BROWSING THE CURRENCIES MARKET
The June Dollar closed sharply lower on Monday and below the 20-day moving average crossing at 82.10. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near-term. Closes below the reaction low crossing at 81.97 would confirm that a short-term top has been posted. If June extends this spring's rally, the 50% retracement level of this year's decline crossing at 83.01 is the next upside target. The June Euro gapped up and closed higher on Monday as it consolidates above the 38% retracement level of this year's rally crossing at 134.279. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near-term. Closes above the 20-day moving average crossing at135.081 are needed to confirm that a short-term low has been posted. If June extends this spring's decline, the 50% retracement level of this year's rally crossing at 133.405 is the next downside target. The June British Pound gapped up and closed above the reaction high crossing at 1.9892 on Monday thereby renewing the rally off May's low. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term. If June extends this week's rally, the reaction high crossing at 1.9992 is the next upside target. Closes below the 10-day moving average crossing at 1.9809 would confirm that a short-term top has been posted.The June Swiss Franc gapped up and closed above the 10-day moving average crossing at .8165 on Monday. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are neutral hinting that sideways to higher prices are possible near-term. Closes above the reaction high crossing at .8210 are needed to confirm that a short-term low has been posted. If June renews this spring's decline, the reaction low crossing at .8064 is the next downside target. The June Canadian Dollar closed higher on Monday as it extended this year's rally above monthly resistance crossing at 94.15. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this spring's rally, monthly resistance crossing at 95.30 is the next upside target. Closes below the 20-day moving average crossing at .9189 are needed to confirm that a top has been posted. The June Japanese Yen closed higher due to short covering on Monday as it consolidated some of last week's decline. The mid- range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term. If June extends this spring's decline, weekly support crossing at.8024 is the next downside target. Closes above the 20-day moving average crossing at .8293 are needed to confirm that a short- term low has been posted.
Thursday, November 8, 2007
The Exchange Rate
The Exchange Rate
Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of the currencies are traded against the US dollar (USD). The four next-most traded currencies are the euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). These five currencies make up the majority of the market and are called the major currencies or "the Majors". Some sources also include the Australian dollar (AUD) within the group of major currencies.
The first currency in the exchange pair is referred to as the base currency and the second currency as the counter or quote currency. The counter or quote currency is thus the numerator in the ratio, and the base currency is the denominator. The value of the base currency (denominator) is always 1. Therefore, the exchange rate tells a buyer how much of the counter or quote currency must be paid to obtain one unit of the base currency. The exchange rate also tells a seller how much is received in the counter or quote currency when selling one unit of the base currency. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of euros that 1.2083 USD must be paid to obtain 1 euro.
At any given point, time and place, if an investor buys any currency and immediately sells it - and no change in the exchange rate has occurred - the investor will lose money. The reason for this is that the bid price, which represents how much will be received in the counter or quote currency when selling one unit of the base currency, is always lower than the ask price, which represents how much must be paid in the counter or quote currency when buying one unit of the base currency. For instance, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1000 pips (also called points, one pip = 0.0001), which is very high in comparison to the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since even they require a smaller movement in exchange rates in order to profit from a trade.
Margin
Banks and/or online trading providers need collateral to ensure that the investor can pay in case of a loss. The collateral is called the margin and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future. Margin enables private investors to trade in markets that have high minimum units of trading by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but has the tendency to inflate rates of loss, on top of systemic risk.
Leveraged Financing
The ratio of investment to actual value is called "leverage". Leveraged financing, i.e., the use of credit, such as a trade purchased on a margin, is very common in Forex. Using a $1000 to buy a Forex contract with a $100,000 value is "leveraging" at a 1:100 ratio. The invested amount of $1000 is all that is under risk in order to achieve the gain of $100,000. The loan/leveraged in the margined account is collateralized by an investor's initial deposit. As a result, this may result in being able to control $100,000 for as little as $1,000.
Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of the currencies are traded against the US dollar (USD). The four next-most traded currencies are the euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). These five currencies make up the majority of the market and are called the major currencies or "the Majors". Some sources also include the Australian dollar (AUD) within the group of major currencies.
The first currency in the exchange pair is referred to as the base currency and the second currency as the counter or quote currency. The counter or quote currency is thus the numerator in the ratio, and the base currency is the denominator. The value of the base currency (denominator) is always 1. Therefore, the exchange rate tells a buyer how much of the counter or quote currency must be paid to obtain one unit of the base currency. The exchange rate also tells a seller how much is received in the counter or quote currency when selling one unit of the base currency. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of euros that 1.2083 USD must be paid to obtain 1 euro.
At any given point, time and place, if an investor buys any currency and immediately sells it - and no change in the exchange rate has occurred - the investor will lose money. The reason for this is that the bid price, which represents how much will be received in the counter or quote currency when selling one unit of the base currency, is always lower than the ask price, which represents how much must be paid in the counter or quote currency when buying one unit of the base currency. For instance, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1000 pips (also called points, one pip = 0.0001), which is very high in comparison to the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since even they require a smaller movement in exchange rates in order to profit from a trade.
Margin
Banks and/or online trading providers need collateral to ensure that the investor can pay in case of a loss. The collateral is called the margin and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future. Margin enables private investors to trade in markets that have high minimum units of trading by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but has the tendency to inflate rates of loss, on top of systemic risk.
Leveraged Financing
The ratio of investment to actual value is called "leverage". Leveraged financing, i.e., the use of credit, such as a trade purchased on a margin, is very common in Forex. Using a $1000 to buy a Forex contract with a $100,000 value is "leveraging" at a 1:100 ratio. The invested amount of $1000 is all that is under risk in order to achieve the gain of $100,000. The loan/leveraged in the margined account is collateralized by an investor's initial deposit. As a result, this may result in being able to control $100,000 for as little as $1,000.
Spreads
Spreads
Spreads are the difference between Buy and Sell ( or BID and ASK). In other words, this is the difference between the market maker's selling price (to its clients) and the price the market maker buys it from its clients. If an investor buys a currency and immediately sells it ( and thus there is no change in the rate of exchange), the investor will lose money. The reason for this is the spread. At any given moment, the amount that will be received in the counter currency when selling a unit of base currency will be lower than the amount of counter currency which is required to purchase a unit of base currency. for example, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1000 pips (percentage in points; one pip=.0001). such a rate is much higher that the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In General, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade.
Price, Quotes and Indications
The price of a currency (in terms of the counter currency), is called "Quote". There are two kinds of quotes in the Forex market:
The Direct Quote: the price for 1 US dollar in terms of the other currency, e.g. - Japanese Yen, Canadian dollar, etc.
The Indirect Quote: the price of 1 unit of a currency in terms of US dollars, e.g. - British pound, euro.
The market maker provides the investor with a quote. The quote is the price the market maker will honor when the deal is executed. This is unlike an "indication" by the market maker, which informs the trader about the market price level, but is not the final rate for a deal.
Cross rates - any quote which is not against the US dollar is called "cross". For instance, GBP/JPY is a cross rate, since it is calculated via the US dollar. Here is how the GBP/JPY rate is calculated:
GBP/USD = 1.7464
USD/JPY = 112.29
Therefore: GBP/JPY = 112.29 X 1.7464 = 196.10
Spreads are the difference between Buy and Sell ( or BID and ASK). In other words, this is the difference between the market maker's selling price (to its clients) and the price the market maker buys it from its clients. If an investor buys a currency and immediately sells it ( and thus there is no change in the rate of exchange), the investor will lose money. The reason for this is the spread. At any given moment, the amount that will be received in the counter currency when selling a unit of base currency will be lower than the amount of counter currency which is required to purchase a unit of base currency. for example, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1000 pips (percentage in points; one pip=.0001). such a rate is much higher that the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In General, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade.
Price, Quotes and Indications
The price of a currency (in terms of the counter currency), is called "Quote". There are two kinds of quotes in the Forex market:
The Direct Quote: the price for 1 US dollar in terms of the other currency, e.g. - Japanese Yen, Canadian dollar, etc.
The Indirect Quote: the price of 1 unit of a currency in terms of US dollars, e.g. - British pound, euro.
The market maker provides the investor with a quote. The quote is the price the market maker will honor when the deal is executed. This is unlike an "indication" by the market maker, which informs the trader about the market price level, but is not the final rate for a deal.
Cross rates - any quote which is not against the US dollar is called "cross". For instance, GBP/JPY is a cross rate, since it is calculated via the US dollar. Here is how the GBP/JPY rate is calculated:
GBP/USD = 1.7464
USD/JPY = 112.29
Therefore: GBP/JPY = 112.29 X 1.7464 = 196.10
Foreign Exchange (Forex) Trading Basics
Forex Trading Overview
The Foreign exchange market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.
The participants in the currency exchange markets have traditionally been the central and commercial banks, corporations, institutional investors, and hedge funds managers. In 2002, Bank of America alone made a $530 Million profit in Forex trading as stated on their annual statement under "Global Investment Income". In 1986, Caterpillar made a 100 Million profit in Forex trading and would have actually had an operating loss for the year on their normal business if it were not for that profit from Forex. In 2003, half of Daimler Chryslers 2Q operating profit was from currency trades, making more money on foreign exchange than by selling cars.
Due to its popularity and the potential for very lucrative returns on investment, many private investors have also migrated into this fast growing arena. Some of the major reasons why private investors are attracted to currency exchange market and short-term Forex trading are:
* The Forex market is open for business around the clock. Nonstop 24 hours a-day 7 days a-week access to global Forex dealers are at the disposal of the trader.
* The Forex market is the biggest market in the world. It is an enormous liquid market, with a daily turnover of more than 2.5 trillion dollars, making it easy to trade most currencies around the clock.
* The Forex markets can be very volatile due to the interdependencies of the world economy on current events. As such, the Forex market offers opportunities for huge profit potentials that are derived from volatilities of world currency prices.
* The Forex Market contains inherent standard instruments for controlling risk exposure.
* An investor has the ability to profit in both a rising or falling market.
* The investor can maintain leveraged trading with relatively low margin requirements.
* The Forex trader has many options for zero commission trading.
Just like in any other market, the goal of the investor in Forex trading is to make profits from price movements. In Forex trading, an investor makes money by trading foreign currencies and the trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Jan 15th, 2004 was 1.0757. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1075.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.90 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk- free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.
The whole premise behind trading currencies is that, the investor trades only when he expects the currency that he is buying to increase in value relative to the currency he is selling. If the currency he is buying does increase in value, he must sell back the other currency in order to lock in a profit. An open position is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position. However, it is estimated that anywhere from 70%-90% of the FX market is 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. Most of the remaining percentage of the forex market belongs to hedging (managing business exposures to various currencies ) and other activities. Forex trades (trading onboard internet platforms) are non-delivery trades, i.e., currencies are not physically traded, but rather there are currency contracts which are agreed upon and performed. Both parties to such contracts ( the trader and the trading platform ) undertake to fulfill their obligations: one side undertakes to sell the amount specified, and the other undertakes to buy it. As mentioned, over 70% of the market activity is for speculative purposes, so there is no intention on either side to actually perform the contract (i.e., the physical delivery of the currencies). Thus, the contract ends by offsetting it against an opposite position, resulting in the profit and loss of the parties involved. An example of a trading platform is the Easy-Forex Trading Platform.
The Foreign exchange market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.
The participants in the currency exchange markets have traditionally been the central and commercial banks, corporations, institutional investors, and hedge funds managers. In 2002, Bank of America alone made a $530 Million profit in Forex trading as stated on their annual statement under "Global Investment Income". In 1986, Caterpillar made a 100 Million profit in Forex trading and would have actually had an operating loss for the year on their normal business if it were not for that profit from Forex. In 2003, half of Daimler Chryslers 2Q operating profit was from currency trades, making more money on foreign exchange than by selling cars.
Due to its popularity and the potential for very lucrative returns on investment, many private investors have also migrated into this fast growing arena. Some of the major reasons why private investors are attracted to currency exchange market and short-term Forex trading are:
* The Forex market is open for business around the clock. Nonstop 24 hours a-day 7 days a-week access to global Forex dealers are at the disposal of the trader.
* The Forex market is the biggest market in the world. It is an enormous liquid market, with a daily turnover of more than 2.5 trillion dollars, making it easy to trade most currencies around the clock.
* The Forex markets can be very volatile due to the interdependencies of the world economy on current events. As such, the Forex market offers opportunities for huge profit potentials that are derived from volatilities of world currency prices.
* The Forex Market contains inherent standard instruments for controlling risk exposure.
* An investor has the ability to profit in both a rising or falling market.
* The investor can maintain leveraged trading with relatively low margin requirements.
* The Forex trader has many options for zero commission trading.
Just like in any other market, the goal of the investor in Forex trading is to make profits from price movements. In Forex trading, an investor makes money by trading foreign currencies and the trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Jan 15th, 2004 was 1.0757. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1075.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.90 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk- free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.
The whole premise behind trading currencies is that, the investor trades only when he expects the currency that he is buying to increase in value relative to the currency he is selling. If the currency he is buying does increase in value, he must sell back the other currency in order to lock in a profit. An open position is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position. However, it is estimated that anywhere from 70%-90% of the FX market is 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. Most of the remaining percentage of the forex market belongs to hedging (managing business exposures to various currencies ) and other activities. Forex trades (trading onboard internet platforms) are non-delivery trades, i.e., currencies are not physically traded, but rather there are currency contracts which are agreed upon and performed. Both parties to such contracts ( the trader and the trading platform ) undertake to fulfill their obligations: one side undertakes to sell the amount specified, and the other undertakes to buy it. As mentioned, over 70% of the market activity is for speculative purposes, so there is no intention on either side to actually perform the contract (i.e., the physical delivery of the currencies). Thus, the contract ends by offsetting it against an opposite position, resulting in the profit and loss of the parties involved. An example of a trading platform is the Easy-Forex Trading Platform.
Trading Platform
Trading Platform
Synthesis Bank, Switzerland’s most competitive online trading bank, is pleased to present you its Tradingfloor 2 platform.
Making the most of the success of our previous trading software, Tradingfloor 2 offers the same access to a full range of products as well as to new functions that will enable you to process your trading operations under the best conditions.
The Tradingfloor 2 trading platform has a new, powerful graphic interface which allows you to manipulate, analyse and compare the historical prices of multiple financial instruments, i.e. currencies (Forex), shares, CFDs and futures.
This new online trading interface, which is accessible to all, offers unprecedented means for analysing price movements of financial instruments and is completely free for Synthesis Bank’s clients.
The New Graphic Interface
Boasting all the functions of a professional graphic interface for a subscription service, the new online trading platform offers unprecedented means for analysing price movements of financial instruments.
Sideways Scroll and Zoom
Scroll the window sideways to view previous financial datas Move the axes to change the scale or compress the graph Use the Zoom button to zoom in or out Configuration and Trend Analysis to Monitor your Online TradingThe platform offers several functions that will help you analyse market configurations and trends, in particular:
Numerous curves and annotations that monitor market trends.There are various studies available, among which you will find your favourites and those that will help you compile your Trading Plan. Integration of your Trading Account : you can view the open positions directly from your accounts. Comparison of Multiple Instruments : you can view multiple instruments on the same axis for easy comparison. The reference point can be changed to compare a given point in time. A more detailed Quoting Screen
Gathering all the products into one online trading module, the new Tradingfloor 2 quoting screen allows you to monitor the stock exchange quotes and those of several other instruments from one quoting screen and to send your orders directly, based on the prices displayed.
Trader ScreenThe platform offers a new, fully-customisable screen, allowing you to choose the position of the charts, quotes, analyses and modules.
Instrument Explorer
The platform offers rapid access to thousands of instruments and the automatic launch of online trading, analysis and chart modules.The Instrument Explorer makes a certain number of trading tools available (searches and filters) to help you quickly find the instruments you are looking for and monitor your trading model:
Enter the first letters of the instrument or the name of the company. Uncheck the products that do not interest you. Classify the instruments by sectors. Launch Pad FunctionThe Instrument Explorer enables the automatic launch of online trading, analysis and chart modules.
Document FormatDocument format takes up the entire trader screen and is a display mode that has been tailor-made for the trading tools containing a considerable amount of information or text.
Panel FormatThis is a more flexible format that enables the different modules to be placed around the Document, moved with the trader screen, or even moved outside of this workspace if you are using multiple screens with your trading software.
Favourites ListAdd the financial instruments that you monitor regularly to your favourites list to gain quick access to them from your trading platform. Quick access to your recent instruments is also possible from your favourites list.
Synthesis Bank, Switzerland’s most competitive online trading bank, is pleased to present you its Tradingfloor 2 platform.
Making the most of the success of our previous trading software, Tradingfloor 2 offers the same access to a full range of products as well as to new functions that will enable you to process your trading operations under the best conditions.
The Tradingfloor 2 trading platform has a new, powerful graphic interface which allows you to manipulate, analyse and compare the historical prices of multiple financial instruments, i.e. currencies (Forex), shares, CFDs and futures.
This new online trading interface, which is accessible to all, offers unprecedented means for analysing price movements of financial instruments and is completely free for Synthesis Bank’s clients.
The New Graphic Interface
Boasting all the functions of a professional graphic interface for a subscription service, the new online trading platform offers unprecedented means for analysing price movements of financial instruments.
Sideways Scroll and Zoom
Scroll the window sideways to view previous financial datas Move the axes to change the scale or compress the graph Use the Zoom button to zoom in or out Configuration and Trend Analysis to Monitor your Online TradingThe platform offers several functions that will help you analyse market configurations and trends, in particular:
Numerous curves and annotations that monitor market trends.There are various studies available, among which you will find your favourites and those that will help you compile your Trading Plan. Integration of your Trading Account : you can view the open positions directly from your accounts. Comparison of Multiple Instruments : you can view multiple instruments on the same axis for easy comparison. The reference point can be changed to compare a given point in time. A more detailed Quoting Screen
Gathering all the products into one online trading module, the new Tradingfloor 2 quoting screen allows you to monitor the stock exchange quotes and those of several other instruments from one quoting screen and to send your orders directly, based on the prices displayed.
Trader ScreenThe platform offers a new, fully-customisable screen, allowing you to choose the position of the charts, quotes, analyses and modules.
Instrument Explorer
The platform offers rapid access to thousands of instruments and the automatic launch of online trading, analysis and chart modules.The Instrument Explorer makes a certain number of trading tools available (searches and filters) to help you quickly find the instruments you are looking for and monitor your trading model:
Enter the first letters of the instrument or the name of the company. Uncheck the products that do not interest you. Classify the instruments by sectors. Launch Pad FunctionThe Instrument Explorer enables the automatic launch of online trading, analysis and chart modules.
Document FormatDocument format takes up the entire trader screen and is a display mode that has been tailor-made for the trading tools containing a considerable amount of information or text.
Panel FormatThis is a more flexible format that enables the different modules to be placed around the Document, moved with the trader screen, or even moved outside of this workspace if you are using multiple screens with your trading software.
Favourites ListAdd the financial instruments that you monitor regularly to your favourites list to gain quick access to them from your trading platform. Quick access to your recent instruments is also possible from your favourites list.
Friday, November 2, 2007
How are foreign currencies
How are foreign currenciesquoted and priced
Now let’s take a look at how foreign currencies are quoted and priced. Currencies are designated by three-letter symbols. The standard symbols for some of the most commonly traded currencies are shown below.
EUR
Euro
USD
United States dollar
CAD
Canadian dollar
GBP
British pound
JPY
Japanese yen
AUD
Australian dollar
CHF
Swiss franc
Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price). The second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. This spread could also be quoted as 1.2170/78.
At first glance, the bid and ask prices may seem backwards to you. That is because they are listed from the dealer’s point of view, not from your point of view. The first part of the spread, or the bid, is what the dealer is willing to pay to buy the base currency. So this is the price you will get if you SELL the base currency. In the same way, the second part of the spread, or the ask, is what the dealer is willing to sell the base currency at, so this is the price you will get if you BUY the base currency.
Now let’s take a look at how foreign currencies are quoted and priced. Currencies are designated by three-letter symbols. The standard symbols for some of the most commonly traded currencies are shown below.
EUR
Euro
USD
United States dollar
CAD
Canadian dollar
GBP
British pound
JPY
Japanese yen
AUD
Australian dollar
CHF
Swiss franc
Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price). The second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. This spread could also be quoted as 1.2170/78.
At first glance, the bid and ask prices may seem backwards to you. That is because they are listed from the dealer’s point of view, not from your point of view. The first part of the spread, or the bid, is what the dealer is willing to pay to buy the base currency. So this is the price you will get if you SELL the base currency. In the same way, the second part of the spread, or the ask, is what the dealer is willing to sell the base currency at, so this is the price you will get if you BUY the base currency.
What are foreign currency exchange rates?
What are foreign currency exchange rates?
Let’s start with a definition of foreign currency exchange rates. Simply put, foreign currency exchange rates are what it costs to exchange one country’s currency for another country’s currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to sell some of your dollars to buy British pounds.
Let’s assume that you have decided to take a trip to England. Before you leave, you go to your bank and buy $1,000 worth of British pounds. If you get 565.83 British pounds (£565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.
After spending a few days in England, you realize that £565.83 won’t be enough to cover all of your expenses. So you go to a bank in England and buy another $1,000 worth of British pounds. This time, however, you get only £557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
When you arrive home, you still have some British pounds left. So you go to your bank and use your remaining £100 to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.
Let’s start with a definition of foreign currency exchange rates. Simply put, foreign currency exchange rates are what it costs to exchange one country’s currency for another country’s currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to sell some of your dollars to buy British pounds.
Let’s assume that you have decided to take a trip to England. Before you leave, you go to your bank and buy $1,000 worth of British pounds. If you get 565.83 British pounds (£565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.
After spending a few days in England, you realize that £565.83 won’t be enough to cover all of your expenses. So you go to a bank in England and buy another $1,000 worth of British pounds. This time, however, you get only £557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
When you arrive home, you still have some British pounds left. So you go to your bank and use your remaining £100 to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.
Forex online training
Introduction
Welcome to National Futures Association’s e-learning program for retail off-exchange foreign currency trading. As the industrywide self-regulatory organization for the U.S. futures industry, NFA is committed to providing innovative programs and services that protect investors and ensure market integrity. We’ve always believed that one of the best ways to protect investors is to provide them with the materials they need to make informed trading decisions.
The off-exchange foreign currency, or forex, market is a large, growing and liquid financial market that operates 24 hours a day. It has no central trading location or exchange with many buyers and sellers. Most of the trading is conducted by telephone or through electronic trading networks. Banks, insurance companies, large corporations and other large financial institutions all use the forex markets to manage the risks associated with fluctuations in currency rates. In recent years, however, a number of firms have begun offering forex contracts to individual investors. NFA regulates some, but not all, of these forex firms. Before you open an account with a forex firm, you should ask the firm if NFA regulates its forex activities. If the answer is no, find out who does regulate them.
Like many other investments, forex trading carries a high level of risk and may not be suitable for all investors. Forex trading requires constant monitoring and an understanding of the relationship between currencies, as well as what factors influence the currencies' value. If you are a retail investor considering trading in this market, you need to understand fully the market and some of its unique features.
One final note before we begin. This program does not suggest that you should or should not trade in the retail off-exchange foreign currency market. You should make that decision after consulting with your financial advisor and considering your own financial situation and objectives.
This program should serve as just one element of your due diligence.
We have divided this program into six modules:
The fundamentals of foreign currency exchange rates;
How foreign currencies are quoted and priced;
How much it costs to trade foreign currencies;
How to calculate profits and losses;
How leverage works; and
The risks of forex trading.
You can view any module at any time by clicking on the module number in the right-hand column. We estimate that it will take you approximately 45 minutes to complete the program.
Welcome to National Futures Association’s e-learning program for retail off-exchange foreign currency trading. As the industrywide self-regulatory organization for the U.S. futures industry, NFA is committed to providing innovative programs and services that protect investors and ensure market integrity. We’ve always believed that one of the best ways to protect investors is to provide them with the materials they need to make informed trading decisions.
The off-exchange foreign currency, or forex, market is a large, growing and liquid financial market that operates 24 hours a day. It has no central trading location or exchange with many buyers and sellers. Most of the trading is conducted by telephone or through electronic trading networks. Banks, insurance companies, large corporations and other large financial institutions all use the forex markets to manage the risks associated with fluctuations in currency rates. In recent years, however, a number of firms have begun offering forex contracts to individual investors. NFA regulates some, but not all, of these forex firms. Before you open an account with a forex firm, you should ask the firm if NFA regulates its forex activities. If the answer is no, find out who does regulate them.
Like many other investments, forex trading carries a high level of risk and may not be suitable for all investors. Forex trading requires constant monitoring and an understanding of the relationship between currencies, as well as what factors influence the currencies' value. If you are a retail investor considering trading in this market, you need to understand fully the market and some of its unique features.
One final note before we begin. This program does not suggest that you should or should not trade in the retail off-exchange foreign currency market. You should make that decision after consulting with your financial advisor and considering your own financial situation and objectives.
This program should serve as just one element of your due diligence.
We have divided this program into six modules:
The fundamentals of foreign currency exchange rates;
How foreign currencies are quoted and priced;
How much it costs to trade foreign currencies;
How to calculate profits and losses;
How leverage works; and
- The fundamentals of foreign currency exchange rates;
- How foreign currencies are quoted and priced;
- How much it costs to trade foreign currencies;
- How to calculate profits and losses;
- How leverage works; and
- The risks of forex trading.
You can view any module at any time by clicking on the module number in the right-hand column. We estimate that it will take you approximately 45 minutes to complete the program.
The risks of forex trading.
You can view any module at any time by clicking on the module number in the right-hand column. We estimate that it will take you approximately 45 minutes to complete the program.
ADVANTAGES OF NO DEALING DESK
ADVANTAGES OF NO DEALING DESK TRADING THROUGH FXCM
TRADE FOREX ON RATES FROM THE LARGEST BANKS IN THE WORLD
With No Dealing Desk execution, traders—through the FXCM Trading Station—have the ability to trade on rates provided by some of the largest banks in the world. These banks provide FXCM with some of the best rates, which results in spreads as low as 2 pips. No Dealing Desk execution combines the benefits of trading prices from top-tier banks, with the convenience and speed of FXCM's award-winning trading platform.
TRADE FOREX WHEN YOU WANT AND HOW YOU WANT...NO RESTRICTIONS
You trade when you want—even during market-moving news and economic events. Furthermore, this system enables you to place entry orders at any price—even inside the spread.
24-HOUR SUPPORT
FXCM offers 24-hour-a-day trading support, giving you the ability to place orders over the phone when the market is open. Our staff of 500+ highly trained specialists are available around the clock to service clients from our regional headquarters in New York, London, Hong Kong, and Tokyo.
SIZE & FINANCIAL STRENGTH
As the forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. The world's largest banks tend to provide better prices and execution to institutions with the largest trade volume and the most solid financials. FXCM averages $200,000,000,000 ($200 billion) in monthly notional trading volume and is one of the most well-capitalized Forex Dealer Members. According to the financial data posted on the CFTC website, as one of the oldest and largest high-volume retail online forex brokers, FXCM has built strong execution relationships with many of the world's largest international banks. FXCM receives and is able to pass on the benefits of size, better prices, and better execution to our clients.
TRADE FOREX ON RATES FROM THE LARGEST BANKS IN THE WORLD
With No Dealing Desk execution, traders—through the FXCM Trading Station—have the ability to trade on rates provided by some of the largest banks in the world. These banks provide FXCM with some of the best rates, which results in spreads as low as 2 pips. No Dealing Desk execution combines the benefits of trading prices from top-tier banks, with the convenience and speed of FXCM's award-winning trading platform.
TRADE FOREX WHEN YOU WANT AND HOW YOU WANT...NO RESTRICTIONS
You trade when you want—even during market-moving news and economic events. Furthermore, this system enables you to place entry orders at any price—even inside the spread.
24-HOUR SUPPORT
FXCM offers 24-hour-a-day trading support, giving you the ability to place orders over the phone when the market is open. Our staff of 500+ highly trained specialists are available around the clock to service clients from our regional headquarters in New York, London, Hong Kong, and Tokyo.
SIZE & FINANCIAL STRENGTH
As the forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. The world's largest banks tend to provide better prices and execution to institutions with the largest trade volume and the most solid financials. FXCM averages $200,000,000,000 ($200 billion) in monthly notional trading volume and is one of the most well-capitalized Forex Dealer Members. According to the financial data posted on the CFTC website, as one of the oldest and largest high-volume retail online forex brokers, FXCM has built strong execution relationships with many of the world's largest international banks. FXCM receives and is able to pass on the benefits of size, better prices, and better execution to our clients.
Thursday, November 1, 2007
Charts: USDCHF
USDCHF - a bellwether for the USD picture?
USDCHF looks like it is at an important pivot area and needs to decide in the upcoming sessions whether the bear market is still alive or whether we are headed for a sharp consolidation higher. The old low was in the 1.1620 area, and this was tested again on the Monday after the G-7 meeting, and then broken again in the last few days. The new lows haven't held well so far as we are trading back at the 1.1620 pivot area again this morning, so USDCHF needs to either pick up the downside again to prove the bearish case, or it is at risk of presenting a false break lower and therefore disappointing the bears with a sharp consolidation higher. Note the importance of the 55-day SMA previously (two areas circled), which is still very far off above 1.1800. The 2004 low is still a long ways off at 1.1290.
Forex Market Update
By John HardyMarket StrategistSaxo Bank
-->
Thursday, Nov 01, 2007, 09:25 GMT
By John Hardy Market Strategist Saxo Bank
USDJPY breaking resistance as Fed statement shifts focus back to incoming data. ISM and PCE inflation data on tap today.
Carry theme still in full swing right now on commodity price spikes and equity strength yesterday.
MAJOR HEADLINES – PREVIOUS SESSION
Overnight developments:
US Fed cut rates 25 bps to bring the Fed Funds rate to 4.50%. The vote was 9-1 for this decision, with the one dissenter voting for no change
Australia AiG Performance of Mfg Index for October out at 53.3 vs. 50.7 in September
Australia Retail Sales for Sep rose +0.8% MoM vs. +0.5% expected
Australia Trade Balance was -1.86B AUD in Sep vs. -1.0B expected
THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):
Norway Unemployment Rate (0900)
UK Manufacturing PMI (0930)
UK CBI Oct Distributive Trades Report (1100)
US Chhalenger Job Cuts (1130)
US Personal Income and Spending (1230)
US PCE Core (1230)
US ISM Manufacturing (1400)
Market Comments
Yesterday, we got our highest odds scenario from the FOMC: a 25 bps cut with a change to the statement that reasonably neutralized the forward trajectory of rates. US rates responded sharply to this, with the next EuroDollar STIR contracts on the strip dropping sharply and USD 2-year rates jumping higher on the news. The key differences in the statement were 1) the specific worries expressed about commodity driven inflation: "recent inrease in energy and ommodity prices, among other factors, may put renewed upward pressure on inflation." 2) an expression of the outlook/risks being in balance: "after this action, the upside risks to inflation roughly balance the downside risks to growth." This latter statement is the important addition that effectively gives the Fed maximum flexibility at its next rate setting meeting and future rate cuts are by no means certain. Importantly in the bigger picture - over the past few months, the US data has moved to the background as the obssessive focus was on the credit situation, liquidity problems, and big financial institutions. With this new policy statement, the focus shifts to the data - which is suddenly important again and could trigger at least short-term moves on each new release.
And speaking of incoming data - today we get the ISM manufacturing number and the PCE core and tomorrow the employment report.
We may have seen a key divergence yesterday in terms of the USD and its correlation with the risk aversion/appetite theme. In the recent paradigm, the USD tended to only thrive when risk aversion was high. With a strong batch of GDP data and a more hawkish Fed pushing rates higher, however, the interest rate differentials with the other majors have been reigned in further and make the last leg of USD weakening look unjustified. At the same time, yesterday showed that equity markets are still buoyant and the carry trade seems very much alive. This combined with the still very dovish BoJ and could mean long USDJPY positions would be an interesting way to test a continuation of this theme. USDJPY is breaking higher through the 55-day SMA at 115.50 at which it settled yesterday. USD/CHF could be a possible alternative, as the SNB's Roth's tough talk has failed to put a lid on EUR/CHF and USD/CHF seems to be having a hard time holding the recent lows below 1.1620 - though the technicals are less clear cut there. USD/CAD looks criminally mispriced, but catching a falling knife is always a dangerous occupation.
One interesting data point to notice in the swarm of things going on at present, was the EuroZone CPI estimate, with yesterday's October release suddenly jumping to a 5-year high at 2.6% after being mired below 2.0% for the better part of a year.
The guidance from Norges Bank was very dovish and the pair spiked very shaprly higher, before a 6-dollar (!!) spike in crude oil prices put a lid on the EURNOK situation later in the day. Norges Bank suggested they saw rates at 5.00% in 2010 - a 50 bps downward adjustment from its guidance in June and adjusted inflation forecasts down as well. As long as crude is at these levels, however, the pair is a tough one to buy - there may be room for a move to test the 7.8700 area here, nonetheless, if it stays above 7.7500.
Charts: USDCHF
USDCHF - a bellwether for the USD picture? USDCHF looks like it is at an important pivot area and needs to decide in the upcoming sessions whether the bear market is still alive or whether we are headed for a sharp consolidation higher. The old low was in the 1.1620 area, and this was tested again on the Monday after the G-7 meeting, and then broken again in the last few days. The new lows haven't held well so far as we are trading back at the 1.1620 pivot area again this morning, so USDCHF needs to either pick up the downside again to prove the bearish case, or it is at risk of presenting a false break lower and therefore disappointing the bears with a sharp consolidation higher. Note the importance of the 55-day SMA previously (two areas circled), which is still very far off above 1.1800. The 2004 low is still a long ways off at 1.1290.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
Risk Warnings:
Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.
USDCHF looks like it is at an important pivot area and needs to decide in the upcoming sessions whether the bear market is still alive or whether we are headed for a sharp consolidation higher. The old low was in the 1.1620 area, and this was tested again on the Monday after the G-7 meeting, and then broken again in the last few days. The new lows haven't held well so far as we are trading back at the 1.1620 pivot area again this morning, so USDCHF needs to either pick up the downside again to prove the bearish case, or it is at risk of presenting a false break lower and therefore disappointing the bears with a sharp consolidation higher. Note the importance of the 55-day SMA previously (two areas circled), which is still very far off above 1.1800. The 2004 low is still a long ways off at 1.1290.
Forex Market Update
By John HardyMarket StrategistSaxo Bank
-->
Thursday, Nov 01, 2007, 09:25 GMT
By John Hardy Market Strategist Saxo Bank
USDJPY breaking resistance as Fed statement shifts focus back to incoming data. ISM and PCE inflation data on tap today.
Carry theme still in full swing right now on commodity price spikes and equity strength yesterday.
MAJOR HEADLINES – PREVIOUS SESSION
Overnight developments:
US Fed cut rates 25 bps to bring the Fed Funds rate to 4.50%. The vote was 9-1 for this decision, with the one dissenter voting for no change
Australia AiG Performance of Mfg Index for October out at 53.3 vs. 50.7 in September
Australia Retail Sales for Sep rose +0.8% MoM vs. +0.5% expected
Australia Trade Balance was -1.86B AUD in Sep vs. -1.0B expected
THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):
Norway Unemployment Rate (0900)
UK Manufacturing PMI (0930)
UK CBI Oct Distributive Trades Report (1100)
US Chhalenger Job Cuts (1130)
US Personal Income and Spending (1230)
US PCE Core (1230)
US ISM Manufacturing (1400)
Market Comments
Yesterday, we got our highest odds scenario from the FOMC: a 25 bps cut with a change to the statement that reasonably neutralized the forward trajectory of rates. US rates responded sharply to this, with the next EuroDollar STIR contracts on the strip dropping sharply and USD 2-year rates jumping higher on the news. The key differences in the statement were 1) the specific worries expressed about commodity driven inflation: "recent inrease in energy and ommodity prices, among other factors, may put renewed upward pressure on inflation." 2) an expression of the outlook/risks being in balance: "after this action, the upside risks to inflation roughly balance the downside risks to growth." This latter statement is the important addition that effectively gives the Fed maximum flexibility at its next rate setting meeting and future rate cuts are by no means certain. Importantly in the bigger picture - over the past few months, the US data has moved to the background as the obssessive focus was on the credit situation, liquidity problems, and big financial institutions. With this new policy statement, the focus shifts to the data - which is suddenly important again and could trigger at least short-term moves on each new release.
And speaking of incoming data - today we get the ISM manufacturing number and the PCE core and tomorrow the employment report.
We may have seen a key divergence yesterday in terms of the USD and its correlation with the risk aversion/appetite theme. In the recent paradigm, the USD tended to only thrive when risk aversion was high. With a strong batch of GDP data and a more hawkish Fed pushing rates higher, however, the interest rate differentials with the other majors have been reigned in further and make the last leg of USD weakening look unjustified. At the same time, yesterday showed that equity markets are still buoyant and the carry trade seems very much alive. This combined with the still very dovish BoJ and could mean long USDJPY positions would be an interesting way to test a continuation of this theme. USDJPY is breaking higher through the 55-day SMA at 115.50 at which it settled yesterday. USD/CHF could be a possible alternative, as the SNB's Roth's tough talk has failed to put a lid on EUR/CHF and USD/CHF seems to be having a hard time holding the recent lows below 1.1620 - though the technicals are less clear cut there. USD/CAD looks criminally mispriced, but catching a falling knife is always a dangerous occupation.
One interesting data point to notice in the swarm of things going on at present, was the EuroZone CPI estimate, with yesterday's October release suddenly jumping to a 5-year high at 2.6% after being mired below 2.0% for the better part of a year.
The guidance from Norges Bank was very dovish and the pair spiked very shaprly higher, before a 6-dollar (!!) spike in crude oil prices put a lid on the EURNOK situation later in the day. Norges Bank suggested they saw rates at 5.00% in 2010 - a 50 bps downward adjustment from its guidance in June and adjusted inflation forecasts down as well. As long as crude is at these levels, however, the pair is a tough one to buy - there may be room for a move to test the 7.8700 area here, nonetheless, if it stays above 7.7500.
Charts: USDCHF
USDCHF - a bellwether for the USD picture? USDCHF looks like it is at an important pivot area and needs to decide in the upcoming sessions whether the bear market is still alive or whether we are headed for a sharp consolidation higher. The old low was in the 1.1620 area, and this was tested again on the Monday after the G-7 meeting, and then broken again in the last few days. The new lows haven't held well so far as we are trading back at the 1.1620 pivot area again this morning, so USDCHF needs to either pick up the downside again to prove the bearish case, or it is at risk of presenting a false break lower and therefore disappointing the bears with a sharp consolidation higher. Note the importance of the 55-day SMA previously (two areas circled), which is still very far off above 1.1800. The 2004 low is still a long ways off at 1.1290.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
Risk Warnings:
Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.
Forex Trading
Tips For Global Forex Trading
You’ve decided to become a trader on the Forex market but since you’ve never played on the currency market you aren’t sure where to start. Not to worry – we’ve got some great tips for global Forex trading,
Forex is the foreign exchange market where currencies are bought and sold. It began back in the 1970’s with the introduction of free exchange rates and floating currencies. Thanks to the internet more and more people are able to reap the profits of the currency market with global Forex trading.
This is a market that trades as over US$1 trillion a day. It trades more than any other market. There are some distinct differences in the currency market compared to the stock market. Money moves much faster so no single investor has the ability to actually affect market price and trades are able to open and close within seconds which is not possible on the stock market.
To start your global Forex trading you need to open a Forex account. Just fill in the application and the sign the margin agreement which let’s the broker intervene at any time. That makes sense since it’s the broker’s money that just makes sense.
You need to choose a trading strategy that works for you. Different strategies work for different traders to don’t try to makes something work, instead find the right trading strategy for you.
It’s important to understand that trends move prices so a smart investor will make trends their friend and even go so far as to examine historical trends.
The top five currency pairs are USD/Yen, Euro/Yen, Swiss franc/USD, Pound USD/ and the Euro/USD. Make sure you know and understand them.
Examine the charts at 1 hour, 4 hour, and daily. This will give you the daily trends and plenty of opportunity to trade. Sure you can trade every 15 minutes if you like but that’s not really practical.
Now that you’ve got all your global Forex trading tips you’re ready to see some profits.
You’ve decided to become a trader on the Forex market but since you’ve never played on the currency market you aren’t sure where to start. Not to worry – we’ve got some great tips for global Forex trading,
Forex is the foreign exchange market where currencies are bought and sold. It began back in the 1970’s with the introduction of free exchange rates and floating currencies. Thanks to the internet more and more people are able to reap the profits of the currency market with global Forex trading.
This is a market that trades as over US$1 trillion a day. It trades more than any other market. There are some distinct differences in the currency market compared to the stock market. Money moves much faster so no single investor has the ability to actually affect market price and trades are able to open and close within seconds which is not possible on the stock market.
To start your global Forex trading you need to open a Forex account. Just fill in the application and the sign the margin agreement which let’s the broker intervene at any time. That makes sense since it’s the broker’s money that just makes sense.
You need to choose a trading strategy that works for you. Different strategies work for different traders to don’t try to makes something work, instead find the right trading strategy for you.
It’s important to understand that trends move prices so a smart investor will make trends their friend and even go so far as to examine historical trends.
The top five currency pairs are USD/Yen, Euro/Yen, Swiss franc/USD, Pound USD/ and the Euro/USD. Make sure you know and understand them.
Examine the charts at 1 hour, 4 hour, and daily. This will give you the daily trends and plenty of opportunity to trade. Sure you can trade every 15 minutes if you like but that’s not really practical.
Now that you’ve got all your global Forex trading tips you’re ready to see some profits.
THEMES TO WATCH
THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):
Norway Unemployment Rate (0900)
UK Manufacturing PMI (0930)
UK CBI Oct Distributive Trades Report (1100)
US Chhalenger Job Cuts (1130)
US Personal Income and Spending (1230)
US PCE Core (1230)
US ISM Manufacturing (1400)]
Market Comments
Yesterday, we got our highest odds scenario from the FOMC: a 25 bps cut with a change to the statement that reasonably neutralized the forward trajectory of rates. US rates responded sharply to this, with the next EuroDollar STIR contracts on the strip dropping sharply and USD 2-year rates jumping higher on the news. The key differences in the statement were 1) the specific worries expressed about commodity driven inflation: "recent inrease in energy and ommodity prices, among other factors, may put renewed upward pressure on inflation." 2) an expression of the outlook/risks being in balance: "after this action, the upside risks to inflation roughly balance the downside risks to growth." This latter statement is the important addition that effectively gives the Fed maximum flexibility at its next rate setting meeting and future rate cuts are by no means certain. Importantly in the bigger picture - over the past few months, the US data has moved to the background as the obssessive focus was on the credit situation, liquidity problems, and big financial institutions. With this new policy statement, the focus shifts to the data - which is suddenly important again and could trigger at least short-term moves on each new release.
And speaking of incoming data - today we get the ISM manufacturing number and the PCE core and tomorrow the employment report.
We may have seen a key divergence yesterday in terms of the USD and its correlation with the risk aversion/appetite theme. In the recent paradigm, the USD tended to only thrive when risk aversion was high. With a strong batch of GDP data and a more hawkish Fed pushing rates higher, however, the interest rate differentials with the other majors have been reigned in further and make the last leg of USD weakening look unjustified. At the same time, yesterday showed that equity markets are still buoyant and the carry trade seems very much alive. This combined with the still very dovish BoJ and could mean long USDJPY positions would be an interesting way to test a continuation of this theme. USDJPY is breaking higher through the 55-day SMA at 115.50 at which it settled yesterday. USD/CHF could be a possible alternative, as the SNB's Roth's tough talk has failed to put a lid on EUR/CHF and USD/CHF seems to be having a hard time holding the recent lows below 1.1620 - though the technicals are less clear cut there. USD/CAD looks criminally mispriced, but catching a falling knife is always a dangerous occupation.
One interesting data point to notice in the swarm of things going on at present, was the EuroZone CPI estimate, with yesterday's October release suddenly jumping to a 5-year high at 2.6% after being mired below 2.0% for the better part of a year.
The guidance from Norges Bank was very dovish and the pair spiked very shaprly higher, before a 6-dollar (!!) spike in crude oil prices put a lid on the EURNOK situation later in the day. Norges Bank suggested they saw rates at 5.00% in 2010 - a 50 bps downward adjustment from its guidance in June and adjusted inflation forecasts down as well. As long as crude is at these levels, however, the pair is a tough one to buy - there may be room for a move to test the 7.8700 area here, nonetheless, if it stays above 7.7500
Key event risks today (all times GMT):
Norway Unemployment Rate (0900)
UK Manufacturing PMI (0930)
UK CBI Oct Distributive Trades Report (1100)
US Chhalenger Job Cuts (1130)
US Personal Income and Spending (1230)
US PCE Core (1230)
US ISM Manufacturing (1400)]
Market Comments
Yesterday, we got our highest odds scenario from the FOMC: a 25 bps cut with a change to the statement that reasonably neutralized the forward trajectory of rates. US rates responded sharply to this, with the next EuroDollar STIR contracts on the strip dropping sharply and USD 2-year rates jumping higher on the news. The key differences in the statement were 1) the specific worries expressed about commodity driven inflation: "recent inrease in energy and ommodity prices, among other factors, may put renewed upward pressure on inflation." 2) an expression of the outlook/risks being in balance: "after this action, the upside risks to inflation roughly balance the downside risks to growth." This latter statement is the important addition that effectively gives the Fed maximum flexibility at its next rate setting meeting and future rate cuts are by no means certain. Importantly in the bigger picture - over the past few months, the US data has moved to the background as the obssessive focus was on the credit situation, liquidity problems, and big financial institutions. With this new policy statement, the focus shifts to the data - which is suddenly important again and could trigger at least short-term moves on each new release.
And speaking of incoming data - today we get the ISM manufacturing number and the PCE core and tomorrow the employment report.
We may have seen a key divergence yesterday in terms of the USD and its correlation with the risk aversion/appetite theme. In the recent paradigm, the USD tended to only thrive when risk aversion was high. With a strong batch of GDP data and a more hawkish Fed pushing rates higher, however, the interest rate differentials with the other majors have been reigned in further and make the last leg of USD weakening look unjustified. At the same time, yesterday showed that equity markets are still buoyant and the carry trade seems very much alive. This combined with the still very dovish BoJ and could mean long USDJPY positions would be an interesting way to test a continuation of this theme. USDJPY is breaking higher through the 55-day SMA at 115.50 at which it settled yesterday. USD/CHF could be a possible alternative, as the SNB's Roth's tough talk has failed to put a lid on EUR/CHF and USD/CHF seems to be having a hard time holding the recent lows below 1.1620 - though the technicals are less clear cut there. USD/CAD looks criminally mispriced, but catching a falling knife is always a dangerous occupation.
One interesting data point to notice in the swarm of things going on at present, was the EuroZone CPI estimate, with yesterday's October release suddenly jumping to a 5-year high at 2.6% after being mired below 2.0% for the better part of a year.
The guidance from Norges Bank was very dovish and the pair spiked very shaprly higher, before a 6-dollar (!!) spike in crude oil prices put a lid on the EURNOK situation later in the day. Norges Bank suggested they saw rates at 5.00% in 2010 - a 50 bps downward adjustment from its guidance in June and adjusted inflation forecasts down as well. As long as crude is at these levels, however, the pair is a tough one to buy - there may be room for a move to test the 7.8700 area here, nonetheless, if it stays above 7.7500
Tuesday, October 23, 2007
Currency-Trading
FOREX 101: Make Money with Currency Trading
For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.
FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.
Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.
How FOREX Works
Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.
EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)
When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.
A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
Make Money with Currency Trading on FOREX
FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.
For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.
FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.
Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.
How FOREX Works
Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.
EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)
When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.
A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
Make Money with Currency Trading on FOREX
FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.
Analysis of forex
Fundamental Analysis
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. If you think of the financial markets as a big clock, the fundamentals are the gears and springs that move the hands around the face. Anyone walking down the street can look at this clock and tell you what time it is now, but the fundamentalist can tell you how it came to be this time and more importantly, what time (or more precisely, what price) it will be in the future.
There is a tendency to pigeonhole traders into two distinct schools of market analysis - fundamental and technical. Indeed, the first question posed to you after you tell someone that you are a trader is generally "Are you a technician or a fundamentalist?" The reality is that it has become increasingly difficult to be a purist of either persuasion. Fundamentalists need to keep an eye on the various signals derived from the price action on charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or the myriad of societal issues that influence prices.
Bearing in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. At the same time, you'll find that your knowledge and understanding of a dynamic global market will increase immeasurably as you delve further and further into the complexities and subtleties of the fundamentals of the markets.
Fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. For example, when analyzing an economist's forecast of the upcoming GDP or employment report, you begin to get a fairly clear picture of the general health of the economy and the forces at work behind it. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy.
A trader who studies the markets using fundamental analysis will generally create models to formulate a trading strategy. These models typically utilize a host of empirical data and attempt to forecast market behavior and estimate future values or prices by using past values of core economic indicators. This information is then used to derive specific trades that best exploit this information.
Forecasting models are as numerous and varied as the traders and market buffs that create them. Two people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. Therefore is it important that before casting yourself into a particular mold regarding any aspect of market analysis, you study the fundamentals and see how they best fit your trading style and expectations.
Don't succumb to 'paralysis by analysis.' Given the multitude of factors that fall under the heading of "The Fundamentals," there is a distinct danger of information overload. Sometimes traders fall into this trap and are unable to pull the trigger on a trade. This is one of the reasons why many traders turn to technical analysis. To some, technical analysis is seen as a way to transform all of the fundamental factors that influence the markets into one simple tool, prices. However, trading a particular market without knowing a great deal about the exact nature of its underlying elements is like fishing without bait. You might get lucky and snare a few on occasion but it's not the best approach over the long haul.
For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is best to get a handle on the most influential contributors to this diverse mix than it is to formulate a comprehensive list of all "The Fundamentals."
There is a tendency to pigeonhole traders into two distinct schools of market analysis - fundamental and technical. Indeed, the first question posed to you after you tell someone that you are a trader is generally "Are you a technician or a fundamentalist?" The reality is that it has become increasingly difficult to be a purist of either persuasion. Fundamentalists need to keep an eye on the various signals derived from the price action on charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or the myriad of societal issues that influence prices.
Bearing in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. At the same time, you'll find that your knowledge and understanding of a dynamic global market will increase immeasurably as you delve further and further into the complexities and subtleties of the fundamentals of the markets.
Fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. For example, when analyzing an economist's forecast of the upcoming GDP or employment report, you begin to get a fairly clear picture of the general health of the economy and the forces at work behind it. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy.
A trader who studies the markets using fundamental analysis will generally create models to formulate a trading strategy. These models typically utilize a host of empirical data and attempt to forecast market behavior and estimate future values or prices by using past values of core economic indicators. This information is then used to derive specific trades that best exploit this information.
Forecasting models are as numerous and varied as the traders and market buffs that create them. Two people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. Therefore is it important that before casting yourself into a particular mold regarding any aspect of market analysis, you study the fundamentals and see how they best fit your trading style and expectations.
Don't succumb to 'paralysis by analysis.' Given the multitude of factors that fall under the heading of "The Fundamentals," there is a distinct danger of information overload. Sometimes traders fall into this trap and are unable to pull the trigger on a trade. This is one of the reasons why many traders turn to technical analysis. To some, technical analysis is seen as a way to transform all of the fundamental factors that influence the markets into one simple tool, prices. However, trading a particular market without knowing a great deal about the exact nature of its underlying elements is like fishing without bait. You might get lucky and snare a few on occasion but it's not the best approach over the long haul.
For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is best to get a handle on the most influential contributors to this diverse mix than it is to formulate a comprehensive list of all "The Fundamentals."
Monday, October 22, 2007
Reviews
Introduction to the Forex Market
The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$3.2 trillion.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, we believe the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market from Sunday 5:00 PM ET to Friday 5:00PM ET, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank/interdealer' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, we believe the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market from Sunday 5:00 PM ET to Friday 5:00PM ET, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank/interdealer' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
What controls the market?
The primary causes of changes in currency rates are economical forces as well as political and psychological factors.
Basic parameters of economy such as inflation, interest rates, unemployment, and many others affect exchange rates constantly and dramatically. Government policy has drastic influence on the rates too. Competence of the government in maintaining the currency is conducive for its rate increase. Decreasing interest rates stimulates decreased demand for the currency and, thus, depresses its value in the exchange operations. A decision of the Central Bank of a country to buy or sell the currency may strengthen or undermine its rate significantly.
Expectations of change in the economic conditions may lead to sudden and drastic fluctuation of the currency rate. This is the key concept, because the foreign exchange market is often controlled by expectation of changes, rather than the changes themselves.
Activity of professional currency exchange managers, especially when caused by the interests of powerful financial consortia, is another important market force. In many cases, the managers may act independently and use the market as a unique instrument to achieve their goals of changing major rates. Most, if not all of them, could not care less about the adequacy of charts used for technical analysis. Though, as major levels of resistance and support are approached, the behavior of the market becomes more and more "technical", and the reactions of large number of traders often become similar and predictable. Such periods in the market may lead to dramatic rate fluctuations, because significant funds happen to be invested in similar positions.
Basic parameters of economy such as inflation, interest rates, unemployment, and many others affect exchange rates constantly and dramatically. Government policy has drastic influence on the rates too. Competence of the government in maintaining the currency is conducive for its rate increase. Decreasing interest rates stimulates decreased demand for the currency and, thus, depresses its value in the exchange operations. A decision of the Central Bank of a country to buy or sell the currency may strengthen or undermine its rate significantly.
Expectations of change in the economic conditions may lead to sudden and drastic fluctuation of the currency rate. This is the key concept, because the foreign exchange market is often controlled by expectation of changes, rather than the changes themselves.
Activity of professional currency exchange managers, especially when caused by the interests of powerful financial consortia, is another important market force. In many cases, the managers may act independently and use the market as a unique instrument to achieve their goals of changing major rates. Most, if not all of them, could not care less about the adequacy of charts used for technical analysis. Though, as major levels of resistance and support are approached, the behavior of the market becomes more and more "technical", and the reactions of large number of traders often become similar and predictable. Such periods in the market may lead to dramatic rate fluctuations, because significant funds happen to be invested in similar positions.
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