AN OVERVIEW OF THE FOREX MARKET

The global marketplace has changed dramatically over the past several years. New investment strategies are becoming more important in order to minimize risk, as well as to maintain high portfolio returns. Among the most rewarding of the markets opening up to traders is the Foreign Exchange market. Identifiable trading patterns, as well as comparatively low margin requirements, have rewarding trading opportunities for many. In contrast to the world’s stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world. Average volume in foreign exchange exceeds $1.5 trillion per day versus only $25 billion per day traded on the New York Stock Exchange. This high volume is advantageous from a trading standpoint because transactions can be executed quickly and with low transaction costs (i.e., a small bid/ask spread). As a result, foreign exchange trading has long been recognized as a superior investment opportunity by major banks, multinational corporations and other institutions. Today, this market is more widely available to the individual trader than ever before. Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EURUSD. That is, sell Euros and buy US dollars.

EURODOLLAR MARKET

-  As the number of U.S dollars held in the new Eurodollar market grew, it soon became an important source of lending capital for Governments and large Organizations around the World..

- The term EURODOLLAR defines any instance of U.S dollars deposited in a bank outside the United State Of America. Precisely, the source of much of the foreign held dollars was crude oil.

- The first attack on Bretton Woods came in the form of what is called the EURODOLLAR Market.

- Coincidently, This period also marked the beginning of the COLD WAR between the east and the west.

- Bankers got worried that their bank accounts could be siezed by the U.S.The soviet union opted to deposit its U.S dollars in Europeans banks out of the reach of the US governments.

PAIRING U.S CURRENCIES TO THE US DOLLARS

By pegging/linking these currencies directly to the dollar,the value of the pegged currencies remained dependent on the value of the dollar.

The U.S government was obligated to maintain Gold reserves equal to the amount of currency in circulation, making the united state a true gold standard economy

At the same time,the value of the dollar was tied to the price of gold which,at the time of the Bretton Woods accord was valued at $35 an ounce

The bretton woods accord was not popular with every country included in the agreement. By link many Europeans economy to the U.S dollar, the dollar became the de facto world currency.This made it impossible for sovereign nations to manage the value of their own currency.

COMMON FOREX TERMINOLOGY

- PIP: A pip is a measurement of  how far the price has moved.. pips are how traders generally measure their profit.. for example, the the exchange rate for EUR/USD is 1.3142 the pip is the last number after the decimal i.e the number  2.

- SPREAD: It is a fee your broker charges you to trade, i.e a cost for trading..

- BID: A bid is the best possible price at which the trader can buy the instrument being traded at the current time. In the fx market the bid price is the highest price the broker is to pay to purchase the instrument off of you.

- ASK: Ask in the forex market simply means the possible lowest price that the broker will sell the instrument to you.

- CHART: A chart is the vitual representation of the price action which is of great importance to the forex market analysis. It is what you use to observe the exchange rate/price of a currency pair over a period of time.  

There are three types of chart patterns:
(1) Bar chart pattern

(2) Line Chart pattern

(3) Japanese candlestick pattern

FOREX TRADING SUMMARY

-  Forex is an over the counter (OTC) market supported by forex dealers serving as market dealers


-  Eurodollars are U.S Funds held in banks outside the regulatory control of the U.S Governments


-  The earliest form of currency was mostly for the facilitation of international commerce


-  In recent years, a large secondary forex market has evolved, resulting in a network of online brokers offering direct form of currency trading services through online trading platforms.


-  In 1971, the U.S President Richard Nixon eliminated the Gold standard for the U.S dollar to combat rising gold prices contributing to high inflation levels. This action led directly to free floating currency exchange rates and gave rise to the modern currency OTC markets


-The Bretton Woods Accord of 1941 was a major international policy with intentions to minimize economic chaos with the conclussion of World War 2. I involves pegging currencies to the U.S dollars which was it self pegged with the price of gold.


-  Forex trading is managed through an established interbank market, and only large financial institutions are able to deal directly in this market

INTRODUCTION TO THE FOREX MARKET...

INTRODUCTION TO THE CURRENCY MARKET..

In order to exchange yen for pounds, the actual transaction to meet this criteria is to buy GBP/JPY currency pair. in the following example GBP is the ISO code for Great Britian Pounds while JPY is the ISO code for Japanese Yen.

BRIEF HISTORY...

Until the late 1970s, currency trading was limited to large companies, conducting business in multiple countries..

Trading for Investment purposes and Speculative purposes was not widely in practise at this time, amd most trading was more focused on Commodities and individual stocks. But all thanks to the brokers who made it easy to make profit from speculations....

WHAT IS SPECULATION?  It simply means profiting from fluctuation in prices for currencies and other investment securities...