Forex Trading
Turnover of exchange-traded Forex foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC Forex foreign exchange turnover. Forex foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Turnover of exchange-traded Forex foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC Forex foreign exchange turnover. Forex foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.Unlike a stock Forex Market, the Forex foreign exchange Forex Market is divided into levels of access.
At the top is the interbank Forex Market, which is made up of the largest commercial Forex banks and securities dealers. Within the interbank Forex Market, spreads, which are the difference between the bid and ask Forex prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask Forex prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the Forex foreign exchange Forex Market are determined by the size of the "line" (the amount of Forex money with which they are Forex Trading).
The top-tier interbank Forex Market accounts for 53% of all transactions. From there, smaller Forex banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail Forex Market makers. According to Galati and Melvin, “Pension funds, insurance Forex companies, mutual funds, and other institutional Forex investors have played an increasingly important role in financial Forex Markets in general, and in FX Forex Markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”. Central Forex banks also participate in the Forex foreign exchange Forex Market to align currencies to their economic needs.Central Forex banksMost developed countries permit the Forex Trading of derivative products (like futures and options on futures) on their exchanges.
All these developed countries already have fully convertible capital accounts. Some governments of emerging economies do not allow Forex foreign exchange derivative products on their exchanges because they have capital controls. The use of derivatives is growing in many emerging economies. Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives. The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.An important part of this Forex Market comes from the financial activities of Forex companies seeking Forex foreign exchange to pay for goods or services. Commercial Forex companies often trade fairly small amounts compared to those of Forex banks or speculators, and their trades often have little short term impact on Forex Market rates.
Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational Forex companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other Forex Market participants.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives. The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives.
The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.The Forex foreign exchange Forex Market (Forex) is the most liquid financial Forex Market in the world. Forex Traders include large Forex banks, central Forex banks, institutional Forex investors, currency speculators, corporations, governments, other financial institutions, and retail Forex investors. The average daily turnover in the global Forex foreign exchange and related Forex Markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives.
Turnover of exchange-traded Forex foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC Forex foreign exchange turnover. Forex foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.Unlike a stock Forex Market, the Forex foreign exchange Forex Market is divided into levels of access.
At the top is the interbank Forex Market, which is made up of the largest commercial Forex banks and securities dealers. Within the interbank Forex Market, spreads, which are the difference between the bid and ask Forex prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask Forex prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the Forex foreign exchange Forex Market are determined by the size of the "line" (the amount of Forex money with which they are Forex Trading).
The top-tier interbank Forex Market accounts for 53% of all transactions. From there, smaller Forex banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail Forex Market makers. According to Galati and Melvin, “Pension funds, insurance Forex companies, mutual funds, and other institutional Forex investors have played an increasingly important role in financial Forex Markets in general, and in FX Forex Markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”. Central Forex banks also participate in the Forex foreign exchange Forex Market to align currencies to their economic needs.Central Forex banksMost developed countries permit the Forex Trading of derivative products (like futures and options on futures) on their exchanges.
All these developed countries already have fully convertible capital accounts. Some governments of emerging economies do not allow Forex foreign exchange derivative products on their exchanges because they have capital controls. The use of derivatives is growing in many emerging economies. Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives. The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.An important part of this Forex Market comes from the financial activities of Forex companies seeking Forex foreign exchange to pay for goods or services. Commercial Forex companies often trade fairly small amounts compared to those of Forex banks or speculators, and their trades often have little short term impact on Forex Market rates.
Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational Forex companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other Forex Market participants.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives. The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.The mere expectation or rumor of a central bank Forex foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central Forex banks do not always achieve their objectives.
The combined resources of the Forex Market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.The Forex foreign exchange Forex Market (Forex) is the most liquid financial Forex Market in the world. Forex Traders include large Forex banks, central Forex banks, institutional Forex investors, currency speculators, corporations, governments, other financial institutions, and retail Forex investors. The average daily turnover in the global Forex foreign exchange and related Forex Markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives.