Transactions in the foreign exchange market
Conversion operations - this is the treatment of one currency to another at an agreed rate of the two parties to a certain date. The basic approach to profit is to buy a currency and sell cheaper, but at a higher price, or vice versa, you sell more, then buy it the same, but cheaper. This approach is called arbitration.
Temporary arbitrage - is the opening position at one time and closing it after some period after the movement of prices.
Spatial arbitrage - trading with a small difference in prices in different financial markets at this particular moment in time. In this case, the position is opened and closed almost simultaneously, in time catch profitable difference in prices.
Cross-arbitration - profits made on foreign exchange transactions in a few of some other currencies (eg, Dollar - Yen - Pound - Dollar).
The minimum value of variable pricing is called point.
We consider the 4 major currency pairs:
GBR / USD, EUR / USD, USD / CHF (item - one ten thousandth), USD / JPY (point - one hundredth). Numerator - the base currency, the denominator-listed.
All commercial transactions are conducted on the base currency, the value of the item is determined by the quote currency. Also, trading can be carried out on cross-rates among major currencies: EUR / CHF, EUR / GBP, EUR / JPY, GBP / CHF, GBP / JPY.
The bill, which the trader is trading operation known as margin. The ratio of the deal, authorized by the bank, and a real credit trader in the margin account, called the credit side. Different banks offer your shoulder to the level of 1:5 - 1:500.
Depending on the conditions of the temporary spot and distinguish between transactions
forward exchange markets.
Spot-if operations are at current prices, with immediate compliance
payment obligations (within 2 working days). Estimated market share spot is 60-70%.
Forward - The principle of the same, difference only in the timing. It carried out the transaction to the performance of contractual obligations in the future, in time, which is more distant than the spot market.
World trade is conducted around the clock and stayed only for a period
weekends and national holidays. Transaction is considered completed only when a mandatory condition: if, after direct transaction (purchase or sale) is the inverse (respectively, the sale or purchase).
When buying an open position is called the long (long), with sales - short (short).
Before closing the position emerging in the course of development of market opportunities that have not yet become a reality, called a floating profit or loss of floating.
Spread
Any quotation - or reverse - the client is selling the base currency at the rate of Bid and Offer (the highest rate). The difference between Bid and Offer rates is called the spread (Spread - the difference between the rates of Bid and Offer).
Naturally, the customer is always beneficial for a small spread. Banks are more willing to work with a small spread, when the currency has high liquidity, and to a lesser extent, when the market volume of trade of the currency low. In this case, it is difficult to find a partner and close the currency position. For safety reasons, spread increases as compared to conventional markets in volatile markets, before the publication of important economic data due to political events or at the end of the trading day.
Currency symbol
In order to communicate in one language, all foreign exchange trading recognize and respect have developed over time, international standards and regulations. For example, for the representation of currencies in all transactions entered into in writing, as well as confirmation of their use so-called ISO-codes (ISO - International Organization for Standardization). They are also linked with international payments. Single currency code is composed of three letters: the first two letters denote the country, the third - the currency. These codes will be used later.
- USD - U.S. Dollar
- EUR - International European currency - the euro
- GBP - British Pound Sterling
- CHF - Swiss Franc
- JPY - Japanese Yen
- CAD - Canadian Dollar
- AUD - Australian Dollar
The main stages in the development of global financial market.
30-s XX century
The world financial crisis. Is the destruction of trade and economic ties. Thing of the past times, the rule of gold coin standard. By the mid 30’s London becomes the world’s financial center. British pound sterling at that time was the main currency for trade transactions and the establishment of foreign exchange reserves. Even then pound jargon called “Cable” ( “cable”). This name is connected with the fact that the means of communication with the transactions was the telegraph and the information transmitted by cable .
In 1930, the Swiss city of Basel was established Bank for International Settlements. The goal was financial support for young independent states and nations, is experiencing balance of payments deficit.
1944
In the United States was the Bretton Woods conference. It is believed the end of the US-British rivalry. The conference was attended by two major figures: John Maynard Keynes (England) and Harry Dexter White (USA). They managed to create and adopt a new order for the world financial system under the circumstances.
The main provisions of the Bretton Woods system
The International Monetary Fund has become a vital institution that monitors international financial and economic relations;
Declared the currency, playing the role of international reserves (the dollar and the de facto pound);
There are adjustable parities of currencies to the U.S. dollar (possibly rejecting - 1%);
dollar pegged to gold (ounce of gold - $ 35);
IMF members have the right to change parities only with the consent of the IMF;
Upon completion of the transition period, all currencies should be convertible;
to comply with this principle, all governments commit themselves to keep international reserves and, if necessary - to carry out intervention in currency markets. Members of the IMF makes contribution of currency and gold.
1947
To pause the onset of communism in the United States adopt a program of recovery of European economies. U.S. Secretary of State Marshall, in his report to outline a plan under which the European economy is healthy to a level where it can maintain its own military capabilities. One of the challenges is utolenie “dollar famine”. When in 1949 the U.S. dollar liabilities Europe accounted for 3.1 billion, then in 1959 they reached 10.1 billion dollars.
Participants in the foreign exchange market - brokerage company
Their duties include bringing the buyer and seller of foreign exchange and conversion between the two operations. During his brokerage brokerage firms charge a brokerage commission. At Forex there is no commission, usually a percentage of the transaction amount or a certain predetermined amount. Generally, dealers of broker companies traded currency with a spread, which had already laid their commission.
Brokerage firm, has requested information on courses, a place where a real exchange rate is already on the transaction. Commercial banks are informed about the current level of satisfaction from the brokerage firms.
Among brokerage firms in the international currency markets, best known for such as Lasser Marshall, Harlow Butler, Tullett and Tokio, Coutts, Tradition, and others.
Foreign exchange market - investment funds
These companies provided different kinds of international investment, pension, mutual funds, insurance companies and trusts are implementing a policy of diversified management of portfolio assets by placing funds in securities of governments and corporations of different countries.
The most well known fund “Quantum” George Soros, the successful carrying out foreign exchange speculation.
For this type of firms are also major international corporations engaged in foreign manufacturing investment: the creation of subsidiaries, joint ventures, etc., such as Xerox, Nestle, General Motors and others.
Central banks in foreign exchange market
These functions include management of foreign exchange reserves, foreign exchange interventions have an impact on the level of the exchange rate, as well as regulation of the level of interest rates on investments in the national currency.
The biggest influence on world currency markets is the U.S. central bank - the Federal Reserve System (US Federal Reserve or FED).
Then followed by the central banks of Germany - Bundesbank (Deutsche Bundesbank or BUBA) and British (Bank of England also called the Old Lady).
Central Bank monitors the level of inflation in the country, the national currency and is trying to regulate with the help of three key interest rates:
1. Discount Rate - Discount rate. The interest rate under which the Central Bank credits
commercial banks. American and British rates are quite high, so they have a great interest of foreign investors.
Currency market - currency exchange
Unlike the stock exchanges and stock exchanges for foreign currency transactions for a period of work alyutnyh exchange takes place not in a certain building, and during certain hours. The development of telecommunication technologies, most major financial institutions in the world use the services markets directly and through intermediaries around the clock. Most major world stock exchanges are the London, New York and Tokyo exchange markets.
Participants in the foreign exchange market - commercial banks
hey carry out the bulk of foreign exchange. In the other banks holding accounts of market participants and carry out their necessary conversion transactions. Banks as would accumulate (through transactions with customers), the aggregate market demand for currency conversion, as well as in attracting and placing funds and go with them to other banks.
In addition to meeting the requests of customers, banks can conduct operations independently and at their own expense.
Major participants in the foreign exchange market
FOREX (Foreign Exchange Market) - Global foreign exchange market to exchange a certain amount of currency of one country to another currency at an agreed rate at a specified date.
Forex does not have any specific place of trade. This is a huge network of interconnected via telecommunications currency dealers focused on all the world’s leading financial centers around the clock and working as a single mechanism. Major participants in the foreign exchange market are:
- commercial banks,
- Currency Exchange,
- central banks,
- firms engaged in foreign trade operations,
- investment funds,
- brokerage companies,
- private individuals.
The major currencies, which accounted for the bulk of all perazim market forex, is today the U.S. dollar (USD), euro (EUR), Japanese Yen (JPY), Swiss Franc (CHF) and British Pound Sterling (GBP).
The daily volume of conversion operations in the world is about 2 rillionov U.S. dollars. At the London market accounted for about 30% of the turnover, the share of the U.S. market - 20%, Germany - 10%. Transactions involving the U.S. dollar accounted for 70%. The share of electronic brokers now account for 15% of the market FOREX.
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