Why Hedge Foreign Currency Risk?

International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.

Each entity and/or individual that has exposure to foreign exchange rate risk will have specific foreign exchange hedging needs and this website can not possibly cover every existing foreign exchange hedging situation. Therefore, we will cover the more common reasons that a foreign exchange hedge is placed and show you how to properly hedge foreign exchange rate risk.

Foreign Exchange Rate Risk Exposure - Foreign exchange rate risk exposure is common to virtually all who conduct international business and/or trading. Buying and/or selling of goods or services denominated in foreign currencies can immediately expose you to foreign exchange rate risk. If a firm price is quoted ahead of time for a contract using a foreign exchange rate that is deemed appropriate at the time the quote is given, the foreign exchange rate quote may not necessarily be appropriate at the time of the actual agreement or performance of the contract. Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

Interest Rate Risk Exposure - Interest rate exposure refers to the interest rate differential between the two countries' currencies in a foreign exchange contract. The interest rate differential is also roughly equal to the "carry" cost paid to hedge a forward or futures contract. As a side note, arbitragers are investors that take advantage when interest rate differentials between the foreign exchange spot rate and either the forward or futures contract are either to high or too low. In simplest terms, an arbitrager may sell when the carry cost he or she can collect is at a premium to the actual carry cost of the contract sold. Conversely, an arbitrager may buy when the carry cost he or she may pay is less than the actual carry cost of the contract bought. Either way, the arbitrager is looking to profit from a small price discrepancy due to interest rate differentials.

Foreign Investment / Stock Exposure - Foreign investing is considered by many investors as a way to either diversify an investment portfolio or seek a larger return on investment(s) in an economy believed to be growing at a faster pace than investment(s) in the respective domestic economy. Investing in foreign stocks automatically exposes the investor to foreign exchange rate risk and speculative risk. For example, an investor buys a particular amount of foreign currency (in exchange for domestic currency) in order to purchase shares of a foreign stock. The investor is now automatically exposed to two separate risks. First, the stock price may go either up or down and the investor is exposed to the speculative stock price risk. Second, the investor is exposed to foreign exchange rate risk because the foreign exchange rate may either appreciate or depreciate from the time the investor first purchased the foreign stock and the time the investor decides to exit the position and repatriates the currency (exchanges the foreign currency back to domestic currency). Therefore, even if a speculative profit is achieved because the foreign stock price rose, the investor could actually net lose money if devaluation of the foreign currency occurred while the investor was holding the foreign stock (and the devaluation amount was greater than the speculative profit). Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

Hedging Speculative Positions - Foreign currency traders utilize foreign exchange hedging to protect open positions against adverse moves in foreign exchange rates, and placing a foreign exchange hedge can help to manage foreign exchange rate risk. Speculative positions can be hedged via a number of foreign exchange hedging vehicles that can be used either alone or in combination to create entirely new foreign exchange hedging strategies.

Forex Market Overview

"FX" is an abbreviation of "forex" or "foreign exchange." Foreign exchange is the largest and most liquid market in the world trading approximately $2 trillion every day (that's over 30 times the daily volume of NASDAQ and NYSE combined). The forex market is a cash interbank/interdealer market. In simplest terms, this means the foreign currencies traded in the forex market are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or to hedge foreign currency risk. The forex market is not a "market" in the traditional sense due to the fact that there is no centralized location for fx trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC). Forex trading between parties occurs through computer terminals, exchanges and over telephones at thousands of locations worldwide. CFOS/FX clients can trade through online forex trading platforms and/or over the telephone directly with a forex broker on our trading desk.

Until recently the forex market has not been available to the small speculator. The large minimum foreign currency transaction sizes and financial requirements left this market in the hands of banks, major foreign currency dealers and the occasional large fx speculator. Now, with the ability to leverage large positions with a relatively small amount of capital (margin), the forex market is now more liquid than ever and available to most investors.

Five major currencies dominate trading in the foreign exchange markets: the U.S. Dollar, Eurocurrency, Japanese Yen, Swiss Franc and British Pound. The foreign currencies are traded in pairs, also known as crosses, in the forex spot market. For example, purchasing the EUR/USD in the forex spot market simply means the purchaser is buying the Eurocurrency and selling the U.S. Dollar in anticipation of the Eurocurrency gaining value in relation to the U.S. Dollar. Similarly, the seller of a EUR/USD contract would be selling the Eurocurrency against the U.S. Dollar. Official figures show the U.S. Dollar is on one side of 83% of all spot foreign exchange transactions. The "spot" market simply refers to a currency contract with a prompt valuation date requiring settlement within two business days.

Over the past several decades, an increase in international trade and foreign investment has made the economies of the world more interrelated. New opportunities for investors have also been created with the fall of communism and the dramatic growth of the Asian and Latin American economies. Today, supply and demand for a particular currency is the driving factor in determining exchange rates. Many factors such as regularly reported economic figures and unexpected news reports, such as disasters or political instabilities, could also alter the desirability of holding a particular currency, thus influencing international supply and demand for that currency. It should come as no surprise that many shrewd investors have already taken advantage of the fluctuation in exchange rates to profit handsomely.

9 Tips For Becoming a Profitable Forex Trader

Regardless of your trading style; day trading, swing trading, or position trading there is a simple step by step plan you can use to improve your odds for success.

1. Start by paper trading until you can be consistently profitable on paper. I would also recommend doing a lot of practice trading with a real-time demo account. This is the next best thing to real trading without risking money.

2. Regardless of how much money you have, start trading with a small amount of money and work up over time. You need to make all your mistakes with the smallest amount of money. Trust me, it will be a lot less painful!

3. If you are a day trader, avoid the very small time-frames like 1 or 2 minute as you get a lot of signals which can lead to over trading. These fast time-frames are full of market noise and insignificant price activity.

4. Make sure that all your entry criteria are met for the trade setup. Don't jump the gun until everything is in place.

5. If there are no clear signals in the market, then do nothing. Forcing trades almost always ends up with losses.

6. Always place your protective stop immediately after entering the trade!

7. In your studies you will be exposed to many techniques. You will improve your results by concentrating on only one or two strategies. Get real good and consistently profitable with them first.

8. Don't watch too many currencies at one time. This leads to too much confusion and indecision about which trade to take. I wouls stick to two or three of the major currency pairs.

9. Win, lose or draw don’t deviate from your strategies or change things.

These 9 points may seem very simple, but they are actually very hard to carry out as they require a lot of focus and discipline. Stick to them and you will trade better than the majority of forex traders out there.

Learn Currency Trading

Many people have heard of Forex trading, but not everyone knows what it's about. It is not only for large corporations and businesses; many individuals also earn substantial income through currency trade.

Different countries have their own different currencies, but not all of them are traded in the Forex market. Currencies are traded in pairs, with the goal being to buy at a lower price and close the trade at a higher price. Conversely, a currency may be sold at a high price, closing the trade at a lower price to reap the same profits. It sounds easy at first, but new traders soon learn there is much more to Forex trading than they realized. Much study and practice is involved for the new trader to learn currency trading.

While Forex trading has the potential for large profits, there is an equally high potential of risk. It is important to learn as much as you can and practice with a demo account before using real money.

There are several ways to learn currency trading, including classes and the wealth of information available on the Internet.

The new trader must learn to read a chart. Free charts and software is generally available from a Forex broker. When you have chosen a broker, simply sign up for a free demo account and download the charting software. Being able to correctly read a chart will show you how the currency market is moving.

Another important factor is trading psychology, and knowing how to deal with your losses, which will happen from time to time. The best traders do not let their emotions rule their trading decisions. Frequently, a new trader will get lucky with several winning trades and think that it is easy. But as they continue, new scenarios arise in the market and the losses mount up. This is when the trader realizes how much they don't know, and how much they still need to learn.

It is also important to learn good money management skills. You must understand leverage and the best lot size to trade depending on the size of your account. Once you trade has been opened, it is even more important to know when to close it, and where to place your stops.

The best way to learn currency trading is simply practice and experience. The Forex market is very volatile and fast-paced, but with an understanding of charts, a preferred trading system, emotional discipline, and good money management skills, large profits can be realized.

How to Pick the Best Forex Broker

In order to trade Forex, you need to first find a Forex broker. Forex is still a relatively unregulated market and as a result there are many Forex brokers available each with different levels of service and reliability. Perhaps the best thing a Forex trader can do is to make sure they pick the right Forex broker for them.

Honest & Reliable
Before picking any broker, make sure you examine their company and background as thoroughly as you possibly can. Some good signs of a reliable Forex broker are the length of the time they have been in operation and if they are a member of any financial regulating bodies found in various countries that currently try to regulate the Forex market. You need to find a broker that you are comfortable with and not need to worry about them closing up shop without warning.

Leverage
One of the attractions of trading Forex is that traders can use leverage. Leverage allows a trader to trade with more money than they may physically have in their trading account. This allows traders to gain enormous profits with just a small amount of capital. Just how much leverage brokers offer varies.

Leverage can range from 1:1, where there is no leverage, to 1:400, where you can trade with up to 400 times the amount of capital you may physically have. To make the most of your trading, be sure to pick a broker that offers the amount of leverage you require.

Spend some time researching brokers before you make the final decision to open a live account and begin trading Forex. Doing so may pay off in the long run.

How to Make Money Trading Forex Online Fast

There is no other market like Forex. The Forex market offers a trader an almost endless opportunity to make money online trading Forex. Open 24 hours a day, 6 days a week and offering a wide variety of currency pairs to suit your trading style, Forex is perhaps the best market to make money from. No matter if you swing trade, scalp, day trade or hedge, there is money to be made. Two of the most profitable trading styles are swing trading and scalping.

Scalping offers a trader the chance to make money by quickly opening and closing trades at lightning speed. Their profits are gleamed from the small movements in price and a trader being quick enough and fast enough to get in and out and seize the opportunity and money before the market moves back. While extremely risky, scalping offers enormous profits for those traders bold enough to challenge the market.

Swing trading, while a lot slower than scalping, offers traders the chance to profit from the enormous swings or movements in price that many currency pairs experience. Open usually for several days at a time, swing trading is the favourite of large corporate traders and banks. Their profits are gained from timing correct entry points when a currency pair retraces before it continues on with its move.

There is no other market like Forex. The speed and excitement a trader feels is matched only by the enormous potential to make money while trading Forex. No other market offers such opportunity as trading Forex online.

Selecting the Forex Trading School That Meets Your Needs

If you are bored, with your current line of work and are looking for a career change than Forex trading maybe the career path for you. If you are good with numbers, and can understand the flow of currency this is a field you will want to consider. However, this is a field that you can not just jump in with both feet. You will need to get the appropriate education first. You will want to find a Forex trading school that specializes in teaching beginners. Because, they will be able to help you develop a solid foundation that could end up saving you thousands of dollars in the future. If someone tells you that you can read a few books and then start trading, you may want to look at their portfolio to verify that they are making as much of a profit as they have stated.

When it comes to finding a Forex trading school you do not want to take the Internet's word for it. There are hundreds of schools out there, but not all of them will teach you the information, or provide you with the foundation you need to succeed. They may talk about being innovative, and dedicated to the success of each student, but that just maybe good marketing at work. You will want to look for an accredited Forex trading school. An accredited school is typically run by actual brokers that have been endorsed by numerous bodies. The endorsements are from individuals in the financial industry that value the sanctity of Forex trading.

Now that you have found several Forex trading schools, that meet your criteria, you will want to thoroughly research each school. You will want to look into their reputation. In the financial industry, reputation is everything. Next you will want to explore, their teaching methods. If you are one of the students that respond best by practical examples, going to a school that bases their teaching on theory will not be in your best interest.

Before enrolling in a Forex trading school, you will want to assess your wants and needs, in comparison to what the school is offering. Make sure they have a strong grasp of the basics. Verify that they will help you acquire the skills you need to become profitable. They must be able to provide you with the knowledge you need to speak to management and clients. If they will not be able to provide this, you will have a difficult time becoming a successful foreign exchange trader. Since the market is sitting there waiting for you, to succeed you want to make sure you put yourself in a position to become a success.

How Do Forex Brokers Make Money?

Forex brokers are paid commissions on the outcome of your spread. The spread is measured in pips and is the difference between what you offered and the bid. Since the market moves so quickly your broker needs to be readily available to accommodate your trading, provide advice and reliable quick access to the market.

When you begin to review the various forex brokers available make sure part of their service is to provide current advice on all currency trades, the current economic environment and options available for your best spread for your trades. These services are essential for successful trading.

The broker you select should be accredited to ensure their familiarity with the terms and rules established by the exchange for currency trading. A competent full service broker will be constantly abreast of the current market conditions and currency rates available. Their advice should guide you to making viable trades.

An accredited broker should provide the flexibility in swapping currencies depending on current market conditions without charging you high or variable commissions. You should be able to swap currencies based on your trading expectations no matter what your trading platform without outrageous commissions or fees going to your broker.

When you select a brokerage firm make sure you start out trading in small quantities until you become familiar with your broker. Get to know them by constantly speaking with them over the phone to get advice and an understanding of their services and experience level.

Determine whether your forex broker understands the markets trends, stays current with economic and currency news and the world markets impact on your exchange. Make sure they stay current along with providing multiple means of advice through conversation, newsletters, email and other sources.

Forex Buy and Sell Signals Are Sent Directly to You

You have decided to embark upon the Forex trading market. You have enrolled in a school, and been taught to understand the Forex buy and sell methodology. Now you are on your own and you are just not seeing the profit you were expecting. You have been following the market and have implemented what you learned in school. Yet, you just can not seem to get your trading in-line with what is happening in the marketplace. You need to find a way to increase your margin. After conducting a bit of research, you realized what you need is a Forex buy and sell indicator. An indicator will assist you in getting back on track. It is what most professional traders are using to make a profit.

By using a Forex buy and sell indicator software program, you will no longer be glued to your computer screen. Instead of watching the information in front of you, you could be reacting and participating in trading. There are a number of indicator software programs available. Before you just download any program you will want to find the program that offers the following benefits.

* Strategic rules that are clear and easy to follow.
* Winning strategies that have been proven over time.
* A program where there are no monthly fees.
* A program that offers audio entry alerts. Software that is easy to install.
* A program that will allow you to open an account, install and trade with in minutes.
* Since you are working with foreign currency, you need to make sure that the program works on multiple currency pairs at the same time.

Forex Ambush

Forex Ambush is a revolutionary new Forex autopilot that boasts of an astounding 100% accuracy rate. This is thanks to the advanced artificial intelligence systems they have placed in their latest version of this profit-making software. Using numerous formulae to predict when to make trades, the software then sends you signals to make the proper trades. Doing this for a few hours a day will ensure a consistently growing stream of profits, ensuring that you never have to rely on anything else for earning your money's worth ever again.

Take note that Forex Ambush is not one of those e-books that promises to teach you all you need to become an expert trader (only experience can do that, and you do not want to risk losing your money on earning that experience). Rather, it is a software package that has been programmed, reprogrammed and tested for years by a team of elite programmers and Forex experts, and guarantees you will be enjoying the fruits of their labor for years as well.

Forex Ambush needs no human intervention, just the discipline for its user to follow the entry and exit signals it sends to your computer, no matter how strange they may appear. Then let the AI do the rest of the work into giving you 100% accurate trades.

Currency

In economics, the term currency can refer either to a particular currency, for example the US dollar, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of money deposited in banks (sometimes called deposit money), ownership of which can be transferred by means of cheques or other forms of money transfer such as credit and debit cards. Deposit money and currency are money in the sense that both are acceptable as a means of exchange, but money need not necessarily be currency.

Historically, money in the form of currency has predominated. Usually (gold or silver) coins of intrinsic value commensurate with the monetary unit (commodity money), have been the norm.

By contrast, modern currency, as fiat money, is intrinsically worthless. The prevalence of one type of currency over another in commodity money systems has arisen, usually when a government designates through decrees, that only particular monetary units shall be accepted in payment for taxes.

In economics, the term currency can refer either to a particular currency, for example the US dollar , or to the coins and banknotes

Pound (currency) (redirect from £ (currency)) The pound, a unit of currency, originated in England , has the value of a pound mass of silver For a long time, £1 worth of silver coins

United States dollar (redirect from U.S. currency) The United States dollar (sign : $; code : USD) is the unit of currency of the United States . currencies and from others that use the $ symbol.

Euro (redirect from Euro (currency)) The euro (€) is the official currency of 16 of the 27 member states of the European Union (EU).

Foreign exchange market (redirect from Currency exchange) The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies

Currency sign A currency sign is a graphic symbol often used as a shorthand for a currency 's name. codes are used instead of currency signs

Exchange rate (redirect from Currency trading) In finance , the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies

Forex Exchange Word

Back Office - The departments and processes related to the settlement of financial transactions.

Bank Wire - A computer message system linking major banks. It is used as a mechanism to advise the receiving bank of some action that has occurred, i.e., the payment by a customer of funds into that bank's account.

Base Currency - In the following pair USD/EUR, the first currency (in this case USD) is referred to as the base currency. The primary base currency is the US dollar, meaning that quotes are most commonly expressed as a unit of $1 USD per the other currency quoted in the pair.

Basis Point - One hundredth of a percentage point - 0.01%.

Bear (bearish) - Someone who expects the price of a given financial instrument or the overall value of a given financial marketplace to decline in value and thereby is a seller of the instrument(s). This individual is said to be bearish on the instrument / marketplace. Opposite of bull (bullish).

Bear Market - A market distinguished by declining prices.

Big Figure - Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".

Bid Rate - The price at which buyers offer to buy currencies from sellers.

Bid / Ask Spread - The difference between the buy (bid) and sell (ask) price. In the following example - 0.9853/58 the spread is 0.0005 or 5 PIPs.

Bretton Woods Agreement - An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (I.M.F.) and the post-World War II international monetary system of fixed exchange rates.

Broker - Any individual or firm in the business of buying and selling securities for itself and others. When acting as a broker, a broker/dealer executes orders on behalf of his/her client.

Bull (bullish) - Someone who expects the price of a given financial instrument or the overall value of a given financial marketplace to rise in value and thereby is a purchaser of the instrument(s). This individual is said to be bullish on the instrument / marketplace. Opposite of bear (bearish).

Bull Market - A market distinguished by rising prices.

Buying / Selling FX - An investor/speculator buys a currency pair (takes a long position), if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling the currency pair implies selling the first, base currency, and buying the second, quote currency. An investor / speculator sells a currency pair (takes a short position), if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

Cable - Refers to the Sterling/US Dollar exchange rate. Derived from mid-1800s practice of New York sending sterlings dollar rate to London via a transatlantic cable.

Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.

Clearing - The process of settling a trade.

Commission - Fee charged by a broker for executing a trade.

Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.

Contract - The standard unit of trading.

Counterparty - One of the participants in a financial transaction.

Cross Rate – Refers+ to an exchange rate between two non-US dollar currencies. Trading between two non-US dollar currencies usually occurs by first trading one currency against the US Dollar and then trading the US Dollar against the second non-US dollar currency.

Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Risk - The probability of an adverse change in exchange rates.

Day Trader / Day Trading - Speculators trying to take advantage of market movements in very short time periods --- buying a currency and then selling it again may happen within hours or even minutes. Day traders are attracted to currency trading because of the size, liquidity, volatility, and accessibility of the market.

Dealer - An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Delivery - A trade where both sides make and take actual delivery of the currencies traded. Delivery is not the norm in FX trading. More commonly, an FX trade involves cash settlement of the difference between spot and delivery prices. Spot refers to any delivery within two business days. Forward refers to delivery beyond two days and usually quoted one year out in increments of 30 days (i.e. 1 month, 2 month, etc.).

Directional Forecast - A projection of bid/ask prices for a currency pair for a point in the future. The forecast displays the most likely future direction of prices. This direction reflects the latest price fluctuations as they are influenced by economic and political events. Directional Forecasts are designed for: Investors and traders who trade small to large volumes in the foreign exchange markets daily Professionals who do business internationally and who want to minimize foreign exchange risk due to currency price fluctuations.

Dollar Rate - The exchange rate of a foreign currency as quoted against the US dollar (USD). Some currencies are typically only quoted against the US dollar, such as the Algerian dinar (DZD) and the Andorran franc (ADF). The exchange rate of the Algerian dinar against the Andorran franc is thus computed from DZD-USD and ADF-USD.

Entry Order - An order to buy/sell a currency pair when the market reaches a specified price.

EURO - The currency of the European Union (EU) since January 1, 1999. The following countries have adopted the EURO in addition to maintaining their own unique currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain.

Exchange Rate - The price of one country's currency expressed in another country's currency.

Exchange Rate Risk - The potential loss that could be incurred from a movement in bid/ask prices, or exchange rates.

Exposure - The risks that an investor accepts when holding an open position. When an investor buys EUR/USD, he exposes himself to risks associated with changes in the valuation of the EURO and/or USD markets.

Flat/square - Dealer slang used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

Foreign Exchange Market - Market for trading currencies internationally. The foreign exchange market, also referred to as the Forex and FX market, is a decentralized market that has no physical exchange floor. Trading is done over the counter via phone, fax or electronic distribution networks. Turnover in this market is approximately $1.5 trillion USD daily, making it the largest, most liquid financial marketplace.

Forex - (see foreign exchange market).

Forward - The pre-set exchange rate for an FX contract that settles at a pre-determined future date. The forward rate is based upon the interest rate differential between the two currencies involved. Forward rates can be calculated easily given the fixed term interest rates of each currency and their current spot rates.

Forward Points - The PIPS added to or subtracted from the current exchange rate to calculate a forward price. If points are added, then the forward is priced at a premium. If points subtracted, then the forward is priced at a discount.

Fundamental Analysis - The study and analysis of economic, political and social data/events to predict the future movements of the market and guide ones FX trading decisions.

Gearing - (refer to margin trading or leverage)

Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

H

Hedging - A strategy used to offset market risk, whereby one position protects another. Traders and investors in foreign exchange hedge to protect their investment or portfolio against currency price fluctuations.

I

Initial margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank Prices - Currency prices/rates quoted between the large international banks, typically on transactions of US $1 million or more. These rates differ and are often more favorable than those quoted for smaller, retail transactions.

Interest Rate - Differential In FX trading, interest rate charges are determined by the difference between the interest rate on the base currency less the interest rate on quote currency. Interest rates are only paid on positions held over night.

Leverage - Refers to margin trading or gearing. The use of credit or borrowed funds to increase ones buying power.

Letter of credit - A document issued by a bank which guarantees the payment of a customer's drafts for a specified period and up to a specified amount.

Limit Order - An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)

Liquidity - Refers to the ability to buy and sell with little or no impact on price stability. The number of players in a market/security has a direct impact on this ability. The FX market is the most liquid market in the world.

Long - To go long is to buy a currency / security. For example, if an investor believes that the Japanese economy is getting stronger and that, as a result, the Japanese Yen will appreciate in value, then he/she may want to buy Japanese Yen and take what is called a long position.

M

Margin - Collateral (could be cash, securities and/or unrealized profit) that an investor is required to keep on deposit to cover potential losses. If the margin requirement is 10% and a speculator wishes to buy $1 million EURO/USD, that speculator must have $100 thousand EUROS in value in his/her account.

Margin Call - A call for additional capital to bolster the equity in an investors margin account. Occurs when equity in the account is in danger of going below the required margin percentage threshold.

Market Maker - A pricing source that regularly quotes a two-sided market, meaning it supplies executable bid and ask prices.

Market Order - An order to buy/sell at the best price available when the order reaches the market.

Marking to Market - Common valuation method for calculating ones foreign exchange exposure at current market prices. Adjusting book value of holdings to reflect current market value.

O

Offer - The rate at which a dealer is willing to sell a currency.

One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

Open position - A deal not yet reversed or settled with a physical payment.

Open Order - An open order is a request that a trade should be made automatically when the exchange rate of the specified currency pair crosses a specified threshold. The request will remain open until the specified threshold is reached. (see entry order)

Over-The-Counter Market (OTC) - A market, such as the FX market, in which counterparties trade via telephone, fax or electronic distribution network rather than from a physical exchange location.

Overnight - A trade that remains open until the next business day.

P

PIP - Typically stands for the smallest unit of measurement denoting price movement. One basis point (0.0001 or .01%) but depends on currency pair in reference. (see basis point)

Position - The aggregation of all trades made in a currency pair. If the position is open, it is exposed to market risk. If a position is closed, profit/loss has been realized.

Q

Quotation - Often shortened to quote and also referred to as bid-asked. The highest bid or lowest offer price currently available on a security/commodity.

Quote - An indicative market price, normally used for information purposes only.

R

Rate - The price of one currency in terms of another, typically used for dealing purposes.

Realized and Unrealized P/L - Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account. Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount.

Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Risk - The degree of uncertainty or exposure associated with an investment. Investments with greater inherent risk must promise higher expected returns if investors are to be attracted to them. The main types of foreign exchange risk are: 1) exchange rate risk 2) interest rate risk 3) credit risk (aka counterparty) 4) country risk (includes political). (each of these risks can be referred to in other sections of this document).

Risk Management - The process of actively monitoring /controlling exposure to various types of risks while attempting to maximize returns. Typically involves utilizing a variety of trading techniques, models and financial analyses.

Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

S

Settlement - A trade is settled when the trade and its counterparts have been entered into the books/records. In regards to FX trading, it is important to note that settlement may or may not involve the actual physical exchange of currencies.

Short (Short Position) - To go short is to sell a currency / security. For example, if an investor believes that the Japanese economy is getting weaker and that, as a result, the Japanese Yen will depreciate in value, then he/she may want to sell Japanese Yen and take what is called a short position. It is not necessary to own the quote currency prior to selling, as it is sold short.

Spot Market / Spot Rate - The spot market refers to instruments that are traded and settle within two business days of the transaction. The spot rate refers to the current market rate for a currency. Interest is either added on (premium) or subtracted from (discount) this rate to determine pricing for non-spot trades, which are referred to as forwards in the FX market.

Spread - (see bid / ask spread)

Stochastic oscillator - A technical indicator which compares a stock's closing price to its price range over a given period of time. The belief is that in rising market stocks will close near their highs, while in a falling market they will close near their lows.

Stockholder / shareholder - One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors.

Stop-Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.

Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

Swissy - Slang for Swiss Franc.

T

Take-Profit Order - An order to automatically liquidate a position if the exchange rate reaches a specified level. Take profit orders are typically used to lock-in profit.

Technical Analysis - Studying charts that display the historic behavior of market data/statistics (price open, high, low and close, volume, open interest, etc.) in order to forecast future performance.

Tick - A price movement.

Transaction Cost - The cost of buying or selling a financial instrument.

Turnover - The total money value of all executed transactions in a given time period; volume.

Two-Way Price - When both a bid and offer rate is quoted for a FX transaction.

U

Uptick - a new price quote at a price higher than the preceding quote.

Unrealized and Realized P/L - Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount. Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account.

V

Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.

Variation Margin - Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.

Volatility - A measure by which an exchange rate is expected to fluctuate or has fluctuated over a given period. Volatility figures are often expressed as a percentage per annum.

W

Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Y

Yard - Slang for a billion.

Dollar weakness has legs, thanks to Fed

A U.S. government plan to buy up its own debt continued to plague the dollar Thursday, and experts say the free-fall could last a long time.

The Federal Reserve announced Wednesday that it would purchase $300 billion of long-term Treasurys over the next six months. Called "quantitative easing," the program is designed to lower borrowing costs for consumers and get credit flowing more freely again.

But the decision to buy up massive amounts of government bonds sent Treasury yields lower, as prices move in the opposite direction of interest rates. As yields fall, U.S. assets become less attractive to foreign investors, leading to a decline in the dollar relative to other currencies.

"Usually, one of the things that supports a currency is the nation's benchmark bond yield," said Antonio Sousa, senior currency strategist at Forex Capital Markets. "People no longer want assets in dollars because the yield is so small."

Accordingly, the euro gained 1.5%, hitting a fresh 2-month high against the dollar. The 16-nation currency traded at $1.3676, up from $1.3474 late Wednesday.

The British pound bought $1.4525, up 1.8% from $1.4272, and the dollar sank against the Japanese yen, falling 2.2% to ¥94.06 from ¥96.23.

Currencies soared against the dollar Wednesday, with the dollar falling by more than 3% against the euro, the largest decline in nine years.

No recovery for a while

Experts are divided about how long the dollar will trend downward for, though they agree that it will be some time until a recovery can occur.

"Looking forward, the greenback probably will weaken further, at least in the near term, versus most other major currencies," said Jay Bryson, global economist at Wachovia, in a note to investors.

Bryson sees the euro gaining to about $1.39 and the pound moving higher to $1.45 in the next week or two, but argued that a long-term plunge may not be in the cards, as other central banks may be enticed to join into the quantitative easing game.

"Although the greenback will probably depreciate further in the near term, it is not entirely clear that the dollar longer-term trend is down," Bryson said. "If the European Central Bank engages in its own version of 'quantitative easing,' then the euro could give up the gains it has racked up over the past few days."

But Sousa said that the sheer length of the Fed program -- six months of buying up bonds -- will drive down traders' sentiment about the dollar for at least that long.

"We're not going to get out of this environment in 2009," Sousa said. "People are looking forward to 2010."

Deflation also a threat

The Fed said in its statement it believes that inflation would remain "subdued," expressing more concern about deflation, in which falling prices lead businesses to further cut their output and employment.

In its statement Wednesday, the Fed said it "sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

Sousa said that will be bad for the dollar, because the U.S. currency also depends on relative strength of the stock market.

"Stocks won't perform well in a deflationary environment, because companies will be forced to cut prices, which will ultimately drive profits lower," Sousa said. "Treasurys aren't the only factor that matters - another thing that drives performance of currencies is the performance of assets in those currencies."

Furthermore, Treasury yields sank sharply after the Fed's announcement to levels not seen since December - when the last stock market rally ended and market indexes plunged to 12-year lows. A similar drop in stocks this time around could hurt the U.S. currency's chances of rebounding, according to Sousa.

Still, much of the dollar rally that has continued almost uninterrupted since the summer has been based on investors' bets that the U.S. economy will be the first to recover among its peers. Bryson said the dollar may rise in the long term if traders believe the Fed's actions hasten an economic recovery.

The incredible shrinking dollar

The U.S. dollar has taken a beating in the past few months even as stocks have soared and investors have come to expect an economic recovery sooner rather than later.

The euro hit a 5-month high against the greenback on Wednesday while the British pound rallied to its highest level against the dollar since November. The dollar has also been weakening against the yen as of late.

It's an interesting phenomenon that, at first blush, might not make sense. The stronger the rally in stocks and the more that people talk about a potential end to the recession, the more ground the dollar...loses against other currencies?

But this does make sense. Despite the many problems facing the U.S. economy, traders had flocked to the dollar because of its relative safety. As bad as the U.S. economy was, it appeared that Europe's was in even worse shape.

Plus, there's the notion that since the U.S. led the rest of the world into this global economic crisis, it was likely that it would also be the first country to emerge from the recession.

Now that there are more signs that this is coming to fruition, investors have embraced stocks again. The dollar is no longer viewed as a place for jittery investors to park cash.

"The dollar is under pressure. As the economic situation in the U.S. seems to be stabilizing, the dollar is losing some of its safe haven demand. It's on weak footing," said Brian Dolan, chief currency strategist for FOREX.com, online currency trading site.

Talkback: Are you worried the dollar will get even weaker? Leave your comments at the bottom of this story.

So if the dollar deteriorates further, how will that impact the economy going forward?

The downside of a weaker greenback

The bad news is that a weaker dollar could lead to a continued surge in commodity prices, most notably oil. The weakening greenback has played a small role in leading crude prices back above $60 since oil is traded in dollars.

If oil prices stabilize around this level, it may not necessarily spell an end to economic recovery hopes. But if the dollar dips even more and oil prices skyrocket as a result, that has the potential to hit consumers hard. Nobody wants a return to last summer's record high gas prices of more than $4 a gallon.

"If the dollar were to continue to weaken and energy prices move much higher, it acts like a tax on the consumer," said John Derrick Director of research U.S. Global Investors Inc., money management firm based in San Antonio.

A much weaker dollar would also make the cost of other imported goods more expensive and diminish the buying power of anything purchased abroad. That's also not in the best interest of consumers.

Some benefits from the dollar's decline

But a shrinking dollar is not all bad news. Many big multinational companies based in the U.S. could benefit from further declines in the greenback since it would boost the value of their international sales and profits once translated back to dollars.

While that may seem like nothing more than a mere accounting trick, the importance of improving results for blue chip companies can't be overlooked.

With that in mind, an analyst at Deutsche Bank upgraded shares of McDonald's (MCD, Fortune 500) on Wednesday and cited easing currency pressures, i.e. a weaker dollar, as one of the reasons he's more optimistic about Mickey D's outlook.

Other big multinationals such as Procter & Gamble (PG, Fortune 500), Johnson & Johnson (JNJ, Fortune 500)and Coca-Cola (KO, Fortune 500) have been moving higher as the dollar has weakened and have also been upgraded by analysts.

Let's face it: We need American icons like these companies to bounce back. The only way for the market rally to have legs is for large, well-known firms to get back on solid footing.

Even though it's tempting to say that what happens on Wall Street doesn't affect you on Main Street, nothing could be further from the truth.

An improving stock market should eventually lead to higher levels of consumer confidence and, more importantly consumer spending. What's more, it's no coincidence that major companies issued massive layoffs falling steep plunges in profits and their stock prices. The job losses should abate and companies will start hiring again once their bottom lines improve.

Now of course, a weaker dollar is not a complete panacea for the U.S. economy's woes. Dolan points out that multinationals will probably report some favorable impact from currency fluctuations in the second quarter, but that will be partly offset by the fact that demand abroad is likely to remain weak due to the worldwide economic slump.

Derrick adds that some investors are likely to dismiss any profit gains from a falling dollar as transitory.

Still, there are clearly pros and cons to a weaker dollar. Everybody is hopeful that the U.S. economy is finally close to hitting bottom, and one sign that the recovery could be for real is if investors continue to sell the dollar and embrace riskier assets.

But one unfortunate side effect of a recovery is that the dollar could get dragged down further and spark more worries about inflation down the road.

Traveling where the dollar is strong

You don't have to be a Forex trader to have noticed something amiss abroad. From that $1,000-a-night fleabag hotel in Paris to a $400 pizza dinner in Rome, international travel has become a dispiriting affair.

Despite the dollar's sorry state, however, many countries remain affordable. Low local costs, moreover, are another draw: The money saved on that kilim rug you bartered for could offset the airfare.

"If you know where to look, there are wonderful places that can match more famous destinations at a fraction of the cost," says Jack Dancy, co-founder of Toronto-based holiday specialists Trufflepig, named for those hogs that root out nature's hidden gems.

On the following pages you'll find four opulent destinations that will satisfy your craving for an exotic getaway - without necessitating the other bane of this economy: exotic financing tools.

Era of hard and credit money

In premodern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes. This economic phenomenon was a slow and gradual process that took place from the late Tang Dynasty (618–907) into the Song Dynasty (960–1279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the Song Dynasty government began circulating these notes amongst the traders in their monopolized salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally-valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of woodblock printing and then Bi Sheng's movable type printing by the 11th century was the impetus for the massive production of paper money in premodern China. At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit,[3] cheques, promissory notes,[4] savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt,[5] and banking institutions for loans and deposits.[6] In Europe paper money was first introduced in Sweden in 1661. Sweden was rich in copper, thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms) had to be made. Because the coin was so big, it was probably more convenient to carry a note stating your possession of such a coin than to carry the coin itself.[citation needed] The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper. However, these advantages held within them disadvantages.

First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero.

The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America.

It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

Early currency

The origin of currency is the creation of a circulating medium of exchange based on a unit of account which quickly becomes a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and later with the use of silver ingots to represent stored value in the form of grain.[citation needed] Both of these developments had occurred by 2000 BC. Originally money was a form of receipting grain stored in temple granaries in Sumer in ancient Mesopotamia, then Ancient Egypt. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military. By the late Bronze Age, however, a series of international treaties had established safe passage for merchants around the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the northwest to Elam and Bahrein in the southeast. Although it is not known what functioned as a currency to facilitate these exchanges, it is thought that ox-hide shaped ingots of copper, produced in Cyprus may have functioned as a currency.

It is thought that the increase in piracy and raiding associated with the Bronze Age collapse, possibly produced by the Peoples of the Sea, brought this trading system to an end. It was only with the recovery of Phoenician trade in the ninth and tenth centuries BC that saw a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with Croesus of Lydia and subsequently with the Greeks and Persians.

In Africa many forms of value store have been used including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, ochre and other earth oxides, and so on. The manilla rings of West Africa were one of the currencies used from the 15th century onwards to buy and sell slaves. African currency is still notable for its variety, and in many places various forms of barter still apply.

Control and production

In most cases, each private central bank has monopoly control over the supply and production of its own currency.

To facilitate trade between these currency zones, there are exchange rates, which are the prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other.

Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime. In cases where a country does have control of its own currency, that control is exercised either by a central bank or by a Ministry of Finance. In either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States, the Federal Reserve System operates without direct oversight by the legislative or executive branches. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. However, in practical terms, the revocation of authority is not likely. In almost all Western countries, the monetary authority is largely independent from the government.

Several countries can use the same name for their own distinct currencies (e.g., dollar in Canada and the United States). By contrast, several countries can also use the same currency (e.g., the euro), or one country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared U.S. currency to be legal tender, and from 1791–1857, Spanish silver coins were legal tender in the United States.

At various times countries have either re-stamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does. Each currency typically has a main currency unit (the U.S. dollar, for example, or the euro) and a fractional currency, often valued at 1⁄100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound, although units of 1⁄10 or 1⁄1000 are also common. Some currencies do not have any smaller units at all, such as the Icelandic króna.

Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is divided into 5 khoums, while the Malagasy ariary is divided into 5 iraimbilanja. In these countries, words like dollar or pound "were simply names for given weights of gold."[2] Due to inflation khoums and iraimbilanja have in practice fallen into disuse. (See non-decimal currencies for other historic currencies with non-decimal divisions.)

Currency

In economics, the term currency can refer either to a particular currency, for example the US dollar, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply.

The other part of a nation's money supply consists of money deposited in banks (sometimes called deposit money), ownership of which can be transferred by means of cheques or other forms of money transfer such as credit and debit cards. Deposit money and currency are money in the sense that both are acceptable as a means of exchange, but money need not necessarily be currency.

Historically, money in the form of currency has predominated. Usually (gold or silver) coins of intrinsic value commensurate with the monetary unit (commodity money), have been the norm. By contrast, modern currency, as fiat money, is intrinsically worthless. The prevalence of one type of currency over another in commodity money systems has arisen, usually when a government designates through decrees, that only particular monetary units shall be accepted in payment for taxes.

Market participants

Unlike a stock market, where all participants have access to the same prices, the foreign exchange 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. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). 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 foreign exchange 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 FX-metal 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 foreign exchange market to align currencies to their economic needs.

Market size and liquidity

Presently, the foreign exchange market is one of the largest and most liquid financial markets in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. ^[2] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.^[3]

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.^[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.

FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

Top 10 currency traders ^[5]
% of overall volume, May 2009

Rank	Name	Market Share
1	Deutsche Bank	20.96%
2	UBS AG	14.58%
3	Barclays Capital	10.45%
4	Royal Bank of Scotland	8.19%
5	Citi	7.32%
6	JPMorgan	5.43%
7	HSBC	4.09%
8	Goldman Sachs	3.35%
9	Credit Suisse	3.05%
10	BNP Paribas	2.26%

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 have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).^[6] 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 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey.^[3] 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 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".

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 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

Foreign exchange market

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies. [1] The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars. In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of its trading volumes,the extreme liquidity of the market,its geographical dispersion,its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),the variety of factors that affect exchange rates.the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)the use of leverage As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks.

According to the Bank for International Settlements,[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows: $1.005 trillion in spot transactions$362 billion in outright forwards$1.714 trillion in foreign exchange swaps$129 billion estimated gaps in reporting

How To Make Money In The Global Forex Market

Why do 90% of Forex traders lose?

Traders are humans, and, like all humans, they suffer from greed. Therefore, in crucial moments (or erratic market conditions), they lack confidence and they fear what might happen, and most importantly about 90% of the time they are inconsistent.

On average, around 90 - 95% of traders will lose money in forex and they consistently give their money to the other 5 to 10% of traders that follow a set of strict trading guidelines ALL of the time. This, together with the illusion that they'll become millionaires following some "Guru's" e-book trading system, makes the Forex market a great business for Forex brokers as well as for the "Gurus" who publish the e-books.

If you really understand this, then you can actually MAKE MONEY IN FOREX! How? The easiest way to do it is using a profitable expert advisor. An Expert Advisor is an automated trading program that utilizes the Metatrader-4 trading platform to make your trades for you!

An Expert Advisor is a trading "robot". A robot can beat humans at chess, and they can also beat humans at trading. An EA will monitor the market and automatically open and close your trades based on the information pre-programmed into the software. The use of an Expert Advisor eliminates the fear, greed, lack of confidence and inconsistency that plagues most traders.

Robots have no emotions,and they don't get distracted by phone calls or family matters. An EA is of "Single-Minded" purpose and they fulfill their pre-progammed mission without reservation or question. The Expert Advisor has been given a game plan and it it sticks to it no matter how ugly or uncertain the market looks.

Free Forex Robots - Why Free Forex Robots Should Be Avoided

You might just be starting out with Forex trading and searching frantically for answers online - any answers! Maybe you have some experience with Forex trading and want to improve your expertise and are looking at various alternatives to maximize profits - or even worse - you are hoping to just stop losing money!

You are now considering free Forex robots - not a bad place to start you might think as you rationalize that you don't have to spend money on a robot, especially if you have already lost money (most likely with incorrect systems) and are now trying to recover these losses. Well, let me save you time and money.

Simple... Free Forex Robots do not exist - at least not in the way you and I understand it.

Maybe that is not entirely accurate, so let me elaborate. If you are searching for independent free Forex robots online you will most probably find quite a few products being listed. On closer inspection you will notice that the products are actually not free as the "free" portion is generally only for a trial period or for a demo account. Other products that are marketed as being free, such as MQL4 (MetaQuotes Language 4 for Metratrader), which comes with MetaTrader, are actually products that allow you to create your own expert advisors and are not trading robots as such. Embarking on this route is a whole different ballgame - best avoided by novice or medium-expertise traders as it means that you will have to "program" and create your own Forex robots - a daunting task to say the least.

In short - "free" in these instances does not really mean free - there is virtually always a catch or the products are simply not worthwhile considering for the serious Forex trader. I have even come across "free robots" punters or creators claiming to have 80 million Forex users! You be the judge of whether this is credible.

So what then? Will you have to spend money on a robot?

Every successful Forex trader you will come across will stress that a dedicated Forex trading plan, followed rigorously, is the key to success. I would like to add to this by stating that a reputable and tested Forex trading plan is paramount to your success in Forex trading.

The latter can only be achieved with proper systems. The free Forex robots I have seen simply do not provide any level of comfort for the trader that is even remotely serious.

My experience is that Free Forex Robots are best avoided if you want to take your Forex trading efforts seriously. Rather spend time to research and review the more reputable Forex trading robots on the market that have been thoroughly tested - even if there is a once-off cost involved.