While all the major currencies continue to provide mix results, there is still one extremely strong in the forex market – the bullish Gold. During last night gold reached over $1,163 an ounce, making another all time high. However, a recovery of the Dollar, if indeed takes place, has the potential to put an end to Gold’s uptrend.
Forex Highlights
USD – Is the Dollar Recovering?
EUR - Euro’s Bullishness Halts
JPY – Yen Strengthens on Positive Japanese Data
OIL – Oil’s Range Trading Continues; Tension in the Middle East Rises
Friday, January 8, 2010
Saturday, January 2, 2010
Types of foreign exchange trading
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Foreign exchange operations..
Foreign exchange trading operations will be explained
with the aid of the next diagram. The type of operation
selected depends on the date set for delivery of
the currency. As a general rule, four types of operations
are used: spot transactions, forward transactions,
swaps and futures.
Spot transactions are the basic type of foreign
exchange operation. Under spot agreements, both
parties fulfil their obligations two working days after
conclusion of the trade. In the old days, the two-day
period between conclusion and execution of the
agreement was required for completion of the accompanying
paperwork. Although this no longer applies
in the same way, the traditional system has been
retained. In principle, spot transactions can also be
concluded for execution on the next working day or
even for the same day. However, in such cases, slightly
modified prices are used instead of the normal spot
prices. The premium/discount to the spot price
depends on the interest rate for the currencies concerned.
Before we turn to transactions covering more
than two working days, let us take a closer look at
how spot transactions work. The various stages to
the settlement of a spot transaction will be illustrated
by means of an example. Let’s assume that a further
decline in US inflation has been announced on the
previous day. A low inflation effects generally a
higher valuation of the underlying currency. Let us
assume that yesterday’s closing rate for the USD/CHF
was 1.3810/1.3820, while New York closed at
1.3855/1.3865 and the exchange rate in the Far East
is currently 1.3860/1.3870. If a bank in, for example,
Frankfurt asks for a quote, the trader will quote a
slightly higher price, for example 1.3865/1.3875. If
no transaction is concluded, it may be assumed that
the bank considered the exchange rate quoted to
be correct. Accordingly the trader will not modify it.
This is what traders call “par” or “parity.”
Foreign exchange trading operations will be explained
with the aid of the next diagram. The type of operation
selected depends on the date set for delivery of
the currency. As a general rule, four types of operations
are used: spot transactions, forward transactions,
swaps and futures.
Spot transactions are the basic type of foreign
exchange operation. Under spot agreements, both
parties fulfil their obligations two working days after
conclusion of the trade. In the old days, the two-day
period between conclusion and execution of the
agreement was required for completion of the accompanying
paperwork. Although this no longer applies
in the same way, the traditional system has been
retained. In principle, spot transactions can also be
concluded for execution on the next working day or
even for the same day. However, in such cases, slightly
modified prices are used instead of the normal spot
prices. The premium/discount to the spot price
depends on the interest rate for the currencies concerned.
Before we turn to transactions covering more
than two working days, let us take a closer look at
how spot transactions work. The various stages to
the settlement of a spot transaction will be illustrated
by means of an example. Let’s assume that a further
decline in US inflation has been announced on the
previous day. A low inflation effects generally a
higher valuation of the underlying currency. Let us
assume that yesterday’s closing rate for the USD/CHF
was 1.3810/1.3820, while New York closed at
1.3855/1.3865 and the exchange rate in the Far East
is currently 1.3860/1.3870. If a bank in, for example,
Frankfurt asks for a quote, the trader will quote a
slightly higher price, for example 1.3865/1.3875. If
no transaction is concluded, it may be assumed that
the bank considered the exchange rate quoted to
be correct. Accordingly the trader will not modify it.
This is what traders call “par” or “parity.”
Principles of foreign exchange dealing
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To be able to explain how foreign exchange dealing
actually happens in practice using a number of examples,
it is important to understand some of the principles
underlying the money market transactions
involved. In addition to exchange rate quotation, this
chapter also explains how dealers manage positions,
and describes the most fundamental operation of all,
the spot transaction.
In the introduction to this booklet, the exchange rate
was defined as the price of a foreign currency in
domestic currency units. This definition of an exchange
rate is also termed a “direct quotation,” and
is used by most countries. The price of (as a rule) one
hundred units of foreign currency, but only the price
of one unit in the case of the dollar and sterling, is
quoted in the domestic currency. In Switzerland,
therefore, foreign currencies are quoted in CHF, but
there are exceptions to this rule. Since the decimal
system was not used in Britain in the early years, the
equivalent of sterling was quoted in the foreign currency.
This method is known as “indirect quotation.”
Even today, sterling is still quoted indirectly.
To ensure that the market functions smoothly, it
needs other conventions. In professional foreign
exchange dealing between banks, dealers normally
quote dollar rates. This means that the values of the
various local currencies are expressed by indicating
the price of one USD in the local currency. For
instance, in response to an inquiry from Zurich at a
Norwegian bank about its NOK rates, the Norwegian
dealer will not quote the rate for the CHF against
the NOK, but of the USD against the NOK.
This method of quoting currencies in dollar rates,
standard practice since the 1950s, has had a serious
impact on the meaning of arbitrage in foreign
currency operations.
actually happens in practice using a number of examples,
it is important to understand some of the principles
underlying the money market transactions
involved. In addition to exchange rate quotation, this
chapter also explains how dealers manage positions,
and describes the most fundamental operation of all,
the spot transaction.
In the introduction to this booklet, the exchange rate
was defined as the price of a foreign currency in
domestic currency units. This definition of an exchange
rate is also termed a “direct quotation,” and
is used by most countries. The price of (as a rule) one
hundred units of foreign currency, but only the price
of one unit in the case of the dollar and sterling, is
quoted in the domestic currency. In Switzerland,
therefore, foreign currencies are quoted in CHF, but
there are exceptions to this rule. Since the decimal
system was not used in Britain in the early years, the
equivalent of sterling was quoted in the foreign currency.
This method is known as “indirect quotation.”
Even today, sterling is still quoted indirectly.
To ensure that the market functions smoothly, it
needs other conventions. In professional foreign
exchange dealing between banks, dealers normally
quote dollar rates. This means that the values of the
various local currencies are expressed by indicating
the price of one USD in the local currency. For
instance, in response to an inquiry from Zurich at a
Norwegian bank about its NOK rates, the Norwegian
dealer will not quote the rate for the CHF against
the NOK, but of the USD against the NOK.
This method of quoting currencies in dollar rates,
standard practice since the 1950s, has had a serious
impact on the meaning of arbitrage in foreign
currency operations.
Currency market analysis is a key economic discipline
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After all, the currency markets influence
many areas of our daily life. Their
impact extends beyond imports and
exports to factors that have an indirect
effect on us, e.g. the relationship between
interest rates and exchange
rates. These in turn influence economic
decisions that apparently have
nothing to do with foreign trade.
Changes in exchange rates are one
of the major risks to which companies
and investors are exposed. It is thus
impossible to imagine company managers
or asset managers ignoring the
risks inherent in a shift in exchange
rates.
many areas of our daily life. Their
impact extends beyond imports and
exports to factors that have an indirect
effect on us, e.g. the relationship between
interest rates and exchange
rates. These in turn influence economic
decisions that apparently have
nothing to do with foreign trade.
Changes in exchange rates are one
of the major risks to which companies
and investors are exposed. It is thus
impossible to imagine company managers
or asset managers ignoring the
risks inherent in a shift in exchange
rates.
Currency Codes
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* USD = US Dollar
* EUR = Euro
* JPY = Japanese Yen
* GBP = British Pound
* CHF = Swiss Franc
* CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
* AUD = Australian Dollar
* NZD = New Zealand Dollar
* EUR = Euro
* JPY = Japanese Yen
* GBP = British Pound
* CHF = Swiss Franc
* CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
* AUD = Australian Dollar
* NZD = New Zealand Dollar
Forex Market
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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
Source: BIS Triennial Survey 2007
Trading Hours
* 24 hour market
* Sunday 5pm EST through Friday 4pm EST.
* Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America.
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
Source: BIS Triennial Survey 2007
Trading Hours
* 24 hour market
* Sunday 5pm EST through Friday 4pm EST.
* Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America.
Forex Broker World Wide
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Australia , Bangladesh , Brazil , Bulgaria , Canada , China , Denmark , Egypt ,Estonia , Hong Kong , Hungary , India , Iran , Japan , Malaysia , New Zealand , Oman , Pakistan , Philippines , Poland , Qatar , Russian , Federation , Saudi Arabia , Singapore , Sweden , Switzerland , United Arab Emirates , United Kingdom , United States of America.
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