The foreign exchange market of Forex
(Forex) the Forex Market (FOReign EXchange market) - the interbank market created in 1971 when international trade passed from fixed rates of currencies to floating. It is set of transactions of agents of the foreign exchange market on an exchange of the stipulated sums of monetary unit of one country for currency another at the coordinated course for a certain date. At an exchange the course of one currency concerning another is defined very simply: supply and demand - an exchange to which both parties agree.
Volumes of operations of the world foreign exchange market of Forex (Forex) constantly grow. It is connected with development of international trade and cancellation of currency restrictions in many countries. The daily volume of conversion operations in the world made 1 trillion 982 billion US dollars in the middle of 1998 (about 32% of a day turn, New fell to the share of the London market - York exchanged about 18%, the German market - 10%). Not only the volume of operations in itself, but also those rates which noted development of the market is impressive: in 1977 a day turn made five billion American dollars, in ten years it grew to 600 billion and reached one trillion dollars 1992. About 80% of all transactions make the speculative operations aiming at generation of profit from game on a difference of exchange rates. This game attracts a great number of participants, both the financial organizations, and individual investors.
Owing to the highest rates of development of information technologies in the last two decades the foreign exchange market of Forex (Forex) changed unrecognizably. The profession of forex of the trader surrounded became once with an aura of exclusive mystery almost mass. The operations with currency which were recently the privilege only of the largest banks - monopolists, are public, thanks to electronic trading systems now. And largest banks also often prefer trade in electronic systems to individual bilateral operations. 11% of a turnover of the FOREX market fall to the share of electronic brokers today. The day volume of operations of the largest international banks (Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citi Bank, Chase Manhattan Bank, Standard Chartered Bank) reaches billions of dollars.
Appointment of the foreign exchange market of Forex (Forex) as places of use of personal financial, intellectual and mental force at all not in trying to catch there a bird of happiness. Sometimes someone manages it, but not for a long time. The main advantage of the foreign exchange market of Forex (Forex) is that there it is possible to achieve success by power of the intelligence.
Other important property of the foreign exchange market of Forex (Forex) as it is not strange will seem - in its stability. Everyone knows that the main property of the financial market - its unexpected falling. But unlike stock market, the foreign exchange market of Forex (Forex) does not fall. If actions depreciated - that is crash. If the dollar collapsed, then it only means that other currency became stronger; for example yen which for several months at the end of 1998 became one quarter more expensive in relation to dollar. And there were separate days when decline of dollar was measured by tens of percent. But the foreign exchange market of Forex (Forex) did not fall trade anywhere proceeded as always. Stability of the market and the related business consists in it: the currency - absolutely liquid goods will also always bargain.
The foreign exchange market of Forex (Forex) is round-the-clock, it is not connected with certain business hours of the exchanges, trade happens between the banks which are in different parts of the globe. Such is that considerable changes happen very often, allowing to make mobility of exchange rates on several operations every day. If to have the fulfilled reliable technology of trade, it is possible to make of it business to which by efficiency no another will be compared. Not without reason the largest banks buy expensive electronic equipment and contain states in hundreds of traders of the foreign exchange market trading on various sectors.
Initial costs of entry into this business are very small today. Really, to pass initial training, to buy the computer, to buy information service and to create the deposit costs several thousands of dollars; on such money you will not create any real business. At surplus of offers of services in this area to find the reliable broker - also quite real business. The rest depends on the trader. As in any other sphere of activity today, here everything depends on you personally.
The main thing that the foreign exchange market of Forex (Forex) for successful work - not quantity of money with which you will enter it will demand. The main thing is an ability to concentrate constantly at work on studying of the foreign exchange market of Forex (Forex), understanding of its mechanisms and interests of participants; this continuous improvement of the trade approaches and discipline at their realization. Nobody achieved success in this market, stopping at nothing with the capital atilt. The foreign exchange market of Forex (Forex) is stronger than any, it is stronger even than the central banks with their huge stocks of currency reserves. The national hero of the foreign exchange market George Soros did not win against Bank of England at all as many think; he correctly foresaw that in the developed contradictions of the European financial system there are enough problems and interests which will not allow to hold pound. And it turned out. Bank of England, having spent about 20 billion dollars for maintenance of a rate of pound, threw it, having provided to the market. The market dealt with this problem, and Soros received the one billion.
the International currency system passed a big way for the millennia of history of mankind, but undoubtedly today in it there are changes the most interesting and earlier inconceivable. Two main changes define the new image of world currency system:
a) money is completely separated from any material carrier now;
) strong information and telecommunication technologies allowed to unite monetary systems of the different countries in the uniform global financial system which is not recognizing borders.
Characteristic attractive features of the market:
liquidity: the foreign exchange market of Forex (Forex) operates with huge money supply and gives free rain when opening or closing a position on the market quotation existing at the moment. High liquidity is powerful attractive force for any investor since it provides him freedom to open and close a position of any volume.
efficiency: owing to 24 - an hour operating mode participants of the foreign exchange market of Forex (Forex) do not need to wait to react to this or that event as it happens in many markets.
availability: an opportunity to trade 24 hours a day, the participant of the foreign exchange market of Forex (Forex) does not feel need to wait to react to this or that event;
flexible regulation of system of the organization of trade: The transaction in the foreign exchange market of Forex (Forex) can be open for in advance established period at the request of the investor what allows to plan on time the future activity in advance;
cost: the foreign exchange market of Forex (Forex) traditionally has no commission expenses, except a natural market difference of bid/ask of the price of supply and demand;
unambiguity of quotations: from - for high liquidities of the foreign exchange market of Forex (Forex) the majority of sales can be executed at uniform market price that allows to avoid a problem of the instability existing in futures and other currency investments where can be in at one time and at determined price only limited quantities of currency are sold;
orientation of the market: the movement of currencies has quite certain focus which can be tracked for rather long interval of time. Each concrete currency shows only to it characteristic changes in time that gives to investment managers of a possibility of a manipulation in the foreign exchange market of Forex (Forex)
the margin size: the size of credit “shoulder“ (margin) in the foreign exchange market of Forex (Forex) is defined only by the agreement between the client and that bank or broker firm which provides it an entry into the foreign exchange market of Forex (Forex), and usually makes 1:100. I.e. having posted bail in 1000 dollars, the client can make transactions for the sum equivalent of 100 thousand dollars. Use of such big credit “shoulders“, together with strong variability of quotations of currencies, also does this market highly profitable, but also high-risky.
Marginal system of trade
Typical volumes of transactions in interbank trade make 10 million dollars. However, it is absolutely clear that such sizes of transactions are not available to the private investor, well or, at least, to the vast majority.
Participation of small and average investors on span the international foreign exchange market of Forex (Forex) became possible thanks to intermediary activity of broker companies. In many countries average and small investors have an entry into the world foreign exchange market of Forex (Forex), using in the operations the sums from several hundred US dollars. The broker company provides to the clients a credit line, the so-called “leverage“ several times exceeding the deposit sum. The brokers providing services of marginal trade demand introduction of the mortgage deposit and give the chance to the client to make operations of purchase and sale of currencies for the sums, in 50, in 100, and sometimes even by 200 times big, than the introduced deposit. The risk of losses is assigned to the client, the deposit serves as the providing insuring the broker. The system of work through broker company with granting leverage received names “marginal trade“ (“margin trading“).
If it is simple, then the essence of “marginal trade“ is as follows - the investor, placing the mortgage capital, has an opportunity of management of the target credits allocated under this pledge and to guarantee the deposit possible losses on open currency positions.
As it was already told, unlike currency transactions with real delivery or real currency exchange, participants of the foreign exchange market of Forex (Forex), especially if they have the small capital, use trade with the insurance deposit - marginal, or rychagovy trade (margin trade or leverage trade). At marginal trade each operation surely has two stages: purchase (sale) of currency at one price, and then obligatory sale its (purchase) on another (or on the same) the price. The first action is called opening of a position, and the second - closing of a position. When opening a position of real delivery of currency does not occur, and the participant who opened a position introduces the insurance deposit which serves as a guarantee of compensation of possible losses. After closing of a position the insurance deposit comes back, and there is a calculation of profit or losses.
Operation at marginal trade surely consists of two parts: opening of a position and closing of a position. For example, predicting rise in price (strengthening) of euro in relation to dollar, we want to buy for dollars cheaper euro now and to sell it back when he becomes dearer. In this case operation will look as follows: opening of a position - purchase of euro, closing of a position - its sale. All the time, until the position is closed, we have “an open position on euro“. In the same way, if we consider that euro will become cheaper (to weaken) in relation to dollar, then our operation will consist of such steps: opening of a position - sale of more expensive euro, closing of a position - purchase of the fallen in price euro. Thus, we have an opportunity to get profit both at decrease, and at increase of exchange rate.
You can carry out an entry into the international foreign exchange market of Forex (Forex) only through the intermediary. The dealing center can be such intermediary. This organization provide you a communication channel (computer or telephone) with the broker who gives you quotations of currency and through whom you can make operations. Also you can directly work from the home computer on the Internet. Such option of work gains ground recently. Those prices which you see on the computer screen, - the prices of real transactions in the foreign exchange market of Forex (Forex).
The client signs the contract with the company under which the last promises at the request of the client at own expense and on its own behalf to carry out operations. At the same time it has a risk of losses from commission of similar transactions therefore the client as pledge puts on the deposit in bank a certain sum. The size of this deposit is defined proceeding from the sum of the bargains concluded by bank and the leverage provided to the client. In case the dealing center receives a loss from the performed operation, then the investor has obligations to it at a rate of this loss which become covered from the mortgage deposit; if the dealing center got profit on the performed operation, then it has obligations to the investor at a rate of this profit. The got profit is charged on the mortgage deposit of the client. An indispensable condition is the order of the client of the company for closing of an open position, the company plays for the money; if it does not occur, then the bank can close a long position short, at the same time the client can suffer losses. In the world foreign exchange market of Forex (Forex) situations when exchange rates on the relation change to each other more than for two percent are extremely rare, and it is almost impossible to lose the pledge to the client at reasonable game. If the dealer of bank sees that possible losses at the adverse movement of a course can exceed the sum of the mortgage deposit, it can independently without instructions of the client close a position at a loss, not exceeding the mortgage sum.
Marginal trade is attractive by the availability. Investment of capital in securities of the leading foreign countries for the purpose of obtaining the fixed income will hardly be interesting to our compatriots. Of course, bonds of Federal Treasury of the USA - the most reliable and stable, but at their high cost they provide low profitability (about 3% per annum) and are object of long-term investments. On stocks profitability above, however, the size of dividends directly depends on successful work of the concrete enterprise and preferences of its shareholders. Purchase of shares for the purpose of game on increase of their course admits more interesting, but for this purpose larger investments are already required. Marginal trade is deprived of the given restrictions - you can sell and buy depending on your expectations, and for carrying out operation there will be enough means of only 0,5 - 3 percent from an amount of transaction.