Forex Online Secrets

Posts Tagged ‘Currency Units’

Forex (or FX) is simply a short term for “Foreign Exchange.” The Forex Market is the foreign exchange market where currency trading takes place.

The Interbank Market (Forex or FX) is the largest, most liquid and fastest growing financial market today. The FOREX functions like any other market: Buyers and sellers of a commodity meet and trade. In FX, as in any market, a currency whose demand exceeds supply will see the value go up, and vice versa. Some say it is the ‘purest’ or ‘truest’ market in existence, due to that every factor influencing people’s lives in terms of economics, technology and geography is involved.

• FOREX is a vibrant, 24-hour market comprised of diverse group of participants from every corner of the earth
• FX trading is the mechanism that values all currencies, and is the most essential component of global commerce
• An exchange rate is the price of one currency in terms of another, also known as a pair or a cross
• The FOREX is one of the most versatile and dynamic markets traded

Historically, the oldest function of the FOREX was the facilitation of international trade. Since countries have different currencies, the FOREX market must exist for international partners to trade goods and services or to travel abroad. However, the present function of the FOREX market is speculation.

What Are The Major Currency Units?

The U.S. Dollar

The U.S. dollar (USD) is the world’s benchmark currency. Most currencies are quoted in terms of U.S. dollar and many currencies are directly pegged to it. The ‘greenback’ became the leading currency toward the end of World War II. The major currencies traded against the U.S. Dollar are the Euro, Japanese Yen, British Pound, and Swiss Franc.

The Euro

The euro (EUR) replaced the German mark and became the second most common currency after its initial release in December of 1999. The euro has a strong international presence stemming from members of the European Monetary Union; however, it is exposed to a wide variety of economic and political factors deriving from the expansive number of members of the Euro Zone. This is vastly different from the responsibilities another currency usually encounters from a single economy. Nevertheless, many major countries like China, Japan, and Russia maintain large reserves in what some speculate will be the benchmark someday.

Who Are The Major Participants?

1. Central Banks

Central Banks (CBs), like the Federal Reserve Bank of the United States, are for all intents and purposes non-profit entities. Therefore they do not speculate in the currency markets. In other words, they are not in the market to make a profit. Their main purpose in the market is to create stable economic conditions through bouts of liquidity from their cash reserves. Therefore, they may intervene directly, or via foreign central banks in an attempt to adjust perceived imbalances. More importantly from a speculators point of view, they are just one of the many sources of blind liquidity that comprise the enormous dollar volume traded daily in the FX market.

• CBs are not in the market for profit
• They provide opportunities for speculators to profit by way of large bouts of liquidity

2. Commercial and Investment Banks

Commercial and Investment banks such as: Unified Bank of Switzerland (UBS), Citibank, JP Morgan, Royal Bank of Scotland (RBS), HSBC, Barclays, Goldman Sachs and Bank of America just to name a few are regarded as the main players. These banks are in the market via proprietary trading desks worldwide on behalf of themselves and their clients. In fact, the majority of these banks profit is derived from FOREX trading. The market has proven to be very profitable for banks providing them with less exposure to risk than loans and other banking activity.

These bank’s dealers exploit every advantage in this market using technical, fundamental and order flow data. Before computing power evolved to the level it has reached today, it required a large team of people to consolidate all the data into concise trading decisions. Today however, many of the advanced strategies employed by them can be done with nothing more than a modern desktop PC and a spreadsheet. This fact allows the individual trader to keep cost low while maintaining an effective posture in the market.