The Global Forex Market is a nonstop cash market where currencies of many nations can be and are traded each and everyday, typically by the use of brokers. Foreign currencies are continually bought and sold across the global forex markets. The value of each investor/trader investments can move up or down based on currency movements. The Global Forex Market conditions may change at any time in response to global or local events that occur in real-time.
The real attractions of short-term currency trading to provide investors are:
24-hour trading availability, 5 days a week with nonstop access (24/7) to global Forex dealers.
An enormous liquid market, making it easy to trade most currencies.
Volatile markets offering profit opportunities.
The ability to profit in rising as well as falling markets.
Leveraged trading with low margin requirements.
Many options for zero commission trading.
Let's look at the history of the global forex market
The Bretton-Woods agreement, established in 1944, set national currencies against the US dollar, and set the dollar at a rate of USD $35 per ounce of pure gold. In 1967, a Chicago bank refused to make a loan in pound sterling to a college, professor by the name of Milton Friedman, because he had intended to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement.
Bretton-Woods was aimed at create global monetary stability by preventing money from taking flight across countries, thus eliminating speculation in the foreign currencies. Between 1876 and World War I, the gold exchange standard had ruled over the global economic system. Under the gold standard, currencies experienced an era of stability because they were supported by the price of gold.
However, the gold standard had a weakness in that lend to create boom-bust cycle economics. As the economy strengthened, it would import a great deal of gold, running down the gold reserves needed to support its currency. As a result, the money supply would drop, causing interest rates to escalate and economic activity would slow to the point of recession.
Eventually, prices of commodities would hit rock bottom, thus becoming very attractive to other nations, who would then hurry into a buying frenzy. In turn, this would add a large amount of gold to the economy until it increased its money supply, driving down interest rates and restoring economic stability.
Such boom-bust cycles were know to be very common throughout that era of the gold standard, until World War II, in order to stabilize and regulate the Global Forex Market.
Participating countries agreed to to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold. The dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the USA.
Countries were prohibited from devaluing their... Get the Full Story at Forex Trading System Information
Wednesday, October 8, 2008
Saturday, October 4, 2008
A Forex Deal Revealed From The Inside Out
More than 95% of all forex trading today is for speculative reasons (e.g. to make a profit from currency movements). The remaining 5% goes to hedging and other activities.
Forex trades (trading onboard internet platforms) are non-delivery trades: currencies are not physically traded, but rather there are currency contracts which are agreed upon and performed. Investors to such deals or contract undertake to fulfill their obligations agreed upon: one side undertakes to sell the amount specified, and the other undertakes to buy it. As mentioned, over 95% of the market activity is for speculative purposes, so there is no intention on either side to actually perform the contract (the physical delivery of the currencies). Therefore, the contract or Forex Deal ends by the offsetting it against an opposite position, ending in the profiting and or loss involved in the deal.
Components of a Forex deal
A Forex deal is a contract agreed upon between the trader and the market- maker (i.e. the Trading Platform). The contract is comprised of the following components:
The currency pairs (which currency to buy; which currency to sell)
The principal amount (or "face", or "nominal": the amount of currency involved in the deal)
The Rate (agreed rate of the actual exchange)
The frame is also a factor in some deals, but this article focuses on Day-Trading (similar to "Spot" or "Current Time" trading) in which deals have a lifespan of no more than a full day. Thus, the time frame does not play into the equation. Note however, that deals can be renewed or (rolled-over) to the next day
The Forex deal, in this context, is therefore an obligation to buy and sell a specific amount of a particular pair of currencies at a pre-determined rate.
Forex trading is always done in pairs of currency. For example, imagine that the exchange rate of EUR/USD (euros to US dollars) on a certain day is 1.5000 (this number is also referred to as a "spot rate", or just a "rate". If an investor had brought 1,000 euros on that date, he would have paid 1,500.00 US dollars. If one year later, the Forex rate was 1.5100, the value of the eruo has increased in relation to the US dollar. The investor would then have USD 10.00 more than when they started a year earlier.
However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the minimum, the return on investment (ROI) should be compared to the return on a risk-free investment of some kind. Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i.e. the US government is not likely to go bankrupt, or be unable or unwilling to pay its debts.
Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does profit. An open trade (also called an "open position") is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal.
It is estimated that around 95% of the FX market is speculative. In other words on the movement of that particular currency.
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Orlando Thompson Frequently writes Articles on Forex and other related topics Visit Forex Trading System for more Forex Information and Resources.
Forex trades (trading onboard internet platforms) are non-delivery trades: currencies are not physically traded, but rather there are currency contracts which are agreed upon and performed. Investors to such deals or contract undertake to fulfill their obligations agreed upon: one side undertakes to sell the amount specified, and the other undertakes to buy it. As mentioned, over 95% of the market activity is for speculative purposes, so there is no intention on either side to actually perform the contract (the physical delivery of the currencies). Therefore, the contract or Forex Deal ends by the offsetting it against an opposite position, ending in the profiting and or loss involved in the deal.
Components of a Forex deal
A Forex deal is a contract agreed upon between the trader and the market- maker (i.e. the Trading Platform). The contract is comprised of the following components:
The currency pairs (which currency to buy; which currency to sell)
The principal amount (or "face", or "nominal": the amount of currency involved in the deal)
The Rate (agreed rate of the actual exchange)
The frame is also a factor in some deals, but this article focuses on Day-Trading (similar to "Spot" or "Current Time" trading) in which deals have a lifespan of no more than a full day. Thus, the time frame does not play into the equation. Note however, that deals can be renewed or (rolled-over) to the next day
The Forex deal, in this context, is therefore an obligation to buy and sell a specific amount of a particular pair of currencies at a pre-determined rate.
Forex trading is always done in pairs of currency. For example, imagine that the exchange rate of EUR/USD (euros to US dollars) on a certain day is 1.5000 (this number is also referred to as a "spot rate", or just a "rate". If an investor had brought 1,000 euros on that date, he would have paid 1,500.00 US dollars. If one year later, the Forex rate was 1.5100, the value of the eruo has increased in relation to the US dollar. The investor would then have USD 10.00 more than when they started a year earlier.
However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the minimum, the return on investment (ROI) should be compared to the return on a risk-free investment of some kind. Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i.e. the US government is not likely to go bankrupt, or be unable or unwilling to pay its debts.
Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does profit. An open trade (also called an "open position") is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal.
It is estimated that around 95% of the FX market is speculative. In other words on the movement of that particular currency.
------------------------
Orlando Thompson Frequently writes Articles on Forex and other related topics Visit Forex Trading System for more Forex Information and Resources.
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