EA EURONIS - FREE Expert Advisor. What is the market FOREX?

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What is the market FOREX?

FOREX (Foreign Exchange) - an acronym (decrease) from the Eng. "foreign exchange", which translates as "international exchange". The forex market is a collection of various trade, investment and speculative operations with currency, implemented through a system of institutions (central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, multinational corporations, etc.) FOREX is not a full understanding of the exchange, as is a network of trade relations, not tied to a specific "physical" place of trade. The FOREX market operates 24 hours a day, 7 days a week. Transactions for the purchase of a currency occurs between the main actors: the big banks - investment funds, their clients directly and through intermediaries. The volume of transactions in this market by some estimates make up more than a trillion dollars a day, most of which takes place in financial centers: the UK (London), United States (New York) and Japan (Tokyo). Most transactions in this market is not the purpose of acquiring real currency, but in order to profit on the difference in exchange rates.

Major currencies traded in this market, traded to the U.S. dollar and are called the major currency pairs:
EURUSD - Euro to U.S. dollar
GBPUSD - Pound Sterling to U.S. dollar
USDJPY - U.S. Dollar vs Japanese Yen
USDCHF - U.S. Dollar vs Swiss Franc
USDCAD - The U.S. dollar to Canadian dollar
AUDUSD - Australian Dollar to U.S. dollar.

Cross-rates - Exchange rates:
EURGBP - Euro to Sterling
EURCHF - Euro vs Swiss Franc
GBPCHF - Pound Sterling to Swiss franc
GBPJPY - British Pound Sterling to Japanese Yen
EURJPY-Euro to Japanese Yen

Global interbank foreign exchange market FOREX, an outlet to which came from investors, its present appearance in the late 70's, after the termination in 1971 of foreign exchange control of the Bretton Woods system and the transition to floating exchange rates.

This is the only global market, operating 24 hours a day. Ability to work in the financial markets in Asia, Europe and America became available thanks to their unification in one global communication network. Twenty-four hour access to the currency market can open and close positions at the most opportune time and at a better price.

A growing number of individuals and legal persons in the CIS countries and throughout the world seeking revenue significantly faster than existing financial instruments. This is traded on the international currency market due to minute by minute fluctuations of currencies.

Providing banks and brokers the possibility to conduct foreign exchange transactions in amounts many times greater than actually invested funds, allows the investor having the sum total of $ 1000, to become a full participant in the market. This clock is running and most liquid market in the world every day is bought and sold over one trillion dollars and contracts for purchase and sale of currencies for a period ranging from one day to 12 months. The major currencies in this market are U.S. dollar, Euro, Japanese Yen, Swiss franc and British pound, while market participants: banks and brokerage houses, corporations and export-import firms, foundations, and individual investors.

Transactions in the foreign exchange market is one of the main sources of income for banks worldwide. For example, 80% of the profits of the largest Swiss bank "Union Bank of Switzerland" (UBS) in 1994 amounted to foreign exchange transactions with currencies and only 20% of all profits made from the proceeds of loans, securities trading, etc. (see financial report "UBS Annual Report of 1994"). Gains from foreign currency transactions on the FOREX market are paramount as well, and banks such as Citibank, Chase Manhatten Bank, Barclays Bank, Sosiete Generale Bank & Trust, ABN-AMRO Bank. The classical operation of George Soros (George Soros) in 1992, selling the British pound (GBP) against the German mark (DM) and the U.S. dollar (USD) brought him within two weeks of a billion dollars of net profit, making Soros famous and launched his charity activities. Currently, the bank can not exist and be competitive, without the opportunity to trade currency. Currency transactions allow the Bank to be independent of changes in the dollar if the bank funds are in U.S. dollars or any other currency. Laws of development of market economy will force banks to include currency dealings in the arsenal of means, mandatory for survival in an ever-growing competition in the banking sector.

Margin trading to bring in the FOREX market investors with amounts less than $ 1 million (the standard unit of trading in this market), margin trading mechanism is used. "Margin Trading" was first introduced for currency trading in 1986. In this case, in order to implement the deal, you need only a small percentage of the total amount of the contract, called a security deposit or "margin". The main difference between working in the FOREX market to work in other financial markets, which explains the intense interest in him is the possibility of buying and selling foreign currencies in the absence of the full amount needed for operations. For the transaction the customer must make the initial margin only, after which he is able to conclude the transaction, which may have 50-100 times higher than the original amount. This so-called "shoulder" (leverage), granted by a bank or other credit institution, where the client pays a guaranteed margin. For example, placing the bank or brokerage firm security deposit to $ 100,000, you can handle the amount of 5-10 million dollars. Therefore, even a modest gain on FOREX (relative to the input amount) is a significant size.

Another benefit of FOREX is the ability to profit in any direction of price changes. After all, sales of German marks or Japanese yen does not necessarily have to run it marks or yen. For greater clarity, here is an example: Suppose your account is 2000 USD. This means that with leverage 1:100, you can open the position of 200000 U.S. dollars. At 11:00 the dollar against the Swiss franc reached 1.4045 - 1.4050. Do you think that the dollar is currently undervalued and should rise and give an order to buy 100 thousand dollars for this course. At 15:00 the dollar exchange rate - 1.4250 - 1.4255. You decide - to close the position and sell its 100 thousand dollars on a new course. Your income - 2000 Swiss francs or 1400 U.S. dollars. Is 140% of input amount. After closing the position, money already in your account. You can see the result of this transaction in the "Account History" of your trading terminal.

Modern software allows you to perform all operations on the Internet for a few seconds, by clicking "a mouse on your chosen currency pair

Formation of the exchange rate.
The formation of the exchange rate to affect three groups of factors:

- Fundamental Factors

- Technical factors

- Short-term unexpected factors

Fundamental factors are the key macroeconomic indicators of the national economy, the impact on the participants of the currency market and the level of the exchange rate. Usually in world currency markets, where 80% of operations carried out with the U.S. dollar, the data have the greatest impact on the U.S. economy, which leads to an increase or decrease in the dollar against other currencies.

There are several main fundamental factors:

- Exchange rate purchasing power parity

- Gross national product

- The level of real interest rates

- Unemployment

- Inflation

- The index of industrial production.

Thus, the universal rule for the trader's open positions should be orientation to the expectations and sentiments of the majority of the market. This is achieved by analyzing the situation on the publications, the study reviews the state of the market in information systems, Reuters, Bridge (Dow Jones), CQG. This information is gradually emerging in the model of various behaviors of the course after the publication of economic indicators. The task will consist of a trader to join the movement rate dictated by the majority of the market - "to jump into the boat" (don't miss the boat).

Technical analysis - is the area of market analysis, assume that the market has a memory, and that the future movement of the course is greatly influenced patterns of his past behavior. Thus, the theory of technical analysis has a high degree of predictability. In recent years, due to the rapid development of electronic means of analysis offered by Reuters, Bridge (Dow Jones), CQG and others, a growing number of traders base their decisions on the use of technical analysis, which increases the impact of its laws on the real movement of the course.

Technical analysis - a method of forecasting prices using the graphs of market movement for the previous periods. Work in the field of technical analysis over the past 30 years show that technical analysis - it is a science with its own philosophical system and a set of axioms.

In addition to fundamental and technical factors, whose influence can be predicted, short-term unexpected factors can make significant adjustments to the dynamics of movement of the exchange rate. These include the following factors:

- Force Majeure events - natural disasters (earthquakes, tsunamis, typhoons, floods, etc.)

- Political developments - the war, came to power, presidents, political scandals, terrorist acts, etc.

- Opinions of political leaders.

- Foreign exchange interventions by central banks.

Exchange Market FOREX-is a powerful financial tool that provides an opportunity to receive high profits from even minor fluctuations in world market prices of currencies (in this case remains a real possibility of losing their investments). Magnitude of the currency market are enormous. Every day here is bought and sold about $ 4 trillion, and the volume of the operations increased by 5-7% annually. This quantity is much greater than the amount of any commodity, stock, futures or any other market (for comparison: the daily turnover of the securities market - about $ 300 billion in currency futures market - about $ 40 billion).

Currency market - is, in essence, a set of conversion operations on buying and selling foreign currency on the specific conditions (amount, exchange rate, period), which take place between participants in the FX market. With respect to conversion transactions in the English language adopted the term sustainable Foreign Exchange Operations, abbreviated FOREX.

It should be noted that the FOREX market is not in the usual sense. It has no single center. Trading on the FOREX market is made by telephone and computer terminals. Those who already faced with the mechanisms of functioning of the foreign exchange market (FOREX), it is clear that it differs significantly from the patterns described in classic textbooks on macroeconomics, who argue that supply and demand determine the equilibrium exchange rate.

In reality, the currency market FOREX, as, indeed, all financial markets, is never in equilibrium, its state can be defined as a constant search for an elusive balance. For some time, namely in 1971, this quest noticeably more active. This happens due to the abandonment of the Bretton Woods system of fixed exchange rates and the transition to "free swimming" currencies relative to each other. The result of departure from the policy of state regulation in exchange rates (it usually does not bring the desired results) has been the influx of the FOREX market professional players and, consequently, increased exchange rate fluctuations.

The fact that the FOREX market is subject to significant fluctuations, causing people to mixed reactions. For professional traders - is a potential source of income, whereas for the financial managers of corporations or investment funds - is more a source of risk and uncertainty about future income.

The FOREX market is attractive for investors. In recent years, professional investors have significantly increased the level of their participation in the foreign exchange market, FOREX. The number of private investors is also growing. To summarize, briefly characterize the many features of the market FOREX, professional investors are encouraged to take part in it:

Liquidity.

The FOREX market operates the enormous money supply. At the same time as the goods are themselves the money. Cost of one transaction several times higher than rates in any other market. This feature of the FOREX market the most attractive for investors because it provides complete freedom in the momentary opening or closing any position. Among other things, high liquidity has a powerful magnet for any investor, because it gives him the freedom to open and close position of any volume

Accessibility.

The attraction is the opportunity to trade 24 hours a day for 7 working days. Members of the FOREX market there is no need to wait for the opening of the market (as it does on other platforms), and, consequently, it is possible in time to respond to any developments
Flexible system of organization of trade. Many investment managers, opening this or that position, advance planning for the time of their future actions. The FOREX market position may be opened at predetermined intervals at the request of the investor that undoubtedly attracts investors

Flexible strategy to pay for the deal.

In FOREX, traditionally there is no fees, except for natural market difference (spread) between the prices of supply and demand. However, in practice, as a rule, a trader opens an account with a minimum amount of commission for currency conversion operations, resulting from a contract with the market maker or a broker-agent. Depending on the activity of the trader and an investment account balance the amount levied by the commission may be significantly reduced.

The focus of FOREX.

The movement of currencies has a definite and identifiable focus, which is tracked for a sufficiently extended period of time. Each particular currency demonstrates the inherent only picture of her in time, allowing investment managers the opportunity to meaningfully manipulate attracted assets
Uniqueness quotes. Because of the high liquidity in the market for sale a virtually unlimited amount can be made on a single market price. This avoids the problem of instability, existing futures and other stock investments, which at one time and at a certain price can be sold only to a limited number of contracts

Margin.

The size of the credit "leverage" (margin) in the FOREX market is determined only by agreement between the customer and the bank or broker of the firm, which provides the customer time to market and is typically 1 / 1, 1 / 50 or 1 / 100 (that is, you have opportunity to operate up to 100 times greater than those with really). Using such large credit "shoulders" along with the strong variability of quotations of currencies and makes this market highly profitable (high risk). Some brokerage firms provide a leverage of up to 1 / 500.

Among other things, should indicate the two most common misconceptions.

The first misconception is that the operations in the FOREX market are the counterpart of the roulette game (maps, etc.): The players make bets, someone wins, and soon a lot, and all others remain empty. The FOREX market is not roulette, as the basis of changes in exchange rates are certain regularities. First, the value of currency depends on the economic performance, and secondly, is determined by preferences and expectations of market participants. Despite the complexity of relationships, they are amenable to analysis and forecasting. Not without reason, strong opposition and skepticism to work on the world currency market expressed only by those who in reality it never worked. Immediate job market is changing this attitude, because his analysis is in itself more objective than accidental.

Second misconception, but rather not misleading, and frequently asked questions about that one win can be achieved only at the expense of losing others. It is, however, remember that the FOREX market is not all "play" to change course. There are large groups of participants, using the conversion operations for other purposes (exporters, importers, large investors, tourists), for which short-term fluctuations do not play a significant role. The main customers of these operations are import-export company.

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