Special report on forex market 23 decDocument Transcript
HISTORY OF FOREX MARKET
MARKET SIZE AND LIQUIDITY
DETERMINANTS OF EXCHANGE RATES
The foreign exchange market (Forex, FX, or currency market) is a global
decentralized market for the trading of currencies. The main participants in this
market are the larger international banks.
The foreign exchange market works through financial institutions, and it operates
on several levels. Behind the scenes banks turn to a smaller number of financial
firms known as “dealers,” who are actively involved in large quantities of foreign
The foreign exchange market is unique because of the following characteristics:
Its huge trading volume representing the largest asset class in the world
leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from
20:15 GMT on Sunday until 22:00 GMT Friday;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed
The use of leverage to enhance profit and loss margins and with respect to
As such, it has been referred to as the market closest to the ideal of perfect
competition, notwithstanding currency intervention by central banks.
Currency trading and exchange first occurred in ancient times. Money-changing
people, people helping others to change money and also taking a commission or
charging a fee were living in the times of the Talmudic writings (Biblical times).
These people (sometimes called "kollybist s") used city-stalls, at feast times the
temples Court of the Gentiles instead. Money-changers were also in more recent
ancient times silver-smiths and, or, gold-smiths.
During the fourth century the Byzantium government kept a monopoly on the
exchange of currency.
Currency and exchange was also a crucial element of trade in the ancient world so
that people could buy and sell items like food, pottery and raw materials. If a
Greek coin held more gold than an Egyptian coin due to its size or content, then a
merchant could trade fewer Greek gold coins for more Egyptian ones, or for more
material goods. This is why the vast majority of world currencies are derivatives
of a universally recognized standard like silver and gold.
1880 is considered by one source to be the beginning of modern foreign exchange,
significant for the fact of the beginning of the gold standard during the year
From 1899 to 1913, holdings of countries' foreign exchange increased at an annual
rate of 10.8%, while holdings of gold increased at an annual rate of 6.3% between
1903 and 1913.
In fact 1973 marks the point to which nation-state, banking trade and controlled
foreign exchange ended and complete floating, relatively free conditions of a
market characteristic of the situation in contemporary times began (according to
one source), although another states the first time a currency pair were given as an
option for U.S.A. traders to purchase was during 1982, with additional currencies
available by the next year.
The foreign exchange market is the most liquid financial market in
the world. Traders include large banks, central banks, institutional
investors, currency speculators, corporations, governments,
other financial institutions, and retail investors.
In April 2010, trading in the United Kingdom accounted for 36.7% of
the total, making it by far the most important centre for foreign
exchange trading. Trading in the United States accounted for 17.9%
and Japan accounted for 6.2%.
In April 2013, for the first time, Singapore surpassed Japan in
average daily foreign-exchange trading volume with $383 billion per
day. So the rank became: the United Kingdom (41%), the United
States (19%), Singapore (5.7%), Japan (5.6%) and Hong Kong (4.1%).
Foreign exchange trading increased by 20% between April 2007 and
April 2010 and has more than doubled since 2004.
An important part of this market comes from the financial activities of companies
seeking foreign exchange to pay for goods or services.
National central banks try to control the money supply, inflation, and/or interest
rates and often have official or unofficial target rates for their currencies.
Foreign Exchange Fixing;
Foreign exchange fixing is the daily monetary exchange rate fixed by the national
bank of each country. The idea is that central banks use the fixing time and exchange
rate to evaluate behavior of their currency.
Hedge Funds as Speculators:
About 70% to 90% of the foreign exchange transactions are speculative. They were
solely speculating on the movement of that particular currency. Hedge funds have
gained a reputation for aggressive currency speculation since 1996.
Investment Management Firms:
Investment management firms (who typically manage large accounts on behalf of
customers such as pension funds and endowments) use the foreign exchange market
to facilitate transactions in foreign securities.
Retail Foreign Exchange Traders:
Individual Retail speculative traders constitute a growing segment of this market
with the advent of retail foreign exchange platforms, both in size and importance.
Currently, they participate indirectly through brokers or banks.
Non-Bank Foreign Exchange Companies:
Non-bank foreign exchange companies offer currency exchange and international
payments to private individuals and companies.
Money Transfer/Remittance Companies and Bureaux De
Money transfer companies/remittance companies perform high-volume low-value
transfers generally by economic migrants back to their home country.
Economic policy, disseminated by government agencies and central
Government budget deficits or surpluses
Balance of trade levels and trends
Inflation levels and trends
Economic growth and health
Productivity of an economy
Internal, regional, and international political conditions and events
can have a profound effect on currency markets.
Market psychology and trader perceptions influence the foreign
exchange market in a variety of ways:
Flights to quality, Long-term trends, "Buy the rumor, sell the fact",
Economic numbers, Technical trading considerations
A spot transaction is a two-day delivery transaction (except in the case of
trades between the US Dollar, Canadian Dollar, Turkish Lira, Euro and
Russian Ruble, which settle the next business day), as opposed to
the futures contracts, which are usually three months. This trade
represents a “direct exchange” between two currencies, has the shortest
time frame, involves cash rather than a contract; and interest is not
included in the agreed-upon transaction.
One way to deal with the foreign exchange risk is to engage in a forward
transaction. In this transaction, money does not actually change hands
until some agreed upon future date.
A buyer and seller agree on an exchange rate for any date in the future,
and the transaction occurs on that date, regardless of what the market
rates are then. The duration of the trade can be one day, a few days,
months or years. Usually the date is decided by both parties. Then the
forward contract is negotiated and agreed upon by both parties.
The most common type of forward transaction is the foreign exchange
swap. In a swap, two parties exchange currencies for a certain length of
time and agree to reverse the transaction at a later date.
Futures are standardized forward contracts and are usually traded on an
exchange created for this purpose. The average contract length is roughly
3 months. Futures contracts are usually inclusive of any interest amounts.
Currency futures contracts are contracts specifying a standard volume of a
particular currency to be exchanged on a specific settlement date
A foreign exchange option (commonly shortened to just FX option) is a
derivative where the owner has the right but not the obligation to
exchange money denominated in one currency into another currency at a
pre-agreed exchange rate on a specified date. The options market is the
deepest, largest and most liquid market for options of any kind in the
: - 1.6400, 1.6490
: - 1.6270, 1.6200
: - BUY ON DIPS
GBP/USD trading around 1.6330-1.6360 levels, it may show some upward movement towards 1.6500-1.6600
levels, so traders may take long position for the targets of 1.6480/1.6600.
: - 1.3700, 1.3810
: - 1.3540, 1.3390
: - BUY ON DIPS
EUR/USD has shown some downward movement this week, although 5 week positive trend. Now it may
follow trend and May shows some upward movement due to positive global cues, so trader may take long
position around 1.3650 for the target of 1.3750/1.3950.
: - 108.00, 110.50
: - 104.00, 102.00
: - BUY ON DIPS
50 weeks rally in USD/JPY. It may shows more upward movement towards the level of 108, so trader can
take long position in it around 105 for the target of 106.50/110.50.
: - 64.05, 65.50
: - 60.50, 58.60
: - SELL ON HIGH
USD/INR trading sideways around the level of 61.00-64.00. Trader can take short position around 62.00 for
the target of 60.00/57.00.
This report is based on our prime research. We use different
informative websites for necessary information. The foreign
exchange market (Forex, FX, or currency market) is a global
decentralized market for the trading of currencies. The main
participants in this market are the larger international banks.
The foreign exchange market works through financial
institutions, and it operates on several levels. Most foreign
exchange dealers are banks, so this behind-the-scenes market
is sometimes called the “interbank market”, although a few
insurance companies and other kinds of financial firms are
EUR/USD has shown some downward movement this week
but now rally support euro to gain against us dollar.
Upward movement towards 1.6500-1.6600 levels in GBP/USD.
USD/INR trading sideways to bearish.
50 weeks rally in USD/JPY.
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