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Origins of foreign exchange

2008-03-23T13:49:00.001+02:00

In order to gain a complete understanding of what foreign exchange market is, it is useful to examine the reasons that lead to its existence in the first place. Exhaustively detailing the historical events that shaped the foreign exchange market into what it is today is of no great importance to the fx trader and therefore we happily will omit lengthy explanations of historical events such as the Bretton Woods accord in favor of a more specific insight into the reasoning behind foreign exchange as a medium of exchange of goods and services.Originally our ancestors conducted trading of goods against other goods this system of bartering was of course quite inefficient and required lengthy negotiation and searching to be able to strike a deal. Eventually forms of metal like bronze, silver and gold came to be used in standardized sizes and later grades (purity) to facilitate the exchange of merchandise. The basis for these mediums of exchange was acceptance by the general public and practical variables like durability and storage. Eventually during the late middle ages, a variety of paper IOU started gaining popularity as an exchange medium.The obvious advantage of carrying around 'precious' paper versus carrying around bags of precious metal was slowly recognized through the ages. Eventually stable governments adopted paper currency and backed the value of the paper with gold reserves. This came to be known as the gold standard. The Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, president Nixon suspended the convertibility to gold and let the US dollar 'float' against other currencies.Since then the foreign exchange market has developed into the largest market in the world with a total daily turnover of about 1.5 trillion USD. Traditionally an institutional (inter-bank) market, the popularity of online currency trading offered to the private individual is democratising foreign exchange and widening the retail market.

Main forex markets

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Foreign exchange is traded essentially in two distinctive ways. Over an organized exchange and 'over the counter'. Exchange traded foreign exchange represents a very small portion of the total foreign exchange market the great majority of foreign exchange deals being traded between banks and other market participants 'over the counter'.

1.Exchange traded currencies

In the case of an organized exchange like the Chicago Mercantile exchange (CME) in the US, standardized currency contract sizes that represent a certain monetary value are traded in the International money market (IMM). A central clearing house organizes matching of transactions between counter-parties. There are various disadvantages to trading currency futures as outlined in the chapter Advantages of trading FX.

2. Forex market

In comparison the over the counter market is traded around the world by a multitude of participants and price quality, reputation and trading conditions determine who a participant wishes to trade with. It is probably the most competitive market in the world and brokers like ACM must insure they live up to the highest standards of service and be compliant with market standards and practices if they want to acquire new customers and retain their existing ones. In 1998 a survey under the auspices of the Bank for International Settlements (BIS), global turnover of reporting dealers was estimated at about USD 1.49 trillion per day. In comparison, currency futures turnover was estimated at USD 12 billion.Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom, even though that nation's currency, the British pound is less widely traded in the market than several others. As shown in the graph underneath, the United Kingdom accounts for about 32 percent of the global total; the United States ranks a distant second with about 18 percent, and Japan is third with 8 percent.

Forex Glossary

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Accrual

The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals, over the period of each deal.

Actualize

The underlying assets or instruments which are traded in the cash market.

Adjustable Peg

An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.

Adjustment

Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.

Agent Bank

A bank acting for a foreign bank. In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.

Aggregate Demand

Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and and firms in other countries for good and services.

Aggregate Risk

Total amount of exposure a bank has with a customer for both spot and forward contracts.

Aggregate Supply

Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Agio

Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.

Aggressor

A trader dealing on an existing price in the market.

Appreciation

A currency is said to 'appreciate' when it strengthens in price in response to market demand. Describes a currency strengthening in response to market demand rather than by official action.

Arbitrage

Profiting from differences in the price of a single currency pair that is traded on more than one market.

Arbitrage Channel

The range of prices within which there will be no possibility to arbitrage between the cash and futures market.

Around

Used in quoting forward "premium/discount". "Five-five around" would mean five points on either side of the present spot value.

Ask Price

Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be bought for 1.1968 US dollars.

Asset

An item having commercial or exchange value.

Asset Location

Dividing instrument funds among markets to achieve diversification or maximum return.

At Best

An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.

At or Better

An order to deal at a specific rate or better.

Authorized Dealer

A financial institution or bank authorized to deal in foreign exchange.

Average Rate Option

A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".

Back Office

The office location, or department, where the processing of financial transactions takes place.

Balance of Trade

The value of a country's exports minus its imports.

Bank Notes

Paper issued by the central bank, redeemable as money and considered to be full legal tender.

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Bar Chart

A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information - the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.

Base Currency

In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.

Bear Market

An extended period of general price decline in an individual security, an asset, or a market.

Bid Price

is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1923 / 68 - means that one euro can be sold for 1.1923 US dollars.

Bid/Ask Spread

is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.

Big Figure

The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83

Bretton Woods

The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.

Broker

An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.

Bull Market

A market which is on a consistent upward trend.

Bundesbank

Central Bank of Germany.

Buy On Margin

The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.

Buy Limit Order

An order to execute a transaction at a specified price (the limit) or lower.

Candlestick Chart

A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).

Central Bank

A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.

Chartist

A person who attempts to predict prices by analyzing past price movements as recorded on a chart.

Closing a Position

The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.

Commission

The fee that a broker may charge clients for dealing on their behalf.

Cross Currency

A currency pair that does not include US dollars - e.g. EUR/GBP.

Currency

Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.

Currency Pair

Two currencies involved in a Forex transaction - e.g. EUR/USD.

Currency Risk

The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.

Day Trade

A trade opened and closed on the same trading day.

Day Trading

Refers to a style or type of trading where trade positions are opened and closed during the same day.

Day Trader

A trader who buys and sells on the basis of small short-term price movements.

Dealer

An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.

Depreciation

A fall in the value of a currency due to market forces.

Desk

Term referring to a group dealing with a specific currency or currencies.

Devalution

The act by a government to reduce the external value of its currency.

Direct Quotation

Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Discretionary Account

An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.

Economic Indicator

A statistical report issued by governments or academic institutions indicating economic conditions within a country.

Euro (EUR)

The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999. This is the amalgamation of the following currencies, after Jan. 1, 2002 these currencies will be considered legacy currencies. Germany Deutsche Marks, Italy Lira, Austria Schillings, France Franc, Belgium Francs, Netherlands (Dutch) Guilders, Finland Markka, Portugal Escudo, Greece Drachmas, Ireland Punt, Luxembourg Francs, Spanish Pesetas

European Central Bank (ECU)

The Central Bank for the new European Monetary Union.

Execution

The Process of completing an order or deal.

First In First Out (FIFO)

refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (Forex, FX)

Simultaneously buying one currency and selling another.

Fundamental Analysis

Analysis of political and economic conditions that can affect currency prices.

Leverage or Margin

The ratio of the value of a transaction to the required deposit. A common margin for Forex trading is 100:1 - you can trade currency worth 100 times the amount of your deposit.

Limit Order

An order to buy or sell when the price reaches a specified level.

Lot

The size of a Forex transaction. Standard lots are worth about 100,000 US dollars.

Major Currency

The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

Minor Currency

The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

Offer (Ask)

The rate at which a dealer is willing to sell a currency.

Offsetting transaction

A trade with which serves to cancel or offset some or all of the market risk of an open position.

One Cancels the Other (OCO)

Two orders placed simultaneously with instructions to cancel the second order on execution of the first. A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

Open Order

An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.

Open Position

An active trade that has not been closed. An active trade with corresponding unrealized Profit and Loss, which has not been offset by an equal and opposite deal

Order

A customer's instructions to buy or sell currencies.

Over the Counter (OTC)

Used to describe any transaction that is not conducted over an exchange.

Overnight Position

Trader's long or short position in a currency at the end of a trading day.

Pips or Points

The smallest unit a currency can be traded in. The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001.

Political Risk

Exposure to changes in governmental policy which will have an adverse effect on an investor's position.

Price

The price at which the underlying currency can be bought or sold.

Price Transparency

The ability of all market participants to "see" or deal at the same price. Describes quotes to which every market participant has equal access.

Principle Value

The original amount invested by the client.

Profit /Loss or "P/L" or Gain/Loss

The actual "realized" gain or loss resulting fromtrading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

Quote Currency

The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

Rally

A recovery in price after a period of decline.

Range

The difference between the highest and lowest price of a future recorded during a given trading session.

Rate

Price at which a currency can be purchased or sold against another currency. The price of one currency in terms of another, typically used for dealing purposes.

Resistance

Price level at which technical analysts note persistent selling of a currency. A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Revaluation

Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day. An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of "Devaluation".

Risk (Forex Risk)

The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced. Exposure to uncertain change, most often used with a negative connotation of adverse change.

Risk Management

The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.

Rollover (Roll-Over)

The process of extending the settlement value date on an open position forward to the next valid value date.

Settlement

The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

Short Position

An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Spot Market

Market where people buy and sell actual financial instruments (currencies) for two-day delivery.

Spot Price

The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada). The current market price. Settlement of spot transactions usually occurs within two business days.

Spread

This point or pip difference between the bid and ask price of a currency pair.Square Purchase and sales are in balance and thus the dealer has no open position.

Squawk Box

A speaker connected to a phone often used in broker trading desks.

Squeeze

Action by a central bank to reduce supply in order to increase the price of money. The difference between the bid and offer prices.

Stable Market

An active market which can absorb large sale or purchases of currency without major moves.

Standard

A term referring to certain normal amounts and maturities for dealing.

Sterilization

Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.

Sterling (The Pound - GBP)

Another term for the British currency, "The Pound".

Stop

An order to buy or to sell a currency when the currency's price reaches or passes a specified level.

Stop Loss Order

Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position. Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.

Support Levels

A price at which a currency or the currency market will receive considerable buying pressure. A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of "resistance".

Swap

A transaction which moves the maturity date of an open position to a future date. The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.

Swap Price

A price as a differential between two dates of the swap.

Swiss

Market slang for Swiss Franc.

Take Profit Order

A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.

Technical Analysis

Analysis of historical market data to predict future movements in the market.

Technical Correction

An adjustment to price not based on market sentiment but technical factors such as volume and charting.

Thin Market

A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.

Thursday/Friday Dollars

A US foreign exchange technicality. If a foreign bank buys dollars on Tuesday for Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available.

Tick

The smallest possible change in a price, either up or down

Today/Tomorrow

Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.

Tomorrow Next (Tom Next)

Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.

Trade Date

The date on which a trade occurs.

Tradeable Amount

Smallest transaction size acceptable.

Transaction

The buying or selling of currencies resulting from the execution of an order

Transaction Cost

The cost of a Forex transaction - typically the spread between bid and ask prices.

Transaction Date

The date on which a trade occurs.

Turnover

The total volume of all executed transactions in a given time period.

Two Tier Market

A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.

Two-Way Price

A quote in the foreign exchange market that indicates a bid and an offer.

Two-Way Quotation

When a dealer quotes both buying and selling rates for foreign exchange transactions.

Uncovered

Open position.

Under-Valuation

An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

Unrealized Gain/Loss

The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains' Losses become Profits/Losses when position is closed.

Uptick

A new price quote at a price higher than the preceding quote. A transaction executed at a price greater than the previous transaction.

Uptick Rule

In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.

US Prime Rate

The interest rate at which US banks will lend to their prime corporate customers.

US Treasury

The United States Department of the Treasury is the government department responsible for issuing all Treasury bonds, notes, and bills

Value Data

The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.

Value Date

The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Value Date is also known as "maturity" date. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day.

Value Spot

Normally settlement for two working days from today. See value date.

Variation Margin

Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis. Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.

Volatility (VOL)

Statistical measure of the change in price of a financial currency pair over a given time period. A statistical measure of a market's price movements over time. A measure of the amount by which an asset price is expected to fluctuate over a given period.

Vostro Account

A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.

Wash Trade

A matched deal which produces neither a gain nor a loss.

Whipsaw

Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Withholding Tax

Income tax withheld from employees' wages and paid directly to the government by the employer.

Working Day

A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centre's are open for business (all relevant currency centers in the case of a cross are open).

Yard

A slang word used in the currency industry meaning "billion".

A Nasdaq stock symbol specifying that it is a mutual fund.

Z-Score

A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.at 9:16 AM 1 comments

FOREX Trading News

Forex Trading as commonly called stands for Foreign Exchange Trading. It is biggest financial trading market in the world having a daily turnover in excess of US$1 Trillion. The figure signifies a volume amounting to about 28 times the combined volume of all US equity trading markets.Forex Trading means buying of one foreign currency by paying in another. Each transaction involves a purchase and a sale of currency at the same time, since currency trading is always done in pairs for example USD/EUR or USD/GBP etc.Foreign Currency trading or Forex Trading is undertaken for two purposes. About 5-7% of the transactions are undertaken by institutions that do business in foreign lands or companies that have to convert their foreign currency earnings into domestic currency. The rest of the Forex Trading is done purely on speculative basis with profit objectives.For trading by speculation purposes, the best profit making opportunity lies in most traded currencies (obviously the currencies of most economically advanced countries) also called the "majors" in Forex Trading parlance. They consist of US Dollar, GB Pounds, Japanese Yen, European Unions EURO, Swiss Franc, Canadian Dollar, Australian Dollar etc

How To Choose a Forex Trading System That Works and Suits You

2008-03-22T21:52:00.000+02:00

There are so many different trading systems you could use to trade the forex market, some better suited to certain people than others. For example some people may find it easier to comprehend and take into account fundamental factors as opposed to looking at a screen covered in technical indicators, and vice-versa.The first logical step in determining what type of trading system would best suit you is actually being aware and understand the widely known methods of analysis used in trading the currency market. Once you are aware of the tools that are available, you can generally tell what type of analysis suits you. For example some of the main technical analysis methods which are popular include:Pivot pointsChart patternsFibonacci retracementsCandlestick patternsAnd some fundamental factors which are widely used include analyzing:Interest ratesTrade balancesUnemployment ratesGross domestic product (GDP)You may now actually be able to develop your own system by combining certain methods of analysis together, giving you a method which you are comfortable with. On the other hand you may decide that you would like to trade someone else’s system, either way, that brings us to the next step which is determining the profitability of a trading system.Determining ProfitabilityMost people would think that back testing is the best way to determine a systems profitability. However back testing doesn’t always give you a true idea of how profitable a system is. The reason for this is because when you’re back testing your system on historical charts, you are only seeing the obvious setups which have occurred, and not always seeing the ones that are less obvious. These less obvious ones sometimes can produce losses, which is why back testing isn’t always the best method to implement.A better method of determining profitability is by trading your system in real-time with a demo account. This would give you a true understanding of what your system is capable of. This would also allow you to familiarize yourself with your trading platform at the same time. When determining profitability you must look at it in terms of expectancy and opportunity.Expectancy & OpportunityThese two factors together will be able to tell you what you could expect to make over a period of time. Expectancy is calculated with the following formula:(Probability of winning × average win) – (Probability of losing × average loss)This will give you a figure which is the average amount you can expect to make per trade. This shouldn’t be a negative amount, if it is you should look at some other method of trading since you cannot make money on a system that produces a negative expectancy. Obviously the higher this figure is the better. Now to the opportunity factor.The opportunity factor is how often you are able to trade using your system. By multiplying your expectancy figure with your opportunity factor it will tell you how much you could expect to make over a period of time. The more opportunity you have to trade, the more money you should expect to make. This now brings us to the last component of a trading system, money management.Money ManagementWithout proper money management you will end up as a statistic. In other words one of those 90%+ of traders who loose their money. Money management tells you how much of your account balance to risk per trade. The whole point of money management is to ensure your survival over the long term, and to preserve your capital.The most common form of money management is the percent risk model which tells you not to risk more than x percent of your account balance on any one trade. A range between 1-3% is generally an accepted amount which has been a reliable percentage to use in order to make money in the long term.ConclusionBy taking into consideration the above factors you will be able to determine if a trading system best suits you, and with some simple mathematical calculations you will be able to determine its profitability

About Forex

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To buy foreign goods or services, or to invest in other countries, companies and individuals may need to first buy the currency of the country with which they are doing business. Generally, exporters prefer to be paid in their country's currency or in U.S. dollars, which are accepted all over the world.The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions United Kingdom, United States, and Japan .

What is Forex ??

2008-03-22T21:42:00.002+02:00

FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip click here.Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.A technical analysis is founded on three suppositions:Movement of the market considers everything;Movement of prices is purposeful;History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).