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					                       Forex business

The following facts and figures relate to the foreign exchange market. Much of the information is drawn
from the 2010 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity
conducted by the Bank for International Settlements (BIS) in April 2010. 53 central banks and monetary
authorities participated in the survey, collecting information from 1,309 market participants.

Excerpt from the BIS:

"The 2010 triennial survey shows another significant increase in global foreign exchange market activity
since the last survey in 2007, following the unprecedented rise in activity between 2004 and 2007.
Global foreign exchange market turnover was 20% higher in April 2010 than in April 2007. This increase
brought average daily turnover to $4.0 trillion (from $3.3 trillion) at current exchange rates...The higher
global foreign exchange market turnover in 2010 is largely due to the increased trading activity of
“other financial institutions― – a category that includes nonreporting banks, hedge funds,
pension funds, mutual funds, insurance companies and central banks, among others. Turnover by this
category grew by 42%, increasing to $1.9 trillion in April 2010 from $1.3 trillion in April 2007." - BIS


      Decentralised 'interbank' market
      Main participants: Central Banks, commercial and investment banks, hedge funds, corporations &
       private speculators
      The free-floating currency system arose from the collapse of the Bretton Woods agreement in
      Online trading began in the mid to late 1990's

                                    Source: BIS Triennial Survey 2010

Trading Hours
        24 hour market
        Sunday 5pm EST through Friday 4pm EST.
        Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America


        One of the largest financial markets in the world
        $4.0 trillion average daily turnover, equivalent to:

            o   More than   12 times the average daily turnover of global equity markets 1
            o   More than   50 times the average daily turnover of the NYSE2
            o   More than   $500 a day for every man, woman, and child on earth 3
            o   An annual   turnover more than 10 times world GDP4

        The spot market accounts for over one-third of daily turnover

1.   About $320 billion - World Federation of Exchanges aggregate 2009
2.   About $70 billion - World Federation of Exchanges 2009
3.   Based on world population of 6.9 billion - US Census Bureau
4.   About $58 trillion - World Bank 2009.

                                      Source: BIS Triennial Survey 2010

Major Markets

        The US & UK markets account for over 50% of daily 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 open 6

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 2010

Concentration in the Banking Industry

      9   banks   account   for   75%   of   turnover   in   the U.K.
      7   banks   account   for   75%   of   turnover   in   the U.S.
      2   banks   account   for   75%   of   turnover   in   Switzerland
      8   banks   account   for   75%   of   turnover   in   Japan

Source: BIS Triennial Survey 2010

Technical Analysis

Commonly used technical indicators:

      Moving averages
      RSI
      Fibonacci retracements
      Stochastics
      MACD
      Momentum
      Bollinger bands
      Pivot point
      Elliott Wave


      The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over
       US$3.3 trillion per day

Currency Codes

      USD = US Dollar
      EUR = Euro
      JPY = Japanese Yen
      GBP = British Pound
      CHF = Swiss Franc
      CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
      AUD = Australian Dollar
      NZD = New Zealand Dollar

Average Daily Turnover by Currency
N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of
individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2010

Currency Pairs

      Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"),
      Commodity currencies: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi")
      Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Foreign Exchange Market
From Wikipedia

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for
another. It is by far the largest market in the world, in terms of cash value traded, and includes trading
between large banks, central banks, currency speculators, multinational corporations, governments, and
other financial markets and institutions. Retail traders (small speculators) are a small part of this market.
They may only participate indirectly through brokers or banks and may be targets of forex scams.

      Market size and liquidity
      Trading characteristics
      Market participants
          o Banks
          o Commercial Companies
          o Central Banks
          o Investment Management Firms
          o Hedge Funds
          o Retail Forex Brokers
      Speculation
      Reference
      See also
      External links

Market size and liquidity

The foreign exchange market is unique because of:

              its trading volume,
              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,

Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to
the BIS study Triennial Central Bank Survey 2004

      $600 billion spot
      $1,300 billion in derivatives, ie
          o $200 billion in outright forwards
          o $1,000 billion in forex swaps
          o $100 billion in FX options.

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, but only accounts for about 7% of the total foreign exchange market volume, according
to The Wall Street Journal Europe (5/5/06, p. 20).

                                                                        % of overall volume, May 2005
                                                         Top 10 Currency Traders
                                                                                          Name          % of volume
                                                                    1                 Deutsche Bank        17.0
                                                                    2                     UBS              12.5
                                                               3                Citigroup     7.5
The ten most active traders account for almost 73%
                                                               4                 HSBC         6.4
of trading volume, according to The Wall Street
Journal Europe, (2/9/06 p. 20). These large                    5                Barclays      5.9
international banks continually provide the market             6              Merrill Lynch   5.7
with both bid (buy) and ask (sell) prices. The bid/ask
                                                               7           J.P. Morgan Chase  5.3
spread is the difference between the price at which a
bank or market maker will sell ("ask", or "offer") and         8             Goldman Sachs    4.4
the price at which a market-maker will buy ("bid")             9              ABN AMRO        4.2
from a wholesale customer. This spread is minimal              10            Morgan Stanley   3.9
for actively traded pairs of currencies, usually only 1-
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 $1,000,000.

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' cheques. Spot
prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005).
Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips.

Trading characteristics

There is no single unified foreign exchange market. 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 no such thing as 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.
                                                                         Top 6 Most Traded Currencies
The main trading centers are in London, New York, and          Rank         Currency           ISO 4217 Code Symbol
Tokyo, but banks throughout the world participate. As the
Asian trading session ends, the European session begins,         1    United States dollar         USD         $
then the US session, and then the Asian begin in their           2       Eurozone euro             EUR         €
turns. Traders can react to news when it breaks, rather          3        Japanese yen             JPY         ¥
than waiting for the market to open.
                                                                 4    British pound sterling       GBP         £
There is little or no 'inside information' in the foreign     5-6      Swiss franc       CHF          -
exchange markets. Exchange rate fluctuations are usually      5-6   Australian dollar    AUD          $
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, 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. Trading legend
Richard Dennis has accused central bankers of leaking information to hedge funds. [1]

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 currency is expressed. For instance, EUR/USD is the
price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

On the spot market, according to the BIS study, the most heavily traded products were:

      EUR/USD - 28 %
      USD/JPY - 17 %
      GBP/USD (also called cable) - 14 %
and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%)
and sterling (17%). (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 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 only exception to this is EUR/JPY, which is an established traded currency pair in the
interbank spot market.

Market participants

According to the BIS study Triennial Central Bank Survey 2004

       53% of transactions were strictly interdealer (ie interbank);
       33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial
       and only 14% were between a dealer and a non-financial company.


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, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago
Mercantile Exchange, Bloomberg and TradeBook(R). 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.
Nevertheless, 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, however. 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 South East Asia.
Investment Management Firms

Investment Management firms (who typically manage large accounts on behalf of customers such as
pension funds, endowments etc.) 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-maximisation.

Some investment management firms also have more speculative specialist currency overlay units, which
manage clients' currency exposures with the aim of generating profits as well as limiting risk. The
number of this type of specialist is quite small, their large assets under management (AUM) can lead to
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,
[2]which is about 2% of the whole market. CNN also quotes an official of the National Futures
Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the
amount of forex fraud has also increased dramatically."

All firms offering foreign exchange trading online are either market makers or facilitate the placing of
trades with market makers.

In the retail forex industry market makers often have two separate trading desks- one that actually
trades foreign exchange (which determines the firm's own net position in the market, serving as both a
proprietary trading desk and a means of offsetting client trades on the interbank market) and one used
for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").

Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with
other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the
large majority of retail currency speculators are novices and who lose money [3], so that the market
makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market
maker judges its clients' net position as being very risky.

The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange
rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market
maker will make a profit) before they are displayed to retail customers. Prices shown by the market
maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail
market makers are efficient at removing arbitrageurs from their systems or limiting their trades.

A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But
most do not because of the limited number of clearing banks willing to process small orders. More
importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses
are directly turned into market maker profits. While the income of a marketmaker that offsets trades or
a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers
can generate income in a variety of ways because they not only control the trading process, they also
control pricing which they can skew at any time to maximize profits.

The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail
speculators in FX lack trading experience and and capital (account minimums at some firms are as low
as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to
$100,000, force small traders to take imprudently large positions using extremely high leverage.
Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client
accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This
drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit
for the market maker).

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even
people running the trading shops warn clients against trying to time the market. 'If 15% of day traders
are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]

In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless
the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5].
Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures
commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential
clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than
stock brokers and there is no protection similar to that from the Securities Investor Protection
Corporation. The CFTC has noted an increase in forex scams [6].


Controversy about currency speculators and their effect on currency devaluations and national
economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue 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

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 [7]. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other

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 only 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.

Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, New York, 1995.

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