 What is Forex. Margin trade. The technical and fundamental analysis. History forex. Margin Call.
FOREX (FOReign EXchange market) - the international currency market on which are freely on sale and bought money. In its modern condition has developed in 1970th years when free exchange rates have been entered, thus the price of one currency in relation to another is defined only by participants of the market, proceeding from a supply and demand. World interbank currency market FOREX, an opportunity of an output on which has appeared at investors, has got a present kind in the end of 70th years, after the termination in 1971 Bretton Wood of system of regulation of the international rates of exchange and transition to " floating rates ". It is the unique world market operating of 24 hours in day. The opportunity of work in the financial markets of Asia, the Europe and America became accessible owing to their association in one global communication network. 24 hour access on the currency market allows to open and close positions during optimum time and under the best price.
By way of freedom from the external control and presence of free competition FOREX the most perfect market. It also is the largest and liquid financial market. By different estimations, volumes on it make from 1 up to 1,5 bln. $ in day (the uniform trading platform does not exist and consequently to name absolutely exact figure it is impossible). Trading operations are conducted worldwide through telecommunication systems round the clock from 00:00 (GMT) Monday till 22:00 (GMT) Fridays. Practically in each of time zones (i.e. in Frankfurt, in London, New York, Tokyo, Hong Kong, etc.) is the dealers, wishing to quote currency.
FOREX - the most objective market since if its separate participants wish though somehow to change the prices in the purposes they should operate tens billion dollars, therefore influence on the market of individual participants practically is completely excluded. Absolute liquidity allows to open and-or close positions within seconds. Time of deduction of a position any way and beyond all bounds: from several seconds about many years also depends only on your trading strategy. And though day time fluctuations of currencies are insignificant enough, but at use of demand lines of credit which are accessible even to currency speculators with small capitals in $1000-5000, the profit can be impressing.
The increasing number of physical and legal persons all over the world aspires to receive incomes much greater, than provide available financial tools. Such chance is given with trade in currency in the international currency market owing to every minute fluctuations of exchange rates.
Granting by banks and broker offices of an opportunity to conduct currency exchange operations in the volumes repeatedly exceeding actually enclosed means, allows to become the full participant of the market to the investor having the sum of all from $1.
On this round the clock working and being the most liquid market in the world daily it is on sale and bought over billion US dollars and contracts of purchase-sale of currencies with for from one day till 12 months consist. The basic currencies in this market are the US dollar, Euro, the Japanese yen, the Swiss franc and English pound sterling, and participants of the market - banks and broker offices, corporations and export-import firms, various funds, individual investors.
Operations in the currency market are today one of the basic sources of the income of banks all over the world. For an example, 80% from all profit of the largest Swiss bank " Union Bank of Switzerland " (UBS) in 1994 have made conversion operations with currencies and only 20% from all profit have made incomes of credits, trade in securities, etc. (see the financial report " UBS Annual Report of 1994 "). Incomes of currency transactions in market FOREX cost on the first place as and at such banks as Citibank, Chase Manhatten Bank, Barclays Bank, Sosiete Generale Bank and Trust, ABN-AMRO Bank.
Georges Soros's classical operation (George Soros) in 1992 on sale of English pound sterling (GBP) against DM (DM) and the American dollar (USD) has brought to it within two weeks billion dollars of net profit, having made Soros well-known and having begun its charities.
Now the bank cannot be competitive and exist without an opportunity to carry out trade in currency. Currency transactions allow bank to be independent of changes of a dollar exchange rate if means of bank are in dollars or any other currency. Laws of development of market economy will force banks to include currency dealing in an arsenal of means, obligatory for a survival in conditions all of a becoming aggravated competitive struggle in bank spheres.
Margin trade
Margin trade is a trade with use of the extra capital. Margin trade in the currency market is conducted lots. 1 lot it is roughly equal $100.000, but for its opening it is necessary to have from 0.5 % up to 4 % of the sum.
For attraction on market FOREX of the investors having the sums less 1 million of dollars (standard lot for trade in the given market), the mechanism margin trade is used.
The idea margin trade consists that on FOREX it is possible to satisfy speculative interests, not carrying out real delivery of money that reduces an overhead charge on moving the last, and enables, having the small account in dollars to open positions, both on purchase, and on sale of a plenty of other currency. It is possible to carry out very fast operations, receiving significant profit, both at increase, and at downturn of exchange rates. Many speculative operations in the international financial markets are spent on principles margin trade (margin trading)./p>
"Margin trade" for the first time has been entered for trade in currency per 1986. In this case to carry out the transaction, the small percent from the full sum of the contract, the so-called guarantee deposit or "margin" is necessary only.
The main difference of work in market FOREX from work on other sectors of the financial market which explains heightened interest to it, consists in an opportunity of the purchase and sale of foreign currencies in absence of the full sum necessary for carrying out of operations. For the conclusion of the transaction it is necessary for client to bring only initial margin then it has an opportunity to conclude transactions which volume can exceed initial volume of means in 50-100 times. This so-called "shoulder" (leverage), is given by bank or other credit organization where the client brings guarantee margin: For example, placing in bank or broker office the guarantee deposit in 100,000 dollars, it is possible to operate with the sum of 5-10 million dollars. Therefore even the small prize on roar FOREX (concerning the granted sum) is significant size. One more advantage of work in market FOREX consists in an opportunity to profit at any direction of change of the prices. In fact for sale of euro or the Japanese yen not necessarily to have on the account of euro or yen. For greater presentation of carrying out of trading operations we shall give an example:
Let's admit, on yours to account 2 000 of US dollar. It means, that at a credit shoulder 100:1 you can open a position in 200 000 US dollars. In 11 o'clock in the morning the dollar exchange rate in relation to the Swiss franc has made 1.4045 - 1.4050. You consider, that the dollar at present is underestimated and should grow, and allow the order to buy 100 thousand dollars at the given rate. At 15 o'clock a dollar exchange rate - 1.4250 - 1.4255. You make a decision - to close a position and to sell the 100 thousand dollars at a new rate. Your income - 2 000 Swiss francs or 1 400 dollars the USA. These are 140 % from the size of the means enclosed by you. After closing a position of money already are on your account. You can see result of this transaction in " History of the account ", your trading terminal. The modern software allows to carry out all operations on the Internet-network within several seconds, by click by "mousy" on the currency pair chosen by you.
Everyday fluctuations of currencies make nearby 100 - 150 items, enabling traders to earn on these movements.
In market FOREX it is unessential to buy all over again currency that then it to sell. It is possible to open positions, both on purchase, and on sale of any currency not having it. Usually forex the centers establish the minimal deposit necessary for work in market FOREX at a rate of 2000 dollars and give a credit shoulder 1:100. Opening a position on 100.000, the trader puts $1000 and receives the credit $99.000. The basic currencies traded on FOREX, are: the euro (EUR), the Japanese yen (JPY), pound sterling (GBP) and the Swiss franc (CHF), all of them bargain in relation to the American dollar (USD).
For correct definition of a situation in the market the trader should be able to use the fundamental and-or technical analysis, and also to be able to operate in constantly varying informative stream of political and economic character.
Formation of a rate of exchange.
On formation of a rate of exchange, three groups of factors affect:
- Fundamental factors.
- Technical factors.
- Short-term unexpected factors.
The overwhelming majority of fine and average players in the financial markets leans on the technical analysis. The technical analysis assumes, that the information on the market and its further fluctuations already contains in a price number. Any factor influencing the price - economic, political or psychological - is already considered by the market and included in the price. Initial data for the technical analysis are the prices - the maximum and lowest price, the price of opening and closing for the certain period of time and volume of operations.
The technical analysis leans on three assumptions:
- Movement of the market considers all.
- The prices move is directed.
- The history repeats.
That is the technical analysis is statistic the mathematical analysis of the previous quotations with forecasting the subsequent prices.
The technical analysis is an area of the market analysis assuming, that the market possesses memory, and that on the future movement of a rate the big influence is rendered with laws of its last behaviour; that the theory of the technical analysis possesses the big degree of predictability. Last years in connection with rapid development of electronic means of the analysis offered by firms Reuters, Bridge (Dow Jones), CQG and others, all greater number of traders is based with the decisions on use of the technical analysis that raises influence of its laws on real movement of a rate.
The technical analysis - a method of forecasting of the prices by means of consideration of train diagrams of the market for the previous periods of time. Works in the field of the technical analysis for last 30 years show, that the technical analysis is a science with own philosophical system and a set of axioms.
The fundamental analysis is an analysis of an economic condition of a country of origin of currency, political events and hearings. The national economy depends on a rate of inflation and unemployment, % of-th rate of the Central Bank, a tax policy. Political stability also responds on the exchange rate. The special role is played by a policy of the Central Bank: the massed interventions or refusal of them very essentially influence an exchange rate of currency.
But at the same time the fundamental analysis cannot be considered blindly as simply analysis of a national economy. The much greater role in market FOREX is played with expectations of participants of the market, and this expectation they give what estimation. Strong influence on expectations of participants of the market is rendered with various forecasts and the bulletins which are let out by participants of the market. Often there is a situation when the effect of "a self-coming true prophecy" when players in the market lift operates or lower exchange rates up to a level of forecasts. But the deep and high-grade fundamental analysis is accessible only to the large banks having staff of professional analysts and constant access to a wide field of the information.
Despite of distinction of approaches, and to the analysis of the market the fundamental analysis and the technical analysis are mutually supplemented. The traders operating proceeding from the fundamental analysis, nevertheless, are compelled to reckon with some characteristics of the market (the basic levels of support - resistance), and supporters of the technical approach to the market listen to the basic news (% of the rate, the important political events).
Fundamental factors are key macroeconomic parameters of a condition of the national economy, influencing on participants of the currency market and a level of a rate of exchange.
Usually in the world currency markets where 80% of operations are spent with US dollar, data on economy of the USA that leads to increase or decrease in a dollar exchange rate in relation to other currencies have the greatest influence. Allocate following basic fundamental factors:
- Rate of exchange at par purchasing capacity.
- Growth of a national product.
- Level of real interest rates.
- Rate of unemployment.
- Inflation.
- Index of industrial production.
Thus, for the trader a universal rule of opening of a position orientation on expectations and moods of the majority of the market should be. It is reached by the analysis of a situation under publications, at studying reviews of a condition of the market in information systems Reuters, Bridge (Dow Jones), CQG. The received information gradually develops in model of various variants of behaviour of a rate after the publication of economic indicators. The problem of the trader will consist in joining the movement of a rate dictated by the majority of the market - "do not miss the boat".
Besides fundamental and technical factors which influence can be predicted, short-term unexpected factors can bring essential corrective amendments in dynamics of movement of a rate of exchange. To them concern listed below factors:
- Force-majeur events - acts of nature (earthquakes, a tsunami, a typhoon, flooding, etc.)
- Political events - war, coming to power of presidents, political scandals, acts of terrorism, etc.
- Statements of political leaders.
- Currency interventions of the central banks.
The basic advantages of market FOREX:
- The plenty of participants and the greatest volumes of operations.
- Absence of external adjusting body - the prices are defined only by a supply and demand.
- Absolute liquidity and speed of the market - realization of transactions for few seconds on online to quotations.
- 24-hour operating mode within all working week.
- Opportunity of opening of a position for any period of time depending only from the trader.
- Absence of commission charges, except for a difference between by purchase and sale.
- Opportunity of reception of profit of greater, than the sum enclosed in operation.
- The qualified work in market FOREX can become your basic field of activity.
- You can be engaged in transactions during any time convenient for you.
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