Forex markets have been described as continuous auction markets, and have clearing houses for the latest information about supply and demand. They are the meeting places of buyers and sellers of an ever-expanding list of currencies today includes like EUR, GBP and JPY etc. trading have also been initiated along with future contracts, enabling buyers to participate in future markets with known risks.
Foreign exchange acts as a market place for people interested in arbitrage. The factors driving arbitrage are the differences and perception of differences of the equilibrium price determined by supply and demand at various locations.
Price risk may occur due to inflation, emplacement rate, differential interest rate, current-account deficits, terms of trade, public debt, political stability and economic performance, an increase in demand, decreased international production, etc.
The forex markets provide a means to transfer risk between persons holding the currency (hedgers) and other hedgers are persons speculating in the market.
Futures exchanges exists and are successful based on the principal that hedgers may forego some profit potential in exchange for less risk and speculators will have access to increased of it potential from assuming this risk.
An investor can also reduce his risk by get well trained in forex market through various demo accounts provided by companies (Reymount, fxstreet etc) and always an invester should consider both fundamental and technical factors before taking any decision.
For the futures market, the arbitrage activities are carried out through the exchange of paper promissory notes to sell or buy a particular currency at an agreed up on price at a future date. As persons with different perceptions of where supply and demand are currently and how supply and demand will change in the future interact, currency values are driven to equilibrium. As new information enters the market, people's perceptions change and the process of arbitraging begin again.
[...] Most online FOREX brokers offer a spread of 5 tips on EUR- USD, which is the most widely traded and liquid currency pair. Many brokers offer a 3 pip spread on EUR-USD. In stock trading, only liquid stock offer tight spreads. Those spreads often represent on average between and of the value of the stock. In comparison FOREX brokers offers a 3 pip spread on all major currencies, this equates to approximately between and on the underline dollar value. Exact percentages at current rates (May 2006). [...]
[...] Weekend rates On weekends, when the markets are quiet, the rate is normally doubled to and respectively as liquidity is considerably limited CASH FOREX ORDER TYPES Margin Order Types The basic landscape in FX trading involves a number of order types the facilitate efficient transactions. Below, we have defined several of the most common terms. 1)Limit A limit order is commonly used to enter or exit markets at a specified price or better than the market price. In addition, a limit order allows the trader to manage the length of time that the order is current or outstanding before it is cancelled. [...]
[...] The foreign exchange option buyer pays a premium to the foreign exchange options seller in every option transaction The Forex Put Option- A foreign exchange put option gives the foreign exchange options buyer the right, but not the obligation, to sell a specific foreign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the foreign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option “premium”. [...]
[...] Main difference between the two types of analysis: FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS Focuses on what ought to happen Focuses on what actually happens in a market in a market FACTORS INVOLVED IN PRICE CHARTS ARE BASED ON MARKET ACTION ANALYSIS INVOLVING 1.supply and demand 1.price 2.seasonal cycle 2.volume 3.weather 3.open interest (future only) 4.government policy The fundamental studies the cause of market movement, while the technician studies the effect A STUDY ON DAILY FLUCTUATIONS IN FOREX MARKET Major collapse under Dollar's onslaught EUR/USD- The June Dollar posted an inside day with a higher close on Wednesday but remains below the 10-day moving average crossing at The high-range close sets the stage for a steady to firmer opening on Thursday. [...]
[...] Let's look at foreign exchange risk management issues that may come up in our day-to-day foreign exchange transactions: Unexpected corrections in currency exchange rates Wild variations in foreign exchange rates Volatile markets offering profit opportunities Lost payments Delayed confirmation of payments and receivables Divergence These are the areas that every trader should cover both BEFORE and DURING a trade Exit the Forex market at profit targets Limit orders, also known as profit take orders, allow Forex traders to exit the Forex market at pre-determined profit targets. [...]
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