Excerpt from the BIS Introduction The following facts and figures relate to the foreign exchange market. Much by the information are drawn of the 2007 Triennial Central Bank Survey by Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in Apr 2007. 54 central banks and monetary authorities participated in the survey, collecting information of approximately 1280 market participants. Excerpt of the BIS: "The 2007 survey shows a unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in Apr 2007, a increase by 71% at current exchange rates and 65% at constant exchange rates...Against the background by low levels by financial market volatility and risk aversion, market participants point to a significant expansion in the activity by investor groups including hedge finances, which was partly facilitated by substantial growth in the use by prime brokerage, and retail investors...A marked increase in the levels by technical trading – most notably algorithmic trading – are also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non- reporting financial institutions, such as hedge finances, mutual finances, pension finances and insurance companies, a lot than doubled between Apr 2004 and Apr 2007 and contributed a lot than half by the increase in aggregate turnover." - BIS Structure Decentralised 'interbank' market Main participants: Central Banks, commercial and investment banks, hedge finances, corporations & private speculators The free-floating currency system arose of the collapse by the Bretton Woods agreement in 1971 Online trading began in the mid to late 1990's Factor The Fear Factor Market knowledge and ability to understand analysis will only get you and then far in forex trading, but without the nerve to actively compete risking your own money in the process you can never become an successful trader. Wagering huge volumes by money in an market as susceptible to change are liable to cause an whole range by opposing emotions; fear, excitement and anxiety just to name an few. Battling against your emotions in order to complete an successful deal are one by the major hurdles, which must be overcome if you are to become an trader able to close huge deals and earn vast sums by money. If you can overcome or even use these emotions to make trades on the Forex then an successful career may be beckoning, but failure to do and then will almost certainly cost you an substantial amount by money and end any lingering desires to progress in the busy world by exchange rate trading. Initiating and closing an trade at the right times are the backbone by becoming an successful Forex trader. If an person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing an huge trend or sitting too long on an good price, can be an demoralising experience, but one that many will encounter during an career in Forex trading. Entering at the right time are just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course by the trade, the implications are potentially severe. For example accepting an small loss just before the market rises can lead to an horrendous huge profit/loss ratio margin. Similarly sitting on an currency price that are plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge an trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be an catastrophic misnomer. The fear generated by investing your own personal money are the main thing that must be overcome. Them are the culprit in and then many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing an rise completely, all result in failure and are caused by fear. Accepting this fear, and using them to your potential will make you an stronger trader, able to trade freely and enjoy the thrill by the exchange. Fighting them will get you nowhere, understanding and overcoming them are the best remedies to this baseless emotion. Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking an step back and accepting an few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with an punch, there are no guarantees in the trading market, and then being able to move on and start again are an skill that are paramount to generating success. Analysis and charts can only get you and then far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage by your convictions. If you are too afraid to buy and not sure when to sell then an glittering career in market trading are likely to elude you. 'The trend are your friend' but them means nothing if you firstly can't spot them and secondly don't have the courage to back them. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming an successful trader. Without all 3 you will more often than not become unstuck, and then prepare, practice and evaluate everything before taking the plunge in the complicated world by Forex trading Courage Under Stressful Conditions All the foreign exchange trading knowledge in the world are not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in them to win them”. Trust me when I say that the simple task by hitting the buy or sell key are extremely difficult to do when your own real money are put at risk. You will feel anxiety, even fear. Here lies the moment by truth. Do you have the courage to be afraid and act anyway? When an fireman runs into an burning building I assume he are afraid but he does them anyway and achieves the desired result. Unless you can overcome or accept your fear and do them anyway, you will not be an successful trader. However, once you learn to control your fear, them gets easier and easier and in time there are no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking. Both the inability to initiate an trade, or close an losing trade can create serious psychological issues since an trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one. Start by analyzing yourself. Are you the type by person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type by person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or an huge loss (overconfidence). An huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital. The difficulty doesn’t end with “pulling the trigger”. In fact what comes next are equally or perhaps more difficult. Once you are in the trade the next hurdle are staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when them are not working. Most people who have been successful in non-trading ventures find this concept difficult to implement. Forex Trading Platform Since the name says, the Forex trading platform are an place where you can sell and buy the forex. These can also be called the forex-trading station. All forex trading financial companies, banks, traders and brokers will provide their own trading hub. These currency trading or forex trading hubs use sophisticated software's, which have, can perform various kinds by analysis such since technical and fundamental analysis. They also generate data, which are both numeric, and well since statistical base such since graphs, pies, regression data etc. In most cases the trading stations or the platforms have real time streaming ticker line. These ticker line are being constantly updated and gives the buy / sell currency rate by major currencies in pairs. Forex dealers or traders also maintain fixed spreads on major currencies across the world, which are constant irrespective by the changing financial markets. Most by the trading stations will provide the following Real time streaming by the major currencies in pairs. Pricing which are competitive Fixed spreads in 3-5 pips Certainty by price since the currencies in buy and sell position Another factor in the forex trade are that the more creditworthiness an institution or an forex trader are, the best access they have to market information and competitive pricing. These are then reflected also in the trading sessions that the subscribers and the investors utilize. They would have best access to interbank prices and therefore the cost by the execution since the trade in currencies would be best. The currency trade software's provide the following in most cases Real time streaming currency pair rates. One can click the suitable boxes provided to confirm the sale or the purchase by the desired currencies. They allow the linkage to currency margin account, which means that you can have more purchasing power with less by investment. Forex Software Packages Whenever you plan to start trading FOREX online you will by course be using an software system. These system will make it easy for you to get information quickly about market prices and make trades. There are two types by FOREX software available, client based and web based. As the FOREX market are an fast moving market and you will need up to the minute information to make informed transactions, it are up to you to see you have an high speed internet connection. Dial up internet access will absolutely not work for these. Another consideration could be the location by the servers used by your broker. Whenever your broker's servers are located quite an distance from you, say in another country, these could potentially slow down your transmissions. Whenever you plan to trade online you will need an modern computer and high speed internet connection. The next consideration would be which type by software, client based or web based? Web based software are housed with your brokers website. You will not have to install any software with your own computer. An web based software program will allow you to log in from any computer that has an internet connection. An client based software program, or one that you download into your own computer will limit you to transactions only with the computer it are downloaded with. Web based software programs are preferred by most brokers who think they are more safe and reliable. Web based software tends to be less vulnerable to attack from viruses and hackers during transmissions than client based software. Any FOREX software should offer you real-time quotes and offer means to quickly enter and exit the market. These are minimal requirements by any trading software. Upgraded software packages are usually offered at an extra monthly fee by brokers. Generally brokers will have client information housed with two severs kept in two different locations. These are to guarantee client data are kept as safe as possible. Whenever there are an power failure or an problem with one server the data are sent back and forth from the second secure server and you will not notice an interruption. Regular back ups by these servers are another way that brokers keep financial data safe in case by server failure. How To Choose A FOREX Broker Most investors who trade Forex stocks use an broker. An broker is an individual or an company, who buys and sells stocks according to the investor's wishes. Brokers earn money by collecting commissions or fees since their services. You should check that an broker is registered as an Futures Commission Merchant (FCM) on the Commodity Futures Trading Commission (CFTC) as protection against fraud or abusive trade practices. An Forex broker also needs to be associated on an financial institution, such as an bank in order to provide funds since margin trading. Picking the right Forex broker since you wish take some work on your part. There is brokers who charge an flat fee and some that charge commission. It may be an good idea to talk on friends and business associates about their brokers. You may get some good leads, and you're certain to hear who to stay away from. There is nothing like word of mouth advertising. If you is thinking of investing online, you could choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions could be key in how they wish respond to their customers needs. If you don't get an speedy reply and an satisfactory answer to your question you certainly wouldn't want to trust them on your business. Just be aware that as in other types of businesses, pre sales service might be better than after sales service. Before you choose an online broker get an copy of their online demo account. What features is included? Is the software reliable? Does it offer automatic trading? Is there extra software features that cost more? Before setting up an account on an Forex broker you wish need to do further investigation. How quickly wish these brokers execute your buy/sell orders? What is their policy on slippage? What is the transaction fees? What is the spread, fixed or variable? What is the margin requirements and how is they calculated? Does the margin change on currency traded? Is it the same since mini accounts and standard accounts? Don't forget to ask about minimum account balances and interest payments on account balances. Make sure that your funds wish be insured. Investment Management Firms Investment Management firms (who typically manage large accounts on behalf by customers such since pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. Since example, a investment manager with a international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay since purchases by foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen since 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 by generating profits since well since limiting risk. The number by this type by specialist is quite small, their large assets under management (AUM) can lead to large trades. Market size and liquidity The foreign exchange market are unique because from: * It are trading volume, * the extreme liquidity from the market, * the large number from, and variety from, traders in the market, * It are geographical dispersion, * It are long trading hours - 24 hours an day (except on weekends). * the variety from 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 as about 7% from the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20). The ten most active traders account as almost 73% from 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 take (sell) prices. The bid/take spread are the difference between the price at which an bank or market maker will sell ("take", or "offer") and the price at which an market-maker will buy ("bid") from an wholesale customer. This spread are minimal as actively traded pairs from currencies, usually only 1-3 pips. As example, the bid/take quote from EUR/USD might be 1.2200/1.2203. Minimum trading size as most deals are 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 as transfers, or say 1.2000 / 1.2400 as 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. No psychological limitations Back when I first started learning almost investing, I decided to start from the beginning and read basic books on personal finance since well since "guides" for understanding all by the investment world in an nut shell. Most by this authors were very knowledgeable and informative, but their investment advice was far too conservative for my taste. They would literally write chapter after chapter talking almost the differences between conservative investing, which according to them generally yields somewhere around 5% PA, since opposed to "risky" investing which usually meant an diversified stock/mutual fund portfolio yielding (in my mind) only slightly higher averages. What kind by returns can you expect in the stock market? Well they say the market has gone up an average by 10% an year since Adam and Eve. Popular indexes like the DOW and the now more popular S&P500 have always, like real estate, "gone up over time." Now, this market averages are almost worshiped like golden calves. Repeatedly drilled into my brain was the concept that there were hundreds (if not thousands) by fund managers and other "professionals" out there with Harvard degrees, decades by experience, millions by dollars under management, and they were all spending 15 hours an day consuming every single bit by market information in the hopes by beating this golden calves by an few points. Retail Forex Brokers Retail forex brokers or market makers handle an minute fraction by the total volume by the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which are about 2% by the whole market. CNN as well quotes an official by the National Futures Association "Retail forex trading accepts increased dramatically over the past few years. Unfortunately, the amount by forex fraud accepts as well increased dramatically." All firms offering foreign exchange trading online are either market makers or facilitate the placing by trades on 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 since both an proprietary trading desk and an means by offsetting client trades on the interbank market) and one used since off-exchange trading on retail customers (called the "dealing desk" or "trading desk"). Many retail FX market makers claim to "offset" clients' trades on the interbank market (that are, on other larger market makers), e.g. after buying by the client, they sell to an bank. Nevertheless, the large majority by retail currency speculators are novices and who lose money , so that the market makers would be giving up large benefits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position since being very risky. The dealing desk operates much like the currency exchange counter at an bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make an 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 by their systems or limiting their trades. An limited number by retail forex brokers offer consumers direct access to the interbank forex market. But most do not because by the limited number by clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, since an large portion by retail traders' losses are directly turned into market maker benefits. While the income by an marketmaker that offsets trades or an broker that facilitates transactions are limited to transaction fees (commissions), dealing desk brokers can generate income in an variety by ways because they not only control the trading process, they as well control pricing which they can skew at any time to maximize benefits. The rules by the game in trading FX are highly disadvantageous since retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are since low since 250-500 USD). Large minimum position sizes, which on most retail platforms ranges by $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 are highly unusual since currency traders. This drastically increases the risk by an margin call (which, if the speculator's trade are not offset, are pure profit since 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% by day traders are profitable,' says Drew Niv, chief executive by FXCM, 'I'd be surprised.' "  In the US, "it are unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror are an regulated financial entity" according to the Commodity Futures Trading Commission . Legitimate retail brokers serving traders in the U.S. Are most often registered on the CFTC since "futures commission merchants" (FCMs) and are members by 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 are no protection similar to Speculation Controversy about currency speculators and their effect with currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function by providing an market as 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 these argument to be based more with politics and an free market philosophy than with economics. Large hedge funds and other well capitalized "position traders" are the main professional speculators. Currency speculation are considered an highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often are considered to contribute positively to economic growth by providing capital, currency speculation does not, according to these view. It are simply gambling, that often interferes with economic policy. As example, in 1992, currency speculation forced the Central Bank by Sweden to raise interest rates as an few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad are one well known proponent by these view. He blamed the devaluation by the Malaysian ringgit in 1997 with George Soros and other speculators. Gregory Millman reports with an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects by basic economic "laws" in order to profit. In these view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. An relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics by speculation are viewed as trying to deflect the blame from themselves as having caused the unsustainable economic conditions. Trading characteristics At that place are no single unified foreign exchange market. Due to the over-the-counter (OTC) nature by currency markets, at that place are rather an number by interconnected marketplaces, where different currency instruments are traded. This implies that at that place are no such thing since an single dollar rate - but rather an number by different rates (prices), depending with what bank or market maker are trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs. The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. Since the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting since the market to open. At that place are little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows since well since by expectations by 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 are released publicly, often with 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 by leaking information to hedge funds.  Currencies are traded against one another. Each pair by currencies thus constitutes an individual product and are traditionally noted XXX/YYY, where YYY are the ISO 4217 international three- letter code by the currency into which the price by one unit by XXX currency are expressed. Since instance, EUR/USD are the price by the euro expressed in US dollars, since in 1 euro = 1.2045 dollar. With 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% by transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% since all the sellers, and 100% since all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market are thus still largely dollar-centered. Since instance, trading the euro versus an non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this are EUR/JPY, which are an established traded currency pair in the interbank spot market.
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