The Forgotten Commodity that could turn ever $600 you invest into a whopping $39,750 in just a few short years.
If my projections are correct, an $18,000 investment could grow into $1,170,000 in less than 10 years.
But don't take my word for it. I want to send you a FREE report containing irrefutable evidence why this stealth commodity is on the verge of an explosion that could make you incredibly rich!
Don't worry, you won't have to trade the commodity if you don't want to, I'll give you the name of a stock traded on a US exchange that could easily move 600% as the bull market in this commodity gets underway.
My research is based on a well-documented discovery that has completely revolutionized market timing and can turn your sluggish portfolio into a cash-generating magnet.
In fact I first began recommending The Forgotten Commodity as an investment opportunity on August 31, 2006. Over the next 6 months it would move 72% turning every $600 invested into a whopping $9,650.
Now the Forgotten Commodity has pulled back and is offering a second chance to get on board. But I'm afraid this could be the last chance. The next leg up could quadruple the price of this commodity and turn every $600 originally invested into a mind-boggling $39,750.
Here's the kicker, it could happen very quickly. Commodities aren't like stocks, they are super sensitive to supply and demand. When supply becomes scare a commodity will move like a bat out of hell. The move is almost always parabolic and occurs very quickly. So the opportunity here is very time sensitive.
In just a moment I'll tell you how you can get your hands on this report absolutely FREE, but first let me tell you why I believe this is the best investment opportunity I've seen in the last 10 years.
The Forgotten Commodity has nothing to do with gold, silver, oil, natural gas, or any other mainstream commodity. For the last 30 years, this commodity has taken a serious beating but it has finally hit bottom and is in the early stages of a new 3 - 10 year bull market.
It reminds me of oil and precious metals back in 1999. They were sitting at 20-year lows and no one would touch them. Of course, that was the best time to buy. Now they've tripled in price and the opportunity just isn't the same.
Sure, gold and silver have more upside, and maybe oil too, but the big money is always made in the beginning stages of a new bull market, not after everyone knows about it.
Supply is scarce and demand is running amok!
Right now, the world supply of the Forgotten Commodity is scarce, in fact it sits at a 34-year low. But that's only half the problem. An even bigger problem is the fact that a newly discovered application for this commodity is ballooning demand out of control.
According to government projections, demand is expected to grow by 20 million tons this year alone, of which 14 million tons will be gobbled up by this new industry – leaving only 6 million tons for world consumption. It's what I call a “perfect storm” that will send this commodity to dizzying heights.
The forgotten commodity has nearly doubled in price since I first began recommending it, but the bull market is still in it's infancy. I expect the price to increase 10-fold in the next 3 to 5 years.
Getting in now puts you among an elite group of the smartest investors in the world who are now building massive positions in this undetected commodity which, in my opinion, will create more millionaires than Microsoft, Oracle, Dell, and Cisco combined.
Billionaires Richard Branson, Paul Allen, Vinod Khosla, and Bill Gates have all placed huge bets on the Forgotten Commodity. Goldman Sachs just dumped 27 million into a privately held company that stands to profit handsomely as this commodity continutes to rise.
Legendary investor and hedge fund manager Jim Rogers says the Forgotten Commodity is where the big gains are to be made over the next 5-10 years.
Right now, you can scoop up the Forgotten Commodity at bargain basement prices, but that is changing fast. So you must act fast!
The most important discovery in the history of the market!
Dear Friend,
My name is Shane Rawlings and for the last decade I've successfully traded stocks, options, and futures using virtually every technical and fundamental indicator available. The challenge with traditional analysis methods is that they only work in certain market conditions and fail miserably in others. Or they give trading signals too late, once the big move has already happened.
I wanted to find something that worked, regardless of market conditions … regardless of time frame. Something that anticipated the market, allowing me get on board the biggest market moves.
In my quest for the “holy grail” of trading, almost by accident I stumbled across an obscure price pattern that has unlocked the natural order of the market.
In my opinion, this discovery is the most important find in the history of the market. One that allows you to predict with razor sharp precision when a market is about to reverse directions and make an explosive move, often as much as 30% to 100% in a matter of weeks.
As impressive as these gains are they pale in comparison to the opportunity that exists right now in the Forgotten Commodity. It's one of the strongest signals I've ever seen. But it gets even better. Three additional commodity markets are also flashing huge buy signals, I'm going to include these additional commdities absolutely free when you send for your FREE copy of The Forgotten Commodity. But you must act fast. If you wait, the opportunity just won't be the same.
Certain investment opportunities only come along once in a lifetime, these opportunities can make you incredibly wealthy. Those who bought gold in 1976 at $125 an ounce increased their wealth six- fold by 1980. Had you bought equities in 1982 you became ultra-rich over the next 18 years.
I believe the opportunity that exists right now in The Forgotten Commodity will create more wealth than buying gold in 76 or equities in 82.
But its not just the Forgotten Commodity that can make you incredibly rich. As you begin to apply this ground-breaking discovery to your own trading, regardless of whether you trade stocks, options, commodities, or currencies, you will watch your profits sky-rocket by as much as $10,000, $20,000, and even $30,000 per month.
Whether you're a short-term swing trader, position trader, or long-term investor this secret will give you an almost unfair advantage over those who don't use it. It practically makes trading a science.
Sound Too Good To Be True
I'll admit it's hard to believe. I don't know if I'd believe it either if I hadn't seen it work over and over again and produce astonishing profits in just about every market. Now I'm convinced. I know when you see it first hand, you'll be a believer too. More important you'll be much richer than you are today.
Don't take my word for it look what others are saying
I finally decided to start actually using these tools to buy and sell stocks, stock options, and commodity options. Over the last year I have seen an original investment of $20,000 grow to over $150,000. I've cashed in and am selecting more trades to make. What you have taught me is truly amazing.
Scott J.
Sarasota, FL
In July I bought 40 OEX call options at a debit of $2.50. I sold it for a credit of $13.10 a gain of 424% netting me $42,000. On August 6, I bought 40 OEX call options for $7.00. Two days later I sold them for $15.00 netting me an additional $32,000! Before I got your system I had lost $200,000 in my trading. Since then I have not lost a penny from trading.
Stephen L.
Markham, Ontario CAN
In the last five months I'm up over 53% on my entire portfolio. My daily average is $351 dollars and this month I've already made just under $12,000 and the month is only half over. At this pace, I'll easily make over $100,000 this year from trading. I couldn't have done it without your system.
Donald S.
Napean, Ontario CAN
Yesterday morning I bought the August 22.5 calls on ARO for $1.12. The price of the stock gapped up as expected and I sold for $2.40 netting me over 100% in one day. I also bought the August 17.5 calls of BEBE for $1.35. The stock gapped up strongly in the morning and continued to run up. I sold for $4.10 shortly after market open realizing roughly a 200% gain overnight. Thanks for all your help, the course you put together is really great!
Peter Birchler
Overland Park, Kansas
I just wanted to take a minute and say thanks to you for taking the time to share your knowledge with us. I used it quite nicely this past week! I bought 10 MATK puts at $1.30 and then 10 more at .60 cents and sold them for $21.00 or $42000!!!! I think my investment in your course has more than paid for itself! Thanks again and happy trading!
Dave Kasko
We have put our condo up for sale and yesterday we purchased a new motor home and took delivery of a new lap top computer. I will go in to work this week and discuss with them how much time they will want to replace me! My wife and I have always dreamed of full timing it in a motor home...so here we go! The results from trading are convincing enough for me that I no longer have any fears about the financial future ...I know that I now have a means by which I can make 8,000.00 to 12,000.00 a month if I need to with only a $40,000.00 purse. Not only that, I am having fun!! I have cleared $10,000.00 since I started in November. Thanks, big time.
Hal M .
Richmond, MI
I targeted two stocks in August that looked to me like they might break out. I purchased the 22.50 August call options on FWHT at $0.96 per contract. I sold them yesterday at $4.30 a contract for a 345% return in 21 days. The profit I earned was $11,500 after commissions. This was my first trade, so after one trade, needless to say, I more than paid for the course materials. My second position is with LEND and is up 750% as of right now. Earning me an additional $5,500. I wanted to say thank and feel free to share this success story with your co-workers and students.
Eric K.
Carol Stream, IL
So What Is This Secret Anyway?
I can't say too much without giving away the proprietary nature of this secret but I can tell you this, it is a price pattern based on a discovery made by a stock trader in the early 1900's who published his secret in a book which he sold for over $1,500 – the equivalent of three Ford automobiles in his day.
He only sold 1,000 copies and then stopped printing the book. This may have been to keep his secret from becoming too widely publicized. Because so few copies were ever sold, his greatest trading secret is just as effective today as when it was first released.
No this pattern has nothing to do with traditional patterns like head and shoulders, triangles, or wedges – not even close. Although in his book he devotes hundreds of pages to explain these, and other trivial patterns.
In my opinion this was done as an elaborate smoke screen...a goose chase...designed to divert your attention away from his most prized trading secret. In fact, his book is over 440 pages long and he only dedicates 1 page to the disclosure of this incredible trading secret. If you aren't paying attention, you'll skip right over it. That is if you can locate a copy of his book.
This secret completely demystifies the market and can make you very very rich.
No this trader is not the legendary W.D. Gann, this trader kept his secrets much more private. Although it is believed he knew Mr. Gann and may have actually influenced some of Mr. Gann's ideas.
How I Discovered And Perfected This Secret
I'll admit, I'm not the first person to realize the significance of this discovery. I know of a handful of other traders who have attempted to use it, but with only marginal success. You see they lack one key ingredient – an ingredient that was never revealed in the book itself...but I believe was understood by the author.
This ingredient is the missing link and makes the difference between average profits and downright obscene profits. After nearly ten years of back-breaking research...gazing at thousands of stock charts...relentlessly crunching numbers...and doing rigorous back-tests – I've uncovered what I believe is the missing link – the key to picking market tops and bottoms virtually every time.
You see there are certain mathematical relationships – a code if you will – that tells you exactly when this pattern is likely to signal a trend reversal. I call it “The Profit Forecasting Code”.
Don't worry, it's not based on difficult equations or anything like that. It's actually very simple, any fourth-grade kid can do the calculations using nothing more than a pencil and piece of paper. And the whole thing can be done in less than 15 minutes a day.
I've seen many traders take a bath trying to pick a top or bottom using traditional analysis methods. Without the Profit Forecasting Code, picking tops and bottoms is worse than sharp-shooting with a shotgun. It's extremely dangerous and can be a bloody mess.
So I've broken down the Code into a handful of simple, straightforward rules that anyone can use to pinpoint market tops and bottoms with uncanny precision. I've compiled these rules and published them in my new manual The Profit Forecasting Code.
Armed with the Code you'll know days to weeks in advance the exact price at which a stock, commodity, or currency is likely to reverse directions and make a monster size move in the opposite direction, giving you the opportunity to reap huge rewards.
The Profit Forecasting Code is like having a copy of tomorrows Wall Street Journal – Today! It gives you a window into the future and predicts market moves that are just plain staggering.
It has already turned every $600 invested in the Forgotten Commodity into a whopping $9650 in only 9 months and the bull market is just getting started. Eventually every $600 invested could easily become worth $39,750.
The 14 investing principles you are guaranteed to learn in your FREE copy of The Profit Forecasting Code
Nail 5 out of 7 market tops and bottoms with this one, almost-magical indicator. Pages 56-58
Insure your stocks from market crashes – with no money of your own. Page 106
Make $8,600 in profit per $1,000 risk. Page 18
Immediately double your annual returns with this little known secret. Page 66
Potentially control $58,498 worth of Microsoft for only $440 dollars. Page 81
Double and Triple your money with only a 5% to 10% move in the stock. Page 86
Trade stocks with less risk. This strategy has limited risk, with unlimited profit potential. Page 69
Clean up when the market crashes using a limited risk strategy with virtually unlimited profit potential. Page 87
Start with as little as $300 and watch it double and triple in just a few short days. Page 70
Pounce profits out of the “Johnny come lately” type traders…and investors…using 4 unique sentimental indicators. Page 61-63
Turn your IRA or portfolio into a cash-cow with a strategy Value Line calls "the most attractive option strategy". Page 98
Routinely lock in profits without using a stop loss – this assures you'll never be stopped out of the biggest market movers. Page 93
Create a NO-RISK trade with as much as a 15%-20% per year upside potential. When this opportunity rears its head, it's a guaranteed winner every time. Page 108
Nice…easy…and steady profits with as high as a 90% win ratio. This strategy is so safe it can even be done in your IRA, or your kids custodial IRA. Page 103
Build Your Own Fortune!
Whether you like to trade stocks, commodities, futures, or options the secrets I'm going to reveal to you when you send for your risk-free copy of The Profit Forecasting Code will give you the opportunity to amass a huge personal fortune – even if you are starting with next to nothing!
More, it does not take 10, 20, or 30 years to grow wealthy, you can do it quickly, while you're still young enough to enjoy it, whether the stock market is going up or down.
The publisher price for The Profit Forecasting Code is $95, but as part of a special introductory offer I'm letting it go for the ridiculously low price of $39.95.
That's right, for less than dinner and a movie you can get your very own copy of The Profit Forecasting Code where I reveal to you what I consider to be the most important discovery in the history of the market.
When you send for your 100% risk-free copy of The Profit Forecasting Code I'm including absolutely FREE a copy of my exclusive report The Forgotten Commodity. You can trade the commodity itself, or buy the stock I give you that could increase 600% as the bull market in this commodity continues. Either way, The Profit Forecasting Code will pay for itself a hundred times over.
The information in The Forgotten Commodity report could potentially make you a millionaire in a few short years. But it's not for sale at any price. I'm only making it available to readers of The Profit Forecasting Code. So Don't delay. Take me up on this once-in-a-lifetime opportunity and send for your 100% risk-free copy today!
1 Year Iron-clad 100% Money-Back Guarantee
I'm so convinced that The Profit Forecasting Code will sky-rocket your profits and completely change your trading results that I'm backing it up with a full 12-month 100% unconditional money-back guarantee. Get my new system, read it, use it, learn all of my most coveted trading secrets and even haul in thousands of dollars in trading profits. If for any reason, at any time within the first 12 months you aren't completely satisfied simply return the course and I'll refund every penny you paid me, including your shipping & handling charges.
People have told me I'm crazing for making this offer, but I want you to have plenty of time to use The Profit Forecasting Code and prove to yourself how amazing this discovery truly is. I know once you start using The Profit Forecasting Code you'll never send it back because you'll be much richer than you are today!
Send NO Money
I'm sure you're still a little skeptical, and I don't blame you. If I hadn't seen this system work over and over with my own eyes I don't know that I'd believe it either. That's why I want you to see for yourself how incredible this system really is. So I'm inviting you to sample this incredible trading secret absolutely FREE for the next 30 Days.
Don't make any financial decisions right now. The wrong decision could cost you tens of thousands of dollars, maybe even hundreds of thousands of dollars.
Just say “YES” to my 100% risk-free 30-day trial offer and I'll immediately rush you The Profit Forecasting Code! Absolutely FREE!
Flip through the pages. Learn this little-known trading secret that can boost your profits by $10,000, $20,000 and even $30,000 per month. If you decide you don't want it, for any reason, just send it back and owe nothing.
But if you agree, The Profit Forecasting Code is exactly what you need to be a more successful trader, do nothing. At the end of 30 days your credit card will be conveniently billed one time for $39.95 + $5 shipping. That's over 50% off the regular price of $95. But more important, you can continue using this proven money-maker forever.
By the way, this incredible discovery I have worked so hard to uncover and perfect is found on pages 49-60 in The Profit Forecasting Code. (you may want to write those pages down so you know immediately where to look when you get your FREE copy)
Plus – A FREE $247 Bonus If You Order Right Now!
If you respond before Wednesday, February 6, 2008 you'll receive 2 special bonuses valued at over $247 absolutely FREE!
First - You'll receive your very own copy of my latest report Rock Bottom Stocks. ($49 value) In this exclusive report I reveal to you the names of 3 companies that are on the brink of an enormous move that could potentially double your portfolio in the next year.
Not only do I give you the specific ticker symbol for each company, your report also comes with a detailed analysis showing you the application of this secret price pattern and why I feel these 3 opportunities are practically in the bag. Two of the companies have already moved about 15% from where I first recommended them but I expect all three companies to move between 100% and 300% so you haven't missed anything yet,
but I expect them to take
off soon so don't delay.
Second - you'll receive a FREE 60-day trial subscription to The Virtual Investing Club, my latest stock and option picking service. Before I buy anything I'll notify you of explosive patterns that are setting up, this same pattern uncovered SWHC up 308% in 17 months, RGR up 163% in 13 months, CTB up 168% in 9 months, and BNVI up 284% in 3 months.
In addition to sending you the stocks I'm trading, I'll also send you short-term trading opportunities utilizing options. In the last 9 months our option picks have produced a staggering 331% return turning every $10,000 invested into a whopping $43,000. At that rate a $10,000 account grows into $2,560,000 in just 4 short years.
During your FREE 60-day trial I'll also alert you to potentially profitable opportunities in the commodity and future markets, like the one that exists right now in the Forgotten Commodity. And finally you'll receive weekly market timing updates on all major markets including equities, precious metals, gas & oil, bonds & rates, and various other markets.
You get two full months absolutely FREE with no obligation to continue. These picks I'll send you, during your FREE 60-day trial, have the potential to earn you between 50% and 300% on your money. ($198 value)
That's $247 in FREE Bonuses, Plus The Forgotten Commodity Report, just for taking The Profit Forecasting Code for a FREE 30-Day Test Drive!
Why Share it?
On occasion I've been asked “If this is so good why share it, why not just trade it?” My response - “why not do both?” I consider myself very fortunate to have stumbled across this incredible trading secret – it has completely turned my trading career around and made me a very wealthy individual.
I love to hear from other traders who have become wealthy using my system – nothing is more rewarding. So please write and share your success.
Learn this incredible money-making secret with the potential to make you millions starting right now!
Don't Wait! Get your Free Copy of The Profit Forecasting Code Today! Don't Miss Out On The Next Big Stock Explosion!
Yes, please rush me my free copy of The Profit Forecasting Code, The Forgotten Commodity,
and my 2 Additional Bonus Items
Valued at $247 at No Cost Whatsoever!
Monday, February 4, 2008
Dollar ends sharply dearer against Rupee
Volatility at peak during 3-day market crash
31 Jan, 2008, 0750 hrs IST,Ashish Agrawal, TNN
While the magnitude of market crash last week was itself unparallel, the sharp rise in intra-day volatility of the stocks during the first three days of the week had been equally devastating.
On Tuesday, the second day of sharp meltdown, Reliance Natural Resources saw an intra-day volatility of 66%, the highest, closely followed by Neyveli Lignite, at 62.3%. The significance of the number is evident from the fact that this volatility is almost 10 times the average intra-day volatility over previous 365 days.
While intra-day volatility was maximum on Tuesday, even Monday saw volatility of up to 48%, and Wednesday, when market saw respectable recovery, the volatility was up to 40%.
Volatility refers to the variation in the value of the stock and thus measures its instability. While there are complicated mathematical ways of calculating volatility, a simple method is by looking at the highest and lowest value of the stock.
A 66% intra-day volatility means that a stock, which touched a high of Rs 100, saw a low of Rs 50 during the day. A high of Rs 100 and a low of Rs 60 would imply a volatility of 50%.
The phenomenon was not restricted to some sectors or some specific stocks and most of the stocks were badly mauled. This is evident from the fact that for 100 companies with m-cap of more than Rs 10,000 crore, average intra-day volatility has moved up to 25% on this particular day, from 4.3% during the year. For nearly 400 companies in the m-cap range of Rs 1,000-10,000 crore, the volatility has moved up from 4.9% to 22.9%.
Also Read
à No returns for issues with over 50-times QIB subscription
à Mkt fall: Many young investors lost money
à Investors needn't foot MF issue bill
à US Fed cuts base rate by half-point to 3%
à Damodaran roots for retail investors
à Reliance Power premium takes a hit
à Wockhardt IPO price band at Rs 225-260
Apart from the panic selling, significant increase in open interest in the F&O market, over last few months aggravated this sharp jump in intra-day volatility. This led to unwinding of these positions with the sharp meltdown on Monday, triggering a collapse on Tuesday.
The analysis shows that among the sectors, metals, energy, power and IT were the worst hit. However, intra-day volatility of the indices has been much lower, despite high volatility of individual stocks. Because of large composition of the index, where some stocks may have seen less volatility.
Among the indices, only BSE mid-cap index had an intra-day volatility nearly 10 times that of yearly average. For the index, the volatility went up to 16.9% from yearly average of 1.7%. BSE auto index was, surprisingly the other index, to see maximum change in volatility, recording nearly seven times increase in volatility over the yearly average.
31 Jan, 2008, 0750 hrs IST,Ashish Agrawal, TNN
While the magnitude of market crash last week was itself unparallel, the sharp rise in intra-day volatility of the stocks during the first three days of the week had been equally devastating.
On Tuesday, the second day of sharp meltdown, Reliance Natural Resources saw an intra-day volatility of 66%, the highest, closely followed by Neyveli Lignite, at 62.3%. The significance of the number is evident from the fact that this volatility is almost 10 times the average intra-day volatility over previous 365 days.
While intra-day volatility was maximum on Tuesday, even Monday saw volatility of up to 48%, and Wednesday, when market saw respectable recovery, the volatility was up to 40%.
Volatility refers to the variation in the value of the stock and thus measures its instability. While there are complicated mathematical ways of calculating volatility, a simple method is by looking at the highest and lowest value of the stock.
A 66% intra-day volatility means that a stock, which touched a high of Rs 100, saw a low of Rs 50 during the day. A high of Rs 100 and a low of Rs 60 would imply a volatility of 50%.
The phenomenon was not restricted to some sectors or some specific stocks and most of the stocks were badly mauled. This is evident from the fact that for 100 companies with m-cap of more than Rs 10,000 crore, average intra-day volatility has moved up to 25% on this particular day, from 4.3% during the year. For nearly 400 companies in the m-cap range of Rs 1,000-10,000 crore, the volatility has moved up from 4.9% to 22.9%.
Also Read
à No returns for issues with over 50-times QIB subscription
à Mkt fall: Many young investors lost money
à Investors needn't foot MF issue bill
à US Fed cuts base rate by half-point to 3%
à Damodaran roots for retail investors
à Reliance Power premium takes a hit
à Wockhardt IPO price band at Rs 225-260
Apart from the panic selling, significant increase in open interest in the F&O market, over last few months aggravated this sharp jump in intra-day volatility. This led to unwinding of these positions with the sharp meltdown on Monday, triggering a collapse on Tuesday.
The analysis shows that among the sectors, metals, energy, power and IT were the worst hit. However, intra-day volatility of the indices has been much lower, despite high volatility of individual stocks. Because of large composition of the index, where some stocks may have seen less volatility.
Among the indices, only BSE mid-cap index had an intra-day volatility nearly 10 times that of yearly average. For the index, the volatility went up to 16.9% from yearly average of 1.7%. BSE auto index was, surprisingly the other index, to see maximum change in volatility, recording nearly seven times increase in volatility over the yearly average.
Friday, February 1, 2008
Until the late 1990's, large financial institutions dominated the Forex market. Over the last several years the market has witnessed a dramatic evolution, with independent firms offering access to the forex market via internet-enabled trading platforms. Individual investors are now tapping into the FX market, with access to the same market data and tools used by institutions, hedge funds and professional traders.
In some ways, Forex is very similar to other financial markets. For example, Forex is traded with recognizable patterns and clearly-defined technical applications, comparable to those found in stock trading.
But the real advantages of Forex trading are obvious in the market's unique features. Forex attracts so much investor interest due to the many advantages not found in other financial markets, such as:
Up to 200:1 Leverage
With more buying power, you can increase your total return on investment with less cash outlay. Of course, increasing leverage increases risk. With $1,000 cash in a margin account that allows 200:1 leverage (.5%), you can trade up to $200,000 in notional value.
Trade on Your Schedule; Respond to Changes in the Market
Forex is a true 24-hour market, open continuously from 5:00pm ET on Sunday to 5:00 pm on Friday. With three distinct trading sessions in the US, Europe and Asia, you can trade on your own schedule and respond to breaking news.
At $3.2 Trillion Per Day, Forex is the Most Traded Market in the World
The sheer volume of Forex helps to facilitate price stability in most market conditions. What's more, almost 85% of all currency transactions involve the 7 major currency pairs.
To benefit from these market advantages, beginner and experienced individual investors trade with FOREX.com. Dedicated to advancing trader education, FOREX.com offers extensive educational resources and support for novice traders.
In some ways, Forex is very similar to other financial markets. For example, Forex is traded with recognizable patterns and clearly-defined technical applications, comparable to those found in stock trading.
But the real advantages of Forex trading are obvious in the market's unique features. Forex attracts so much investor interest due to the many advantages not found in other financial markets, such as:
Up to 200:1 Leverage
With more buying power, you can increase your total return on investment with less cash outlay. Of course, increasing leverage increases risk. With $1,000 cash in a margin account that allows 200:1 leverage (.5%), you can trade up to $200,000 in notional value.
Trade on Your Schedule; Respond to Changes in the Market
Forex is a true 24-hour market, open continuously from 5:00pm ET on Sunday to 5:00 pm on Friday. With three distinct trading sessions in the US, Europe and Asia, you can trade on your own schedule and respond to breaking news.
At $3.2 Trillion Per Day, Forex is the Most Traded Market in the World
The sheer volume of Forex helps to facilitate price stability in most market conditions. What's more, almost 85% of all currency transactions involve the 7 major currency pairs.
To benefit from these market advantages, beginner and experienced individual investors trade with FOREX.com. Dedicated to advancing trader education, FOREX.com offers extensive educational resources and support for novice traders.
Friday, January 25, 2008
Foreign exchange market
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion.[1] 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[2] [3]
Market size and liquidity
The foreign exchange market is unique because of
* its trading volumes,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours: 24 hours a day (except on weekends),
* 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)
According to the BIS,[1] average daily turnover in traditional foreign exchange markets is estimated at $3.21 trillion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
This $3.21 trillion in global foreign exchange market "traditional" turnover was broken down as follows:
* $1,005 billion in spot transactions
* $362 billion in outright forwards
* $1,714 billion in forex swaps
* $129 billion estimated gaps in reporting
In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex 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).
Average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. 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 such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market. [4]
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 32.4% in April 2006. RPP
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). 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 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.
[edit] Market participants
Financial markets
Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Stock market
Stock
Preferred stock
Common stock
Stock exchange
Foreign exchange market
Retail forex
Derivative market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodity market
OTC market
Real estate market
Spot market
Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v • d • e
Top 10 Currency Traders % of overall volume, May 2007 Source: Euromoney FX survey[5] Rank Name % of volume
1 Deutsche Bank 19.30
2 UBS AG 14.85
3 Citi 9.00
4 Royal Bank of Scotland 8.90
5 Barclays Capital 8.80
6 Bank of America 5.29
7 HSBC 4.36
8 Goldman Sachs 4.14
9 JPMorgan 3.33
10 Morgan Stanley 2.86
Unlike a stock market, where all participants have access to the same prices, the forex 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. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips only for major currencies like the Euro). 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 forex 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 forex 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 forex market to align currencies to their economic needs.
[edit] Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. 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.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
[edit] Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
[edit] Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[6] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.
[edit] Investment management firms
Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.
Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.
[edit] Hedge funds
Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.
[edit] Retail forex brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25–50 billion daily, which is about 2% of the whole market and it has been reported by the CFTC website that inexperienced investors may become targets of forex scams.
[edit] Trading characteristics
Most traded currencies[1]
Currency distribution of reported FX market turnover Rank Currency ISO 4217
code Symbol % daily share
(April 2004)
1 United States dollar USD $ 88.7%
2 Eurozone euro EUR € 37.2%
3 Japanese yen JPY ¥ 20.3%
4 British pound sterling GBP £ 16.9%
5 Swiss franc CHF Fr 6.1%
6 Australian dollar AUD $ 5.5%
7 Canadian dollar CAD $ 4.2%
8 Swedish krona SEK kr 2.3%
9 Hong Kong dollar HKD $ 1.9%
10 Norwegian krone NOK kr 1.4%
Other 15.5%
Total 200%
There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. A joint venture of the Chicago Mercantile Exchange and Reuters, called FxMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.
The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.
The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.
On the spot market, according to the BIS study, the most heavily traded products were:
* EUR/USD: 28 %
* USD/JPY: 18 %
* GBP/USD (also called sterling or cable): 14 %
and the US currency was involved in 88.7% of transactions, followed by the euro (37.2%), the yen (20.3%), and the sterling (16.9%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.
Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.
[edit] Factors affecting currency trading
See also: Exchange rates
Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.
[edit] Economic factors
These 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.
[edit] Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.
[edit] Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.
Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [7]
"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[8] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns. [9]
[edit] Algorithmic trading in forex
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. There is much confusion about the technique. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.
[edit] Financial instruments
[edit] Spot
A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.
[edit] Forward
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
[edit] Future
Main article: Currency future
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
[edit] Swap
Main article: Forex swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
[edit] Option
Main article: Foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative 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.
[edit] Exchange Traded Fund
Main article: Exchange-traded fund
Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakness versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
[edit] Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.[10]
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
Market size and liquidity
The foreign exchange market is unique because of
* its trading volumes,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours: 24 hours a day (except on weekends),
* 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)
According to the BIS,[1] average daily turnover in traditional foreign exchange markets is estimated at $3.21 trillion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
This $3.21 trillion in global foreign exchange market "traditional" turnover was broken down as follows:
* $1,005 billion in spot transactions
* $362 billion in outright forwards
* $1,714 billion in forex swaps
* $129 billion estimated gaps in reporting
In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex 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).
Average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. 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 such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market. [4]
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 32.4% in April 2006. RPP
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). 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 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.
[edit] Market participants
Financial markets
Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Stock market
Stock
Preferred stock
Common stock
Stock exchange
Foreign exchange market
Retail forex
Derivative market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodity market
OTC market
Real estate market
Spot market
Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v • d • e
Top 10 Currency Traders % of overall volume, May 2007 Source: Euromoney FX survey[5] Rank Name % of volume
1 Deutsche Bank 19.30
2 UBS AG 14.85
3 Citi 9.00
4 Royal Bank of Scotland 8.90
5 Barclays Capital 8.80
6 Bank of America 5.29
7 HSBC 4.36
8 Goldman Sachs 4.14
9 JPMorgan 3.33
10 Morgan Stanley 2.86
Unlike a stock market, where all participants have access to the same prices, the forex 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. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips only for major currencies like the Euro). 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 forex 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 forex 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 forex market to align currencies to their economic needs.
[edit] Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. 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.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
[edit] Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
[edit] Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[6] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.
[edit] Investment management firms
Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.
Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.
[edit] Hedge funds
Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.
[edit] Retail forex brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25–50 billion daily, which is about 2% of the whole market and it has been reported by the CFTC website that inexperienced investors may become targets of forex scams.
[edit] Trading characteristics
Most traded currencies[1]
Currency distribution of reported FX market turnover Rank Currency ISO 4217
code Symbol % daily share
(April 2004)
1 United States dollar USD $ 88.7%
2 Eurozone euro EUR € 37.2%
3 Japanese yen JPY ¥ 20.3%
4 British pound sterling GBP £ 16.9%
5 Swiss franc CHF Fr 6.1%
6 Australian dollar AUD $ 5.5%
7 Canadian dollar CAD $ 4.2%
8 Swedish krona SEK kr 2.3%
9 Hong Kong dollar HKD $ 1.9%
10 Norwegian krone NOK kr 1.4%
Other 15.5%
Total 200%
There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. A joint venture of the Chicago Mercantile Exchange and Reuters, called FxMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.
The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.
The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.
On the spot market, according to the BIS study, the most heavily traded products were:
* EUR/USD: 28 %
* USD/JPY: 18 %
* GBP/USD (also called sterling or cable): 14 %
and the US currency was involved in 88.7% of transactions, followed by the euro (37.2%), the yen (20.3%), and the sterling (16.9%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.
Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.
[edit] Factors affecting currency trading
See also: Exchange rates
Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.
[edit] Economic factors
These 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.
[edit] Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.
[edit] Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.
Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [7]
"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[8] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns. [9]
[edit] Algorithmic trading in forex
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. There is much confusion about the technique. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.
[edit] Financial instruments
[edit] Spot
A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.
[edit] Forward
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
[edit] Future
Main article: Currency future
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
[edit] Swap
Main article: Forex swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
[edit] Option
Main article: Foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative 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.
[edit] Exchange Traded Fund
Main article: Exchange-traded fund
Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakness versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
[edit] Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.[10]
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
Thursday, January 24, 2008
Subscribe to:
Posts (Atom)
