Wednesday, August 14, 2013

About forex

One of the questions we get asked all the time is “What is forex trading?” When did it start? How big is it? Who are the major players? What makes currency rates change?
Here are the answers to all your questions ?
Forex is the international market for the free trade of currencies. Traders place orders to buy one currency with another currency. For example, a trader may want to buy Euros with US dollars, and will use the forex market to do this.
The forex market is the world's largest financial market. Over $4 trillion dollars worth of currency are traded each day. The amount of money traded in a week is bigger than the entire annual GDP of the United States!
The main currency used for forex trading is the US dollar.
As the world continued to tear itself apart in the Second World War, there was an urgent need for financial stability. International negotiators from 29 countries met in Bretton Woods and agreed to a new economic system where, amongst other things, exchange rates would be fixed.
The International Monetary Fund (IMF) was established under the Bretton Woods agreement, and started to operate in 1949. All exchange rates changes above 1% had to be approved by the IMF, which had the effect of freezing these rates.
By the late 1960's the fixed exchange rate system started to break down, due to a number of international political and economic factors. Finally, in 1971, President Nixon stopped the US dollar being converted directly to gold, as part of a set of measures designed to stem the collapse of the US economy. This was known as the Nixon shock, and lead to floating rate currency markets being established in early 1973. By 1976, all major currencies had floating exchange rates.
With floating rates, currencies could be traded freely, and the price changed based on market forces. The modern forex market was born.
Who trades on the forex market?
There are many different players in the forex market. Some trade to make profits, others trade to hedge their risks and others simply need foreign currency to pay for goods and services. The participants include the following:
  • Government central banks
  • Commercial banks
  • Investment banks
  • Brokers and dealers
  • Pension funds
  • Insurance companies
  • International corporations
  • Individuals
When is the forex market open?
Unlike stock exchanges, which have limited opening hours, the forex market is open 24 hours a day, five days a week. Banks need to buy and sell currency around the clock, and the forex market has to be open for them to do this.
What factors influence currency exchange rates?
As with any market, the forex market is driven by supply and demand:
  • If buyers exceed sellers, prices go up
  • If sellers outnumber buyers, prices go down
The following factors can influence exchange rates:
  • National economic performance
  • Central bank policy
  • Interest rates
  • Trade balances – imports and exports
  • Political factors – such as elections and policy changes
  • Market sentiment – expectations and rumours
  • Unforeseen events – terrorism and natural disasters
Despite all these factors, the global forex market is more stable than stock markets; exchange rates change slowly and by small amounts.
The forex market has many advantages. These include the following:
  • It's already the world's largest market and it's still growing quickly
  • It makes extensive use of information technology – making it available to everyone
  • Traders can profit from both strong and weak economies
  • Trader can place very short-term orders – which are prohibited in some other markets
  • The market is not regulated
  • Brokerage commissions are very low or non-existent
  • The market is open 24 hours a day during weekdays

Spot Market by Forex

Spot Market

Currency spot trading is the most popular foreign currency instrument 
around the world, making up 37 percent of the total activity (See Figure 3.1). 
1 2 3 4
Figure 3.1.The market share of the foreign exchange instruments as of 1998: 
1- spot; 2 – options; 3 – futures; 4 – forwards and swaps. 
The fast-paced spot market is not for the fainthearted, as it features 
high volatility and quick profits (and losses). A spot deal consists of a bilateral 
contract whereby a party delivers a specified amount of a given currency 
against receipt of a specified amount of another currency from a 
counterparty, based on an agreed exchange rate, within two business days of 
the deal date. The exception is the Canadian dollar, in which the spot delivery 
is executed next business day. 

Tuesday, August 13, 2013

The Federal Reserve System of the USA and Central Banks of the Other G-7 Countries

The Federal Reserve System of the USA and Central Banks of the Other G-7 Countries 

Like the other central banks, the Federal Reserve of the USA affects the 
foreign exchange markets in three general areas: 
• the discount rate; 
• the money market instruments; 
• foreign exchange operations. 
For the foreign exchange operations most significant are repurchase 
agreements to sell the same security back at the same price at a predetermined 
date in the future (usually within 15 days), and at a specific rate of interest. This 
arrangement amounts to a temporary injection of reserves into the banking 
system. The impact on the foreign exchange market is that the dollar should 
weaken. The repurchase agreements may be either customer repos or system 
Matched sale-purchase agreements are just the opposite of repurchase 
agreements. When executing a matched sale-purchase agreement, the Fed sells 
a security for immediate delivery to a dealer or a foreign central bank, with the 
agreement to buy back the same security at the same price at a predetermined 
time in the future (generally within 7 days). This arrangement amounts to a 
temporary drain of reserves. The impact on the foreign exchange market is that 
the dollar should strengthen. 
The major central banks are involved in foreign exchange operations in 
more ways than intervening in the open market. Their operations include payments 
among central banks or to international agencies. In addition, the Federal Reserve 
has entered a series of currency swap arrangements with other central banks since 
1962. For instance, to help the allied war effort against Iraq's invasion of Kuwait in 
1990-1991, payments were executed by the Bundesbank and Bank of Japan to the 
Federal Reserve. Also, payments to the World bank or the United Nations are executed 
through central banks. 
Intervention in the United States foreign exchange markets by the U.S. 
Treasury and the Federal Reserve is geared toward restoring orderly conditions 
in the market or influencing the exchange rates. It is not geared toward 
affecting the reserves. 
There are two types of foreign exchange interventions: naked intervention 
and sterilized intervention. 
Naked intervention, or unsterilized intervention, refers to the sole foreign 
exchange activity. All that takes place is the intervention itself, in which the 

Kinds of Exchange Systems

Kinds of Exchange Systems

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.

Click hear 

What is Forex

The foreign exchange market ( Forex, FX, or currency market) is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.
The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states, especially Euro zone Members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.
In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying some quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Breton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of the following characteristics:
·         its huge trading volume representing the largest asset class in the world leading to high liquidity;
·         its geographical dispersion;
·         its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
·         the variety of factors that affect exchange rates;
·         the low margins of relative profit compared with other markets of fixed income; and
·         the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements,[3] as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.[4]
The $3.98 trillion break-down is as follows:
·         $1.490 trillion in spot transactions
·         $475 billion in outright forwards
·         $1.765 trillion in foreign exchange swaps
·         $43 billion currency swaps
·         $207 billion in options and other products

Why Loss on forex ?

Traders may lose easily if they are not strategic. Our expert team is working 24 hours in analyzing the market trends and provide the customers reliable signals. You need not to worry if you just follow our signals. For the general knowledge of the clients we are just discussing the following matters.
1. Lack ofexperience
Forex trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.
Most online forex brokers offer a practice version of their trading platform that offers the very same experience as a live trading application. Typically, once you create a practice account, you are free to trade and deal as you wish risking only the "play" money used to seed your account.
With a practice account, you can see how the market reacts to economic forces including news events without actually risking your investment capital. However, you must treat this account seriously if you expect to learn from the experience. If you simply shrug off a loss without understanding why the loss occurred, then you are wasting your time and setting yourself up for disappointment. Take advantage of this unique forex market training tool before committing your money to a real trading account.
2. Unreasonable expectations
First off, stop believing all the "get rich quick" hype still perpetrated by some forex dealers. Yes, there are those that do get rich trading forex but some people also get rich selling houses. In either case, it does not happen overnight and it might take years to gain the experience and insight to turn forex trading into a full time, successful occupation.
As a new trader, if you manage to stay in the game without losing all your money in the first few months as is all too common - then you may be able to learn what is required to be profitable. In other words, don't quit your day job just yet.
3. Absence of a sound trading plan
Next to having unreasonable expectations with regards to the risks associated with forex trading and the amount of time required to be successful, a common mistake made by new traders is the lack of a trading plan. In reality, there are two aspects to this plan, an overall objective for your trading activities and a plan for each trade you make.
Your overall objective should include the currencies that you intend to deal in, the amount of leverage you will use, and the amount of time you intend to devote to your trading activities. Your plan must also include a realistic rate of return you expect to achieve. In addition to your overall objectives plan, you also need an exit strategy plan for each trade you make that includes the upper and lower boundaries of the trade.
In other words, you must identify the level at which you will close positions and take your profits (take profit order) or in the case of a losing trade, the level at which you are prepared to go before you get out of the trade thus limiting your losses (limit order). We will talk more about stop loss and take profit instructions later.
4. Lack of discipline
A plan is only of value if you actually have the patience and the discipline to follow it. While this can be difficult, it is necessary if you expect to be successful, and it is this very reason why developing a plan prior to the trade is so fundamental. As rates fluctuate, you can easily get caught up in the market and it is only human nature that you will begin to second guess your actions. If, for instance, the rate moves up surpassing your original take profit point, you may be tempted to hold out for an even higher return, alternatively, if the price drops below your limit level but you believe there is a big rebound just around the corner, you may be tempted to keep the order open on the hopes of a reversal.
But does either scenario really make sense? If before you entered the trade you had a sound reason for establishing both your take profit and your loss limit levels, how likely is it that conditions have changed so much that now you are prepared to throw your previous assessments out the window in the heat of the battle? Can you be sure that you are not acting on emotion rather than sound analysis?
This is why a plan is so important - it allows you to avoid the emotion that is bound to arise during times of volatility.
Now this is not to say that a trading plan can never be revised - in fact, your overall objectives should be re examined every few months or even more frequently if required. As well, it may be necessary sometimes to abandon a plan mid trade if market conditions warrant but this should be the exception and not the norm.
And yes, sometimes the market can be so volatile that no amount of planning will produce positive results. In this case, maybe the best option is simply not to trade until you can get a better handle on things. Never allow yourself to fall into the "I have to do something" trap - sometimes the best plan is to do nothing.
5. Failure to include stop loss and take profit instructions
When you place a market order and leave it open - that is, enter a trade at the market price without instructions to close the order - you are in effect, gambling with the total value of your account. For this reason, you should consider adding stop loss instructions to all open positions.
For instance, if you are holding a long GBP/USD position, you can include a stop loss instruction that automatically sells your long position if the rate falls to a certain level. In this way, you can limit the amount that you could lose on any given trade - even if you are unable to constantly monitor your account.
Take profit orders are similar in that they allow you to establish the rate at which you want open positions closed in order to lock in profits. Again, you simply need to identify the rate at which to take the profits, and the trading system closes the position without further intervention on your part.
6. Excessive leverage
Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. It is not something to be taken lightly and if you do not understand how it works, don't trade until you do understand.
7. Holding too many open trades
Fighter pilots call it "helmet fire" and it happens when too much is happening around you too quickly for you to react. In the cockpit of a jet fighter, it can get you killed - as a forex trader, you may not end up dead but you will probably end up broke.
8.Holding losing positions too long
One of the things that really separates seasoned forex traders from those just starting out is their ability to determine when a losing trade is not going to reverse the trend. Rather than "hold and hope", disciplined traders will take the loss and get out much more quickly.
This is another reason to set protective stops on all your trades, if you include effective stops when you submit a new trade, you can at least limit your losses without having to spend too much time "babysitting" the order. If the trade hits the stop, you will lose the amount committed but you also protect the bulk of your capital, leaving you with funds to move into something else that, hopefully, will be more profitable.
9. Ignoring rate spread fluctuations and the impact spreads have on profitability
Exchange rate spreads - the difference between the bid and the ask price - are of utmost importance and directly affect the profitability of each trade. You need to be aware that spread differentials can fluctuate wildly during the day - sometimes to the point of turning a profitable trade into a losing one.
You also need to understand that spreads will widen during off market hours when volumes and liquidity are lower. In addition, spreads tend to widen ahead of important news such as an impending interest rate decision or the latest employment results.

10. Thinking about the "big win" more than effective cash management, also known as greed
This one is pretty straight forward - greed, or more correctly, how greed can cause you to enter into ridiculous trades. This must be the same gene that causes some people to keep "doubling down" even when the odds are so against them that it make no sense at all. If you want to gamble, go to Vegas.

Sunday, August 4, 2013

Major Currencies

Major Currencies

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.