Strategy Forex Market 1

Sabtu, 01 November 2014

What is Forex? Learn Forex Trading

What is Forex?
The foreign exchange market – also known as Forex or the FX market – is the world’s most traded market, with turnover of $5.3 trillion per day

To put this into perspective, the U.S. stock market trades around $226 billion a day; quite a large sum, but only a fraction of what Forex trades.

Forex is traded 24 hours a day, 5 days a week across by banks, institutions and individual traders worldwide. Unlike other financial markets, there is no centralized marketplace for Forex, currencies trade over the counter in whatever market is open at that time.

What is Forex ? Learn Currency Trading


The foreign exchange market (Forex, FX, or currency market) is a global decentralized or Over The Counter (OTC) market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: 1 USD is worth X CAD, or CHF, or JPY, etc..



The foreign exchange market works through financial institutions, and 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 exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the "inter bank market" (although a few insurance companies and other kinds of financial firms are involved). Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions.


The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies.



In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency.


The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

What is Forex ? Learn Currency Trading
what is Forex trading and how does it work


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 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
  • the variety of factors that affect exchange rates;
  • the low margins of relative profit compared with other markets of fixed income; and
  • the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.

According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.1 trillion per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Foreign exchange swaps were the most actively traded instruments in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. According to the Bank for International Settlements, as of April 2016, average daily turnover in global foreign exchange markets is estimated at $5.09 trillion. This marks a decline of approximately 5% from the $5.355 trillion daily volume as of April 2013. Some firms specializing in the foreign exchange market had put the average daily turnover in excess of US$4 trillion. The $5.09 trillion break-down is as follows:
  • $1.654 trillion in spot transactions
  • $700 billion in outright forwards
  • $2.383 trillion in foreign exchange swaps
  • $96 billion currency swaps
  • $254 billion in options and other products


Why is the US dollar considered as the international currency globally vs the yen or euro or pound?


The forex (or foreign exchange) market is the world's largest and most liquid market, with trillions of dollars traded on any given day between millions of parties. For those just getting started in the forex market, one of the first steps is to gain familiarity with some of the more commonly traded currencies and their popular uses in not only the forex market but in general, as well. Here is a look at six popular currencies that all forex observers should be acquainted with and some of the underlying traits and characteristics of each.

A global currency is one that is accepted for trade throughout the world. Some of the world's currencies are accepted for most international transactions. The most popular are the U.S. dollar, the euro, and the yen. Another name for a global currency is the reserve currency.
Of these, the U.S. dollar is the most popular. It makes up 64 percent of all known central bank foreign exchange reserves. That makes it the de facto global currency, even though it doesn't hold an official title.

The next closest reserve currency is the euro. Only 19.9 percent of known central bank foreign currency reserves were in euros as of the second quarter 2017. The chance of the euro becoming a world currency increases as the eurozone crisis fades. But the crisis highlights the difficulties of ever using the euro as a world currency.

The U.S. Dollar Is the Strongest World Currency


The relative strength of the U.S. economy supports the value of its currency. It's the reason the dollar is the most powerful currency. Around $580 billion in U.S. bills are used outside the country. That's 65 percent of all dollars. That includes 75 percent of $100 bills, 55 percent of $50 bills, and 60 percent of $20 bills. Most of these bills are in the former Soviet Union countries and in Latin America. They are often used as hard currency in day-to-day transactions.

Cash is just one indication of the role of the dollar as a world currency. More than one-third of the world's gross domestic product comes from countries that peg their currencies to the dollar. That includes seven countries that have adopted the U.S. dollar as their own. Another 89 keep their currency in a tight trading range relative to the dollar.

In the foreign exchange market, the dollar rules. Ninety percent of forex trading involves the U.S. dollar. The dollar is just one of the world's 185 currencies according to the International Standards Organization List. But most of these currencies are only used inside their own countries. Theoretically, any one of them could replace the dollar as the world's currency. But they won't because they aren't as widely traded. The chart below shows a breakdown of the 10 most traded currencies in 2018.

Almost 40 percent of the world's debt is issued in dollars. As a result, foreign banks need a lot of dollars to conduct business. This became evident during the 2008 financial crisis. Non-American banks had $27 trillion in international liabilities denominated in foreign currencies. Of that, $18 trillion was in U.S. dollars. As a result, the U.S. Federal Reserve had to increase its dollar swap line. That was the only way to keep the world's banks from running out of dollars.

The financial crisis made the dollar even more widely used. In 2017, the banks of Japan, Germany, France, and the United Kingdom held more liabilities denominated in dollars than in their own currencies. Bank regulations enacted to prevent another crisis are making dollars scarce. To make matters worse, the Federal Reserve is increasing the fed funds rate. That decreases the money supply by making dollars more expensive to borrow.




The dollar's strength is the reason governments are willing to hold the dollar in their foreign exchange reserves. Governments acquire currencies from their international transactions. They also receive them from domestic businesses and travelers who redeem them for local currencies.

Some governments invest their reserves in foreign currencies. China and Japan deliberately buy the currencies of their main export partners. The United States is the largest export partner of both countries. They try to keep their currencies cheaper in comparison so their exports are competitively priced.

Why the Dollar Is the Global Currency ????

The 1944 Bretton Woods agreement kickstarted the dollar into its current position. Before then, most countries were on the gold standard. Their governments promised to redeem their currencies for their value in gold upon demand. The world's developed countries met at Bretton Woods, New Hampshire, to peg the exchange rate for all currencies to the U.S. dollar. At that time, the United States held the largest gold reserves. This agreement allowed other countries to back their currencies with dollars rather than gold.

By the early 1970s, countries began demanding gold for the dollars they held. They needed to combat inflation. Rather than allow Fort Knox to be depleted of all its reserves, President Nixon separated the dollar from gold. By that time, the dollar had already become the world's dominant reserve currency. But unplugging the dollar from its value in gold created stagflation. That's a combination of inflation and stagnant growth.

1. The U.S. Dollar

First and foremost is the U.S. dollar, which is easily the most traded currency on the planet. The USD can be found in a pair with all the other major currencies and often acts as the intermediary in triangular currency transactions. This is all because the USD acts as the unofficial global reserve currency, held by nearly every central bank and institutional investment entity in the world.

In addition, due to the U.S. dollar's global acceptance, it is used by some countries as an official currency, in lieu of a local currency, a practice known as dollarization. The U.S. dollar also may be widely accepted in other nations, acting as an informal alternative form of payment, while those nations maintain their official local currency.

The dollar is an important factor, too, in the foreign exchange rate market for other currencies, where it may act as a benchmark or target rate for countries that choose to fix or peg their currencies to the USD's value. China, for instance, has long had its currency, the yuan or renminbi, pegged to the dollar, much to the disagreement of many economists and central bankers. Quite often countries will fix their exchange rates to the USD to stabilize their exchange rate, rather than allowing the free (forex) markets to fluctuate its relative value.

One other feature of the USD that novices in forex need to understand is that the dollar is used as the standard currency for most commodities, such as crude oil and precious metals. That means these commodities are subject not only to fluctuations in value due to the basic economic principals of supply and demand but also to the relative value of the U.S. dollar, with prices highly sensitive to inflation and U.S. interest rates, which directly affect the dollar's value.

2. The Euro

Although still relatively new to the world stage, the euro has become the second most traded currency, behind only the U.S. dollar. And the euro is the world's second-largest reserve currency. The official currency of the majority of the nations within the eurozone, the euro was introduced to the world markets on January 1, 1999, with banknotes and coinage entering circulation three years later.

Along with being the official currency for most eurozone nations, many nations within Europe and Africa peg their currencies to the euro, for much the same reason that currencies are pegged to the USD – to stabilize the exchange rate.

With the euro being a widely used and trusted currency, it is very prevalent in the forex market and adds liquidity to any currency pair it trades within. The euro is commonly traded by speculators as a play on the general health of the eurozone and its member nations. Political events within the eurozone can often lead to large trading volumes for the euro, especially in relation to nations that saw their local interest rates fall dramatically at the time of the euro's inception, notably Italy, Greece, Spain and Portugal. The euro may be the most "politicized" currency actively traded in the forex market.

3. The Japanese Yen

The Japanese yen is easily the most traded currency out of Asia and viewed by many as a proxy for the underlying strength of Japan's manufacturing-export economy. As Japan's economy goes, so goes the yen (in some respects). Many use the yen to gauge the overall health of the Pan-Pacific region as well, taking economies such as South Korea, Singapore and Thailand into consideration, as those currencies are traded far less in the global forex markets.

The yen is also well known in forex circles for its role in the carry trade (seeking to profit from the difference in interest rates between two currencies). Japan has basically had a zero interest rate policy for more than two decades, and traders have borrowed the yen at next to no cost and used it to invest in other higher yielding currencies around the world, pocketing the rate differentials in the process. With the carry trade being such a large part of the yen's presence on the international stage, the constant borrowing of the Japanese currency has made appreciation a difficult task. Though the yen still trades with the same fundamentals as any other currency, its relationship to international interest rates, especially with the more heavily traded currencies such as the greenback and the euro, is a large determinant of the yen's value.

4. The Great British Pound

The Great British pound, also known as the pound sterling, is the fourth most traded currency in the forex market. It also acts as a large reserve currency due to its relative value compared to other global currencies. Although the U.K. is an official member of the European Union (at least until its planned exit in March 2019), it chose not to adopt the euro as its official currency for a variety of reasons, namely historic pride in the pound and maintaining control of domestic interest rates. For this reason, the pound can be viewed as a pure play on the United Kingdom. Forex traders will often base its value on the overall strength of the British economy and political stability of its government. Due to its high value relative to its peers, the pound is also an important currency benchmark for many nations and acts as a very liquid component in the forex market.

Calls for a One World Currency

In March 2009, China and Russia called for a new global currency. They want the world to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."

China was concerned that the trillions it holds in dollars would be worth less if dollar inflation sets in. This could happen as a result of increased U.S. deficit spending and printing of U.S. Treasurys to support U.S. debt. China called for the International Monetary Fund to develop a currency to replace the dollar.

In the fourth quarter 2016, the Chinese renminbi became another one of the world's reserve currencies. As of Q3 2017, the world's central banks held $108 billion worth. That's a small start, but it will continue to grow in the future. China wants its currency to be fully traded on the global foreign exchange markets. It would like the yuan to replace the dollar as the global currency. To do so, China is reforming its economy.

Description
: Strategy Forex Market 1
Rating
: 4.5
Reviewer
: Isonego Isoneopo
ItemReviewed
: Strategy Forex Market 1

0 Comments:

Posting Komentar test

Previous Post

« newer news