FOREIGN EXCHANGE RATES
In finance, the exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 123 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 123 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day.The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.A market based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).Increased demand for a currency is due to either an increased transaction demand for money, or an increased speculative demand for money. The transaction demand for money is highly correlated to the country's level of business activity, gross domestic product (GDP), and employment levels. The more people there are out of work, the less the public as a whole will spend on goods and services. Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions.The speculative demand for money is much harder for a central bank to accommodate but they try to do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency. It has been argued that currency speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency in order to force that central bank to sell their currency to keep it stable (once this happens, the speculator can buy the currency back from the bank at a lower price, close out their position, and thereby take a profit).In choosing what type of asset to hold, people are also concerned that the asset will retain its value in the future. Most people will not be interested in a currency if they think it will devalue. A currency will tend to lose value, relative to other currencies, if the country's level of inflation is relatively higher, if the country's level of output is expected to decline, or if a country is troubled by political uncertainty. For example, when Russian President Vladimir Putin dismissed his Government on February 24, 2004, the price of the ruble dropped. When China announced plans for its first manned space mission, synthetic futures on Chinese yuan jumped (since China's currency is officially pegged, synthetic markets have emerged that can behave as if the yuan were floating).The foreign exchange markets are usually highly liquid as the world's main international banks provide a market around-the-clock. The Bank for International Settlements reported that global foreign exchange market turnover daily averages in April was $650 billion in 1998 (at constant exchange rates) and increased to $1.9 trillion in 2004 (Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity 2004 - Final Results). The biggest foreign exchange trading centre is London, followed by New York and Tokyo.
Monday, January 7, 2008
FOREIGN EXCHANGE MARKET
The foreign exchange (currency or forex or FX) market exists wherever currency of one country is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams.Economic factors affecting forex marketThese include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).Economic conditions include:Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
The foreign exchange (currency or forex or FX) market exists wherever currency of one country is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams.Economic factors affecting forex marketThese include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).Economic conditions include:Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
FOREX CAPITAL MARKET(FXCM)
Forex Capital Markets (FXCM) is the largest Forex Dealer Member(or financial services firm specializing in retail forex), supplying online trading services for retail speculators in the foreign exchange market. The company has 90,000 clients and over 400 institutional customers from more than 80 countries. Approximately 500 employees, based in offices in New York City, London, Dallas, San Francisco, Hong Kong, and Tokyo provide 24-hour, multi-lingual sales, dealing, administrative, and technical support 7 days a week.Retail forex is controversial because the high degree of leverage available in the market leads most retail traders to lose money, and because of the existence of many forex scams. Quoted in the Wall Street Journal regarding retail forex, (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "In November 2005, Forex Capital Markets (FXCM) became entrenched in the bankruptcy proceedings of Refco, Inc (OTC:RFXCQ). Refco, a big commodities brokerage that collapsed amid an accounting scandal, has been largely purchased by Man Group. At the time Refco owned a 35% share in FXCM. FXCM is currently backing a client-led lawsuit against REFCO.FXCM is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Ownership and regulatory information on FXCM are available at its National Futures Association (NFA) listing.Like most market makers, FXCM's revenues come from five main sources:The Spread - The difference between the spread FXCM quotes to clients and the spread FXCM receives from the banks they offset from. If FXCM is unable to match a buyer and seller internally, FXCM will, after the positions become sufficiently large, offset with larger banks that quote them cheaper spreads.Internal matching of client trades - If the spread is 3 pips, and FXCM is able to match a buyer and a seller internally, they collect 3 pips.Interest on client deposits (like most online brokers, such as E*TRADE, these are a dependable and large source of income)The firm's own speculative positions in the market.Losses on clients' trades that were never offset.Not all of the above apply to FXCM's "no-dealing-desk" trading option. In this set-up, trades are routed to other interbank market participants. FXCM then may not derive income from source two through five. This allows clients direct access to bank liquidity. However, all trades are still cleared through a dealing desk of some type as all banks have dealing desks.
Forex Capital Markets (FXCM) is the largest Forex Dealer Member(or financial services firm specializing in retail forex), supplying online trading services for retail speculators in the foreign exchange market. The company has 90,000 clients and over 400 institutional customers from more than 80 countries. Approximately 500 employees, based in offices in New York City, London, Dallas, San Francisco, Hong Kong, and Tokyo provide 24-hour, multi-lingual sales, dealing, administrative, and technical support 7 days a week.Retail forex is controversial because the high degree of leverage available in the market leads most retail traders to lose money, and because of the existence of many forex scams. Quoted in the Wall Street Journal regarding retail forex, (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "In November 2005, Forex Capital Markets (FXCM) became entrenched in the bankruptcy proceedings of Refco, Inc (OTC:RFXCQ). Refco, a big commodities brokerage that collapsed amid an accounting scandal, has been largely purchased by Man Group. At the time Refco owned a 35% share in FXCM. FXCM is currently backing a client-led lawsuit against REFCO.FXCM is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Ownership and regulatory information on FXCM are available at its National Futures Association (NFA) listing.Like most market makers, FXCM's revenues come from five main sources:The Spread - The difference between the spread FXCM quotes to clients and the spread FXCM receives from the banks they offset from. If FXCM is unable to match a buyer and seller internally, FXCM will, after the positions become sufficiently large, offset with larger banks that quote them cheaper spreads.Internal matching of client trades - If the spread is 3 pips, and FXCM is able to match a buyer and a seller internally, they collect 3 pips.Interest on client deposits (like most online brokers, such as E*TRADE, these are a dependable and large source of income)The firm's own speculative positions in the market.Losses on clients' trades that were never offset.Not all of the above apply to FXCM's "no-dealing-desk" trading option. In this set-up, trades are routed to other interbank market participants. FXCM then may not derive income from source two through five. This allows clients direct access to bank liquidity. However, all trades are still cleared through a dealing desk of some type as all banks have dealing desks.
FOREX MARKET SPACE
FXMarketSpace is the first centrally-cleared, global foreign exchange (FX) trading platform for the over the counter (OTC) market. It was formed through a 50/50 joint venture between Reuters and the Chicago Mercantile Exchange to serve the evolving needs of the FX market, including speed, efficiency, centralized clearing and complete anonymity.The joint venture was announced in May of 2006. On the 26th of March, 2007 the platform announced that it was fully operational and open for trading.Initially the platform enables trading in Spot FX across six major currencies - the Euro, Japanese Yen, British Pound, Australian Dollar, Swiss Franc, and Canadian Dollar against the US Dollar, as well as four cross-currency pairs.
FXMarketSpace is the first centrally-cleared, global foreign exchange (FX) trading platform for the over the counter (OTC) market. It was formed through a 50/50 joint venture between Reuters and the Chicago Mercantile Exchange to serve the evolving needs of the FX market, including speed, efficiency, centralized clearing and complete anonymity.The joint venture was announced in May of 2006. On the 26th of March, 2007 the platform announced that it was fully operational and open for trading.Initially the platform enables trading in Spot FX across six major currencies - the Euro, Japanese Yen, British Pound, Australian Dollar, Swiss Franc, and Canadian Dollar against the US Dollar, as well as four cross-currency pairs.
FX OPTION
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Most of the FX option volume is traded OTC but a fraction is traded on exchanges like the Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts.For example a GBPUSD FX option might be specified by a contract allowing the owner to sell £1,000,000 and buy $2,000,000 on December 31. In this case the pre-agreed exchange rate, or strike price, is 2.0000 GBPUSD or 0.5000 USDGBP and the notional is £1,000,000. This type of contract is both a call on dollars and a put on sterling, and is often called a GBPUSD put by market participants. If the dollar is stronger than 2.0000 GBPUSD come December 31 (say at 1.9000 GBPUSD) then the option will be exercised, allowing the owner to sell GBP at 2.0000 and immediately buy it back in the spot market at 1.9000, making a profit of (2.0000 - 1.9000)*1,000,000 GBP = 100,000 USD in the process. If he immediately exchanges his profit, this amounts to 100,000/1.9000 = 52,631.58 GBP
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Most of the FX option volume is traded OTC but a fraction is traded on exchanges like the Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts.For example a GBPUSD FX option might be specified by a contract allowing the owner to sell £1,000,000 and buy $2,000,000 on December 31. In this case the pre-agreed exchange rate, or strike price, is 2.0000 GBPUSD or 0.5000 USDGBP and the notional is £1,000,000. This type of contract is both a call on dollars and a put on sterling, and is often called a GBPUSD put by market participants. If the dollar is stronger than 2.0000 GBPUSD come December 31 (say at 1.9000 GBPUSD) then the option will be exercised, allowing the owner to sell GBP at 2.0000 and immediately buy it back in the spot market at 1.9000, making a profit of (2.0000 - 1.9000)*1,000,000 GBP = 100,000 USD in the process. If he immediately exchanges his profit, this amounts to 100,000/1.9000 = 52,631.58 GBP
Forex exchange regime::
The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors.The basic types are a floating exchange rate, where the market dictates the movements of the exchange rate, a pegged float, where the central bank keeps the rate from deviating too far from a target band or value, and the pegged exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S. dollar or the euro.Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves.
Foreign Exchange Dealers Coalition (FXDC)
The Foreign Exchange Dealers Coalition (FXCD) is an alliance of the largest U.S. foreign exchange market dealers. It was created to pool together industry resources to create awareness and recognition that forex dealers are a powerful choice for individuals who choose to speculate in financial markets.The FXDC partnership was formed in the fall of 2007 to demonstrate the viability of the forex industry and to ensure fair regulation and oversight that does not hamper freedom of choice, innovation or job creation.A forex dealer provides online trading services to allow individuals to speculate on rapidly changing foreign exchange rates. Forex Dealer Members (FDMs) are regulated by the CFTC and National Futures Association in the United States, as well as by national and local regulatory bodies where they conduct business, and are held to stringent business and ethical standards.Many U.S. and international companies provide online trading software and services for individuals (traders) who want to speculate on the exchange rate differences between two currencies. In doing so, these speculators buy or sell currencies with the objective of making a profit when the value of the currencies changes in their favor, whether those fluctuations derive from market news, supply and demand principles, or geo-political events taking place throughout the world. In addition, the forex market is available to trade 24 hours a day, 5.5 days a week, allowing traders more freedom to trade when they want to, not just when an exchange is open.
The Foreign Exchange Dealers Coalition (FXCD) is an alliance of the largest U.S. foreign exchange market dealers. It was created to pool together industry resources to create awareness and recognition that forex dealers are a powerful choice for individuals who choose to speculate in financial markets.The FXDC partnership was formed in the fall of 2007 to demonstrate the viability of the forex industry and to ensure fair regulation and oversight that does not hamper freedom of choice, innovation or job creation.A forex dealer provides online trading services to allow individuals to speculate on rapidly changing foreign exchange rates. Forex Dealer Members (FDMs) are regulated by the CFTC and National Futures Association in the United States, as well as by national and local regulatory bodies where they conduct business, and are held to stringent business and ethical standards.Many U.S. and international companies provide online trading software and services for individuals (traders) who want to speculate on the exchange rate differences between two currencies. In doing so, these speculators buy or sell currencies with the objective of making a profit when the value of the currencies changes in their favor, whether those fluctuations derive from market news, supply and demand principles, or geo-political events taking place throughout the world. In addition, the forex market is available to trade 24 hours a day, 5.5 days a week, allowing traders more freedom to trade when they want to, not just when an exchange is open.
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