forex

CURRENCY trading isn't just for money center banks, multinational corporations and hedge funds anymore.

Online traders with a hankering for high-risk speculation have embraced the vast and volatile forex market, as the global foreign exchange market is called.

Getting started is a snap. Investors can open an account over the Internet with a deposit of just a few hundred dollars. Downloading a trading platform takes minutes. Then they can start wagering in real time on which currencies are headed up or down. Because trading occurs in Tokyo, London, New York and other world financial centers, it's possible to speculate day and night from Sunday afternoon to Friday afternoon Eastern Standard Time.

But watch out. The leverage on a standard trade is a breathtaking 100 to 1. That means a customer who puts up $1,000 controls 100 times that, or $100,000. Trading primarily with borrowed money magnifies even minuscule moves of one currency against another into sudden big gains or huge losses. A 100 percent gain on a position, or a total wipe out, can take place in a few minutes.

For example, a one-cent change in how many dollars it takes to buy a euro - say, to $1.22 from $1.21 - amounts to an actual price shift of less than 1 percent. But in a spot forex trade, when 100-to-1 leverage is used, the same slim move is multiplied a hundredfold. So there's a $1 increase for each $1 staked by traders on the euro's climb, and an equivalent drop for those expecting the dollar to go higher.

Of course, profits and losses are not realized until a position is closed out. But investors who leverage themselves to the hilt in pursuit of quick outsize returns often find that they are rapidly burning up the capital in their accounts when a few trades go sour.

Firms provide mechanisms to dial down the leverage to, say, 10 to 1, reducing exposure to risk. But leverage still makes this one of the most hazardous markets for the average investor.

"Currencies should be and are becoming an integral part of a well-diversified portfolio," said Marla Miller, chief operating officer of the MG Financial Group, one of the first firms to offer foreign exchange trading for individual investors. "However, they are appropriate only for investors who can assume the risk of losing everything."

Currency trading isn't merely risky. It's also complex, from the rudiments of trading techniques to understanding the supply-and-demand factors that lie behind the constant shifts in relative currency values.

To follow the fundamentals of the forex market, it helps to be a maven of global macroeconomics and a fiend for geopolitics. Investors who are trading the dollar in relationship to the euro would be wise to parse every nuance of the comments of Alan Greenspan, the Federal Reserve Board chairman, about interest rate policy, as well as the deliberations of the European Central Bank and the words of its president, Jean-Claude Trichet.

Big-picture issues can preoccupy the currency markets. Today, the questions include these: How much has the euro been wounded by decisive votes in France and the Netherlands rejecting the European Union's proposed constitution? Will China effectively revalue the yuan, and by how much? And would such action by China set off a cataclysmic decline in the dollar?

Technical traders, who ignore such fundamental issues, instead take positions by analyzing chart patterns with arcane mathematical tools like Fibonacci retracements and Ichimoku clouds. Such traders have adapted readily to the foreign exchange market because currencies tend to move in long-term trends.

The interest of many technical traders was galvanized by the three-year climb of the euro against the dollar, from around 85 cents at the start of 2002 to just above $1.35 at the end of 2004 - a climb of around 60 percent. In this highly geared market, a $1,000 position at the start, leveraged at 100 to 1, would have become $50,000 in three years.

This year, of course, the dollar has changed course, rallying sharply against most major currencies, including the British pound and the Japanese yen but especially against the swooning euro. (Early last week, the euro fell to just above $1.20; it approached $1.23 on Friday.) Traders are divided over whether the dollar's rebound is simply a respite in a more prolonged drop or the start of a major reversal.

Even the seasoned online equity trader who wants to give the forex market a whirl faces a steep learning curve. And then there is the risk factor. "Don't call it investing - this is speculation, and people should only be putting up risk capital they can afford to lose," said Marc Prosser, chief marketing officer at Forex Capital Markets or FXCM, a firm that offers online trading.

Refco, the big futures broker, bought 35 percent of FXCM in early 2003 and licensed its trading platform. In April, Refco announced its intention to go public. Refco and FXCM are based in New York.

Currency trading by individual investors is not new. In 1972, the Chicago Mercantile Exchange introduced currency futures contracts, though spot trading by individual investors was not common until the late 90's.

Several developments over the last few years have spurred the market's growth, Mr. Prosser said. The passage of the Commodity Futures Modernization Act in 2000 by Congress "has cleaned up the industry," he said, although investors still need to be wary.

The end of the dot-com boom and the collapse of the Nasdaq index five years ago sent day traders looking for new opportunities. In the forex market, there is no such thing as a bear market, because it is possible to make money trading currencies by buying contracts or selling them short; up and down moves are equally playable.

Frequent financial headlines about currency market developments, meanwhile, have caught the attention of traders. "When the euro topped 1.30 to the dollar, that's when we saw a huge surge of interest," Mr. Prosser said.

His firm has more than 55,000 individual accounts. The minimum balance is $300, though he said the largest single account is "in eight figures." The average account size is between $5,000 and $10,000.

"I think we've only scratched the surface, and we're where online trading in equities was in 1996 before it took off," said Mark Galant, the chief executive of GAIN Capital, based in Bedminster, N.J. GAIN caters to individual investors through its Forex.com division.

MOST firms offer a demonstration account as a free, no-risk way to test-drive the spot forex market for up to a month. The demonstrations simulate trading and include charting software, proprietary news feeds and a cornucopia of analysts' advice on strategies. Some also include risk-management tools like stop orders that can be set off when a currency contract hits a designated point; this feature is especially helpful if that point is reached while the trader is asleep.

The demos also come with a fictitious bundle of cash, from $25,000 to $100,000 depending on the firm, to bankroll up to a month of test trading.

Despite the sky-high leverage that makes forex trading risky, regulation of the industry is limited. Trading desks worldwide deal in an over-the-counter market linked by computers and the Internet. Transactions are completed largely on trust and consummated with an electronic handshake. Daily turnover is estimated at $2 trillion, 20 times the value of equities traded on the world's stock exchanges. No international body regulates this global commerce.

In the United States, there is some regulation, but it is indirect. The National Futures Association, a self-regulatory organization, and the federal government's watchdog, the Commodity Futures Trading Commission, regulate retail forex firms but not the market itself. The market has long been plagued by swindlers preying on the gullible, and corralling them has absorbed a big share of the enforcement resources of the N.F.A. and C.F.T.C.

That places an extra due-diligence burden on would-be traders to investigate thoroughly the background, capitalization and enforcement record of a company before they hand over any money. An essential starting point is the Web site of the National Futures Association, www.nfa.futures.org. The association offers a concise brochure on what investors should know about off-exchange forex trading. It is available at www.nfa.futures.org/investor/forex.asp.

"The best way to improve the industry is to ensure that the customers are educated about the risks and the marketplace," said Ms. Miller of MG Financial. "An educated customer will not work with the shady characters."

What is traded in the forex market? The simple and straight forward answer is money. Forex trading is the simultaneous buying of one currency and the selling of another.

Currencies are traded through a broker or dealer like EToro, and are traded in pairs; for example the euro and the US dollar or the British pound and the Japanese Yen.

The Forex market is considered an Over-the-Counter or 'Inter bank' market. This is due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Until 1990, the minimum requirement to open a forex trading account ranged from $ 10 million - $50 million. It was only intended to be opened for bankers and large financial institutions. Due to the rapid growth of internet, now these large financial institutions are offering retail accounts to us.

Foreign Exchange Trading is simply the purchase and sales of currency based on the strength of the currency and the fluctuation in the value of that currency. For example, if one were to invest $1,000 against the British pound at 1.7999 with a 1% margin and anticipate the exchange rate to climb. If that occurs and you close the exchange rate at 1.8050 you would earn roughly $400. Forex is giving you a 40% return on your investment.

Forex offers the possibility of huge profits in relatively short periods of time. The stock exchange is very different in that positions are generally maintained over a longer period of time. Although there are day traders, Forex traders have much shorter hold times on positions. Similar to the stock market marginal accounts can be obtained in the Foreign Exchange Market as well.

Forex marginal accounts are very engaging as they allow Forex traders to take large positions without having to make a large deposit. In many circumstances one can fund a marginal account with .05% the necessary funds. In other words, $500 would allow a $100,000 position. In order to trade Forex effectively and profitably, one must have some type of method to follow. There are two methods used in determining what Foreign Exchange trades one should make. There are two methods, fundamental Forex analysis, and technical Forex analysis.

Identification

Each nation's currency has an exchange value compared to other currencies which fluctuates in response to market forces. Currencies are traded in pairs. A good example is the US dollar/Euro pair, which is the largest volume currency pair. You'll see it quoted as EUR/USD
1.3755 meaning at the time of the quote it cost $1.3755 to buy one Euro. The foreign exchange market exists to allow businesses, financial institutions, and governments to quickly and easily move funds from one country to another. However, traders hoping to make money off changes in exchange rates account for 80% of Fores trading volume.

History

The modern Forex market had its beginning in 1971 when fixed exchange rates were abandoned and currencies were allowed to float against each other, a step taken to make international trade more flexible. International trade combined with the growth of the Eurodollar market (US dollars deposited in non-US banks) created a$70 billion a day market in the 1980s. The advent of electronic funds transfers in the 1990s opened the door to speculative trading and rapid growth. By 2004 Forex trading reached nearly $2 trillion a day and passed $3 trillion daily in 2007.

Function

Like other securities transactions, Forex is based on a "bid/ask" system. A buyer stated a bid and a seller an asking price. The difference, called the spread, is small. for wholesale dealers it is often no more than $.0001 (this is the smallest possible change in price and is called a pip). Retail dealers mark the spread up to 3-20 pips and keep the difference, instead of charging commissions. In forex trading the goal is to correctly anticipate the direction (up to down) of a currency exchange rate and hope the change is greater than the spread. If that happens the trader makes a profit.

Risks

Forex trading is done with extremely low margin requirements. This is the source of the high profit potential and high risk. The ratio of currency value to the margin requirement is usually 30,100, and up to 400 to 1. In other words, in Forex trading you can "buy" a lot of $100,000 of a currency with as little as $250 cash. The rest is borrowed from the currency dealer. With such extreme margins, even very small changes in currency exchange rates spell the difference between a big profit and losing all of the money you put up.

Considerations

Currency exchange rates change in response to economic factors such as a nation's monetary policy, balance of trade, inflation rate, and breaking news. Market trends driven by trading also influences exchange rates. Before you attempt forex trading, you should educate yourself about these market forces. The Forex market is unregulated, so it's wise to choose a dealer who is a member of a self-regulating body the National Futures Association.

It is now possible to trade cash FX, or forex (short for Foreign Exchange (FX)) or currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry."

Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzerland now requires forex brokers to become a bank before conducting FX brokerage business from Switzerland.

Algorythmic or machine based formula trading has become increasingly popular in the FX market,with a number of popular packages allowing the customer to program his own studies.

The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.

Top 6 Most Traded Currencies

Rank	Currency	ISO 4217 Code	Symbol
1	United States dollar	USD	$
2	Euro	EUR	€
3	Japanese yen	JPY	¥
4	British pound sterling	GBP	£
5/6	Swiss franc	CHF	-
	Australian dollar	AUD

While forex has been traded since the beginning of financial markets, on-line retail trading has only been active since about 1996 . From the 1970s, larger retail traders could trade FX contracts at the Chicago Mercantile Exchange.

By 1996 on-line retail forex trading became practical. Internet-based market makers would take the opposite side of retail trader’s trades. These companies also created retail forex platform that provided a quick way for individuals to buy and sell on the forex spot market.

In online currency exchange, few or no transactions actually lead to physical delivery to the client; all positions will eventually be closed. The market makers offer high amounts of leverage. While up to 4:1 leverage is available in equities and 20:1 in Futures, it is common to have 100:1 leverage in currencies. In the typical 100:1 scenario, the client absorbs all risks associated with controlling a position worth 100 times his capital.

Currencies are quoted in pairs, for example EUR/USD (euro versus United States dollar). The first currency is the base currency and the second currency is the quote currency. A person who is short the EUR/USD will have a loss if the USD loses value and make a profit if the EUR loses value. A person who is long the EUR/USD will make a profit if the USD loses value and have a loss if the EUR loses value.

Key Concepts Behind a Retail Forex Trade

Currency Pairs

Currency prices can only fluctuate relative to another currency, so they are traded in pairs. Two of the most common currency pairs are the EUR/USD (the price of US dollars quoted in euros) and the GBP/USD (the price of US dollars quoted in British pounds).

High Leverage

The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.

Typically a trader's retail forex platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If one of his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.

If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.

Transaction Costs and Market Makers

Market makers are compensated for allowing clients to enter the market. They take part or all of the spread in all currency pairs traded. In a common example, EUR/USD, the spread is typically 3 pips (percentage in point) or 3/100 of a cent in this example. Thus prices are quoted with both bid and offer prices (e.g., Buy EUR/USD 1.4900, Sell EUR/USD 1.4903).

That difference of 3 pips is the spread and can amount to a significant amount of money. Because the typical standard lot is 100,000 units of the base currency, those 3 pips on EUR/USD translate to $30 paid by the client to the market maker. However, a pip is not always $10. A pip is 1/100th of a cent (or whatever), and the currency pairs are always purchased by buying 100,000 of the base currency.

For the pair EUR/USD, the quote currency is USD; thus, 1/100th of a cent on a pair with USD as the quote currency will always have a pip of $10. If, on the other hand, your currency pair has Swiss francs (CHF) as a quote instead of USD, then 1/100th of a cent is now worth around $9, because you are buying 100,000 of whatever in Swiss francs.

Financial Instruments

There are several types of financial instruments commonly used.

Forwards

One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.

Futures

Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Swaps

The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.

Spot

A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market.

A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The stock market in the United States includes the trading of all securities listed on the NYSE Euronext, the NASDAQ, the Amex, as well as on the many regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock exchanges include the London Stock Exchange, the Deutsche Börse.

Market participants

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds, investor groups, banks and various other financial institutions). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large institutions.)

However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee') institutional 'owners'.

History

Historian Fernand Braudel suggests that in Cairo in the 11th century, Muslim and Jewish merchants had already set up every form of trade association and had knowledge of many methods of financial dealings, disproving the belief that these were originally invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first share on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" (Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7, April 5, 2001). There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, UK, Japan, China, Canada, Germany, and France.

Trading

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.

Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange is a physical exchange, also referred to as a listed exchange — only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading".

The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant^.

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions.

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

The First Stock Exchanges

In 11th century France the courtiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers.

Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met.

However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighbouring counties and "Bourses" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.

The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.

On May 17, 1792, twenty-four supply brokers signed the Buttonwood Agreement outside 68 Wall Street in New York underneath a buttonwood tree. On March 8, 1817, properties got renamed to New York Stock & Exchange Board. In the 19th century, exchanges (generally famous as futures exchanges) got substantiated to trade futures contracts and then choices contracts.

There are now a large number of stock exchanges in the world.

Imagine a market that never closes.. That you always get the price quoted.. Is completely liquid...Is so HUGE, no one cares when you "dip" in and scoop out your small share from the Pot of Gold.

Unbelievable?? Yes! But absolutely true.

It's the largest financial market in the world. Trading over $4 Trillion a day. In comparison, The New York stock Exchange trades a measly $24 Billion a day and the Commodities market in Chicago does around $86 Billion. This market is ideal for the confident, risk-tolerant investor, who is tired of the irrational price movements on the stock market....
Who is fed up with the housing collapse.. and no longer cares if oil goes to $200 or $50 a barrel....

If you are not risk-tolerant, put you money in GIC at 2.56% and watch inflation erode the value of your investment.

Are you are ready to move up and play on an even footing with the "Big Boys" in a market that completely over shadows stocks, bonds, commodities, options and housing?

Everyday, every hour, governments, banks, major corporations and individuals buy and sell foreign currencies. You do it every time you go on a vacation outside your home country. Whether it is pay off foreign debts, import or export goods, or for tourist trips, money in constantly moving from one currency to another.

Until recently, the Foreign Exchange Market (Forex) could only be traded by Fortune 500 companies, major banks, governments and the ultra-wealthy. In the "Good Old Days", this Pot of Gold was only available to those with ten to fifty million dollars to play with. Today, it is open to anyone with a couple grand. It used to be that only huge banking concerns, hedge funds, governments and the extreme wealthy could bet on how current events would affect the value of world currencies.

But no longer...

With the Internet, desktop trading

Platforms, deregulation and globalization, anyone can profit from the currency moves in the fast-paced, 24/7 market. Today, you can pull out as much as you want from the pot of Gold at the end of the Forex Rainbow.

Here's how...
Even people who have heard about Forex shy away because they think its complex. Actually, it is very simple. Forex investors make money by trading money.
11 reasons why the World's Financial Elite use Forex as their personal Pot of Gold...
1. Money is made as currencies rise and fall.
2. You can make money almost every day of the week-Forex is traded 24 hours a day, 6 days a week.
3. There's more money to be made in Forex, faster, compared to any other market. Forex overshadows all other markets combined.
4. The Forex is well analyzed.. there's an enormous amount of data from which to make your trading decisions.
5. The liquidity is the best of any market (there are always buyers and seller)
6. There are no insider-complete transparency (a refreshing contrast to Enron and other balance-sheet abusers) and no "house advantage" for the banks.
7. The lowest transaction costs of all the financial markets (which means you get to keep more of your winning trades).
8. Buy and sell sides are treated equally, because when you buy one currency, you simultaneously sell another.
9. You never have to worry about having your money tied up and being unable to sell the asset. Even on September 11, 2001 when the U.S. stock market was suspended for the three days, the forex market was still trading worldwide.
10. Currency trading is a great method for diversification-your results do not depend on the phase of the business cycle. Boom...Bust...Recession...Forex traders don't care.
11. Minimize your level of risk in two ways-first, you can invest at the standard 100.1, or you can choose a more conservative strategy to lower your risk. Second, every position smart Forex traders take uses a stop-loss.
Global Forex Trading: Understanding How the World Market Works

If there is one truly significant difference between the Forex market of the world and their counterparts in stocks, bonds, futures, commodities or any other trading market you can think of, it would have to be the fact that the Forex market is truly international. When you are trading stocks there are always going to be hurdles to investing in foreign companies and the same is true for futures, commodities and even land because the government has direct control over all of those things and it can exercise that control wherever it feels the situation warrants it.

The forex market on the other hand is simply about exchanging one currency or another. Aside from limitingthe amount of currency they have available and therefore limiting the liquidity in the marketplace, governments can do absolutely nothing to prevent international exchanges of currencies and for the reason when you trade with Forex, you are truly participating in global Forex trading in the most basic sense of the term.

Another advantage that the Forex market has that places it apart from all of the other trading markets is that it works around the clock. This is related to the point made in the previous paragraph about Forex trading being truly international. If you wake up at two in the morning and decide you want to sell or buy some stock in a company, you are out of luck until the start of the business day seven hours later.

You may be able to buy or sell the stock of companies in countries that are in their trading hours at the current moment in time, but even there you are going to be restricted as most countries place restrictions on how much of their private sector can be owned by foreign nationals. This is certainly true in the case of both the United States and China and they collectively represent more market share internationally than all of the other countries combined. forex markets on the other hand are truly international and this means that when the United States in finished with its business day, the business day of countries in Asia is just starting. You can trade Forex around the clock if you want to and for someone looking for day trading opportunities that is a very helpful factor indeed.

In conclusion, it is important to appreciate the harmonization and synchronicity of the global Forex market because there is absolutely nothing else like it in any financial sector. The uniqueness of Forex trading is precisely what allows you to trade Forex from the comfort of your own home in your bathrobe and it is that same uniqueness that makes Forex trading so popular. The popularity of the type of trading injects more liquidity into the market, making them look even more attractive and bringing in new investors in a self-perpetuating positive feedback loop. No other trading market in world history has ever had as stable a growth curve as the overall Forex market. And this, in the end, is what makes global Forex trading so special.

New Rule Requires Better Reporting to Retail Forex Investors

Forex Dealer Members (FDMs) are subject to NFA oversight because they are required to be registered with the CFTC and also to be members of the NFA. On June 1 of this year, FDMs will need to comply with heightened disclosure requirements to their retail forex investors. These greater requirements are designed to promote greater transparency into the retail investors’ account activity and balances. The new rule is Rule 2-44. More information can be found in the NFA release below:

NATIONAL FUTURES ASSOCIATION
FOREX CUSTOMER ACCOUNT STATEMENTS

In these challenging times, the need for investors to monitor and understand the activity occurring in their trading accounts has never been greater. National Futures Association (NFA) believes that customer account statements should contain clear, concise and complete information. The more difficult a customer account statement is to understand, the easier it is for a broker or account manager to mislead a customer about the value of a customer’s account and the success of the customer’s trades.

In an effort to provide retail forex customers with clearer, more uniform confirmations, daily statements and monthly statements, NFA has developed specific customer reporting requirements for its Forex Dealer Members (FDMs).

FDMs must currently provide written confirmations to customers within one business day after any activity in the customer’s account, including offsetting transactions, rollovers, and deliveries, and these confirmations must include details of the transaction and any related costs. Effective June 1, 2009, a new rule clarifies that activity requiring a confirmation includes option exercises, option expirations, trades that have been reversed or adjusted, and monetary adjustments. The new rule specifies that the confirmations must contain the following information regarding the transaction and the funds in the account:

• Transaction date;
• Transaction type (e.g., new position, offsetting position, rollover, adjustment);
• Currency pair;
• Buy or sell (if a new or offsetting position);
• Size;
• Price or premium (for new or offsetting positions or price adjustments);
• Price or premium change (for price adjustments);
• Monetary adjustments (debit or credit);
• Net profit or loss for offsetting positions; and
• Charges for each transaction (e.g., rollover interest and/or fees).

In addition, FDMs are currently required to send monthly statements to all customers who have accounts that have open positions at the end of the month or changes in the account balance or equity since the prior statement. Quarterly statements are required for all other open accounts. The new rule states that monthly or quarterly statements must contain the following information regarding the transactions during the reporting period and the funds in the account:

• The account equity at the beginning of the reporting period;
• All initiating or offsetting transactions, deliveries, option exercises, or option expirations that occurred during the reporting period, with the following information for each: date, currency pair, buy or sell, size, and price or premium (with any price or premium adjustment noted);
• All open positions in the account, with the following information for each position: date initiated, currency pair, long or short, size, price or premium at which it was initiated (with any price or premium adjustment noted), and the unrealized profit or loss;
• All deposits and withdrawals during the reporting period;
• All other monetary adjustments (debits and credits) to the account;
• The amount of cash in the account (excluding non-cash collateral and unrealized profits and losses);
• A breakdown by type of all fees and charges during the period, including commissions and interest expense or rollover fees; and
• The account equity at the end of the reporting period.

As of June 1, 2009, FDMs must also provide daily statements showing the account equity as of the end of the day. FDMs may provide the daily statements online or by other electronic means as long as they are readily accessible to customers. FDMs may provide confirmations and monthly/quarterly statements online or transmitted by other electronic means if the customer consents to the specific method used.

Conducting Due Diligence

NFA reminds all individuals who trade forex to conduct business with a regulated forex firm - i.e., a bank, an insurance company, a broker-dealer or a futures commission merchant. If the firm is a futures commission merchant, it is required to be registered with the Commodity Futures Trading Commission and to be a Forex Dealer Member of NFA. You can easily check an FDM’s registration status through NFA’s Background Affiliation Status Information Center (BASIC), available through NFA’s website (www.nfa.futures.org).

Anyone who has any questions or concerns regarding their forex dealer should contact NFA either through our website (www.nfa.futures.org) or by calling our Information Center toll-free at (800) 621-3570 during normal business hours.

NFA is a self-regulatory organization subject to oversight by the CFTC. NFA’s primary mission is to protect investors and maintain market integrity.

Law and Regulations

CFTC Seeks Public Comment on Possible Changes to Regulations for Investment of Funds Deposited with Clearing Organizations and Futures Commission Merchants

The Commodity Futures Trading Commission (CFTC) has approved for publication in the Federal Register an advance notice of proposed rulemaking seeking public comment on possible changes to its regulations regarding the investment of customer funds segregated pursuant to Section 4d of the Commodity Exchange Act and funds held in an account subject to Regulation 30.7.

Regulation 1.25 provides that a derivatives clearing organization or a futures commission merchant holding customer segregated funds mayinvest those funds in certain permitted investments subject to specified requirements that are designed to minimize exposure to credit, liquidity, and market risks. The CFTC is considering proposing amendments that would revise the scope and character of these permitted investments.

Additionally, in conjunction with its consideration of possible amendments to Regulation 1.25, the CFTC is considering applying the investment requirements of Regulation 1.25, including any prospective amendments, to investments of funds held in accounts subject to Regulation 30.7 (accounts for foreign futures and options).

The CFTC seeks public comment on this action before issuing any proposed rule amendments. The comment file will remain open for 60 days following publication in the Federal Register. Copies of comments may be obtained by contacting the CFTC’s Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581, 202-418-5100 or by accessing the CFTC’s website, www.cftc.gov. Interested parties may submit their comments electronically at secretary@cftc.gov. All comments received will be promptly posted on the CFTC’s website.

Regulatory Agency Proposes Leverage Limit

FINRA Member firms which engage in off-exchange forex transactions with retail customers may face leverage limits if a new FINRA proposed rule is adopted. The new rule would limit the leverage which a member firm could provide to a retail forex investor (i.e. an investor who is not an eligible contract participant) to 1.5 to 1. Many forex dealers currently provide leverage of 100 to 1 or more. FINRA cites the volatility of the forex markets and investor protection as reasons for the very low leverage limits. FINRA will beaccepting comments on this proposal until February 20, 2009.

Forex Hedge Fund Information and Resources

Many forex professionals have experienced a great deal of success trading and investing in the forex markets. These professionals, however, often aren’t sure where they should go for great information on forming a forex hedge fund. They have compiled the resources below for forex managers.

How to Start a Forex Hedge Fund

Once a forex manager is committed to start a forex hedge fund, he will need to retain an attorney who is familiar with both the securities laws involved in forming hedge funds as well as the forex laws which the manager must be aware of. Both ofthese sets of laws are important for the forex manager to observe.

Which Forex Dealer Member should the manager choose?

In general the forex manager should go with the forex dealer member (formerly known only as a futures commission merchant) who provides the best pip spreads. Some forex dealer members will also have a pip rebate program, but these are not very prevalent and many forex dealer members do not have these types of programs. Please contact to discuss your choice of forex dealer member. Many times they can provide managers with better spreads through network.

Most Important Part of the Process

The process of forming a forex hedge fund canbe long, especially if there is registration issues involved. The manager should consider the following:

1. Do you have investors who are ready t o in vest?
2. Do you have office space and the proper equipment to trade?
3. Do you need support staff to support the fund and interact with investors?
4. Do you have forex risk management procedures?
5. Do you have a competent forex attorney?
6. Do you have a good forex dealer memb er who provides you with great rates?

There are other questions which can be considered as well.Their attorneys can help you think through all of the items necessary to establish a successful forex hedge fund. Please contact for a free forex consultation. Typically the consultation will last for half an hour or less and they will provide you with an overview of the process and a list of next steps.

Forex vs. Stock

Trade around the clock The forex market is a near-seamless 24-hour market. Subject to available liquidity, FXCM offers trading from Sunday, starting after 5:15 PM EST, until Friday, 4PM, EST (FXCM Client Service is available 24/7). With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap. While trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread. Pay No Commissions* In the forex market costs are confined to the bid-ask spread. FXCM charges no commission or additional transaction fees, and its customers trade on spreads provided to FXCM by some of the world's largest banks via the FX Trading Station. In the stock market, “no-fee” programs are frequently offered only with provisos mandating minimum account balances or minimum trades per month. No uptick rule Unlike the equity market, there is no restriction on short selling in the forex currency market, no matter which way the market is moving. Since currency trading involves buying one currency and selling another, a trader has the same ability to trade in a rising market as in a falling one. Forex Market Information Easily Accessible Information about stocks is abundant, but so are the stocks. Finding a trade opportunity in the equities markets may mean sifting through data on thousands of stocks, while the forex trader has only six major currencies to research. Additionally, the vital information that moves equity markets, such as revenues and profits, is proprietary and private. In contrast, virtually all of the news that bears on the forex market is in publicly disseminated reports from governments or research institutions, and released to everybody at the same time. We feel that the knowledge you've gained in analyzing stocks can easily be transferred to the forex market. Many of the economic indicators familiar to equity traders, such as payroll data and interest rates, affect the currency markets. And many technical traders have found the forex market to be particularly attractive, since currencies respond well to many of the common technical indicators, such as MACD, RSI, and Candlestick charting. High Risk Investment Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.