Forex Info
WHAT IS FOREX?
The Foreign Exchange Market is the largest investment arena in the world! It’s also called Forex as well as interbank. It is the most liquid market in the world and is traded 24 hours a day, 5 days a week through the interbank currency market, which is the primary market for currencies.
Foreign Exchange simply means the buying of one currency and selling another simultaneously. In other words, the currency of one country is exchanged for that of another. The currencies of the world are on a floating exchange rate, and are always traded in Paris such as Euro / Dollar, Dollar / Yen, etc. In excess of 85% of all daily transactions involve trading of the major currencies- Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dolla
Trading of currencies is not centralized on an exchange, unlike the futures and stock markets. Forex literally follows the sun around the planet. 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 market was not available to the general public due to the large transaction minimum requirements as well as the strongest financial requirements. Banks, major financial institutions and hedge funds used to be the principle dealers. Only they had the opportunity 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, due to deregulation this lucrative market is available to the general public. Forex brokers are now able to offer a variety of investors the opportunity to trade the same rates and price movements as the large players who once dominated the market.
THE HISTORY OF FOREX
At the start, the value of goods were expressed in terms of other goods, ( for example ) an economy based on barter between individual market participants. The obvious boundaries of such a system encouraged establishing more commonly accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.
Initally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmetal IOU's ( I owe you) gained acceptance during the Middle Ages. Such IOU's, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before World War I, most central banks supported their currencies with converitibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessairly a need for full cover in the central reserves of the government.
At times, the growing supply of paper money without gold cover to led to devastating inflation and resulting in political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of World War II, the Bretton Woods agreement was reached on the initative of the USA in July 1944. The Bretton woods Confrence rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT ( General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of World War II searched for a way to avoid the destabilizing monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar- and was intended to be permanent. The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following President Nixon's suspension of the gold convertibility in 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the LARGEST GLOBAL MARKET BY FAR Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their preceived values.
But the idea of fixed exchange rates has by no means died. The EEC ( European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nonetheless, the quest for currency stability has continued in Europe with the improved attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates 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, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency enviroment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day. FAR MORE THAN THE WORLD'S STOCK AND BOND MARKETS COMBINED!!
THE FUTURE OF FOREX
Average daily turn over in traditional foreign exchange market transactions totaled 2.7 trillion in April of 2006 according to I.F.S.L. estimates based on semi-annual London, New York, Tokyo and Singapore foreign exchange committee data. Overall turnover including non-traditional foreign exchange derivatives and products traded on exchanges averaged around 2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign Exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This action is due largely to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly hedge funds and pension funds. As you can see this is not a trend. It is a tried and true investment strategy. The future of the Forex shines brighter than ever as it is becoming extremely discernable to all that it is the financial destination of returns now and beyond, as well as a necessary part of every investor’s portfolio.
FOREX VS. EQUITIES
Any novice Forex trader questions himself sooner or later – "Why did I choose the Forex market, is it definitely the best financial market for me?" Usually this question arises from curiosity and nothing else, but curiosity to needs to be satisfied.
In the next two articles our team will point the evident advantages the Forex market has over other well-known financial markets, starting with the famous US equities market. Any person with a feel for economics and trading experiences some sensation to the sound of Wall Street, but does it truly measure up to the colossal Forex market?
First, the key benefit that the Forex market offers is its 24-hour accessibility, 5 days a week. When you are trading Forex it doesn’t matter at all whether it is 5am or 5pm. Time differences and market dynamics make sure there will always be an eager trader somewhere around the globe looking for a deal. This feature gives you the privilege to respond to any financial developments, as soon as they transpire. Furthermore, the prices of Forex can not be affected from after-hours trade.
An additional key aspect of the Forex market is its unmatched liquidity. This legendary liquidity is derived from the market's immense size, more than 50 times larger than the total trade in the US stock exchange. None the less, it's seemingly impossible size, which sometimes creates certain repulsion, and its liquidity creates stability like in no other market. The Forex market is one of the most solid financial markets throughout the modern financial history.
The leveraging that Forex brokers present is significantly better than any possible offer you can find on the equities market. The margin that our Forex firm can offer is extremely larger than the standard 2:1 you'll get from your equity broker. The margin you get while trading Forex can go even up to 100:1, and in some cases even 200:1, making any size investment substantially profitable. "Increasing leverage increases risk"
FOREX VS. FUTURES
Foreign exchange is the principal market of the world. Everything we do is valued in money, from physical goods to time spent to services performed. Money is the root of all pricing and is the basis of all trading. For example, in the futures market, if you wanted to trade coffee from Mexico using U.S. dollars, you would first have to convert your dollars to pesos. Since you have to start by exchanging a currency to trade something in a foreign market, Forex is considered the principal market, and it is the one on which all others are based.
Futures traders often find it easy to make the transition into Forex Trading. Market liquidity, pricing structure, and open hours are just some of the differences.
FOREX VS. REAL ESTATE
In the Real Estate industry regardless of what infomercials have to say, it cost a great deal of money to get involved. Even the “No Money Down” systems expose you to an amazing amount of risk. Whether you put money down or not, you are responsible to pay for the product you are purchasing. If it becomes a task to find a way to produce revenue from your investment quickly, you’ll be paying a mortgage payment. It only takes a few months of mortgage payments to turn “No Money Down” , to “Some Money Down”, to “No Money Left”. Another fallacy repeated on infomercial after infomercial is that it only takes a few hours a week to begin making money in Real Estate. We don’t want to speak for anyone else but whom do they think they’re kidding? So as you can see to break into the Real Estate business requires a major commitment of time. Most of which has to happen between 9am and 5pm. The fact is, you cannot speak to a Realtor at 3:00 in the morning. Everything you do has to be around someone else’s schedule which means 40 hours of work could take you 4 weeks. Those same 40 hours in the Foreign Exchange Market is less than two days! The Forex trades 24 hours a day, 5 days a week and is the most liquid market on the planet in contrast to Real Estate as previously explained. Unlike Real Estate, your liquidity is never a concern whether it pertains to ten thousand dollars or one hundred thousand dollars your money is available to you within 24 to 48 hours. It’s as simple as that.
FOREX ADVANTAGES
The best way to clarify the advantages of the Forex market is through a real example. In 1929 the stock market collapsed causing many people and businesses from around the world to go broke. This also happened when the high tech bubble burst. The fear if a market crash is a concern that constantly dwells in the minds of investors, both professional and beginners. In the Forex trading market, there is no way for the market to crash. The rate that you see is the "exchange" rate which means when you are buying one currency, you are simultaneously selling another currency. When one currency price falls, another rises.
Here are some other advantages of the Forex trading market:
- OPEN 24 HOURS PER DAY, 5 DAYS A WEEK: Because it's worldwide and operates in several time zones, the Forex market is the only market that you can trade 24 hours a day, 5days a week. If the typical trading day is 8 hours in other markets, then in any given day it gives us 3 times the opportunities in that same 24 hour period during those 5 days. Not to mention that it also allows you to immediately take advantage of a global event regardless the time. Investors in other markets often have to wait for their market to open, which of course is usually too late.
- YOU CAN CHOOSE THE SIZE OF YOUR INVESTMENT: The Forex trading lot is dynamic, and set according to your preference. This lot can vary between large lots of $100,000 to mini lots worth $25.
- NO MIDDLEMAN: We deal directly with the pricing market agent.
- TRADING WITH LEVERAGE: Trading with leverages increases your potential profit/loss by increasing your moneys worth. This allows certain clients to take a more aggressive approach when wanted. "Increasing leverage increases risk".
- HIGH LIQUIDITY: In the Forex trading market you can buy and sell your currency at anytime and place, regardless of the currency position, and the trade is done almost instantaneously.