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Dollar-euro currency exchange

This article provides an overview of the factors affecting the leading currency pair: euro-dollar exchange, commonly expressed as EUR/USD.
The euro to dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.
Factors affecting exchange rates
Four factors are identified as fundamental determinants of the real euro to dollar exchange rate:
The international real interest rate differential
Relative prices in the traded and non-traded goods sectors
The real oil price
The relative fiscal position
The nominal bilateral dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of euro to US dollar bilateral trade links, trade with the UK is, to some extent, more important for the Euro zone than is trade with the US. The dollar and the euro have a strong predisposition to run together in the very short run, but sometimes there can be significant discrepancies. The very strong appreciation of the dollar against the euro in 2003 is one example of these discrepancies.
In the long run, the correlation between the bilateral dollar to euro exchange rate, and different measures of the effective exchange rate of Euroland, have been rather high, especially if one looks at the effective real exchange rate. As inflation is at very similar levels in the US and the Euro area, there is no need to adjust the dollar to euro rate for inflation differentials, but because the Euro zone also trades intensively with countries that have relatively high inflation rates (e.g. some countries in Central and Eastern Europe, Turkey, etc.), it is more important to downplay nominal exchange rate measures by looking at relative price and cost developments

Global Forex Market

Global Forex market is unique to any other market in the world, forex market is available 24-hours a day. Somewhere around the world, a financial center is open for business and banks exchange currency, every hour of the day and night with generally only minor gaps on the weekend. Essentially global forex market follow the sun around the world, giving the traders the flexibility of determining their trading day. The spot forex market trades are settled within two banking days. There is no central forex exchange like futures. Most of the forex trades are done electronically. The big boy's in this global forex market are the Banks or Hedge Funds. However, with new forex rules and internet forex trading platforms, almost anyone can start forex trading today.

Earning an Income Online

 
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Hedge funds as speculators

About 70% to 90% of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

US GDP Contracts by most since 1982

 

The greenback edged up higher against the majors amid heightened risk aversion, pushing the euro beneath the 1.28-level. Data from the US pointed toward further deterioration in fundamentals, suggesting the recession continues to worsen.

US economic reports released earlier revealed a sharp contraction in GDP growth, down by an annualized 3.8% in Q4 versus a 0.5% decline previously. Although the drop in GDP was less than the anticipated drop of 5.4%, it was still the steepest contraction in the US economy since 1982. The Q4 sales component of GDP declined by 5.1% versus a 1.3% decline previously, while PCE price index posted a 5.5% drop versus a 5% decline. The Q4 employment costs eased to 0.5% from 0.7%. The January Chicago PMI declined to 33.3 from 35.1 in December, while the University of Michigan consumer sentiment survey improved to 61.2 in January, up from 60.1.

Morning Slices: UK Data Once Again Exceeds Expectations

 
Australia cuts by 100bps as expected to 3.25%. Australia Treasurer announces stimulus package. Bank of Japan to buy shares held by Japanese banks. UK construction PMI better than expected. Eurozone PPI slightly softer.
MORNING SLICES
Fundys – A relatively quiet overnight session of trade with all major currencies trading at or near daily opening levels. The initial event risk came in the form of the as expected RBA decision to cut interest rates by 100bps to 3.25%. This helped to generate some fresh bids by the lows with gains seen accelerating on the news of a large stimulus package from Australia Treasurer Swan. USD/JPY was well supported overnight after the news hit the wires the BoJ would be buying shares held by Japanese banks. In the European markets, UK data once again exceeded expectations with the January construction PMI coming in at 34.5 versus a 29.0 forecast. Eurozone PPI was slightly lower than expected at -1.3% after analysts had been looking for a -1.2% print. Elsewhere, the IMF once again was on the wires saying that the Yuan was undervalued. The FTSE and DAX are lower today down some 0.6% and 0.9% respectively, while commodities have been mixed with oil up some 1.0% while gold is marginally lower. Looking ahead, a quiet calendar for the North American session with US pending home sales at 15:00GMT followed by consumer confidence at 22:00GMT. Many are now expecting price action to remained confined to familiar ranges into the latter part of the week when event risk picks back up with the BoE and ECB rate decisions.

Techs - EUR/USD trading with heavy tone following recent break back below 1.2765 and looks set for an eventual retest on the 1.2335 critical multi-year lows. Next supports come in by 1.2550-1.2670 (4Dec low/lower bollinger) while key levels to watch above come in by 1.2960-1.3000 (Friday high/psychological). USD/JPY remains locked in some bearish sideways consolidation with the latest setbacks seriously damaging prospects for major base and double bottom. The market seems intent on taking out the key matched trend lows by 87.15. Key levels to watch over the coming session come in by 90.10 and 88.40. GBP/USD gains have stalled out and the pair is in the process of putting in a key bearish reversal day after just taking out Friday’s low. A break back below 1.4070 will confirm bearish resumption while only back above 1.4545 brings upside back into play. USD/CHF price action remains constructive with the market confined to a well defined bull channel. While the market trades back to daily opening levels, a fresh higher high on Monday keeps the structure intact. Key levels to watch above and below come in by 1.1715 and 1.1515 respectively.

Flows – Solid bids reported in Cable by 1.4150 with decent stops below 1.4140; UK Clearer and CTAs on the offer ahead of 1.4300. Local French bank demand for USD/CAD. Talk of a large 1.2700/1.3700 EUR/USD Double-No-Touch which matures a week from Friday. Talk of broad based USD offers against the Euro and GBP from large US buy-side shop. London fix related demand for EUR/JPY.

Trade of the Day – EUR/USD: Despite the setbacks seen thus far today, the pair has been well supported in the 1.2700’s over the past several days and could be once again looking to base out by Monday’s low at 1.2705. A bullish hammer-like close on Monday is encouraging and we would expect to see some positive follow through into the US session with gains accelerating on a break back above 1.2915 (today’s high). All relevant moving averages currently reside above the market and this would suggest that the pair is somewhat overextended and likely to revert back to its mean. Nevertheless, the overriding structure remains grossly bearish and we will only look to establish fresh longs on a break back above 1.2915. Strategy: BUY @ 1.2920 FOR A 1.3330 OBJECTIVE, STOP @1.2690.

Euro Falls As German Retail Sales and Producer Prices Decline, Will ECB Cut Rates Again?

 

The Euro fell to support at 1.2800 on an unexpected 0.2% drop in German retail sales against forecasts of a 0.5% improvement. The single currency was receiving support before the release on the back of risk appetite driven by the BoJ’s announcement that it would buy shares in Japanese banks.
Talking Points
• Japanese Yen: BoJ To Buy Financial Shares
• Pound: Finds Support On Increasing Construction Activity
• Euro: Weighed by A Drop In German Retail Sales and Inflation
• US Dollar: Housing Data On Tap

Euro Falls As German Retail Sales and Producer Prices Decline, Will ECB Cut Rates Again?

The Euro fell to support at 1.2800 on an unexpected 0.2% drop in German retail sales against forecasts of a 0.5% improvement. The single currency was receiving support before the release on the back of risk appetite driven by the BoJ’s announcement that it would buy shares in Japanese banks. Before the central bank’s statements the Euro had been under pressure as forex traders were anticipating the producer price report would show further easing of inflation, which would add pressure for another ECB rate cut. Indeed, markets weren’t disappointed as costs dropped 1.3% in December bringing the annualized rate to 1.8% from 3.3% the month prior.

Falling oil prices continued to be the source of disinflation as the reading stripped of energy costs fell a modest 0.6%. The ECB has forecasted that core prices will begin to stabilize in the second half of 2009, which is expected to allow them to take a measured approach in the monetary policy. The central bank has already signaled that they will keep rates on hold at their meeting on Thursday. However, the weaker German consumption numbers demonstrates that the weakening labor market is weighing on consumption, which could lead to a sharp fall in domestic growth. If unemployment continues to mount across the region we may see country leaders demand for more action from the MPC. We may start to see support for the single currency as markets start to price hold, which became more certain when council member Mario Draghi stated that there was “not much room left” to cut rates.

The BoJ announced today that it would buy 1 trillion yen of shares owned by financial institutions. The central bank will continue purchases until 2010 as they reestablish a practice they ended more than four years ago. That news and the RBA lowering their benchmark by 100 bps helped fuel optimism and helped equity markets turn positive. However, British Petroleum, Europe’s second biggest oil company, reported its first quarterly loss in seven years which has offset the optimism generated by the central banks.

After falling to as low as 1.4150 the Pound found support on the back of better than expected construction PMI reading. Indeed, the indicator rose to 34.5 from 29.3 in December. Nevertheless the BoE is expected to lower their benchmark rate by 50 bps on Thursday, which will remain a weighing factor. Yet, the string of improving data from the region may give the MPC reason to pause which will keep markets guessing and may lead to the continuation of recent volatility for the currency.

The dollar may slip today as fears have slightly eased which may lead to equities trading higher on the day. The fundamental calendar may help fuel risk appetite as the U.S. pending home sales report is expected to show a flat reading for December which will be welcome news for the markets, after the gauge posted three consecutive months of plus 4% declines. However, a Vehicle sales report that is expected to show the lowest demand in 27 years may temper any optimism. The data may remind trades of the impact of the slumping industry on the economy and lower expectations for Friday’s NFP print that could fuel risk aversion and add dollar support.

Today's Market Update

 

The London session was lackluster early on but the price action picked up on the back of the BOE rate cut. The Bank of England cut rates by the anticipated -50bps to a new record low of just 1.0%. Cable rocketed higher despite the overall dovish statement that suggested a weak 1H 2009 was likely in the works. GBP/USD was sitting about 200 pips higher near 1.46 just ahead of the NY session. The market is hoping that the statement that rate cuts will eventually filter through into the real economy comes to fruition. With the BOE admitting that the transmission mechanism is not functioning, however, we doubt this rally on hope will last. GBP/USD back below 1.45 would be a problem for the pair near-term.

Economic data continued to disappoint out of the eurozone with German factory orders collapsing -6.9% in December. The market was looking for a more modest decline of -2.5% on the back of the -5.3% slip in November. This took the annual rate to -25.1% and suggests the eurozone's largest economy is likely to remain feeble through 1Q 2009. EUR/USD was pretty much unchanged and continued to trade within the tight 1.28/1.29 band ahead of the ECB rate decision and press conference. The market expects no change in rates and ECB President Trichet made it clear that March will be the next important rate meeting. The press conference that follows at 1330GMT should elicit good price action in EUR, however. Look for a good break to either side of the 1.28/1.29 range to be pretty big.

Swiss Unemployment rate increases in January

FXstreet.com (Barcelona) – Swiss unemployment rate has posted a substantial increase in January according to the Swiss Confederation Statistics Office, which shows that 2008 has been a rather negative year for Swiss employment.

Unemployment has increased to 3.3% in January from 3.0% in December in absolute terms, while in seasonally adjusted terms the jobless rate has edged up to 2.9% in January from 2.8% in December.

In the last 12 months, unemployment has posted a 14.8% increase.



Fri, Feb 6 2009, 07:28 GMT

Dismal Jobs Hurt USD

The greenback was mixed on the Friday session, edging higher against the yen while losing ground versus the euro and sterling. 

The January labor report underscored the dire state of the US economy, with the data deteriorating by more than expected. The unemployment rate edged up to its highest level since 1992 to 7.6% in January, versus 7.2% previously. Consensus estimates were anticipating the unemployment rate to edge higher to 7.5%. Non-farm payrolls posted its largest monthly decline since 1974 with payrolls plunging by 598k, sharply worse than the 525k jobs loss expected and considerably higher from 524k from December.

The US equity market shrugged off the dismal jobs data with focus largely shifted toward the results of the latest stimulus plan and whether President Obama will successfully gain Congressional approval. By New York afternoon trading, the Dow Jones and Nasdaq continues to hold onto its gains, both up by over 2.7%.

USD Edges Higher, Awaits BoE, ECB

The greenback edged higher against the euro and sterling in the Wednesday session, rallying to 1.2814 and 1.4327, respectively. US economic data was mixed today, consisting of January ISM non-manufacturing survey and the ADP private sector payrolls report.

The January ISM non-manufacturing survey unexpectedly improved to 44.2, from 38.9 in December. The ADP private sector payrolls report in January was slightly better than expected, revealing a loss of 522k jobs instead of the 530k loss forecasted, and improving from December’s loss of 693k jobs. Traders will look ahead to Friday’s January labor report. The January unemployment rate is expected to edge further 7.4%, up from 7.4% previously, while non-farm payrolls are estimated to improve to 500k versus 524k a month earlier.

Yen Rises on Risk Appetite Decline

 
The Japanese yen rose by the most in February against the U.S. dollar and posted the considerable gains versus the euro and the pound as the investors and traders became less confident in the U.S. stimulus plans and were reluctant to buying anything else than the yen or the greenback. 

The recent uprise of the yen-based currency pairs was connected to the global growth of the stock markets and the elevated optimism of the market participants that believed that the U.S. «bad bank» plan will be soon adopted. Now it seems that the plan is no longer on the U.S. government’s agenda and the liquidity-providing measures will be less interesting.

According to some of the currency analysts, another reason of the Japanese yen’s growth today can be seen in the exporters buying the currency. Perhaps, they have some long-term expectations for its growth and to preserve at least a part of their competitiveness they decide to buy the yen at its current levels.

USD/JPY fell from 92.11 to 91.43 as of 9:47 GMT today. EUR/JPY declined from 119.47 to 118.15 with a daily low at 117.08. GBP/JPY went down from 136.42 to 135.49 after falling as low as 133.60 today.

Euro Falls on Europe’s Troubles Worsening

The euro fell against the U.S. dollar and other major currencies, except the pound, as the Russian banks are waiting from their government to negotiate the $400 billion of loans with their mostly European creditors. 

The Forex market reacted to such news as to a signal that the problems in the European region are only getting bigger these days and moved to the safer assets that included the U.S. dollar and the Japanese yen. The pound was also gaining against the euro during the early trading session but then lost its positions and went straight down.

On the other hand — the U.S. optimistically trading bulls felt an opportunity to buy the American assets and the currency as they expect that the Obama’s plan will help the world’s largest economy to come out of the recession soon. Analysts see the situation where the European banks are risking to face more troubles and the United States are slowly heading up as the natural reason for the currency traders to sell the euro and shift to the yen and the dollar.

EUR/USD fell from 1.3002 to 1.2923 as of 9:46 GMT today after falling as low as 1.2809 during the early Asian trading session. EUR/JPY declined from 118.92 to 117.79, while EUR/GBP now stays near its open level (0.8728) — at 0.8733 after it had set the daily low at 0.8637.

Market Moving News: EUR/USD - Feb 13

Eur/usd - 1.2919...More short-covering was seen in Asia this morning (traders who sold earlier this week are squaring their positions ahead of the G-7 meeting) n euro hit an intra-day high of 1.2943 b4 easing. Bids are tipped at 1.2840/50 n also further out at 1.2800 while on the upside, offers are noted at 1.2950 (fair size) with a mixture of offers n stops likely to emerge at 1.2990/00.

UPDATE 2-Japan economy in biggest dive since 1974

TOKYO, Feb 16 (Reuters) - Japan's economy shrank in the last quarter by its most since the first oil crisis in 1974, hit by an unprecedented slump in exports, which is likely to lead to more calls for extra stimulus. 


Japan has not suffered much directly from the bursting of bubbles in U.S. credit and housing markets, but its heavy dependence on exports and persistently soft domestic consumption has led to a sharper contraction than other major economies. 


As the rich world faces its worst downturn in decades, the Group of Seven (G7) policymakers pledged at the weekend to do all they could to combat recession. 


Japan's economy shrank 3.3 percent, or an annualised 12.7 percent in the fourth quarter of 2008 -- three times the fall in gross domestic product in the same quarter in the United States, at the epicentre of the current global crisis. 


With exporters cutting production and laying off staff and many retailers reporting sharp falls in sales, economists saw little hope of a bounce back for Japan. 


"The data showed a severe picture of the Japanese economy and highlighted the weakness in exports," said Takeshi Minami, chief economist at Norinchukin Research Institute. 


"The January-March quarter is likely to show another minus figure (annualised) in double digits or something close to double digits." 




ADDICTION FEAR 


Spooked by sliding U.S Treasuries and reports that the heavily indebted Japanese government may be planning further big stimulus spending, March 10-year government bond futures fell a third of a point. 


"There's no question that this is the worst recession in the post-war period," Economics Minister Kaoru Yosano told a news conference. 


The government had to pursue all options to keep the economy afloat, he said, but he struck a cautious note on large scale spending, saying it could not get "addicted to pain killers". 


The Nikkei share average fell 0.2 percent but the yen rose slightly, after the G7 omitted any reference to the currency's strength in its final communique. 


The yen's 24 percent against Japan's key trading partners in the quarter has added to the pain for big exporters such as Toyota and Panasonic. 


The big slide in Japanese GDP in the October-December quarter was its second-worst in modern times, lagging only a 3.4 percent contraction in 1974, after the first Middle East oil shock. 


The contraction was bigger than economists' median forecast of a 3.1 percent fall and also worse than the downturn ensnaring all other major economic powers in the same quarter. 


The eurozone GDP shrank 1.5 percent, its deepest contraction on record, while the United States economy shrank just under 1 percent in the quarter (an annual rate of 3.8 percent). 


For a comparative graphic, double click: 


https://customers.reuters.com/d/graphics/JP_GDPC0209.gif 




FACTORIES STALL 


A plunge in exports was the main culprit behind the massive Japanese contraction, slashing GDP by 3.0 percentage points in the quarter. 


The subsequent build-up in inventories of unsold cars, flat-screen TVs and many other goods has forced Japanese manufacturers to halt factory lines, pushing industrial production off a cliff. 


"Given a rise in inventory and a decline in final demand, output adjustments will continue in January-March, paving the way for another big contraction in the first quarter," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities. 


"As the U.S. stimulus package will have its effect on Japanese exports, Japan's economy may start picking up from April-June onwards, but it will be a very weak recovery amid a lingering recession. The economy can't avoid a second straight year of contraction in the fiscal year starting in April." 


The sharp deterioration has prompted big exporters to cut jobs and threatened their small suppliers, sending company bankruptcies sky-rocketing and raising worries that the country's already fragile consumption could sputter even more. 


The government, deeply unpopular with voters and facing an election this year, has so far set out two stimulus packages, and Japanese media said ruling parties were eying a third one that could include up to 30 trillion yen ($327 billion) in fiscal spending. 


However, with parts of the previous packages stuck in Japan's deeply fractious parliament and with Prime Minister Taro Aso's popularity in deep decline, doubts are growing over how long he can survive. 


The economy minister also said he was wary about the push from the main ruling party, the Liberal Democrats, to spend more. 


"The party may have a plan for additional spending worth 30 trillion yen... but we can't think of good ways to spend that much", Yosano said. 


Wary of mounting problems for Japan's economy, the BOJ has nudged interest rates down near zero, taken some unconventional steps including buying of commercial paper, and set up a new funding scheme using corporate debt as collateral. 


The BOJ, which meets again this week, said last month it expected the economy to contract this fiscal year and in the year from April as consumer prices fall for two years. 


($1=91.80 Yen)

S.Korea revised Jan exports down record 33.8 pct

SEOUL, Feb 16 (Reuters) - South Korean exports in January performed worse than initially estimated as revised figures from the customs agency showed on Monday overseas shipments for the month dropped a record 33.8 percent from a year earlier. 


That was worse than a provisional 32.8 percent annual drop reported in provisional figures released on Feb. 2 by the Ministry of Knowledge Economy and follows a 17.9 percent annual fall in December last year. 


Imports for January were revised to 31.9 percent less than a year earlier from a provisional 32.1 percent decline, the Korea Customs Service data showed. 


Exports to China, South Korea's biggest market, fell a record 38.6 percent in January from a year earlier. Exports to the United States dropped 27.8 percent over a year before, marking the sharpest annual loss since December 2001. 


The revised export and import figures produced a trade deficit of $3.36 billion, bigger than a provisional $2.97 billion shortfall reported earlier, the data showed. 


The data comes after the central bank slashed interest rates by 50 basis points to a record-low 2.0 percent on Thursday last week, its sixth rate cut in four months aimed at pulling Asia's fourth-largest economy away from a looming recession.

Forex Trading Fibonacci Numbers

 
Forex Trading Fibonacci Numbers
Forex Trading - Fibonacci NumbersHave you ever heard of Leonardo Fibonacci?No, he didn't paint the Mona Lisa. And he's not the guy behind the counter at Vinnie's Pizza.Fibonacci was a well-known Italian mathematician who lived from around 1175-1250. He made great contributions to the world of mathematics, including introducing the decimal system to Europe. He also studied a sequence of numbers that has since become known as the Fibonacci Numbers, or the Fibonacci Sequence.The Fibonacci Sequence start with a 0 and a 1, and each new number is the sum of the two previous numbers (0 + 1 = 2, 1 + 2 = 3, 3 + 2 = 5). The first numbers in the sequence are as follows:0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...and so forth into infinity. Fibonacci found that these series of numbers and their ratios to one another were prevalent throughout nature and can in fact be seen all around you. Ok, ok, so what does this have to do with forex trading?Well, quite a bit in fact. You see the ratios that are found in the Fibonacci numbers can be seen in the price movement of currencies (as well as stocks and other investments). Without boring you any further, I'll give you the big 3 numbers that you should remember: 0.382, 0.500, and 0.618. There are others, but these are the most significant.These numbers are used to calculate "retracement levels", which are used by many traders to determine when to place buy and sell orders. Here's how it works:Assume the price of a currency pair (or a company's stock for that matter) is trending upward. History shows us that prices tend to hit a peak, go into a temporary reversal, and then resume the trend. The reversal is where Fibonacci numbers come in. The price of a currency that is trending can be expected to reverse back to one of the Fibonacci numbers and then bounce back to continue the trend. If you forecast this correctly you can buy in just before the upward trend continues and score big profits.The online trading platform you use should be able to chart the Fibonacci numbers for you. You just draw a line from a low point to a high point, and the retracement levels are automatically mapped on the chart for you.Of course, its not quite as simple as trading when the price hits a Fibonacci number. There are other things to consider:You don't know which retracement level the price will stop at. If you choose .382 and it drops to .618 you could lose a ton of pips.Similarly, if you choose the wrong low/high points, the retracement levels will be all out of whack.And quite frankly, as accurate as they can be at times, sometimes Fibonacci numbers just don't work at all. There are many variables at play in the forex market. You can't rely solely on one method to predict price movement.

Forex Technical Analysis

Forex Technical Analysis
Forex Technical AnalysisTechnical Analysis is the study of price movement. You can use price charts to track the history of price movement and attempt to anticipate which way prices will go in the future. Online forex brokers provide you with many different tools that are used in technical analysis. Some of the most common are listed below.Bollinger Bands Bollinger Bands are used to measure market volatility. They consist of three lines: 1. A simple moving average in the middle.2. An upper band which indicates the simple moving average plus 2 standard deviations.2. A lower band which indicates the simple moving average minus 2 standard deviations.When market volatility is high, the bands spread apart. When volatility is low, they come together. The Bollinger Bounce. Most of the time, the middle band stay in between the outer bands. Think of the outer bands as the border patrol. When the middle brand approaches one of the border guards, it gets bounced away and back towards the middle. Hence the name Bollinger Bounce. This is useful to know because if you see the middle band approaching an outer band, there's a good chance it will bounce off. This strategy works best when prices are fluctuating and there are no clear trends. A good way to spot a trend early is the Bollinger Squeeze. When the bands squeeze close together, it often means that a breakout is about to occur. If the middle band breaks through either the top or lower band, the trend will usually continue to go in that direction.Parabolic SAR (Stop And Reversal) The Parabolic SAR indicator is used to spot trend reversals. It is perhaps the easiest indicator to read, Dots are placed on the chart in positions either above or below the candles (the formula that calculates where the dots go is too complicated to get into). Dots above the candles are a signal to sell.Dots below the candles are a signal to buy.Parabolic SAR works best when there are clear upward or downward trends. It does not work well when price movement is small.Stochastics Stochastics is an indicator that is used to measure overbought and oversold conditions in the market. It consists of a scale from 0-100. As the stochastics lines are above 80 it means that the market is overbought and a downward trend could be forming. When the lines fall below 20 it means the market is oversold and an upward trend may be forming. Stochastics are useful in determining when to lock in profits and when to issue buy or sell orders. But you should never rely on only one indicator. Combine several and adjust them to your trading strategy.

Forex Trading How To Avoid Failure

Forex Trading How To Avoid Failure
Forex Trading - How To Avoid FailureForex trading can be an incredibly profitable way to make a living. The combination of margin leverage and a low minimum amount required for trading make forex trading ideal for small investors.However, despite the opportunities for profit, the majority of forex traders lose all of their money within a year. Why? Well I have found six root causes that can explain why so many new forex traders fail:1. Unrealistic Expectations. Too many novice traders read about how easy it is to make money trading forex and they just jump in and lose everything before they even know what hit them. Forex trading is not a get rich quick scheme. It requires hard work and research to be successful. And even then, you cannot expect every trade to be a winner. Even the best traders lose on trades. The key is knowing when to cut your losses and focus on the winners.2. Not doing enough research. Forex trading is easy to learn, but difficult to master. Experienced traders make it seem so easy, but predicting currency prices is a complex endeavor. And as a small investor you are at a disadvantage. Large financial institutions have resources that you don't. They may have an entire staff analyzing the most recent economic indicators while you just have yourself. You must be prepared to spend some solid time learning before you can expect to win big.3. Gambling instead of investing. If you think you can beat the market without doing research and just picking currency trades based on a hunch, good luck. I've seen people do this and they usually pick a few winners and make some short-term profits, but in the end they just get slaughtered.4. Lack of focus. Depending on which broker you use, there are likely dozens of currencies you can trade. But when you are just starting out, think small. Pick a few of the most popular currencies, such as the US Dollar, the Japanese Yen, and the Euro, and focus exclusively on them. The more currencies you trade, the more data you will have to analyze in order to spot trends. Better to know a few currencies really well than to know just a little about each.5. Not having a trading system. There are literally hundreds, if not thousands, of different trading systems available. Some you will have to pay for, but many are free. Choose a system that is right for you based on your capital, your goals, and your personality. Without a system, you might as well be throwing darts.6. Not sticking to your system. Having a trading system is not enough, you have to follow it through good times and bad. This is easier said than done. Its easy to get greedy and go for the big score or get nervous and get out too soon. You must follow your system to determine both entry and exit points. If you ignore them you risk missing out on a big upswing or being stuck in a trade as it goes sour. The best forex traders know that knowing when to get out of a trade is even more important than knowing when to get in.

Support And Resistance

Support And Resistance
Support And Resistance Support and resistance is a basic forex trading technical analysis tool. Support and resistance is the heart of technical analysis. Support and resistance is a concept in technical analysis where the price of a currency pair will tend to stop and reverse at certain predetermined price levels. Because of their widespread use in the forex market as well as virtually all the world's financial markets, forex trading online with support and resistance is the best way to practice currency trading. A solid grasp of the concepts of support and resistance is necessary for a full understanding of the concept of a trend.TradingUnderstanding support and resistance levels is an extremely important skill in any market, and it's absolutely crucial if you plan on trading in the forex currency trading market. Many of the most successful forex traders learn how to calculate and use support and resistance exclusively in forex trading. If you can identify the support and resistance levels on a chart while trading, you can figure out where to jump in with the entire weight of the market behind you, should that price be broken. Forex trading support and resistance are never precise lines on a chart, but are rather 'zones' within which the action intensifies, as players of many different persuasions 'fight it out' for control of the direction the forex market is moving. In fact, just about every forex trading technical system or method utilizes support and resistance, whether their creators will admit it or not.SupportSupport is the price level that acts as a floor to further price declines. Support is further defined as a price level below which it is supposedly difficult for a currency pair or financial market to fall through. Support defines that level where buyers are strong enough to keep price from falling further. ResistanceResistance is the opposite of support and is the level at which the volume of selling (the supply) outweighs the volume of buying (the demand). Resistance defines that level where sellers are too strong to allow price to raise further. Prices should fall after hitting resistance. In a downtrend, resistance is where a pullback from a decline should end.MarketIt is very important to be conscious about the support line and the resistance line in the forex market. At price support levels buyers’ step into the market mopping up the imbalance between supply (sellers) and demand (buyers) and when this happens the price will stop its decline and will possibly rise. In the downward movement of the forex market, the nearest bottom should become the first key support, and the second nearest bottom become the second key support. Once the forex market breaks the resistance, it is often the case that the resistance line might change into the support line. Support and resistance levels can be applied in any timeframe. PriceSupport just the same as resistance is rarely a precise price. It is more often a relatively contained price range, frequently in the vicinity of past technical patterns. Most importantly, forex market value support and resistance is determined by the forex trading market itself, by prices accepted and rejected in the trading.

Pivot Points In Forex Trading

Pivot Points In Forex Trading
Pivot Points In Forex Trading Pivot points are enormously popular, even in today's electronically traded markets. Pivot points are support and resistance levels derived from the previous period's high, low, and closing values. Pivot points are points of resistance and support that are very likely to be the points at which short-term trends are reversed and the points at which long-term trends fall back to. Pivot points are frequently used by forex traders as a means to calculate resistance and support levels which are, in turn, used as visual cues to execute trades. Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements.Pivot LevelsPivot point calculations are used by security traders to attempt to predict support and resistance levels. To calculate the pivot points and the associated support and resistance levels, traders use the last open, high, low, and close, from the last trading session. After calculating the previous days high, low and close you will find 7 points, 3 resistance levels, 3 support levels and the actual pivot point. Support pivot points are below current price and resistance pivot points are above current price. The support levels are S1, S2 and S3. The resistance levels are R1, R2 and R3. A demonstration of significant price activity above the daily pivot point is considered to have bullish implications, while significant activity below this level is bearish. The second set of support and resistance points, S2 and R2, are used in the event that the price breaks through the previous day's trading range and continues until it meets a second, higher level of resistance or lower level of support. By the time the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.Trading Pivot PointsTrading pivot points can be a very useful exercise for Forex traders. Because so many currency traders follow pivot points you will often find that the market reacts at these levels. The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. The reason pivot point trading is so popular is that pivot points are predictive as opposed to lagging. The pivot points are considered as short-term trend indicators, and are generally useful for short term trading. By combining the Pivot Points with your favorite indicator you can develop your own trading system that no one else uses.In conclusion, pivot points are used in the currency trading market by investors of all levels, including banks, professional traders, and mutual funds to help them determine when to buy or sell a particular currency. Pivot points are exactly what they sound like – the point at which the market is expected to turn – if it has been going either up or down, a pivot point is the value at which it will reverse the trend.
Posted by Forex Money at 10:00 PM

Types Of Forex Orders

 
Types Of Forex Orders
Types of Forex OrdersWhen your broker buys or sells a currency for you, it is called 'executing an order'.Depending on your trading system, your objectives, and your analysis of where you think prices are going to go there are different types of orders that you can place with a broker.Here are the most common types of orders that any broker should be able to make for you:Market Orders. A market order is the simplest type of order, and the most common order used in day trading. It is simply an order to buy or sell a currency at the current market price. A trader places a market order by specifying the currency pair he wishes to trade, as well as the number of lots to trade. With most online brokers this can easily be done in seconds with just a click of the mouse. The order is executed almost immediately at the price shown.Limit Orders. A limit order is an order places to buy or sell a currency when it reaches a certain price. For example, say USD/JPY is currently trading at 117.50. The price has been in a downtrend, and your analysis shows that it will drop to about 117.25 and then bounce back up. You could sit at your computer waiting for it to drop to 117.25 and then place a market order to buy. Or you can place a limit order at 117.25 and when the price hits that point the order will automatically be executed. If your analysis is wrong and the price only drops to 117.30 before bouncing back up, the trade will never be executed and it will usually be canceled at the end of the day.Stop-Loss Orders. Savvy traders use stop-loss orders to minimize their losses. Say you expect the price of GBP/USD to go up and you place a buy order at 1.8255 with a stop-loss order at 1.8235. Your analysis was way off and the price drops all the way to 1.8185.The stop-loss order protects you by automatically selling at 1.8235. Instead of losing 70 pips, you only lost 30.OCO This stands for "one order cancels the other order." Two orders are placed with at prices above and below the current price. When one trade is triggered, the other trade is canceled.For example, say the price of USD/CHF has been hovering around 1.2435 for some time. You know its going to break out soon but you're not sure which way. You place an OCO order to buy at 1.2445 or sell at 1.2455. This way as soon as the breakout starts you can jump on board. The second trade is canceled as soon as the first is executed.

Forex Trading Calculating Profit And Loss

Forex Trading Calculating Profit And Loss
Forex Trading - Calculating Profit and LossPretty much any online forex broker you choose will have a trading platform that automatically calculates your profits and losses for you. But I think it's important to understand the basic math behind it. It's a good way to make sure your broker is honest, plus it's just good to know.Besides, calculating profit and loss is really simple. There's only two simple formulas to remember. When USD is the quote currency (the second currency in a pair), the formula is:Profit = Price Change in Pips X Units TradedWhen USD is the base currency (the first currency in a pair), the formula is:Profit = Price Change in Pips X Units Traded / Exit PriceLet's look at some real-life examples to help you understand.First we'll look at an example when USD is the quote currency. To keep things simple we'll assume the broker requires 1% margin, which means you can trade $100,000 in currency for only $1,000.So let's say you are looking at EUR/USD which is currently trading at 1.2518/9. You predict the euro will rise in value against the euro so you execute a trade to buy euros, which means you also simultaneously sell USD.You buy $100,000 units at 1.2519. Remember since you are buying you have to take the ask price, which is the second number in the quote. Your calculations are correct and the price rises to 1.2532/3. You initiate a trade to sell EUR and buy USD. This time you use the bid price, which is 1.2532. Since you bought at 1.2519 and sold at 1.2532 your profit was 17 pips, or 0.0017. Now we need to convert that into real money. So take your formula above: Profit = Price Change in Pips X Units TradedOr, Profit = 0.0017 X 100,000 = $170.00An easy rule to remember is that when trading a standard sized lot (100,000) of a currency pair in which USD is the quote currency, a pip is always equal to $10. 17 pips equals $170.Now, let's look at an example where USD is the base currency. We'll execute a buy of 100,000 units of USD/JPY at 117.22. The price rises and we sell at 117.35. We just made 13 pips.To calculate our profit we use the second formula:Profit = Price Change in Pips X Units Traded / Exit PriceOr, Profit = .13 X 100,000 / 117.35 = $110.78.

Forex Trading Introduction

 

Forex Trading Introduction

I'm sure you've already heard of Forex trading. it is one of the hottest topics around these days. But what exactly is it and how can the average Joe make money in Forex?

Forex, also called "FX", is short for foreign exchange. The foreign exchange doesn't get the big press like stocks, options, and commodities. But the foreign exchange is the biggest market in the world and it offers investors an incredible opportunity for profit.

When you trade on the foreign exchange, you don't trade in stocks or bonds, but in currency. Simply put, Forex trading is just the buying of one currency and the selling of another. As exchange rates go up and down, you either make or lose money. 

With Forex, you're not investing in a single company or even a group of companies. You're investing in the economy of nation. You are betting that the overall economic health of one nation will improve in relation to that of a second nation.

For example, let's say you are analyzing the US Dollar and the Japanese Yen. Your research seems to indicate that the US dollar is undervalued and is due for a rise in price, and at the same time you expect the Japanese Yen to lose value. In this case you would execute a trade to buy US dollars and sell Japanese yen. If you are correct and the exchange rate rises, you make a profit!

So its a piece of cake, right? Well no, not really. Currency prices can be incredibly difficult to forecast because there are so many factors that can contribute to a change in exchange rates. And you must remember that in currency trading you always trade in pairs. You buy one currency and sell another. So you can't just look at one nation's economy; you must look at two.

Of course, you do not have to limit yourself to only one pair of currencies. There are dozens of different currencies to choose from. But if you are just starting out, I suggest sticking to the seven major currencies:

USD - US Dollar

EUR - the Euro

GBP - British Pound

JPY - Japanese Yen

CHF - Swiss Franc

AUD - Australian Dollar

CAD - Canadian Dollar

Most small investors concentrate their trading on just these seven currencies.

Foreign Exchange Market

Foreign Exchange Market

Forex Market Snapshot - GoForex 
Foreign Exchange Market - Wikipedia 
Triennial Central Bank Survey of Foreign Exchange & Derivatives Market Activity 2007 - Bank for International Settlements 
Foreign Exchange and Money Market Transactions - UBS 
The Foreign Exchange Market in the United States - Federal Reserve Bank of New York 
The Foreign Exchange Market - Bank of England 
Forex Online Learning Program - NFA 

Trading & Education
Essential Elements of a Successful Trader - by Jimmy Young 
Understanding Leverage - Part I - by DrForex 
Understanding Leverage - Part II - by DrForex 
Forex Broker Guide - by GoForex 
Market Makers vs ECNs - by Grace Cheng 
Introduction to Currency Exchange and the FX Market - by Oanda 
Common Sense Guidelines for the Average Trader - by GVI Learning 
Trading: A Mind Game - at GVI Learning 
Forex Money Management - Investopedia 
High Probability Trading - by FibMaster 
Taking Profits - by FibMaster 
Identifying Trending and Range Bound Currencies - Investopedia 
Projected Fibonacci Targets - by Mohab Nabil 
The Elliott Wave Principle - by Elliott Wave International 
Pivot Point Trading - by Mark McRae 
News Trading - by DrForex 
Rollovers in Forex - by Mark McRae 
Technical Analysis in the Foreign Exchange Market: A Layman's Guide - by St Louis Fed 
How to Read a Chart & Act Effectively - by Jimmy Young 
FXtrek University - by FXtrek 
Economic Calendar Terms Explained - by Finspreads 
Economic Indicators - Baby Pips 
Make the Currency Cross Your Boss - Investopedia 
Goodman's Swing Count System - by M. Duane Archer 

Free Forex Ebooks
Introduction to Forex - by Surefire Trading 
Inside the Forex Markets - by Pacific Investor Group 
Free Fibonacci Lessons - by FibMaster 

Tutorials
Support, Resistance, and Trading on Multiple Time Frames - by Daily Forex Charts 
Forex Tutorial - by RealTime Forex 
How to trade Currencies using Elliott Wave Analysis - Elliott Wave International 
10 lessons on The Elliott Wave Principle - Elliott Wave International 
Candlesticks Tutorial by TradingDay 
Chart Analysis - by StockCharts 
School of Pipsology - by BabyPips 
Guide to Technical Analysis - by Incredible Charts 
Technical Analysis from A to Z - by MarketScreen 
Practical Course for Beginners - by Technical Trading 
Programming in Algorithmic Language MQL4 - by MetaQuotes 
Risk Warnings & Regulation

Forex Information - CFTC 
Forex Compliance - NFA 
Trading in the Retail Off-Exchange Foreign Currency Market - What Investors Need to Know - NFA 
Forex Scams - Wikipedia 
Understanding the Risks of Trading in the Retail Off-Exchange Foreign Currency Market - NFA

Trading Hours

 

Trading Hours24 hour market 
Sunday 5pm EST through Friday 4pm EST. 
Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America

Size

One of the largest financial markets in the world 
$3.2 trillion average daily turnover, equivalent to:
 
More than 10 times the average daily turnover of global equity markets1 
More than 35 times the average daily turnover of the NYSE2 
Nearly $500 a day for every man, woman, and child on earth3 
An annual turnover more than 10 times world GDP4

The spot market accounts for just under one-third of daily turnover

1. About $280 billion - World Federation of Exchanges aggregate 2006 
2. About $87 billion - World Federation of Exchanges 2006 
3. Based on world population of 6.6 billion - US Census Bureau 
4. About $48 trillion - World Bank 2006.

 
Source: BIS Triennial Survey 2007

Major Markets
The US & UK markets account for just over 50% of turnover 
Major markets: London, New York, Tokyo 
Trading activity is heaviest when major markets overlap5 
Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location




Source: BIS Triennial Survey 2007

Concentration in the Banking Industry
12 banks account for 75% of turnover in the U.K. 
10 banks account for 75% of turnover in the U.S. 
3 banks account for 75% of turnover in Switzerland 
9 banks account for 75% of turnover in Japan 

Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:

Moving averages 
RSI 
Fibonacci retracements 
Stochastics 
MACD 
Momentum 
Bollinger bands 
Pivot point 
Elliott Wave

Currencies
The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day

Currency Codes

USD = US Dollar 
EUR = Euro 
JPY = Japanese Yen 
GBP = British Pound 
CHF = Swiss Franc 
CAD = Canadian Dollar (Sometimes referred to as the "Loonie") 
AUD = Australian Dollar 
NZD = New Zealand Dollar

Average Daily Turnover by Currency



N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2007

Currency Pairs

Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"), USD/CHF 
Dollar bloc: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi") 
Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair



Source: BIS Triennial Survey 2007

Foreign Exchange Market

 
Foreign Exchange MarketFrom Wikipedia The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market. They may only participate indirectly through brokers or banks and may be targets of forex scams. ContentsMarket size and liquidityTrading characteristicsMarket participants BanksCommercial CompaniesCentral BanksInvestment Management FirmsHedge FundsRetail Forex BrokersSpeculationReferenceSee alsoExternal linksMarket size and liquidityThe foreign exchange market is unique because of:its trading volume,the extreme liquidity of the market,the large number of, and variety of, traders in the market,its geographical dispersion,its long trading hours - 24 hours a day (except on weekends).the variety of factors that affect exchange rates,Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004$600 billion spot$1,300 billion in derivatives, ie $200 billion in outright forwards$1,000 billion in forex swaps$100 billion in FX options.Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).Top 10 Currency Traders % of overall volume, May 2005 Rank Name % of volume1 Deutsche Bank 17.02 UBS 12.53 Citigroup 7.54 HSBC 6.45 Barclays 5.96 Merrill Lynch 5.77 J.P. Morgan Chase 5.38 Goldman Sachs 4.49 ABN AMRO 4.210 Morgan Stanley 3.9The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $1,000,000.These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' cheques. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips.Trading characteristicsThere is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.Top 6 Most Traded Currencies Rank Currency ISO 4217 Code Symbol1 United States dollar USD $2 Eurozone euro EUR €3 Japanese yen JPY ¥4 British pound sterling GBP £5-6 Swiss franc CHF -5-6 Australian dollar AUD $The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers order flow. Trading legend Richard Dennis has accused central bankers of leaking information to hedge funds. [1]Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.On the spot market, according to the BIS study, the most heavily traded products were:EUR/USD - 28 %USD/JPY - 17 %GBP/USD (also called cable) - 14 %and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.Market participantsAccording to the BIS study Triennial Central Bank Survey 200453% of transactions were strictly interdealer (ie interbank);33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;and only 14% were between a dealer and a non-financial company.BanksThe interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.Commercial CompaniesAn important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.Central BanksNational central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.Investment Management FirmsInvestment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.Hedge FundsHedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.Retail Forex BrokersRetail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].SpeculationControversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.Large hedge funds and other well capitalized "position traders" are the main professional speculators.Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view [7]. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

Essential Elements of a Successful Trader

Essential Elements of a Successful Traderby Jimmy YoungEURUSDTraderCourage Under Stressful Conditions When the Outcome is UncertainAll the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.Patience to Gain Knowledge through Study and FocusMany new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

Forex Trading Vs The Stock Market

 
Forex Trading Vs The Stock Market
Forex Trading vs The Stock MarketTrading currencies on the foreign exchange has quite a few advantages over trading stocks.1. A 24-hour market. The foreign exchange is open for business twenty-four hours a day. This is a major plus for small investors who are starting out trading in their spare time. Rather than having to juggle your schedule around your trading opportunities, you can schedule your trading when its convenient for you. If you're a night owl in Manhattan and want to trade at 1:00 AM, no problem. Banks in Tokyo are open. 2. Low Transaction Costs. Forex brokers are not paid by traditional commission-based fees, and there are no hidden fees. The broker's fee is built directly into the trade in the form of the bid/ask spread. In simple terms, the spread is the difference in what you would buy a currency for and what you would sell it for. The spread is expressed in "pips".3. Leverage/Margin. The ability to trade on margin gives forex traders significant leverage in their trading and offers the potential to make extraordinary profits with relative small investments. For example, with a broker that allows margin of 100:1 you can purchase $100,000 in currency with only a $1,000 deposit. Of course, leverage goes both ways and can lead to large losses if you are not careful. 4. High Liquidity/Fast Trade Execution. When you trade in currencies you are trading in cash. There's no investment more liquid than cash, so trades are executed near instantaneously. There's no sitting around waiting for your trade to execute.5. Not Easily Influenced. The foreign exchange market is so incredibly huge that no one individual, fund, bank, or government entity can influence it for long. This is the opposite of the stock market where one television analysts negative appraisal of a company's stock could send it into a tailspin.6. A Small Sample to Study. There are thousands upon thousands of stocks available to trade. Large companies, small companies, international companies, newly issued IPOs. Its just not possible to follow them all.In forex trading, there are only seven major currencies to follow, so you can devote a lot more time to each of them. And there are many successful forex traders who do not even trade in all seven major currencies. Some just pick three or four and stick with them.7. No Bear Markets. Since you can trade either short or long, you can make money whether the prices go up or down (assuming you guess correctly).

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Forex Trading Signals

Forex Trading Signals
Daily Forex ChartsNeal Hughes provides daily forex charts in audio/video format covering 13 currency pairs identifying many trading opportunities for you to base your trades on. He will only send you what he believes to be the best trading opportunities for that day. Two week trial available.Click here for a two week trialWrite a ReviewZuluTradeZuluTrade provides autotrading of third-party signal providers into client accounts. You choose the systems you want to trade with verified track records and let ZuluTrade do the rest! Click here for performance recordsClick here for a free demo accountWrite a Review Read Reviews [1]Forex System SelectorForex System Selector provides signals from over 50 different systems both manual and automated, executed into your account automatically, each with verified track records. You simply choose the signal or system providers you want to receive signals from, choose the currency pairs you want to trade, set up your money management, and let them do the rest!

Speculation

Speculation
SpeculationControversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.Large hedge funds and other well capitalized "position traders" are the main professional speculators.Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view [7]. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

The dealing desk

The dealing desk
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].

Retail Forex Brokers

Retail Forex Brokers
Retail Forex BrokersRetail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.

Investment Management Firms

Investment Management Firms
Investment Management FirmsInvestment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.Hedge FundsHedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Central Banks

Central Banks
Central BanksNational central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.Investment Management FirmsInvestment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades

Market participants

 
Market participants
Market participantsAccording to the BIS study Triennial Central Bank Survey 200453% of transactions were strictly interdealer (ie interbank);33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;and only 14% were between a dealer and a non-financial company.BanksThe interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.Commercial CompaniesAn important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Trading characteristics

 
Trading characteristics
Trading characteristicsThere is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.Top 6 Most Traded CurrenciesRankCurrencyISO 4217 CodeSymbol1United States dollarUSD$2Eurozone euroEUR€3Japanese yenJPY¥4British pound sterlingGBP£5-6Swiss francCHF-5-6Australian dollarAUD$The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers order flow. Trading legend Richard Dennis has accused central bankers of leaking information to hedge funds. [1]Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.On the spot market, according to the BIS study, the most heavily traded products were:EUR/USD - 28 %USD/JPY - 17 %GBP/USD (also called cable) - 14 %and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

Market size and liquidity

Market size and liquidity
Market size and liquidityThe foreign exchange market is unique because of:its trading volume,the extreme liquidity of the market,the large number of, and variety of, traders in the market,its geographical dispersion,its long trading hours - 24 hours a day (except on weekends).the variety of factors that affect exchange rates,Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004$600 billion spot$1,300 billion in derivatives, ie$200 billion in outright forwards$1,000 billion in forex swaps$100 billion in FX options.Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).Top 10 Currency Traders% of overall volume, May 2005RankName% of volume1Deutsche Bank17.02UBS12.53Citigroup7.54HSBC6.45Barclays5.96Merrill Lynch5.77J.P. Morgan Chase5.38Goldman Sachs4.49ABN AMRO4.210Morgan Stanley3.9The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $1,000,000.These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' cheques. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips