Forex Knowledge Base

India on the rise with economy Booming

2008-05-31T11:25:00.000-07:00

The world's most populous democracy has jumbo growth prospects. Here's how to invest now.

For the 12 months ending March 31, 2005, foreign investment in India was an estimated $13.5 billion. That's on top of $16 billion invested in the same period a year earlier. Private-investment giant Blackstone Group has announced plans to open an office in Mumbai and invest up to $1 billion in India. And the Sensex, the index of the Mumbai stock exchange, has surged 72% over the past year.

What's behind the rising interest in India? Some cite the rapid growth in outsourcing, the practice of hiring third-party companies to handle functions that companies used to manage in-house. Indian companies such as Infosys and Wipro have turned the outsourcing trend into an offshoring boom--and attracted U.S. investors starved for growth. Sales and earnings at Infosys, for example, grew more than 40% in its last fiscal year, and its American depositary receipts--ADRs are certificates that trade on a U.S. exchange and represent foreign shares--are up 12% this year.

The outsourcing phenomenon has, in turn, created good jobs in India and given a boost to a growing middle class of consumers who are buying homes, cars, and expensive consumer goods--a big change for the world's second-most-populous nation. Samir Mehta, who manages the Eaton Vance Greater India fund, says that just ten years ago college grads lived with their parents, rarely owned cars, and paid for everything in cash. Now, he says, young professionals are taking out mortgages and acquiring credit. And because India is a young, educated country--half the population is under the age of 25--analysts expect demand for goods and services such as banking, telecommunications, and cars will grow dramatically in the next ten to 15 years.

And while China continues to be the world's fastest-growing major economy--its gross domestic product rose more than 9% last year--India is no slouch: GDP has been growing 6% to 7% annually. Moreover, many investors think India's democratic government and huge English-speaking population will give it an edge over China and other rising nations in doing business with Western corporations. "Everybody knows about the terrific growth," says Prakash Melwani, a senior managing director with Blackstone. "In India, one has the rule of law, the democracy. We felt we had real downside protection."

Individual investors have a couple of ways to bet on India. The government limits direct investment in shares of Indian companies to registered investors. That means that most individuals must either invest in a fund that buys Indian stocks (more on that in a moment) or buy one of a handful of Indian stocks with ADRs. Money-management professionals say investors interested in the latter strategy should consider a pair of financial institutions that offer a simple way to bet on the continued growth of the overall Indian economy: HDFC Bank (HDB, $48) and ICICI Bank (IBN, $22). Both companies are benefiting from Indians' desires to own homes and establish credit.

HDFC started out as a corporate bank, but it began lending to consumers three years ago and has been adding more than 100 branches a year. Eaton Vance's Mehta says the company is managed much more like an American bank--a number of its founding executives came from Citibank--than a government-run entity. He admits the stock is not cheap: It trades at about 3.3 times book value and roughly 20 times estimated earnings for fiscal 2006. However, HDFC has consistently delivered 25% to 30% earnings growth, a trend Mehta expects to continue for the next three to five years.

But ICICI may be the better bargain. A consumer-oriented bank, it too is riding India's newfound consumerism and frenzy for real estate. Fiscal-fourth-quarter earnings increased 35%, thanks to strong lending growth and a big income boost from banking and other fees. But the stock trades at just 15 times 2006 estimated earnings--a price/earnings ratio closer to those of less entrepreneurial state-owned banks. This "is unrealistic," a recent Morgan Stanley note said, "given ICICI Bank's better quality income stream."

For those looking to cash in on outsourcing, most analysts recommend buying software and services giant Infosys Technologies (INFY, $77). Indeed, fund managers liken it to General Electric and other U.S. stalwarts: It is simply a must for any India portfolio. And while the company is trading at a lofty 38 times estimated earnings for fiscal 2006, fans say it still isn't too late to buy in. "It is the bellwether stock of the Indian market and one of the best- managed companies in the tech sector," says Nishid Shah, chief investment officer of Birla Sun Life Asset Management Co., which manages the Excel India fund.

Offshoring has come under attack from unions and politicians in the U.S., but analysts believe U.S. companies will continue to look for ways to reduce costs by shipping work overseas. Perhaps the biggest risk for Infosys is price competition from rival Indian outsourcing companies. Indeed, Mark Bickford-Smith, co-manager of the T. Rowe Price International Stock fund, likes Infosys. But he favors shares of rival I-flex, a smaller tech company that Bickford-Smith thinks has greater growth potential. Most of us can't buy I-flex directly, though, because it is one of the many up-and-coming Indian companies that don't yet have ADRs trading on a U.S. exchange.

To get exposure to these lower-profile but fast-growing firms, investors should use a mutual fund. The question is how big a bet to place on India. "People don't need a fund devoted to just one country," says Arijit Dutta, a mutual fund analyst for Morningstar. He likes T. Rowe Price New Asia fund (PRASX), which invests about 20% of its assets in India--enough to benefit from the economic growth but not so much that its performance is volatile. Its three-year annualized return is a healthy 20%, and its expense ratio is about half that of the average fund in its category.

If investors really want to embrace India fully, however, Dutta suggests Mehta's Eaton Vance Greater India (ETGIX), which invests at least 80% of its assets in the subcontinent. The fund has a steep 2.77% expense ratio but boasts a three-year annualized return of 40%. Another all-India portfolio with a similar record is the Morgan Stanley India Investment fund (IIF). The closed-end fund typically holds shares in some 40 Indian companies and trades like a stock on the New York Stock Exchange.

As hot as India is right now, is it a good idea to jump in right away? Ridham Desai, an Indian equity strategist for Morgan Stanley, thinks the Indian market is a bit overheated. He says there's a good chance it will come down 15% or so in the next year. "In my view, investors don't have to pull the trigger tomorrow morning," he says. "I think it may be a good time to visit ideas and prepare for better prices to come." But for investors who don't feel comfortable trying to time such a swing, there may be no moment like the present to make a long-term bet on India.

Australian stock market Crashes - Loses $25b

2008-05-31T11:20:00.000-07:00

The market lost $25 billion today, reflecting more than a 2 per cent drop in New York on Friday.

The All Ordinaries Index dropped 106 points to 5,949 and the ASX 200 slipped 100 points to 5,920.

On the Sydney Futures Exchange, the September share price index contract lost 89 points to 5887 on a volume of 17,254 contracts.

CommSec chief equities economist Craig James says the market is likely to be volatile for some time.

US markets in turmoil

US equity markets ended in turmoil on Friday, after a senior executive of mortgage underwriter Bear Stearns said that the "fixed income market turmoil was the worst in 22 years''.
US data also was on the weak side, with jobs figures fanning worries about the strength of the economy.

"Investors are still unsure how many skeletons there are in the closet in the US sub-prime mortgage market," he said.

"Until they get certainty about the state of that market then we are going to see further jitters.

"We certainly saw that in terms of the Australian share market today, down in the order of 1.75 per cent."

It was a bad day for the banks.

Australia's biggest investment bank, Macquarie Bank, continued to be dragged down by concerns over the mortgage market in the United States.

It lost 6.6 per cent to $70.05.

Global investment company Babcock and Brown dropped about 4 per cent to $24.02.

The other major banks also dropped in value amid speculation the Reserve Bank will raise interest rates on Wednesday.

TheNational Australia Bank k shed 63 cents to $37.37 and the Commonwealth Bank slipped 51 cents to $52.80.

How the Mortgage [U.S.Sub-prime] Crisis Arose and Infected the World

2008-05-31T11:12:00.000-07:00

The slide started innocuously in April after New Century Financial, a mortgage lender whose principle borrowers were Americans with less-than-stellar credit, filed for bankruptcy protection.

Its customers were people who may have been late on credit card payments, maybe even filed bankruptcy in the previous years, but still wanted that shot at the American dream: a home of one's own.

Lenders, flush with cash and eager to exploit new markets so they could, in turn, lend more money and increase their profits, were only too happy to oblige.

Hedge funds and banks worldwide saw a market flush with opportunity and took their fill, buying mortgage-backed securities to bolster their own bottom lines.

A month later, USB AG, the giant financial company, said its hedge fund business had lost 150 million Swiss francs in the first quarter largely on the back of investments it made in the U.S.subprime mortgage fieldd. Then in July, Wall Street's Bear Stearns closed a pair of hedge funds after it lost more than US$20 billion on mortgage-backed investments.

The company called them isolated incidents, trying to dismiss their importance but investors weren't convinced and its shares slid, resulting in the dismissal of co-chief operating officer Warren Spector.

Markets came to head late last month and early in August as concern mounted that those mortgage securities may not have been as firm as people thought. It was capped by the August 6 bankruptcy by Melville, N.Y.-based American Home Mortgage Investment Corp.

American Home, once the nation's 10th largest mortgage lender, said it fell victim to "extraordinary disruptions" that effectively cut off the funding it needed to make new loans. Falling U.S. home prices and a spike in payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.

By then, banks worldwide were looking at their portfolios and finding sizable exposure and hedge funds were closing down in a bid to stave off investors who wanted to redeem their stakes, essentially, a modern day run on a bank.

On Thursday, France's biggest bank, BNP Paribas, froze US$2.2 billion held in three funds because their exposure to subprime prime mortgages in the U.S. solidified fears that risk was spreading worldwide.

With cash reserves running low, banks were refusing to lend to each other and the interest rates that banks charged each other rose well above the 4 percent level set by the ECB, prompting its unprecedented injections on Thursday and Friday, followed in part by the U.S. Federal Reserve and central banks in Asia, too.

AUSTRALIA'S Mortgage Crisis 2008 May

2008-05-31T11:07:00.000-07:00

AUSTRALIA'S mortgage crisis is deepening and for the first time threatening to produce "affluent stress" - financial grief among higher income families - as new figures show that more than 700,000 households will come under some mortgage pressure by June.

About 300,000 are expected to fall into the worst "severe stress" category, possibly leading to forced sales and foreclosures, as consumers struggle under the weight of higher interest rates and rising living costs.

The major banks, faced by higher funding costs, are expected to again raise their variable mortgage rates by about 15 basis points, putting even more households under severe mortgage stress.

The dire predictions are contained in the latest JP Morgan/Fujitsu Mortgage Industry Report. It says more than 700,000 households will come under "mild" stress, the symptoms of which include borrowing on credit cards to make mortgage repayments.

Bank profits are now expected to come under pressure.

"The real question is, if the RBA does not move interest rates, can the banks actually increase their home loan rates?" he said.

The probability of a further RBA rate rise in May has now dropped sharply.The Australian Securities and Investments Commission released an alarming report that showed that a number of fringe lenders and mortgage brokers were refinancing consumers into loans they could not afford.

The report found some fringe lenders would allow borrowers to enter into a cycle of unaffordable loans in which they defaulted and refinanced several times until the equity in their home was exhausted.

Mortgage broker numbers are tipped to halve from 10,000 to 5000 in the next two years.

USA Mortgage Rates and Terms by State

2008-05-31T10:59:00.000-07:00

USA Mortgage Rates and Terms by State

Mortgage interest rates and loan to values (LTV) vary in the USA, by state. Hence, each state has it's own seperate criteria that have to be met.

Breaking US Mortgage NewsChanging conditions in the US mortgage market mean that the rates below are subject to change at any time. Loan to value rates and interest rates in particular may fluctuate rapidly and without warning. Current approximate average USA mortgage rates are about 6.50%, at 70% loan to value.

For states including Florida, New York City, Arizona, California, Nevada, Colorado, Hawaii, Massachusetts, North and South Carolina, New Jersey, Texas and Virginia, the following basic facts apply:

Max Loan to Value: 70% LTV
Max term: 40 years
Minimum Loan: £ 36,200
Mortgages available: Repayment and interest only

Dollar strengths against the Euro and the Yen

2008-05-31T10:55:00.000-07:00

Dollar strengths against the Euro and the Yen

by Benny Menashe

Finotec Group Inc.

The Dollar was steady in the early trading, holding near a three-month high against the Yen, after a positive revision of the US economical data leaded investors to speculate that the Federal Reserve will raise interest rates this year. The Dollar traded at 105.35 against the Japanese currency at 7:00am GMT. US short-term interest rate futures reveal that investors believe that the Fed will keep interest rates on hold at 2 percent in June and raise them later this year. A trader from a major Japanese bank reveal Reuters that technical signals will turn bullish if the Dollar manages to break the next resistance level of 106 Yen; if this happens, the Dollar can raise to 108 and then to 110 Yen.

The jump in US bond yields and the slump in oil prices on Thursday also boosted the greenback against the Euro; the Dollar traded at 1.5532 against the Euro at 7:00am GMT. Oil prices movements have a great impact on the Dollar, as hiking oil prices usually leads to concerns that US consumers and businesses won’t be able to overcome the credit crisis. The Euro’s depreciation was also supported by the release of retail sales in Germany, Euro Zone’s strongest economy, that unexpectedly drop for a second month in April, supporting speculation that the ECB will cut interest rates in a near future. “The dollar looks strong”, said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital. “With the market turmoil calming down, people are focusing on inflation risks. Falling oil prices are positive for U.S. growth, bringing some relief to people.”

UK Consumer Confidence dropped yesterday to the lowest level since Margaret Thatcher quit the office in 1990. The Pound traded at 1.9781 against the Dollar and at 0.7845 against the Euro at 7:00am GMT. The British currency is appreciating versus the Euro on speculation policy makers will keep interest rates on hold in June at 5 percent, in order to fight inflation. However, investors believe that the Bank of England will be forced to cut interest rates until the end of the year, as the economy is showing signs of slow down; the Pound is forecasted to drop to a record low against the Euro by year-end, to 81 pence, wrote Michael Klawitter, a currency strategist at Dresdner.

Concerning economic data for today, investors will be paying attention to the release of CPI Flash Estimate y/y in the Euro Zone, which is expected to rise 0.2 percentage points, having a positive effect on the nation’s currency. Also, Canadian GDP is expected to boost the Canadian Dollar, as is forecasted to rise 0.2 percentage points from last month. To finish, US Personal Spending m/m is predicted to push the Dollar down, as is expected a drop of 0.2 percentage points from April, to 0.2 percent.

Forex Market Commentary and Analysis May 2008

2008-05-31T10:47:00.000-07:00

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5665 level. The common currency has now been given for three consecutive days and stops were reached below the $1.5560 level, representing the 38.2% retracement of the move from $1.6020 to $1.5280. Data released in the U.S. today added to the growing consensus that the U.S. economy may have averted the technical definition of a recession in Q1 as Q1 GDP was upwardly revised to an annualized +0.9% rate from the previous estimate of +0.6%. The Q1 GDP deflator printed at 2.6% and the Q1 core PCE price index ticked lower to 2.1% from 2.2%, still above the Federal Reserve’s perceived upper comfort zone limit of 2.0%. Also, weekly jobless claims were up 4,000 to 372,000 while continuing jobless claims printed at 3.10 million.

PN/CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.35 level and was supported around the ¥104.60 level. The pair reached its highest level since 14 May as traders refocused their attention on inflationary pressures in the U.S., growing confident that the U.S. will avert a technical recession. As expected, the Japanese government formally nominated Keio University economic professor Kazuhito Ikeo to become a member of Bank of Japan’s Policy Board. There are currently two vacancies on the Policy Board, including a deputy governorship for which Ikeo may have been nominated. The issue remains politically contentious, much as the March appointment of now-Governor Shirakawa. Policy Board member Kamezaki today said “As for future monetary policy, we must collect and analyze as much information as possible, including (data from) overseas economies such as in the U.S. and Europe, the global financial market, and moves in energy and (raw) material prices.
April retail sales rise 0.1% y/y to ¥11.19 trillion. The Nikkei 225 stock index climbed 3.03% to close at ¥14,124.47. Dollar bids are cited around the ¥103.00/ 101.35 levels.

STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $1.9815 level. The pair retraced some of its intraday losses during the North American session. Data released in the U.K. today saw May CBU retail sales volumes print at -14, up from -26 in April while the prices sub-index surged to +56, reaching its highest level since May 1992. Bank of England Monetary Policy Committee member Blanchflower reported “Our forecast is that inflation will come down in the medium term, but our concern is that we wouldn't want economic activity to drop dramatically. If there's a sense we are moving to a recession, we will have to make sure we don't.” It was also reported that Nationwide May house prices were off a record 2.5%. Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7915 level.

SWISS
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0365 level and was capped around the CHF 1.0485 level. Data released in Switzerland today saw Q1 employment levels rise to 3.9 million from 3.88 million in Q4. U.S. dollar offers are cited around the CHF 1.0760 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6295 and CHF 2.0710 levels, respectively.

Japan: Growth Will Slow Significantly in Q2

2008-05-31T10:44:00.000-07:00

April industrial production, unemployment, household spending and consumer prices have been released. Both unemployment and household spending were much weaker than expected while industrial production confirmed the slowdown in industrial activity in recent months. Overall the figures suggest that growth will slow significantly in Q2 after strong 0.8% q/q growth in Q1. We might have to adjust our current expectation of 0.5% q/q down to 0.3% q/q as private consumption will be weaker than expected and inventories will be a drag on growth. Although inflation was better than expected, it will increase significantly in coming months.

Housing starts in April strengthened marginally to -8.7% y/y (see chart 5). Overall the recovery in housing starts has been weaker than expected and housing constructions' contribution to growth in Q2 might be less than our current expectation of 0.25%.

Foreign Exchange: USA

2008-03-31T10:43:00.000-07:00

USA foreign exchange rate calculation.... Not Yet Published...

Information Economy Report 2007-2008: USA

2008-03-31T10:41:00.000-07:00

The Information Economy Report 2008 - Science and technology for development: the new paradigm of ICT, analyses the current and potential contribution of information technology to knowledge creation and diffusion. It explores how ICTs help generate innovations that improve the livelihoods of the poor and support enterprise competitiveness. The report examines how ICTs affect productivity and growth and reflects on the need for a development-oriented approach to intellectual property rights in order to enable effective access to technology. ICT has also given rise to new models for sharing knowledge and collective production of ideas and innovations, known as "open access" models, which often bypass the incentive system provided by intellectual property rights.

Subprime Effect Around the World

2008-03-31T10:38:00.000-07:00

The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $170 billion as of February 2008, as cited below. Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined. Stock markets in many countries declined significantly.

Subprime mortgage crisis: USA

2008-03-31T10:36:00.000-07:00

The subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis during 2007 and 2008. The crisis began with the bursting of the US housing bubble and high default rates on "subprime" and other adjustable rate mortgages (ARM) made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers.

Subprime lending

2008-03-31T10:35:00.000-07:00

Subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. The term "subprime" in mortgage lending refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. It may or may not reflect credit status of the borrower as being less than ideal and may not even reflect the interest rate on the loan itself.

The most traded currency pairs in the Forex Market

2008-02-08T13:53:00.000-08:00

What are the most common currency pairs traded in the forex market?

Currencies are always traded in pairs in the FOREX. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF.ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair.

There are many official currencies that are used all over the world, but there only a handful of currencies that are traded actively in the forex market. In currency trading, only the most economically/politically stable and liquid currencies are demanded in sufficient quantities. For example, due to the size and strength of the United States economy, the American dollar is the world's most actively traded currency.

A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.

Here are most traded currency pair symbols used in the Forex Market:

Symbol	Full Form
AUD/JPY	Australian Dollar vs. Japanese Yen
AUD/USD	Australian Dollar vs. USA Dollar
CHF/JPY	Swiss Franc vs. Japanese Yen
DEM/CHF	Deutsche Mark vs. Swiss Franc
DEM/JPY	Deutsche Mark vs. Japanese Yen
EUR/CHF	Euro vs. Swiss Franc
EUR/GBP	Euro vs. British Pound
EUR/JPY	Euro vs. Japanese Yen
EUR/USD	Euro vs. USA Dollar
GBP/CHF	British Pound vs. Swiss Franc
GBP/DEM	British Pound vs. Deutsche Mark
GBP/EUR	British Pound vs. Euro
GBP/JPY	British Pound vs. Japanese Yen
GBP/USD	British Pound vs. USA Dollar
NZD/USD	New Zealand dollar vs. USA Dollar
USD/ATS	USA Dollar vs. Austrian Shilling
USD/BEF	USA Dollar vs. Belgian Franc
USD/CAD	USA Dollar vs. Canadian Dollar
USD/CHF	USA Dollar vs. Swiss Franc
USD/CZK	USA Dollar vs. Czech Koruna
USD/DEM	USA Dollar vs. Deutsche Mark
USD/DKK	USA Dollar vs. Danish Krone
USD/ESP	USA Dollar vs. Spanish Peseta
USD/FIM	USA Dollar vs. Finnish Markka
USD/FRF	USA Dollar vs. French Franc
USD/HUF	USA Dollar vs. Hungarian Forint
USD/ITL	USA Dollar vs. Italian Lira
USD/JPY	USA Dollar vs. Japanese Yen
USD/NLG	USA Dollar vs. Netherlands Guilder
USD/NOK	USA Dollar vs. Norwegian Krone
USD/SEK	USA Dollar vs. Swedish Krona
USD/SGD	USA Dollar vs. Singapore Dollar
USD/ZAR	USA Dollar vs. South African Rand
XAG/USD	Silver vs. USA Dollar
XAU/USD	Gold vs. USA Dollar

There are symbols for other currencies as well, but these are the most commonly traded ones.

The listed currency pairs above look like a fraction. The numerator (top of the fraction or "left" of the / however you want to SEE it) is called the base currency. The denominator (bottom of the fraction or "right" of the /however you want to SEE it) is called the counter currency. When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency PAIR, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.

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Trading Indices

2008-02-01T06:06:00.000-08:00

A Stock market index is a listing of stock and a statistic reflecting the composite value of its components. It is used as a tool to represent the characteristics of its component stocks. Many indices compiled by news or financial services firms are used to benchmark the performance of portfolios such as mutual funds.

Stock market indexes may be classed in many ways. A broad-base index represents the performance of a whole stock market — and by proxy, reflects investor sentiment on the state of the economy. The most regularly quoted market indexes are broad-base indexes comprised of the stocks of large companies listed on a nation's largest stock exchanges, such as the American Dow Jones Industrial Average and S&P 500 Index, the British FTSE 100, the French CAC 40, the German DAX, the Japanese Nikkei 225, the Indian Sensex and the Hong Kong Hang Seng Index.

NASDAQ Composite Index
Dow-Jones Industrial Average
NASDAQ 100 Index
S&P 100 Index
Russell Index
S&P 500 Index
CRB Index
US Dollar Index
FTSE 100 Index
Major Market Index

Comparison of three Major Stock Indices.

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Forex Market Participants

2008-01-17T04:27:00.000-08:00

In the last years, the Foreign Exchange Market has expanded from one where banks would execute transactions between themselves to one in which many other kinds of financial institutions like forex brokers and market-makers participate including non-financial corporations, investment firms, pension funds and hedge funds.

Its' focus has broadened from servicing importers and exporters to handling the vast amounts of overseas investment and other capital flows that currently take place.

Lately foreign exchange day trading has become increasingly popular and various firms offer trading facilities to the small investor. Foreign exchange is an 'over the counter' (OTC) market, that means that there is no central exchange and clearing house where orders are matched.

Geographic trading 'centers' exist around the world however and are: (in order of importance) London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris and Hong Kong.

Essentially foreign exchange deals are made between participants on the basis of trust and reputation to deliver on an agreement. In the case of banks trading with one another, they do so solely on that basis.

In the retail market, customers demand a written legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade

Some market participants may be involved in the 'goods' market, conducting international transactions for the purchase or sale of merchandise.

Some may be engaged in 'direct investment' in plant and equipment, or may be in the 'money market' trading short-term debt instruments internationally. The various investors, hedgers, and speculators may be focused on any time period, from a few minutes to several years.

But, whether official or private, and whether their motive be investing, hedging, speculating, arbitraging, paying for imports, or seeking to influence the rate, they are all part of the aggregate demand for and supply of the currencies involved, and they all play a role in determining the exchange rate at that moment.

Forex Market Participants
By Nicholas H. Bang
support@ac-markets.com

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The Top Eight Themes for Currency Markets in 2008

2008-01-16T22:43:00.000-08:00

Rosalind Mathieson (Managing Editor-Asia Markets) Written a Article and Published in "Gulf Times",its a Qatar Based Top-Selling English Daily News Paper. This article given a good overlook of 2008 Trading. So , I am Posting in My Forex Knowledge Base Blog
Published: Monday, 24 December, 2007, 03:34 AM Doha Time
By Rosalind Mathieson

SINGAPORE: One of the best things about 2008 could be that it isn’t 2007. It has been equally an exciting, scary and tiring second half of the year. And that is just at Dow Jones, where we have a new owner. Jokes aside, there will be more than one currency trader keen to see the back of this year. Volatility may have provided the chance for some hardy investors to make good gains, but no doubt at the expense of a few sleepless nights.

Markets are likely to stay unpredictable for some time, so it’s a little hard to say with confidence where we’ll be at this time next year. Still, this column has made some attempt to look into the crystal ball, coming up with our “top eight” themes for currency markets in 2008. Some of these themes will continue to play out from 2007, but there also some new (or renewed) ones.

Firstly, to the US dollar: It has been a good year to take a vacation to the states. The greenback started the year around 121 against the Japanese yen. It had a pretty good first half, rising to around ¥124 in June. But the wheels fell off in August, and it dropped to near the ¥109 mark at one point. Ouch.

Things may start to look better though for the buck in 2008. The cheaper currency has helped US exports, underpinning the economy. Continued gains in U.S. Treasurys shows central banks around the world are willing to keep funding America’s twin deficits.

The Federal Reserve may have a few more interest rate cuts up its sleeve, but it is unlikely to take drastic action unless the US economy slows much faster than it is now.

Theme number two is the carry trade: which should find renewed interest in 2008. To be sure, such trades don’t like volatile markets, but central banks in Australia and New Zealand and the like don’t look set to start slicing rates aggressively, and Japan is not in a position to be hiking anytime soon. Investors should still be able to make a profit from selling lower-yielding currencies like the yen and parking money in markets that pay higher rates.

Theme number three is currency pegs: The weakness in the dollar, and the rate cuts by the Fed, have spurred much chatter about the countries in Asia and the Middle East that peg their currency to the greenback.

That has especially been the case given nations in the Middle East are battling inflation and are less able to cut interest rates to keep their currency pegs in alignment. So far, though, the Saudis have shown little stomach to unhitch the riyal and without their lead, other Gulf nations are unlikely to race to depeg. The possibility of a dollar recovery in 2008 could also keep them at bay.

The “R” word may continue to loom over currency markets in the early part of 2008, but as a strong batch of strong data last week on retail sales and consumer and producer prices showed, the US economy isn’t for now tipping toward recession. Consumer sentiment is holding up despite prolonged weakness in the housing market and as long as that remains the case, the recession talk will remain just that.

Theme four therefore: The US economy is slowing but doing surprisingly OK. A soft landing in the US would be good for Asia, as currency markets realise the decoupling argument is a little tenuous. Asia and Europe wouldn’t escape the fallout from a major US slowdown. A “recoupling” of the “decoupling” theory may help underpin Asian currencies as people embrace the soft landing outlook for the US and embark on growth trades.

Theme five is the familiar bogeyman under the bed: Inflation. High food and energy prices will remain a risk in 2008. Food scarcity will increasingly become an issue, potentially a social one as poorer people are forced to pay more for cooking oil, rice and other essentials.

Central banks in Asia will have to remain alert to the threat of inflation. That means tolerating some appreciation in their currencies, even if it compromises some of the export competitiveness. It’ll be a fine line to walk.

Theme six will be the noise surrounding Presidential elections in the US: Currency traders can expect a pickup in the rhetoric on China with the Democrats likely to play the “yuan card” heavily. US Treasury Secretary Henry Paulson has been taking a measured line on China but he’ll come under more pressure to produce concrete results via even faster gains in the yuan than we’ve seen in recent months. “China bashing” on the trade front will also be inevitable.

The main thing for markets to remember, though, is that punitive measures are unlikely and Beijing has shown little interest in acting just because the rest of the world says it should.

China itself is theme number seven: Much will depend on how much it acts to slow the economy and curb the stock market, with Beijing recently flagging tighter policy ahead. Part of that tighter policy will probably include further gains in the yuan – as officials realise this is in their own interest. But don’t look for China to provide markets with another “big bang” revaluation in its currency or a shift towards a greater currency basket. Change will remain incremental.

Rounding out the top eight for currency markets in 2008 will be sovereign-wealth funds: The balance of power in markets will increasingly shift their way, so keep an eye on developments in the sector.

SWFs are already starting to nose their way into equity investments and they no doubt will be looking to deploy more resources next year into other asset classes, including higher-yielding debt and currencies.

One of the biggest issues for markets will be working out where these funds are parking their money. It’s not as though they need to make it publicly known, unless they are buying a public company.

Most central banks however have made it clear they don’t intend to diversify existing reserves away from the US dollar. Rather, new reserves may be spread across different currencies, including the euro.

It wouldn’t be in their own interest to bail out of the dollar wholesale. They’d only be hurting themselves in terms of the prices they’d get. Taken together, what do these eight themes mean?

They suggest market noise will blow into the early part of the year, but that a semblance of calm may return in the second half of 2008. The US economic outlook is OK, though not super, and Asia should continue to grow. Asian currencies are set to keep gaining, in part on demand for carry trades against the yen, while the US dollar could find itself on a firmer footing against the majors.

Caveats to this view: The US economy tanks, China miscalculates and over-tightens, or spurs a panicked bubble burst in the stock market, or oil goes over $100 and stays there. And, as former US defence secretary Donald Rumsfeld so famously said, there are known knowns, known unknowns, but also unknown unknowns. Still, the new year will give markets a chance for a fresh start. – Dow Jones Newswires

(Rosalind Mathieson is the Managing Editor for Dow Jones Markets News in Asia. She has 13 years of experience as a political and financial reporter and editor, having worked previously at Australian Associated Press in Sydney and Canberra.)

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The Basics of Currency Trading For Beginners

2007-12-30T11:45:00.000-08:00

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the it, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

USD/CHF: Swiss franc
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
EUR/USD: Euro
AUD/USD: Aussie

These six currency pairs generate up to 85% of the overall volume in the Forex market. So, for instance, if a trader goes long on the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2645/48 or 1.2645/8

The bid price is 1.2645

The ask price is 1.2648

A Pip

A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.35 to 113.40 equals 105 pips.

Margin Trading (leverage)

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call

A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader "theoretically" with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

What is the mechanism of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of forex trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

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What is a Forex Broker

2007-12-30T11:32:00.000-08:00

A Forex broker is very similar to a stock broker, and many new online Forex brokerages have recently emerged. The key difference is that Forex brokers deal only in currency exchange investments.

Similar to securities brokerages, Forex brokers come in all sizes, shapes, and levels of service. An online Forex broker provides minimal service at minimal cost. If you require more advice and expert guidance, there are many full service Forex brokers available, as well.
If you do go with an online broker, make sure that you choose one that has an extensive online knowledge base and 24/7 support so that you can execute all trades wisely, and quickly.

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The Forex Margin Trading

2007-12-30T11:28:00.000-08:00

The trading unit of foreign currencies is defined as 10,000 in US dollar or 100,000 US dollar. Assuming one US dollar is worth to 120 Japanese Yen, 10,000 USD should be equal to 1.2 million JPY, and 100,000 USD to 12 million JPY. This merit is to enjoy the bigger trade than you actually have with using margin account, so there seems to be many chances to make bigger money on revaluation gains. On the other hand, the demerit exists that you would lose bigger money than you expect.

Unlike the foreign currency deposit, the forex margin trading is a very speculative financial product. It is necessary to understand the nature of risks where to expose, and to trade forex using your own capacity with self-responsibility. It is not suitable to trade forex using the indispensable capital for your life, i.e., the retirement fund or pension.

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Main Merit of Forex Market

2007-12-30T11:10:00.000-08:00

Main Merit of Forex Market are :

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i) 24-hour trading, 5 days a week with non-stop access to global Forex dealers

ii) An enormous liquid market making it easy to trade most currencies

iii) Volatile markets offering profit opportunities

iv) Standard instruments for controlling risk exposure

v) The ability to profit in rising or falling markets

vi) Leveraged trading with low margin requirements

vii) Many options for zero commission trading

vii) A trader can open a position for any period of time he wants

ix) No fees, except for the difference between buying and selling prices

x) An opportunity to get a bigger profit that the invested sum

xi) Qualified work in the FOREX market can become your main professional activity

xiiii) You can make deals any time you like

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How do I open a Forex Trading account

2007-12-30T11:06:00.000-08:00

A forex trading account can be opened with any established forex broker. Before you open a forex trading account, please be sure to check the broker’s endorsements as a Futures Commission Merchant (FCM) registered with the National Futures Association. You can open a forex trading account online, over the telephone, or via fax.

To open a forex trading account, you will need your standard information as well as social security number and bank account information. This is why it is important to verify that the broker is a member of the National Futures Association.

Once your account is open, you can choose to participate in a demo account or begin live forex trading.

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What are Foreign Currency Trading Rates

2007-12-30T10:40:00.000-08:00

The simplest definition of foreign currency exchange rates is the rate at which one currency, such as U.S. dollars, can be traded for another. As these currency exchange rates fluctuate constantly, there is considerable opportunity to earn money from the differences - called "arbitrage."

There are online sites that show currency exchange rates in real time where traders, or travelers, can check exchange rates.The market through which investors trade in foreign currencies is called the Forex market.

Foreign Exchange Rates (Daily Updates) Link to Statistical Release

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History of Forex Trading

2007-12-30T10:16:00.000-08:00

Many centuries ago, the value of goods were expressed in terms of other goods. This sort of economics was based on the barter system between individuals. The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the first World war, most Central banks supported their currencies with convertibility to gold. Paper money could always be exchanged for gold. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of WWII, The Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the worlds largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

In Europe, the idea of fixed exchange rates had by no means died. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when built-up economic pressures forced devaluations of a number of weak European currencies. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002.

Today, Europe has embraced the Euro in 12 participating countries. The physical introduction of the Euro on January 1, 2002 saw the old countries currencies made obsolete on July 1, 2002.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The size of the FOREX market now dwarfs any other investment market.

It is estimated that more than USD 1,200 Billion are traded every day, that is the same amount as almost 40 times the daily USD volume on the American NASDAQ market.

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Strategy For Profitable Forex Trading

2007-11-28T05:52:00.000-08:00

What is required of you to be a profitable trader?

There are more than one answer to this question. One answer is given in this article based on the experience of the several successful traders of forex and other instruments…

There are only two questions a forex trader has to ask him or herself. If the affirmative can be answered to both questions, the forex trader is a professional .If the trader can not be answered to either or both questions; the trader could continue to wipe out profits, possibly ending up in substantial and permanent losses.

1) Do you know how to identify trades that 4/5 trades at the least will get you on target for a business plan that covers the short, medium and long term?

2) Can you apply your trading methodology under different market conditions over the short, medium and long term and turn your trading plan into reality

There is convincing evidence that to become proficient at the number one criterion, there is no substitute for spending time listening to and watching the market over a consistent period, at least of months. There is no “get rich quick” strategy that has been invented, except that of gamblers luck.

Secondarily to that first point, a foundation in technical analysis is required and a pretty thorough knowledge of fundamentals, including forex jargon is a good footing. This does not need to be learned theoretically in parrot fashion, but needs to be applied in conjunction with the previous paragraph. Only then will the necessary belief in certain technical strategies be referenced sufficiently for “natural” talent & skill to be cultivated.

Risk tolerance needs to be established at an early stage so that losses can be protected using a stop-loss. Profit targets for certain trades can also be drawn up as part of the trading plans rules. If your intraday trading risk tolerance is for example 15 points, then profit target trades of 15-30 point trades need to be sought out and discovered. The opportunities await each day.

Testing, back-testing and forward-testing of methodology is an evolutionary process. It is ok to make mistakes, so long as they are learned from and keep within the boundaries of the current rules. It is therefore also going to be the case that non-stop improvement of the strategy and the skill of the trader will take place, and the strategy, even the instrument traded may change dramatically over time as more information is gathered and the trader becomes more familiar with their trading style and themselves.

Trading can be considered an “inside game.” The more one knows themselves, the more likely they are going to have the discipline, patience and awareness required to spot opportunities and seek out the correct research in order to plan and execute trades make the difference between a professional investor and an emotion driven gambler.

Research into the brain shows there are two kinds of thinking. There is the primitive type of thinking built on biochemical and emotional reaction. The trader in the state of arousal with adrenalin before the trade may be leaving themselves open to danger, because this is a primitive fear/flight or flight mechanism, requiring a reactive response.

However, when the mind thinks using the cortical part of the brain, more of the neurons are incorporated into the thinking process and therefore a more balanced and effective decision will be made.

A constant and rigorous monitoring of trading performance is required therefore from the outset so that the mind knows what is required to be on track with the trading plan and adjustments can be made to the strategy so that the purpose of the plan is fulfilled. Testing and tweaking under forward conditions allow the trader to hone in on areas of weakness and root them out, making the results more pronounced.

Howto Achieve Perfection in Trading ?

2007-11-09T22:38:00.000-08:00

Achieving Perfection in daily Trade Market - Achieve Trade quality, Not quantity . Take the best of the best advice, get the big picture on trading.

Trade selection and adequate planning go hand in hand. This is where most would-be professional traders miss the boat.

Much more money is made as a result of proper planning than from sitting and trading everything that comes along or “looks” good.

It’s difficult to fully understand why people think they have to trade so much. It’s difficult to truly grasp why people think that they have to take as many trades as they do.
Just the opposite is true. There is a correct approach to each and every trade. That is what achieving perfection is all about.

It all starts with proper management: planning, organizing, delegating, directing, and controlling.These facets of management must be woven together into your trading; they do overlap.

Although planning is the major management function involved in achieving perfection, you can’t possibly plan well unless you are organized to do so.

You must have your tools at hand: your trading software, your data, the proper equipment. All of the rudiments for planning must be in place, which in itself is a part of organizing.

You must be physically fit when you plan: well nourished, properly exercised, well rested and mentally alert - all part of having your life organized, all part of achieving perfection as a trader.

To be a winning trader, you have to be among the best. There can be no middle ground. There are only winners and losers, and to be a winner you have to be a champion. And, just like any champion, you must have discipline, self-control, and a willingness to train, train, train.

There are no runners-up in trading, you either get the gold or you give the gold. Often, while others are busy going to parties or watching sports events, you are busy poring over charts, studying, thinking, planning. When others are listening to music or watching TV, you are busy practicing your trading, practicing trade selection, working hard to become a more astute trader.

Part of achieving perfection involves the diligent study of charts. The data, as presented on your screen and preserved as charts, are, for the most part, all you have for making trading decisions. They are a picture, a visualization of what is taking place in the reality of the forex market. Your job in achieving perfection and becoming an adequate trader is to picture and imagine in your mind what makes prices move and form the way they do.

Ask yourself, “How does what I see in front of me relate to the supply and demand for the underlying?”

Ask yourself, “Is what I am seeing on the chart even related to supply and demand, or is what I am seeing related to an engineered move by some insider or market mover?”

Supply and demand are not what makes prices move or fail to move most of the time. The sooner you realize that fact, the better off you will be. Markets are engineered, manipulated? You need to know that.

But there’s more to a chart than merely price patterns. Reflected in the chart are the emotional reactions of human beings. Reactions to rumors and news; to national and world events; to government reports - these, too, are on the charts.

You might say that price movement, or the lack thereof, is the net effect of all the perceptions of all the traders who are participating in the market for a particular futures.

There is something else on the charts, something that too few take into account. That something is the manipulations from and by the insiders, the market movers, and by commercials holding large inventories of the underlying you are attempting to trade.

In achieving perfection as a trader, you must train yourself to look for evidence of any and all of these things as you study your charts. It is the cumulative action of all perceptions which causes patterns to form on a price chart.

You must learn to look for the truths in the markets. There are certain truths which are self-evident; they are always true. For instance, take the phenomenon of a breakout. When prices break out, no one can change the fact that they did break out. It is a fact and it is true. The breakout may turn out to be a “false” breakout, but nevertheless it is a breakout. As part of achieving perfection in your trade selection skills, you have to learn to tell which breakouts are most likely true breakouts, and which ones are most likely false. How can you know? By the price patterns on the chart.

And what about trend? Your job in achieving perfection as a trader is to master how to trade a trend. A trend is a trend, is a trend. It is a trend until the end, and part of your job is to know when a market is not trending.

The trend is the trend while it lasts. While a market is trending it is telling the truth. The trend can change, but the truth is the truth. If prices are rising, the trend is up. If prices are falling, the trend is down. The truth can be found in the trend. It is an immutable fact. You are to learn to make my money by trading with the trend. You are to learn what constitutes a trend. You have to learn to spot trends early so that you can make the most out of the market while it is trending. Your job in achieving perfection as a trader is to learn to recognize when a trend will most likely begin, and just as important, to learn to be even more adept at deciphering when a trend is ending.

In achieving perfection, you must learn to recognize “your” trade(s), and to take only “your” trades. Trade the formations and patterns that you can easily recognize and identify.

You must learn to trade using tips and tricks that you are shown and to accumulate and keep a collection of techniques that result in the selection of high probability trades.

How are you to do all this? Practice, practice, PRACTICE. Practice recognition of congestion areas. Practice recognition of high probability breakouts. Practice trend recognition. Practice and more practice. Just like anyone who wants to achieve perfection at anything, there must be total dedication, study, practice and more practice. You are to become a trading virtuoso. You are to practice, yet always realizing that you will never attain true perfection, that there is always room for improvement. There is usually a way to refine: ways that you can do things better, more efficiently, and with greater speed and finesse.

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What is Forex (Foreign Exchange) ?

2007-11-06T23:39:00.000-08:00

Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange. It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.

Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.

Most forex trading is speculative, with only a few percent of market activity representing governments' and companies' fundamental currency conversion needs.
Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.

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