Currency futures are specific types of forward outright deals which
occupy in general a small part of the Forex market (See Figure 3.1). Because
they are derived from the spot price, they are derivative instruments. They
are specific with regard to the expiration date and the size of the trade
amount. Whereas, generally, forward outright deals—those that mature past
the spot delivery date—will mature on any valid date in the two countries
whose currencies are being traded, standardized amounts of foreign currency
futures mature only on the third Wednesday of March, June, September, and
December.
There is a row of characteristics of currency futures, which make them
attractive. It is open to all market participants, individuals included. This is
different from the spot market, which is virtually closed to individuals - except
high net-worth individuals—because of the size of the currency amounts
traded. It is a central market, just as efficient as the cash market, and
whereas the cash market is a very decentralized market, futures trading takes
place under one roof. It eliminates the credit risk because the Chicago
Mercantile Exchange Clearinghouse acts as the buyer for every seller, and
vice versa. In turn, the Clearinghouse minimizes its own exposure by
requiring traders who maintain a non-profitable position to post margins equal
in size to their losses.
Moreover, currency futures provide several benefits for traders because
futures are special types of forward outright contracts, corporations can use
them for hedging purposes. Although the futures and spot markets trade
closely together, certain divergences between the two occur, generating
arbitraging opportunities. Gaps, volume, and open interest are significant
technical analysis tools solely available in the futures market. Yet their
significance extrapolates to the spot market as well.
Because of these benefits, currency futures trading volume has steadily
attracted a large variety of players.
For traders outside the exchange, the prices are available from on-line
monitors. The most popular pages are found on Bridge, Telerate, Reuters,
and Bloomberg. Telerate presents the currency futures on composite pages,
while Reuters and Bloomberg display currency futures on individual pages
shows the convergence between the futures and spot prices.
by Ultimate Forex Profits
Tuesday 8 December 2009
Tuesday 17 November 2009
Kinds of Exchange Systems - Posted by Ultimate Forex Secrets
Trading with Brokers
Foreign exchange brokers, unlike equity brokers, do not take positions for
themselves; they only service banks. Their roles are:
bringing together buyers and sellers in the market;
optimizing the price they show to their customers;
quickly, accurately, and faithfully executing the traders' orders.
The majority of the foreign exchange brokers execute business via phone.
The phone lines between brokers and banks are dedicated, or direct, and are usually in-stalled free of charge by the broker. A foreign exchange brokerage firm has direct lines to banks around the world. Most foreign exchange is executed through an open box system—a microphone in front of the broker that continuously transmits everything he or she says on the direct phone lines to the speaker boxes in the banks. This way, all banks can hear all the deals being executed. Because of the open box system used by brokers, a trader is able to hear all prices quoted; whether the bid was hit or the offer taken; and the following price. What the trader will not be able to hear is the amounts of particular bids and offers and the names of the banks showing the prices. Prices are anonymous the anonymity of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair chance to trade. Brokers charge a commission that is paid equally by the buyer and the seller. The fees are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their customers the prices made by other customers either two-way (bid and offer) prices or one way (bid or offer) prices from his or her customers. Traders show different prices because they "read" the market differently; they have different expectations and different interests. A broker who
has more than one price on one or both sides will automatically optimize the price. In other words, the broker will always show the highest bid and the lowest offer. Therefore, the market has access to the narrowest spread possible. Fundamental and technical analyses are used for forecasting the future direction of the currency. A trader might test the market by hitting a bid for a small amount to see if there is any reaction. Brokers cannot be forced into taking a principal's role if the name switch takes longer than anticipated. Another advantage of the brokers' market is that brokers might provide a broader selection of banks to their customers. Some European and Asian banks have overnight desks so their orders are usually placed with brokers who can deal with the American banks, adding to the liquidity of the market.
Direct Dealing
Direct dealing is based on trading reciprocity. A market maker—the bank
making or quoting a price—expects the bank that is calling to reciprocate with respect to making a price when called upon. Direct dealing provides more trading discretion, as compared to dealing in the brokers' market. Sometimes traders take advantage of this characteristic. Direct dealing used to be conducted mostly on the phone. Dealing errors were difficult to prove and even more difficult to settle. In order to increase dealing safety, most banks tapped the phone lines on which trading was conducted. This measure was helpful in recording all the transaction details and enabling the dealers to allocate the responsibility for errors fairly. But tape recorders were unable to prevent trading errors. Direct dealing was forever changed in the mid - 1980s, by the introduction of dealing systems.
Dealing Systems
Dealing systems are on-line computers that link the contributing banks
around the world on a one-on-one basis. The performance of dealing systems is characterized by speed, reliability, and safety. Accessing a bank through a dealing system is much faster than making a phone call. Dealing systems are continuously being improved in order to offer maximum support to the dealer's main function: trading. The software is very reliable in picking up the big figure of the exchange rates and the standard value dates. In addition, it is extremely precise and fast in contacting other parties, switching among conversations, and accessing the database. The trader is in continuous visual contact with the information exchanged on the monitor. It is easier to see than hear this information, especially when switching among conversations. Most banks use a combination of brokers and direct dealing systems. Both approaches reach the same banks, but not the same parties, because corporations, for instance, cannot deal in the brokers' market. Traders develop personal relationships with both brokers and traders in the markets, but select their trading medium based on price quality, not on personal feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to brokers.
Matching Systems
Unlike dealing systems, on which trading is not anonymous and is
conducted on a one-on-one basis, matching systems are anonymous and
individual traders deal against the rest of the market, similar to dealing in the brokers' market. However, unlike the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times. Matching systems are well-suited for trading smaller amounts as well. The dealing systems characteristics of speed, reliability, and safety are replicated in the matching systems. In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counter party. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or shows the trader only the price made by banks that have open lines of credit. As soon as the credit line is restored, the system allows the bank to deal again. In the interbank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary fashion.
Posted by Ultimate Forex Secrets
Foreign exchange brokers, unlike equity brokers, do not take positions for
themselves; they only service banks. Their roles are:
bringing together buyers and sellers in the market;
optimizing the price they show to their customers;
quickly, accurately, and faithfully executing the traders' orders.
The majority of the foreign exchange brokers execute business via phone.
The phone lines between brokers and banks are dedicated, or direct, and are usually in-stalled free of charge by the broker. A foreign exchange brokerage firm has direct lines to banks around the world. Most foreign exchange is executed through an open box system—a microphone in front of the broker that continuously transmits everything he or she says on the direct phone lines to the speaker boxes in the banks. This way, all banks can hear all the deals being executed. Because of the open box system used by brokers, a trader is able to hear all prices quoted; whether the bid was hit or the offer taken; and the following price. What the trader will not be able to hear is the amounts of particular bids and offers and the names of the banks showing the prices. Prices are anonymous the anonymity of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair chance to trade. Brokers charge a commission that is paid equally by the buyer and the seller. The fees are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their customers the prices made by other customers either two-way (bid and offer) prices or one way (bid or offer) prices from his or her customers. Traders show different prices because they "read" the market differently; they have different expectations and different interests. A broker who
has more than one price on one or both sides will automatically optimize the price. In other words, the broker will always show the highest bid and the lowest offer. Therefore, the market has access to the narrowest spread possible. Fundamental and technical analyses are used for forecasting the future direction of the currency. A trader might test the market by hitting a bid for a small amount to see if there is any reaction. Brokers cannot be forced into taking a principal's role if the name switch takes longer than anticipated. Another advantage of the brokers' market is that brokers might provide a broader selection of banks to their customers. Some European and Asian banks have overnight desks so their orders are usually placed with brokers who can deal with the American banks, adding to the liquidity of the market.
Direct Dealing
Direct dealing is based on trading reciprocity. A market maker—the bank
making or quoting a price—expects the bank that is calling to reciprocate with respect to making a price when called upon. Direct dealing provides more trading discretion, as compared to dealing in the brokers' market. Sometimes traders take advantage of this characteristic. Direct dealing used to be conducted mostly on the phone. Dealing errors were difficult to prove and even more difficult to settle. In order to increase dealing safety, most banks tapped the phone lines on which trading was conducted. This measure was helpful in recording all the transaction details and enabling the dealers to allocate the responsibility for errors fairly. But tape recorders were unable to prevent trading errors. Direct dealing was forever changed in the mid - 1980s, by the introduction of dealing systems.
Dealing Systems
Dealing systems are on-line computers that link the contributing banks
around the world on a one-on-one basis. The performance of dealing systems is characterized by speed, reliability, and safety. Accessing a bank through a dealing system is much faster than making a phone call. Dealing systems are continuously being improved in order to offer maximum support to the dealer's main function: trading. The software is very reliable in picking up the big figure of the exchange rates and the standard value dates. In addition, it is extremely precise and fast in contacting other parties, switching among conversations, and accessing the database. The trader is in continuous visual contact with the information exchanged on the monitor. It is easier to see than hear this information, especially when switching among conversations. Most banks use a combination of brokers and direct dealing systems. Both approaches reach the same banks, but not the same parties, because corporations, for instance, cannot deal in the brokers' market. Traders develop personal relationships with both brokers and traders in the markets, but select their trading medium based on price quality, not on personal feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to brokers.
Matching Systems
Unlike dealing systems, on which trading is not anonymous and is
conducted on a one-on-one basis, matching systems are anonymous and
individual traders deal against the rest of the market, similar to dealing in the brokers' market. However, unlike the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times. Matching systems are well-suited for trading smaller amounts as well. The dealing systems characteristics of speed, reliability, and safety are replicated in the matching systems. In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counter party. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or shows the trader only the price made by banks that have open lines of credit. As soon as the credit line is restored, the system allows the bank to deal again. In the interbank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary fashion.
Posted by Ultimate Forex Secrets
Friday 13 November 2009
Major Currencies - Posted by Ultimate Forex Secrets
The U.S. Dollar
The United States dollar is the world's main currency. All currencies are
generally quoted in U.S. dollar terms. Under conditions of international economic
and political unrest, the U.S. dollar is the main safe-haven currency which was
proven particularly well during the Southeast Asian crisis of 1997-1998.
The U.S. dollar became the leading currency toward the end of the
Second World War and was at the center of the Bretton Woods Accord, as the
other currencies were virtually pegged against it. The introduction of the euro in
1999 reduced the dollar's importance only marginally.
The major currencies traded against the U.S. dollar are the euro,
Japanese yen, British pound, and Swiss franc.
The Euro
The euro was designed to become the premier currency in trading by
simply being quoted in American terms. Like the U.S. dollar, the euro has a
strong international presence stemming from members of the European
Monetary Union. The currency remains plagued by unequal growth, high
unemployment, and government resistance to structural changes. The pair was
also weighed in 1999 and 2000 by outflows from foreign investors, particularly
Japanese, who were forced to liquidate their losing investments in eurodenominated
assets. Moreover, European money managers rebalanced their
portfolios and reduced their euro exposure as their needs for hedging currency
risk in Europe declined.
The Japanese Yen
The Japanese yen is the third most traded currency in the world; it has a
much smaller international presence than the U.S. dollar or the euro. The yen is
very liquid around the world, practically around the clock. The natural demand to
trade the yen concentrated mostly among the Japanese keiretsu, the economic
and financial conglomerates.
The yen is much more sensitive to the fortunes of the Nikkei index, the
Japanese stock market, and the real estate market. The attempt of the Bank of
Japan to deflate the double bubble in these two markets had a negative effect
on the Japanese yen, although the impact was short-lived
The British Pound
Until the end of World War II, the pound was the currency of reference. Its
nickname, cable, is derived from the telex machine, which was used to trade it
in its heyday. The currency is heavily traded against the euro and the U.S.
dollar, but has a spotty presence against other currencies. The two-year bout
with the Exchange Rate Mechanism, between 1990 and 1992, had a soothing
effect on the British pound, as it generally had to follow the deutsche mark's
fluctuations, but the crisis conditions that precipitated the pound's withdrawal from
the ERM had a psychological effect on the currency.
Prior to the introduction of the euro, both the pound benefited from any
doubts about the currency convergence. After the introduction of the euro, Bank
of England is attempting to bring the high U.K. rates closer to the lower rates in
the euro zone. The pound could join the euro in the early 2000s, provided that
the U.K. referendum is positive.
The Swiss Franc
The Swiss franc is the only currency of a major European country that
belongs neither to the European Monetary Union nor to the G-7 countries.
Although the Swiss economy is relatively small, the Swiss franc is one of the
four major currencies, closely resembling the strength and quality of the Swiss
economy and finance. Switzerland has a very close economic relationship with
Germany, and thus to the euro zone. Therefore, in terms of political uncertainty
in the East, the Swiss franc is favored generally over the euro.
Typically, it is believed that the Swiss franc is a stable currency.
Actually, from a foreign exchange point of view, the Swiss franc closely
resembles the patterns of the euro, but lacks its liquidity. As the demand for it
exceeds supply, the Swiss franc can be more volatile than the euro.
Posted by Ultimate Forex Secrets
The United States dollar is the world's main currency. All currencies are
generally quoted in U.S. dollar terms. Under conditions of international economic
and political unrest, the U.S. dollar is the main safe-haven currency which was
proven particularly well during the Southeast Asian crisis of 1997-1998.
The U.S. dollar became the leading currency toward the end of the
Second World War and was at the center of the Bretton Woods Accord, as the
other currencies were virtually pegged against it. The introduction of the euro in
1999 reduced the dollar's importance only marginally.
The major currencies traded against the U.S. dollar are the euro,
Japanese yen, British pound, and Swiss franc.
The Euro
The euro was designed to become the premier currency in trading by
simply being quoted in American terms. Like the U.S. dollar, the euro has a
strong international presence stemming from members of the European
Monetary Union. The currency remains plagued by unequal growth, high
unemployment, and government resistance to structural changes. The pair was
also weighed in 1999 and 2000 by outflows from foreign investors, particularly
Japanese, who were forced to liquidate their losing investments in eurodenominated
assets. Moreover, European money managers rebalanced their
portfolios and reduced their euro exposure as their needs for hedging currency
risk in Europe declined.
The Japanese Yen
The Japanese yen is the third most traded currency in the world; it has a
much smaller international presence than the U.S. dollar or the euro. The yen is
very liquid around the world, practically around the clock. The natural demand to
trade the yen concentrated mostly among the Japanese keiretsu, the economic
and financial conglomerates.
The yen is much more sensitive to the fortunes of the Nikkei index, the
Japanese stock market, and the real estate market. The attempt of the Bank of
Japan to deflate the double bubble in these two markets had a negative effect
on the Japanese yen, although the impact was short-lived
The British Pound
Until the end of World War II, the pound was the currency of reference. Its
nickname, cable, is derived from the telex machine, which was used to trade it
in its heyday. The currency is heavily traded against the euro and the U.S.
dollar, but has a spotty presence against other currencies. The two-year bout
with the Exchange Rate Mechanism, between 1990 and 1992, had a soothing
effect on the British pound, as it generally had to follow the deutsche mark's
fluctuations, but the crisis conditions that precipitated the pound's withdrawal from
the ERM had a psychological effect on the currency.
Prior to the introduction of the euro, both the pound benefited from any
doubts about the currency convergence. After the introduction of the euro, Bank
of England is attempting to bring the high U.K. rates closer to the lower rates in
the euro zone. The pound could join the euro in the early 2000s, provided that
the U.K. referendum is positive.
The Swiss Franc
The Swiss franc is the only currency of a major European country that
belongs neither to the European Monetary Union nor to the G-7 countries.
Although the Swiss economy is relatively small, the Swiss franc is one of the
four major currencies, closely resembling the strength and quality of the Swiss
economy and finance. Switzerland has a very close economic relationship with
Germany, and thus to the euro zone. Therefore, in terms of political uncertainty
in the East, the Swiss franc is favored generally over the euro.
Typically, it is believed that the Swiss franc is a stable currency.
Actually, from a foreign exchange point of view, the Swiss franc closely
resembles the patterns of the euro, but lacks its liquidity. As the demand for it
exceeds supply, the Swiss franc can be more volatile than the euro.
Posted by Ultimate Forex Secrets
Wednesday 11 November 2009
Factors Caused Foreign Exchange Volume Growth - Posted by Ultimate Forex Profits
Foreign exchange trading is generally conducted in a decentralized manner,
with the exceptions of currency futures and options. Foreign exchange has
experienced spectacular growth in volume ever since currencies were allowed to
float freely against each other. While the daily turnover in 1977 was U.S. $5
billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark
in September 1992, and stabilized at around $1,5 trillion by the year 2000.
Main factors influence on this spectacular growth in volume are indicated
below.
For foreign exchange, currency volatility is a prime factor in the growth
of volume. In fact, volatility is a sine qua non condition for trading. The only
instruments that may be profitable under conditions of low volatility are
currency options.
Interest Rate Volatility
Economic internationalization generated a significant impact on interest
rates as well. Economics became much more interrelated and that exacerbated the
need to change interest rates faster. Interest rates are generally changed in order
to adjust the growth in the economy, and interest rate differentials have a
substantial impact on exchange rates.
Business Internationalization
In recent decades the business world the competition has intensified,
triggering a worldwide hunt for more markets and cheaper raw materials and
labor. The pace of economic internationalization picked up even more in the
1990s, due to the fall of Communism in Europe and to up-and-down economic
and financial development in both Southeast Asia and South America. These
changes have been positive toward foreign exchange, since more transactional
layers were added.
Increasing of Corporate Interest
A successful performance of a product or service overseas may be pulled
down from the profit point of view by adverse foreign exchange conditions and
vice versa. An accurate handling of the foreign exchange may enhance the overall
international performance of a product or service. Proper handling of foreign
exchange generally adds substantially to the rate of return. Therefore, interest
in foreign exchange has increased in the past decade. Many corporations are
using currencies not only for hedging, but also for capitalizing on opportunities that
exist solely in the currency markets.
Increasing of Traders Sophistication
Advances in technology, computer software, and telecommunications and
increased experience have increased the level of traders' sophistication. This enhanced traders' confidence in their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.
Developments in Telecommunications
The introduction of automated dealing systems in the 1980s, of matching
systems in the early 1990s, and of Internet trading in the late 1990s completely altered the way foreign exchange was conducted. The dealing systems are online computer systems that link banks on a one-to-one basis, while matching systems are electronic brokers. They are reliable and much faster, allowing traders to conduct more simultaneous trades. They are also safer, as traders are able to see the deals that they execute. The dealing systems had a major role in expanding the foreign exchange business due to their reliability, speed, and safety.
Computer and Programming development
Computers play a significant role at many stages of conducting foreign
exchange. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market. The new office systems provide full accounting coverage, ticket writing, back office processing, and risk management implementation at a fraction of their
previous cost. Advanced software makes it possible to generate all types of
charts, augment them with sophisticated technical studies, and put them at
traders' fingertips on a continuous basis at a rather limited cost.
Posted by Ultimate Forex Profits
with the exceptions of currency futures and options. Foreign exchange has
experienced spectacular growth in volume ever since currencies were allowed to
float freely against each other. While the daily turnover in 1977 was U.S. $5
billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark
in September 1992, and stabilized at around $1,5 trillion by the year 2000.
Main factors influence on this spectacular growth in volume are indicated
below.
For foreign exchange, currency volatility is a prime factor in the growth
of volume. In fact, volatility is a sine qua non condition for trading. The only
instruments that may be profitable under conditions of low volatility are
currency options.
Interest Rate Volatility
Economic internationalization generated a significant impact on interest
rates as well. Economics became much more interrelated and that exacerbated the
need to change interest rates faster. Interest rates are generally changed in order
to adjust the growth in the economy, and interest rate differentials have a
substantial impact on exchange rates.
Business Internationalization
In recent decades the business world the competition has intensified,
triggering a worldwide hunt for more markets and cheaper raw materials and
labor. The pace of economic internationalization picked up even more in the
1990s, due to the fall of Communism in Europe and to up-and-down economic
and financial development in both Southeast Asia and South America. These
changes have been positive toward foreign exchange, since more transactional
layers were added.
Increasing of Corporate Interest
A successful performance of a product or service overseas may be pulled
down from the profit point of view by adverse foreign exchange conditions and
vice versa. An accurate handling of the foreign exchange may enhance the overall
international performance of a product or service. Proper handling of foreign
exchange generally adds substantially to the rate of return. Therefore, interest
in foreign exchange has increased in the past decade. Many corporations are
using currencies not only for hedging, but also for capitalizing on opportunities that
exist solely in the currency markets.
Increasing of Traders Sophistication
Advances in technology, computer software, and telecommunications and
increased experience have increased the level of traders' sophistication. This enhanced traders' confidence in their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.
Developments in Telecommunications
The introduction of automated dealing systems in the 1980s, of matching
systems in the early 1990s, and of Internet trading in the late 1990s completely altered the way foreign exchange was conducted. The dealing systems are online computer systems that link banks on a one-to-one basis, while matching systems are electronic brokers. They are reliable and much faster, allowing traders to conduct more simultaneous trades. They are also safer, as traders are able to see the deals that they execute. The dealing systems had a major role in expanding the foreign exchange business due to their reliability, speed, and safety.
Computer and Programming development
Computers play a significant role at many stages of conducting foreign
exchange. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market. The new office systems provide full accounting coverage, ticket writing, back office processing, and risk management implementation at a fraction of their
previous cost. Advanced software makes it possible to generate all types of
charts, augment them with sophisticated technical studies, and put them at
traders' fingertips on a continuous basis at a rather limited cost.
Posted by Ultimate Forex Profits
Tuesday 10 November 2009
Forex Trading Demystified - posted by Ultimate Forex Profits
Forex involves the trading of currencies. It is the largest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds’ stock market on any given day.
The forex market does not have a fixed exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is completely electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders thanks to the advent of the Internet and an increasing amount of online forex brokers are trading forex.
Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound confusing but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.
When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350/1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the major currencies is usually 3 to 5 pips (explained later).
The most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo so if a forex trader says the EURO has gone up 20 pips against the US dollar add 20 points to decimal part of EUR/USD pair.
Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1% margins. This means you can control one standard lot of $100000 with $1000. Typically you would need a minium of $2500 to open a standard size forex account.
A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10000. If the currency goes up 1% and if you traded one mini lot of $10000 you would make $100 dollars or 100% of your original margin. Forex trading is a very lucrative market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you gain more experience you can trade standard sized lots.
Forex trading is becoming increasing popular with traders of other financial products. It can be traded in amounts a lot smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.
Posted by Ultimate Forex Profits
The forex market does not have a fixed exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is completely electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders thanks to the advent of the Internet and an increasing amount of online forex brokers are trading forex.
Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound confusing but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.
When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350/1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the major currencies is usually 3 to 5 pips (explained later).
The most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo so if a forex trader says the EURO has gone up 20 pips against the US dollar add 20 points to decimal part of EUR/USD pair.
Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1% margins. This means you can control one standard lot of $100000 with $1000. Typically you would need a minium of $2500 to open a standard size forex account.
A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10000. If the currency goes up 1% and if you traded one mini lot of $10000 you would make $100 dollars or 100% of your original margin. Forex trading is a very lucrative market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you gain more experience you can trade standard sized lots.
Forex trading is becoming increasing popular with traders of other financial products. It can be traded in amounts a lot smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.
Posted by Ultimate Forex Profits
Friday 6 November 2009
Main Stages of Recent Foreign Exchange Development - Posted by Ultimate Forex Profits
The main phases of the further development of the Forex in modern
times were:
• signing of the Bretton Woods Accord;
• constitution of the international monetary fund (IMF);
• emergency of the free-floating foreign exchange markets;
• creation of currency reserves;
• constitution of the European Monetary Union and the European
Monetary Cooperation Fund;
• introduction of the Euro as a currency.
The Bretton Woods Accord was signed in July 1944 by the United States,
Great Britain, and France which agreed to make the currency market stable,
particularly due to governmental controls on currency values. In order to
implement it, two major goals were: emphasized: to provide the pegging
(backing of prices) of currencies and to organize the International Monetary Fund
(IMF).
In accordance to the Bretton Woods Accord, the major trading currencies
were pegged to the U.S. dollar in the sense that they were allowed to fluctuate
only one percent on either side of that rate. When a currency exceeded this
range, marked by intervention points, the central bank in charge had to buy it or
sell it, and thus bring it back into range. In turn, the U.S. dollar was pegged to
gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency.
The purpose of IMF is to consult with one another to maintain a stable
system of buying and selling the currencies, so that payments in foreign
money can take place between countries smoothly and timely.
The IMF lends money to members who have trouble meeting financial
obligations to other members, on the condition that they undertake economic
reforms to eliminate these difficulties for their own good and the good of the
entire membership. In total the main tasks of the IMF are:
• to promote international cooperation by providing the means for
members to consult and collaborate on international monetary issues;
• to facilitate the growth of international trade and thus contribute to
high levels of employment and real income among member nations;
• to promote stability of exchange rates and orderly exchange
agreements, and [to] discourage competitive currency depreciation;
• to foster a multilateral system of international payments, and to seek
the elimination of exchange restrictions that hinder the growth of world trade;
• to make financial resources available to members, on a temporary
basis and with adequate safeguards, to permit them to correct payments
imbalances without resorting to measures destructive to national and international
prosperity.
To execute these goals the IMF uses such instruments as Reserve tranche
which allows a member to draw on its own reserve asset quota at the time of
payment, Credit tranche drawings and stand-by arrangements are the standard
form of IMF loans, the compensatory financing facility extends financial help to
countries with temporary problems generated by reductions in export revenues,
the buffer stock financing facility which is geared toward assisting the stocking
up on primary commodities in order to ensure price stability in a specific
commodity and the extended facility designed to assist members with financial
problems in amounts or for periods exceeding the scope of the other facilities.
Since 1978 free-floating of currencies were officially mandated by the
International Monetary Fund. That is the currency may be traded by anybody and
its value is a function of the current supply and demand forces in the market, and
there are no specific intervention points that have to be observed. Of course, the
Federal Reserve Bank irregularly intervenes to change the value of the U.S.
dollar, but no specific levels are ever imposed. Naturally, free-floating
currencies are in the heaviest trading demand. Free-floating is not the sine qua
non condition for trading. Liquidity is also an indispensable condition.
A tool for people and corporations to protect investments in times of
economic or political instability is currency reserves for international
transactions. Immediately after the World War II the reserve currency worldwide
was the U.S. dollar. Currently there are other reserve currencies: the euro and
the Japanese yen. The portfolio of reserve currencies may change depending on
specific international conditions, for instance it may include the Swiss franc.
The creation of the European Monetary Union was the result of a long and
continuous series of post-World War II efforts aimed at creating closer economic
cooperation among the capitalist European countries. The European Community
(EC) commission's officially stated goals were to improve the inter-European
economic cooperation, create a regional area of monetary stability, and act as "a
pole of stability in world currency markets."
The first steps in this rebuilding were taken in 1950, when the European
Payment Union was instituted to facilitate the inter-European settlements of
international trade transactions. The purpose of the community was to promote
inter-European trade in general, and to eliminate restrictions on the trade of coal
and raw steel in particular.
In 1957, the Treaty of Rome established the European Economic
Community, with the same signatories as the European Coal and Steel
Community. The stated goal of the European Economic Community was to
eliminate customs duties and any barriers against the transit of capital, services,
and people among the member nations. The EC also started to raise common
tariff barriers against outsiders.
The European Community consists of four executive and legislative bodies:
1. The European Commission. The executive body in charge of making
and observing the enforcement of the policies. Since it lacks an enforcement
arm, the commission must rely on individual governments to enforce the policies.
There are 23 departments, such as foreign affairs, competition policy, and
agriculture. Each country selects its own representatives for four-year terms. The
commission is based in Brussels and consists of 17 members.
2. The Council of Ministers. Makes the major policy decisions. It is
composed of ministers from the 12 member nations. The presidency is held for
six months by each of the members, in alphabetical order. The meetings take
place in Brussels or in the capital of the nation holding the presidency.
3. The European Parliament. Reviews and amends legislative proposals
and has the power to adopt or reject budget proposals. It consists of 518
elected members. It is based in Luxembourg, but the sessions take place in
Strasbourg or Brussels.
4. The European Court of Justice. Settles disputes between the EC and
the member nations. It consists of 13 members and is based in Luxembourg.
In 1963, the French-West German Treaty of Cooperation was signed. This
pact was designed not only to end centuries of bellicose rivalry, but also to
settle the postwar reconciliation between two major foes. The treat stipulated
that West Germany would lead economically through the cold war, and France,
the former diplomatic powerhouse, would provide the political leadership. The
premise of this treaty was obviously correct in an environment defined by a
foreseeable long-term continuing cold war and a divided Germany. Later in this
chapter, we discuss the implications for the modern era of this enormously
expensive pact.
A conference of national leaders in 1969 set the objective of establishing a
monetary union within the European Community. This goal was supposed to be
implemented by 1980, when a common currency was planned to be used in
Europe. The reasons for the proposed common currency unit were to stimulate
inter-European trade and to weld together the individual member economies in
order to compete successfully with the economies of the United States and
Japan.
In 1978, the nine members of the European Community ratified a new plan
for stability—the European Monetary System. The new system was practically
established in 1979. Seven countries were then full members—West
Germany, France, the Netherlands, Belgium, Luxembourg, Denmark, and
Ireland. Great Britain did not participate in all of the arrangements and Italy
joined under special conditions. Greece joined in 1981, Spain and Portugal in
1986. Great Britain joined the Exchange Rate Mechanism in 1990.
The European Monetary Cooperation Fund was established to manage
the EMS' credit arrangements. In order to increase the acceptance of the
ECU, countries that hold more ECU deposits, or accept as loan repayment more
than their share of ECU, receive interest on the excess ECU deposits, and vice
versa. The interest rate is the weighted average of all the EMS members'
discount rates.
In 1998 the Euro was introduced as an all-European currency. Here are
the official locking rates of the 11 participating European currencies in the
euro (EUR). The rates were proposed by the EU Commission and approved by
EU finance ministers on December 31, 1998, ahead of the launch of the euro
at midnight, January 1, 1999.
The real starting date was Monday, January 4, 1999. The conversion
rates are:
1 EUR = 40.3399 BEF 1 EUR = 1.95583 DEM
1 EUR = 166.386 ESP 1 EUR = 6.55957 FRF
1 EUR = 0.787564 IEP 1 EUR = 1936.27 ITL
1 EUR = 40.3399 LUF 1 EUR = 2.20371 NLG
1 EUR = 13.7603 ATS 1 EUR = 200.482 PTE
1 EUR = 5.94573 FIM
The euro bills are issued in denominations of 5, 10, 20, 50, 100, 200,
and 500 euros. Coins are issued in denominations of 1 and 2 euros, and 50,
20,10, 5, 2, and 1 cent.
Posted by Ultimate Forex Profits
times were:
• signing of the Bretton Woods Accord;
• constitution of the international monetary fund (IMF);
• emergency of the free-floating foreign exchange markets;
• creation of currency reserves;
• constitution of the European Monetary Union and the European
Monetary Cooperation Fund;
• introduction of the Euro as a currency.
The Bretton Woods Accord was signed in July 1944 by the United States,
Great Britain, and France which agreed to make the currency market stable,
particularly due to governmental controls on currency values. In order to
implement it, two major goals were: emphasized: to provide the pegging
(backing of prices) of currencies and to organize the International Monetary Fund
(IMF).
In accordance to the Bretton Woods Accord, the major trading currencies
were pegged to the U.S. dollar in the sense that they were allowed to fluctuate
only one percent on either side of that rate. When a currency exceeded this
range, marked by intervention points, the central bank in charge had to buy it or
sell it, and thus bring it back into range. In turn, the U.S. dollar was pegged to
gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency.
The purpose of IMF is to consult with one another to maintain a stable
system of buying and selling the currencies, so that payments in foreign
money can take place between countries smoothly and timely.
The IMF lends money to members who have trouble meeting financial
obligations to other members, on the condition that they undertake economic
reforms to eliminate these difficulties for their own good and the good of the
entire membership. In total the main tasks of the IMF are:
• to promote international cooperation by providing the means for
members to consult and collaborate on international monetary issues;
• to facilitate the growth of international trade and thus contribute to
high levels of employment and real income among member nations;
• to promote stability of exchange rates and orderly exchange
agreements, and [to] discourage competitive currency depreciation;
• to foster a multilateral system of international payments, and to seek
the elimination of exchange restrictions that hinder the growth of world trade;
• to make financial resources available to members, on a temporary
basis and with adequate safeguards, to permit them to correct payments
imbalances without resorting to measures destructive to national and international
prosperity.
To execute these goals the IMF uses such instruments as Reserve tranche
which allows a member to draw on its own reserve asset quota at the time of
payment, Credit tranche drawings and stand-by arrangements are the standard
form of IMF loans, the compensatory financing facility extends financial help to
countries with temporary problems generated by reductions in export revenues,
the buffer stock financing facility which is geared toward assisting the stocking
up on primary commodities in order to ensure price stability in a specific
commodity and the extended facility designed to assist members with financial
problems in amounts or for periods exceeding the scope of the other facilities.
Since 1978 free-floating of currencies were officially mandated by the
International Monetary Fund. That is the currency may be traded by anybody and
its value is a function of the current supply and demand forces in the market, and
there are no specific intervention points that have to be observed. Of course, the
Federal Reserve Bank irregularly intervenes to change the value of the U.S.
dollar, but no specific levels are ever imposed. Naturally, free-floating
currencies are in the heaviest trading demand. Free-floating is not the sine qua
non condition for trading. Liquidity is also an indispensable condition.
A tool for people and corporations to protect investments in times of
economic or political instability is currency reserves for international
transactions. Immediately after the World War II the reserve currency worldwide
was the U.S. dollar. Currently there are other reserve currencies: the euro and
the Japanese yen. The portfolio of reserve currencies may change depending on
specific international conditions, for instance it may include the Swiss franc.
The creation of the European Monetary Union was the result of a long and
continuous series of post-World War II efforts aimed at creating closer economic
cooperation among the capitalist European countries. The European Community
(EC) commission's officially stated goals were to improve the inter-European
economic cooperation, create a regional area of monetary stability, and act as "a
pole of stability in world currency markets."
The first steps in this rebuilding were taken in 1950, when the European
Payment Union was instituted to facilitate the inter-European settlements of
international trade transactions. The purpose of the community was to promote
inter-European trade in general, and to eliminate restrictions on the trade of coal
and raw steel in particular.
In 1957, the Treaty of Rome established the European Economic
Community, with the same signatories as the European Coal and Steel
Community. The stated goal of the European Economic Community was to
eliminate customs duties and any barriers against the transit of capital, services,
and people among the member nations. The EC also started to raise common
tariff barriers against outsiders.
The European Community consists of four executive and legislative bodies:
1. The European Commission. The executive body in charge of making
and observing the enforcement of the policies. Since it lacks an enforcement
arm, the commission must rely on individual governments to enforce the policies.
There are 23 departments, such as foreign affairs, competition policy, and
agriculture. Each country selects its own representatives for four-year terms. The
commission is based in Brussels and consists of 17 members.
2. The Council of Ministers. Makes the major policy decisions. It is
composed of ministers from the 12 member nations. The presidency is held for
six months by each of the members, in alphabetical order. The meetings take
place in Brussels or in the capital of the nation holding the presidency.
3. The European Parliament. Reviews and amends legislative proposals
and has the power to adopt or reject budget proposals. It consists of 518
elected members. It is based in Luxembourg, but the sessions take place in
Strasbourg or Brussels.
4. The European Court of Justice. Settles disputes between the EC and
the member nations. It consists of 13 members and is based in Luxembourg.
In 1963, the French-West German Treaty of Cooperation was signed. This
pact was designed not only to end centuries of bellicose rivalry, but also to
settle the postwar reconciliation between two major foes. The treat stipulated
that West Germany would lead economically through the cold war, and France,
the former diplomatic powerhouse, would provide the political leadership. The
premise of this treaty was obviously correct in an environment defined by a
foreseeable long-term continuing cold war and a divided Germany. Later in this
chapter, we discuss the implications for the modern era of this enormously
expensive pact.
A conference of national leaders in 1969 set the objective of establishing a
monetary union within the European Community. This goal was supposed to be
implemented by 1980, when a common currency was planned to be used in
Europe. The reasons for the proposed common currency unit were to stimulate
inter-European trade and to weld together the individual member economies in
order to compete successfully with the economies of the United States and
Japan.
In 1978, the nine members of the European Community ratified a new plan
for stability—the European Monetary System. The new system was practically
established in 1979. Seven countries were then full members—West
Germany, France, the Netherlands, Belgium, Luxembourg, Denmark, and
Ireland. Great Britain did not participate in all of the arrangements and Italy
joined under special conditions. Greece joined in 1981, Spain and Portugal in
1986. Great Britain joined the Exchange Rate Mechanism in 1990.
The European Monetary Cooperation Fund was established to manage
the EMS' credit arrangements. In order to increase the acceptance of the
ECU, countries that hold more ECU deposits, or accept as loan repayment more
than their share of ECU, receive interest on the excess ECU deposits, and vice
versa. The interest rate is the weighted average of all the EMS members'
discount rates.
In 1998 the Euro was introduced as an all-European currency. Here are
the official locking rates of the 11 participating European currencies in the
euro (EUR). The rates were proposed by the EU Commission and approved by
EU finance ministers on December 31, 1998, ahead of the launch of the euro
at midnight, January 1, 1999.
The real starting date was Monday, January 4, 1999. The conversion
rates are:
1 EUR = 40.3399 BEF 1 EUR = 1.95583 DEM
1 EUR = 166.386 ESP 1 EUR = 6.55957 FRF
1 EUR = 0.787564 IEP 1 EUR = 1936.27 ITL
1 EUR = 40.3399 LUF 1 EUR = 2.20371 NLG
1 EUR = 13.7603 ATS 1 EUR = 200.482 PTE
1 EUR = 5.94573 FIM
The euro bills are issued in denominations of 5, 10, 20, 50, 100, 200,
and 500 euros. Coins are issued in denominations of 1 and 2 euros, and 50,
20,10, 5, 2, and 1 cent.
Posted by Ultimate Forex Profits
Thursday 5 November 2009
The history of Forex - posted by Ultimate Forex Profits
Currency trading has a long history and can be traced back to the ancient
Middle East and Middle Ages when foreign exchange started to take shape after
the international merchant bankers devised bills of exchange, which were
transferable third-party payments that allowed flexibility and growth in foreign
exchange dealings.
The modern foreign exchange market characterized by the consequent
periods of increased volatility and relative stability formed itself in the twentieth
century. By the mid-1930s London became to be the leading center for foreign
exchange and the British pound served as the currency to trade and to keep as a
reserve currency. Because in the old times foreign exchange was traded on the
telex machines, or cable, the pound has generally the nickname “cable”. In 1930,
the Bank for International Settlements was established in Basel, Switzerland, to
oversee the financial efforts of the newly independent countries, emerged after
the World War I, and to provide monetary relief to countries experiencing
temporary balance of payments difficulties.
After the World War II, where the British economy was destroyed and the
United States was the only country unscarred by war, U.S. dollar became the
prominent currency of the entire globe. Nowadays, currencies all over the world
are generally quoted against the U.S. dollar.
Posted by Ultimate Forex Profits
Middle East and Middle Ages when foreign exchange started to take shape after
the international merchant bankers devised bills of exchange, which were
transferable third-party payments that allowed flexibility and growth in foreign
exchange dealings.
The modern foreign exchange market characterized by the consequent
periods of increased volatility and relative stability formed itself in the twentieth
century. By the mid-1930s London became to be the leading center for foreign
exchange and the British pound served as the currency to trade and to keep as a
reserve currency. Because in the old times foreign exchange was traded on the
telex machines, or cable, the pound has generally the nickname “cable”. In 1930,
the Bank for International Settlements was established in Basel, Switzerland, to
oversee the financial efforts of the newly independent countries, emerged after
the World War I, and to provide monetary relief to countries experiencing
temporary balance of payments difficulties.
After the World War II, where the British economy was destroyed and the
United States was the only country unscarred by war, U.S. dollar became the
prominent currency of the entire globe. Nowadays, currencies all over the world
are generally quoted against the U.S. dollar.
Posted by Ultimate Forex Profits
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