The foreign exchange, or forex, market is relatively young, having begun in the early 1970s after the United States dropped the gold standard and national currencies started to fluctuate widely. For about 30 years prior to that, most nations had agreed to keep their currency values stable in relation to the U.S. dollar, making a forex market unnecessary. With that no longer the case, banks quickly realized that a profit could be made in “buying” currency when it was devalued and “selling” it after it strengthened, just like any other commodity.
Today, the forex market handles about $1.9 trillion in transactions every day, and it runs 24 hours a day, five days a week. (With nations around the world involved, it’s always daytime somewhere.) The most traded currencies are the U.S. dollar, the euro, Japanese yen, British pound, Swiss franc and Australian dollar.
The forex market is overwhelmingly dominated by international banks, government banks, investment banks, corporations, and hedge funds. In fact, individual traders account for only about 2 percent of the market. Nonetheless, a lot of people do try their hand at it, with varying degrees of success.
In the forex market, transactions are always handled in pairs: You buy one currency and sell another one. The idea is to make a trade when you believe the currency you’re buying is going to go up in value compared to the one you’re selling. Then, if it turns out your prediction was correct, you do another trade in the reverse direction -- selling the currency you originally bought and buying the one you sold -- in order to reap the profits.
For example, let’s say the market reports this: GBP/EUR 1.2200. That means the cost of buying one British pound is 1.22 euros. If you believed that course was going to change, and the euro was going to become more valuable than the pound, you might sell 100,000 pounds, buy 100,000 euros, and wait. Then let’s say a few weeks later, the exchange rate fluctuates to this: EUR/GBP 1.3100. Sure enough, the euro is now worth 1.31 pounds, a profit of 0.11 per unit.
The forex market is vast and daunting and mostly inhabited by giant organizations. But it can be navigated by individuals who have studied the finer points and who want to take a risk on something potential profitable. And since the whole world uses money, the trading of that money is always going to be a major force in the financial world.
Saturday, February 14, 2009
Friday, February 13, 2009
What is a Forex Broker
A Forex broker is very similar to a stock broker, and many new online Forex brokerages have recently emerged. The key difference is that Forex brokers deal only in currency exchange investments.
Similar to securities brokerages, Forex brokers come in all sizes, shapes, and levels of service. An online Forex broker provides minimal service at minimal cost. If you require more advice and expert guidance, there are many full service Forex brokers available, as well.
If you do go with an online broker, make sure that you choose one that has an extensive online knowledge base and 24/7 support so that you can execute all trades wisely, and quickly.
India on the rise with economy Booming
The world's most populous democracy has jumbo growth prospects. Here's how to invest now.
For the 12 months ending March 31, 2005, foreign investment in India was an estimated $13.5 billion. That's on top of $16 billion invested in the same period a year earlier. Private-investment giant Blackstone Group has announced plans to open an office in Mumbai and invest up to $1 billion in India. And the Sensex, the index of the Mumbai stock exchange, has surged 72% over the past year.
What's behind the rising interest in India? Some cite the rapid growth in outsourcing, the practice of hiring third-party companies to handle functions that companies used to manage in-house. Indian companies such as Infosys and Wipro have turned the outsourcing trend into an offshoring boom--and attracted U.S. investors starved for growth. Sales and earnings at Infosys, for example, grew more than 40% in its last fiscal year, and its American depositary receipts--ADRs are certificates that trade on a U.S. exchange and represent foreign shares--are up 12% this year.
The outsourcing phenomenon has, in turn, created good jobs in India and given a boost to a growing middle class of consumers who are buying homes, cars, and expensive consumer goods--a big change for the world's second-most-populous nation. Samir Mehta, who manages the Eaton Vance Greater India fund, says that just ten years ago college grads lived with their parents, rarely owned cars, and paid for everything in cash. Now, he says, young professionals are taking out mortgages and acquiring credit. And because India is a young, educated country--half the population is under the age of 25--analysts expect demand for goods and services such as banking, telecommunications, and cars will grow dramatically in the next ten to 15 years.
And while China continues to be the world's fastest-growing major economy--its gross domestic product rose more than 9% last year--India is no slouch: GDP has been growing 6% to 7% annually. Moreover, many investors think India's democratic government and huge English-speaking population will give it an edge over China and other rising nations in doing business with Western corporations. "Everybody knows about the terrific growth," says Prakash Melwani, a senior managing director with Blackstone. "In India, one has the rule of law, the democracy. We felt we had real downside protection."
Individual investors have a couple of ways to bet on India. The government limits direct investment in shares of Indian companies to registered investors. That means that most individuals must either invest in a fund that buys Indian stocks (more on that in a moment) or buy one of a handful of Indian stocks with ADRs. Money-management professionals say investors interested in the latter strategy should consider a pair of financial institutions that offer a simple way to bet on the continued growth of the overall Indian economy: HDFC Bank (HDB, $48) and ICICI Bank (IBN, $22). Both companies are benefiting from Indians' desires to own homes and establish credit.
HDFC started out as a corporate bank, but it began lending to consumers three years ago and has been adding more than 100 branches a year. Eaton Vance's Mehta says the company is managed much more like an American bank--a number of its founding executives came from Citibank--than a government-run entity. He admits the stock is not cheap: It trades at about 3.3 times book value and roughly 20 times estimated earnings for fiscal 2006. However, HDFC has consistently delivered 25% to 30% earnings growth, a trend Mehta expects to continue for the next three to five years.
But ICICI may be the better bargain. A consumer-oriented bank, it too is riding India's newfound consumerism and frenzy for real estate. Fiscal-fourth-quarter earnings increased 35%, thanks to strong lending growth and a big income boost from banking and other fees. But the stock trades at just 15 times 2006 estimated earnings--a price/earnings ratio closer to those of less entrepreneurial state-owned banks. This "is unrealistic," a recent Morgan Stanley note said, "given ICICI Bank's better quality income stream."
For those looking to cash in on outsourcing, most analysts recommend buying software and services giant Infosys Technologies (INFY, $77). Indeed, fund managers liken it to General Electric and other U.S. stalwarts: It is simply a must for any India portfolio. And while the company is trading at a lofty 38 times estimated earnings for fiscal 2006, fans say it still isn't too late to buy in. "It is the bellwether stock of the Indian market and one of the best- managed companies in the tech sector," says Nishid Shah, chief investment officer of Birla Sun Life Asset Management Co., which manages the Excel India fund.
Offshoring has come under attack from unions and politicians in the U.S., but analysts believe U.S. companies will continue to look for ways to reduce costs by shipping work overseas. Perhaps the biggest risk for Infosys is price competition from rival Indian outsourcing companies. Indeed, Mark Bickford-Smith, co-manager of the T. Rowe Price International Stock fund, likes Infosys. But he favors shares of rival I-flex, a smaller tech company that Bickford-Smith thinks has greater growth potential. Most of us can't buy I-flex directly, though, because it is one of the many up-and-coming Indian companies that don't yet have ADRs trading on a U.S. exchange.
To get exposure to these lower-profile but fast-growing firms, investors should use a mutual fund. The question is how big a bet to place on India. "People don't need a fund devoted to just one country," says Arijit Dutta, a mutual fund analyst for Morningstar. He likes T. Rowe Price New Asia fund (PRASX), which invests about 20% of its assets in India--enough to benefit from the economic growth but not so much that its performance is volatile. Its three-year annualized return is a healthy 20%, and its expense ratio is about half that of the average fund in its category.
If investors really want to embrace India fully, however, Dutta suggests Mehta's Eaton Vance Greater India (ETGIX), which invests at least 80% of its assets in the subcontinent. The fund has a steep 2.77% expense ratio but boasts a three-year annualized return of 40%. Another all-India portfolio with a similar record is the Morgan Stanley India Investment fund (IIF). The closed-end fund typically holds shares in some 40 Indian companies and trades like a stock on the New York Stock Exchange.
As hot as India is right now, is it a good idea to jump in right away? Ridham Desai, an Indian equity strategist for Morgan Stanley, thinks the Indian market is a bit overheated. He says there's a good chance it will come down 15% or so in the next year. "In my view, investors don't have to pull the trigger tomorrow morning," he says. "I think it may be a good time to visit ideas and prepare for better prices to come." But for investors who don't feel comfortable trying to time such a swing, there may be no moment like the present to make a long-term bet on India.
For the 12 months ending March 31, 2005, foreign investment in India was an estimated $13.5 billion. That's on top of $16 billion invested in the same period a year earlier. Private-investment giant Blackstone Group has announced plans to open an office in Mumbai and invest up to $1 billion in India. And the Sensex, the index of the Mumbai stock exchange, has surged 72% over the past year.
What's behind the rising interest in India? Some cite the rapid growth in outsourcing, the practice of hiring third-party companies to handle functions that companies used to manage in-house. Indian companies such as Infosys and Wipro have turned the outsourcing trend into an offshoring boom--and attracted U.S. investors starved for growth. Sales and earnings at Infosys, for example, grew more than 40% in its last fiscal year, and its American depositary receipts--ADRs are certificates that trade on a U.S. exchange and represent foreign shares--are up 12% this year.
The outsourcing phenomenon has, in turn, created good jobs in India and given a boost to a growing middle class of consumers who are buying homes, cars, and expensive consumer goods--a big change for the world's second-most-populous nation. Samir Mehta, who manages the Eaton Vance Greater India fund, says that just ten years ago college grads lived with their parents, rarely owned cars, and paid for everything in cash. Now, he says, young professionals are taking out mortgages and acquiring credit. And because India is a young, educated country--half the population is under the age of 25--analysts expect demand for goods and services such as banking, telecommunications, and cars will grow dramatically in the next ten to 15 years.
And while China continues to be the world's fastest-growing major economy--its gross domestic product rose more than 9% last year--India is no slouch: GDP has been growing 6% to 7% annually. Moreover, many investors think India's democratic government and huge English-speaking population will give it an edge over China and other rising nations in doing business with Western corporations. "Everybody knows about the terrific growth," says Prakash Melwani, a senior managing director with Blackstone. "In India, one has the rule of law, the democracy. We felt we had real downside protection."
Individual investors have a couple of ways to bet on India. The government limits direct investment in shares of Indian companies to registered investors. That means that most individuals must either invest in a fund that buys Indian stocks (more on that in a moment) or buy one of a handful of Indian stocks with ADRs. Money-management professionals say investors interested in the latter strategy should consider a pair of financial institutions that offer a simple way to bet on the continued growth of the overall Indian economy: HDFC Bank (HDB, $48) and ICICI Bank (IBN, $22). Both companies are benefiting from Indians' desires to own homes and establish credit.
HDFC started out as a corporate bank, but it began lending to consumers three years ago and has been adding more than 100 branches a year. Eaton Vance's Mehta says the company is managed much more like an American bank--a number of its founding executives came from Citibank--than a government-run entity. He admits the stock is not cheap: It trades at about 3.3 times book value and roughly 20 times estimated earnings for fiscal 2006. However, HDFC has consistently delivered 25% to 30% earnings growth, a trend Mehta expects to continue for the next three to five years.
But ICICI may be the better bargain. A consumer-oriented bank, it too is riding India's newfound consumerism and frenzy for real estate. Fiscal-fourth-quarter earnings increased 35%, thanks to strong lending growth and a big income boost from banking and other fees. But the stock trades at just 15 times 2006 estimated earnings--a price/earnings ratio closer to those of less entrepreneurial state-owned banks. This "is unrealistic," a recent Morgan Stanley note said, "given ICICI Bank's better quality income stream."
For those looking to cash in on outsourcing, most analysts recommend buying software and services giant Infosys Technologies (INFY, $77). Indeed, fund managers liken it to General Electric and other U.S. stalwarts: It is simply a must for any India portfolio. And while the company is trading at a lofty 38 times estimated earnings for fiscal 2006, fans say it still isn't too late to buy in. "It is the bellwether stock of the Indian market and one of the best- managed companies in the tech sector," says Nishid Shah, chief investment officer of Birla Sun Life Asset Management Co., which manages the Excel India fund.
Offshoring has come under attack from unions and politicians in the U.S., but analysts believe U.S. companies will continue to look for ways to reduce costs by shipping work overseas. Perhaps the biggest risk for Infosys is price competition from rival Indian outsourcing companies. Indeed, Mark Bickford-Smith, co-manager of the T. Rowe Price International Stock fund, likes Infosys. But he favors shares of rival I-flex, a smaller tech company that Bickford-Smith thinks has greater growth potential. Most of us can't buy I-flex directly, though, because it is one of the many up-and-coming Indian companies that don't yet have ADRs trading on a U.S. exchange.
To get exposure to these lower-profile but fast-growing firms, investors should use a mutual fund. The question is how big a bet to place on India. "People don't need a fund devoted to just one country," says Arijit Dutta, a mutual fund analyst for Morningstar. He likes T. Rowe Price New Asia fund (PRASX), which invests about 20% of its assets in India--enough to benefit from the economic growth but not so much that its performance is volatile. Its three-year annualized return is a healthy 20%, and its expense ratio is about half that of the average fund in its category.
If investors really want to embrace India fully, however, Dutta suggests Mehta's Eaton Vance Greater India (ETGIX), which invests at least 80% of its assets in the subcontinent. The fund has a steep 2.77% expense ratio but boasts a three-year annualized return of 40%. Another all-India portfolio with a similar record is the Morgan Stanley India Investment fund (IIF). The closed-end fund typically holds shares in some 40 Indian companies and trades like a stock on the New York Stock Exchange.
As hot as India is right now, is it a good idea to jump in right away? Ridham Desai, an Indian equity strategist for Morgan Stanley, thinks the Indian market is a bit overheated. He says there's a good chance it will come down 15% or so in the next year. "In my view, investors don't have to pull the trigger tomorrow morning," he says. "I think it may be a good time to visit ideas and prepare for better prices to come." But for investors who don't feel comfortable trying to time such a swing, there may be no moment like the present to make a long-term bet on India.
Top Most Tradeable Currencies
1. U.S. Dollar (USD)
Central Bank: Federal Reserve (Fed)
Created in 1913 by the Federal Reserve Act, the Federal Reserve System (also called the Fed) is the central banking body of the U.S. The system is itself headed by a chairman and board of governors, with most of the focus being placed on the branch known as the Federal Open Market Committee (FOMC). The FOMC supervises open market operations as well as monetary policy or interest rates.
The current committee is comprised of five of the 12 current Federal Reserve Bank presidents and seven members of the Federal Reserve Board, with the Federal Reserve Bank of New York always serving on the committee. Even though there are 12 voting members, non-members (including additional Fed Bank presidents) are invited to share their views on the current economic situation when the committee meets every six weeks.
Sometimes referred to as the greenback, the U.S. dollar (USD) is the home denomination of the world's largest economy, the United States. As with any currency, the dollar is supported by economic fundamentals, including gross domestic product, and manufacturing and employment reports. However, the U.S. dollar is also widely influenced by the central bank and any announcements about interest rate policy. The U.S. dollar is a benchmark that trades against other major currencies, especially the euro, Japanese yen and British pound.
2. European Euro (EURO)
Central Bank: European Central Bank (ECB)
Headquartered in Frankfurt, Germany, the European Central Bank is the central bank of the 15 member countries of the Eurozone. In similar fashion to the United States' FOMC, the ECB has a main body responsible for making monetary policy decisions, the Executive Council, which is composed of five members and headed by a president. The remaining policy heads are chosen with consideration that four of the remaining seats are reserved for the four largest economies in the system, which include Germany, France, Italy and Spain. This is to ensure that the largest economies are always represented in the case of a change in administration. The council meets approximately 10 times a year.
3. Japanese Yen (JPY)
Central Bank: Bank of Japan (JoP)
Established as far back as 1882, the Bank of Japan serves as the central bank to the world's second largest economy. It governs monetary policy as well as currency issuance, money market operations and data/economic analysis. The main Monetary Policy Board tends to work toward economic stability, constantly exchanging views with the reigning administration, while simultaneously working toward its own independence and transparency. Meeting 12-14 times a year, the governor leads a team of nine policy members, including two appointed deputy governors.
The Japanese yen (JPY) tends to trade under the identity of a carry trade component. Offering a low interest rate, the currency is pitted against higher-yielding currencies, especially the New Zealand and Australian dollars and the British pound. As a result, the underlying tends to be very erratic, pushing traders to take technical perspectives on a longer-term basis. Average daily ranges are in the region of 30-40 pips, with extremes as high as 150 pips. To trade this currency with a little bit of a bite, focus on the crossover of London and U.S. hours (6am - 11am EST).
4. British Pound (GBP)
Central Bank: Bank of England (BoE)
As the main governing body in the United Kingdom, the Bank of England serves as the monetary equivalent of the Federal Reserve System. In the same fashion, the governing body establishes a committee headed by the governor of the bank. Made up of nine members, the committee includes four external participants (appointed by the Chancellor of Exchequer), a chief economist, director of market operations, committee chief economist and two deputy governors.
A little bit more volatile than the euro, the British pound (GBP, also sometimes referred to as "pound sterling" or "cable") tends to trade a wider range through the day. With swings that can encompass 100-150 pips, it isn't unusual to see the pound trade as narrowly as 20 pips. Swings in notable cross currencies tend to give this major a volatile nature, with traders focusing on pairs like the British pound/Japanese yen and the British pound/Swiss franc. As a result, the currency can be seen as most volatile through both London and U.S. sessions, with minimal movements during Asian hours (5pm - 1am EST).
5. Swiss Franc (CHF)
Central Bank: Swiss National Bank (SNB)
Different from all other major central banks, the Swiss National Bank is viewed as a governing body with private and public ownership. This belief stems from the fact that the Swiss National Bank is technically a corporation under special regulation. As a result, a little over half of the governing body is owned by the sovereign states of Switzerland. It is this arrangement that emphasizes the economic and financial stability policies dictated by the governing board of the SNB. Smaller than most governing bodies, monetary policy decisions are created by three major bank heads who meet on a quarterly basis.
Similar to the euro, the Swiss franc (CHF) hardly makes significant moves in the any of the individual sessions. As a result, look for this particular currency to trade in the average daily range of 35 pips per day. High-frequency volume for this currency is usually pitted for the London session (2am - 8am EST).
6. Canadian Dollar (CAD)
Central Bank: Bank of Canada (BoC)
Established by the Bank of Canada Act of 1934, the Bank of Canada serves as the central bank called upon to "focus on the goals of low and stable inflation, a safe and secure currency, financial stability and the efficient management of government funds and public debt." Acting independently, Canada's central bank draws similarities with the Swiss National Bank because it is sometimes treated as a corporation, with the Ministry of Finance directly holding shares. Despite the proximity of the government's interests, it is the responsibility of the governor to promote price stability at an arm's length from the current administration, while simultaneously considering the government's concerns. With an inflationary benchmark of 2-3%, the BoC has tended to remain a shade more hawkish rather than accommodative when it comes to any deviations in prices.
Keeping in touch with major currencies, the Canadian dollar (CAD) tends to trade in similar daily ranges of 30-40 pips. However, one unique aspect about the currency is its relationship with crude oil, as the country remains a major exporter of the commodity. As a result, plenty of traders and investors use this currency as either a hedge against current commodity positions or pure speculation, tracing signals from the oil market.
7. Australian/New Zealand Dollar (AUD/NZD)
Central Bank: Reserve Bank of Australia/Reserve Bank of New Zealand (RBA/RBNZ)
Offering one of the higher interest rates in the major global markets, the Reserve Bank of Australia has always upheld price stability and economic strength as cornerstones of its long-term plan. Headed by the governor, the bank's board is made up of six members-at-large, in addition to a deputy governor and a secretary of the Treasury. Together, they work toward to target inflation between 2-3%, while meeting nine times throughout the year. In similar fashion, the Reserve Bank of New Zealand looks to promote inflation targeting, hoping to maintain a foundation for prices.
Both currencies have been the focus of carry traders, as the Australian and New Zealand dollars (AUD and NZD) offer the highest yields of the seven major currencies available on most platforms. As a result, volatility can be experienced in these pairs if a deleveraging effect takes place. Otherwise, the currencies tend to trade in similar averages of 30-40 pips, like other majors. Both currencies also maintain relationships with commodities, most notably silver and gold.
8. South African Rand (ZAR)
Central Bank: South African Reserve Bank (SARB)
Previously modeled on the United Kingdom's Bank of England, the South African Reserve Bank stands as the monetary authority when it comes to South Africa. Taking on major responsibilities similar to those of other central banks, the SARB is also known as a creditor in certain situations, a clearing bank and major custodian of gold. Above all else, the central bank is in charge of "the achievement and maintenance of price stability". This also includes intervention in the foreign exchange markets when the situation arises.
Interestingly enough, the South African Reserve Bank remains a wholly owned private entity with more than 600 shareholders that are regulated by owning less than 1% of the total number of outstanding shares. This is to ensure that the interests of the economy precede those of any private individual. To maintain this policy, the governor and 14-member board head the bank's activities and work toward monetary goals. The board meets six times a year.
Seen as relatively volatile, the average daily range of the South African rand (ZAR) can be as high as 1,000 pips. But don't let the wide daily range fool you. When translated into dollar pips, the movements are equivalent to an average day in the British pound, making the currency a great pair to trade against the U.S. dollar (especially when taking into consideration the carry potential). Traders also consider the currency's relationship to gold and platinum. With the economy being a world leader when it comes to exports of both metals, it is only natural to see a correlation similar to that between the CAD and crude oil. As a result, consider the commodities markets in creating opportunities when economic data is scant.
The most common currency pairs traded in the forex market
There are many official currencies that are used all over the world, but there only a handful of currencies that are traded actively in the forex market. In currency trading, only the most economically/politically stable and liquid currencies are demanded in sufficient quantities. For example, due to the size and strength of the United States economy, the American dollar is the world's most actively traded currency.
In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
Currencies must be traded in pairs. Mathematically, there are 27 different currency pairs that can be derived from those eight currencies alone. However, there are about 18 currency pairs that are conventionally quoted by forex market makers as a result of their overall liquidity. These pairs are:
The total amount of currency trading involving these 18 pairs represents the majority of the trading volume in the FX market. This manageable number of choices makes trading a lot less complicated compared to dealing with equities, which has thousands of possible choices to choose from.
In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
Currencies must be traded in pairs. Mathematically, there are 27 different currency pairs that can be derived from those eight currencies alone. However, there are about 18 currency pairs that are conventionally quoted by forex market makers as a result of their overall liquidity. These pairs are:
The total amount of currency trading involving these 18 pairs represents the majority of the trading volume in the FX market. This manageable number of choices makes trading a lot less complicated compared to dealing with equities, which has thousands of possible choices to choose from.
Wednesday, February 11, 2009
Australian Securities Exchange
The exchange began as six separate exchanges established in the state capitals Melbourne (1861), Sydney (1871), Hobart (1882), Brisbane (1884), Adelaide (1887) and Perth (1889).[2] An exchange in Launceston merged into the Hobart exchange too.The first interstate conference was held in 1903 at Melbourne Cup time. The exchanges then met on an informal basis until 1937 when the Australian Associated Stock Exchanges (AASE) was established, with representatives from each exchange. Over time the AASE established uniform listing rules, broker rules, and commission rates.
Trading was conducted by a call system, where an exchange employee called the names of each company and brokers bid or offered on each. In the 1960s this changed to a post system. Exchange employees called "chalkies" wrote bids and offers in chalk on blackboards continuously, and recorded transactions made.
Abu Dhabi Securities Exchange
Abu Dhabi Securities Exchange (ADX) (formerly Adu Dhabi Securities Market) [ADSM] (Arabic: سوق أبوظبي للأوراق ألمالية) is a stock exchange in Abu Dhabi, United Arab Emirates (UAE). It was established on 15 November 2000 to trade shares of UAE companies. There are trading locations in Abu Dhabi, Al Ain, Fujeirah, Sharjah, and Ras Al Khaimah. The Dubai Financial Market (DFM) is a different exchange that trades shares of other public UAE companies but investors can also trade ADSM shares with some of the brokers based at DFM.The ADSM has more companies listed than DFM but trading volume is usually much less. During 2004-2005 there was a substantial increase in share prices and trading activity. From the end of 2005 through until mid-2006 there was a significant downturn with the overall ADSM index dropping just over 30% in the first six months of 2006.
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