What is Forex:
The Foreign Exchange Market (FOREX) market is the international currency. This is the biggest financial market in the world, because it is an international market (OTC) in which buyers and sellers come together from all over the world.
The Forex market is not a market in the traditional sense, with negotiations taking place in a predetermined physical location, but it is an electronic market, where trading takes place through the Internet or by telephone, 24 hours at 24, Sunday (23:00 hours GMT +1) at the same time the following Friday (which corresponds to 17:00 in New York).
Initially the market was reserved for institutional players, such as banks, central banks, multinational companies and the brokerage. Today on the Forex can operate individual investors, relying, however, for specialized intermediaries.
In this market, operators will only exchange currencies (currency = unit of account the country of origin (for the U.S. Dollar, Euro for Europe, yen for Japan, etc...)
The FOREX market is born because any economic transaction involving two operators of different nationalities must pass, sooner or later, through the purchase and sale of foreign exchange. Over the past twenty years, however, the role of pure speculation on FOREX has become increasingly important, so that today about 90% of transactions in this market are speculative in nature.
The FOREX market is "Over The Country" (OTC), is not located in a precise physical and the exchanges take place only telematics. Trade on FOREX occur on a bilateral basis, between two counterparties that individually determine the terms of the exchange. So prices in the international circuits distributed information such as Reuters and Bloomberg are indicative prices, not operational, and there are no quantity adjustment methods and dates of maturities.
The main players in this market are banks, brokers, hedge funds and central banks. Continuously from Sunday night (Monday morning in Japan) to Friday evening (closing the American market), there are banks (and brokers) in the open world, and therefore the FOREX market is "open". 24 hours 24.
Brief history of the forex:
the aftermath of the Second World War, the objective of Western policy makers, who gathered at Bretton Woods (USA), was to design a stable international monetary system and this favorable development of international trade. Cornerstone of the new system was the creation of a fixed exchange rate system, based on the determination of an irrevocable exchange rate of dollar against other currencies. The dollar itself was pegged at a fixed price for an ounce of gold (35 dollars). In this context, were no longer possible price fluctuations in the FOREX market: the central banks of the countries involved made sure to balance supply and demand of a currency in order to maintain the fixed price stated in the agreements.
In 1973 the U.S. unilaterally decided to terminate the Bretton Woods agreements, revoking the willingness to share the gold at a price of $ 35. This allowed, then the price of the currency to fluctuate depending on the conditions of supply and demand of the market. Thus was born the modern interbank market and the exchange rate becomes an important variable in economic policy.
In 1978 the European Monetary System, has tried, with mixed success, to fix the exchange rate, limited to European currencies, within a fluctuation band of default. The latest evolution of the project started with EMS is the Euro, born January 1, 1999.
Attempts to rein in currency prices permanently, if they are not followed by an approach in the monetary and economic policies of the countries concerned do not have, an excellent chance of success. The currency of a country is in some ways the health of its economy and international economic events obviously produce relative performances that tend to be reflected in exchange rates.
The FOREX market is so fluid that even the Central Banks are unable to counteract the force.
volumes on FOREX have grown exponentially over the last thirty years, up to now represent the largest and most liquid market in the world. The average daily volume of transactions on the global foreign exchange market (spot transactions, forward rate agreements and swaps) can be estimated in 1,500 billion U.S. dollars. In particular, transactions on the spot market has undergone a gradual increase from 89 to 98 by about 6.5% per year.
fundamentals:
The value of a currency is tied to the country's economic situation. The variables that describe this situation, eg. inflation, interest rates, GDP growth etc.., are called the "fundamentals". Among these is the exchange rate, which in turn influences and is influenced by other "fundamentals". In general, fundamental data reveal a flourishing economic situation and future prospects tend to raise the value of the currency and vice versa.
The variables affecting to a greater extent the FOREX market are:
- interest rates: the higher the interest rates in the country (or area) of a given currency, will be more convenient to hold them and then the higher its price
- the rate of inflation: an inflation rate tends to increasing prelude to rising interest rates, and at least in the short term to a trend appreciation of the
- the rate of GDP growth: sustained economic growth increases the value and desirability of the currency, and potentially even this figure could herald a rise in interest rates;
- the trade deficit: if a country has a high deficit, means that the whole country are importing more than it exports, which must buy more foreign currency (to pay for this excess) than to get paid for selling exports. The value of the currency tends to fall. Each
economic data, however, will be analyzed within the general economic context and in relation to market expectations. The difficulty in interpreting these data lies in the economic variability in the time at which data and their effects are felt, then, should remember that even the socio-political stability of a country affects the value of its currency.
Why Forex trading:
For a private investor, the FOREX market provides an excellent opportunity investment, not only for the high liquidity in this market, but also thanks to two fundamental features: the inability to manipulate the market by anyone and the fact that the relevant news are available at all at the same time.
Unlike the stock market, where some large institutions have sufficient financial strength to enter the market and to move the price of a title to your liking, about the FOREX market trading volumes are so great that none, however large and is important to have the ability to easily manipulate prices. It 's the market as a whole that moves prices, and the large bank is under the same conditions the individual private speculator, with a capacity to intervene in the market that still represents a tiny proportion compared to the volumes trattati.A Unlike the stock market, the FOREX market is impossible (at least in general) insider trading. The FOREX market information about a country and its economic performance are available to all without distinction. The macroeconomic data are released simultaneously in the national world, and each operator becomes aware at the same time. Since forex speculator to the large private bank, everyone is having the same information on which to base their trading decisions.
addition, the FOREX is open 24 hours on 24, so an order is processed continuous and, under normal liquidity, will be executed at a price not far from that shown, and only between Friday and Sunday evenings there is a risk in opening a gap, the risk that the stock market and in derivatives is rather daily.
0 comments:
Post a Comment