Forex Marketplace

The Marketplace

The Foreign Exchange Marketplace is a worldwide market of investments. With the political climate changing daily, and with economic uncertainty among the largest world economies, the foreign exchange market is becoming more active than ever. The daily volume of trade in this market accounts for billions of U.S. dollars traded worldwide.

The political situation and the economic factors of a particular country are reflected in the strength of its currency. Foreign investment will flow to countries that have a projected stability both political and economic, but investment will run if the changes are rapid or uncertain. This creates a market of huge buying and selling of these currencies, a market where smart investors can make money.

Foreign Exchange is an around the clock Marketplace, dictated mainly by Asia, Europe, and the United States, with the market during the New York opening being the most active, as a result of the London / New York overlap.

The Forex market is unique in its characteristics, which differ vastly from the Futures and Commodities markets, or, the Stocks and Bonds markets, making it the largest and longest – traded market in the world. Though less regulated under the Commodities Futures Trading Commission (CFTC) or the Securities & Exchange Commission (SEC), due to the international nature of this market, participation ranges from Central Banks to tourists.

Market Size

In terms of sheer volume, some $2.5 Trillion dollars in foreign currency is bought / sold daily round the globe (Bank for international Settlements Survey). This amounts to over two months of trading on the New York Stock Exchange, By comparison, currency futures and options pale in significance e.g. about $14 billion a day is traded in currency futures at the Chicago Mercantile Exchange, while the Philadelphia Stock Exchange does a sizeable volume of business in currency options. Without question, the international spot currency market is the largest by far of any exchange market in the world.

Trading Times

Most buying/selling of foreign currency is performed electronically, via bank-to-bank phone links; there is no dominant exchange that handles spot transactions in currency. Hence, the trading activity in Forex markets migrates between zones over a 24-hour basis. Starting from Tokyo in Asia, the market activity migrates through to the last banking center in London before traveling on to New York, Chicago, Philadelphia and so forth, finally returning to Asia via Australia. When it is 3 P.M. Tuesday in Tokyo, it is 2 P.M. in Hong Kong; when it is 3 P.M. in Hong Kong, it is I P.M. in Singapore. London time is 10 A.M., New York time is 5 A.M., and San Francisco time is 2 A.M. Finally, when it is 3 P.M. in San Francisco on Tuesday, in Sydney it is 9 A.M. on Wednesday, and Tokyo will once again open at noon in Sydney. Therefore, the center of speculative activity moves the FOREX with the sun around the globe. From time to time, the FOREX market officially opens starting with Tokyo at 9A.M. through the close of the New York market at noon, this is designated as the official Day Trade period when the majority

trading centers of the world are active. The interim period between the close of New York and the start of Tokyo is termed Night Trade, where the only major active center is Australia.

The Traded Currencies

Alongside the Dollar, four major currencies dominate trading on the FOREX market by nature of their popularity and activity. According to a survey of 300 major traders done by Greenwich Associates, trading in the Euro, Japanese Yen, British Pound and Swiss Franc account for over 70% of North America’s marketplace. Specifically, 28% is Euro, 23% is Yen, 13% is Sterling and 9% is Swiss Franc. The other tradable hard currencies include the Canadian Dollar, Australian and New Zealand Dollar, and the French Franc, which account for 3‑7% each. These are sometimes referred to as minor currencies. Together the four majors and all minors constitute all hard currencies that are currently traded on the FOREX market. Soft currencies include all other countries which are not tradable or recognized as acceptable outside their country of origin such as the Russian Ruble, Polish Zloty, etc.

U.S. DOLLARS

How U.S. Dollars relate to the U.S. economy

What is U.S. Dollar Index?

Definition – The U.S. Dollar Index is a statistical index that reflects the strength and weakness of the trend of the U.S. Dollar. The larger the numeric figure of the index, the stronger the U.S. Dollar, or the smaller the numeric figure of the index, the weaker the U.S. Dollar.

The US economy is the largest, and most influential in the world with GDP of $8.1 trillion and a population of over 250 million. After going through a very tough recession in 1990 the U.S., economy has come back with a vengeance with seven consecutive years of positive economic growth. The trend is set to continue, in the first quarter of 1998 the economy grew by 4.2%, and chances for a recession in the foreseeable future seem remote. Inflation has yet to reappear and has even declined to an annual rate of 1.4% even though economic growth has accelerated. Unemployment is at a 30-year low of 4.2%, with economic growth creating 15 million jobs since 1992. A robust US economy is crucial to the world’s economic performance, as it absorbs an increasing flood of imports from many different countries, keeping Japan, Europe, and the rest of Asia from recession.

STERLING

The United Kingdom (U`K) is the fifth largest economy in the world, and one of the key members of the European Union. The UK, which used to be a semi‑socialist economy, began to privatize and reform its economy in the 1980′s, and has been reaping the fruits of its labor ever since. The UK is far behind the US, but well ahead of most of Europe in almost every aspect. Its economy is split into two very different parts. The service and financial sector, which accounts for 70% of the economy, is booming and about to overheat. The manufacturing sector, which accounts for 30% of the economy, has been declining for decades. Recently the strong Pound has put so much negative pressure on this sector that it is on the verge of recession. The UK has become one of the most favorable countries to invest in out of the European Union, and the denaturalization of building societies has pumped almost $60 billion into the local economy. This has caused GDP to rise by 3.0% in 1997 and 2.8% in Ql 1998. The economic boom has caused unemployment to fall to 4.8%, and this has meant labor shortages in many key areas.

EURO

The unification of Europe, which was firmed up by the ratification of the Maastricht Treaty, saw the advent of economic policies and guidelines, which would streamline the relationship of countries comprising the European Union or Euroland.  A major outcome of this was the acceptance of a new currency for the EU, which is now called the Euro.  Since trading began for the new currency, the volume of trading has been light and market volatility has been low.

Traders are cautiously watching developments surrounding this new currency in view of the lack of historical data and the ambiguity of available information. There are, however, certain factors that merit careful attention.  Economic data for countries comprising the European Union will have to be watched particularly the larger core countries like Germany, France and Italy.  Individual indicators such as GDP, inflation, unemployment, etc. will be important.  In addition, the new euro-wide data will be valuable especially targets set by the European Central Bank (ECB) on price stability, money supply, and GDP growth.

One of the most important fundamental factors for the currency will be the monetary policy for Euroland.  The membership of the ECB and the policies they represent will likewise be significant.  Monetary policy will be determined by the governing council, which consists of the executive board and the central bank governors of the 11 participating countries.  From time to time, each of these officials will make economic statements which will have to be interpreted as to their value on policy decisions.  Another factor that will affect the credibility of the Euro is the political climate prevailing in Euroland.  While the ECB is independent by charter, any indication that it is bowing to political pressures will adversely affect the currency.  Moreover, fiscal disciplines of the Euro countries will have to be monitored. As the Euro gains a credible track record, more countries will want to shift their assets into Euros, and it will become a more attractive currency for investors and corporations.

SWISS FRANC

Switzerland, a small landlocked country in the heart of Europe, is known more for its neutrality and safety then anything else. For most of the last century, it has been used as a safe haven for investors to park their money in times of international conflict. The Swiss are not part of any military or economic alliance, notably the EU, and have no plans to join. Although not a part of the EU Switzerland is highly dependent on trade with Europe for its economic growth. The Swiss economy has been stagnant for the better part of the decade. After negative growth in 1996 it managed to grow by 0.7% in 1997, and along with a broad European recovery, the Swiss are expecting 1998 growth of 1.8%. Unemployment has been steadily decreasing to 3.6% in May from 4.6% in March and 5.1 % in May 1997. The domestic economy is expected to recover this year contributing 40% to GDP growth, but the mainstay of growth will still be  exports. Exports make up a third of GDP, and in 1997 made up 90% of the contribution to growth. The Swiss are counting on a robust European market, and their fortunes are very closely linked to that of the continent. Not joining EU could prove to be a major mistake for the Swiss in the future. Swiss companies are already increasingly investing in the Euro zone, and Switzerland is getting less foreign investment.

JAPANESE YEN

The Japanese economy is the second largest in the world with GDP of $4.7 Trillion, and is also the dominant player in all‑Asian economic affairs. Japan is the world’s largest creditor nation, with over $900 Billion in loans. It also has over $200 billion in foreign reserves, $9 trillion in domestic savings, and $916 billion in foreign assets. The economy, which peaked in 1989, has been stagnating for the entire 1990′s, and seems to be getting worse. In Q1 1998 the economy contracted by an astounding 5.3% with inflation below 0.5%. The domestic contribution to GDP was actually negative, but very strong exports made up for some of the shortfall although they began to taper off as well. Japan’s unemployment rate has climbed to a record 4.1 % (very high by Japanese standards) and all economic indicators from industrial production to retail sales point downward. One of the main reasons that economic conditions have worsened is that consumers, shaken by corporate failures and higher taxes, have stopped spending. There are many systemic fundamental problems and to get out of its deep slump Japan has introduced a series of massive stimulus packages (the sixth package todate) composed mainly of public works and temporary tax breaks.

AUSTRALIAN DOLLAR

Australia is located in the Southern Hemisphere, economically and geographically isolated. Separated from Europe and America, it has become independent from those two markets while relying more on Asia.

Australia is a primary exporting country. Industrial products represent only a small percentage of the Gross National Product (GNP). It imports most of its consumer and commercial goods from Asia in order to meet the domestic demand.

For years, the Australian government has been using high interest rates to fight inflation. They are very cautious to cut interest rates. Consequently, the Australian dollar has attracted many investors, mostly from Asian markets. It is a safe way to increase profit by trading in a predictable, trend moving market.

CANADIAN DOLLAR

Canada is the neighbor and largest trading partner of the United States. It is highly affected by the U.S. economy.

Live Chat