Forex trading examples

An investor has a margin deposit with Saxo Bank of USD 100,000.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.

The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.

Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.

Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.

Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.

Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.

As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.

This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.

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Example 2:

The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).

The dealer quotes 112.05-10. The investor sells EUR at 112.05.

Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.

He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.

Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.

The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.

This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.

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Example 3

The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:

He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.

Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.

After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.

Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.

Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.

The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

An overview of the Forex market

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The main enticements of currency dealing to private investors and attractions 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.

forex

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NEPAL AND FOREX

Unbroken spell of ennui on KSE

KARACHI (November 15 2008): The Karachi share market witnessed another dull session on Friday and the benchmark KSE-100 index remained unchanged at 9,184.09 points level due to investors concerns over the increasing discount rate and issue of floor mechanism. Trading activity further shrank as the ready market volume declined to 57,920 shares as compared to 66,600 shares traded a day earlier.

No trading activity was witnessed at the futures counter. Trading took place in 24 scrips, out of which five closed in positive and five in negative while the value of 14 scrips remained unchanged. National Assets was the overall market volume leader with 14,500 shares and gained Re. 0.08 to close at Re. 0.50. Mukhtar Textile closed at Re. 0.54, up by Re. 0.01 with 11,000 shares. Nimir Resins remained unchanged at Rs 5.05 with 10,000 shares. Haydery Const lost Re. 0.02 to close at Rs 1.03 with 5,500 shares.

Gharibwal Cement declined by Re. 0.42 to close at Rs 16.20 with 4000 shares. Tri-Star Power remained unchanged at Rs 1.64 with 3,000 shares. PSO closed at Rs 267.49 without any change with 1,000 shares. NIB Bank remained unchanged at Rs 8.45 with 1,000 shares. Habib-ADM Limited gained Re. 0.52 to close at Rs 10.20 with 1,000 shares. East West Life Insurance closed at Rs 7.00 without any change with 1,000 shares.

Crescent Sugar and Habib-ADM Limited were the highest gainers and gained Re. 1.00 and Re. 0.52 to close at Rs 9.55 and Rs 10.20 respectively while Pak Datacom and Sitara Energy were the worst losers and lost Rs 2.00 and Re. 0.61 to close at Rs 46.00 and Rs 19.75 respectively.

Ahsan Mehanti at Shehzad Chamdia Securities said that selling activity continued as discount rates raised and investors uncertain over market floor unfreeze and government bail out of capital market by injecting Rs 50 billion. Investors awaited outcome of board of directors meeting with SECP to discuss market floor. Foreign selling continues as a result of downgrading of Pakistan foreign currency rating by a foreign credit rating agency.

embership card of KSE defaulter member sold for Rs 55 million

KARACHI (November 14 2008): Karachi Stock Exchange (KSE) on Thursday sold out a membership card of one of the defaulter members through accepting the highest bid of Rs 55 million. Sources said that in all six bids were received to buy the cards. The highest bid was given by a local firm M M Commodities, which was accepted.

The two members of the exchange namely Ismail Abdul Shakoor and Sikandar Bagasra were declared defaulters as they failed to pay their dues. About the sale of the second card, sources said that KSE wants to sell it at the same amount. For this, the exchange will ask the second highest bidder to increase his bid to Rs 55 million, otherwise, the KSE board will take some other decision in this regard.

The selling of the KSE card at Rs 55 million shows the gravity of the situation at the local bourses, which has also started affecting the value of its membership, market participants said adding that the said card was sold out at much lower price. The value of this card was much higher just a few months back as on card was sold out at Rs 140 million some five months ago, they added. The KSE members are facing hard times as the market has declined by over 42 percent from its all-time high level recorded in April this year.

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What is Home Insurance?

Home Insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.

Home Insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.

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Nitol Solar scores International Finance Corporation Investment

Polysilicon production to begin mid 2009.

Last Thursday, July 31, 2008, Nitol Solar Limited and the International Finance Corporation (IFC), one of the five institutions comprising The World Bank Group, announced a $50 million equity investment and $25 million loan by IFC to Nitol Solar per the dueling press releases:

Nitol Solar and IFC Announce Strategic Investment
IFC Supports Solar Cell Technology in Russia, Helping Alleviate Global Shortage

The Summary of Proposed Investment notes the investment will facilitate construction of Nitol Solar’s $450 million polysilicon manufacturing plant with 3700 MT (metric ton) per year annual capacity. The Nitol Solar plant is located in the Usolie-Sibirskoe, Irkutsk region, Russia, per my earlier post, From Siberia with Polysilicon.

The IFC investment follows the March 13, 2008, Nitol Solar and Suntech Announce Strategic Investment expanding upon the original Suntech Announces First Phase Polysilicon Supply Agreement with Nitol Solar. In this agreement, Suntech Power Holdings Co., Ltd. (NYSE:STP):

will acquire newly issued ordinary shares comprising a minority interest in Nitol Solar Ltd. for a total consideration of up to $100 million, subject to the satisfaction of certain conditions.

Later, Nitol Solar and Suntech Expand Polysilicon Supply Agreement again resulting in a substantial increase in the polysilicon committed volumes to be supplied between 2009 and 2015 to Suntech and:

Suntech has already paid the first $33 million installment of this investment to Nitol Solar.

Besides Suntech, Nitol Solar has announced polysilicon deals with ersol Solar Energy AG (see ersol and NITOL Group sign Polysilicon supply Letter of Intent), Motech Industries, Inc., Trina Solar Limited, and Evergreen Solar, Inc.

On the technical front, Nitol Solar produced first industrial batch of Polysilicon claims the first batch of polysilicon produced from the plant is suitable for manufacturing solar wafers per testing by the Evans Analytical Group (EAG Limited, LON:EAG). Suitability of the polysilicon for monocrystalline silicon wafers is not specified.

Although Nitol Solar delayed their IPO (Initial Public Offering) in February 2008 (see Russia's Nitol Solar postpones IPO- source) because of market conditions, they have rounded out their Management Team, Board of Directors, and Scientific Counsel with international talent.

I noticed a bit of revisionist history in Nitol Solar’s previous press releases. An over enthusiast marcom or public relations team updated all prior references from the “Nitol Group” to “Nitol Solar”. I wonder if the IFC will help Nitol Solar rectify these fine corporate governance points since the:

IFC is also working with Nitol Solar to enhance its environmental and social practices and assist the company by implementing international best practices in corporate governance.

And don’t forget Nitol Solar =is= a polysilicon reactor customer of the Class Action suited GT Solar International, Inc. (NASDAQ:SOLR) per GT Solar Signs $49M Polysilicon Reactor Contract with Nitol Group or the revised Nitol Solar and GT Solar Signed $49M Polysilicon Reactor Contract.

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Market size and lequidity

The foreign exchange market is unique because of
its trading volumes,
the extreme liquidity of the market,
the large number of, and variety of, traders in the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 5pm EST on Sunday until 4pm EST Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[1] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in forex swaps
$129 billion estimated gaps in reporting
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 currency traders [3]% of overall volume, May 2008
Rank
Name
Volume
1
Deutsche Bank
21.70%
2
UBS AG
15.80%
3
Barclays Capital
9.12%
4
Citi
7.49%
5
Royal Bank of Scotland
7.30%
6
JPMorgan
4.19%
7
HSBC
4.10%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms offered by companies such as First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. [4] Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. RPP The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of currency, which is a standard "lot". These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e. 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

Foreign exchange market

The foreign exchange (currency, forex or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional turnover was reported to be over US$ 3.2 trillion in April 2007 by the Bank for International Settlement. [1] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

Market participants

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

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

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

Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[5] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds
Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

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

Trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called FxMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.
The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.
Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.
The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.
On the spot market, according to the BIS study, the most heavily traded products were:
EUR/USD: 27 %
USD/JPY: 13 %
GBP/USD (also called sterling or cable): 12 %
and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (16.5%), and sterling (15.0%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.
Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased

Factors affecting currency trading

Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors
These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.
Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health: Reports such as gross domestic product (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.

Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.[9]
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. [10]
"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".[11] 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

Algorithmic trading in forex

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.

Financial instruments

Spot
A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar, which settles the next 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 has the largest share by volume in FX transactions among all instruments.

Forward
See also: forward contract
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.

Future
Main article: Currency future
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.

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

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

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

speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[13] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[14]
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. 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[15]. 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.[16]
Gregory 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.[16]
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex 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

What is forex market

The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$1.9 trillion -- 30 times larger than the combined volume of all U.S. equity markets. "Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation. For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial centre, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night. The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets

Strategy Runner/Currenex

An outstanding platform designed for high volume professionals displaying the best bid offer from up to 9 banks. This platform is only available to accounts in excess of $25,000 and has a minimum deal size of $100,000.

The Magnifying Effect of Modern Finance

In case that litany of problems isn�t enough to get the sweat beading on your forehead, ponder derivatives. While these hybrids have been around for decades, the rocket-shot rise of hedge funds and the advances in financial modeling techniques have spawned something of a competition among the so-called best and brightest to find ever-more-complex ways of skimming pennies from very large piles of money.

The collective result is that our financial system has been wired up to $370 trillion dollars of privately negotiated investment contracts. They�re usually written to shift risk from one bank, pension fund, insurance company or brokerage firm to another. And many are linked together in long chains, with each contract providing collateral for the next.

Introduction to the Foreign Exchange Market

Although currency trading has a long history dating back to the middle ages, it is the changes that we have seen during the twentieth century which have created the Forex market we see today.

During the first half of the twentieth century the British pound was the world's principal trading currency and was the currency held by many as their main 'reserve' currency. As a result, London was also seen as the leading center for foreign exchange. However, the Second World War severely damaged the British economy and so the United States dollar took over as the world's principle trading and reserve currency and retains that position today. This said, there are now a number of other currencies, principally the Yen and the Euro, which are also seen as reserve currencies.

Since the Second World War there have been a number of events which have proved instrumental in shaping today's Forex market.

US House approves the Bailout Plan

The US House has approved Bush’s $ 700 Billion Bailout Plan to save the US financial market in the second attempt after some modifications, including tax cuts, were introduced to it, in a improvised reaction to revive it after it was rejected on Monday. The plan has been approved by 263 votes to 171.

Forex Trading Information

FOREX — the foreign exchange (currency or forex, or FX) market is the and the most liquid financial market with the daily volume of more than $3.2 trillion. Trading on this market involves buying and selling world currencies taking the profit from the exchange rates difference. Forex trading can yield high profits, but it is also very risky

Protecting Yourself from Financial Crisis with Forex

During the ongoing global financial crisis traders and investors leave behind the question «How to make money?» and start asking another question — «How to save money?». In my opinion, the current situation on the Forex market allows combining those two question into the one, because with the right strategy you can start earning on the crisis — earning enough to protect yourself from the crisis and even capitalize on the global financial turmoil.

Any active Forex trader would notice that the most benefiting currencies during the current crisis are the U.S. dollar and the Japanese yen. The reason for their strength is the demand for the low-risk assets during the serious financial troubles. One part of the investors is trying to cash out of the risky assets (emerging markets, foreign currencies) — this leads to a increased demand for dollar; another part of the investors is buying the U. S. Treasury notes and the Japanese bonds as the safest investment possible — this also leads to an elevated demand for dollar and yen since they are required to buy the treasuries and bonds.

Dollar Falls on Rate Cut, GDP Contraction

EUR/USD continued to rise today and showed a third day of gain on the Forex market, as the dollar fell after the yesterday’s rate cut decision. Federal Reserve reduced the funds rate from 1.5% to 1%. Another reason for the dollar’s decline were the macroeconomic indicators released in U.S. EUR/USD is currently trading near 1.3035 after reaching 1.3288 today

Foreign Currency Trading

UPDATE: On May 22, 2008, the Congress passed H.R. 6124, the Food, Conservation, and Energy Act of 2008 (also known as “the Farm Bill”) which contains several amendments to the Commodity Exchange Act (“CEA”). In particular, Title XIII of the Farm Bill (1) clarifies that the CFTC’s anti-fraud authority applies to certain retail off-exchange foreign currency transactions, (2) creates a new registration category for retail foreign exchange dealers, (3) requires registration for those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions, and (4) imposes minimum capital requirements for futures commission merchants and retail foreign exchange dealers that act as counterparties to such transactions. Parts of the legislation, particularly those confirming the Commission’s anti-fraud authority, were effective upon passage. Other parts of the legislation, such as those requiring the registration of parties engaged in these transactions and minimum capital requirements, will only be effective upon the Commission’s issuance of final regulations. Any such changes to the information below will be accomplished through notice and comment rulemaking and will be made available in the Federal Register section of CFTC.gov.

FOREX Information

FOREX: The Commodity Futures Trading Commission (CFTC) has witnessed increasing numbers, and a growing complexity, of financial investment opportunities in recent years, including a sharp rise in foreign currency (forex) trading scams. A new federal law enacted in December 2000, called the Commodity Futures Modernization Act of 2000 (CFMA), makes clear that the Commission has the jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. In addition, the CFTC has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates.

Advanced Fee Fraud

You are promised something valuable for free, but you have to pay something first -- like a loan application fee or a bribe to somebody to release the asset. Guess what? It never shows up, and you are now the victim of Advance Fee Fraud. There are so many varieties of this fraud that they are impossible to catalogue, but we'll show you a few of the most common so that you will be on guard for the next "too good to be true" deal that comes along.

FX Chat Forum

The Forex-Markets.com Forex Forum, presented in cooperation with Global-View.com, provides free access to the most popular forex chat. Traders that have not yet seen this forum are encouraged to register. Hundreds of messages are posted every day by traders actively involved in the forex market. If you feel that you have a valuable recommendation or information to contribute, feel free to post them to the foru

Moneypenny over and out moneyfied

Well today’s the last day I’m blogging here as moneypenny, come to think of it, today’s Digitalmoneyworlds last post too.

From tomorrow I’ll be blogging on business, startups, money, online scams and a whole lot else. So come to the launch party and let me know what you think.

PayPal Forex Brokers

A list of Forex brokers which support PayPal payment system as an option for funds deposit/withdrawal. it is a convenient on-line payment system which is widely accepted in U.S., Canada and United Kingdom. Forex brokers that accept PayPal deposits often are good-standing companies which you can trust.

Forex Strategy Books

Forex strategy e-books that are listed here provide information on the specific trading strategies as well as the use of particular Forex trading instruments. Basic knowledge of Forex trading is required to correctly understand and use these strategies.