1.
1.
Why Trade Foreign
Exchange ?
1.
Comparing FX Markets to Stock Markets FX Markets
FX Markets
- The FX market is open 24 hours a day, from Sunday 10pm
London time when the market opens in New Zealand, through to
10pm Friday London time when the market closes in New York
-
-Pricing is always available somewhere, whether it be
from banks in New Zealand, Sydney, Tokyo, Singapore,
Hong Kong, Middle East and Eastern Europe, Central
Europe, and eventually London and then New York,
West Coast and back to the beginning of the cycle
again
Pricing is continuous, hence news affecting any
market will move the price as it happens, rather
than causing a shift on a market reopening
-
-There is no one centralized exchange, as in the interbank market, banks are free to trade with each
other electronically or over the telephone. Volumes
traded are therefore hard to record accurately.
-
Stock Markets open and close, and trade for only a
limited period each day
-
Pricing is available while markets are open, but may
jump at the open of each new session if there has
been a news event while markets are closed
-
A stock exchange acts as a centralized exchange and
all transaction ultimately make their way through
this exchange, making traded volumes recordable and
available as information.
How to become an FX trader
The
interbank
market recruits talented individuals to train as
traders, typically taking graduates with good education
to employ as trainees. It takes an estimated USD 250,000
in costs of time, desk space, losses while training etc
to train a basic dealer in the markets, and this
typically takes at least one year. Traders are then
given an individual currency pair to trade on behalf of
the bank, and paid a salary, and an annual bonus based
on reaching their profit targets. They are set limits on
what they can lose or should make in a day, and will be
monitored closely whilst trading to see that they do not
exceed an open position limit, I.e. the size of
transactions they deal in with other banks, opening a
position where the bank is at risk should rates move
against them. There are less currencies now with the
introduction of the EUR, and less banks with recent
mergers, hence less traders required for the interbank
market
The
retail
market is made up of a vast number of private
individuals who trade with banks or margin brokers on
the internet or telephone. Most individuals start with a
major period of research where they search the internet
for information on brokers and trading. The decision to
become a trader should not be made lightly – you need to
have an appetite for risk taking, the ability to absorb
and understand background market information, a hunger
to research technical or fundamental factors that may
move the markets and the mental toughness to survive the
loss days as well as enjoy the profitable ones.
Trading foreign exchange can really be compared to golf
– after some initial coaching you know you can hit some
good shots – after a while longer you can regularly hit
good shots – in the long term you play against your self
mentally and attempt to keep your game and your
discipline together to get the end result – regular
profits with occasional small losses
2.
Trading Foreign Exchange.
FX terms
The market uses various terms which we must explore to
complete our understanding
Spot –
the
spot market term is taken from spot value, which is
always 2 working days from the date the deal takes
place. This two days gives the back office staff
time to move the sums traded from one bank to
another. Lets look at a transaction between two
banks where Barclays London sells 1 million EUR to
Deutsche Bank in exchange for GBP at a rate of
0.6400 – this is the movement of funds
Foreign
Exchange Training by
www.fxmoneymap.co.uk
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