FOREX TRADE

The Main Principles of Trading

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In contrast to exchange transactions with real supply or real currency the participants of FOREX use trading with a margin deposit; i.e. marginal or leverage trading. In marginal trading, each transaction has two obligatory stages (they can be divided by period of time, which can be as long as you like): buying (selling) of currency at one price, and then selling (buying) it at another (or at the same) price. The first transaction is called opening the position, the second one, closing the position. Opening a position, a trader furnishes a deposit sum from 0.5 to 4 per cent of the credit line, granted for the transaction. So, in order to buy or sell 100,000 US dollars for Japanese yens, you will not need the whole sum, but only from 500 to 2000 US dollars depending on your policy of controlling risks. When the position is closed, the deposit sum returns, and calculation of profits or losses is done. All the profit or losses caused by the change of currency rates is credited on your account.Let's take a concrete example of getting a profit from the changing the rate of the Euro, from 0,9162 to 0,9292. If you have anticipated this change by using technical or fundamental analysis, you can buy the Euro cheaper for dollars, and then sell it back at a higher price. For example, if you choose leverage 1:100, then 99,000 dollars of the credit line, granted by the Internet broker, is added to 1000 dollars, and you buy the Euro at the price of 0.9162. As a result of this transaction we get: $ 100,000 / 0.9162 = Euro 109.146, 47.When the rate changes (an average daily change of Euro is about 70 to 100 pips), you close the position and sell the Euro for dollars, but at the rate of 0.9292. You get 109,146. 47*0.9292 =101,418.89 dollars. Your profit is $ 1,418.89. The same transaction with leverage 1:200 would give you $2, 837.78 of profit, with leverage 1:50 the profit would be 709.45, with leverage 1:25 - 354.72.We'd like to remind you that the higher the credit leverage, the higher is your profit if the fluctuation of the currency rate was anticipated correctly. However, if your anticipation was wrong, your losses will be bigger.One cannot feel confident in the FOREX market without a thorough knowledge of the terms used there.Foreign exchange quotes are a relation between currencies. USDCHF - the cost of $1 in Swiss Francs. USDJPY - the cost of $1 in Japanese yens. EURUSD - the cost of Euro 1 in US dollars. GBPUSD - the cost of 1 GBP in US dollars. That is, quotes are expressed in the units of the second currency for a unit of the first one. For example, quote USDJPY 108,91 shows that $1 costs 108,91 Japanese yens. Quote EURUSD 0.9561 shows that 1 Euro costs 0.9561 US dollars. The last figure in the quote is called "pip". The cost of the pip is different for every currency, and depends on the leverage and current quote.The formula for calculating 1 pip is: 100,000/current quote without commas * Kwhere К=1 at leverage 1:100,К=2 at leverage 1:200,К=0,5 at leverage 1:50,K=0,25 at leverage 1:25. Examples: USDJPY = 108.91 leverage 1:100100.000 / 10891 х 1 = 9,18 USD EURUSD = 0.9561 leverage1:200100.000 / 9561 х 2 =20,92 USD GBPUSD and EURUSD are direct quotes, i.e. when the chart goes up, GBP and EUR become more expensive, and when it goes down, the currencies become cheaper. USDCHF and USDJPY are backward quotes, and when the chart grows, prices on CHF and JPY fall, and when the chart goes down, the prices grow.On direct quotes you buy according to ASK and sell according to BID. With backward quotes, you buy according to BID and sell according to ASK . Trading in the FOREX market is realized in lots. When you open a position, you can choose the number of lots you want from 1 to 10. One lot equals $ 100,000. The deposit sum for one lot will vary from $500 to $2000, depending on the credit leverage you choose. Leverage is a financial mechanism that allows crediting speculative transactions with a small deposit. We give you an opportunity to choose a credit leverage in the range of 1:200 to 1:25.In the course of trading you can fix your profit or cut off your losses according to the commands LIMIT and STOP that have been set up.LIMIT is set up higher than the current meaning of the price.STOP is set up lower than the current meaning of the price.With these commands the positions is closed without additional orders when the price reaches the agreed level.In the process of trading you can create pending positions, that will be activated when the price reaches the agreed level (open price). When creating and closing orders, a temporary delay occurs, and lasts for about 30 to 40 seconds. When you make an inquiry, you are given a real market price, which is the current price at the moment of proposal, not at the moment of inquiry.The process of trading is described in detail in section Description of the Trade Terminal.The main terms that characterize the account: Deal, realization of 2 trade transactions, when currency is bought (sold), and then the reverse conversion is realized. Balance, the sum on the account of a client after the last transaction is conducted. Floating Profit, the current profit on open positions. Floating storage, fee for postponement of an opened position over midnight GMT. Equity = Balance + Floating + Floating storage. Margin requirement, a necessary deposit sum calculated according to the formula 100,000 / K + 100,000 / K, where K = leverage, and the number of items equals the number of open positions. Percentage, index of an account. Percentage = Equity / Margin Requirement. At Percentage lower than 50 % it's impossible to open new positions. Margin call, condition of an account when all opened positions are closed by the Internet broker according to current quotes. It occurs at a Percentage lower than 10%. Please note that contrary to the majority of other companies, in PRO-FOREX.com price levels of client's orders may differ from the current price only by 5 pips. However, very rarely are orders executed worse than requests, because of the high market volatility.

Conditions of work

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The Internet broker PRO-FOREX.com gives an opportunity to work 24 hours a day on four major currencies against the US dollar (British Pound, Euro, Swiss Frank, Japanese yen) on the spot, i.e. according to the current prices on the international FOREX exchange market.Minimum deposit $1000 Leverage 1:25, 1:50, 1:100, 1:200 (trader's choice) Spread 3 pips (EURUSD and USDJPY)4 pips (GBPUSD and USDCHF) Measure of the lot $100.000 Carrying the position over midnight $8 Minimum volume of entering the market 1 lot (4 lots with leverage 1:25) No fee is taken for deals. If there were no deals closed during a month, $15 should be paid. Beginning of workTo begin working on the FOREX market via our company you should- read the following documents: SERVICE AGREEMENT REGULATIONS FOR EXECUTING TRANSACTIONS ON THE EXCHANGE MARKET RISK INFORMATION - accept all the rest of the necessary documents directly in the Internet, having filled in the respective registration form.If you haven't ticked the point "I wish to start working at once, accepting the documents here", then a package of documents (in two copies) will be sent to you by registered mail. We'd ask you to sign the received documents and return one copy to the address:VIGRI Ltd.12 Laki St.Tallinn, 10621Estonia- place a margin deposit. This can be done by a bank money order. The money will be placed on your subaccount on the account VIGRI Ltd. (trademark: PRO-FOREX.com) in AP Anlage & Privatbank AG (Switzerland).

What is the difference between a demo account and ...

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PRO-FOREX.com recommends that all its clients start trading with a demo account before opening a real account. It does not matter if you are an experienced trader in the FOREX market or not, because it's very important to get acquainted with the software and trading procedures via the Internet first, before selecting any trading strategy. The simplest way to learn the system is by using a demo account before opening a real account. xxx 1 xxx 2 xxx 3 xxx 4 xxx 5 Below we'll enumerate the main differences between working with a demo account and a real account. 1. In demo trading your PC will be your dealer, it will always open or close your position automatically according to the current rate. In real trading, one of our professional dealers does it by hand. 2. In demo trading, there'll be practically no delays between your inquiry and offer of the exchange to open or close a position, but in real trading the delay may take 30 to 40 seconds.3. In demo trading you have no risks, and when your account expires, you can easily add any sum. To do that you should enter the user zone with the help of your account and password (Section "Demo Account").4. If you use a real account, it may so happen that the market moves while you are closing your position according to a certain rate. In this case your order may be not fulfilled, and you'll receive an offer to close the position according to another (current) rate.5. One should note that the so-called rubbish quotes (as a rule, these are single bounces for 30 or more pips from current quotes) are accepted by the computer as real ones on a demo account, and therefore they participate in the quote system. In a real account they are ignored.6. If sometimes you feel that you cannot enter or exit your positions quickly enough via the Internet, you can call our exchange. To place your order via phone you should name your account number, password and the pair of currencies you are interested in. The dealer will tell you the rate in both directions, and after that you'll have about five seconds to make up your mind if you want to buy or to sell. Our dealers will not negotiate; the rate they tell you is the only rate at which you will be able to place your order at the moment.7. Exchange rates are very changeable, very often the market 'jumps up' or 'falls down' for several pips. For example, between two quotes there can be a five-pips difference. The speed at which you enter your order into the system may influence the rate according to which you can enter the market. This is one of the many factors that influence the results of your trading.8. The psychology of a player with real and 'virtual' money is different, but it's inevitable.xxx 6 xxx 7 xxx 8 xxx 9 xxx 10 In PRO-FOREX.com we think that all the traders should act according to a certain trading plan. Before placing an order you should decide at what parameters you are going to enter and exit it. Before setting up these parameters you should think about the answers to the following questions: How big is the sum that I could risk? What ups and downs of the rate could I stand? What are the conditions of the market & is the market changeable or stable? When will I know if my anticipations and logic in opening the position are right? But it's not enough just to have answers to the questions. We think that in order to be a successful trader you should make up a distinctive plan and follow it afterwards. Many people are able to make up perfect plans, but they lack the discipline to realize them. In real trading, when your own money is at stake, sometimes it so happens that emotions prevent you from realizing a possibly absolutely correct trading strategy.But in the system of demo trading such emotions and mistakes do not occur. We think that this is the main psychological difference between demo trading and real trading, which shows that it's necessary to learn to control your emotions when working with a demo account and transfer this convenience to your further professional activities.PRO-FOREX.com sincerely wishes you to acquire all the subtleties of trading as soon as possible and successful work in the future.

FAQ and answers to them

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1. How to open a real account?To start working with the Internet broker PRO-FOREX.com you have to enter into a contract with us as well as an Addendum to it. For the details click here.2. Where should I transfer deposit?When all the necessary documents are accepted, you'll be sent the bank requisites as well as the requisites in the system of Internet payments Webmoney.ru. You'll be able to select the method for transferring the money. If you execute the contract through the Internet, the number of your subaccount will be sent to you by E-mail. In case we exchange the documents by fax, the number of the subaccount will be faxed to you.3. Can I use the subaccount as a usual bank account?No, you can not. The money on the subaccount is used only as your margin deposit for trading in the FX.4. Will there be accumulated interest on the money in the subaccount?Yes, PRO-FOREX.com adds interest to the money on the deposit. Interest is added on the minimum balance in the subaccount at 1 per cent per annum.5. How to transfer the money from my subaccount to some other account?You'll have to mail or fax a written order in a free form with the sum that you want to transfer and the requisites of the account into which you want to have the money transferred.6. How much can I gain if I start trading in the FOREX market with a minimum deposit?Everything depends on the level of your experience. Very few professionals reach the level of profit 10 to 20 per cent a month. Most successful traders make 2 to 10 per cent a month. The level of profit depends on the sum of the margin deposit. It's sufficient to double or even treble the minimum deposit within a short period of time, but if the deposit is average or big, it's practically impossible to do it. You shouldn't forget that high profits are proportional to high risks.7. What are the business hours of the FOREX market and PRO-FOREX.com?The working hours of our company coincide approximately with the working hours of FOREX. We accept trading orders 24 hours a day from 11:00pm CET on Sunday to 10:00pm CET on Friday except during red-letter days in Europe.8. What is the difference between the work of real and the work of demo accounts?Yes, indeed, there are some differences. For details click here.9. Are there any limitations for the period of keeping an opened position?No, there are not. The client pays $8 for deferring the position over midnight (GMT).10. How to conduct transactions if access to the Internet is impossible?You can always continue trading via the phone. Our dealer on duty will take your orders 24 hours a day from 11:00pm CET on Sunday to 10:00pm CET on Friday except during red-letter days in Europe. For details about trading via the phone, click here.11. How long is the period of time between sending an inquiry about a quote and receiving an answer from the PRO-FOREX.com dealer?Usually a dealer supplies the information in 30 to 40 seconds, if the inquiry was sent through the Internet. (On a demo account, the delay is 10 to 15 seconds). If the inquiry was made via the phone, the answer will be given in 5 to 10 seconds.12. Many brokers give different quotes in real and demo trading. What about PRO-FOREX. com?Quotes in real and demo trading are absolutely the same.13. How near to the real price can you set up Stop and Limit orders?Stop and Limit orders can not be set up nearer than at 5 pips from the current quote. However, you should know that if the movement in the market is strong ( this happens very seldom), your level of Stop or Limit orders and the level on which the order will be fulfilled may be different.14. Can I turn to the dealers of PRO-FOREX.com for recommendations about my activities in the FOREX market or about the situation in the market?No, you cannot. We do not take any responsibility for forming your market strategy. We are mediators, not a consulting company.15. Can I change leverage as I wish?PRO-FOREX.com gives you an opportunity to choose the leverage for each new position you are opening. You can choose out from the following variants: 1:200, 1:100, 1:50. It's allowed to use a leverage of 1:25, but then the position must consist of 4 or more contracts.16. How many pips are there in a spread?A spread in a quiet market contains 4 pips.17. Why are your quotes different from the ones given by Reuters or Knight Ridder?The quotes you can see on these sites and on many others are given for information, but the prices you can see in the windows of our programs are given for trading; i.e., our company is ready to trade at these prices at the moment. Dealing prices in the windows of PRO-CHARTS are a more truthful reflection of the market, because real transactions are being concluded at these prices at the moment.18. Which configuration of the computer do you recommend?The new trading program has been designed for most standard computers. We recommend 64 MB RAM, 450 MHz. Any processor, such as Celeron or Pentium III. Also a modem 56k or equipment DSL or T1. Resolution of the monitor should be at least 800 x 600 pixels, and for working with the terminal the resolution of 1024 x 768 pixels is advisable. We recommend using a Browser

FOREX

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For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.How FOREX WorksTransactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.Marginal TradingMarginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.Investment Strategies: Technical Analysis and Fundamental AnalysisThe two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.Make Money with Currency Trading on FOREXFOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.

Top 100 Forex Resources

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The average daily forex trading volume currently exceeds $1.9 trillion. With so much on the line, we've put together a list of our favorite 100 forex resources to help you become a knowledgeable forex trader. The following resources were chosen for the quality of information and training tools offered. Although some of these tools are located on commercial sites, you'll find value in materials produced by professionals. Other sites were chosen for the resources that they offered for a price (like books), but they're all geared specifically toward the forex trader. The chosen sites are written in the English language, but some individuals, businesses, and organizations are located in areas other than the United States. All sites are listed in alphabetical order within the following categories:Topics Covered in this ArticleBeginner's Paradise Blogs & News Charts Currency & Currency Converters Directories & Portals Economic Calendars & Indicators Fibonacci & Candlesticks Forecasts and Signals Forums and Communities Glossaries Market Reports Nonprofit Associations Practice Real-Time Quotes Technical Indicators X-Tras Beginner's ParadiseIf you're a forex newbie, the following sites will help you get a grip on the similarities and differences between forex trading and stock exchange trading. Take advantage of free resources before you dedicate any serious cha-ching to training.Action Forex — Learn about the forex market through free e-Books, news, insights, and much more.Currency College — Currency College delivers a variety of course offerings with classes that are held at the student’s convenience. Each class is followed by homework and tests; each course lasts about six weeks; and each class contains about ten students. Emphasis is given to risk management. This is not free education, but if you bring referrals to Currency College you could earn a scholarship toward your tuition. This site has plenty of free resources, however, like a comparative chart for various trading platforms so you can make an educated choice about trading platforms.CyberTrading University — This site offers free forex training through a two-hour video that includes a brief history, PIP spreads, majors and crosses, economic indicators, fundamental analysis, technical analysis, short-term long-term fundamentals, trading rules, leverage and margin, trading psychology, Fibonacci Retracement Levels, moving averages, oscillators, Candlestick Charts, Bollinger Bands, and more.Forex Charting 101 — A brief and basic overview of forex charts from Pip Trader. You'll discover that the charts are very similar to those that you might use for securities trading. But, some of the charts may seem more complicated if you're not a seasoned trader.Forex Realm — Possibly the most comprehensive and thorough forex education online. Learn about everything from currency codes to exotic trading strategies through articles, graphics, and concise examples.Forex-Training.com — Fairly comprehensive training with a free demo account. The highlight to this site is their explanations about various charts.FX Home Trader — Focus on the information about technical analysis, where you can learn more about Fibonacci Trading, Pivot Points, and more. Their Forex Facts also contain some valuable information.FX Power Trading Course — Offered by FXCM, this paid course is one step up from free at the current price. Learn how to time the market, recognize trends, and basics in fundamental and technical analysis through this eight-day course.Investopedia on Forex — An extensive 10-part article on forex investing, from an introduction to a recap that covers everything from benefits and risks to technical analysis. If you can't get enough of Investopedia's information, head to a list of their Forex articles, where you can learn more and download their free e-Book entitled, "High Probability Trading Setups for the Currency Market."Law of Charts — Joe Ross offers advice for traders across the board, but the information contained in his "Law of Charts" offer speaks to forex as well as any other trading strategy. He identifies chart patterns that result from human behaviors and points to entry and exit targets on those charts. You can take advantage of Ross's other tools as well, including the forum.Learn4X — This is an interesting site simply because it contains several tests that help you determine if you have the 'guts' and knowledge to be a trader. They also offer a free online seminar.Market Traders Institute (MTI) — You don't need to spend a lot of money to train in forex markets. MTI offers many free resources such as videos and lesson plans that will help you get off the ground. If you like what you hear and see, you can invest in materials for the advanced trader down the road.My Forex Trading Tools — A site that contains overviews on everything from fundamentals to options.Online Training Academy — Free basics on FX trading via video, offered by Mike McMahon. You need to register, but you can opt out of contact lists with a click of a box.School of Pipsology — A lighthearted forex education from Kindergarten to College so the beginner knows exactly where he stands in an attempt to grasp the forex market.Back to index Blogs & NewsThe following list provides a variety of news from both professional and single-investor resources.A Forex Loser — The name of the blog ought to warn you. This blog contains a different perspective on trading, with an emphasis on trading psychology. Some great trading tips.Currency Secrets — Not updated daily, but plenty of resources in historical entries. The focus is on currency, but you can find plenty of reviews and tips here as well.DailyFX — Sponsored by Forex Capital Markets (FXCM), this site offers a free weekly trading lesson and free quarterly outlook reports.Forex News — At-a-glance links to news and analyses.Forex Project — A fascinating blog written by a forex beginner who logs his experiences in a journal, through established goals, and with a full trade history. This blogger currently is under pressure from a fulltime job, and he's considering a transition from day trading to going long on his investments. Should be an interesting read. Be sure to check out this blogger's list of references, including a nice beta risk calculator.Forex Reader — Daily currency trading news and commentary.FX Boot Camp — Wayne McDonell offers his boot camp theories for free at his blog on FXStreet (see next).FXStreet — Breaking news, commentary. Sponsored by Global Forex Trading (GFT).Peter Bain Forex Trading Commentary — Peter Bain's commentary needs to be good, as it's a tool to push his training course. You can take advantage of his free podcasts as well.Piptopia — This is Rob Booker's blog on forex. He's a currency trader and trainer and he's been at this blog for two years, so you'll find some interesting history here.Grace Cheng's Forex Blog — "Not long after my graduation, I was introduced to forex trading, and since then, have never looked back." Outside of her blog, Cheng writes for a number of trading and investment magazines.Quantitative Trading — Dr. Ernest Chan's take on automated, statistical trading strategies.Trader Mike — Michael is a trader, and this blog is a trading journal of sorts. Although he considers himself a swing/position trader, he switched to day trading in 2005. Although this blog doesn't focus on forex per se, you can learn plenty about trading strategies here.Back to index ChartsYou can't trade without charts, but the chart that you use is a matter of personal preference. The list below provides a nice pool to pick from:DailyFX Chart — You can manipulate this chart by type, time scale, view, and much more. Java based.Free Forex Charts — From simple to Premium to System Trading, simply the best choice of charts around.Forex-Market — This site offers two free, real-time charting applications, one Web-based and the other a stand-alone Java applet.Live Currency Chart — This chart, offered by FXStreet (see Blogs & News above), is also Java based. A nice feature is the Drag&Drop that allows traders to pull indicators out of the Studies window and up into the Chart window.Back to index Currency & ConvertersCurrencies can be confusing, especially when you learn that many lots are purchased in pairs. You can learn about specific currencies when you type the names of that currency into a search engine. For instance, you can learn more about the Euro at that currency's official site. But, if you don't know what to look for, the information found in the following sites will help you out:ADVFN Forex Symbol Table — Comprehensive list of currencies. When you click on the currency symbol you'll reach a page where that currency is represented through currency exchange rate tables and historical exchange rate charts.ExchangeRate.com — Try out the "hot" and "currency info" links that provide information about everything you'd want to know about worldwide currencies for 170 countries. Includes calculators, fun facts, serious facts, and more.Go Currency — Reliable currency converter and money conversion service.List of Currencies — This is an extensive list provided by Wikipedia that covers everything from ancient coinage to the current Yen. As with most Wikipedia lists, you might run across a link or two that doesn't contain information. But, you can use that information to search elsewhere if needed.Oanda — Excellent set of currency converter tools from historical currency exchange rates for over 164 currencies to traveler's cheat sheets to customizable products. Visit their detailed currency converter FAQ page if you have questions.X-Rates — More than a currency list or a converter, this site will bring you up-to-date on every bit of information you'd need to know as a forex trader.XE.com — A basic currency converter backed up by other tools on this site, such as current and historic rate tables and a free email currency update service.Back to index Directories & PortalsThe following resources offer choices beyond the ones listed here. Since forex is a booming individual trader industry, expect to find new sites popping up weekly.Earn Forex — A limited list, but some great resources broken down by category. This list is just one feature to this site, as you can access calculators, a blog, and information for beginners here.Forex Bastards — Don't let that empty page or the name put you off. Click on other categories to find some interesting resources. This is a project in the making, brought to you by the Secret Forex Society.Forex Central — You want it? They have most of it (blogs are missing). Resources aren't rated.Forex Directory — This site is a little difficult to slug through, but worth it for the resources provided.Pip Trader — This site contains a forum, live quotes and charts, news, reports, and a "mini-game" that has nothing to do with forex, but that might help you lighten up a bit.Top 100 Forex Sites — Although these sites are rated by popularity and, therefore, subject to rating scams, you can learn much from the sites that are listed simply from the variety of information that's offered here. Many sites are brokerage firms, but as I mentioned previously you can find free information on many of these sites such as news, calculators, techniques, and more.Back to index Economic Calendars & IndicatorsEconomic calendars and indicators are vital tools for fundamental research. The sites below will give you simple and detailed options.Economic Indicators — A government site brought to you by the Economics and Statistics Administration at the US Department of Commerce. Their mission is to provide timely access to the daily releases of key economic indicators from the Bureau of Economic Analysis and the US Census Bureau.Forex Economic Calendar — What better place to find an excellent economic calendar than a site that focuses on this tool?Global Forex Trading (GFT) — A detailed look into the next month's international monetary future based on GMT.InfoForex — Brief overviews on various sectors from Auto and Truck Sales to a Monthly Wholesale Trade report based upon the US Census.Back to index Fibonacci & CandlesticksFibonacci and Japanese Candlestick charts may seem difficult, but with the right training you can master both technical strategies.Fibonacci — This is the home page for Dr. Ron Knott's multimedia Web site on the Fibonacci numbers, the Golden section and the Golden string hosted by the Mathematics Department of the University of Surrey, UK. Simple to use, easy to understand, and filled with illustrations to help you learn why some numbers are so important to nature. These numbers are also of vast interest to many forex investors.Fibonacci Forex Indicators — Forex Planet will begin to show you how to apply Fibs to forex in this easy-to-understand lesson. But, the lesson is short, so you might try the next resource as well.Fibonacci Method in Forex charts — This lesson also applies to forex, and it offers a short tutorial on applications along with a downloadable Fib calculator.Japanese Candlesticks — FX Words offers a simple and succinct explanation for candlesticks, including bullish and bearish patterns.Japanese Candlesticks (Elliott Gann) — A comprehensive tutorial that covers all the basic terminology and explains each term with appropriate graphics, offered by the ElliottGann site.Japanese Candlestick Trading Forum — It costs to become a member, but you can access all the candlestick basics for free on this site.Back to index Forecasts and SignalsThe following resources use a mix of fundamental and technical analyses to formulate their prognoses:AceTrader — True 24 hours real-time analysis for up-to-the-minute recommendations and analysis.e-Forex — Free trading signals. Dig into their historical records to understand their precision.Forex Predictions — Currently free daily and weekly high-low signals through the Web site and by email. This site is a division of RDC Bancorp, Inc., a foreign exchange services company.Forex Signals — FinoTek provides signals and trends with charts. Check out their archived signals to determine credibility.Investica Ltd. — Online information and free e-newsletters filled with signals and forecasts.Open Forex — Daily forecasts in real trade and analytical articles on forex basic currency pairs.Back to index Forums and CommunitiesForex Factory — You'll find a Forex Beginner Q&A section as well as topics that focus on specific strategies and techniques.Forex TSD — Go ahead and lurk in this forum until you feel comfortable. Then register for free to access the forum and a calendar. The paid "elite" subscription offers detailed statements of currently more than 20 trading systems.Global View Forums — Another free forum that's been around since 1996.MoneyTec — With over 33,000 members, this traders' forum offers a format to discuss trading ideas, share, learn, and build new trading techniques and strategies.Back to index Fundamental ResearchThe following list contains comprehensive information about economic fundamentals for your research:Bureau of Economic Analysis (BEA) — Get the straight stuff from the US Department of Commerce like the pros. Everyone from the White House staff to US Trade Commission employees to trade policy officials who want to negotiate international trade agreements use the measurements contained on the BEA Web site.Consumer Price Index (CPI) — The US Department of Labor offers a ton of information just on this page alone through their links.Forex Daily Fundamentals — XpressTrade offers a daily focus on forex fundamentals.The Bank for International Settlements (BIS) - An international organization which fosters international monetary and financial cooperation and serves as a bank for central banks. As such, this organization offers valuable information through their publications and research as well as through many other resources offered on this site. They also maintain a list of Central Bank Web sites.The Fundamentals of Forex — Forex TV brings you the lowdown on what type of news would affect forex from a fundamental standpoint. You can use the information on this list to conduct further research.GlossariesForex Glossary — The only drawback to this glossary is that the "A-Z" tab doesn't include a total listing of all the terms under the single-letter tabs. Comprehensive.Forex.com Glossary — An at-a-glance glossary contained on one page.Glossary of Forex Terms [PDF] — This printable file, offered by FX International Group, contains all the basics.Back to indexGovernment RegulationAustralian Securities and Investments Commission (ASIC) — The ASIC's regulatory coverage includes the forex market. Use their search box to learn more about their reach and responsibility.Commodities Futures Trading Commission (CFTC) — The CFTC operates along the same lines as the SEC (Securities and Exchange Commission), except this government organization focuses on protecting market users and the public from fraud in the futures and option markets. So keep this site handy to stay on top of any forex scams through their Consumer Advisory on Forex Fraud. You can learn quickly what to avoid in your learning curve through a detailed forex advisory that offers information about other resources as well.Financial Services Authority (FSA) — An independent non-governmental body located in the UK, given statutory powers by the Financial Services and Markets Act 2000. Use their search box to locate information about the UK forex market and regulations.National Futures Association (NFA) — The NFA is "the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets," which basically means that this organization regulates any market that depends upon future cash flows. The "investor information" section contains materials about how to find a broker and basic lessons in forex trading. Plus, they publish forex warnings, news, and they offer a place for investor disputes and complaints.Back to index Market ReportsKBC [PDF] — A Comprehensive "Morning Report" from this Belgian foreign exchange bank (in English).Mellon — FX Daily report from Mellon Financial Corporation, with links to American and European editions and past issues.SaxoBank — Daily market update from this foreign exchange service in London.Scotia Capital [PDF] — Daily report with corresponding links for further reading from this Canadian foreign exchange bank.UBS — Daily summary for forex markets sponsored by this Swiss foreign exchange bank.Back to index Nonprofit AssociationsAustralian Technical Analysts Association (ATAA) — A non-profit association of both professional technical analysts and anyone who uses technical analysis for private investing, trading or advising.International Compliance Association (ICA) — The ICA is a professional organization dedicated to the furtherance of best compliance and anti money laundering practice in the financial services sector.The Financial Markets Association (ACI) — ACI has the largest membership of any of the international associations in the wholesale financial markets. The Head Office is based in Paris.Back to index PracticeSome of the best demonstration tools are owned by forex brokerages. The following were chosen for their reliability and popularity. Be aware that some brokerages will request your permission to be contacted by mail, phone, or email. In some cases you might want this contact, as they will provide support for your training. In all cases you can walk away if their training and trading platforms don't turn you on.CMS Forex — Customize your practice with unlimited funds on CMS Forex's VT Trader 1.8.5.1, a program that includes an API so that you can customize your solution. This software offers a point-and-click open and close positions directly on the chart. Access over 100 indicators, Reuters Forex related news and market analytics, and an "autopilot" feature. You can reach their customer support team by phone, live chat, or e-mail.Forex Trading USA — Free 30-day demo with a Mini ($2,000 virtual cash, 200:1 leverage, 10k lot size) or Standard ($25,000 virtual cash, 100:1 leverage, 100k lot size). Their free education is a nice plus.FXSolutions — Use $10,000 in practice funds with full access to FXSol's new charting solution, FX AccuCharts. Backed by 24/7 customer service.Global Forex Trading — Download their DealBook 360 to practice forex trading with live, dealable prices, real-time data, and free real-time breaking world and financial news. The software features forex charts, more than 85 technical indicators (for standard size GFT trading accounts) and the ability to build your own indicators. You have a choice about the amount of beginning funds, from $2,500 to $50,000.Back to index Real-Time QuotesACM — Pick pairs and watch the quotes. ACM includes a manual [PDF] that explains in detail how to manipulate the chart to your liking. Must have Java plugin.Forex Trading Charts — Real-time forex quotes. This site also contains real-time forex charting tools with editable indicators.FXQuote — Scroll down the page, as the real-time quotes are located at bottom left. Based upon ET.Live Forex Quotes — You might recognize the GFT logo behind the rates, but don't let that distract you from the constantly changing figures. If you're addicted to live feeds, you'll be mesmerized by the constantly changing currency rates on this chart.SaxoBank — Scroll down the page a bit, as the quotes are located at the bottom left on this page, based upon GMT.Back to index Technical IndicatorsThe following three resources offer the most succinct information about technical overlays and indicators. You can find many more resources at some of the sites previously listed under the Beginner's section, under many of the Blogs & News resources, and at various brokerages.Forex-Business Technical Indicators — Where the other two sites offer great technical indicator explanations, this site offers 10 charts that illustrate some of those terms.IQ Chart — This company offers a list of technical overlays and indicators with short and easy-to-understand explanations. Take a look at their chart patterns while at this site, as this company is a provider of stock charting software to individual investors and technical analysts.Technical Indicators — Definitions provided by MetaQuotes Software.Back to index X-TrasIFXTAG — The International Forex Traders Affinity Group provides individual investors access to products and services that are evaluated by top professionals and their members. IFXTAG is committed to harnessing the potential to make electronic trading work for their global community of subscribers. Membership is free, but the resources are not. Members, however, do receive free trials and discounts to various services.Secret Forex Society — A 'closed' forum and educational site where members ask you to join or you can ask to be placed on a waiting list. Go ahead and trust them. Get on the waiting list so you can access some interesting information.Traders Press, Inc. — An online bookstore specifically for traders.

2007-06-28T09:25:00.000-07:00

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe currently exceeds US$1.9 trillion/day (on average). Retail traders (individuals) are currently a very small part of this market and may only participate indirectly through brokers or banks.
Contents[hide]
1 Market size and liquidity
2 Market participants
2.1 Banks
2.2 Commercial companies
2.3 Central banks
2.4 Investment management firms
2.5 Hedge funds
2.6 Retail forex brokers
3 Trading characteristics
4 Factors affecting currency trading
4.1 Economic factors
4.2 Political conditions
4.3 Market psychology
5 Algorithmic trading in forex
6 Financial instruments
7 Speculation
8 References
9 See also
10 External links
//

[edit] Market size and liquidity
The foreign exchange market is unique because of:
its trading volume,
the extreme liquidity of the market,
the large number of, and variety of, traders in the market,
its geographical dispersion,
its long trading hours - 24 hours a day (except on weekends).
the variety of factors that affect exchange rates,

According to the BIS study Triennial Central Bank Survey 2004, average daily turnover in traditional foreign exchange markets was estimated at $1,880 billion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
Global foreign exchange market turnover:
$621 billion spot
$1.26 trillion in derivatives, ie
$208 billion in outright forwards
$944 billion in forex swaps
$107 billion in FX options.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Average daily global turnover in traditional foreign exchange market transactions totalled $2.7 trillion in April 2006 according to IFSL 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 is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market.[1]
Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. Other large centres include the US (with a 18.2% global share), Japan (7.6%) and Singapore (5.7%) (Chart 2). Most of the remainder was accounted for by trading in Germany, Switzerland, Australia, Canada, France and Hong Kong.
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 0-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $100,000.
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 1.5 pips.

[edit] Market participants
Financial markets

Bond marketFixed incomeCorporate bondGovernment bondMunicipal bondBond valuationJunk Bond
Stock MarketStockPreferred stockCommon stockStock exchange
Foreign Exchange MarketRetail forex
Derivative marketCredit DerivativeHybrid securityOptionsFuturesForwardsSwaps
Other MarketsCommodities marketOTC marketReal estate marketSpot market
Valuation and TheoriesMarket ValuationFinancial market efficiency
Finance seriesFinancial marketFinancial market participantsCorporate financePersonal financePublic financeBanks and BankingFinancial regulation
v d e
Top 10 Currency Traders
% of overall volume, May 2006
Source: Euromoney FX survey[1]
Rank
Name
% of volume
1
Deutsche Bank
19.26
2
UBS AG
11.86
3
Citigroup
10.39
4
Barclays Capital
6.61
5
Royal Bank of Scotland
6.43
6
Goldman Sachs
5.25
7
HSBC
5.04
8
Bank of America
3.97
9
JPMorgan Chase
3.89
10
Merrill Lynch
3.68
Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001-2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.

[edit] Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

[edit] Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

[edit] Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in Southeast Asia.

[edit] Investment management firms
Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.
Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

[edit] Hedge funds
Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

[edit] Retail forex brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market and it has been reported by the CFTC website that unexperienced investors may become targets of forex scams.

[edit] Trading characteristics
There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
Top 6 Most Traded Currencies
Rank
Currency
ISO 4217 Code
Symbol
1
United States dollar
USD
$
2
Eurozone euro
EUR
€
3
Japanese yen
JPY
¥
4
British pound sterling
GBP
£
5-6
Swiss franc
CHF
-
5-6
Australian dollar
AUD
$
The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.
The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.
On the spot market, according to the BIS study, the most heavily traded products were:
EUR/USD - 28 %
USD/JPY - 18 %
GBP/USD (also called sterling or cable) - 14 %
and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers).
Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

[edit] Factors affecting currency trading
See also: Exchange rates
Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

[edit] Economic factors
These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.
Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.
Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

[edit] Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

[edit] Market psychology
Perhaps the most difficult to define (there are no balance sheets or income statements), market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality: Unsettling international events can lead to a "flight to quality" -with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.
Long-term trends: Very often, currency markets move in long, pronounced trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.
"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect - the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form patterns that may be recognized and utilized by traders for the purpose of entering and exiting the market, leading to short-term fluctuations in price. Many traders study price charts in order to identify such patterns.

[edit] Algorithmic trading in forex
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. There is much confusion about the technique. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.

[edit] Financial instruments
There are several types of financial instruments commonly used.
Spot: A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.
Forward transaction: One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
Futures: Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swap: The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.
Options: A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

[edit] Speculation
Speculation in Forex appreared in 1971 when the Bretton Woods System was ended and world currency prices were allowed to float freely for the first time. Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.[2]
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

[edit] References
^ FX Poll 2006: The Euromoney FX survey claims to be the pre-eminent poll of foreign exchange service providers. Page retrieved 19 March 2007
^ Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, New York, 1995.

[edit] See also
Balance of trade
Bretton Woods system
Currency pair
Forex scams
Retail forex
Foreign exchange reserves
Special Drawing Rights
World currency

[edit] External links
Benchmark Currency Rates from Bloomberg
CFTC Commission Advisory Customer fraud Protection
Federal Reserve daily update
Federal Reserve Bank of New York Foreign Exchange and related material.
Financial Times - currency market data
Retrieved from "http://en.wikipedia.org/wiki/Foreign_exchange_market"