Foreign exchange trading is generally conducted in a decentralized manner, with the exceptions of currency futures and options. Foreign exchange has experienced spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and stabilized at around $1,5 trillion by the year 2000.
Main factors influence on this spectacular growth in volume are indicated below.
For foreign exchange, currency volatility is a prime factor in the growth of volume. In fact, volatility is a sine qua non condition for trading. The only instruments that may be profitable under conditions of low volatility are currency options.
Interest Rate Volatility
Economic internationalization generated a significant impact on interest rates as well. Economics became much more interrelated and that exacerbated the need to change interest rates faster. Interest rates are generally changed in order to adjust the growth in the economy, and interest rate differentials have a substantial impact on exchange rates.
Business Internationalization
In recent decades the business world the competition has intensified, triggering a worldwide hunt for more markets and cheaper raw materials and labor. The pace of economic internationalization picked up even more in the 1990s, due to the fall of Communism in Europe and to up-and-down economic and financial development in both Southeast Asia and South America. These changes have been positive toward foreign exchange, since more transactional layers were added.
Increasing of Corporate Interest
A successful performance of a product or service overseas may be pulled down from the profit point of view by adverse foreign exchange conditions and vice versa. An accurate handling of the foreign exchange may enhance the overall international performance of a product or service. Proper handling of foreign exchange generally adds substantially to the rate of return. Therefore, interest in foreign exchange has increased in the past decade. Many corporations are using currencies not only for hedging, but also for capitalizing on opportunities that exist solely in the currency markets.
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The key to FOREX popularity is margin. Without margin, the FOREX would be beyond the reach of the average investor. So, what exactly is margin and how does it work?
Margin accounts allow FOREX traders to control large amounts of currency with a relatively small deposit. Establishing a margin account with a FOREX broker enables you to borrow money from the broker to control currency lots which are usually worth $100,000.
The amount of borrowing power your margin account gives you is the leverage. Leverage is usually expressed as a ratio – a leverage of 100:1 means you can control assets worth 100 times your deposit.
What this means in FOREX is that with a 1% margin account you can control standard lots of $100,000 with a $1,000 deposit. Trading on margin increases both profits and losses, and the potential exists for the trader to lose more than his original deposit.
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You have read about the foreign exchange market (FOREX) and some of the investment advantages it offers. So now you would like to try it out, but don’t know where to start. This section will give you the basics in FOREX and tell you what you need to participate in this fast growing investment field.
Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980’s the rules were revised to allow smaller investors to participate using margin accounts.
Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a
$1,000 investment.
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Forex Fundamentals
Contrary to what lot of brokers might say, forex trading isn’t easy. To help traders learn the ropes, Global Forex Trading (GFT), based in Ada, Michigan, recently launched the Strategic Training Institute, an educational platform that trains people on how to trade forex and other markets. All of the instructors are active professional traders. “There are growing numbers of investors interested in currency trading.” says Tim Gort, Communications Specialist at GFT. “A lot of people are coming from equities and from funtures.” Over he past five years, Gort notes that GFT has experienced a growth in trading volume of more than 85% annually.
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A Truly International Market Part-1
A Truly International Market Part-2
Unlike other financial markets that operate through an exchange, the forex market is a global electronix network of central banks, commercial bank, financial instituons, corporate customers, brokes and individual traders who have established home based businesses, all of whom buy and sell national currencies, It also operates 24 hours a day. The trading day begins in Sydney, Australia on Monday, while it is still Sunday in Nort America and Europe, and ends in New York on Friday afternoon.
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