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Live streaming Forex news and Market overview
Forex Market Overview
Background
The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of well over US$3 trillion or 50 times larger than the combined volume of all U.S. equity markets.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).FX transactions are always between two currencies, which are called currency pairs. For example, a common pair is EUR/USD.
When someone buys this, it means that they are buying Euros and selling US dollars.
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
FX Quotes
As with all financial products, FX quotes include a 'bid' and 'offer'. The 'bid' is the price at which a dealer is willing to buy (and clients can sell) the base currency for the counter currency. The 'ask' is the price at which dealers will sell (and clients can buy) the base currency for the counter currency. To illustrate a typical FX trade, consider the following example. The current bid/ask price for USD/CHF is 1.4627/1.4631, meaning you can buy $1 US for 1.4627 Swiss Francs. Suppose you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you would buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise. So you make the trade: purchasing US$100,000 and selling 146,270 Francs. (Remember, at 2% margin, your initial margin deposit would be $2,000.)As you expected, USD/CHF rises to 1.4835/40. You can now sell $1 US for 1.4835 Francs or buy $1 US for 1.4840 Francs. Since you bought Dollars and sold Francs in your previous trade, you must now sell Dollars for Francs to realize any profit. If you sell US$100,000 at the current USD/CHF rate of 1.4835, you will receive 148,350 CHF.
Since you originally sold (paid) CHF, your profit is 2080 CHF. To calculate Dollar-based P&L, simply divide 2080 by the current USD/CHF rate of 1.4840. Total profit = US $1313.13
Forex Market ParticipantsIn order to understand the FX market you need to understand the following market participants and their motivations:
Reserve
Banks
Hedge
Funds
Banks
Brokers
Individual & Retail Traders
Banks play an important role in FX trading and use the foreign exchange market to buy and sell currencies that are needed for foreign exchange for their customers, to hedge or protect against market movements on behalf of their customers (for example when an importer may wish to protect against adverse currency movements) as well as for trading purposes.
Reserve Banks: Reserve banks and central banks are responsible for managing the economy of their countries by setting interest rates and monitoring the development of main economic indicators like Inflation, Employment, production, consumer spending and many other important factors. They also may buy or sell on foreign exchange in an attempt to control the exchange rates. Reserve banks may make enormous trades that can quickly result in significant short term market movements.
Hedge Funds: Hedge Funds usually manage funds on behalf of wealthy investors. They may invest in a variety of financial instruments, including foreign currencies. Their motivation is speculative profit for their investors, as they earn their money from a percentage of profits earned.
Banks: A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Brokers: Brokers provide access to the FX market to individual traders. Typically banks and hedge funds have direct access to the market as they are a part of the market. A broker will provide account keeping services, execute trades and usually provides some software to place orders and allow you to look at current prices and charts. Brokers earn their profit by charging a spread. This is a difference between the buying and selling price. For example to buy EUR/USD, the price may be quoted 15/19, which means that the broker makes a spread of 4 basis points per trade. A trade is either buying or selling a foreign currency position.
Individual & Retail Traders: The number of active individual traders is increasingly rising in the FX markets. This is driven by the easy access to the market through the Internet and the opportunities available to earn significant profits with a relatively low capital investment
.Forex Advantages:
24-Hour/5 days a week trading:A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic and political events at the time they occur - day or night.
Enormous Liquidity: An enormous liquid market making it easy to trade huge amounts of currencies in a matter of seconds. The global FX market is very liquid due to its huge size and turnover. This means that you can easily enter or exit trading positions at the current market price whenever the market is open
A volatile market like FX market offers many profit opportunities: FX markets can show significant price movements, so there is a potential for large profits and losses. This leverage and price volatility gives you an opportunity to make a high return on your money, or conversely make significant losses.
A two way market: A FX trader has the ability to profit in rising or even falling markets.
Openness and transparency: The FX market is one of the most transparent markets in the world. This means that any information that affects the market prices is available to all market participants. Small FX traders have access to the same information that large institututional traders use.
Leveraged trading with low capital requirements: A trader can open an account with less than $1,000. Since your position is leveraged (that is you transact on margin), you can trade a position of up to $100,000 for every $1,000 of your own money (The real money has leveraged by 100 times). Some brokers also offer mini-contracts which have a margin of only $100 which allows you to trade a position of $10,000.
Simple administration: FX trading is automated, and you can easily trade through the Internet 24 hours a day while the market is open. There is no need for retail premises, or to employ staff. When you want a break, you can simply close your positions and stop trading. There is no paperwork as this is also automated. You can view your positions and account balance on-line. You can easily start trading part time without having to leave your current job or business.
Minimal regulation: Many people who open their own business spend a lot of time and money in complying with a range of government regulations, filling in returns and keeping up to date with various laws. In comparison, FX trading is the essence of free market capitalism and you really don't need to get involved in boring government work.
Zero-commission trading: This is possible because there are no brokers but only FX dealers. So how do the traders make their money? The dealer pockets the difference between the bid/ask spread.
Unlimited geographical access: Anyone with an internet connection can trade the FX market. This is regardless of where you residing or what your country time-zone is.
What Moves Forex Prices?
Forex market prices move constantly. This is due to the different expectations of market participants, and the imbalance between buyers and sellers. If buyers and sellers were perfectly balanced, there would be no price movement. Where there are more buyers than sellers, prices move up, and where there are more sellers than buyers, prices move down.
Unlike commodities and shares, there is no intrinsic value in currencies. This means that market movements up or down can be very large, and the value of a currency is determined purely by supply and demand. Expectations of participants are driven by market information, such as the release of key economic data. This information is immediately acted upon and reflected in prices. Prices represent the market’s consensus. Current market prices reflect all the publicly available information, whether it is economic data, or the activities of buyers and sellers. Usually, there is a longer term price movement (either in the same direction as the immediate move, or against it) as market information is slowly interpreted and analyzed in more detail. However, professional traders consistently make long term profits without taking on any more risk than other market participants. They make money by having a different interpretation of prices than the market consensus, as a result of better analysis of publicly available information and trading techniques, and because of better quantification and management of risk. Some traders will look for regularly occurring patterns, and trade based on these. This can result in a self fulfilling prophecy, because many traders act on the same patterns.
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