Many of us have been fascinated by the shiny, colorful world of currencies as children, and even those of us who have little interest in the forex market have engaged in some form of currency trading while traveling outside their homeland. And these days, one will easily find people discussing the advantages and weaknesses of the US dollar even in a casual gathering.
The forex market is the currency market: it’s where the value of each currency is determined versus every other currency in the world. If you exchange one US dollar for its equivalent value in Euros, you’re already a part of the forex market, and are creating the quotes you see reported on TV screens every day. There’s no difference between the actions of a tourist at an exchange bureau, and the transactions of banks in the international market, apart from size and maturity terms.
In today’s integrated and specialized economies it’s rare to find all the components of any product produced inside one country’s borders, and so, international trade is a major creator of global forex volume. Deepening financial interactions across the globe through partnerships, buyouts of firms and international loans, along with ever complex tools of investment have been increasing the size of the forex market in recent years. If global trade and finance were the body of world economy, the forex market would be the circulatory system; in other words, there doesn’t exist a deeper, more liquid market than that of currency trading. Almost every political or economical event of long-term significance is reflected in its workings, and understanding it results in a very good comprehension of finance and economics in general.
Participating in such a vast and significant mechanism can be a rewarding and exciting experience for the individual investor. But while this is true, success during your interactions with the giants will require more than a bit of diligence and patient study. The rewards can be immense: famous investors such as George Soros, Jim Rogers, large Wall Street firms such as Goldman Sachs, or banks like Citibank all make millions of dollars each year from trading in the forex market. In fact George Soros is notorious as being the man who broke the Bank of England: Through successful speculations, he was able to make 1 billion dollars in just about a week.
Forex pips and lots
A pip is the smallest amount of movement a price quote can make. In other words, each tick of the price quote is a pip. When EUR/USD moves from 1.2786 to 1.2787, for example, it has moved by one pip. You could also call it a point or a tick, but in forex traders’ jargon, pip is the word.
It’s a good idea to measure your profit or loss in pips rather than in the amount you actually lose or earn, since the trader’s performance can only be valued through his success in gathering pips. For instance, supposing trader A has a beginning capital of 100 USD, and trader B has only 10, it would take trader B ten times as much in terms of pips to achieve the same gain that was acquired by trader A in absolute dollar terms. In terms of their prowess in the market, however, if trader B were to make just 1/10 of what trader A makes, they’d still be equal, due to the the difference between their starting capital. This same logic can be utilized when assessing one’s own prowess, and if a diary is kept, it’s always better to note the loss or profit in pips, rather than cash, so as to keep a better track of performance.
It must also be remembered that one pip in the currency pair that is traded may not be the same amount in the trader’s base currency, that is, the currency with which he funds his account. For instance, if your currency is the British Pound, and you’re trading the EUR/USD, one pip movement in the currency pair would be a different amount in your base currency, depending on the quotes.
Another important term in trading forex is the lot, which is the smallest amount of currency you can trade at a particular level of leverage, and the standard lot size is 100,000 USD. Among today’s forex brokers, there are those who allow traders to enter bids without the use of lots (sometimes called mini lots), and the inexperienced trader may seek them before gaining enough confidence to start trading with a higher volume.
It’s a good idea to measure your profit or loss in pips rather than in the amount you actually lose or earn, since the trader’s performance can only be valued through his success in gathering pips. For instance, supposing trader A has a beginning capital of 100 USD, and trader B has only 10, it would take trader B ten times as much in terms of pips to achieve the same gain that was acquired by trader A in absolute dollar terms. In terms of their prowess in the market, however, if trader B were to make just 1/10 of what trader A makes, they’d still be equal, due to the the difference between their starting capital. This same logic can be utilized when assessing one’s own prowess, and if a diary is kept, it’s always better to note the loss or profit in pips, rather than cash, so as to keep a better track of performance.
It must also be remembered that one pip in the currency pair that is traded may not be the same amount in the trader’s base currency, that is, the currency with which he funds his account. For instance, if your currency is the British Pound, and you’re trading the EUR/USD, one pip movement in the currency pair would be a different amount in your base currency, depending on the quotes.
Another important term in trading forex is the lot, which is the smallest amount of currency you can trade at a particular level of leverage, and the standard lot size is 100,000 USD. Among today’s forex brokers, there are those who allow traders to enter bids without the use of lots (sometimes called mini lots), and the inexperienced trader may seek them before gaining enough confidence to start trading with a higher volume.
Forex Broker
1: Choosing the Best Professional Forex Brokers The US currency is one of the most widely used trading money in the market today. The US bank and its related financial agencies have a say on the players in the forex market.
2: Dealing With Online Forex Brokers Forex brokers are highly esteemed in the market. Most of the time, we feel way too assured for our own good when we get the services of online forex brokers.
3: Reading Forex Broker Reviews Reputation is an important thing when it comes to hiring forex brokers. Reviews about forex brokers would definitely dissect the credentials of the person in discussion.
4: Choosing Forex Brokers in USA Forex brokers serve as the middle man between you and your buyers or sellers. You can choose to either get in touch with forex brokers in USA as a consultant or employ them as your trading partner.
5: Forex Broker- Selecting the Correct Forex Broker-00-402 Today we are seeing many people starting to trade the Forex Market, as it is recession proof. It is also the most liquid market in the world, turning over in excess of $3 trillion every day. So if you are looking to get into Forex trading then the most important step you can take is to find a great Forex Broker.
6: CFD Broker - Make the Choice - Not A Mistake Today, this article will discuss about the CFD market, and how you can find a great online CFD broker when you do decide to jump on the wagon and become a CFD Trader. Most of the CFD Brokers today offer the ability to be able to trade online, CFD trade over the phone, or CFD trade from you mobile phone.
7: Best CFD Broker - Australia The Contracts For Difference (CFD) Market is the largest financial market and everyday new investors plan to jump in when they learn of the benefits, that is, high returns on investment which is as high as 20% per month a month.
8: Finding A Forex Broker For Dummies Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs.
9: CFD Brokers Singapore - Who is the Best? Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs
10: Finding a Forex Broker Most traders and investors out there know, the foreign exchange market is the largest market in the world. This is why we are seeing so many people making the transition from shares, options, futures to the Forex Markets. With the brilliant liquidity, much longer trading hours, we are seeing traders realize returns as much as 40% a month and in some cases even more.
2: Dealing With Online Forex Brokers Forex brokers are highly esteemed in the market. Most of the time, we feel way too assured for our own good when we get the services of online forex brokers.
3: Reading Forex Broker Reviews Reputation is an important thing when it comes to hiring forex brokers. Reviews about forex brokers would definitely dissect the credentials of the person in discussion.
4: Choosing Forex Brokers in USA Forex brokers serve as the middle man between you and your buyers or sellers. You can choose to either get in touch with forex brokers in USA as a consultant or employ them as your trading partner.
5: Forex Broker- Selecting the Correct Forex Broker-00-402 Today we are seeing many people starting to trade the Forex Market, as it is recession proof. It is also the most liquid market in the world, turning over in excess of $3 trillion every day. So if you are looking to get into Forex trading then the most important step you can take is to find a great Forex Broker.
6: CFD Broker - Make the Choice - Not A Mistake Today, this article will discuss about the CFD market, and how you can find a great online CFD broker when you do decide to jump on the wagon and become a CFD Trader. Most of the CFD Brokers today offer the ability to be able to trade online, CFD trade over the phone, or CFD trade from you mobile phone.
7: Best CFD Broker - Australia The Contracts For Difference (CFD) Market is the largest financial market and everyday new investors plan to jump in when they learn of the benefits, that is, high returns on investment which is as high as 20% per month a month.
8: Finding A Forex Broker For Dummies Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs.
9: CFD Brokers Singapore - Who is the Best? Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs
10: Finding a Forex Broker Most traders and investors out there know, the foreign exchange market is the largest market in the world. This is why we are seeing so many people making the transition from shares, options, futures to the Forex Markets. With the brilliant liquidity, much longer trading hours, we are seeing traders realize returns as much as 40% a month and in some cases even more.
Forex Technical Analysis:
Technical Analysis is probably the most common and successful means of making trading decisions and analyzing forex and commodities markets.
Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of exchange rate movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets.
Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell signals or to predict market direction.
Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of exchange rate movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets.
Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell signals or to predict market direction.
Forex Beginner
1: What is a forex broker? Have you ever felt intrigued by the many advertisements on high leverage and great profit potential involved in currency trading? The golden gate of the kingdom of money, we are told, is reached by the road of forex.
2: Easy Income Source that can be happening in One Day Forex is the best home business to father. Once you are able at it your channel is lined with gold if we embroidered just a petty little.
3: Learn the Simple Forex Market Forex trading is a market which is both complex and simple. How to make money is the simple part, but the implementation of the process to learn forex market can be a little difficult. Forex education can prove to be a boon for all those who are willing to try their luck in forex trading. Therefore it is very important for them to understand the ways and methods of forex trading before actually getting into it. Even if one is well experienced in trading, there is always a room for improvement even for the experts.
4: Automated Forex Trading System The Forex MegaDroid is an automated Forex trading robot This was specifically designed to function in all market environments. Which isexactly why its performance during testing was close to the highest we have everwitnessed. The facts are clear and un-debatable on this issue, the market canmake unexpected moves at the drop of a hat and having a weapon in your arsenalable to react instantly to those corrections and profit from them at the sametime, puts you in a very powerful position. Because of this we were forced togive it our highest rating possible, a 10 out of 10. This item is not to beunderestimated and MUST be in your final decision making process when makingyour purchasing decision
5: Forex Signals Providers - Are They Really Worth Your Money? Making money in forex market became no longer difficult as it was few years ago. with the all new trading techniques and high speed internet connections and the appearance of the so many brokers who give the opportunities to every one to participate in the forex trading market regardless his capital volume.
6: Can You Make Money Online Trading Forex? When you are ready to trade this market, keep these four simple steps in mind and then do not let anything stand in your way of becoming the trader you want to be.
7: Online Forex Resources Are Abundant Forex trading is quickily becoming one of the investing world's hottest, most rewarding opportunities and it's chosen as "ideal business" by lot of traders. Forex are risky, but only when you dont have the necessary knowledge to make a sound decision about the money youre trading.
2: Easy Income Source that can be happening in One Day Forex is the best home business to father. Once you are able at it your channel is lined with gold if we embroidered just a petty little.
3: Learn the Simple Forex Market Forex trading is a market which is both complex and simple. How to make money is the simple part, but the implementation of the process to learn forex market can be a little difficult. Forex education can prove to be a boon for all those who are willing to try their luck in forex trading. Therefore it is very important for them to understand the ways and methods of forex trading before actually getting into it. Even if one is well experienced in trading, there is always a room for improvement even for the experts.
4: Automated Forex Trading System The Forex MegaDroid is an automated Forex trading robot This was specifically designed to function in all market environments. Which isexactly why its performance during testing was close to the highest we have everwitnessed. The facts are clear and un-debatable on this issue, the market canmake unexpected moves at the drop of a hat and having a weapon in your arsenalable to react instantly to those corrections and profit from them at the sametime, puts you in a very powerful position. Because of this we were forced togive it our highest rating possible, a 10 out of 10. This item is not to beunderestimated and MUST be in your final decision making process when makingyour purchasing decision
5: Forex Signals Providers - Are They Really Worth Your Money? Making money in forex market became no longer difficult as it was few years ago. with the all new trading techniques and high speed internet connections and the appearance of the so many brokers who give the opportunities to every one to participate in the forex trading market regardless his capital volume.
6: Can You Make Money Online Trading Forex? When you are ready to trade this market, keep these four simple steps in mind and then do not let anything stand in your way of becoming the trader you want to be.
7: Online Forex Resources Are Abundant Forex trading is quickily becoming one of the investing world's hottest, most rewarding opportunities and it's chosen as "ideal business" by lot of traders. Forex are risky, but only when you dont have the necessary knowledge to make a sound decision about the money youre trading.
What are the advantages of the Forex Market over other types of investments?
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
Forex Avenue: The Road to Riches
In my continuing quest to provide visitors of my site with a large amount of options to chose from when considering working from home I have done some research on Forex trading. I first learned of Forex trading while pursuing my MBA program. For those of you who have never heard of this, Forex trading is the exchange of foreign currency.
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
Forex The Future Investment
There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the european and then the Asian. One of the great times to trade is during the over lapping periods. The USA and european overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smarth trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform,charts,and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smarth trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform,charts,and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
Interested in FOREX Trading?
The Foreign Exchange Market (Forex) has no central exchange location yet it is the largest financial market in the world. It is over 3x's the size of the stock and futures markets combined and operates via an electronic network of a banks, corporations and investors.
Foreign exchange consists of a simultaneous buying of one currency and selling of another. Currency is traded in pairs, in other words, one currency is traded for another. The major currencies are:
USD — United States Dollar EUR — Euro members Euro JPY — Japan Yen GBP — Great Britian pound CHF — Switzerland franc CAD — Canadian dollar AUD — Australia dollar
There are 2 types of investors involved in the Forex market.The first type of investor is the hedger. The hedger is involved in International trades and utilizes Forex trading to protect their interest in a transaction from adverse currency fluctuations. The 2nd type of investor is the speculator who invests in currency solely for profit.
Currency prices fluctuate due to a variety of economic and political factors. The major factors are:
Interest rates International trade Inflation Political stability
There are many reasons investors take a great interest in FX trading Some of the major reasons are:
No fees No middlemen No fixed trade sizes Low transaction cost High liquidity Instant transactions Low margin / High leverage 24 hour market Online access via online trading platforms Always good opportunities to trade, unlike the stock market the market is never bullish or bearish. No one entity can control the market No insider trading can occur
To begin trading in the Forex market, an investor only needs a computer, a high-speed internet connection and an online trading currency account. A mini account can be opened for as little as $100.
These are some of the reasons why Forex trading has become quite popular in recent years. For more information on getting started in FX Trading visit http://www.fx-trading-guide.com/
Foreign exchange consists of a simultaneous buying of one currency and selling of another. Currency is traded in pairs, in other words, one currency is traded for another. The major currencies are:
USD — United States Dollar EUR — Euro members Euro JPY — Japan Yen GBP — Great Britian pound CHF — Switzerland franc CAD — Canadian dollar AUD — Australia dollar
There are 2 types of investors involved in the Forex market.The first type of investor is the hedger. The hedger is involved in International trades and utilizes Forex trading to protect their interest in a transaction from adverse currency fluctuations. The 2nd type of investor is the speculator who invests in currency solely for profit.
Currency prices fluctuate due to a variety of economic and political factors. The major factors are:
Interest rates International trade Inflation Political stability
There are many reasons investors take a great interest in FX trading Some of the major reasons are:
No fees No middlemen No fixed trade sizes Low transaction cost High liquidity Instant transactions Low margin / High leverage 24 hour market Online access via online trading platforms Always good opportunities to trade, unlike the stock market the market is never bullish or bearish. No one entity can control the market No insider trading can occur
To begin trading in the Forex market, an investor only needs a computer, a high-speed internet connection and an online trading currency account. A mini account can be opened for as little as $100.
These are some of the reasons why Forex trading has become quite popular in recent years. For more information on getting started in FX Trading visit http://www.fx-trading-guide.com/
Forex Pay No Commissions
In the forex market costs are confined to the bid-ask spread. FXCM charges no commission or additional transaction fees, and its customers trade on spreads provided to FXCM by some of the world's largest banks via the FX Trading Station. In the stock market, “no-fee” programs are frequently offered only with provisos mandating minimum account balances or minimum trades per month.
Online Forex Trading
Do you know what Forex trading is? Some people have heard of this type of trading, others have not. If you haven't, it might be something you are interested in trying. Forex trading stands for foreign exchange trading. What it consists of is the buying and selling of different currencies. This is done simultaneously, and there are people who make a lot of money with this kind of trading. This is apparent by the 1.9 million dollar turnover in this market that happens every day. Also a lot of it is done online. Online Forex trading is very popular.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
Spot Forex versus Currency Futures
Many traders have made the switch from currency futures to spot foreign exchange ("forex") trading. Spot foreign exchange offers better liquidity and generally a lower cost of trading than currency futures. Banks and brokers in spot foreign exchange can quote markets 24 hours a day. Furthermore, the spot foreign exchange market is not burdened by exchange and NFA ("National Futures Association") fees, which are generally passed on to the customer in the form of higher commissions. For these reasons, virtually all professional traders and institutions conduct most of their foreign exchange dealing in the spot forex market, not in currency futures.
The mechanics of trading spot forex are similar to those of currency futures. The most important initial difference is the way in which currency pairs are quoted. Currency futures are always quoted as the currency versus the US dollar. In Spot forex, some currencies are quoted this way, while others are quoted as the US dollar versus the currency. For example, in spot forex, EURUSD is quoted the same way as Euro futures. In other words, if the Euro is strengthening, EURUSD will rise just as Euro futures will rise. On the other hand, USDCHF is quoted as US dollars with respect to Swiss Francs, the opposite of Swiss Franc futures. So if the Swiss Franc strengthens with respect to the US dollar, USDCHF will fall, while Swiss Franc futures will rise. The rule in spot forex is that the first currency shown is the currency that is being quoted in terms of direction. For example, "EUR" in EURUSD and "USD" in USDCHF is the currency that is being quoted
The mechanics of trading spot forex are similar to those of currency futures. The most important initial difference is the way in which currency pairs are quoted. Currency futures are always quoted as the currency versus the US dollar. In Spot forex, some currencies are quoted this way, while others are quoted as the US dollar versus the currency. For example, in spot forex, EURUSD is quoted the same way as Euro futures. In other words, if the Euro is strengthening, EURUSD will rise just as Euro futures will rise. On the other hand, USDCHF is quoted as US dollars with respect to Swiss Francs, the opposite of Swiss Franc futures. So if the Swiss Franc strengthens with respect to the US dollar, USDCHF will fall, while Swiss Franc futures will rise. The rule in spot forex is that the first currency shown is the currency that is being quoted in terms of direction. For example, "EUR" in EURUSD and "USD" in USDCHF is the currency that is being quoted
Trade Around the Clock
The forex market is a near-seamless 24-hour market. Subject to available liquidity, FXCM offers trading from Sunday, starting after 5:15 PM EST, until Friday, 4PM, EST (FXCM Client Service is available 24/7). With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap. While trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread.
Forex Market Information Easily Accessible
Information about stocks is abundant, but so are the stocks. Finding a trade opportunity in the equities markets may mean sifting through data on thousands of stocks, while the forex trader has only six major currencies to research. Additionally, the vital information that moves equity markets, such as revenues and profits, is proprietary and private. In contrast, virtually all of the news that bears on the forex market is in publicly disseminated reports from governments or research institutions, and released to everybody at the same time. We feel that the knowledge you've gained in analyzing stocks can easily be transferred to the forex market. Many of the economic indicators familiar to equity traders, such as payroll data and interest rates, affect the currency markets. And many technical traders have found the forex market to be particularly attractive, since currencies respond well to many of the common technical indicators, such as MACD, RSI, and Candlestick charting. To learn more about transitioning from trading equity markets to trading in the Forex market, contact the FXCM staff today at 888-503-6739.
How does forex trading work?
Forex trading is the act of trading currencies from different countries against each other. Forex is acronym for foreign exchange.
For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States, the currency in circulation is called the US Dollar (USD).
An example of a forex trade is to buy the Euro while simultaneously selling the US Dollar. This is called going long on the EUR/USD.
Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you feel is going to change in value and place a trade accordingly.
Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position.
When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen in seconds.
The main enticements of currency dealing for private investors and attraction for short-term forex trading are:
* 24-hour trading, 5 days a week with non-stop access to global forex dealers.
* An enormous liquid market making it easy to trade most currencies.
* Volatile markets offering profit opportunities.
* Standard instruments for controlling risk exposure.
* The ability to profit in rising or falling markets.
* Leveraged trading with low margin requirements.
* Many options for zero commission trading.
To know if you made a good investment in forex trading, 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 US government bonds since there is practically no chance for a default, i.e. the US government going bankrupt or being unable or unwilling to pay its debt obligation.
When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling.
If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit.
An open trade (also called 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 forex 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
For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States, the currency in circulation is called the US Dollar (USD).
An example of a forex trade is to buy the Euro while simultaneously selling the US Dollar. This is called going long on the EUR/USD.
Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you feel is going to change in value and place a trade accordingly.
Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position.
When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen in seconds.
The main enticements of currency dealing for private investors and attraction for short-term forex trading are:
* 24-hour trading, 5 days a week with non-stop access to global forex dealers.
* An enormous liquid market making it easy to trade most currencies.
* Volatile markets offering profit opportunities.
* Standard instruments for controlling risk exposure.
* The ability to profit in rising or falling markets.
* Leveraged trading with low margin requirements.
* Many options for zero commission trading.
To know if you made a good investment in forex trading, 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 US government bonds since there is practically no chance for a default, i.e. the US government going bankrupt or being unable or unwilling to pay its debt obligation.
When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling.
If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit.
An open trade (also called 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 forex 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
Forex Bank
Forex AB is a Swedish financial services company. The company was started in 1927 as a currency exchange service for travellers, at the Central Station in Stockholm. The owner of Gyllenspet's Barber Shop, according to the legend, discovered that most of his customers were tourists in need of currency for their trips. The owner began keeping the major currencies on hand.
The company was subsequently acquired by Statens Järnvägar (SJ), the Swedish State Railways, which expanded the operations until it was sold off to one of the managers, Rolf Friberg, in 1965. The company was the only one apart from the banks that was licensed to conduct currency exchange in Sweden.
The company, which is still wholly owned by the Friberg family, has expanded into Denmark, Finland, Norway and Iceland and has over 60 shops, usually located at train stations or airports. The decrease in the business brought on by introduction of the euro has made the company look for alternative sources of revenue, like applying for a banking licence and attempting to move into more regular transaction services, earlier handled by Svensk Kassaservice, a subsidiary of the state owned Swedish postal company, Posten.
Since 2003 Forex is a licensed bank.
The company was subsequently acquired by Statens Järnvägar (SJ), the Swedish State Railways, which expanded the operations until it was sold off to one of the managers, Rolf Friberg, in 1965. The company was the only one apart from the banks that was licensed to conduct currency exchange in Sweden.
The company, which is still wholly owned by the Friberg family, has expanded into Denmark, Finland, Norway and Iceland and has over 60 shops, usually located at train stations or airports. The decrease in the business brought on by introduction of the euro has made the company look for alternative sources of revenue, like applying for a banking licence and attempting to move into more regular transaction services, earlier handled by Svensk Kassaservice, a subsidiary of the state owned Swedish postal company, Posten.
Since 2003 Forex is a licensed bank.
Pakistan Forex Scam Case
In November 2008 Munaf Kalia (Chief Executive Officer of Khanani and Kalia International (Pvt.) Ltd.), Yusuf Kalia, and associates, were charged for illegally transferring funds from Pakistan to Afghanistan.
* 1 Background
* 2 Exit control list
* 3 Time Line
* 4 Hawala business
Background
Since the depreciation of the rupee from July 2007, the Federal Investigation Agency was investigating the unexpected depreciation by the orders of the Pakistani government. In November 2008, the government sought support from Interpol with whose help the FIA cracked down all over Pakistan searching for persons involved in illegal smuggling of US dollars outside Pakistan.[2]The FIA conducted raids in various parts of Karachi detained more than 12 people including Munaf Kalia, and ten officials of the National Database Registration Authority suspected of providing counterfeit identity cards.[3]Manaf Kalia appeared in the court of Omar Awan, judicial magistrate South Karachi on November 9, 2008. The FIA sought and obtained a remand to Lahore to face another charge.
Exit control list
The Special Civil Court of Lahore, ordered that more than 14 names of different people involved in the forex scam case be included in the ECL (Exit Control List) of Pakistan.
Time Line
On November 10, 2008, the State Bank of Pakistan suspended the licence of Khanani and Kalia for 30 days and debarred KKI’s head office, branches, franchises payment booths and currency exchange booths from undertaking any kind of business for violating its rules and regulations.
On December 10, 2008, the State Bank of Pakistan suspended the licence of Khanani and Kalia for an indefinite period of time. The suspension order further stated that the company's headquarter, branch offices and/or franchise cannot carry any business dealings.
Hawala business
The government’s action against Hawala trade, which involves international network of currency dealers for making unrecorded payments in each other’s countries, was one step in the series of the forex scam case. These steps were taken at a time when the rupee depreciated by 30 percent against the dollar since the beginning of 2008.
* 1 Background
* 2 Exit control list
* 3 Time Line
* 4 Hawala business
Background
Since the depreciation of the rupee from July 2007, the Federal Investigation Agency was investigating the unexpected depreciation by the orders of the Pakistani government. In November 2008, the government sought support from Interpol with whose help the FIA cracked down all over Pakistan searching for persons involved in illegal smuggling of US dollars outside Pakistan.[2]The FIA conducted raids in various parts of Karachi detained more than 12 people including Munaf Kalia, and ten officials of the National Database Registration Authority suspected of providing counterfeit identity cards.[3]Manaf Kalia appeared in the court of Omar Awan, judicial magistrate South Karachi on November 9, 2008. The FIA sought and obtained a remand to Lahore to face another charge.
Exit control list
The Special Civil Court of Lahore, ordered that more than 14 names of different people involved in the forex scam case be included in the ECL (Exit Control List) of Pakistan.
Time Line
On November 10, 2008, the State Bank of Pakistan suspended the licence of Khanani and Kalia for 30 days and debarred KKI’s head office, branches, franchises payment booths and currency exchange booths from undertaking any kind of business for violating its rules and regulations.
On December 10, 2008, the State Bank of Pakistan suspended the licence of Khanani and Kalia for an indefinite period of time. The suspension order further stated that the company's headquarter, branch offices and/or franchise cannot carry any business dealings.
Hawala business
The government’s action against Hawala trade, which involves international network of currency dealers for making unrecorded payments in each other’s countries, was one step in the series of the forex scam case. These steps were taken at a time when the rupee depreciated by 30 percent against the dollar since the beginning of 2008.
Forex Ascending trend
Ascending trend in forex and currency trading Ascending trend channels are a useful tool due to their ability to predict overall changes in trend. As long as prices remain within the ascending trend channel, the upward trend in price can be expected to continue. As soon as prices exceed either trendline forming the channel, however, a strong signal either to buy or to sell is generated. A break through the upper trendline generates a strong buy signal, while a break through the lower trendline generates a strong sell signal.
Foreign exchange autotrading
Forex autotrading is a trading strategy where forex buy and sell orders are placed automatically based on an underlying system or program. The buy or sell orders are sent out to be executed in the market when a certain set of criteria is met.
Autotrading - and systems, or programs to form buy and sell signals -, are used typically by active traders who enter and exit positions at a much higher rate than the average investor. There are also a wide range of systems that differ on the set of criteria used to generate the buy or sell signals. Typically, the criteria used are more technical in format - in that they focus on price movement and technical indicators
* 1 History
* 2 Types
* 3 Advantages
* 4 Regulation
History
Forex autotrading originates at the emergence of online retail trading, since about 1996 when internet-based companies created retail forex platforms that provide a quick way for individuals to buy and sell on the forex spot market. Nevertheless, larger retail traders could autotrade Forex contracts at the Chicago Mercantile Exchange as early as in the 1970s.
Types
Today, there are two major types of Forex autotrading:
Fully automated or robotic Forex trading: This way of autotrading is very similar to algorithmic or black-box trading, where a computer algorithm, or Expert Advisor (EA), decides on aspects of the order such as the timing, price, or quantity or initiation of the order without human intervention. Users can only interfere by tweaking the technical parameters of the program; all other control is handed over to the program. Examples of such robotic EA’s are, Fapturbo, PipZu etc.
Signal-based Forex autotrading: This autotrading mode is based on the concept of auditing traders all over the world and making their strategies available to anyone interested in the form of signals. Then traders have the ability to automatically convert any of these signals to real trades in their broker accounts. Human interference here is augmented; signals come from live traders while users can actively select to follow a Signal Provider whose strategy fits their risk profile. Examples of such platforms are: ZuluTrade, Rent a Signal etc.
Advantages
An automated trading environment generates fewer trades per market than a human trader can handle, it can of course replicate its actions across multiple markets and timeframes. Furthermore, it is far less restricted in the number of intermarket opportunities it can observe and act upon. An automated system is also unaffected by the psychological swings that human traders are prey to. This is particularly relevant when trading with a mechanical model, which is typically developed on the assumption that all the trade entries flagged will actually be taken in real time trading
Signal Provider based models have the advantage that they offer traders the opportunity to follow previously successful signal providers or strategy with the hope that the advice they offer will continue to be accurate and lead to profitable future trades. An added advantage is the accessibility offered by these programs as traders do not need to have expert knowledge on Forex but only have to select a system, making Forex trading possible to anyone.
Forex autotrading services can be offered for free, on a spread basis (ZuluTrade) or on a one time fee basis (Fapturbo).
Regulation
As an unregulated and highly profitable market, the Forex market is extremely attractive to scammers. Forex autotrading, as it brings Forex trading to the masses makes even more people susceptible to frauds. Bodies such as the NFA and the SEC issue warnings and rules to avoid fraudulent Forex trading behavior on the web.
Autotrading - and systems, or programs to form buy and sell signals -, are used typically by active traders who enter and exit positions at a much higher rate than the average investor. There are also a wide range of systems that differ on the set of criteria used to generate the buy or sell signals. Typically, the criteria used are more technical in format - in that they focus on price movement and technical indicators
* 1 History
* 2 Types
* 3 Advantages
* 4 Regulation
History
Forex autotrading originates at the emergence of online retail trading, since about 1996 when internet-based companies created retail forex platforms that provide a quick way for individuals to buy and sell on the forex spot market. Nevertheless, larger retail traders could autotrade Forex contracts at the Chicago Mercantile Exchange as early as in the 1970s.
Types
Today, there are two major types of Forex autotrading:
Fully automated or robotic Forex trading: This way of autotrading is very similar to algorithmic or black-box trading, where a computer algorithm, or Expert Advisor (EA), decides on aspects of the order such as the timing, price, or quantity or initiation of the order without human intervention. Users can only interfere by tweaking the technical parameters of the program; all other control is handed over to the program. Examples of such robotic EA’s are, Fapturbo, PipZu etc.
Signal-based Forex autotrading: This autotrading mode is based on the concept of auditing traders all over the world and making their strategies available to anyone interested in the form of signals. Then traders have the ability to automatically convert any of these signals to real trades in their broker accounts. Human interference here is augmented; signals come from live traders while users can actively select to follow a Signal Provider whose strategy fits their risk profile. Examples of such platforms are: ZuluTrade, Rent a Signal etc.
Advantages
An automated trading environment generates fewer trades per market than a human trader can handle, it can of course replicate its actions across multiple markets and timeframes. Furthermore, it is far less restricted in the number of intermarket opportunities it can observe and act upon. An automated system is also unaffected by the psychological swings that human traders are prey to. This is particularly relevant when trading with a mechanical model, which is typically developed on the assumption that all the trade entries flagged will actually be taken in real time trading
Signal Provider based models have the advantage that they offer traders the opportunity to follow previously successful signal providers or strategy with the hope that the advice they offer will continue to be accurate and lead to profitable future trades. An added advantage is the accessibility offered by these programs as traders do not need to have expert knowledge on Forex but only have to select a system, making Forex trading possible to anyone.
Forex autotrading services can be offered for free, on a spread basis (ZuluTrade) or on a one time fee basis (Fapturbo).
Regulation
As an unregulated and highly profitable market, the Forex market is extremely attractive to scammers. Forex autotrading, as it brings Forex trading to the masses makes even more people susceptible to frauds. Bodies such as the NFA and the SEC issue warnings and rules to avoid fraudulent Forex trading behavior on the web.
Forex Myths
It’s hard to make money in Forex
Could that be said for any market? Is making money ever easy? Also, how can that be substantiated? Hard for who?
No one’s making money in Forex
Bank of America claims foreign exchange as a major source of income. Money managers such as FX Concepts, John Henry, and Alex Merk are all making millions. FX Concepts has roughly 10 Billion assets under management by some measures. FX Brokers are some of the fastest growing companies in USA according to Inc. 500. Interbank FX is ranked #8, Gain Capital is ranked #32 . George Soros made much of his fortune speculating in currencies .
Conclusion
The conclusion of this article is that for the Forex market, there isn’t enough data to make any solid conclusion. Significant effort should be spent compiling and analyzing data about Forex trading and investing. In a series of articles, we will attempt to first define the problems, collect data and sources of data, and engage FX experts in a series of interviews and discussions.
With existing tools it is possible to trade and invest in Forex, but without full information sufficient to make any conclusion, we are left with only the path taken by Diogenes , searching for an honest answer.
Could that be said for any market? Is making money ever easy? Also, how can that be substantiated? Hard for who?
No one’s making money in Forex
Bank of America claims foreign exchange as a major source of income. Money managers such as FX Concepts, John Henry, and Alex Merk are all making millions. FX Concepts has roughly 10 Billion assets under management by some measures. FX Brokers are some of the fastest growing companies in USA according to Inc. 500. Interbank FX is ranked #8, Gain Capital is ranked #32 . George Soros made much of his fortune speculating in currencies .
Conclusion
The conclusion of this article is that for the Forex market, there isn’t enough data to make any solid conclusion. Significant effort should be spent compiling and analyzing data about Forex trading and investing. In a series of articles, we will attempt to first define the problems, collect data and sources of data, and engage FX experts in a series of interviews and discussions.
With existing tools it is possible to trade and invest in Forex, but without full information sufficient to make any conclusion, we are left with only the path taken by Diogenes , searching for an honest answer.
Forex Genome Project
Pandora has created a ‘Music Genome Project ’ that tracks what songs you like and creates suggestions, a quasi form of Artificial Intelligence . Although Pandora does not disclose what it’s algorithm is, Wikipedia states:
The Music Genome Project, created in January 2000, is an effort founded by Will Glaser, Jon Kraft, and Tim Westergren to "capture the essence of music at the fundamental level" using almost 400 attributes to describe songs and a complex mathematical algorithm to organize them. The company Savage Beast Technologies was formed to run the project.
A given song is represented by a vector (a list of attributes) containing approximately 150 "genes" (analogous to trait-determining genes for organisms in the field of genetics). Each gene corresponds to a characteristic of the music, for example, gender of lead vocalist, level of distortion on the electric guitar, type of background vocals, etc. Rock and pop songs have 150 genes, rap songs have 350, and jazz songs have approximately 400. Other genres of music, such as world and classical music, have 300–500 genes. The system depends on a sufficient number of genes to render useful results. Each gene is assigned a number between 1 and 5, in half-integer increments.
To create a song's genome, it is analyzed by a musician in a process that takes 20 to 30 minutes per song. Ten percent of songs are analyzed by more than one technician to ensure conformity with the standards, i.e., reliability.
The technology is currently used by Pandora to play music for Internet users based on their preferences. Because of licensing restrictions, Pandora is available only to users whose location is reported to be in the USA by Pandora's geolocation software.[2]
While this is compelling, it could be argued that the application in Music is not necessary. For example, if you choose the wrong CD it’s not a life or death situation; there isn’t any monetary or material punishment (aside from angry listeners possibly throwing things at you). Make a poor decision in the markets, and entire counties budgets are wiped out.
For example, in 1994 the County of Orange County declared bankruptcy due to suffering $1.6 Billion in losses on interest rate derivatives .
Would a genome project have a more tangible economic (and thus overall) benefit if used for Forex? Imagine a system that instead of determining for the user what type of music they like to listen to, it could determine what kind of investment to implement on your account?
The Music Genome Project, created in January 2000, is an effort founded by Will Glaser, Jon Kraft, and Tim Westergren to "capture the essence of music at the fundamental level" using almost 400 attributes to describe songs and a complex mathematical algorithm to organize them. The company Savage Beast Technologies was formed to run the project.
A given song is represented by a vector (a list of attributes) containing approximately 150 "genes" (analogous to trait-determining genes for organisms in the field of genetics). Each gene corresponds to a characteristic of the music, for example, gender of lead vocalist, level of distortion on the electric guitar, type of background vocals, etc. Rock and pop songs have 150 genes, rap songs have 350, and jazz songs have approximately 400. Other genres of music, such as world and classical music, have 300–500 genes. The system depends on a sufficient number of genes to render useful results. Each gene is assigned a number between 1 and 5, in half-integer increments.
To create a song's genome, it is analyzed by a musician in a process that takes 20 to 30 minutes per song. Ten percent of songs are analyzed by more than one technician to ensure conformity with the standards, i.e., reliability.
The technology is currently used by Pandora to play music for Internet users based on their preferences. Because of licensing restrictions, Pandora is available only to users whose location is reported to be in the USA by Pandora's geolocation software.[2]
While this is compelling, it could be argued that the application in Music is not necessary. For example, if you choose the wrong CD it’s not a life or death situation; there isn’t any monetary or material punishment (aside from angry listeners possibly throwing things at you). Make a poor decision in the markets, and entire counties budgets are wiped out.
For example, in 1994 the County of Orange County declared bankruptcy due to suffering $1.6 Billion in losses on interest rate derivatives .
Would a genome project have a more tangible economic (and thus overall) benefit if used for Forex? Imagine a system that instead of determining for the user what type of music they like to listen to, it could determine what kind of investment to implement on your account?
Forex companies growing fast
In 2009, GAIN Capital is ranked #32 in the Financial Services category “Fastest Growing Private Companies List” . GAIN Capital is a Forex broker, and their revenue is primarily derived from Forex brokerage. Their growth can be explained by a popularity of Forex as an asset class, and as a new way to trade and invest. Why else?
Forex lacks hard data
Unlike other markets, there is little data available for Forex. For example, the annual BIS numbers that are commonly referenced when you hear “3 Trillion per day” turnover is conducted by survey . The institutions that are surveyed have no reason to lie, but they also have no reason to be 100% transparent. The problem, like the problem with fraud, is not the honest bankers who report, but those who don’t, who have something to hide in off-balance sheet transactions. Other markets have hard facts, verifiable data. Other exchanges publish similar data, because they are required, but more importantly, because they have it.
Only each Forex counterparty has access to his own data, and many of them are reluctant to release it. For example, Forex brokers could publish statistics:
* Number of positive accounts for the day, week, month, year
* Average percent gain or loss for each account
* How many accounts are profitable after 1 year
The question is why don’t they, why is data like this unavailable anywhere, in stark contract to non-forex rivals where it is possible to obtain overwhelming amounts of data on the performance of mutual funds .
Why is there no central database where traders and customers can log onto and verify authenticity, receive economic data in a standardized format, including performance information?
This is a regulatory question, but in the context of Forex, the answer is that there is no reason for the counterparties to divulge such information without any tangible benefit. Why should they open their books, when much of their business is based on perception?
Only each Forex counterparty has access to his own data, and many of them are reluctant to release it. For example, Forex brokers could publish statistics:
* Number of positive accounts for the day, week, month, year
* Average percent gain or loss for each account
* How many accounts are profitable after 1 year
The question is why don’t they, why is data like this unavailable anywhere, in stark contract to non-forex rivals where it is possible to obtain overwhelming amounts of data on the performance of mutual funds .
Why is there no central database where traders and customers can log onto and verify authenticity, receive economic data in a standardized format, including performance information?
This is a regulatory question, but in the context of Forex, the answer is that there is no reason for the counterparties to divulge such information without any tangible benefit. Why should they open their books, when much of their business is based on perception?
95% of people lose money trading Forex
This would imply that it’s ‘difficult to make money in Forex’ as some claim. From another perspective, is it easy for the 5% who are winning? Also consider in Forex a lot of money is lost due to hedgers, commercial requirements, central bank interventions, and other non-investment losses. That means there are profits that can be obtained by traders in Forex that don’t necessarily need a loser on the other side (such as the case with equities).
Comparative statistics: 53% of workers aged 16 and older in Los Angeles county were deemed functionally illiterate .
Los Angeles is the home of many famous authors , writing clubs such as The LA writers Group and WritersBloc .
Considering the high illiteracy rate in Los Angeles, why don’t these authors change their profession to something that doesn’t require reading, or relocate to another area where there is a higher literacy rate?
The reason is clear; anyone in the world can read their books, not only LA residents. Secondly, they are writing for the 47% that can read, which in a city with a population of over 4 Million , is still at least 2 million readers.
Comparative statistics: 53% of workers aged 16 and older in Los Angeles county were deemed functionally illiterate .
Los Angeles is the home of many famous authors , writing clubs such as The LA writers Group and WritersBloc .
Considering the high illiteracy rate in Los Angeles, why don’t these authors change their profession to something that doesn’t require reading, or relocate to another area where there is a higher literacy rate?
The reason is clear; anyone in the world can read their books, not only LA residents. Secondly, they are writing for the 47% that can read, which in a city with a population of over 4 Million , is still at least 2 million readers.
Forex is Shariah compliant
Finding Shariah compliant investments is not easy. Forex trading is 100% Shariah compliant. A Shariah compliant portfolio could be created using Forex Automated Systems. Also, these types of systems offer a diversity in a particular market. The difference between a “Mean Reversion” Forex system and a “Correlation” Forex system can be as different as investing in emerging markets and Treasuries.
The Forex Metaphor
A metaphor is an appropriate tool to explain something from another dimension, not easily explainable in the first dimension. George Lakoff states:
"We are neural beings," Lakoff states, "Our brains take their input from the rest of our bodies. What our bodies are like and how they function in the world thus structures the very concepts we can use to think. We cannot think just anything — only what our embodied brains permit."
In his 1980 book “Metaphors we live by” with Mark Johnson, he explains ‘the great metaphor’ known as a conceptual metaphor:
There are two main roles for the conceptual domains posited in conceptual metaphors:
* Source domain: the conceptual domain from which we draw metaphorical expressions (e.g., love is a journey).
* Target domain: the conceptual domain that we try to understand (e.g., love is a journey).
A mapping is the systematic set of correspondences that exist between constituent elements of the source and the target domain. Many elements of target concepts come from source domains and are not preexisting. To know a conceptual metaphor is to know the set of mappings that applies to a given source-target pairing. The same idea of mapping between source and target is used to describe analogical reasoning and inferences.
A primary tenet of this theory is that metaphors are matter of thought and not merely of language: hence, the term conceptual metaphor. The metaphor may seem to consist of words or other linguistic expressions that come from the terminology of the more concrete conceptual domain, but conceptual metaphors underlie a system of related metaphorical expressions that appear on the linguistic surface. Similarly, the mappings of a conceptual metaphor are themselves motivated by image schemas which are pre-linguistic schemas concerning space, time, moving, controlling, and other core elements of embodied human experience.
Conceptual metaphors typically employ a more abstract concept as target and a more concrete or physical concept as their source. For instance, metaphors such as 'the days [the more abstract or target concept] ahead' or 'giving my time' rely on more concrete concepts, thus expressing time as a path into physical space, or as a substance that can be handled and offered as a gift. Different conceptual metaphors tend to be invoked when the speaker is trying to make a case for a certain point of view or course of action. For instance, one might associate "the days ahead" with leadership, whereas the phrase "giving my time" carries stronger connotations of bargaining. Selection of such metaphors tends to be directed by a subconscious or implicit habit in the mind of the person employing them.
The principle of unidirectionality states that the metaphorical process typically goes from the more concrete to the more abstract, and not the other way around. Accordingly, abstract concepts are understood in terms of prototype concrete processes. The term "concrete," in this theory, has been further specified by Lakoff and Johnson as more closely related to the developmental, physical neural, and interactive body (see embodied philosophy). One manifestation of this view is found in the cognitive science of mathematics, where it is proposed that mathematics itself, the most widely accepted means of abstraction in the human community, is largely metaphorically constructed, and thereby reflects a cognitive bias unique to humans that uses embodied prototypical processes (e.g. counting, moving along a path) that are understood by all human beings through their experiences.
It is difficult to explain philosophy to a dog, because they do not have a means of understanding the language, hence the need for doggie metaphor. Everything to a dog can be equated to throwing the ball (in the case of Labradors, for other dogs a smelly metaphor can be used). Dogs and other animals have an intelligence which can be measured, such as the Monkey who outperformed the human memory champ in a memory test . Modern humans struggle with basic math skills; the understanding of money and finance is 95% numbers and mathematics. Finance is math, not magic, as many would like you to believe. It is possibly the last subject yet to be understood by the scientific method.
Is it ironic that the country with the most money, and the most dynamic capital markets, struggles with basic math skills, and money and finance is understood only by the understanding of math? Why is it that Americans have the highest per capita GDP and some of the lowest scores in mathematics globally? Could this be connected to Consumerism, multiple market bubbles, and a growing problem in financial literacy? Americans nearly flunk financial literacy, says Bankrate:
That's disappointing enough, but the statistically valid survey of 1,000 Americans, conducted for Bankrate by RoperASW, also shows that Americans are in "debt denial." They're unwilling to admit that credit is a problem -- in fact the only thing Americans are more secretive about is their love lives.
Finance is not tree-cutting. Making an investment portfolio is not like chopping a branch of a tree, while the analogy is a powerful tool to educate, it can’t turn a caterpillar into a butterfly.
Making a cup of coffee is an algorithm: plug in machine, put filters, put water in tank, put ground coffee in filter, turn on coffee maker, pour coffee into cup, wait to cool down, drink.
Educators use analogies like this to explain algorithms to those who have never been exposed to them. An algorithm is a process, a procedure, a series of steps – it must have a beginning and an end .
Just because making coffee is also an algorithm, doesn’t mean if you brew a cup of coffee you can design a good Forex algorithm.
"We are neural beings," Lakoff states, "Our brains take their input from the rest of our bodies. What our bodies are like and how they function in the world thus structures the very concepts we can use to think. We cannot think just anything — only what our embodied brains permit."
In his 1980 book “Metaphors we live by” with Mark Johnson, he explains ‘the great metaphor’ known as a conceptual metaphor:
There are two main roles for the conceptual domains posited in conceptual metaphors:
* Source domain: the conceptual domain from which we draw metaphorical expressions (e.g., love is a journey).
* Target domain: the conceptual domain that we try to understand (e.g., love is a journey).
A mapping is the systematic set of correspondences that exist between constituent elements of the source and the target domain. Many elements of target concepts come from source domains and are not preexisting. To know a conceptual metaphor is to know the set of mappings that applies to a given source-target pairing. The same idea of mapping between source and target is used to describe analogical reasoning and inferences.
A primary tenet of this theory is that metaphors are matter of thought and not merely of language: hence, the term conceptual metaphor. The metaphor may seem to consist of words or other linguistic expressions that come from the terminology of the more concrete conceptual domain, but conceptual metaphors underlie a system of related metaphorical expressions that appear on the linguistic surface. Similarly, the mappings of a conceptual metaphor are themselves motivated by image schemas which are pre-linguistic schemas concerning space, time, moving, controlling, and other core elements of embodied human experience.
Conceptual metaphors typically employ a more abstract concept as target and a more concrete or physical concept as their source. For instance, metaphors such as 'the days [the more abstract or target concept] ahead' or 'giving my time' rely on more concrete concepts, thus expressing time as a path into physical space, or as a substance that can be handled and offered as a gift. Different conceptual metaphors tend to be invoked when the speaker is trying to make a case for a certain point of view or course of action. For instance, one might associate "the days ahead" with leadership, whereas the phrase "giving my time" carries stronger connotations of bargaining. Selection of such metaphors tends to be directed by a subconscious or implicit habit in the mind of the person employing them.
The principle of unidirectionality states that the metaphorical process typically goes from the more concrete to the more abstract, and not the other way around. Accordingly, abstract concepts are understood in terms of prototype concrete processes. The term "concrete," in this theory, has been further specified by Lakoff and Johnson as more closely related to the developmental, physical neural, and interactive body (see embodied philosophy). One manifestation of this view is found in the cognitive science of mathematics, where it is proposed that mathematics itself, the most widely accepted means of abstraction in the human community, is largely metaphorically constructed, and thereby reflects a cognitive bias unique to humans that uses embodied prototypical processes (e.g. counting, moving along a path) that are understood by all human beings through their experiences.
It is difficult to explain philosophy to a dog, because they do not have a means of understanding the language, hence the need for doggie metaphor. Everything to a dog can be equated to throwing the ball (in the case of Labradors, for other dogs a smelly metaphor can be used). Dogs and other animals have an intelligence which can be measured, such as the Monkey who outperformed the human memory champ in a memory test . Modern humans struggle with basic math skills; the understanding of money and finance is 95% numbers and mathematics. Finance is math, not magic, as many would like you to believe. It is possibly the last subject yet to be understood by the scientific method.
Is it ironic that the country with the most money, and the most dynamic capital markets, struggles with basic math skills, and money and finance is understood only by the understanding of math? Why is it that Americans have the highest per capita GDP and some of the lowest scores in mathematics globally? Could this be connected to Consumerism, multiple market bubbles, and a growing problem in financial literacy? Americans nearly flunk financial literacy, says Bankrate:
That's disappointing enough, but the statistically valid survey of 1,000 Americans, conducted for Bankrate by RoperASW, also shows that Americans are in "debt denial." They're unwilling to admit that credit is a problem -- in fact the only thing Americans are more secretive about is their love lives.
Finance is not tree-cutting. Making an investment portfolio is not like chopping a branch of a tree, while the analogy is a powerful tool to educate, it can’t turn a caterpillar into a butterfly.
Making a cup of coffee is an algorithm: plug in machine, put filters, put water in tank, put ground coffee in filter, turn on coffee maker, pour coffee into cup, wait to cool down, drink.
Educators use analogies like this to explain algorithms to those who have never been exposed to them. An algorithm is a process, a procedure, a series of steps – it must have a beginning and an end .
Just because making coffee is also an algorithm, doesn’t mean if you brew a cup of coffee you can design a good Forex algorithm.
Forex Forums a form of Self-Regulation
While Forex trading itself is unregulated, Forex has a means of self-regulation for highly sophisticated investors, for those who are willing to do their homework. Work is required (in the form of time, reading, and understanding), and there is no vertical subordination, and no official authorities in this space. Admins monitor the discussion to make sure it’s focused on topic, but they don’t normally intervene in discussions (such as deleting posts they don’t like).
The forums do not provide any type of identification proofing, so there isn’t stopping anyone from spreading misinformation anonymously. For all the value they provide, and they do provide a unique critique service untouched by commercial interests, they seem to have an equally devastating counterbalance, the ‘rotten apple that spoils the bunch’.
The significance of the forums is they represent a powerful new force defining how information is exchanged among the investing public. Some investors may remember ‘investment clubs’ popular in the 80’s and 90’s. Now, investors can read forum posts without anyone ever knowing – comments, opinions, and some facts, are out there for all to see.
At the most recent TED conference, Gordon Brown quipped that:
"Foreign policy can never be the same again." The power of technology - such as blogs - meant that the world could no longer be run by "elites", Mr Brown said.
Policies must instead be formed by listening to the opinions of people "who are blogging and communicating with people around the world", he said .
This implicates a new user-driven de-centralized internet model will lead new paradigms, not the 20th century, centralized model. The current debate about regulation is all centered on a centralized government authorized regulator.
The problem with the centralized approach, with modern technology including the internet and modern government systems, a company can relocate its offices in a matter of hours in another legal jurisdiction. For example, after the NFA enacted rules affecting the way trades must be accounted for, such as the hedging rule and the FIFO rule , many Forex FCMs shifted their operations to London due to customer request . This was not to thumb the NFA for their rules, but in response to angry customer emails demanding they continue to allow hedging or they would simply move their accounts to London based firms who wouldn’t ban hedging anyway. It’s a conundrum of control, the more they squeeze the more customers will move overseas, or cease to exist (result is the same).
The internet has a downside – unsavory marketing groups can register ‘private’ domains which sell ‘sham’ products, competing with legitimate providers. For those who don’t know what to look for, the marketing sites can be deceptive and misleading. But since criminals usually don’t register with the police, there is little regulators can do.
In some cases, vigilante groups have sprung up with the sole purpose of having the scam sites shut down while providing a review service similar to consumer reports.
The forums do not provide any type of identification proofing, so there isn’t stopping anyone from spreading misinformation anonymously. For all the value they provide, and they do provide a unique critique service untouched by commercial interests, they seem to have an equally devastating counterbalance, the ‘rotten apple that spoils the bunch’.
The significance of the forums is they represent a powerful new force defining how information is exchanged among the investing public. Some investors may remember ‘investment clubs’ popular in the 80’s and 90’s. Now, investors can read forum posts without anyone ever knowing – comments, opinions, and some facts, are out there for all to see.
At the most recent TED conference, Gordon Brown quipped that:
"Foreign policy can never be the same again." The power of technology - such as blogs - meant that the world could no longer be run by "elites", Mr Brown said.
Policies must instead be formed by listening to the opinions of people "who are blogging and communicating with people around the world", he said .
This implicates a new user-driven de-centralized internet model will lead new paradigms, not the 20th century, centralized model. The current debate about regulation is all centered on a centralized government authorized regulator.
The problem with the centralized approach, with modern technology including the internet and modern government systems, a company can relocate its offices in a matter of hours in another legal jurisdiction. For example, after the NFA enacted rules affecting the way trades must be accounted for, such as the hedging rule and the FIFO rule , many Forex FCMs shifted their operations to London due to customer request . This was not to thumb the NFA for their rules, but in response to angry customer emails demanding they continue to allow hedging or they would simply move their accounts to London based firms who wouldn’t ban hedging anyway. It’s a conundrum of control, the more they squeeze the more customers will move overseas, or cease to exist (result is the same).
The internet has a downside – unsavory marketing groups can register ‘private’ domains which sell ‘sham’ products, competing with legitimate providers. For those who don’t know what to look for, the marketing sites can be deceptive and misleading. But since criminals usually don’t register with the police, there is little regulators can do.
In some cases, vigilante groups have sprung up with the sole purpose of having the scam sites shut down while providing a review service similar to consumer reports.
No Forex Model
Since the Nixon Shock, economic theories were not redesigned. Although there are some fresh ideas about what Forex is, there isn’t any unified theory of Forex, a model that describes it for what it is, mathematically. In fact, several papers have been written with the hypothesis that existing ‘models’ are severely flawed, and provide evidence; here’s one:
Roger D. Huang published a paper in 1981 for the American Finance Association with the following abstract:
The variance bounds on exchange rate movements implied by the monetary approach to exchange rate in an efficient foreign exchange market is shown to be violated by sample data. The paper also presents evidence showing that the forecast errors implied by the monetary model can be forecasted using historical data. The results are interpreted to suggest either the incompatibility of the monetary approach with sample data, or an inefficient foreign exchange market or both.
Richard J. Sweeny, in 1986, goes on to claim that there is Alpha in Forex not explainable by risk:
Filter rule profits found in foreign exchange markets in the early days of the current managed float persist in later periods, as shown by statistical tests developed and implemented here. The test is consistent with, but independent of, a wide variety of asset pricing models. The profits found cannot be explained by risk if risk premia are constant over time. Inclusion of the home-foreign interest rate differential in computing profits has little effect on the comparison of filter returns to those of buy-and-hold.
If Forex is truly a reactive solution to a pressured Nixon administration, and still no unified model exists, this indicates that there are large opportunities in trading Forex, like an asset class. These opportunities will exist, and persist, until the floating currency system is replaced by something else (not likely anytime soon), or there is a unified Forex model that becomes widely proliferated as much as “Modern Portfolio Theory ” is.
Roger D. Huang published a paper in 1981 for the American Finance Association with the following abstract:
The variance bounds on exchange rate movements implied by the monetary approach to exchange rate in an efficient foreign exchange market is shown to be violated by sample data. The paper also presents evidence showing that the forecast errors implied by the monetary model can be forecasted using historical data. The results are interpreted to suggest either the incompatibility of the monetary approach with sample data, or an inefficient foreign exchange market or both.
Richard J. Sweeny, in 1986, goes on to claim that there is Alpha in Forex not explainable by risk:
Filter rule profits found in foreign exchange markets in the early days of the current managed float persist in later periods, as shown by statistical tests developed and implemented here. The test is consistent with, but independent of, a wide variety of asset pricing models. The profits found cannot be explained by risk if risk premia are constant over time. Inclusion of the home-foreign interest rate differential in computing profits has little effect on the comparison of filter returns to those of buy-and-hold.
If Forex is truly a reactive solution to a pressured Nixon administration, and still no unified model exists, this indicates that there are large opportunities in trading Forex, like an asset class. These opportunities will exist, and persist, until the floating currency system is replaced by something else (not likely anytime soon), or there is a unified Forex model that becomes widely proliferated as much as “Modern Portfolio Theory ” is.
History of Forex
How many people know why Forex exists at all? They know about the “Nixon Shock” , but why did Nixon float the dollar, who suggested it, and how does that impact modern Forex? The simplest solution being the most likely would indicate the US Administration was politically stretched out and had few options in response to demands by the French for payment in Gold, and the West German removal from Breton Woods. According to the Wikipedia entry:
By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation, the U.S. was running a balance of payments deficit and a trade deficit, the first in the 20th century. The year 1970 was the crucial turning point, which, because of foreign arbitrage of the U.S. dollar, caused governmental gold coverage of the paper dollar to decline 33%, from 55% to 22%. That, in the view of Neoclassical Economists and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government’s ability to cut its budget and trade deficits.
In 1971, the U.S. government again printed more dollars (a 10% increase) and then sent them overseas, to pay for the nation's military spending and private investments. In the first six months of 1971, $22 billion dollars in assets left the U.S.[citation needed] In May 1971, inflation-wary West Germany was the first member country to leave the Bretton Woods system — unwilling to deflate the deutsche mark to prop up the dollar.[3] In order to prevent the dumping of the deutsche mark on the open market, West Germany did not consult with the international monetary community before making the change. In the next three months, West Germany’s move strengthened their economy; simultaneously, the dollar dropped 7.5% against the deutsche mark.
Because of the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfilment of America’s “promise to pay” — in the form of gold from the U.S., in exchange for paper dollars, thus, did Switzerland trade $50 million of paper for gold in July. France, in particular, repeatedly made aggressive demands, and acquired large amounts of gold ($191 million), further depleting the gold reserves of the U.S. On 5 August 1971, Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against foreign price-gougers. Still, on 9 August 1971, as the dollar dropped in value against European currencies, Switzerland withdrew the Swiss franc from the Bretton Woods system.
Arbitrage can be painful if you are on the wrong side of it. Nixon may have had few options but to float the dollar; the market is a powerful force even with government regulations.
This implies that it was a reaction, not an action. In other words, it wasn’t part of a grand master plan, a scheme designed by international bankers to make the world’s financial markets crumble 35 years later. It seems that it was a random, haphazard solution, as they say “Crisis Management”. But while waiting for Bonanza to finish, to announce the new global Forex regime, Nixon’s team actually spent more time debating how to announce and when to announce to the public than the plan itself:
To stabilize the economy and combat runaway inflation, on August 15, 1971, President Nixon imposed a 90-day wage and price freeze, a 10 per cent import surcharge, and, most important, “closed the gold window”, making the dollar non-convertible to gold — except on the open market. The President and fifteen advisors took that decision, without consulting the members of the international monetary system, thus, the international community informally named it the Nixon shock. Given the importance of the announcement — and its impact upon foreign currencies — presidential advisors recalled that they spent more time, at Camp David, deciding when to publicly announce the controversial plan, than they spent creating the plan.
As a politician, the President did not want to interrupt television viewers watching the tremendously popular TV series Bonanza, not wishing to potentially alienate those voters who fanatically followed the cowboy series. He was advised that the practical decision was to make an announcement before the stock markets opened on Monday (and just when Asian markets also were opening trading for the day). On 15 August 1971, that speech and the price-control plans proved very popular and raised the public’s spirit. The President was credited with finally rescuing the American public from price-gougers, and from a foreign-caused exchange crisis.
This would also hint it was a knee-jerk reaction more than a carefully planned event. Since then, banks have been creating models ‘on the fly’ based on what seems to be working, with little or no understanding of the underlying forces. And being as banks are for profit private institutions, any available data or models they have is not public.
By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation, the U.S. was running a balance of payments deficit and a trade deficit, the first in the 20th century. The year 1970 was the crucial turning point, which, because of foreign arbitrage of the U.S. dollar, caused governmental gold coverage of the paper dollar to decline 33%, from 55% to 22%. That, in the view of Neoclassical Economists and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government’s ability to cut its budget and trade deficits.
In 1971, the U.S. government again printed more dollars (a 10% increase) and then sent them overseas, to pay for the nation's military spending and private investments. In the first six months of 1971, $22 billion dollars in assets left the U.S.[citation needed] In May 1971, inflation-wary West Germany was the first member country to leave the Bretton Woods system — unwilling to deflate the deutsche mark to prop up the dollar.[3] In order to prevent the dumping of the deutsche mark on the open market, West Germany did not consult with the international monetary community before making the change. In the next three months, West Germany’s move strengthened their economy; simultaneously, the dollar dropped 7.5% against the deutsche mark.
Because of the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfilment of America’s “promise to pay” — in the form of gold from the U.S., in exchange for paper dollars, thus, did Switzerland trade $50 million of paper for gold in July. France, in particular, repeatedly made aggressive demands, and acquired large amounts of gold ($191 million), further depleting the gold reserves of the U.S. On 5 August 1971, Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against foreign price-gougers. Still, on 9 August 1971, as the dollar dropped in value against European currencies, Switzerland withdrew the Swiss franc from the Bretton Woods system.
Arbitrage can be painful if you are on the wrong side of it. Nixon may have had few options but to float the dollar; the market is a powerful force even with government regulations.
This implies that it was a reaction, not an action. In other words, it wasn’t part of a grand master plan, a scheme designed by international bankers to make the world’s financial markets crumble 35 years later. It seems that it was a random, haphazard solution, as they say “Crisis Management”. But while waiting for Bonanza to finish, to announce the new global Forex regime, Nixon’s team actually spent more time debating how to announce and when to announce to the public than the plan itself:
To stabilize the economy and combat runaway inflation, on August 15, 1971, President Nixon imposed a 90-day wage and price freeze, a 10 per cent import surcharge, and, most important, “closed the gold window”, making the dollar non-convertible to gold — except on the open market. The President and fifteen advisors took that decision, without consulting the members of the international monetary system, thus, the international community informally named it the Nixon shock. Given the importance of the announcement — and its impact upon foreign currencies — presidential advisors recalled that they spent more time, at Camp David, deciding when to publicly announce the controversial plan, than they spent creating the plan.
As a politician, the President did not want to interrupt television viewers watching the tremendously popular TV series Bonanza, not wishing to potentially alienate those voters who fanatically followed the cowboy series. He was advised that the practical decision was to make an announcement before the stock markets opened on Monday (and just when Asian markets also were opening trading for the day). On 15 August 1971, that speech and the price-control plans proved very popular and raised the public’s spirit. The President was credited with finally rescuing the American public from price-gougers, and from a foreign-caused exchange crisis.
This would also hint it was a knee-jerk reaction more than a carefully planned event. Since then, banks have been creating models ‘on the fly’ based on what seems to be working, with little or no understanding of the underlying forces. And being as banks are for profit private institutions, any available data or models they have is not public.
Changes in Forex reserves
The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a flexible exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes the USA).
Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements.
To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services).
Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves.
In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data.
Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements.
To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services).
Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves.
In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data.
Purpose of Foreign exchange reserves
In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money itself as IOUs). This action can stabilise the value of the domestic currency.
Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates.
Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates.
History of Forex reserves
Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, no major currencies have been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves.
Forex reserves
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.
Forex mortgage
A foreign currency mortgage is a mortgage which is repayable in a currency other than the currency of the country in which the borrower is a resident. Foreign currency mortgages can be used to finance both personal mortgages and corporate mortgages.
The interest rate charged on a Foreign currency mortgage is based on the interest rates applicable to the currency in which the mortgage is denominated and not the interest rates applicable to the borrower's own domestic currency. Therefore, a Foreign currency mortgage should only be considered when the interest rate on the foreign currency is significantly lower than the borrower can obtain on a mortgage taken out in his or her domestic currency.
Borrowers should bear in mind that ultimately they have a liability to repay the mortgage in another currency and currency exchange rates constantly change. This means that if the borrower's domestic currency was to strengthen against the currency in which the mortgage is denominated, then it would cost the borrower less in domestic currency to fully repay the mortgage. Therefore, in effect, the borrower makes a capital saving.
Conversely, if the exchange rate of borrowers domestic currency were to weaken against the currency in which the mortgage is denominated, then it would cost the borrower more in their domestic currency to repay the mortgage. Therefore, the borrower makes a capital loss.
When the value of the mortgage is large, it may be possible to reduce or limit the risk in the exchange exposure by hedging (see below).
Managed currency mortgages can help to reduce risk exposure. A borrower can allow a specialist currency manager to manage their loan on their behalf (through a limited power of attorney), where the currency manager will switch the borrower's debt in and out of foreign currencies as they change in value against the base currency. A successful currency manager will move the borrower's debt into a currency which subsequently falls in value against the base currency. The manager can then switch the loan back into the base currency (or another weakening currency) at a better exchange rate, thereby reducing the value of the loan. A further benefit of this product is that the currency manager will try to select currencies with a lower interest rate than the base currency, and the borrower therefore can make substantial interest savings.
There are risks associated with these types of mortgages and the borrower must be prepared to accept an (often limited) increase in the value of their debt if there are adverse movements in the currency markets.
A successful currency manager may be able to use the currency markets to pay off a borrower's loan (through a combination of debt reduction and interest rate savings) within the normal lifetime of the loan, while the borrower pays on an interest only basis.
The interest rate charged on a Foreign currency mortgage is based on the interest rates applicable to the currency in which the mortgage is denominated and not the interest rates applicable to the borrower's own domestic currency. Therefore, a Foreign currency mortgage should only be considered when the interest rate on the foreign currency is significantly lower than the borrower can obtain on a mortgage taken out in his or her domestic currency.
Borrowers should bear in mind that ultimately they have a liability to repay the mortgage in another currency and currency exchange rates constantly change. This means that if the borrower's domestic currency was to strengthen against the currency in which the mortgage is denominated, then it would cost the borrower less in domestic currency to fully repay the mortgage. Therefore, in effect, the borrower makes a capital saving.
Conversely, if the exchange rate of borrowers domestic currency were to weaken against the currency in which the mortgage is denominated, then it would cost the borrower more in their domestic currency to repay the mortgage. Therefore, the borrower makes a capital loss.
When the value of the mortgage is large, it may be possible to reduce or limit the risk in the exchange exposure by hedging (see below).
Managed currency mortgages can help to reduce risk exposure. A borrower can allow a specialist currency manager to manage their loan on their behalf (through a limited power of attorney), where the currency manager will switch the borrower's debt in and out of foreign currencies as they change in value against the base currency. A successful currency manager will move the borrower's debt into a currency which subsequently falls in value against the base currency. The manager can then switch the loan back into the base currency (or another weakening currency) at a better exchange rate, thereby reducing the value of the loan. A further benefit of this product is that the currency manager will try to select currencies with a lower interest rate than the base currency, and the borrower therefore can make substantial interest savings.
There are risks associated with these types of mortgages and the borrower must be prepared to accept an (often limited) increase in the value of their debt if there are adverse movements in the currency markets.
A successful currency manager may be able to use the currency markets to pay off a borrower's loan (through a combination of debt reduction and interest rate savings) within the normal lifetime of the loan, while the borrower pays on an interest only basis.
Forex Financial Instruments
There are several types of financial instruments commonly used.
Forwards
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
Futures
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swaps
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.
Spot
A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market.
Forwards
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
Futures
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swaps
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.
Spot
A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market.
Key Concepts Behind a Retail Forex Trade
Currency Pairs
Currency prices can only fluctuate relative to another currency, so they are traded in pairs. Two of the most common currency pairs are the EUR/USD (the price of US dollars quoted in euros) and the GBP/USD (the price of US dollars quoted in British pounds).
High Leverage
The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.
Typically a trader's retail forex platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If one of his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.
If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.
Transaction Costs and Market Makers
Market makers are compensated for allowing clients to enter the market. They take part or all of the spread in all currency pairs traded. In a common example, EUR/USD, the spread is typically 3 pips (percentage in point) or 3/100 of a cent in this example. Thus prices are quoted with both bid and offer prices (e.g., Buy EUR/USD 1.4900, Sell EUR/USD 1.4903).
That difference of 3 pips is the spread and can amount to a significant amount of money. Because the typical standard lot is 100,000 units of the base currency, those 3 pips on EUR/USD translate to $30 paid by the client to the market maker. However, a pip is not always $10. A pip is 1/100th of a cent (or whatever), and the currency pairs are always purchased by buying 100,000 of the base currency.
For the pair EUR/USD, the quote currency is USD; thus, 1/100th of a cent on a pair with USD as the quote currency will always have a pip of $10. If, on the other hand, your currency pair has Swiss francs (CHF) as a quote instead of USD, then 1/100th of a cent is now worth around $9, because you are buying 100,000 of whatever in Swiss francs.
Currency prices can only fluctuate relative to another currency, so they are traded in pairs. Two of the most common currency pairs are the EUR/USD (the price of US dollars quoted in euros) and the GBP/USD (the price of US dollars quoted in British pounds).
High Leverage
The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.
Typically a trader's retail forex platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If one of his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.
If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.
Transaction Costs and Market Makers
Market makers are compensated for allowing clients to enter the market. They take part or all of the spread in all currency pairs traded. In a common example, EUR/USD, the spread is typically 3 pips (percentage in point) or 3/100 of a cent in this example. Thus prices are quoted with both bid and offer prices (e.g., Buy EUR/USD 1.4900, Sell EUR/USD 1.4903).
That difference of 3 pips is the spread and can amount to a significant amount of money. Because the typical standard lot is 100,000 units of the base currency, those 3 pips on EUR/USD translate to $30 paid by the client to the market maker. However, a pip is not always $10. A pip is 1/100th of a cent (or whatever), and the currency pairs are always purchased by buying 100,000 of the base currency.
For the pair EUR/USD, the quote currency is USD; thus, 1/100th of a cent on a pair with USD as the quote currency will always have a pip of $10. If, on the other hand, your currency pair has Swiss francs (CHF) as a quote instead of USD, then 1/100th of a cent is now worth around $9, because you are buying 100,000 of whatever in Swiss francs.
History of retail forex
While forex has been traded since the beginning of financial markets, on-line retail trading has only been active since about 1996 . From the 1970s, larger retail traders could trade FX contracts at the Chicago Mercantile Exchange.
By 1996 on-line retail forex trading became practical. Internet-based market makers would take the opposite side of retail trader’s trades. These companies also created retail forex platform that provided a quick way for individuals to buy and sell on the forex spot market.
In online currency exchange, few or no transactions actually lead to physical delivery to the client; all positions will eventually be closed. The market makers offer high amounts of leverage. While up to 4:1 leverage is available in equities and 20:1 in Futures, it is common to have 100:1 leverage in currencies. In the typical 100:1 scenario, the client absorbs all risks associated with controlling a position worth 100 times his capital.
Currencies are quoted in pairs, for example EUR/USD (euro versus United States dollar). The first currency is the base currency and the second currency is the quote currency. A person who is short the EUR/USD will have a loss if the USD loses value and make a profit if the EUR loses value. A person who is long the EUR/USD will make a profit if the USD loses value and have a loss if the EUR loses value.
By 1996 on-line retail forex trading became practical. Internet-based market makers would take the opposite side of retail trader’s trades. These companies also created retail forex platform that provided a quick way for individuals to buy and sell on the forex spot market.
In online currency exchange, few or no transactions actually lead to physical delivery to the client; all positions will eventually be closed. The market makers offer high amounts of leverage. While up to 4:1 leverage is available in equities and 20:1 in Futures, it is common to have 100:1 leverage in currencies. In the typical 100:1 scenario, the client absorbs all risks associated with controlling a position worth 100 times his capital.
Currencies are quoted in pairs, for example EUR/USD (euro versus United States dollar). The first currency is the base currency and the second currency is the quote currency. A person who is short the EUR/USD will have a loss if the USD loses value and make a profit if the EUR loses value. A person who is long the EUR/USD will make a profit if the USD loses value and have a loss if the EUR loses value.
Retail forex
In financial markets, the retail forex (retail off-exchange currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times[1]. Whilst there may be a number of fully regulated, reputable international companies that provide a highly transparent and honest service, it's commonly thought that about 90% of all retail FX traders lose money.
It is now possible to trade cash FX, or forex currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry."
Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzerland now requires forex brokers to become a bank before conducting FX brokerage business from Switzerland.
Algorithmic (automated) trading has become increasingly popular in the FX market, with a number of popular packages allowing the customer to program his own rules.
The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.
According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite, and perhaps because of, losses in other markets like global equities in 2008.
It is now possible to trade cash FX, or forex currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry."
Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzerland now requires forex brokers to become a bank before conducting FX brokerage business from Switzerland.
Algorithmic (automated) trading has become increasingly popular in the FX market, with a number of popular packages allowing the customer to program his own rules.
The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.
According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite, and perhaps because of, losses in other markets like global equities in 2008.
Forex scam
A forex (foreign exchange) scam is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading "has become the fraud du jour" as of early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission. [1] But "the market has long been plagued by swindlers preying on the gullible," according to the New York Times . "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal. The North American Securities Administrators Association says that "off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud."
“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.
In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.
The forex market is a zero-sum game, meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a "negative-sum" game.
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,improperly managed "managed accounts", false advertising,Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.
An official of the National Futures Association was quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007, about 26,000 people lost $460 million in forex frauds. CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
* 1 Not beating the market
* 2 The use of high leverage
Not beating the market
The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.
Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbritrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of the treasure map.)
Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler's ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."
The use of high leverage
By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1[2].
A self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a forex training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation.“
“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.
In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.
The forex market is a zero-sum game, meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a "negative-sum" game.
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,improperly managed "managed accounts", false advertising,Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.
An official of the National Futures Association was quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007, about 26,000 people lost $460 million in forex frauds. CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
* 1 Not beating the market
* 2 The use of high leverage
Not beating the market
The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.
Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbritrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of the treasure map.)
Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler's ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."
The use of high leverage
By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1[2].
A self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a forex training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation.“
Forex Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors
Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[19] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors
Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[19] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
Financial instruments
Spot
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. NNM
Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years. Usually the date is decided by both parties.
Future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
Option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world..
Exchange-Traded Fund
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. NNM
Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years. Usually the date is decided by both parties.
Future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
Option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world..
Exchange-Traded Fund
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
Technical Analysis in foreign exchange
Technical Analysis trading is utilized in the FX markets as a way to determine future price movements of a particular currency. Traders utilize technical indicators to measure overbought and oversold levels. The common use indicator being the Bollinger band or RSI (relative strength index) which measures the particular strength of movement built in a current pairs trending direction. A new wave of measurement tool being utilized amongst traders is VSA or volume spread analysis.The success with the VSA method is that your looking to follow the volume,whether tick volume or not is still a relevant substitute to utilize in determining when professional money is buying or selling. Adair,L,:"Trading Volume Spread Analysis""Free Press Release": Retrieved on 2009-07-27
Fundamental trading in foreign exchange
Fundamental trading is determined on the basis on regulatory,statutory and economic changes which occur with-in various countries, FX traders are more concerned if central governments will raise rates on its particular currency. Likewise traders also to look to countries which are dependent on commodities or commodity driven such ie. Australian dollar or Canadian dollar which are heavily influenced by commodities prices
Algorithmic trading in foreign exchange
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.[citation needed]
An algorithmic trader needs to be mindful of potential fraud by the broker. Part of the weekly algorithm should include a check to see if the amount of transaction errors when the trader is losing money occurs in the same proportion as when the trader would have made money.
An algorithmic trader needs to be mindful of potential fraud by the broker. Part of the weekly algorithm should include a check to see if the amount of transaction errors when the trader is losing money occurs in the same proportion as when the trader would have made money.
Forex Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality
Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.
Long-term trends
Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [13]
"Buy the rumor, sell the fact"
This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers
While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations
As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.
Flights to quality
Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.
Long-term trends
Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [13]
"Buy the rumor, sell the fact"
This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers
While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations
As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.
Forex Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality
Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.[12]
Long-term trends
Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [13]
"Buy the rumor, sell the fact"
This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[14] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers
While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations
As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.
Flights to quality
Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.[12]
Long-term trends
Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [13]
"Buy the rumor, sell the fact"
This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[14] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers
While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations
As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.
Forex Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in India, Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.
All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in India, Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.
FOREX Economic factors
These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.
1. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
2. Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector
1. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
2. Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector
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