As you may already know, foreign swap over (Forex/FX) is an free market that is not traded on an swap over, which means that prices you see and get from one broker could vary from those of another broker. There are mostly two types of brokers. One type is an ECN (Electronic Communications Network) and another a Market-Maker.
Market-makers "make" or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a set spread since they are setting both the bid and the ask price. Many of them will then try to "hedge" or "cover" your order by passing it on to someone else; though, some may decide to hold your order, and thus trade against you. This can result in a clash of interest between the retail dealer (you) and the market-maker.
ECNs, on the other hand, pass on prices from a number of banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no increase on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed payment for each transaction.
Here are some of the pros and cons of ECNs and market-makers:
Market-Makers
Pros:
Usually give free charting software and news feed
Prices can be "smoother" and less unstable than ECN prices (this can be a con if you are scalping or trading very short term)
Often have a more user-friendly trading and analysis border
Cons:
They may trade against you. In that case, there will be a conflict of interest between you and them
The price they offer you may be not as good as than what you could get on an ECN
It is possible that they may trigger stops or not let your trade reach your profit target levels by manipulating prices
During news, there will usually be a large amount of slippage; their systems may also lock up or not allow order placing during times of high volatility
Many of them dishearten scalping and put scalpers on "manual implementation" which means their orders may not get filled at the price they want
Sunday, April 5, 2009
Introduction of Forex Market
The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.
Excerpt from the BIS:
"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS
Structure
Decentralised 'interbank' market
Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
Online trading began in the mid to late 1990's
Excerpt from the BIS:
"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS
Structure
Decentralised 'interbank' market
Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
Online trading began in the mid to late 1990's
Advantages of the Forex Market
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the normal stock markets. Most investments require a considerable amount of assets before you can take advantage of an investment chance. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equivalent to 1 contract. Each "pip" or move up or down in the currency pair is value a $1 gain or loss, depending on which side of the market you are on. A normal account gives you control over 100,000 units of currency and a pip is value $10.
The Forex market is also very liquid. When trading Forex you have full control of your assets.
Many other types of investments need holding your money up for long periods of time. This is a drawback because if you need to use the capital it can be difficult to access to it without taking a gigantic loss. Also, with a small amount of money, you can control
Forex traders can be gainful in optimistic or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self regulation, Forex trading can be a comparatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the skill to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it intelligent to practice with "paper money", or "bogus money." Most brokers have demo accounts where you can download their trading station and practice real time with bogus money. While this is no assurance of your performance with real money, practicing can give you a massive advantage to become improved prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to buy.
The Forex market is also very liquid. When trading Forex you have full control of your assets.
Many other types of investments need holding your money up for long periods of time. This is a drawback because if you need to use the capital it can be difficult to access to it without taking a gigantic loss. Also, with a small amount of money, you can control
Forex traders can be gainful in optimistic or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self regulation, Forex trading can be a comparatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the skill to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it intelligent to practice with "paper money", or "bogus money." Most brokers have demo accounts where you can download their trading station and practice real time with bogus money. While this is no assurance of your performance with real money, practicing can give you a massive advantage to become improved prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to buy.
What Is Forex ?
The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders, exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage
Forex the Future Investment
There are many many rewards over the variety of other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the European and then the Asian. One of the huge times to trade is throughout the over lapping periods. The USA and European overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to deal.
The is also the risk issue for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But that wouldn't happen with a smarth trader.
Then there are the demo accounts which are an account where you can trade using all the right things, platform, charts, and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controlling 10,000 instead of 100,000.00 these are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
The is also the risk issue for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But that wouldn't happen with a smarth trader.
Then there are the demo accounts which are an account where you can trade using all the right things, platform, charts, and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controlling 10,000 instead of 100,000.00 these are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
About The Online Forex Trading
Some people have heard of this type of trading, others have not. If you haven't, it might be something you are interested in trying. Forex trading stands for foreign exchange trading. What it consists of is the buying and selling of different currencies. This is done simultaneously, and there are people who make a lot of money with this kind of trading. This is apparent by the 1.9 million dollar turnover in this market that happens every day. Also a lot of it is done online. Online Forex trading is very popular.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
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