Monday, November 26, 2007
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Tuesday, November 20, 2007
Market Wrap - 20 November 2007
USD: The dollar declined against the yen on Monday, but held steady versus the Euro as a global rout in stock markets and higher oil prices raised concern about the health of the U.S. economy and left investors wary of risky trades. Investors grew particularly cautious after Goldman Sachs added U.S. banking giant Citigroup to its "sell" list, saying the bank would likely face more mortgage-related losses next year. With few major economic events and data releases this week, investor’s awaited data on U.S. home construction starts due out later today. Housing starts are forecast to show an annual pace of 1.170 million units for October, down from September and reflecting continued weakness in the U.S. housing market as tighter lending standards and lower home prices keep activity at bay. In addition, the Federal Reserve will release the minutes of its October policy meeting when it cut rates by 25 basis points to 4.5 percent, having slashed them by 50 basis points in September. Many in the market are expecting more Fed rate cuts, although recent comments from several policymakers have hinted that the central bank sees no need for further easing yet.
JPY: The yen held gains against the dollar and Euro on Tuesday and climbed against high yielder’s after more trouble in the U.S. subprime mortgage and credit markets kept investors cautious about risky carry trades. A 1.9 percent fall in the Nikkei stocks average to a 16-month low, after U.S. equities hit their weakest levels in three months on Monday, also supported the yen as investors used stock movements as a barometer of risk appetite.
AUD: The Australian dollar stayed on the back foot, holding just barely above 88 U.S. cents, after a slide in stocks prompted investors to shun higher-yielding currencies in favour of less risky assets.
JPY: The yen held gains against the dollar and Euro on Tuesday and climbed against high yielder’s after more trouble in the U.S. subprime mortgage and credit markets kept investors cautious about risky carry trades. A 1.9 percent fall in the Nikkei stocks average to a 16-month low, after U.S. equities hit their weakest levels in three months on Monday, also supported the yen as investors used stock movements as a barometer of risk appetite.
AUD: The Australian dollar stayed on the back foot, holding just barely above 88 U.S. cents, after a slide in stocks prompted investors to shun higher-yielding currencies in favour of less risky assets.
Sunday, November 18, 2007
Foreign Exchange Case Study - 'Managing Foreign Exchange as a Business'
Foreign exchange transactions result from commercial or financial transactions between two parties across the borders of the countries. Every day, people all over the world impact foreign exchange trading volume. For example, children in the United States buy toys made in Hong Kong. Even this simple act indirectly creates a chain of activities in the foreign exchange market.
The Hong Kong exporting company must pay the Hong Kong toy manufacturer in Hong Kong dollars. But he sells to the US importer in US dollars. Consequently the Hong Kong exporter must convert the US dollars received from the sale into Hong Kong dollars to pay the manufacturer.
Each company also wants the transaction to be done at the most advantageous price possible. Since the values of US and Hong Kong dollars are likely to fluctuate between the date when business is initiated and the actual payment is made, the importer may want to use the forward foreign exchange market to fix the exchange rate. Usually these exchange transactions are done through a commercial bank. The bank itself may then sell the US dollars to other banks in the foreign exchange market or perhaps to a central bank. So one commercial transaction can and frequently does involve many transactions in the foreign exchange market.
The trade transaction takes place between only two parties; the importer and the exporter of the toy. All other participants in the transaction, such as the bank which exchanges the money, are only intermediaries. Again, the need for foreign exchange arises from business transactions between corporations located in different countries. These international corporations are all over the world. Exports, a measure of their activity, is what is referred to as world trade.
Last year's world trade was measured in the trillions of dollars. This means international companies bought and sold goods and services worth trillions from companies located in other countries. How did companies pay for this?
Companies in the United States had to pay for this in yen, euros, pounds and other currencies. Companies in Japan had to pay in US dollars, euros, pounds and other currencies. Some of these companies were exchanging dollars for pesos, some were exchanging pesos for euros, while other weres exchanging euros for dollars. Therefore, all companies participating in the multi-trillion dollar world trade had to buy or sell other currencies.
To create some order in this business of buying and selling currencies, we have foreign exchange markets. Howecer, most corporations have neither the facilities nor the expertise required to manage foreign exchange operations. Furthermore, they are not prepared to risk maintaining an open foreign exchange position for an extended period of time. Instead they commonly use services provided by commercial banks.
Today international corporations transact business in over 100 countries and currencies. The volume of exchange business required is enormous. Every company must not only buy and sell currencies but must do it at the best possible price. The single commercial transaction of our toy importer probably created a chain reaction resulting in several foreign exchange transactions. First he had to sell US dollars to buy Hong Kong dollars from his commercial bank. In turn the bank may have sold US dollars to another bank in the foreign exchange market or even to a central bank. Additionally if our importer decided to lock into a fixed exchange rate, even more foreign exchange transactions would be required.
It may be helpful to define some terms commonly used in foreign exchange trading. Just as a yield curve for funds, the value of a currency is usually discussed in terms of its maturity - that is, sport and forward rates.
The Hong Kong exporting company must pay the Hong Kong toy manufacturer in Hong Kong dollars. But he sells to the US importer in US dollars. Consequently the Hong Kong exporter must convert the US dollars received from the sale into Hong Kong dollars to pay the manufacturer.
Each company also wants the transaction to be done at the most advantageous price possible. Since the values of US and Hong Kong dollars are likely to fluctuate between the date when business is initiated and the actual payment is made, the importer may want to use the forward foreign exchange market to fix the exchange rate. Usually these exchange transactions are done through a commercial bank. The bank itself may then sell the US dollars to other banks in the foreign exchange market or perhaps to a central bank. So one commercial transaction can and frequently does involve many transactions in the foreign exchange market.
The trade transaction takes place between only two parties; the importer and the exporter of the toy. All other participants in the transaction, such as the bank which exchanges the money, are only intermediaries. Again, the need for foreign exchange arises from business transactions between corporations located in different countries. These international corporations are all over the world. Exports, a measure of their activity, is what is referred to as world trade.
Last year's world trade was measured in the trillions of dollars. This means international companies bought and sold goods and services worth trillions from companies located in other countries. How did companies pay for this?
Companies in the United States had to pay for this in yen, euros, pounds and other currencies. Companies in Japan had to pay in US dollars, euros, pounds and other currencies. Some of these companies were exchanging dollars for pesos, some were exchanging pesos for euros, while other weres exchanging euros for dollars. Therefore, all companies participating in the multi-trillion dollar world trade had to buy or sell other currencies.
To create some order in this business of buying and selling currencies, we have foreign exchange markets. Howecer, most corporations have neither the facilities nor the expertise required to manage foreign exchange operations. Furthermore, they are not prepared to risk maintaining an open foreign exchange position for an extended period of time. Instead they commonly use services provided by commercial banks.
Today international corporations transact business in over 100 countries and currencies. The volume of exchange business required is enormous. Every company must not only buy and sell currencies but must do it at the best possible price. The single commercial transaction of our toy importer probably created a chain reaction resulting in several foreign exchange transactions. First he had to sell US dollars to buy Hong Kong dollars from his commercial bank. In turn the bank may have sold US dollars to another bank in the foreign exchange market or even to a central bank. Additionally if our importer decided to lock into a fixed exchange rate, even more foreign exchange transactions would be required.
It may be helpful to define some terms commonly used in foreign exchange trading. Just as a yield curve for funds, the value of a currency is usually discussed in terms of its maturity - that is, sport and forward rates.
- Spot Rate: Price of currency for delivery in two business days
- Forward Rate: Price of currency for delivery more than two business days in future
- Open Position Long (short): Excess (shortfall) of assets and buy contracts over liabilities and sell contracts in a currency
- Hedge: Elimination of an open position
A spot rate is the price of a currency when payments are made or received in two business days. Likewise a forward rate is the price of currency for delivery more than two business days in the future.
Open foreign exchange positions exist when our assets and purchase contracts are not equal to liabilities and sale contracts in a given currency. All open positions are either short of long.
We are long in a currency when our assets and buy contracts exceed our liabilities and sale contracts, and are short when this situation is reversed. For example, the toy importer has US dollars in cash assets and Hong Kong dollars in accounts payable liability. He is long in US dollars and short in Hong Kong dollars. Therefore, he has foreign exchange exposure, or an open position.
As the value of the Hong Kong dollar fluctuates against the US dollar, the toy importer's liability also changes. This importer may want to protect himself by hedging against the rate fluctuation. Thus a hedge is nothing more than the elimination of an open position.
To illustrate how multiple foreign exchange transactions and positions are created by a single commercial deal, let us look at what happens when a Volkswagen is purchased in the United States.
Volkswagen USA receives US dollars which it must remit to the parent company for the car. Consequently, the company is now long in dollars and short in euros. Volkswagen USA has dollar assets but needs marks to pay the parent company in Germany. To complete the transaction, Volkswagen USA must use the dollars to purchase euros from a commercial bank. The bank in turn is now short in euros and long in dollars. To square its position, the bank must sell dollars for euros in the foreign exchange market. Each sale can be transacted on either a spot or forward basis.
When a contract is settled in a third currency, the multiple effects of that single transaction on foreign exchange trading become more apparent. The following example of a Japanese importer who contracts to purchase iron ore from Australia with US dollars illustrates the process.
At the outset, the Japanese importer who has made the contract in US dollars is short in US dollars. To fulfill his end of the transaction he must sell Japanese yen to purchase US dollars. These US dollars must then be remitted to Australia. The Australian exporter is now long in US dollars. He must in turn sell US dollars and buy Australian dollars. In this case, both the importer and exporter need to participate in the foreign exchange market.
When a transaction requires a third currency settlement, the foreign exchange volume is set at least double the trade volume. Additionally the commercial banks may also trade in either the spot or forward foreign exchange market to square their positions. Therefore, one dollar of trade can result in multiple foreign exchange transactions equaling many times the value of that dollar of trade.
The global foreign exchange market has three primary groups of participants. First there are the large international corporations whose trade and investment activities create the need for foreign exchange transactions. These corporations participate in the foreign exchange market through the next group of participants, large commercial banks. Their role is crucial in the foreign exchange market.
Commercial banks act as go-betweens for their corporate clients. Under normal conditions, they also make the market by virtue of their ability to buy and sell any amount of currency, at any time.
In the most developed foreign exchange markets, the two major parties requiring exchange transactions are brought together by brokers. Generally brokers do not trade for their own account. They only arrange for transactions between other parties. Consequently, they are not actual participants in the foreign exchange market. Nonetheless, their role is important. Finally there are the central banks that in essence act as international clearing houses for foreign exchange transactions. They may also intervene in the foreign exchange market to try to maintain orderly markets. Furthermore central banks take positions and act as intermediaries for other government agencies.
Wednesday, November 14, 2007
Market Wrap - 14 November 2007
USD: The dollar fell against most major currencies on Tuesday, resuming a long-term decline after a respite from previous sessions. On Wednesday, the U.S. government will release its October retail sales report which will be scrutinized for any signs weakness in the housing sector has hurt consumer spending.
EUR: The Euro dollar traded higher towards 1.4650 despite Germany’s ZEW survey disappointing. The survey of economic sentiment worsened from -19 in October to -30.0 in November, well below the expected -20. Data releases out of the Eurozone were on the whole disappointing on Tuesday. French CPI edged up more than expected while Eurozone industrial production fell 0.7% m/m in September, worse than the expected 0.2% decline.
JPY: The dollar was higher against the Yen; however, as the Japanese currency fell from an 18-month high against the dollar after comments from Japan's prime minister abruptly ended the unwinding of carry trades that had pushed the unit higher in recent days. Japanese Prime Minister Yasuo Fukuda told the Financial Times that the yen was appreciating "too fast" and speculators needed to be careful to avoid the possibility of intervention. Dealers had previously been rapidly unwinding risky trades, increasing volatility in the currency and equity markets. The low-yielding yen had surged in recent days as renewed fears that credit-related problems could spread to the wider U.S. economy sapped risk appetite among investors, prompting them to buy back yen they had sold to fund purchases of higher-return currencies in carry trades.
AUD: The Australian dollar advanced past 90 U.S. cents on Wednesday as firmer regional stock markets encouraged investors to return to riskier positions in high-yielding currencies. Asian stocks tracked big gains on Wall Street, where the market benefited from favorable comments by Goldman Sachs on asset write downs and from a surprisingly strong retail sales report from Wal-Mart Stores Inc.
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EUR: The Euro dollar traded higher towards 1.4650 despite Germany’s ZEW survey disappointing. The survey of economic sentiment worsened from -19 in October to -30.0 in November, well below the expected -20. Data releases out of the Eurozone were on the whole disappointing on Tuesday. French CPI edged up more than expected while Eurozone industrial production fell 0.7% m/m in September, worse than the expected 0.2% decline.
JPY: The dollar was higher against the Yen; however, as the Japanese currency fell from an 18-month high against the dollar after comments from Japan's prime minister abruptly ended the unwinding of carry trades that had pushed the unit higher in recent days. Japanese Prime Minister Yasuo Fukuda told the Financial Times that the yen was appreciating "too fast" and speculators needed to be careful to avoid the possibility of intervention. Dealers had previously been rapidly unwinding risky trades, increasing volatility in the currency and equity markets. The low-yielding yen had surged in recent days as renewed fears that credit-related problems could spread to the wider U.S. economy sapped risk appetite among investors, prompting them to buy back yen they had sold to fund purchases of higher-return currencies in carry trades.
AUD: The Australian dollar advanced past 90 U.S. cents on Wednesday as firmer regional stock markets encouraged investors to return to riskier positions in high-yielding currencies. Asian stocks tracked big gains on Wall Street, where the market benefited from favorable comments by Goldman Sachs on asset write downs and from a surprisingly strong retail sales report from Wal-Mart Stores Inc.
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Tuesday, November 13, 2007
Market Wrap - 13 November 2007
USD: The dollar gained on Monday, reversing some of its recent losses as nervousness about credit-related losses at U.S. banks triggered a wave of risk reduction in light volume trading. With bets against the dollar at record levels, major investment banks have announced more than $50 billion in write-downs and losses resulting in part from subprime mortgage loans gone bad. This has raised fears that there may be more losses to come, driving dealers to reduce the level of risk they take overseas. Prior to Monday, the dollar had been falling steadily on expectations the Federal Reserve would cut its benchmark interest rate to stave off an economic recession potentially brought on by weakness in the housing sector.
EUR: The Euro dollar traded to a low of 1.4527 before closing around the 1.4550 level in the New York session. On the data front, Eurozone industrial output and the German ZEW survey are both due out later today in Europe.
JPY: Independent of dollar strength, the yen has been charging higher in the last week. It climbed to a 1-1/2-year high against the dollar on Monday, benefiting as investors unraveled risky trades in which they borrow low-yielding currencies to buy higher-yielding ones. Top government spokesman Nobutaka Machimura said on Monday it was wrong to conclude that a high yen was a bad thing for Japan and that the government has no plan to intervene in the foreign exchange market. Data released today showed that Japan's economy grew a bigger than expected 0.6 percent in the July-September quarter. But the market shrugged off the growth as it did little to alter views that the Bank of Japan will not raise interest rates until well into next year. The BOJ kept interest rates unchanged at 0.50 percent on Tuesday, as widely expected, reflecting caution among central bankers over market uncertainty and fallout from problems in the U.S. housing sector.
AUD: The Australian dollar recovered off three-week lows against the U.S. dollar after most regional stock markets edged up, leading to an easing in the savage unwinding of risky carry trades that hit the Aussie in recent sessions. The Aussie inched up against the yen from a two-month low of 95.58 yen, but investors remained wary of returning to carry trades as risk aversion remained dominant, given expectations big U.S. banks could face more subprime losses. A series of announcements by major U.S. investment banks about losses from the subprime mortgage crisis in the past week have raised fears that credit-related woes would spread to the broader U.S. economy.
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EUR: The Euro dollar traded to a low of 1.4527 before closing around the 1.4550 level in the New York session. On the data front, Eurozone industrial output and the German ZEW survey are both due out later today in Europe.
JPY: Independent of dollar strength, the yen has been charging higher in the last week. It climbed to a 1-1/2-year high against the dollar on Monday, benefiting as investors unraveled risky trades in which they borrow low-yielding currencies to buy higher-yielding ones. Top government spokesman Nobutaka Machimura said on Monday it was wrong to conclude that a high yen was a bad thing for Japan and that the government has no plan to intervene in the foreign exchange market. Data released today showed that Japan's economy grew a bigger than expected 0.6 percent in the July-September quarter. But the market shrugged off the growth as it did little to alter views that the Bank of Japan will not raise interest rates until well into next year. The BOJ kept interest rates unchanged at 0.50 percent on Tuesday, as widely expected, reflecting caution among central bankers over market uncertainty and fallout from problems in the U.S. housing sector.
AUD: The Australian dollar recovered off three-week lows against the U.S. dollar after most regional stock markets edged up, leading to an easing in the savage unwinding of risky carry trades that hit the Aussie in recent sessions. The Aussie inched up against the yen from a two-month low of 95.58 yen, but investors remained wary of returning to carry trades as risk aversion remained dominant, given expectations big U.S. banks could face more subprime losses. A series of announcements by major U.S. investment banks about losses from the subprime mortgage crisis in the past week have raised fears that credit-related woes would spread to the broader U.S. economy.
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Monday, November 12, 2007
The Major Currencies to Pay Attention Towards
US Dollar - $US
Also referred to as the dollar, greenback and buck.
The US Dollar was adopted by the Congress of the Confederation of the United States on July 6, 1785 and is the most used in international transactions. Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto capacity.
In 1995, over US$380 billion were in circulation, of which two-thirds was outside the United States. By 2005, those figures had doubled to nearly $760 billion with an estimated half to two-thirds being held overseas, which is an annual growth of about 7.6%. However, as of December 2006, the dollar was surpassed by the euro in terms of combined value of cash in circulation. The value of euro notes in circulation has risen to more than € 610 billion, equivalent to US$800 billion at the exchange rates at this time.
The U.S. dollar uses the decimal system, consisting of 100 (equal) cents (symbol ¢).
The Euro - €
The euro (currency sign: €; banking code: EUR) is the official currency of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain - also known as the Eurozone - and is the single currency for more than 317 million people in Europe.
Including areas using currencies pegged to the euro, the euro affects more than 480 million people worldwide, with more than €610 billion in circulation as of December 2006.
While all EU member states are eligible to join if they comply with certain monetary requirements, the euro is not used in all of the European Union as not all EU members have adopted the currency. All nations which have recently joined the EU are pledged to adopt the euro in due course, but the United Kingdom and Denmark are under no such obligation. Several small European states (The Vatican, Monaco and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro and Kosovo have adopted the euro unilaterally.
The Yen - ¥
The yen or (Japanese yen) is the currency of Japan. It is also widely used as a reserve currency after the United States dollar and euro.
The Great British Pound - £
Other Names - Sterling, Cable and the Pound (symbol: £; ISO code: GBP), divided into 100 pence, is the official currency of the United Kingdom and the Crown Dependencies. The slang term "quid" is very common in the UK.
The official full name pound sterling (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have the same name. The Sterling is the third most traded currency in the world, after the US dollar and the euro.
The Swiss Franc - CHF
The franc (ISO 4217: CHF or 756) is the currency and legal tender of Switzerland and Liechtenstein. The Italian exclave Campione d'Italia and the German exclave Büsingen also use the Swiss franc. Franc banknotes are issued by the central bank of Switzerland, the Swiss National Bank, while coins are issued by the federal mint, Swissmint.
The Swiss franc is the only version of the franc still issued in Europe. Its name in the four official languages of Switzerland is Franken (German), franc (French and Rhaeto-Romanic), and franco (Italian). The smaller denomination, which is worth a hundredth of a franc, is called Rappen (Rp.) in German, centime (c.) in French, centesimo (ct.) in Italian and rap (rp.) in Rhaeto-Romanic. Users of the currency commonly write CHF (the ISO code), though SFr. is still common. SwF has been used in some publications but is not an official abbreviation.
The current franc was introduced in 1850 at par with the French franc. It replaced the different currencies of the Swiss cantons, some of which had been using a franc (divided into 10 batzen and 100 rappen) which was worth 1½ French francs.
In 1865, France, Belgium, Italy, and Switzerland formed the Latin Monetary Union where they agreed to change their national currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold. Even after the monetary union faded away in the 1920s and officially ended in 1927, the Swiss franc remained on that standard until 1967.
As of November 30, 2006, the Swiss franc was worth US$ 0.826729 or € 0.628625. Since mid-2003, its exchange rate with the Euro has been stable at a value of about 1.55 CHF per Euro, so that the Swiss Franc has risen and fallen in tandem with the Euro against the U.S. dollar and other currencies.
The Swiss franc has historically been considered a safe haven currency with virtually zero inflation and a legal requirement that a minimum 40% is backed by gold reserves. However this link to gold, which dates from the 1920s, was terminated on 1 May 2000 following an amendment to the Swiss Constitution. The Swiss franc has suffered devaluation only once, on 27 September 1936 during the Great Depression, when the currency was devalued by 30% following the devaluations of the British pound, U.S. dollar and French franc.
The Australian Dollar
The Australian dollar (currency code AUD) has been, since 14 February 1966, the currency of the Commonwealth of Australia, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu. It is normally abbreviated with the dollar sign $. Alternatively A$ or $A, $AU or AU$ is used to distinguish it from other dollar-denominated currencies.
It is sometimes affectionately called the "Aussie battler"; during a low period (relative to the U.S. dollar) around 2001 and 2002 the currency was sometimes locally called the "Pacific Peso". It is divided into 100 cents.
The Australian dollar is currently the sixth-most-traded currency in world foreign exchange markets (behind the U.S. dollar, the euro, the yen, the Pound sterling, and the Swiss franc), accounting for approximately 4-5% of worldwide foreign exchange transactions. The Australian dollar is popular with currency traders due to the relative lack of government intervention in the foreign exchange market, the general stability of the economy and government as well as the prevailing view that it offers diversification benefits in a portfolio containing the major world currencies (especially because of its greater exposure to Asian economies and the commodities cycle).
Also referred to as the dollar, greenback and buck.
The US Dollar was adopted by the Congress of the Confederation of the United States on July 6, 1785 and is the most used in international transactions. Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto capacity.
In 1995, over US$380 billion were in circulation, of which two-thirds was outside the United States. By 2005, those figures had doubled to nearly $760 billion with an estimated half to two-thirds being held overseas, which is an annual growth of about 7.6%. However, as of December 2006, the dollar was surpassed by the euro in terms of combined value of cash in circulation. The value of euro notes in circulation has risen to more than € 610 billion, equivalent to US$800 billion at the exchange rates at this time.
The U.S. dollar uses the decimal system, consisting of 100 (equal) cents (symbol ¢).
The Euro - €
The euro (currency sign: €; banking code: EUR) is the official currency of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain - also known as the Eurozone - and is the single currency for more than 317 million people in Europe.
Including areas using currencies pegged to the euro, the euro affects more than 480 million people worldwide, with more than €610 billion in circulation as of December 2006.
While all EU member states are eligible to join if they comply with certain monetary requirements, the euro is not used in all of the European Union as not all EU members have adopted the currency. All nations which have recently joined the EU are pledged to adopt the euro in due course, but the United Kingdom and Denmark are under no such obligation. Several small European states (The Vatican, Monaco and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro and Kosovo have adopted the euro unilaterally.
The Yen - ¥
The yen or (Japanese yen) is the currency of Japan. It is also widely used as a reserve currency after the United States dollar and euro.
The Great British Pound - £
Other Names - Sterling, Cable and the Pound (symbol: £; ISO code: GBP), divided into 100 pence, is the official currency of the United Kingdom and the Crown Dependencies. The slang term "quid" is very common in the UK.
The official full name pound sterling (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have the same name. The Sterling is the third most traded currency in the world, after the US dollar and the euro.
The Swiss Franc - CHF
The franc (ISO 4217: CHF or 756) is the currency and legal tender of Switzerland and Liechtenstein. The Italian exclave Campione d'Italia and the German exclave Büsingen also use the Swiss franc. Franc banknotes are issued by the central bank of Switzerland, the Swiss National Bank, while coins are issued by the federal mint, Swissmint.
The Swiss franc is the only version of the franc still issued in Europe. Its name in the four official languages of Switzerland is Franken (German), franc (French and Rhaeto-Romanic), and franco (Italian). The smaller denomination, which is worth a hundredth of a franc, is called Rappen (Rp.) in German, centime (c.) in French, centesimo (ct.) in Italian and rap (rp.) in Rhaeto-Romanic. Users of the currency commonly write CHF (the ISO code), though SFr. is still common. SwF has been used in some publications but is not an official abbreviation.
The current franc was introduced in 1850 at par with the French franc. It replaced the different currencies of the Swiss cantons, some of which had been using a franc (divided into 10 batzen and 100 rappen) which was worth 1½ French francs.
In 1865, France, Belgium, Italy, and Switzerland formed the Latin Monetary Union where they agreed to change their national currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold. Even after the monetary union faded away in the 1920s and officially ended in 1927, the Swiss franc remained on that standard until 1967.
As of November 30, 2006, the Swiss franc was worth US$ 0.826729 or € 0.628625. Since mid-2003, its exchange rate with the Euro has been stable at a value of about 1.55 CHF per Euro, so that the Swiss Franc has risen and fallen in tandem with the Euro against the U.S. dollar and other currencies.
The Swiss franc has historically been considered a safe haven currency with virtually zero inflation and a legal requirement that a minimum 40% is backed by gold reserves. However this link to gold, which dates from the 1920s, was terminated on 1 May 2000 following an amendment to the Swiss Constitution. The Swiss franc has suffered devaluation only once, on 27 September 1936 during the Great Depression, when the currency was devalued by 30% following the devaluations of the British pound, U.S. dollar and French franc.
The Australian Dollar
The Australian dollar (currency code AUD) has been, since 14 February 1966, the currency of the Commonwealth of Australia, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu. It is normally abbreviated with the dollar sign $. Alternatively A$ or $A, $AU or AU$ is used to distinguish it from other dollar-denominated currencies.
It is sometimes affectionately called the "Aussie battler"; during a low period (relative to the U.S. dollar) around 2001 and 2002 the currency was sometimes locally called the "Pacific Peso". It is divided into 100 cents.
The Australian dollar is currently the sixth-most-traded currency in world foreign exchange markets (behind the U.S. dollar, the euro, the yen, the Pound sterling, and the Swiss franc), accounting for approximately 4-5% of worldwide foreign exchange transactions. The Australian dollar is popular with currency traders due to the relative lack of government intervention in the foreign exchange market, the general stability of the economy and government as well as the prevailing view that it offers diversification benefits in a portfolio containing the major world currencies (especially because of its greater exposure to Asian economies and the commodities cycle).
Finding The Right Trading Platform
If you are new to Forex trading, then finding the right platform to trade with can be rather daunting. There are so many companies out there that merely aim to make a quick buck off their clients and could not care less about providing them with a quality product. From speaking with many experienced online traders, it is abundantly clear that they look for several different attributes when searching for a platform. These attributes are:
1. Single-Interface Platform: Users want to be able to see several windows in one screen. They need to see the quotes, their portfolio, the trading window, streaming news and the charts all at the same time. This eliminates clicking back and forth and potentially losing thousands of dollars. Every second counts in the Forex market and having a single interface makes things much easier for users. Some companies provide inferior platforms where the user must click back and forth in order to place trades and close out positions. This can be increadibly risky in a volatile market.
2. Web-Based: No Downloads or installations allows the user to access from multiple trading sources around the globe on any computer, PDA & mobile devices. This eliminates the need of constant upgrades as software downloads can be time consuming and inconvenient and more open to potential computer viruses. So the next time you are sailing on your yacht, in an internet cafe or at a friend's house, all you have to do is log in and no downloads are required.
3. Customer Service: It is one thing to offer a flashy high-tech platform, but this is not the be all and end all. It is the clients that keep the Forex companies in business, thus it is the companies that should treat their customers with the utmost of respect. This includes assisting them 24/7. From speaking to traders, it is clear that they do not want to be treated like "just another client". They want to have someone within the company who can help guide them through the platform and give them general advice about trading and the Forex market in general. VIP clients especially, want to be kept updated about daily movements in the market.
4. Tight Spreads: Customers all look for the most competitive spreads. This is not necessarily the most important factor in selecting a firm to trade with, however it is still important. Spreads of between 3-4 pips on the major currencies are reasonable.
5. Guaranteed Stop-Losses: Not many firms offer this, but this can potentially save you thousands of dollars. Some firms tend to mislead clients and claim their stop-loss will be implemented at "X" rate. However, if it does not hit this rate and skips it, then the client may be out a few pips, which could cost them. Finding a firm that guarantees the selected rate/amount is essential when selecting a platform to trade with.
6. Online Instant Credit Card Deposit: Many firms take hours or days to allow funds to be deposited into your account. Online instant credit card deposit allows you to start trading within minutes!
ForexCT offers all of the above. We aim to provide all our customers - from the smallest traders to the institutions - a quality product and high-end service. To find out more about what we have to offer simply click here.
1. Single-Interface Platform: Users want to be able to see several windows in one screen. They need to see the quotes, their portfolio, the trading window, streaming news and the charts all at the same time. This eliminates clicking back and forth and potentially losing thousands of dollars. Every second counts in the Forex market and having a single interface makes things much easier for users. Some companies provide inferior platforms where the user must click back and forth in order to place trades and close out positions. This can be increadibly risky in a volatile market.
2. Web-Based: No Downloads or installations allows the user to access from multiple trading sources around the globe on any computer, PDA & mobile devices. This eliminates the need of constant upgrades as software downloads can be time consuming and inconvenient and more open to potential computer viruses. So the next time you are sailing on your yacht, in an internet cafe or at a friend's house, all you have to do is log in and no downloads are required.
3. Customer Service: It is one thing to offer a flashy high-tech platform, but this is not the be all and end all. It is the clients that keep the Forex companies in business, thus it is the companies that should treat their customers with the utmost of respect. This includes assisting them 24/7. From speaking to traders, it is clear that they do not want to be treated like "just another client". They want to have someone within the company who can help guide them through the platform and give them general advice about trading and the Forex market in general. VIP clients especially, want to be kept updated about daily movements in the market.
4. Tight Spreads: Customers all look for the most competitive spreads. This is not necessarily the most important factor in selecting a firm to trade with, however it is still important. Spreads of between 3-4 pips on the major currencies are reasonable.
5. Guaranteed Stop-Losses: Not many firms offer this, but this can potentially save you thousands of dollars. Some firms tend to mislead clients and claim their stop-loss will be implemented at "X" rate. However, if it does not hit this rate and skips it, then the client may be out a few pips, which could cost them. Finding a firm that guarantees the selected rate/amount is essential when selecting a platform to trade with.
6. Online Instant Credit Card Deposit: Many firms take hours or days to allow funds to be deposited into your account. Online instant credit card deposit allows you to start trading within minutes!
ForexCT offers all of the above. We aim to provide all our customers - from the smallest traders to the institutions - a quality product and high-end service. To find out more about what we have to offer simply click here.
Spreads
Understanding Spreads: What Is A Spread?
A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) quoted in pips. If the quote between EUR/USD at a given moment is 1.2220/2, then the spread is 2 pips. If the quote is 1.22235/50, then the spread is 1.5 pips.
It is how brokers make money. Wider spreads result in a higher ask price and a lower bid price. As a consequence, you pay more when you buy and get less when you sell, making it more difficult to realize a profit
Brokers don't typically earn the full spread, especially when they hedge client positions. The spread compensates the market maker for taking on risk from the time it executes a client trade to when the broker's net exposure is hedged (possibly at a different price).
Why Are Spreads So Important?
Spreads affect the return on your trading strategy in a big way. Probably more than you think. As a trader, your sole interest is buying low and selling high. Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't sound like much, but it can easily make the difference between a profitable trading strategy and an unprofitable one.
To learn more about spreads and other Forex related material, visit ForexCT!
A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) quoted in pips. If the quote between EUR/USD at a given moment is 1.2220/2, then the spread is 2 pips. If the quote is 1.22235/50, then the spread is 1.5 pips.
It is how brokers make money. Wider spreads result in a higher ask price and a lower bid price. As a consequence, you pay more when you buy and get less when you sell, making it more difficult to realize a profit
Brokers don't typically earn the full spread, especially when they hedge client positions. The spread compensates the market maker for taking on risk from the time it executes a client trade to when the broker's net exposure is hedged (possibly at a different price).
Why Are Spreads So Important?
Spreads affect the return on your trading strategy in a big way. Probably more than you think. As a trader, your sole interest is buying low and selling high. Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't sound like much, but it can easily make the difference between a profitable trading strategy and an unprofitable one.
To learn more about spreads and other Forex related material, visit ForexCT!
Hedging
Hedging in Forex VS Equities
Hedging in Forex is much easier than other equity markets. In stocks, the simplest, but most expensive method is to buy a put option for the stock you own. (It's the most expensive because you are buying insurance not only against market risk but against the risk of the specific security as well.) You can buy a put option on the market (like an OEX put) which will cover general market declines. You can also hedge by selling financial futures (e.g. the S&P 500 futures). Selling covered calls on your stocks is another option. However, in this case, you won’t be completely covered.
You may also hedge in the equity markets by selling short the stock of a competitor to the company whose stock you hold. For example, if you like Microsoft and think they will outdo Oracle, then buy MSFT and short ORCL. No matter which way the market as a whole goes, the offsetting positions hedge away the market risk. You make money as long as you're right about the relative competitive positions of the two companies.
Hedging in Forex is a much simpler task. To demonstrate, let's take a trader who is long the GBP/USD on the first Thursday of the month. Because the trader is experienced, he or she is aware that the Non-Farm payroll is released the first Friday of each month. The trader's position is long term and he or she is worried that the market may move wildly. Because of the nature of Forex, there is no long bias to the market, meaning that a trader may open long and short positions just as easily. To hedge the position and eliminate the risk of the economic release, the trader simply needs to open as many short GBP/USD positions as they currently have long. The trader has hedged their position and limited risk immediately.
The Latest in Forex Trading Technology
ForexCT offers a single interface, web-based trading platform, which is so easy to use! Within minutes you can begin trading on this platform and be apart of the Forex market! Simply register and start trading now!Market Wrap - 11 November 2007
USD: The US dollar remained weak in the New York trading Wednesday after a Chinese official called for greater reserve diversification. US equity markets all closed down sharply with embattled financial stocks driving the declines. On the data front, strong Q3 GDP growth was reflected in a surge in productivity and a decline in unit labour costs. Productivity exceeded expectations, increasing at an annualized 4.9%, its fastest pace in four years, while unit labour cost declined 0.2% in Q3. Looking ahead, weekly jobless claims are due out later in the States today with Bernanke also due to testify before the Joint Economic Committee.
EUR: The Euro rallied after the comment from the Chinese official and traded to a high of 1.4731 before closing around 1.4650. On the data front, Germany’s industrial production increased 0.3% m/m in September, well above the expected 0.3% decline. Later today in Europe, the ECB is expected to make no change to rates of 4.00%. ECB President Trichet will hold a press conference.
JPY: USD/JPY hit a three-month low against the yen and stayed pressured against other currencies on Thursday as a plunge in U.S. stocks overnight kept intact expectations for another Federal Reserve interest rate cut next month. Dollar selling had not been that severe against the yen, but it has now spread to this pair, indicating that downside risks to the U.S. currency are growing. The dollar was trading around 112.70 yen in late U.S. trade on Wednesday after falling to a three-month low of 112.00 yen earlier this session. Traders said the dollar's recovery was due to buying from Japanese importers. Traders said the yen could gain against the dollar and high-yielding currencies on slides in Asian equities, which would prompt risk-averse investors to unwind carry trades in which they use low-yielding yen to buy higher-yielding currencies and assets.
AUD: Australia employment rose 12,900 in October mainly due to 70,600 full-time jobs being added. The unemployment rate rose to 4.3 percent and the participation rate was steady at 65.0. Forecasts centered on a rise of 20,000 in employment, the unemployment rate holding steady at 4.2 percent and the participation rate steady at 65.0 percent. The Australian dollar edged lower after a softer than expected headline jobs figure added to the dour sentiment caused by growing risk aversion which has prompted investors to dump high-yielding currencies and stocks.
Register for FREE with ForexCT for the the latest in Forex and finance news!
EUR: The Euro rallied after the comment from the Chinese official and traded to a high of 1.4731 before closing around 1.4650. On the data front, Germany’s industrial production increased 0.3% m/m in September, well above the expected 0.3% decline. Later today in Europe, the ECB is expected to make no change to rates of 4.00%. ECB President Trichet will hold a press conference.
JPY: USD/JPY hit a three-month low against the yen and stayed pressured against other currencies on Thursday as a plunge in U.S. stocks overnight kept intact expectations for another Federal Reserve interest rate cut next month. Dollar selling had not been that severe against the yen, but it has now spread to this pair, indicating that downside risks to the U.S. currency are growing. The dollar was trading around 112.70 yen in late U.S. trade on Wednesday after falling to a three-month low of 112.00 yen earlier this session. Traders said the dollar's recovery was due to buying from Japanese importers. Traders said the yen could gain against the dollar and high-yielding currencies on slides in Asian equities, which would prompt risk-averse investors to unwind carry trades in which they use low-yielding yen to buy higher-yielding currencies and assets.
AUD: Australia employment rose 12,900 in October mainly due to 70,600 full-time jobs being added. The unemployment rate rose to 4.3 percent and the participation rate was steady at 65.0. Forecasts centered on a rise of 20,000 in employment, the unemployment rate holding steady at 4.2 percent and the participation rate steady at 65.0 percent. The Australian dollar edged lower after a softer than expected headline jobs figure added to the dour sentiment caused by growing risk aversion which has prompted investors to dump high-yielding currencies and stocks.
Register for FREE with ForexCT for the the latest in Forex and finance news!
Sunday, November 11, 2007
Forex VS Equities
Liquidity
The spot Forex market is a $1.9 trillion daily market, making it the largest and most liquid market in the world. This forex market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.
24-Hour Market Action
Unlike most futures exchanges, the forex currency market is a seamless 24-hour market. At 2:15 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 PM the Tokyo market opens, followed by London at 2 AM, and finally New York at 8 AM. As a trader, this allows you to react to favorable or unfavorable news by trading immediately. If important data comes in from England or Japan while the U.S. futures market is closed, the next day's opening could be a wild ride. (Overnight markets in futures currency contracts exist, but they can only be thinly traded, are not very liquid and are difficult for the average investor to access).
Zero Commissions
In the forex currency market, you pay no commissions and no exchange fees. Because you deal directly with the market maker via a purely electronic online exchange, you eliminate both ticket costs and middleman brokerage fees. There is still a cost to initiating any trade, but that cost is reflected in the bid/ask spread that is also present in futures or equities trading. ForexCT.com offers tight, consistent spreads that remain the same at all times.
Execution Quality and Speed
The futures and equities market does not offer instant execution or price certainty. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. In the futures and equities market, the prices quoted by brokers often represent the last trade, not necessarily the price for which the contract will be filled. In contrast, when trading with ForexCT.com you get rapid execution and price certainty.
Benefits of Trading Forex on the Internet
Instantaneous trade execution and confirmation:
In the foreign exchange market,speed of execution is of utmost importance. The market moves quickley and can be made or lost, in seconds. As a market maker, ForexCT.com allows clients to trade on its streaming inter-bank market prices, making trading quick and efficient.
Deal directly from live price quotes & Lower transaction costs
Very few on-line brokers are able to offer their clients real-time bid/ask quotes, which facilitates instantaneous deal execution - no missed market opportunities. Real-time prices also allow investors to compare an on-line broker's dealing spread with that of other pricing services, to ensure they are receiving the best possible price on all their Forex transactions.
Real-Time profit and loss analysis
The fast-paced nature of the Forex market compels traders to execute multiple trades each day. It is vital for each client to have real-time information about their current position in order to make well-informed trading decisions.
Full access to market infromation
Access to timely and relevant information is critical. Professional forex traders pay thousands of dollars each month for access to major information providers. However, the very nature of the Internet affords users free access to reliable forex market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports, as well as subjective information such as expert commentary and analysis, forex trader chat forums etc.
The spot Forex market is a $1.9 trillion daily market, making it the largest and most liquid market in the world. This forex market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.
24-Hour Market Action
Unlike most futures exchanges, the forex currency market is a seamless 24-hour market. At 2:15 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 PM the Tokyo market opens, followed by London at 2 AM, and finally New York at 8 AM. As a trader, this allows you to react to favorable or unfavorable news by trading immediately. If important data comes in from England or Japan while the U.S. futures market is closed, the next day's opening could be a wild ride. (Overnight markets in futures currency contracts exist, but they can only be thinly traded, are not very liquid and are difficult for the average investor to access).
Zero Commissions
In the forex currency market, you pay no commissions and no exchange fees. Because you deal directly with the market maker via a purely electronic online exchange, you eliminate both ticket costs and middleman brokerage fees. There is still a cost to initiating any trade, but that cost is reflected in the bid/ask spread that is also present in futures or equities trading. ForexCT.com offers tight, consistent spreads that remain the same at all times.
Execution Quality and Speed
The futures and equities market does not offer instant execution or price certainty. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. In the futures and equities market, the prices quoted by brokers often represent the last trade, not necessarily the price for which the contract will be filled. In contrast, when trading with ForexCT.com you get rapid execution and price certainty.
Benefits of Trading Forex on the Internet
Instantaneous trade execution and confirmation:
In the foreign exchange market,speed of execution is of utmost importance. The market moves quickley and can be made or lost, in seconds. As a market maker, ForexCT.com allows clients to trade on its streaming inter-bank market prices, making trading quick and efficient.
Deal directly from live price quotes & Lower transaction costs
Very few on-line brokers are able to offer their clients real-time bid/ask quotes, which facilitates instantaneous deal execution - no missed market opportunities. Real-time prices also allow investors to compare an on-line broker's dealing spread with that of other pricing services, to ensure they are receiving the best possible price on all their Forex transactions.
Real-Time profit and loss analysis
The fast-paced nature of the Forex market compels traders to execute multiple trades each day. It is vital for each client to have real-time information about their current position in order to make well-informed trading decisions.
Full access to market infromation
Access to timely and relevant information is critical. Professional forex traders pay thousands of dollars each month for access to major information providers. However, the very nature of the Internet affords users free access to reliable forex market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports, as well as subjective information such as expert commentary and analysis, forex trader chat forums etc.
New to Forex trading???
For all those people that want a piece of the action, the excitement and the rush, then FOREX TRADING is for you! The Forex market is the largest market in the world, with a volume of approximately $1.9 Trillion daily. The amazing thing about Forex trading is that is can be done in just a matter of minutes. ForexCT has a 3-step process:
This registration is absolutely FREE and you will have FREE access to live streaming rates, news and economic data.
The Instant Online Deposit can be done via Credit Card or Wire Transfer. This is a quick and easy process and you will be trading Forex in no time!
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