Stock exchanges were born in the 15th century in Burgundy’s main trading centers of the north, now Belgium. They were called bourses, from the Latin bursa or purse—three of which were on the crest of the Van der Beurse, a family of financiers in Bruges.
The Beurse mansion was a popular meeting place for Italian bankers who traded bills of exchange. Invented by Francesco Datini, a 14th-century Italian merchant, the bill of exchange was an essential instrument for banking and international trade as it covered both the lending and transfer of funds in different currencies between Europe’s main trading centers. Although it amounted to credit, the bill of exchange did not bear interest rates, hidden in exchange rates, thus allowing bankers to get around the Church’s ban on usury.
The first liquid financial instrument, the bill of exchange was instrumental in creating the first security market—complete with gold fixing—in the Beurse mansion as early as 1409. Bruges, therefore, earned the title of the city hosting the first organized market.
North Italian bankers, including the Medici, dominated lending and trade financing throughout Europe and brought the bills of exchange to all major trading centers, usually harbors or cities hosting trade fairs. These bankers were known as Lombards, a name that was synonymous with Italians in the Middle Ages, in reference to the 36 duchies then ruled by the Longobards. They were so influential that, to this day, many financial centers of Europe have streets named after them.
Bruges’ role as a leading international trade center relied on its access to the sea via the Zwyn canal. But silt eventually closed Bruges’ harbor and the city lost its economic prominence to the port of Antwerp, where merchants ran an exchange in 1460. In turn, when Antwerp’s role declined amid political turmoil, Amsterdam—where the first stocks were traded as opposed to securities—emerged as the new financial center of the 16th century, soon followed by London and Lyons.
The Amsterdam Stock Exchange, created in 1602, became the first official stock exchange when it began trading shares of the Dutch East India Company. These were the first company shares ever issued.
By the early 1700s there were fully operational stock exchanges in France and England, and America followed in the later part of the century. Stock exchanges became an important way for companies to raise capital for investment, while also offering investors the opportunity to share in company profits. The early days of the stock exchange experienced many scandals and stock crashes, as there was little to no regulation and almost anyone was allowed to participate in the exchange.
Major world exchange markets:
AMEX - American Stock Exchange
BOVESPA - Sao Paulo Stock Exchange
CBOT - Chicago Board of Trade
CHX - Chicago Stock Exchange
CME - Chicago Mercantile Exchange
Commodities on the Web - List of the commodities
LIFFE - London International Financial Futures and Options Exchange
London Stock Exchange -London Stock Exchange
Nasdaq
NYMEX - New York Mercantile Exchange
NYSE - New York Stock Exchange
SBF - la Bourse de Paris
SES - Singapore Exchange
SET - Stock Exchange of Thailand
TSE - Tokyo Stock Exchange
TSE - Toronto Stock Exchange
LSEX - London Stock Exchange
CBOE - Chicago Board Options Exchange CBOE
PHLX - Philadelphia Stock Exchange
Today, stock exchanges operate around the world, and they have become highly regulated institutions. Investors wanting to buy and sell stocks must do so through a stock broker, who pays to own a seat on the exchange. Companies with stocks traded on an exchange are said to be 'listed' and they must meet specific criteria, which varies across exchanges. Most stock exchanges began as floor exchanges, where traders made deals face-to-face. The largest stock exchange in the world, the New York Stock Exchange, continues to operate this way, but most of the world's exchanges have now become fully electronic
Wednesday, October 31, 2007
4x SPREAD
Forex spread
One of the main forex terms is forex spread.
As with other financial commodities, there is a buying (“offer” or “ask”) and a selling (“bid”) exchange rate. The difference is known as the “bid-offer spread” or “the spread”.
The forex spread is written in a particular format. For example, GBP/USD = 1.5545/50 means that the bid price of GBP is 1.5545 USD and the offer price is 1.5550 USD. The spread in this case is 5 points.
Every purchase of the base currency implies a sale of the secondary currency. Likewise, sale of the base currency implies the simultaneous purchase of the secondary currency. For example, when I sell GBP/USD, I am selling GBP and buying USD. Similarly, when I buy GBP I am simultaneously selling USD.
We can express this equivalence by inverting the GBP/USD exchange rate and rotating the bid and offer reciprocals to derive the USD/GBP rate. For example, if GBP/USD = 1.5545/50 then
USD/GBP = 1/1.5550 (bid)/(1/1.5545 (offer) = 0.6431/33
The basic unit of trading for private investors is known as a “lot” which represents 100,000 units of the base currency. Some brokers permit trading in mini-lots.
• The purchase of a single lot of GBP/USD at 1.5852 implies 100,000 GBP bought at 158,520 USD.
• The sale of a single lot of GBP/USD at 1.5847 entails the sale of 100,000 for 158,470 USD.
The spot forex trading spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The end result is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit.
Brokers generally don't earn the full spread, especially when they hedge client positions. The spread helps to compensate for the market maker for taking on risk from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).
Spot forex trading spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn't profitable.
The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected.
Spread policies change a great deal from broker to broker, and the policies are often difficult to see through. This certainly makes comparing brokers much more difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you are paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.
Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if quality of execution is good.
Some brokers have different spreads for different clients based on their accounts. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some offer the same spreads to everyone.
Problems can come up when you are trying to learn about a company's spread policy because this information, along with information on trade execution and order-book depth is rather difficult to get. Because of this, many traders get caught up in all of the promises they hear, and take a broker's words at face value. This can be dangerous. The only real way to find out is to try out various brokers or talk to those who have.
In summary, the spread is the difference between the price that you can sell currency at ( Bid ) and the price you can buy currency at ( Ask ). The spread on majors is usually 5 pips under normal market conditions.
A pip is the smallest unit by which a cross price quote changes. When trading forex you will often hear that there is a 5-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9880. The difference is USD 0.0005, which is equal to 5 "pips".
On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is the cancel-out the four zeros on the amount you trade and you will have one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.
One of the main forex terms is forex spread.
As with other financial commodities, there is a buying (“offer” or “ask”) and a selling (“bid”) exchange rate. The difference is known as the “bid-offer spread” or “the spread”.
The forex spread is written in a particular format. For example, GBP/USD = 1.5545/50 means that the bid price of GBP is 1.5545 USD and the offer price is 1.5550 USD. The spread in this case is 5 points.
Every purchase of the base currency implies a sale of the secondary currency. Likewise, sale of the base currency implies the simultaneous purchase of the secondary currency. For example, when I sell GBP/USD, I am selling GBP and buying USD. Similarly, when I buy GBP I am simultaneously selling USD.
We can express this equivalence by inverting the GBP/USD exchange rate and rotating the bid and offer reciprocals to derive the USD/GBP rate. For example, if GBP/USD = 1.5545/50 then
USD/GBP = 1/1.5550 (bid)/(1/1.5545 (offer) = 0.6431/33
The basic unit of trading for private investors is known as a “lot” which represents 100,000 units of the base currency. Some brokers permit trading in mini-lots.
• The purchase of a single lot of GBP/USD at 1.5852 implies 100,000 GBP bought at 158,520 USD.
• The sale of a single lot of GBP/USD at 1.5847 entails the sale of 100,000 for 158,470 USD.
The spot forex trading spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The end result is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit.
Brokers generally don't earn the full spread, especially when they hedge client positions. The spread helps to compensate for the market maker for taking on risk from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).
Spot forex trading spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn't profitable.
The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected.
Spread policies change a great deal from broker to broker, and the policies are often difficult to see through. This certainly makes comparing brokers much more difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you are paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.
Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if quality of execution is good.
Some brokers have different spreads for different clients based on their accounts. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some offer the same spreads to everyone.
Problems can come up when you are trying to learn about a company's spread policy because this information, along with information on trade execution and order-book depth is rather difficult to get. Because of this, many traders get caught up in all of the promises they hear, and take a broker's words at face value. This can be dangerous. The only real way to find out is to try out various brokers or talk to those who have.
In summary, the spread is the difference between the price that you can sell currency at ( Bid ) and the price you can buy currency at ( Ask ). The spread on majors is usually 5 pips under normal market conditions.
A pip is the smallest unit by which a cross price quote changes. When trading forex you will often hear that there is a 5-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9880. The difference is USD 0.0005, which is equal to 5 "pips".
On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is the cancel-out the four zeros on the amount you trade and you will have one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.
POSITIONS
Forex positions - open, close, short, long
There are such important terms in forex as "long position", "short position", "close position", "open position".
Position - The amount of currency or security owned or owed by a forex trader or investor.
Long (Position) - A position that was obtained by buying in anticipation of an increase in price.
Open:
Each open position has four major characteristics: You're trading a particular currency pair, you're either long or short the market (you've bought or sold, respectively), the size of the position in increments of 100,000 of the base currency, and an exchange rate at which the position was opened. For example a "EUR/USD, 500, S, 0.9220", means the trader Sold 500,000 Euros for U.S. Dollars at an exchange rate of 0.9220.
Close:
The close rate is the current exchange rate at which the trader can exit the position using a market order. If you're long the market, the current bid will be shown as the close rate. If you're short, the close will reflect the current FX market ask price.
Going short – going long
When you buy a currency, you are said to be “long” in that currency. Long positions are entered into at the offer price. Thus if you are buying one GBP/USD lot quoted at 1.5847/52, then you will buy 100,000 GBP at 1.5852 USD.
When you sell a currency, you are said to be “short” in that currency. Short positions are entered into at the bid price, which is 1.5847 USD in our example.
Because of the symmetry of currency transactions, you are always simultaneously long in one currency and short in another. For example if you exchange 100,000 GBP for USD you are short in sterling and long in US dollars.
Closing out
An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. Any profits and losses will exist on paper only and will be reflected in your margin account.
To close out your position, you conduct an equal and opposite trade in the same currency pair. For example, if you have gone long in one lot of GBP/USD (at the prevailing offer price) you can close out that position by subsequently going short in one GBP/USD lot (at the prevailing bid price).
Your opening and closing trades must the conducted through the same intermediary. You cannot open a GBP/USD position with Broker A and close it out through Broker B.
There are such important terms in forex as "long position", "short position", "close position", "open position".
Position - The amount of currency or security owned or owed by a forex trader or investor.
Long (Position) - A position that was obtained by buying in anticipation of an increase in price.
Open:
Each open position has four major characteristics: You're trading a particular currency pair, you're either long or short the market (you've bought or sold, respectively), the size of the position in increments of 100,000 of the base currency, and an exchange rate at which the position was opened. For example a "EUR/USD, 500, S, 0.9220", means the trader Sold 500,000 Euros for U.S. Dollars at an exchange rate of 0.9220.
Close:
The close rate is the current exchange rate at which the trader can exit the position using a market order. If you're long the market, the current bid will be shown as the close rate. If you're short, the close will reflect the current FX market ask price.
Going short – going long
When you buy a currency, you are said to be “long” in that currency. Long positions are entered into at the offer price. Thus if you are buying one GBP/USD lot quoted at 1.5847/52, then you will buy 100,000 GBP at 1.5852 USD.
When you sell a currency, you are said to be “short” in that currency. Short positions are entered into at the bid price, which is 1.5847 USD in our example.
Because of the symmetry of currency transactions, you are always simultaneously long in one currency and short in another. For example if you exchange 100,000 GBP for USD you are short in sterling and long in US dollars.
Closing out
An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. Any profits and losses will exist on paper only and will be reflected in your margin account.
To close out your position, you conduct an equal and opposite trade in the same currency pair. For example, if you have gone long in one lot of GBP/USD (at the prevailing offer price) you can close out that position by subsequently going short in one GBP/USD lot (at the prevailing bid price).
Your opening and closing trades must the conducted through the same intermediary. You cannot open a GBP/USD position with Broker A and close it out through Broker B.
4-X ORDERS
Forex exchange rate
A forex rate of exchange is the price of one currency in terms of another currency. It is the means by which banks are able to trade foreign currencies in exchange for Australian dollars.
Banks quote prices at which they will buy and sell foreign currency. These prices are based on prices that are quoted in the major wholesale foreign exchange markets and can change constantly throughout the day, depending on market forces.
Every currency has a unique three-character International Standardization Organization (ISO) code. The ISO codes are based on the 2-letter country code, plus a third character derived from the name of the currency (e.g. GBP represents the Great Britain Pound and USD the United States Dollar)
Every currency pair is expressed as two ISO codes separated by a division symbol (e.g. GBP/USD), the first representing the "base” currency and the second the "quote” currency (also known as "counter" or "secondary" currency).
GBP/USD
Base Currency/Quote Currency
The exchange rate is usually displayed to the right of the currency pair
GBP/USD = 1.6545
This denotes that one unit of the British Pound (the base currency) can be exchanged for 1.6545 US dollars (the quote currency). If you are buying the base currency, it specifies how much you have to pay in the quote currency to obtain one unit of the base currency. If you are selling the base currency, the exchange rate is telling you how much you get in the quote currency for one unit of the base currency.
The smallest increment by which a currency can move is called a “pip” (similar to “point” in equity trading). The last two decimal places measure the pip movement of a currency. For instance, in the example above, 45 represents the pips. If, in the same example, the GBP/USD appreciated to 1.6560, you would say it moved up (or rose) 15 pips. Or, if it depreciated to 1.6541 you would say is fell (or moved down) 4 pips.
There are 3 major groups of factors that influence on exchange rate development:
1) Fundamental Factors
Fundamental trading strategies consist of macro-economic strategic assessments; these criteria often include the economic condition of the currency’s country of origin, the country’s monetary policy, and other "fundamental" elements.
Typically, on the world markets, the US economy has the greatest influence. Fully 80% of financial operations conducted in world markets are transacted in dollars. This causes the dollar rise or fall against all other currencies. The fundamental factors affecting world markets are:
Gross national product
The level of real percentage
The level of unemployment
Inflation
An index of industrial production
Therefore, the common rule for a trader is to orient to the expectations and moods of the majority of investors in the market. Exchange rate movement tendency can be analyzed by reading publications, studying reviews of market situation in information systems such as Reuters, Bridge (Dow Jones), and CQG. Following the publication of the leading economic indicators, the market will inevitably begin to move. A trader’s primary task is to participate in such movement, which invariably will be lead by the majority in the market. The axiom is - “don’t miss the boat”.
2) Technical Factors
Technical analysis is a field of market analysis, which supposes that market has a memory and consists primarily of a variety of technical aspects, each of which can be interpreted to generate buy and sell signals or to predict market direction.
During the past few years, in response to rapid growth of electronic analytical devices such as those offered by Reuters, Bridge (Dow Jones), CQG and others, greater numbers of traders make their decisions according to the technical analysis, which regularly increases its influence on any real rate movement.
Technical analysis is a method for price forecasting based on historical market movement studies. For the last 30 years, studies in the field of technical analysis have proven themselves a science with its own philosophical system and set of operative axioms.
3) Aside from the fundamental and technical factors
Insuperable circumstances – acts of nature (earthquakes, a tsunami, a typhoon, flooding, etc.)
Political events – war, political scandals, terrorist acts, etc
Political speeches
Currency interventions by central banks.
A forex rate of exchange is the price of one currency in terms of another currency. It is the means by which banks are able to trade foreign currencies in exchange for Australian dollars.
Banks quote prices at which they will buy and sell foreign currency. These prices are based on prices that are quoted in the major wholesale foreign exchange markets and can change constantly throughout the day, depending on market forces.
Every currency has a unique three-character International Standardization Organization (ISO) code. The ISO codes are based on the 2-letter country code, plus a third character derived from the name of the currency (e.g. GBP represents the Great Britain Pound and USD the United States Dollar)
Every currency pair is expressed as two ISO codes separated by a division symbol (e.g. GBP/USD), the first representing the "base” currency and the second the "quote” currency (also known as "counter" or "secondary" currency).
GBP/USD
Base Currency/Quote Currency
The exchange rate is usually displayed to the right of the currency pair
GBP/USD = 1.6545
This denotes that one unit of the British Pound (the base currency) can be exchanged for 1.6545 US dollars (the quote currency). If you are buying the base currency, it specifies how much you have to pay in the quote currency to obtain one unit of the base currency. If you are selling the base currency, the exchange rate is telling you how much you get in the quote currency for one unit of the base currency.
The smallest increment by which a currency can move is called a “pip” (similar to “point” in equity trading). The last two decimal places measure the pip movement of a currency. For instance, in the example above, 45 represents the pips. If, in the same example, the GBP/USD appreciated to 1.6560, you would say it moved up (or rose) 15 pips. Or, if it depreciated to 1.6541 you would say is fell (or moved down) 4 pips.
There are 3 major groups of factors that influence on exchange rate development:
1) Fundamental Factors
Fundamental trading strategies consist of macro-economic strategic assessments; these criteria often include the economic condition of the currency’s country of origin, the country’s monetary policy, and other "fundamental" elements.
Typically, on the world markets, the US economy has the greatest influence. Fully 80% of financial operations conducted in world markets are transacted in dollars. This causes the dollar rise or fall against all other currencies. The fundamental factors affecting world markets are:
Gross national product
The level of real percentage
The level of unemployment
Inflation
An index of industrial production
Therefore, the common rule for a trader is to orient to the expectations and moods of the majority of investors in the market. Exchange rate movement tendency can be analyzed by reading publications, studying reviews of market situation in information systems such as Reuters, Bridge (Dow Jones), and CQG. Following the publication of the leading economic indicators, the market will inevitably begin to move. A trader’s primary task is to participate in such movement, which invariably will be lead by the majority in the market. The axiom is - “don’t miss the boat”.
2) Technical Factors
Technical analysis is a field of market analysis, which supposes that market has a memory and consists primarily of a variety of technical aspects, each of which can be interpreted to generate buy and sell signals or to predict market direction.
During the past few years, in response to rapid growth of electronic analytical devices such as those offered by Reuters, Bridge (Dow Jones), CQG and others, greater numbers of traders make their decisions according to the technical analysis, which regularly increases its influence on any real rate movement.
Technical analysis is a method for price forecasting based on historical market movement studies. For the last 30 years, studies in the field of technical analysis have proven themselves a science with its own philosophical system and set of operative axioms.
3) Aside from the fundamental and technical factors
Insuperable circumstances – acts of nature (earthquakes, a tsunami, a typhoon, flooding, etc.)
Political events – war, political scandals, terrorist acts, etc
Political speeches
Currency interventions by central banks.
Wednesday, September 5, 2007
Foreign Exchange
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs – Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies.Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. The following notation is used for these currency pairs: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. You may consider them as "blue chips" of the FOREX market. No dividends are paid on currencies. The investment profits come from well known "buy low - sell high". If you think one currency will appreciate against another, you may exchange that second currency for the first one and stay in it. In case everything goes as planned, some time later you may make the opposite deal - exchange this first currency back for that other - and collect profits. Transactions on the FOREX market are fulfilled by dealers at major banks or FOREX brokerage companies. FOREX is the world wide market, so when you are sleeping in the North America some dealers in Europe are trading currencies with their Japanese counterparties. Therefore the FOREX market is active 24 hours a day and dealers at major institutions are working in three shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution. Price movements on the FOREX market are very smooth and without gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is about $1.2 trillion, so investor can enter and exit position without problems. The fact is that the FOREX market never stops, even on the day of September-11, 2001 you could obtain two-side quotes on currencies. The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies. The forex market is a cash (or "spot") inter-bank market. By comparison, the currency futures market is only one per cent as big.Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S. In the past, the forex inter-bank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates. Today, foreign exchange market maker brokers such as FX Solutions are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots). These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates.
Why Trading FOREX
The cash/spot FOREX markets possess certain unique attributes that offer unmatched potential for profitable trading in any market condition or any stage of the business cycle:A 24-hour market: A trader may take advantage of all profitable market conditions at any time; no waiting for the 'opening bell'. Highest liquidity: The FOREX market with an average trading volume of over $1.5 trillion per day is the most liquid market in the world. That means that a trader can enter or exit the market at will in almost any market condition minimal execution barriers or risk and no daily trading limit. High leverage: A leverage ratio of 50 to 100 is typical compared to a leverage ratio of 2 (50% margin requirement) in equity markets. Of course, this makes trading in the cash/spot forex market a double-edged sword the high leverage makes the risk of the down side loss much greater in the same way that it makes the profit potential on the upside much more attractive. Low transaction cost: The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be less than 5 pips, and may widen considerably in fast moving markets. Always a bull market: A trade in the FOREX market involves selling or buying one currency against another. Thus, a bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and a trader profits by selling the currency against other currencies. In either case, there is always a bull market trading opportunity for a trader. Inter-bank market: The backbone of the FOREX market consists of a global network of dealers (mainly major commercial banks) that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The FOREX market operates in a manner similar to the way the NASDAQ market in the United States operates, and thus it is also referred to as an 'over the counter' or OTC market. No one can corner the market: The FOREX market is so vast and has so many participants that no single entity, even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short-lived, and thus central banks are becoming less and less inclined to intervene to manipulate market prices. Unregulated: The FOREX market is generally regarded as an unregulated market although the operations of major dealers, such as commercial banks in money centers, are regulated under the banking laws. The conduct and operation of retail FOREX brokerages are not regulated under any laws or regulations specific to the FOREX market, and in fact many of such establishments in the United States do not even report to the Internal Revenue Service (IRS). The currency futures and options that are traded on exchanges such as Chicago Mercantile Exchange (CME) are regulated in the way other exchange-traded derivatives are regulated.
Forex vs. Stock Market
Why FOREX is seen as "a better" option for investors when compared to Stock Market?This article tries to highlight why FOREX is considered a better option for investors when compared to Stock Market.Profit in an up or down marketUnlike the equity market, with FOREX there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising or falling market.Pay zero commissions or exchange feesNo commission or exchange fees to trade FOREX online or on the phone. In the equity markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FOREX market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic marketplace that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.Up to 50 times the leverage of trading stocksTrading FOREX gives you up to 50 times the leverage of trading stocks. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The maximum leverage is 2:1. But with FOREX, if you invest $1,000 margin on a foreign currency trade, you can control up to $100,000 in currencies.Trade mini contracts for as little as $300Many brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $30 and $200, that can mean an investment of $3,000 to $20,000 or more. But with FOREX, you can invest in foreign currencies for as little as a $300 deposit with mini contracts. The smaller trade size enables you to take smaller risks. The FOREX mini is intended to introduce you to the excitement of currency trading while minimizing your risk. You can try out the demo account and paper trade or you can open up a mini account right now and trade for real. If you like technical trading, FOREX is perfect for youThe strong trends that foreign currencies develop is a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.Analyzing countries is easier than companiesCountries are often more stable than companies and it's easier to predict their overall economic direction. Currencies are traded in pairs, so if a trader buys one currency, he is simultaneously selling the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade should be most-closely examined. Trade 24 hours a dayAfter-hours stock trading is not a very liquid or easy market to trade. But with FOREX, you can trade 24 hours a day in the largest, most liquid market in the world.
How the Retail Spot Forex Works
When you use retail spot Forex software, it only requires an internet connection to trade real-time. No extra data-feed is required. All online Forex brokers’ software is real-time, rather than delayed.If you download a free 30-day demo of the software, you can "practice trade" in real-time with the exact same quotes as a live account. The software is exactly the same, and you receive virtual money for the account. You are then able to enter trades in real time, and monitor them just as though it were a real account. You will experience no difference between the demo account and a live account. When you log onto your trading platform, you see your price quotes, and you simply click on the price to sell or buy. It will ask you how many lots or contracts you want, and then you click ok, and you are in. You can also use the charts they provide with the trading platform; they will reflect the movement of the real-time price of their trading platform. With those charts, you usually have the ability to place horizontal lines where you choose (pivot numbers).Each currency is quoted with a pip spread. This is how the dealer makes his money. With most online retail brokers, there are no commissions. For example, I want to buy the Swiss Franc, and the current quote is 1.7205/1.7210. The dealer will give me the 1.7210 price, and I would start the trade -5 points which equals $30.00. In my trade window, I would see my money change as the market price moves back and forth. As it moves in my favor, my negative position is removed as soon as the market is trading 1.7210/1.7215, or higher. In the spot forex market, it is common for currencies to move 100 to 300 pips/points in a 24-hour session. If you like volatility, there is no currency more volatile than the Franc.If you want to see the software in action, just register for it at fxsol.com, and download a free demo. You will get your password and username immediately sent to you by email.
Why Trading FOREX
The cash/spot FOREX markets possess certain unique attributes that offer unmatched potential for profitable trading in any market condition or any stage of the business cycle:A 24-hour market: A trader may take advantage of all profitable market conditions at any time; no waiting for the 'opening bell'. Highest liquidity: The FOREX market with an average trading volume of over $1.5 trillion per day is the most liquid market in the world. That means that a trader can enter or exit the market at will in almost any market condition minimal execution barriers or risk and no daily trading limit. High leverage: A leverage ratio of 50 to 100 is typical compared to a leverage ratio of 2 (50% margin requirement) in equity markets. Of course, this makes trading in the cash/spot forex market a double-edged sword the high leverage makes the risk of the down side loss much greater in the same way that it makes the profit potential on the upside much more attractive. Low transaction cost: The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be less than 5 pips, and may widen considerably in fast moving markets. Always a bull market: A trade in the FOREX market involves selling or buying one currency against another. Thus, a bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and a trader profits by selling the currency against other currencies. In either case, there is always a bull market trading opportunity for a trader. Inter-bank market: The backbone of the FOREX market consists of a global network of dealers (mainly major commercial banks) that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The FOREX market operates in a manner similar to the way the NASDAQ market in the United States operates, and thus it is also referred to as an 'over the counter' or OTC market. No one can corner the market: The FOREX market is so vast and has so many participants that no single entity, even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short-lived, and thus central banks are becoming less and less inclined to intervene to manipulate market prices. Unregulated: The FOREX market is generally regarded as an unregulated market although the operations of major dealers, such as commercial banks in money centers, are regulated under the banking laws. The conduct and operation of retail FOREX brokerages are not regulated under any laws or regulations specific to the FOREX market, and in fact many of such establishments in the United States do not even report to the Internal Revenue Service (IRS). The currency futures and options that are traded on exchanges such as Chicago Mercantile Exchange (CME) are regulated in the way other exchange-traded derivatives are regulated.
Forex vs. Stock Market
Why FOREX is seen as "a better" option for investors when compared to Stock Market?This article tries to highlight why FOREX is considered a better option for investors when compared to Stock Market.Profit in an up or down marketUnlike the equity market, with FOREX there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising or falling market.Pay zero commissions or exchange feesNo commission or exchange fees to trade FOREX online or on the phone. In the equity markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FOREX market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic marketplace that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.Up to 50 times the leverage of trading stocksTrading FOREX gives you up to 50 times the leverage of trading stocks. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The maximum leverage is 2:1. But with FOREX, if you invest $1,000 margin on a foreign currency trade, you can control up to $100,000 in currencies.Trade mini contracts for as little as $300Many brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $30 and $200, that can mean an investment of $3,000 to $20,000 or more. But with FOREX, you can invest in foreign currencies for as little as a $300 deposit with mini contracts. The smaller trade size enables you to take smaller risks. The FOREX mini is intended to introduce you to the excitement of currency trading while minimizing your risk. You can try out the demo account and paper trade or you can open up a mini account right now and trade for real. If you like technical trading, FOREX is perfect for youThe strong trends that foreign currencies develop is a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.Analyzing countries is easier than companiesCountries are often more stable than companies and it's easier to predict their overall economic direction. Currencies are traded in pairs, so if a trader buys one currency, he is simultaneously selling the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade should be most-closely examined. Trade 24 hours a dayAfter-hours stock trading is not a very liquid or easy market to trade. But with FOREX, you can trade 24 hours a day in the largest, most liquid market in the world.
How the Retail Spot Forex Works
When you use retail spot Forex software, it only requires an internet connection to trade real-time. No extra data-feed is required. All online Forex brokers’ software is real-time, rather than delayed.If you download a free 30-day demo of the software, you can "practice trade" in real-time with the exact same quotes as a live account. The software is exactly the same, and you receive virtual money for the account. You are then able to enter trades in real time, and monitor them just as though it were a real account. You will experience no difference between the demo account and a live account. When you log onto your trading platform, you see your price quotes, and you simply click on the price to sell or buy. It will ask you how many lots or contracts you want, and then you click ok, and you are in. You can also use the charts they provide with the trading platform; they will reflect the movement of the real-time price of their trading platform. With those charts, you usually have the ability to place horizontal lines where you choose (pivot numbers).Each currency is quoted with a pip spread. This is how the dealer makes his money. With most online retail brokers, there are no commissions. For example, I want to buy the Swiss Franc, and the current quote is 1.7205/1.7210. The dealer will give me the 1.7210 price, and I would start the trade -5 points which equals $30.00. In my trade window, I would see my money change as the market price moves back and forth. As it moves in my favor, my negative position is removed as soon as the market is trading 1.7210/1.7215, or higher. In the spot forex market, it is common for currencies to move 100 to 300 pips/points in a 24-hour session. If you like volatility, there is no currency more volatile than the Franc.If you want to see the software in action, just register for it at fxsol.com, and download a free demo. You will get your password and username immediately sent to you by email.
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