What is Forex?

"Forex" stands for foreign exchange; it's also known as FX. In a forex trade, you buy one currency while simultaneously selling another - that is, you're exchanging the sold currency for the one you're buying. The foreign exchange market is an over-the-counter market. Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange for forex. All transactions happen via phone or electronic network. Who trades currencies, and why? Daily turnover in the world's currencies comes from two sources:
· Foreign trade (5%). Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
· Speculation for profit (95%).
Most traders focus on the biggest, most liquid currency pairs. "The Majors" include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In fact, more than 85% of daily forex trading happens in the major currency pairs. The world's most traded market, trading 24 hours a day With average daily turnover of US$3.2 trillion, forex is the most traded market in the world. A true 24-hour market from Sunday 5 PM ET to Friday 5 PM ET, forex trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, London, and New York. Unlike other financial markets, investors can respond immediately to currency fluctuations, whenever they occur - day or night

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies. Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government. At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility. In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent. The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits. The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values. But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001. The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable. But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

Payrolls Support the Dollar

The US nonfarm payroll report showed job contraction by 20,000 jobs(-20k) for the month of April 2008. Unemployment dropped to 5.0 percent.The dollar was strangely supported by these figures because the market expected a much bigger negative number and higher unemployment. The dollar has continued it’s journey back to the north after living in the oversold level for months on end. It is still too early to tell if this is an actual dollar rebound, or rather a retrace to a more normal level of decline. The decision of the fed to make themselves appear neutral has helped the dollar continue to stabilize. If there are any hints towards rate cuts, you can expect an immediate plummet. Despite what seems to be obviously still coming in the financial markets, the rebound in the dollar and the stance of the federal reserve has encouraged risk taking to re-enter the markets. With the exception of the nervousness of the pound pairs, most of the carry currencies have made a roaring comeback and are heading north along with risk taking.The market seems to be becoming complacent again about surprises. Talk has turned back to a shallow recession in the US and even Warren Buffet is calling a bottom to the credit crisis. Normally, I would side with that, but I personally can’t shake the feeling that a final thrust is left that will surprise everyone. Putting that aside, we are just traders and we follow the market and that is what I intend to do.

Magic PPI Numbers

PPI numbers came out for April 2008 for the US. The overall PPI was +0.2 percent which was lower than expectations of +0.4 percent. However, the core number was higher than expectations with +0.4 percent vs +0.2 percent expected.The number was digested by the market as confusing. The report showed no change in the price of food and a decrease in the price of energy. My question is…What planet do these numbers come from? Any business person that I have spoken with has brought up the same concerns. Slowing income and higher energy prices. How is the government showing us that they see energy prices dropping while the price of oil is pushing past $130 and threatening to go higher? They must be getting a much better deal than the rest of us. The US Department of Labor needs a new slogan for the PPI Report. “PPI, it’s magically delicious” (and not grounded in reality by a long shot)

Our Mission is to be your premier

FOREX.com is a division of GAIN Capital Group, LLC, one of the most respected online forex trading firms in the industry. The company's flagship service, GAIN Capital, is used by institutional investors, professional money managers and experienced day traders from over 140 countries. GAIN Capital Group is pleased to offer individual investors access to its award-winning trading platform and professional-level services via FOREX.com.FOREX.com is a registered Futures Commission Merchant (NFA ID #0339826) and a member of the National Futures Association. As an FCM, FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC), must uphold the highest standards and business practices and is subject to strict financial requirements and reporting. Your feedback and suggestions are welcome. Please email us at info@forex.com

Bernanke Inflation could be a problem

Now that all the damage has been done. Bernanke is starting to talk about inflation. The key points are:– More thought needed on the Feds approach to asset bubbles– Dollar has had a modest impact on commodity prices– There is little indication of 70s style wage-price spiral– Inflation expectations are a ‘significant concern’ for the fedComment: It is just a little on the late side to start talking about it now. The Fed knows better than anyone else that once inflation is in, it is very tough to shake it out. While I respect the fact that the Fed was eager to act in the face of crisis, it seems like they would have been more forward thinking about the implications of their actions. The dollar took a major hit as they were transmitting a message of panic and insecurity, and drastic rate cuts with no end in sight. It’s great that he wants to now telegraph the signal for no further rate cuts, but it is a little late isn’t it?After all this time, Bernanke is going to think about defending the dollar? The mistake in not defending the dollar from being sold to no end, by being more firm about rates, is going to be costly over the medium term. We will now be waiting to see if the commodity bubbles deflate and to see if energy is ever going to come back down to earth. While I am not blaming Bernanke for all the problems out there, he certainly had the power to promote more stability. I have been somewhat disappointed in the Fed and its seesaw movement of rates, and drastic measures taken after the fact because of a lack of forward thinking. The subprime thing was obviously going to be a disaster and there should have been more oversight being pushed into those markets far earlier. Since there wasn’t, why would our federal monetary system aim to bail out a bunch of lenders that shouldn’t be trusted to tie their shoes without supervision? To the same token, why would we write legislation and put together public “stimulus packages” to comfort homeowners that bought houses that they couldn’t afford? Why would we spend billions of dollars to keep them in that house that they can’t afford? You really have to wonder if ANYONE in the goverment ever took an economics class!The markets are designed to balance out these inefficiencies. When the time came for the balance to be returned, the fed tipped the scales by giving banks a sweetheart deal of borrowing at ultra low rates and continuing to lend at the same rates. So basically, those of us that made sound financial decisions, should be getting a break right now, but instead, we are footing the bill for the “dumb money”.I honestly hope that the Fed takes a step back and gets LESS involved with holding the hands of banks. It really isn’t fair for the rest of us.

Economy

Upcoming Economic Data Releases (London Session) Prior Forecast 6/6 6:45 FR Trade Balance (Euros) APR -4.7B -4.0B 6/6 6:45 FR Central Govt. Balance (Euros) APR -22.5B -40.0B 6/6 0:00 GE ECB's Stark Speaks at FORUM Conference in Frankfurt 6/6 9:00 SZ SNB's Jordan Holds Speech in Geneva 6/6 10:00 GE Industrial Prod. YoY (nsa wda) APR 4.70% 6.30% 6/6 10:00 GE Industrial Production MoM (sa) APR -0.50% 0.20% » New York Session » London Session

Forex in japan

The term "technical analysis" is a complicated sounding name for a very basic approach to investing. Simply put, technical analysis is the study of prices, with charts being the primary tool.The roots of modern-day technical analysis stem from the Dow Theory, developed around 1900 by Charles Dow. Stemming either directly or indirectly from the Dow Theory, these roots include such principles as the trending nature of prices, prices discounting all known information, confirmation and divergence, volume mirroring changes in price, and support/resistance. And of course, the widely followed Dow Jones Industrial Average is a direct offspring of the Dow Theory.Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of exchange rate movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets.One of the many attractions of technical analysis is that its methodology can be applied almost identically in any market anywhere. The same techniques can be applied to currencies, commodities, bonds, interest rates and equities. They work as well in Japan as in Europe, in developed or developing markets. Data availability and reliability are the only obstacles to a universal application of methods and techniques. Success in the market, however, has another more insidious obstacle to overcome. Crowd behaviour, as shown in panics and periods of euphoria, can distort not only perceptions of a realistic valuation for markets, but also realistic price levels, given all the information being offered by price time series analysis. All forms of analysis rely heavily on historical data, but normal expectations based on past events can be confounded when market hysteria occurs. Even worse than this is personal mental and emotional weakness when it comes to making investment decisions. The study of mass and individual market behaviour and psychology is a branch of technical analysis, though as with so much of the methodology of technical analysis, there are some signs of poaching from the quantitative analysts in this area.Technical analysis is based on three underlying principles:1. Market action discounts everythingThis means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. The pure technical analyst is only concerned with price movements, not with the reasons for any changes.2. Prices move in trendsTechnical analysis is used to identify patterns of market behaviour which have long been recognised as significant. For many given patterns there is a high probability that they will produce the expected results. Also there are recognised patterns which repeat themselves on a consistent basis.3. History repeats itselfChart patterns have been recognised and categorised for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little with time.

forex in China

China's central bank announced on Thursday the relaxation of controls on foreign exchange accounts, simplifying approval procedures for foreign exchange payments in the service trade, and procedures for individuals to buy foreign currencies.According to a document made public on Thursday by the State Administration of Foreign Exchange (SAFE), the three policy readjustments will be effective as of May 1.They include the readjustments on foreign exchange accounts, simplifying approval procedures for foreign exchange payments in the service trade, and procedures for individuals to buy foreign currencies.Under the aforementioned readjustments, it will be easier for corporations and individuals to open foreign exchange accounts.The ceiling of foreign exchange retained by enterprises in a Current Account will be raised based on their foreign exchange income and expenditure.The administration said every domestic resident can buy up to US$20,000 worth of foreign exchange from State-owned banks each year. Applications for additional amounts can be made to the banks and must be accompanied by the relevant certificates that prove their need for more foreign currency.The bank said it will also allow qualified banks to pool capital in renminbi, the Chinese currency, from domestic institutions and individuals for overseas investment in products with fixed returns under an unspecified quota system.It will allow fund management firms and other securities institutions to invest in a combination of stocks and other overseas securities using foreign currencies gathered from domestic institutions and private sources.The bank said it would allow qualified insurance institutions to buy foreign currencies for investment in overseas products with fixed returns and money market instruments.The amount of foreign currency purchased would be a "certain portion" of the total assets of the insurance institution.The bank said other new policies would be implemented in cooperation with other departments, while closely monitoring international payments, and readjusting policies when necessary to prevent risks and safeguard the country's economic and financial security.The central bank said the new policies are designed to improve the country's management of foreign exchange, boost trade facilitation and further cultivate the forex market, and promote a more even balance of international payments.