Forexhub

Determinants of Forex Rates

2009-09-27T22:51:00.003-07:00

The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed exchange rate regime, FX rates are decided by its government):
(a) International parity conditions viz; purchasing power parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
(b) Balance of payments model (see exchange rate). This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit.
(c) Asset market model (see exchange rate) views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by people’s willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) algorithm can be devised to predict prices. Large and small institutions and professional individual traders have made consistent profits from it. It is understood from above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

What is the Aim of Forex Trading ?

2009-09-27T22:51:00.001-07:00

The aim of Forex trading is to make profit with increasing or decreasing currency prices. A trade is place when you expect the value of a specific currency to increase. In a currency pair, when the currency you buy increases, you must sell the other currency to make a profit. An open trade, or open position, this a trade in which you have already bought or sold a currency pair, but have not yet bought back an the same amount. The five most popular currency pairs in Forex at the moment are USD/Yen, Euro/Yen, Pound/USD, Swiss franc/USD, and the Euro/USD.

Forex Orders.

2009-09-27T22:50:00.005-07:00

Entry Orders:
An order, stop or limit, initiating an open position and executed when a specific price level is reached and/or broken. The execution is handled by the dealing desk and the order is in effect until cancelled by the client.

Entry Limit Orders:
An order initiating
an open position to sell as the market rises, or buy as the market falls. The
client believes the market will reverse direction at the level of the order.

Entry Stop Orders:
An order initiating
an open position to sell as the market falls, or buy as the market rises. The
client placing the order believes that prices will continue to move in the same direction as the previous momentum after hitting the order level.

Limit Orders:
A limit order is an order tied to a specific position for the purpose of locking in the gains from that position. A limit order placed on a buy position is an order to sell. A limit order placed on a sell position is an order to buy. A limit order remains in effect until the position is liquidated or canceled by the client.

Today's Currency World

2009-09-27T22:50:00.003-07:00

In the 30 years since the collapse of the last gentlemanly agreement on currency rates, many momentous events have occurred that have affected currencies worldwide. The Japanese yen gained prominence because of Japan's heavy export relationship with the United States. The USSR collapsed. We have had several undeclared wars, the south Asian economies have risen and collapsed, and several investor bubbles have come and gone.
Each time, currencies have come away with a newly earned respect by the masses. There has also been a constant element of surprise that keeps you guessing what's next.
Current conditions, such as the United States' perpetual war on “terror”, the permanent introduction and dominance of the euro currency, the steady O.P.E.C. increases in oil prices, and gold's renaissance as a store of value, will likely have a tremendous impact on the future of what it means to trade currencies.
This could be a fundamental shift in the next phase of currency development.

New Rules of Currency

2009-09-27T22:50:00.001-07:00

In 1971, the Smithsonian Agreement replaced the Bretton Woods Agreement and authorized “forward currency contracts”, adding validity to the Eurodollar phenomenon. It didn’t work. A year later the European Joint Float was established. It, and the Smithsonian Agreement, were scrapped in 1973. Even though they were dissolved the concept of “forward currency contracts” stayed as part of the banking system.
Once currencies began to “free-float”, they immediately moved away from their gentlemanly 1% fluctuations on either side to huge price ranges, going anywhere from 20-25% daily.
From 1970-1973, the total foreign exchange volume went from US$25 Billion to US$100 Billion. With oil prices up, gold prices up, and an economy still reeling from the rapid currency shift, “stagflation”, rising inflation while real incomes remained the same, soon hit the United States

The 1970's United States Currency Policy Meltdown

2009-09-27T22:49:00.000-07:00

Once again, we are hit with the triumvirate of war, the restrictive gold standard, and dollars in foreign banks.
This time, each problem was feeding directly off of the others. The Vietnam Conflict had drained our gold reserves heavily. By 1970, Fort Knox only held US$12 Billion.
The growth of the oil business and the increase in foreign trade caused a boom in the demand for US dollars in foreign banks. Over US$ 47 Billion was sitting in overseas banks.
On paper, our gold reserves were over-leveraged by almost 4 to 1. As a nation, we did not know how to react to such an overbearing assault on our currency. Then along came the invention of the Eurodollar to make our nightmare worse.
Foreign banks with US dollars would make low-interest loans in US dollars to importers and exporters. Although the dollars were never repatriated, the US was still on the hook to exchange these “credit”-created dollars for the gold we kept on reserve.
Then came a miracle in disguise . The Bretton Woods Agreement collapsed. In the over-leveraged gold-dollar environment, many countries began to feel frustrated with the artificial peg.
In blatant defiance to the agreement in 1971, Germany declared that they would float the Deutsche mark. They were tired of the artificial peg that was keeping their economy depressed.
In the first hour of trading, over US$1 billion were exchanged for Deutsche marks. For the first time, the public had voiced their opinion against being so heavily weighted with dollars.
With Germany completely ignoring the Bretton Woods Agreement by floating their currency, the US government had nothing left to do but put the final nail in the coffin of the U.S.'s currency policy. The Bretton Woods Agreement was dissolved.
Three short months after the Deutsche mark began to float, the US moved off of the gold standard. Gold was allowed to float freely like any other currency. Oil, although priced in US dollars, soon switched to a peg against gold. Gold and oil prices jumped ten-fold.
The currency dynamics were soon changed on a global scale and it became accepted practice that countries began to float their own currency.

Pre-Currency Trading Era – The 1950s

2009-09-27T22:47:00.002-07:00

Entering into the 1950s, the United States of America had a distinct advantage over war-torn Europe. While Germany was heavily sanctioned, England, France, Italy, and several other Old World nations were just coming to terms with the heavy investment needed to rebuild their countries.
As a way to make it easier for the rest of the world to rebuild, the Bretton Woods Agreement was adopted. It was innocuously simple: in an effort to keep the United States of America (USA) from buying everything in sight, the Bretton Woods Agreement kept the USA in check by requiring all foreign currencies be pegged to the US Dollar. Some pegs were strong, some pegs were weak, but at the end of the day they never moved more than 1% in any direction. Like today's problem with the Chinese Yuan, forced to a peg against the dollar, it kept a constant, controlled flow of US dollars out of the country.
The peg would not have been so bad if not for the fact that the US dollar also had a unique relationship with gold. Just like currencies, gold was pegged to the dollar at a fixed value of US$35/ounce. What made it even worse was that US currency, at the time, was directly exchangeable for gold. This strategy was fine as long as the Fort Knox gold reserves exceeded $23 billion.
After World War II, the USA became the primary economic super power. Many foreign countries began to acquire US currency in lieu of gold. The dollar gained prominence in a way no other currency ever had before.
At the same time, we began to see the rebuilding of the Old World and foreign trade began to gain momentum. In 1950, foreign countries held US $8 billion. We also saw the oil business begin its ascent as a prominent import/export industry.

The History of Forex

2009-09-27T22:47:00.000-07:00

The Forex trading market is a relatively new phenomenon. Never before in the history of the world have we seen such an amazing event. In only 30 years, this industry has developed from almost nothing to a daily US$1.5 trillion market. How did this happen? Was it by design? Or was it by accident?
Well the answer falls somewhere in between. There are three distinct time frames that set the stage for today's style of currency trading. The first time frame is the pre-currency trading era of the 1950s. The second time frame is the worldwide, politically volatile atmosphere of the 1970s. The third time frame is what has occurred in this free market economy since the demise of the gold standard 30 years ago. In each time frame, there have been three catalysts: war, gold, and foreign banks- that have played a significant role in propelling currency development

Some Forex Terms

2009-09-27T22:46:00.004-07:00

Here are some of the forex terms, which are commonly used in the forex world.

Entry Orders: An order, stop or limit, initiating an open position and executed when a specific price level is reached and/or broken. The execution is handled by the dealing desk and the order is in effect until cancelled by the client.

Entry Limit Orders: An order initiating
an open position to sell as the market rises, or buy as the market falls. The
client believes the market will reverse direction at the level of the order.

Entry Stop Orders: An order initiating
an open position to sell as the market falls, or buy as the market rises. The
client placing the order believes that prices will continue to move in the same direction
as the previous momentum after hitting the order level.

Limit Orders: A limit order is an order
tied to a specific position for the purpose of locking in the gains from that position. A limit order placed on a buy position is an order to sell. A limit
order placed on a sell position is an order to buy. A limit order remains in
effect until the position is liquidated or cancelled by the client.

Market Order: An order to buy or sell
which is to be filled immediately at the prevailing currency price.

OCO (One Cancels the Other): A stop-loss order and a limit order linked to a specific position. One order, the stop, is to prevent additional loss on the position, and one order, the limit is to take profit on the position. When either order is executed, closing the position, the other is automatically cancelled.

Stop-Loss Orders: An order linked to a specific position to close that position and prevent additional losses. A stop-loss order placed on a buy position is an order to sell that position. A stop-loss order on a sell position is an order to buy that position. A stop-loss order remains in effect until the position is liquidated or cancelled by the client.

Hedge fund: A private, unregulated investment fund for wealthy investors (minimum investments typically begin at US$1 million) specializing in high risk, short-term speculation on bonds, currencies, stock options and derivatives.

Further Explaination

2009-09-27T22:46:00.002-07:00

Foreign Exchange describes the purchase of a particular currency from an individual or institution and the simultaneous sale of another currency at the equivalent value or current exchange rate. Essentially, the process of exchanging one currency for another is a simple trade based on the current rates of the two currencies involved. At the core level of the world’s need for money exchange is the international traveler.
When traveling from the US to England, for example, you will of course need the local currency to pay for transportation, food, and so on. Upon arrival at the airport you will surrender (sell) your US Dollars in order to receive (buy) the equivalent in British Pounds. In this example, you sold the USD and bought the GBP, conversely the foreign exchange counter bought the USD and sold the GBP. The prices at which you buy and sell currencies at are known as exchange rates. This rate or price fluctuates based on demand, political, and economic events surrounding each Many companies and individuals have built lucrative IB businesses with Mezan Trade, enjoying the benefits of monthly revenue payments while letting Mezan Trade manage the expense and maintenance of back office systems, trading software, and 24 hour dealing. And for IBs with an existing business, we will exceed your current compensation schedule if you move your business to Mezan Trade. Mezan Trade offers a great opportunity to qualified introducing brokers ("IBs"). Our IB program supports brokers, traders and industry participants in creating or enhancing a lucrative Forex business. Advantages of introducing business to Mezan Trade include. Refer accounts to Mezan Trade or Build Your Own Brand. Whether referring clients to Mezan Trade and letting us do the account opening work, or taking advantage of our "white label" version of the internet trading platform branded with your company logo, IBs can build their business in the way that best suits their client base and their goals. Reliable Monthly Income Mezan Trade depends on Introducing Brokers for a large part of its trading volume.
As such, we highly value all our IB relationships and have considerable administrative resources dedicated to making sure that all our IBs are always paid on time and in full. For thousands of years, precious metals have been sought for their rarity, beauty, and for their unique characteristic as a store of value. Economies may rise and fall, currencies may come and go, but precious metals endure. Many investors turn to precious metals because they are a "borderless currency" - an important and secure asset that can be tapped at any time under virtually any circumstances. Precious metals also act as a stabilizing influence for investment portfolios.
Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. Precious metal is an ideal diversifier because the economic forces that determine the price of precious metals are different from, and in many cases opposed to, the forces that influence most financial assets. These advantages are currently attracting considerable attention from financial professionals and sophisticated investors worldwide. Introducing Broker Partnership Many companies and individuals have built lucrative IB businesses with Mezan Trade, enjoying the benefits of monthly revenue payments while letting Mezan Trade manage the expense and maintenance of back office systems, trading software, and 24 hour dealing. And for IBs with an existing business, we will exceed your current compensation schedule if you move your business to Mezan Trade. Mezan Trade offers a great opportunity to qualified introducing brokers ("IBs").
Our IB program supports brokers, traders and industry participants in creating or enhancing a lucrative Forex business. Advantages of introducing business to Mezan Trade include. Refer accounts to Mezan Trade or Build Your Own Brand. Whether referring clients to Mezan Trade and letting us do the account opening work, or taking advantage of our "white label" version of the internet trading platform branded with your company logo, IBs can build their business in the way that best suits their client base and their goals. Introducing Brokers Mezan Trade depends on Introducing Brokers for a large part of its trading volume. As such, we highly value all our IB relationships and have considerable administrative resources dedicated to making sure that all our IBs are always paid on time and in full.

Introduction

2009-09-27T22:46:00.000-07:00

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.
The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.
In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of

its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting

Yen arises

2009-09-27T22:45:00.001-07:00

* U.S. July CPI sends dollar lower against the yen

* Euro pressured on the day EUR=
* EZ July inflation falls slightly more than first estimate
* Aussie dollar hits 11-month high vs U.S. dollar
The yen extended gains against the euro and the U.S. dollar after a report showed U.S. consumer prices were flat in July over June but fell over the past 12 months by the most since 1950.
Though the data left the euro pressured against the dollar, investors bought yen after the CPI report send U.S. stock futures lower on lower risk tolerance. The trend to risk aversion was apparent earlier in the day when Chinese shares fell 3.0 percent to their lowest close in six weeks.
"Dollar/yen has been biased to the downside all night and this morning so I think that's a continuation of the trend," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
Early in New York, dollar was down 0.6 percent at 94.76 yen.
It was on track for a 3.0 percent fall on the week at current prices. The euro EURJPY=R fell 0.4 percent to 135.80 yen, and was down 2.2 percent for the week.
The yen's gains were also attributed to potential fund repatriation by Japanese investors related to some $57.5 billion in redemptions and coupon payments on U.S. Treasuries next week, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ in London.
The euro was down 0.1 percent at $1.4275 EUR=, after hitting a session high of $1.4306. Analysts say a recent high of $1.4448 would likely remain firm resistance.
Markets showed little reaction to a 0.7 percent fall on the year in euro zone inflation in July, compared with an initial estimate of -0.6 percent.
That came after data the previous day showed the French and German economies both unexpectedly grew on the quarter in April-June.
The Australian dollar hit an 11-month high against the U.S. dollar earlier in the day after Reserve Bank of Australia Governor Glenn Stevens said that a normal interest rate would be well above the current rate of 3.0 percent.
It was last trading flat on the day at $0.8422 AUD=D4.
The New Zealand dollar rose 1.1 percent and touched its highest since September 2008. It last traded at $0.6854.
The rise came after New Zealand's retail sales rose for the first time in nearly two years in the June quarter and the housing market showed more signs of stabilising, backing views of a gradual recovery and that rates will remain on hold in the coming months.
Investors now await readings of U.S. industrial production and consumer sentiment later in the day to better gauge whether the economy is improving.
A stronger-than-expected reading in industrial output "is unlikely to be quite as positive for the dollar as the payrolls surprise" but could support risky assets and currencies, said analysts at Barclays Capital in a note. (Additional reporting by Wanfeng Zhou in New York and Tamawa Desai in London) (Reporting by Nick Olivari)

US Data.......

2009-09-27T22:42:00.001-07:00

The greenback edged higher against the majors in the Wednesday session, pushing the euro beneath the 1.44-level and the sterling below the 1.70-figure as US equities drifted into negative territory. The economic reports released earlier in the session were largely worst than expected, with July ADP private sector payrolls and non-manufacturing ISM falling short of consensus estimates.

The July ADP private sector payrolls posted a loss of 371k jobs, exceeding calls for 340k, albeit improving from 473k a month prior. The July non-manufacturing ISM unexpectedly deteriorated to 46.4, falling short of estimates for an improvement to 48.0 from a month earlier at 47.0. Meanwhile, the headline durable goods orders for June improved to -2.2% versus -2.5% from May and factory orders rose by 0.4%, off from 1.2% a month earlier. Thursday’s data will see weekly jobless claims.

The key highlight will be Friday’s July labor report. The consensus forecast is for the unemployment rate to creep closer to the 10% figure at 9.7% in July versus 9.5% from June. The non-farm payrolls figure is expected to improve sharply, posting a loss of 320k jobs compared with 467k jobs lost a month earlier.

Some Economic Indicators

2009-09-27T22:41:00.000-07:00

Economic indicators are those signals that are all around that will show you which direction the market is currently heading. It is vital to your success as a Forex trader that you keep one ear on the ground to know what is happening in a wide range of economic areas so as to stay aware of what is happening, locally and internationally. This will enable you to make the best decisions possible regarding the investments you have already made and helping you know which ones you should be making.

Some of the indicators to watch out for are:

Retail Sales: By way of definition, retail sales, as indicated by their name, is simply a projected estimate of what sales will be by retail shops in the US. These are usually released monthly in advance and are usually not adjust for inflation. In order for this report to be generated, a sampling of receipts from participating retailers is compiled. The importance of this in relation to Forex trading is that it is a valuable indicator of which industries and more specifically, which companies are worth investing your money into.
Existing Home Sales: Existing homes are homes that have been standing for a while, while the rest are newly constructed. The rate at which homes are being sold can provide you, the trader, with important clues into the economic situation. For example, some sellers might sell one home to make a profit and use that profit to buy new furniture for their new homes. That could be an indication that the furniture industry will be booming very soon. Interest rates are also influential to the Forex trading industry and also affect existing home sales. These are all things to look out for when you get into Forex trading.
Leading Indicators: Traders use these types of indicators to forecast upcoming changes in the market. Because leading indicators might change before the market actually changes, these are important principles to pay attention to in order to invest wisely. It is important to realize and understand that leading indicators are only indicators and cannot precisely foretell where the market is heading: they are only predictors.
Trade Balance: Trade balance compares a country’s economical imports to its exports. If the country is experiencing a trade surplus, then the exports going out are more than the imports coming in. Opposite of this is when a country is experiencing trade deficit – the trade balance is in the negative with more goods being imported the exported. This aspect is foundational to successful Forex trading because the trade balance relies on the exchange rates between two particular countries. Trade balance will also be a source of important information regarding the exchange of those two countries’ currencies.

While these are just a few of the economic indicators that you, the Forex trader, should be aware of, it is important to recognize that there are many, many more indicators to watch out for. Forex Justice can help you in knowing what is happening economically around the world. It’s just that simple to sign up and have the very best help and expertise available!