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.
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