Oil May Drop to $90 Before Rebounding Late in Year, Nordea Says
--Oil prices may fall to $90 a barrel in the fourth quarter before rallying to reach $105 next year, Nordea Bank AB executives said at a presentation in Stockholm.
``Higher fuel prices and the weaker U.S. economy will hamper demand for oil and drive prices lower before remaining high in the coming two years,'' said Thina Margrethe Saltvedt, Oslo-based global head of commodities research at Nordea.
``Long-term, oil is fundamentally determined by supply and demand, and prices will remain high as we expect Saudi Arabia will not be able to increase production as much as they have indicated,'' Saltvedt said today at the bank's headquarters.
Sunday, 31 August 2008
Saturday, 30 August 2008
Will Obama boost US economy?
I happen to hear Obama's acceptence speech ,It was fiery ,inspiring (if i am an American).He is promising a lot ,Pull out army from Iraq ,stop outsourceing ,bring jobs back to America and turn it into a land of oppurtunities again .
But can he do all this if he is elected i doubt .....
anyways he is a leader ,Unlike Mc cain he is all over the media .And let me come to the thing which may affect me ,outsourcing or rather stopping it ,as an indian i am bit concerned about this but there people will always find ways around that .
But can he do all this if he is elected i doubt .....
anyways he is a leader ,Unlike Mc cain he is all over the media .And let me come to the thing which may affect me ,outsourcing or rather stopping it ,as an indian i am bit concerned about this but there people will always find ways around that .
Monday, 25 August 2008
Is uk in recession
Not yet ,but all signs are pointing in that direction .A recession is a period of negative economic growth for 2 consecutive economic quarters. In the post war period UK economic growth has been characterized by the boom and bust economic cycles. A period of growth is followed by high inflationary growth and then a downturn in the economy. However since 1992 the UK has experienced a long period of economic growth, the longest period of uninterrupted growth this century. It appears the UK has temporarily avoided the threat of recession, but although forecasts remain positive there are many factors that could push the UK into recession
Monday, 19 May 2008
will world cope up with this turmoil
A lot of things are going around us ,money is being hoarded like anything and inflation is going up ,oil prices near 200$ ,food prices soaring ,if the prices go up like this poor people may not be able to afford to eat and it will lead to violence due to shortage of food .things may seem like fairy tale and it would happen if things move at this pace .
Wednesday, 5 March 2008
is usa in recession
It said that Friday's employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.
Its view is controversial, with banks such as Lehman Brothers disagreeing.
But a reserve member of the committee that sets US rates warned that it could do little about the below-trend growth expected in the next six months.
"I am concerned that developments on the inflation front will make the Fed's policy decisions more difficult in 2008," Charles Plosser, president of the Federal Reserve Bank of Philadelphia said.
He was referring to the problems faced by the US Federal Reserve, which might want to cut interest rates to avoid a recession, but is worried about inflationary factors such as $100-a-barrel oil.
'Significant decline'
An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years.
The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months".
It bases its assessment on final figures on employment, personal income, industrial production and sales activity in the manufacturing and retail sectors.
Merrill Lynch said that the figures showing the jobless rate hitting 5% in December were the final piece in that puzzle.
"According to our analysis, this isn't even a forecast any more but is a present day reality," the report said.
'Actual downturn'
But NBER president Martin Feldstein denied Merrill's claims.
"I think we're not in a recession now," he told CNBC.
"But I think there is a serious risk that it could get worse and we could see an actual downturn," he added.
Merrill said that the current consensus view on Wall Street that there is a good chance of avoiding a recession is "in denial".
It also objected to the use of euphemistic terms for the state of the economy.
"To say that the backdrop is 'recession like' is akin to an obstetrician telling a woman that she is 'sort of pregnant'," the report said.
Housing figures
There were further signs of the housing slowdown that has sparked off the problems in the US economy in home sale figures.
Pending sales of existing homes fell 2.6%, according to the National Association of Realtors, which saw its pending sales index drop to 87.6 in November, 19.2% below the point it was at a year ago.
The figures were better than expected, however, because October's index reading was revised upwards from 87.2 to 89.9.
Meanwhile, US phone giant AT&T said it was now disconnecting a growing number of home phone and broadband customers for failing to pay their bills.
Its view is controversial, with banks such as Lehman Brothers disagreeing.
But a reserve member of the committee that sets US rates warned that it could do little about the below-trend growth expected in the next six months.
"I am concerned that developments on the inflation front will make the Fed's policy decisions more difficult in 2008," Charles Plosser, president of the Federal Reserve Bank of Philadelphia said.
He was referring to the problems faced by the US Federal Reserve, which might want to cut interest rates to avoid a recession, but is worried about inflationary factors such as $100-a-barrel oil.
'Significant decline'
An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years.
The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months".
It bases its assessment on final figures on employment, personal income, industrial production and sales activity in the manufacturing and retail sectors.
Merrill Lynch said that the figures showing the jobless rate hitting 5% in December were the final piece in that puzzle.
"According to our analysis, this isn't even a forecast any more but is a present day reality," the report said.
'Actual downturn'
But NBER president Martin Feldstein denied Merrill's claims.
"I think we're not in a recession now," he told CNBC.
"But I think there is a serious risk that it could get worse and we could see an actual downturn," he added.
Merrill said that the current consensus view on Wall Street that there is a good chance of avoiding a recession is "in denial".
It also objected to the use of euphemistic terms for the state of the economy.
"To say that the backdrop is 'recession like' is akin to an obstetrician telling a woman that she is 'sort of pregnant'," the report said.
Housing figures
There were further signs of the housing slowdown that has sparked off the problems in the US economy in home sale figures.
Pending sales of existing homes fell 2.6%, according to the National Association of Realtors, which saw its pending sales index drop to 87.6 in November, 19.2% below the point it was at a year ago.
The figures were better than expected, however, because October's index reading was revised upwards from 87.2 to 89.9.
Meanwhile, US phone giant AT&T said it was now disconnecting a growing number of home phone and broadband customers for failing to pay their bills.
Saturday, 26 January 2008
where is my money safe
in todays market conditon where can keep my invested as well as safe,as market goes up and down in roller coaster rides so often ,traders are really confused ,how can i keep my money earning even in this market conditoins ,analysts say it better to be in sidelines and watch till this turbulence ends ,bond are really safe but on yields side its not as promising as equity ,banking and financial stock are tradining at the bottom fo their valuations,so they are a good but when can i enter them have they reallly bottomed out ,or really have reached the bottom ,these are the questions to be aswered ,so best thing is to watch where the market heads ,2008 eight has been a bad year as far as trading is cconsiderd ,lets hope worst is over
Saturday, 15 December 2007
indian growth story
India's rupee is set to head higher against the dollar as foreign investors pour money into the rapidly growing economy and the only question is how fast the currency will rise, analysts say.
Lifted by a tide of overseas money into domestic shares following a cut in US interest rates, the Indian currency strengthened beyond the psychologically key 40 rupees to the dollar barrier for the first time in nine years last week.
The rupee closed on Friday at 39.87 to the dollar and analysts expect it to gain further in coming months as foreign investors buy shares and pour money into plants and infrastructure projects to exploit the booming economy.
"We're looking for a rupee of around 39 to the dollar by year end and for the rupee to go to around 38.5 or 38 to the dollar by mid next year," said Richard Yetsenga, HSBC's Asia currency strategist in Hong Kong.
"The rupee is definitely going up" but the speed of its rise "entirely depends on how vigorous (central bank) authorities are in slowing the rupee's appreciation," Yetsenga said.
The central bank has "expressed its desire for slow rupee appreciation but pressure on the rupee (to rise) is so fundamental and robust" that a level of 35 rupees to the dollar "is not out of the question," he said, not specifying a timeframe for such a move.
The rupee has already risen by 11 percent this year against the dollar, making it Asia's best performing currency.
Foreign funds have invested 10.47 billion dollars in Indian equities so far in 2007, more than twice the 4.69 billion dollars they pumped in during the same period last year, lured by record economic expansion. India logged first-quarter growth of 9.3 percent -- the world's fastest after China.
BNP Paribas country treasurer Manoj Rane forecast the rupee would "rise further on the back of strong capital inflows," adding the currency could touch 38.50 levels against the dollar by year end.
The rupee got its latest burst of wind last Tuesday when the US Federal Reserve Board cut rates by a surprise 50 basis points to ease credit stress that threatens the world's biggest economy.
Typically when the Fed lowers rates, investors start looking for higher returns in emerging markets.
The benchmark Bombay Stock Exchange Sensitive Index or Sensex has climbed by 5.7 percent to a record 16,564.23 points since the rate cut with investors seeing India as a haven from international subprime credit turmoil.
While the nation of 1.1 billion people has been gradually easing rigid state controls on trade and investment and opening up its economy, it remains far less exposed to global financial upheaval than many countries, economists say.
Domestic drivers such as strong capital expenditure and consumption growth "for the Indian market override the concerns from recent dislocations in the global credit and mortgage markets," said investment bank UBS in a note.
The rupee's muscle is a novel experience for Indians more accustomed to a currency that a few years back just seemed to lose ground. Until economists began talking about India as an emerging economic powerhouse, "on average you would factor in about a five percent annual depreciation," noted an analyst.
In mid-2002, a dollar bought 49 rupees. The rupee's strengthening has created headaches for exporters, especially for the 50-billion-dollar software industry which earns two-thirds of its revenues in US dollars.
"People can factor a steady appreciation into their business costs, it's when appreciation is too fast it creates problems," National Association of Software and Services Companies president Kiran Karnik said.
Already average monthly growth in total exports has fallen to 18 percent so far this fiscal year from 25 percent in 2006 but exports only account for 14 percent of GDP so the impact on growth is expected to be limited.
The government's "ambitious export target of 160 billion dollars -- up 25 percent from the previous year -- will be unachievable," said Deepak Lalwani at London's Astaire and Partners. But he forecast a "still respectable increase" to 145 billion dollars.
The central bank will keep trying to break the currency's rise through intervention -- buying rupees and selling dollars, analysts said.
"We expect the Reserve Bank of India to continue intervening in the currency markets, in order to allow for some depreciation in the rupee," said Manika Premsingh, economist at Mumbai's Edelweiss Capital.
But the bank's rupee sales to support the dollar and unprecedented foreign investment inflows are raising fears about excess cash sloshing about in the Indian economy that could stoke inflation.
Lifted by a tide of overseas money into domestic shares following a cut in US interest rates, the Indian currency strengthened beyond the psychologically key 40 rupees to the dollar barrier for the first time in nine years last week.
The rupee closed on Friday at 39.87 to the dollar and analysts expect it to gain further in coming months as foreign investors buy shares and pour money into plants and infrastructure projects to exploit the booming economy.
"We're looking for a rupee of around 39 to the dollar by year end and for the rupee to go to around 38.5 or 38 to the dollar by mid next year," said Richard Yetsenga, HSBC's Asia currency strategist in Hong Kong.
"The rupee is definitely going up" but the speed of its rise "entirely depends on how vigorous (central bank) authorities are in slowing the rupee's appreciation," Yetsenga said.
The central bank has "expressed its desire for slow rupee appreciation but pressure on the rupee (to rise) is so fundamental and robust" that a level of 35 rupees to the dollar "is not out of the question," he said, not specifying a timeframe for such a move.
The rupee has already risen by 11 percent this year against the dollar, making it Asia's best performing currency.
Foreign funds have invested 10.47 billion dollars in Indian equities so far in 2007, more than twice the 4.69 billion dollars they pumped in during the same period last year, lured by record economic expansion. India logged first-quarter growth of 9.3 percent -- the world's fastest after China.
BNP Paribas country treasurer Manoj Rane forecast the rupee would "rise further on the back of strong capital inflows," adding the currency could touch 38.50 levels against the dollar by year end.
The rupee got its latest burst of wind last Tuesday when the US Federal Reserve Board cut rates by a surprise 50 basis points to ease credit stress that threatens the world's biggest economy.
Typically when the Fed lowers rates, investors start looking for higher returns in emerging markets.
The benchmark Bombay Stock Exchange Sensitive Index or Sensex has climbed by 5.7 percent to a record 16,564.23 points since the rate cut with investors seeing India as a haven from international subprime credit turmoil.
While the nation of 1.1 billion people has been gradually easing rigid state controls on trade and investment and opening up its economy, it remains far less exposed to global financial upheaval than many countries, economists say.
Domestic drivers such as strong capital expenditure and consumption growth "for the Indian market override the concerns from recent dislocations in the global credit and mortgage markets," said investment bank UBS in a note.
The rupee's muscle is a novel experience for Indians more accustomed to a currency that a few years back just seemed to lose ground. Until economists began talking about India as an emerging economic powerhouse, "on average you would factor in about a five percent annual depreciation," noted an analyst.
In mid-2002, a dollar bought 49 rupees. The rupee's strengthening has created headaches for exporters, especially for the 50-billion-dollar software industry which earns two-thirds of its revenues in US dollars.
"People can factor a steady appreciation into their business costs, it's when appreciation is too fast it creates problems," National Association of Software and Services Companies president Kiran Karnik said.
Already average monthly growth in total exports has fallen to 18 percent so far this fiscal year from 25 percent in 2006 but exports only account for 14 percent of GDP so the impact on growth is expected to be limited.
The government's "ambitious export target of 160 billion dollars -- up 25 percent from the previous year -- will be unachievable," said Deepak Lalwani at London's Astaire and Partners. But he forecast a "still respectable increase" to 145 billion dollars.
The central bank will keep trying to break the currency's rise through intervention -- buying rupees and selling dollars, analysts said.
"We expect the Reserve Bank of India to continue intervening in the currency markets, in order to allow for some depreciation in the rupee," said Manika Premsingh, economist at Mumbai's Edelweiss Capital.
But the bank's rupee sales to support the dollar and unprecedented foreign investment inflows are raising fears about excess cash sloshing about in the Indian economy that could stoke inflation.
Wednesday, 12 December 2007
rate cut and reaction
Rate cut yesterday did not go well with the us stock market,stocks fell almost by 300 points ,stock recovered today after the five central banks formed a joined fund to lend to the banks in auction ,so that they can be rescued in case of a crisis,stocks recovered after this intervention ,yen also slided after this step to three months low , the us stocks has been closely related to the movement of yen ,so this shows the markets are moving forwards ,but analysts fear that ,this might look like a panic reaction by the Central banks ,tomorrow the markets are bound to be range bound.
Monday, 10 December 2007
forex today
U.S. Dollar Trading (USD) was buoyed by positive payroll readings for the month of November. Following strong release of jobs data earlier in the week, Non Farm Payrolls did not disappoint with the figure coming in slightly higher than forecasts at 94k (Forecast: 90k), whilst previous figures were revised higher to 170k. Bets that the Federal Reserve will cut rates by 50 basis points in the upcoming week were trimmed. Further more the Unemployment Rate for the month of November was unchanged at 4.7%, despite markets expecting a rise to 4.8%. In U.S. share markets the NASDAQ was down -2.87 points (-0.11%) whilst the Dow Jones was higher by 5.69 points (+0.04%) to have little impact on the market. Crude oil fell once again on Friday by US$1.89 a barrel to US$88.34 on expectations that inventories will meet demand during the North American winter. Looking ahead, the week begins with the release of Pending Home Sales data for the month of November. Forecast lie at a net change of -1% (Previous: 0.2% and 85,700)
· The Euro (EUR) eased initially following sturdy payrolls data out of the U.S., as the government report showed that the economy added slightly more jobs then expected for the month of November. In Eurozone specific data, the regions largest nation in Germany saw Industrial Production fall by -0.3%, slightly less than the forecasted -0.4%. Overall the EURUSD traded with a low of 1.4599 and a high of 1.4673 before closing the day at 1.4654 in the New York session. German Trade balance for the month of October will be made public today (Forecast: 17 bln; Previous: 17.9 bln).
· The Japanese Yen (JPY) fell against the dollar for a third consecutive session, extending its longest decline since October. Much of the moves were attributed to positive payrolls data out of the U.S., prompting further weakness against a number of high yielding currencies, as data reflected confidence in carry hungry investors. The JPY lost a total of 0.4% against the USD throughout the week and a 0.6% versus the Euro. Much of the decline in the later part of the week were attributed to President Bush’s plan to freeze interest rates on some sub-prime mortgages, easing concern that credit-market losses will drag down economic growth. The USDJPY traded with a low of 111.18 and a high of 111.79 before closing the day at 111.71 in the New York session. Machine orders for the month of October are released out of Japan on Monday, with forecast at 7%, up from the previous -7.6%.
· The Sterling (GBP) paired its gains following the U.S. payrolls data despite its previous session rally in light of rate cut by the BoE of 25 basis points. Overall the GBPUSD traded with a low of 2.0224 and a high of 2.0343 before closing the day at 2.0314 in the New York session. Looking ahead, PPI data (both input and output) for the month of November kick the week off for the UK.
· The Australian Dollar (AUD) traded sideways once again, on the back of other majors. In the little support that the currency found was attributed to growing interest in the carry trade, as speculators grew confident that the U.S. will avoid heading into a recession following Fridays NFP release. Overall the AUDUSD traded with a low 0.8744 and a high of 0.8826 before ending the session at 0.8774 in New York.
· The Canadian Dollar (CAD) was one of the few currencies to find strength following reports which showed the nation's employers added five times more jobs in November than economists had forecast, stretching the rally to two consecutive sessions. In other news, Unemployment Rate for the month of November failed to add any extra boost coming in at 5.9%, up from the previous 5.8%. Overall the USDCAD traded with a low of 1.0010 and a high of 1.0150 before ending the day at 1.0045 at close of New York.
· Gold (XAU) was volatile once again, falling on the back of declining energy costs reduced appeal for an inflation hedge. XAU traded with a low of 791.70 and a high of 804.80.
· The Euro (EUR) eased initially following sturdy payrolls data out of the U.S., as the government report showed that the economy added slightly more jobs then expected for the month of November. In Eurozone specific data, the regions largest nation in Germany saw Industrial Production fall by -0.3%, slightly less than the forecasted -0.4%. Overall the EURUSD traded with a low of 1.4599 and a high of 1.4673 before closing the day at 1.4654 in the New York session. German Trade balance for the month of October will be made public today (Forecast: 17 bln; Previous: 17.9 bln).
· The Japanese Yen (JPY) fell against the dollar for a third consecutive session, extending its longest decline since October. Much of the moves were attributed to positive payrolls data out of the U.S., prompting further weakness against a number of high yielding currencies, as data reflected confidence in carry hungry investors. The JPY lost a total of 0.4% against the USD throughout the week and a 0.6% versus the Euro. Much of the decline in the later part of the week were attributed to President Bush’s plan to freeze interest rates on some sub-prime mortgages, easing concern that credit-market losses will drag down economic growth. The USDJPY traded with a low of 111.18 and a high of 111.79 before closing the day at 111.71 in the New York session. Machine orders for the month of October are released out of Japan on Monday, with forecast at 7%, up from the previous -7.6%.
· The Sterling (GBP) paired its gains following the U.S. payrolls data despite its previous session rally in light of rate cut by the BoE of 25 basis points. Overall the GBPUSD traded with a low of 2.0224 and a high of 2.0343 before closing the day at 2.0314 in the New York session. Looking ahead, PPI data (both input and output) for the month of November kick the week off for the UK.
· The Australian Dollar (AUD) traded sideways once again, on the back of other majors. In the little support that the currency found was attributed to growing interest in the carry trade, as speculators grew confident that the U.S. will avoid heading into a recession following Fridays NFP release. Overall the AUDUSD traded with a low 0.8744 and a high of 0.8826 before ending the session at 0.8774 in New York.
· The Canadian Dollar (CAD) was one of the few currencies to find strength following reports which showed the nation's employers added five times more jobs in November than economists had forecast, stretching the rally to two consecutive sessions. In other news, Unemployment Rate for the month of November failed to add any extra boost coming in at 5.9%, up from the previous 5.8%. Overall the USDCAD traded with a low of 1.0010 and a high of 1.0150 before ending the day at 1.0045 at close of New York.
· Gold (XAU) was volatile once again, falling on the back of declining energy costs reduced appeal for an inflation hedge. XAU traded with a low of 791.70 and a high of 804.80.
Sunday, 9 December 2007
news
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." - BIS
Structure
Decentralised 'interbank' market
Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
The free-floating currency system began in the early 1970's and was officially ratified in 1978
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 New Zealand, followed by Australia, Asia, the Middle East, Europe, and America
Size
Largest financial market in the world
$3.2 trillion average daily turnover, equivalent to:
More than 10 times the average daily turnover of global equity markets1
More than 35 times the average daily turnover of the NYSE2
Nearly $500 a day for every man, woman, and child on earth3
An annual turnover more than 10 times world GDP4
The spot market accounts for just under one-third of daily turnover
1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.
Source: BIS Triennial Survey 2007
Major Markets
The US & UK markets account for just over 50% of turnover
Major markets: London, New York, Tokyo
Trading activity is heaviest when major markets overlap5
Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6
5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve
Average Daily Turnover by Geographic Location
Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:
Moving averages
RSI
Fibonacci retracements
Stochastics
MACD
Momentum
Bollinger bands
Pivot point
Elliott Wave
Currencies
The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day
Currency Codes
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
Structure
Decentralised 'interbank' market
Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
The free-floating currency system began in the early 1970's and was officially ratified in 1978
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 New Zealand, followed by Australia, Asia, the Middle East, Europe, and America
Size
Largest financial market in the world
$3.2 trillion average daily turnover, equivalent to:
More than 10 times the average daily turnover of global equity markets1
More than 35 times the average daily turnover of the NYSE2
Nearly $500 a day for every man, woman, and child on earth3
An annual turnover more than 10 times world GDP4
The spot market accounts for just under one-third of daily turnover
1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.
Source: BIS Triennial Survey 2007
Major Markets
The US & UK markets account for just over 50% of turnover
Major markets: London, New York, Tokyo
Trading activity is heaviest when major markets overlap5
Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6
5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve
Average Daily Turnover by Geographic Location
Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:
Moving averages
RSI
Fibonacci retracements
Stochastics
MACD
Momentum
Bollinger bands
Pivot point
Elliott Wave
Currencies
The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day
Currency Codes
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
Thursday, 6 December 2007
uk rate cut
bank of england reduced rates by .25 percent ,so that housing market will notcollapse ,but on the contrary the inflatory pressure will be increaing ,so it was a tough call ,lets see fall out of this decision ,the uk economy is slowing down.
Tuesday, 4 December 2007
A FEW FACTS
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 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].
1 Market size and liquidity
2 Market participants
2.1 Banks
2.2 Commercial companies
2.3 Central banks
2.4 Investment management firms
2.5 Hedge funds
2.6 Retail forex brokers
3 Trading characteristics
4 Factors affecting currency trading
4.1 Economic factors
4.2 Political conditions
4.3 Market psychology
5 Algorithmic trading in forex
6 Financial instruments
6.1 Spot
6.2 Forward
6.3 Future
6.4 Swap
6.5 Option
6.6 Exchange Traded Fund
7 Speculation
8 References
9 See also
10 External links
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 $3,210 billion. 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. Minimum trading size for most deals is usually $100,000.
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 has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 2 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
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.
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.
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.
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. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.
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.
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.
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.
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. 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.
Factors affecting currency trading
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.
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.
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.
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. [6]
"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".[7] 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.
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.
Financial instruments
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.
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.
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.
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.
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.
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 weaknes 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.
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.[9]
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 do
1 Market size and liquidity
2 Market participants
2.1 Banks
2.2 Commercial companies
2.3 Central banks
2.4 Investment management firms
2.5 Hedge funds
2.6 Retail forex brokers
3 Trading characteristics
4 Factors affecting currency trading
4.1 Economic factors
4.2 Political conditions
4.3 Market psychology
5 Algorithmic trading in forex
6 Financial instruments
6.1 Spot
6.2 Forward
6.3 Future
6.4 Swap
6.5 Option
6.6 Exchange Traded Fund
7 Speculation
8 References
9 See also
10 External links
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 $3,210 billion. 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. Minimum trading size for most deals is usually $100,000.
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 has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 2 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
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.
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.
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.
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. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.
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.
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.
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.
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. 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.
Factors affecting currency trading
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.
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.
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.
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. [6]
"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".[7] 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.
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.
Financial instruments
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.
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.
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.
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.
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.
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 weaknes 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.
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.[9]
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 do
introduction
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
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