Introduction to FOREX

Shortly аbout FOREX trading

FOREX (Foreign Exchange Market) is a sum of selling and buying operations of foreign currencies in defined conditions (sum, exchange rate, time). The main players in the Forex marketing are: trading banks, currency exchanges, central banks, investment fund, brokerage companies, private persons, etc.

 The main currencies taking part in the Forex System are: USD, EUR, JPY, CHF and GBP. The daily volume of conversion operations is about 5 trillion dollars.

The daily operation volume of the biggest banks worldwide amounts to milliards of dollars. Spot-operations or so-called current conventional operations are known as selling or buying currency deals. Their factual implementation is realized on the second day, after the deal is closed.

Thanks to the margin trade, everybody can take part in the process – even those, who don’t have enough money. Brokers who can suggest marginal trading help insist on a deposit and give customers the possibility to make selling/buying operations in size, much bigger than the deposit they have given to their broker. Loss risks are taken by the clients themselves. The deposit is only a guarantee for the brokers.

Places we can obtain information about the financial markets conditions from are REUTERS, DOW JONES, CQG, BLOOMBERG, TENFORE and so on. They are using real-time systems, giving us data about the currency quotation and financial-economic news from international agencies, as well.

Margin Trading

Unlike the real currency delivery operations/the real currency exchange, Forex traders, especially those with limited monetary opportunities, are taking part in the process of deposing their money. This means they’re taking part in a margin trading/leverage trading). Each margin trading operation always passes through two stages: currency sale/buying process at one price and exigible sale/buying process at the same or different price. The first actions is called “position finding” and the second one – “position closing”.

When opening a position, the client deposits his own money. This insurance is like compensation, if there is some risk of loss. After closing a position, the deposit is given back to the client and he gets a loss or profit report – it depends on the final results he has obtained. In addition, the deposit is often 100 times smaller than the sum that has been invested by the customer.

Here is an illustration about position finding and position closing operations: for example, if there is a prediction euro to become more expensive than dollar does in some future moment, this means we will prefer buying euro to dollar in the present, so that we will have the ability to sell it at a higher price later.

We will proceed almost in the same way, when EUR will be cheaper than USD, so that we will get some profit in both two cases.

If you want to take part in FOREX Trading, you will be able to join us only if you have some stock-broker assistance. There are broker organizations which give you the ability to use some real-time data from Dow Jones, REUTERS and similar. Even if you are rich enough to pay to information agents, you will need an active market maker. He will fix the price of the deal.

All the quotations you are about to see on your screen, are ones that will let you make real-time deals in FOREX platform. They are permanently changing, that’s why you cannot call your broker and tell him you want an operation of a profitable (according to you) price because this price may not be profitable for him.

Exchange Rates

Explanations:

Exchange Rate – this is thе price of the currency оf a country and its equivalent expressed in another currency while selling/buying process. This price can be defined as a ratio between currency supply and demand and usually regulated by government’s financial authority – Central Bank.

Types of exchange rates:

1. Direct quotation – the quantity of a currency that can be bought for one foreign currency unit. Most of the countries has a practice foreign currencies to be expressed in their own one.
2. Reverse quotation – the quantity of a foreign currency that can be bought for one national currency unit
3. Cross exchanges – this is a ratio between two currencies and it is a result of their quotation regarding to a third currency. It is an usual practice most of the operations to use cross exchanges regarding to USD because dollar is the major reverse currency abroad used for most of the deals all over the world.
4. Spot exchanges – the price of a currency and its value equivalent – a foreign country currency –established at the time of the deal. The contract depends on the counterparty’s banks terms on the second day of the deal contracting.

A spot exchange gives information about how high one national value is appreciated at the moment of striking the bargain outside the country.

FOREX (Foreign Exchange) – international currency exchange. It can be met as FX

Major Exchanges:

EUR  = ECU

USD – (American dollar)

GBP = STG ( Sterling, Pound, Cable)

CHF = SWF ( Swedish Franc, Swissie)

JPY  = YEN (Japanese Yen)

Financial institutions that are quoting and making selling/buying deals all the time are known as “market-makers”

Financial institutions that are making currency value requests are called “market-users”

A quotation of an offered currency is as follows:

USD/CHF = 0,9681/84

This means that traders can buy dollars for 0,9681 CHF and sell some in exchange for 0,9684 CHF

0,9681 is called BID; 0,9684 – is called ASK.

Point  – the minimum of a price change (pips) – 0,9684 – 4 pips.

Spread – the difference between buying and selling prices 0,9684– 0,9681 = 3 pips

0,9681 – 0,96 – big figure

Hedge  – a currency risk insurance

FOREX Work time according to GMT (Greenwich Mean Time):

American and Asian sessions seem to be the most aggressive ones and the biggest volume of operations seems to be performed during the European session.

The most static sessions are the New Zealand and Australian ones.