Posted in: Foreign Nations
So you’ve decided to start trading the foreign exchange market but you’re not sure how to start? One of the most important things you should do is learn as much as possible about the forex business. Learning forex trading will give you the advantage you need and help you get more confident about the trading process. You should also consider joining profitable trading services such as Forex Confidential and others to make substantial profits as you learn this business.
What is Forex? Forex is another term used for foreign currency exchange. So when you hear a phrase like “forex trading system”, that basically means “foreign exchange trading system.” Let’s take a look at some of the tools you’ll need before you start to employ your own forex trading systems and strategies.
One of the most important things to remember when you’re beginning your journey in this business is that you’re not actually trading goods and services. You are trading money and these currencies are from all over the world. Foreign currency exchange trading means the buying of one nations currency with another. For example, you would buy the US Dollar and sell the Euro if you thought the Dollar would gain strength against the Euro. Or you would sell the British Pound against the Japanese Yen if you thought the Pound would weaken against the Yen.
It’s not advisable for the novice forex trader to jump right into trading without first getting some basic forex education. You should learn from some of the most respected online experts to help you get the best forex trading education. You should also contemplate purchase books on forex currency trading and forex trading strategies. As with any other business, knowledge is key. And to become a profitable, successful forex trader, you must supply yourself with a very good educational foundation if you expect to do excel in this business.
forex market trading
The forex currency exchange market is open for business 24 hours a day. Meaning, the market is continuously traded 24 hours a day from Sunday night through Friday night, EST. The foreign exchange market is made up of a network of banks, brokerages and other financial institutions and each of these entities function during their own operation hours. The hours of operations essentially vary based upon time zone. Simply put, you would see the New York exchange hours more active from approximately 8:30am until 5pm EST and the European session would start to pick up more activity during their normal business hours, and so on.
If the concept of trading the forex market is new to you, just remember that the first place to start, and the best way to help you succeed in this business, is with a broad educational background. Once you’ve gained knowledge of the currency exchange market, you can start building your trading strategies into a highly profitable business. Take the time to read books, online material and other references on forex terminology. You’ll quickly find that much of the confusion around foreign currency exchange is simplified once you understand the basics.
Andrew Daigle
Posted in: Foreign Nations
First and foremost the difference between the foreign exchange market and the stock market is that while foreign exchange market is a global market, the stock market is a local one. Secondly, foreign exchange is traded between individuals, governments, banks, institutions, while the stock markets deal with individuals, institutions and banks. Governments do not find a place in the stock markets. Third in stock markets, what is traded is stocks, or shares, which either can be replaced by shares or other stocks. In the case of foreign exchange markets, the only thing that is traded is currency.
The foreign exchange market was introduced in the early 70s of the last decade, when the Bretton Woods Agreement between nations was introduced. Prior to that the value of the foreign currency was based on the stock of gold held by each nation. The Bretton Woods Agreement did away with that, and allowed countries to set their foreign exchange rates, meaning that one dollar would be worth so much of sterling pound and vice versa, on a basis of demand and supply.
When countries trade with each other, through their business or from government to government basis, they either have a surplus of one currency or a deficit in another. They try and make up the surplus to work for them by putting it on sale to other countries which have a shortage of that currency, and where they have a deficit in a particular currency, they buy from a country which has a surplus of that currency. Read this carefully. This is the crux of the matter.
Stock markets generally work on the same principle, but they have fixed hours of trading. In foreign exchange markets, it is taking place all the time, throughout the day and night, 365 days in a year. Obviously, just as in stock market, countries take a hit when their currency depreciates, or their need for a currency is so high, that the other dealing country takes advantage of that high demand in the market, and marks up its surplus currency to a higher level. This trade reflects in some measure the stock market. Demand and supply apply equally.
As countries have liberalised their foreign exchange regimes, except one or two, the market rate of the currency is determined by demand and supply. This is a complex mechanism, and is based on various parameters for which specialist economists and analysts are employed. Normally, an individual is not allowed to trade in the FOREX market, as in stock markets. But the individual could join an investment banker who is authorised to deal in foreign exchange, and that banker inturn passes on the profit or loss to the individual, depending upon the positions taken.
Stock markets may trade in something like a billion or more dollars per day. In the foreign currency market, the amounts involved are four to nearly 9 times more. And the market varies from day to day.
While stock markets are generally immune to the foreign currency/exchange markets, there is now a closer relationship between the two, owing to globalisation. A sharp dip in the forex market say for dollar ratio with the Canadian dollar would lead to a surge of buying up dollars by Canadians and others, who will later cash in when the dollar regains some of its foothold. In foreign exchange markets, the deals are made even up to the eight or ninth decimal digit, owing to the awesome amounts involved. In stock markets this is not so.
There is a commonality however. Stock markets rise and fall, at least now, in tandem with the forex market. The vice versa is also true. The reason is that the value of the stock in dollar terms has dipped, thus driving down the stock value, and a rise in the dollar value also shows a reflection in stock sales, for those who want to take advantage of the rising dollar value.
Another commonality is that due to globalisation, and freeing up of foreign exchange rules by countries, allowing free float of the currency (meaning let the market decide the value of the currency), leads to people taking long and short positions, in much the same manner as commodity markets or stock markets.
The most obvious and significant difference is that stocks need time to be cashed, but foreign currency markets always deal in cash only! Even this is changing. Maybe in the days to come, there may be a further blurring of the difference between the two.
Most would argue that stock markets close down at a particular time, while forex markets go on trading; that holds little water today. Given the globalisation, there are stock market brokers who keep the midnight watch, watching the indices of countries online in day working time, and accordingly booking and selling orders.
Abhishek Agarwal
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Posted in: Foreign Nations
The vast currency market is a foreign concept to the average individual. However, once it is broken down into simple terms, one can begin to easily understand the foreign exchange market and see what a profitable avenue of income participating in the trading of Forex can be.
Whether or not you are aware, you already play a role in the foreign exchange market, also known as the Forex market. The simple fact that you have money in your pocket makes you an investor of currencies, and more particularly, an investor of U.S Dollars!
The cash in your wallet and money in your savings account are in U.S. Dollars. The value of your mortgage, stocks, bonds, and other investments are expressed in U.S. Dollars. In other words, unless you are among the few Americans who have foreign bank accounts or have bought a modest amount of foreign currencies or securities, you are an investor of U.S. Dollars.
By holding U.S. Dollars, you have basically elected not to hold the currencies of other nations. Your purchase of stocks, bonds, and other investments, along with money deposited into your bank account represent investments that rely heavily on the integrity of the value of the currency in which it is denominated the U.S. Dollar.
Due to the constant increasing and decreasing value of the U.S. Dollar and the resultant fluctuation in exchange rates, your investment portfolio may have experienced changes in value, thus affecting your overall financial status.
With this in mind, it should be no surprise that many shrewd investors have taken advantage of the fluctuation in exchange rates using the volatility of the foreign exchange market to trade currencies and put more money in their pockets.
The foreign exchange market
Forex and Stocks
has experienced many changes since its inception. For years, as you learned above, the United States and its allies, under the Bretton Woods Agreement, participated in a system in which exchange rates were tied to the amount of gold reserves belonging to the nation. However in the summer of 1971, President Nixon took the United States off the gold standard, and floating exchange rates began to materialize.
Today, supply and demand for a particular currency, or its relative value, is the driving factor in determining exchange rates. There have been many radical global economic changes over the last decade.
Some of these changes have decreased obstacles and increased opportunities in world trade, such as the fall of communism in the Soviet Union and Eastern Europe, the renewed political reform in South America and the continuing liberalization of the Chinese economy have boosted the worldwide economy by opening up new markets and opportunities. These events have lifted traditional trade barriers resulting in a tremendous increase in foreign investment.
With this increase however, all nations are more interrelated and dependent upon one another. Increasing trade and foreign investment have made the economies of all nations more and more interrelated.
Fluctuations in economic activity in one country are reflected in that country’s currency and immediately transmitted to its partners, altering the relative price of products and thus affecting costs and profits, which in turn affect changes in currency values.
Regularly reported economic figures around the world, such as inflation or unemployment levels, as well as unexpected news, such as natural disasters or political instability, alters the desirability of holding a particular currency, thus influencing international supply and demand for that currency.
The U.S. Dollar, therefore, fluctuates constantly against the currencies of the rest of the world. The current web of international trade and the resultant fluctuations in exchange rates have created the world’s largest market the foreign exchange market, a market whose vast size makes it the most efficient, fairest, and liquid of all markets.
The Interbank Foreign Exchange Market is an unregulated, decentralized international forum that deals in the various major currencies of the world, with virtually no direct government regulation or interference.
The Interbank Foreign Exchange Market involves trading one nation s currency for the currency of another nation. Foreign exchange, however, is not a “market” in the traditional sense since there is no centralized location for trading activity. It is an electronically linked world-wide network of currency traders dispersed throughout the leading financial centers of the world.
An international community of approximately 400 banks make the daily currency exchanges for buyers and sellers worldwide who conduct business linked by the Internet, phones, computers, fax machines and other means of instant communication.
Trading occurs over the telephone and through computer terminals at thousands of locations worldwide. The direct Interbank market consists of dealers with currency settlement capabilities trading as principals. It is this dealer segment of the market that is responsible for generating a large portion of the overall foreign exchange volumes.
Trading between dealers creates the largest turnover in the market, making foreign exchange the most liquid of all markets. Trading approximately $1.5 trillion every day, the foreign exchange market is the largest financial market in the world. Traditionally, the foreign exchange market has only been available to banks, money managers, and large financial institutions.
Over the years, these institutions, including the U.S. Federal Reserve Bank, have realized large gains via currency trading. This growing market is now linked to a worldwide network of currency traders, including banks, central banks, brokers, and customers, such as importers and exporters.
Today, the foreign exchange market offers opportunities for profit not only to banks and institutions, but to individual investors as well. A great advantage is the size and volume of the Forex Interbank market makes it impossible to manipulate the market for any length of time. Unlike the equity markets, no really effective “insider” interference is possible for any length of time in the Forex market.
As a result Forex is an action based, decentralized international market that allows various major currencies of the world to seek their true value. It operates as the purest form of supply and demand for currencies as a tradable commodity. This is why many analysts refer to it as the most efficient market in the world.
Martin Chandra