Covering the basics of the forex market

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.

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.

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.

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.

Online Forex Trading in World Stock Exchange

Stock Exchanges Worldwide Links is a list of world's major stock exchanges
and other exchange resources. The number of stock exchanges in the world is
growing rapidly, so we maynot be able to track all of their pages. If you
know of any stock exchange WWW sites not included in this list.
African Stock Exchanges


GhanaStock Exchange, Ghana

Johannesburg Stock Exchange, South
Africa

The South African Futures Exchange(SAFEX),
South Africa

Asian Stock Exchanges

Sydney Futures Exchange, Australia

Australian Stock Exchanges, Australia

Shenzhen Stock
Exchange, China

Stock Exchange of Hong Kong,Hong Kong

Hong Kong Futures Exchange,Hong Kong

National Stock Exchange of India,India

Bombay Stock Exchange, India

Jakarta Stock Exchange, Indonesia

Indonesia NET Exchange,Indonesia

Nagoya Stock Exchange,Japan

Osaka Securities Exchange, Japan

Tokyo Grain Exchange, Japan

Tokyo International Financial Futures
Exchange (TIFFE), Japan

Tokyo Stock Exchange, Japan

Korea Stock Exchange, Korea

Kuala Lumpur Stock Exchange, Malaysia

New Zealand Stock Exchange, New Zealand

Karachi Stock Exchange, Pakistan

Lahore Stock Exchange, Pakistan

Stock Exchange of Singapore (SES),
Singapore

Singapore International Monetary Exchange
Ltd. (SIMEX), Singapore

Colombo Stock Exchange, Sri Lanka

Sri Lanka Stock Closings,
Sri Lanka

Taiwan Stock Exchange, Taiwan

The Stock Exchange of Thailand, Thailand

European Stock Exchanges

Vienna Stock Exchange,
Austria

EASDAQ, Belgium

Zagreb Stock Exchange, Croatia

Prague Stock Exchange,
Czech Republic

Copenhagen Stock Exchange, Denmark

Helsinki Stock Exchange,
Finland

Paris
Stock Exchange, France

LesEchos:
30-minute delayed prices, France


NouveauMarche, France

MATIF, France

Frankfurt Stock Exchange,
Germany

Athens Stock Exchange, Greece

Budapest Stock
Exchange, Hungary

Italian Stock Exchange, Italy

National Stock Exchange of Lithuania,Lithuania

Macedonian Stock Exchange, Macedonia

Amsterdam Stock Exchange, The
Netherlands

Oslo Stock
Exchange, Norway

Warsaw Stock-Exchange, Poland

Lisbon Stock Exchange, Portugal

Bucharest Stock Exchange, Romania

Russian Securities
Market News, Russia

Ljubljana Stock
Exchange,Inc., Slovenia

Barcelona Stock Exchange, Spain

Madrid Stock Exchange,
Spain

MEFF: (Spanish Financial Futures & Options
Exchange), Spain

Stockholm Stock Exchange,
Sweden

Swiss Exchange, Switzerland

Istanbul Stock Exhange, Turkey

FTSE International (London Stock Exchange),
United Kingdom

London Stock
Exchange: Daily Price Summary, United Kingdom

Electronic Share Information,
UnitedKingdom

London Metal Exchange,United
Kingdom

London InternationalFinancial
Futures and Options Exchange, United Kingdom

Middle Eastern Stock Exchanges

Tel Aviv Stock Exchange, Israel

Amman Financial Market, Jordan

Beirut Stock
Exchange, Lebanon

Palestine Securities Exchange, Palestine

Istanbul Stock Exhange, Turkey

North American Stock Exchanges

Alberta Stock Exchange, Canada

Montreal Stock Exchange, Canada

Toronto Stock Exchange, Canada

Vancouver Stock Exchange, Canada

Winnipeg Stock Exchange, Canada

Canadian Stock Market Reports, Canada

Canada Stockwatch, Canada

Mexican Stock
Exchange, Mexico

AMEX, United States

New York Stock Exchange (NYSE),United
States

NASDAQ, United States

The Arizona Stock Exchange, United States

Chicago Stock Exchange,
United States

Chicago Board Options Exchange, United
States

Chicago Board of Trade, United States

Chicago Mercantile Exchange, United States

Kansas City Board of Trade, United States

Minneapolis Grain Exchange, United States

Pacific Stock Exchange, United
States

Philadelphia Stock Exchange, United
States

South American Stock Exchanges

Bermuda Stock Exchange, Bermuda

Rio de Janeiro Stock Exchange, Brazil

Sao Paulo Stock Exchange,
Brazil

Cayman
Islands Stock Exchange, Cayman Islands

Chile Electronic
Stock Exchange, Chile

Santiago Stock Exchange,
Chile

Bogota stock exchange, Colombia

Occidente Stock
exchange, Colombia

Guayaquil Stock Exchange,
Ecuador

Jamaica Stock
Exchange, Jamaica

Nicaraguan Stock Exchange, Nicaragua

Lima Stock Exchange, Peru

Trinidad and Tobago Stock Exchange,
Trinidad and Tobago

Caracas Stock Exchange,
Venezuela

Venezuela Electronic Stock Exchange,
Venezuela

Global foreign exchange market

The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.
In the following article, we would like to introduce you to some of the basic concepts of foreign exchange trading. If you would like any further information, we suggest that you sign up for a FREE Membership on this website, where you will be able to exchange views with other Forex traders and get answers to any questions you might have.
Margin Trading
Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.
In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions.
Base Currency and Variable Currency
When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.
The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.
Dealing Spread, but No Commissions
When trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.
The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.
This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USDEUR presents price swings of 150-200 points.
Spot and forward trading
When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.
Interest Rate Differentials
Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.
Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!
Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.
Stop-loss discipline
As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.
Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.
But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.
For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen

The London Stock Exchange

The London Stock Exchange history is proof that from something small, a huge giant can be built. It can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City’s most important financial institution.

1698 John Castaing begins to issue 'at this Office in Jonathan’s Coffee-house' a list of stock and commodity prices called 'The Course of the Exchange and other things'. It is the earliest evidence of organised trading in marketable securities in London.

1698 Stock dealers are expelled from the Royal Exchange for rowdiness and start to operate in the streets and coffee houses nearby, in particular in Jonathan’s Coffee House in Change Alley. 1720 The wave of speculative fever known as the South Sea Bubble bursts. Details of this can be found in many investment books - especially those related to investor or crowd psychology. It makes for an instructive and entertaining read!! Without doubt, this has to be one of the most interesting times in London Stock Exchange history.

Become A Profitable Trader - Watch This Free Video

1761 A group of 150 stock brokers and jobbers form a club at Jonathan's to buy and sell shares.

1773 The brokers erect their own building in Sweeting’s Alley, with a dealing room on the ground floor and a coffee room above. The members soon name it the 'The Stock Exchange'.

1801 On 3 March, the business reopens under a formal membership basis. On this date, the first regulated exchange comes into existence in London, and the modern Stock Exchange is born. Officially, London Stock Exchange history starts here!

1812 The first codified rule book is created.

1836 The first regional exchanges open in Manchester and Liverpool.

1854 The Stock Exchange is rebuilt.

1876 A new Deed of Settlement for the Stock Exchange comes into force.

1914 The Great War means the Exchange market is closed from the end of July until the new year.

1923 The Exchange receives its own Coat of Arms, with the motto 'Dictum Meum Pactum' (My Word is My Bond). For many decades, this phrase summed up the code of those working on or in the exchange.

1939 The start of World War Two. The Exchange is closed for 6 days and reopens on 7 September. The floor of the House closes for only one more day, in 1945 due to damage from a V2 rocket – trading then continues in the basement.

1972 Her Majesty the Queen opens the Exchange's new 26-storey office block.

1973 First female members admitted to the market.

1986 Deregulation of the market, known as 'Big Bang':

Ownership of member firms by an outside corporation is allowed. All firms become broker/dealers able to operate in a dual capacity. Minimum scales of commission are abolished. Individual members cease to have voting rights. Trading moves from being conducted face-to-face on a market floor to being performed via computer and telephone from separate dealing rooms. The Exchange becomes a private limited company under the Companies Act 1985. 1991 The governing Council of the Exchange is replaced with a Board of Directors drawn from the Exchange's executive, customer and user base. The trading name becomes '“The London Stock Exchange'.

1995 AIM is launched – read about it on other pages of this site.

1997 SETS (Stock Exchange Electronic Trading Service) is launched to bring greater speed and efficiency to the market. The CREST settlement service is launched.

2000 Shareholders vote to become a public limited company: London Stock Exchange plc.

2001 London Stock Exchange plc lists on it's own Main Market in July.

As you can see, the London Stock Exchange history has been one of growth and constant expansion and is a credit to the UK.

If you would like to receive free e-books and information about investments from the author of this site, please click here

How to start investing on the stock exchange

Without a doubt in my mind, I believe that the main reasons that most people are unsuccessful as investors are a lack of both preparation and discipline.

Investment in any form is a show of faith in the future, optimism if you prefer. Whether you are buying property, antiques or stocks, you are displaying your positive outlook for your future years.

Yet despite this obviously good intention, many people make dreadful investments and lose large amounts of money. This optimism can become blinding and prevents us from seeing obvious risks or pitfalls. If we do see them, we may discount them or fail to understand their potential implications. Therefore, understanding the nature of risk is a key lesson that all investors should try to learn before they begin to invest directly in companies quoted on the stock exchange.

For years, investment newcomers were advised to start by choosing a few companies and investing on paper. In other words, the new investor would follow the progress of the company and share price without actually buying. Each day a new plot on a hand drawn graph of the company would help the investor to understand just a little more.

Over time, the investor might spot trends between the company and a leading index or sector. The price might move in odd and unpredictable ways causing a desire for more understanding and education to explain these mysteries.

This desire for new knowledge is a core trait of successful investors. To succeed in stock exchange investments, it is vital to firstly keep up to date, but if possible to stay ahead of the pack. This might mean reading trade journals, the annual reports of competing firms, company reviews, interviews and much more. This ongoing education is vital to success.

As computer technology has advanced and investment analysis tools that only a few years ago were expensive and highly specialised have proliferated, the basic learning process for an investor has changed.

Should it?

If plotting points on a graph hepled to truly understand the workings of a moving average or stop loss system, why stop? This used to be 'investment 101' but is now a task to be downloaded. For many investors, it was the most valuable investment they made. They learned to invest and to understand the workings of the stock exchange. They learned a skill, for others a trade.

This time and investment in learning will help the decision making process of an investor for years to come. It may both earn and save many thousands as the years pass.

Is this a process that you have taken? To accompany all the reading and theory that goes with investment generally, paper trading is an important pillar in understanding both investments and the stock exchange.

The Australian Stock Exchange

The Australian Stock Exchange history starts with six separate exchanges established in the state capitals Sydney (1871), Hobart (1882), Melbourne (1884), Brisbane (1884), Adelaide (1887) and Perth (1889).

The first interstate conference was held in 1901. 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 & offers in chalk on blackboards. They also recorded transactions made.

Watch This Free Video And Learn To Trade Stocks!
In 1976 the Australian Options Market was established, trading call options.

In 1980 the separate Melbourne and Sydney stock exchange indices were replaced by Australian Stock Exchange indices. This is essentially the start of the modern Australain Stock Exchange history.

In 1984 broker's commission rates were deregulated. This has allowed competition to lower commissions gradually ever since, with rates now as low as 0.12% or 0.1% from discount internet-based brokers.

In 1987, the separate exchanges merged to form the Australian Stock Exchange. Also in 1987 the all-electronic SEATS trading system was introduced. It started on just a limited range of stocks, progressively all stocks were moved to it. This enabled the trading floors to be closed in 1990. Also in 1990, the warrants market was first opened.

In 1993 fixed interest securities were added. Also in 1993 the FAST system of accelerated settlement was established, and the following year the CHESS system was introduced, this superceded FAST.

In 1995 stamp duty on share transactions was halved from 0.3% to 0.15%. The ASX had agreed with the Queensland State Government to locate staff in Brisbane in exchange for the stamp duty reduction there. This caused the other states followed suit so as not to lose brokerage business to Queensland. In 2000 stamp duty was abolished in all states.

In 1996 the exchange members voted to demutualize. The exchange was incorporated as ASX Limited and in 1998 the company was listed on the ASX itself. The ASX arranged with the Australian Securities and Investments Commission to have it enforce listing rules for ASX Limited.

As you can see, the Australian stock exchange history is one of quickfire change and technology improvements!

Hong Kong Stock Exchange

Hong Kong Stock Exchange history dates back to 1866 but the first formal stock market, the Association of Stockbrokers in Hong Kong, was established in 1891. It was renamed the Hong Kong Stock Exchange in 1914.

A second exchange was incorporated in 1921 - the Hong Kong Stockbrokers' Association. The two exchanges merged to form the Hong Kong Stock Exchange in 1947.
The rapid growth of the Hong Kong economy led to the establishment of three other exchanges in the late 1960s and early 1970s. Prompted by the 1973 market crash and the need to strengthen market surveillance, the Hong Kong government set up a working party in 1977 to consider the unification of the four stock exchanges. As a result, the unified exchange - the Stock Exchange of Hong Kong (SEHK) - was incorporated on 7th July 1980. The four exchanges ceased trading after the close of business on 27th March 1986.

This was a pivotal point in Hong Kong Stock Exchange history as this merger allowed the market to grow and compete on an international scale.

After the October Crash in 1987, SEHK underwent a complete reform, including the establishment of a more widely representative Council and a strong, professional executive management team, to safeguard the interests of all participants and to operate and develop the market effectively.

To enhance the competitiveness of the Hong Kong stock exchange and to meet the challenge of an increasingly globalised market, the Financial Secretary of the Hong Kong SAR Government announced in his Budget Speech on 3rd March 1999, a comprehensive market reform for the securities and futures market. Under the reform, SEHK and Hong Kong Futures Exchange Limited (HKFE) were demutualised, the two exchanges and their respective clearing houses were merged with the Hong Kong Securities Clearing Company Limited (HKSCC) to form a single holding company - Hong Kong Exchanges and Clearing Limited (HKEx).

In accordance with the Schemes of Arrangements of the exchanges and the Exchanges and Clearing Houses (Merger) Ordinance which took effect on 6th March 2000, SEHK became a wholly-owned subsidiary of HKEx together with HKFE and HKSCC.

As you can see, the Hong Kong stock exchange history is one of massive growth and increasing market regulation to improve investor safeguards.

Risks in Forex Trading

Assuming you are dealing with a reputable broker, there are still a lot of risks in forex trading. Forex transactions are subject to unexpected rate changes, volatile markets and political events.

Despite so many claims that you may see on most of the forex exchange web sites, there are lot of risks in forex trading. That is why, it is reccommended that you get forex trading training before you start.

Forex trading is done with substantial sums of money and there is always that possibility that trades will go against you. However, there are several trading tools, systems, strategies etc, that can help you manage risks in forex trading. With caution, and above all education and experience, the forex trader can learn how to trade profitably while minimizing losses.

Here are some of the general risks in forex trading

Scams: Forex trading scams were and is fairly common. You still need to exercise caution when signing up with a forex broker. Do some background checking – reputable forex brokers will be associated with large financial institutions like banks or insurance companies and they will be registered with the proper government agencies. In the United States brokers should be registered with the Commodities Futures Trading Commission (CFTC) or a member of the National Futures Association (NFA). You can also cross check with your local Consumer Protection Bureau and the Better Business Bureau.

Exchange Rate Risk: This refers to the fluctuations in currency prices over a particular trading period. Prices can fall rapidly resulting in substantial losses unless stop loss orders are used when trading forex. Stop loss orders specify that the open position should be closed if currency prices pass a predetermined level. Stop loss orders can be used in conjunction with limit orders to automate forex trading. Limit orders specify an open position should be closed at a specified profit target.

Interest Rate Risk: This type of risk can arise from discrepancies between the interest rates in the two countries represented by the currency pair in a forex quote. This discrepancy can result in variations from the expected profit or loss of a particular forex transaction.

Credit Risk:There is the possibility that one party in a forex transaction may not honor their debt when the deal is closed. This may happen when a bank or financial institution declares insolvency. Credit risk is minimized by dealing on regulated exchanges which require members to be monitored for credit worthiness.

Country Risk: This type of risk is associated when government of a particular country becomes involved in foreign exchange market by limiting the flow of currency. There is more country risk associated with 'exotic' currencies, than with major countries that allows free trading of their currencies.

There are also various foreign exchange risk management strategies, that you can use to limit risks in forex trading.

Euro Hits Top of its Trading Range as Risk Appetite Returns

The euro is trading near the top of its recent range but further gains could be limited as risk aversion looms in the background, according to currency strategists.Geoffrey Yu, FX strategist from UBS, said their outlook is bearish on the euro as the global and European economies continue to weaken. The fundamental data is still negative and markets will continue to flock to safe haven currencies, he said.

"The risk gains we have see in the last two days could be wiped away with a bad nonfarm payrolls report," he said. "And we are expecting another weak employment report."Yu said the 1.30 level is going to act as a ceiling for the EUR/USD in the shorter term. With such a volatile market, Yu said he's expecting the pair to bounce between 1.25 and 1.30.

Tyson Wright, senior currency trader at Custom House, said he's not convinced the euro will move higher against the U.S. dollar, especially ahead of the European Central Bank's rate decision. The ECB is expected to hold rates at 2.00% on Thursday.

Wright said there is a risk that the central bank isn't being proactive enough to support the economy and that the result could be a sharp selloff in the euro.The euro was up 0.0105 to 1.2948 against the U.S. dollar. The euro was unchanged at 1.5987 against the Canadian dollar. The pound sterling was down 0.0022 to 1.1085 euros. The euro was up 0.68 points to 115.56 against the yen. All data taken at 12:41 p.m. EST

Dollar Edges Higher on Global Economy Worries

The dollar edged higher against a basket of currencies Tuesday as a plunge in U.S. consumer confidence reminded investors about the dire economic outlook worldwide, boosting the greenback's safe-haven appeal.

Trading was volatile as currencies constantly shifted direction. The overall market outlook, however, remained grim, and market players favored buying the lower-yielding dollar and yen.The yen and the dollar often take their cue from perceived swings in investors' risk appetite and have tended to rise when risk tolerance falls.

"The (consumer confidence) will really weigh on the market's risk appetite ... driving investors back into the safety of low-yielding currencies—the dollar and yen,'' said Kathy Lien, director of currency research at GFT Forex in New York.

Data Tuesday showed that U.S. consumer confidence fell to a record low in January. The Conference Board, an industry group, said its sentiment index fell to 37.7 from a revised 38.6 in December, compared with forecasts for a small uptick.

In midday New York trading, the ICE Futures' dollar index a gauge of the greenback's value versus six major currencies, rose 0.1 percent to 84.502. The euro [EUR-TN Loading... was up slightly against the dollar at above $1.31 after hitting a one-week high at $1.3330 following a surprise rise in German corporate sentiment, according to electronic trading platform EBS.

The euro had earlier extended gains versus the dollar after data on U.S. single-family home prices in November came in broadly in line with expectations.US Dollar/Risk Aversion Theme Some market participants, however, expressed doubts as to how long investors will keep buying dollars despite dismal U.S. economic data.

The dollar has been the main beneficiary of downturns around the world. Investors have considered the currency a safe haven amid expectations the United States, the first major economy to hit recession, will be the first among industrialized nations to emerge from the economic slump.

This week's advanced data on U.S. gross domestic product for the fourth quarter should be a key litmus test.This week's advanced data on U.S. gross domestic product for the fourth quarter should be a key litmus test.