from the previous actions.

FOREX traders like to call their speculations as smart guesses. Usually, patterns on the currency values can be derived from how the politics of a specific country is running.

For example, if there is a plan to oust the president, most probably the value of that country’s currency will go down—how low, we don’t know. Usually. Because there are still a lot of factors to consider why a currency is going strong or not.

Improvement on the tourism sector can mean more foreign investments. This will be good for a particular currency, but this may affect how the other countries are doing.

These are just trade scenarios. As the cliché goes, one man’s medicine may be another man’s poison. One country’s good tidings may be another country’s, well, downfall.

That is why in FOREX trading, another secret to live by is to be aware of the national news in the country concerned.

Current events have a say on the economics of a country. Money makes the world go round, so to speak.

But, if one is truly serious in earning their first million in FOREX trading, another secret is—it might be a good idea to invest in a FOREX trading training school. Learn from the pros and conquer the world afterwards.

Let me leave you one last secret I learned from my father. If everyone is going in this direction, go the other way. This applies to FOREX and other areas of life. You won’t ever get rich by following the crowd.

Besides buying low and selling high, follow that last secret and you might just join the ranks of the taipans and billionaires.

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies. ^[1]
The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.
In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of

its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting

Market size and liquidity

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

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. ^[2] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.^[3] 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%.^[4] 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—[1]; [2]) 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).

**Top 10 currency traders** ^[5] % of overall volume, May 2009
Rank	Name	Market Share
1	Deutsche Bank	20.96%
2	UBS AG	14.58%
3	Barclays Capital	10.45%
4	Royal Bank of Scotland	8.19%
5	Citi	7.32%
6	JPMorgan	5.43%
7	HSBC	4.09%
8	Goldman Sachs	3.35%
9	Credit Suisse	3.05%
10	BNP Paribas	2.26%

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).^[6] 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.^[3] 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.

Market participants

Financial markets

Bond market
Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debt
Stock market
Stock Preferred stock Common stock Registered share Voting share Stock exchange
Foreign exchange market
Derivatives market
Credit derivative Hybrid security Options Futures Forwards Swaps
Other Markets
Commodity market Money market OTC market Real estate market Spot market
Finance series Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation
v • d • e

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

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

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

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high—that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading. The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.^[7] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90%^{[citation needed]} of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange brokers

There are two types of retail brokers offering the opportunity for speculative trading: retail foreign exchange brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated by the CFTC and NFA might be subject to foreign exchange scams.^[8]^[9] At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

Non-bank Foreign Exchange Companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account. Send Money Home offer an in-depth comparison into the services offered by all the major non-bank foreign exchange companies. It is estimated that in the UK, 14% of currency transfers/payments^[10] are made via Foreign Exchange Companies.^[11] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money Transfer/Remittance Companies

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally. Send Money Home is an international money transfer price comparison site that allows consumers access to a range of alternative products/ rates available when remitting (transferring) money worldwide. Provides impartial and unbiased advice for those looking to send money overseas

Trading characteristics

**Most traded currencies**^[2] Currency distribution of reported FX market turnover
Rank	Currency	ISO 4217 code (Symbol)	% daily share (April 2007)
1	United States dollar	USD ($)	86.3%
2	Euro	EUR (€)	37.0%
3	Japanese yen	JPY (¥)	17.0%
4	Pound sterling	GBP (£)	15.0%
5	Swiss franc	CHF (Fr)	6.8%
6	Australian dollar	AUD ($)	6.7%
7	Canadian dollar	CAD ($)	4.2%
8-9	Swedish krona	SEK (kr)	2.8%
8-9	Hong Kong dollar	HKD ($)	2.8%
10	Norwegian krone	NOK (kr)	2.2%
11	New Zealand dollar	NZD ($)	1.9%
12	Mexican peso	MXN ($)	1.3%
13	Singapore dollar	SGD ($)	1.2%
14	South Korean won	KRW (₩)	1.1%
Other			14.5%
Total			200%

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism. The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends. Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow. Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXXYYY or YYY/XXX, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EURUSD or USD/EUR is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the "base" currency, was the stronger currency at the creation of the pair. The second currency, counter currency or "term" currency, was the weaker currency at the creation of the pair. Currencies are occasionally incorrectly quoted with the pairs inverted e.g. EUR/USD but this is incorrect. The "/" acts the same as the divide mathematical operator and derives the actual exchange rate. e.g. an amount of $140,000 equates to €100,000. $140,000/€100,000 = $/€ = USD/EUR = a rate of 1.4 hence EURUSD or USD/EUR. See Exchange_rate The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ. On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27%
USDJPY: 13%
GBPUSD (also called cable): 12%

and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (17.0%), and sterling (15.0%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.
Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

Determinants of FX Rates

Economic factors

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

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

Government budget deficits or surpluses

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

Balance of trade levels and trends

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

Inflation levels and trends

Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.

Economic growth and health

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

Productivity of an economy

Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector [3].

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets.
All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology

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

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.^[12]
Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. ^[13]
"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".^[14] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.^[15]

Algorithmic trading in foreign exchange

Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.^{[citation needed]}
An algorithmic trader needs to be mindful of potential fraud by the broker. Part of the weekly algorithm should include a check to see if the amount of transaction errors when the trader is losing money occurs in the same proportion as when the trader would have made money.

Financial instruments

Spot

A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. NNM

Forward

Future

Main article: currency future

Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Swap

Main article: foreign exchange swap

The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

Option

Main article: foreign exchange option

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

Exchange-Traded Fund

Main article: exchange-traded fund

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

Speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.^[16] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.^[17]
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors ^[18].
Currency speculation is considered a highly suspect activity in many countries.^[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.^[19] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.^[20]
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against International Monetary Fund advice, this view is open to doubt.

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