Saturday, January 3, 2009
Monday, May 19, 2008
Inflation indicators
Traders watch the development of inflation closely, because the method of choice for fighting
inflation is raising the interest rates, and higher interest rates tend to support the local currency. To measure inflation traders use economic tools considered below.
Producer price index (PPI).
Consumer price index (CPI).
Gross national product implicit deflator.
Gross domestic product implicit deflator.
Industrial sector indicators
Industrial Production indicator consists of the total output of a nation's plants, utilities, and
mines. From a fundamental point of view, it is an important economic indicator that reflects the strength of the economy, and by extrapolation, the strength of a specific currency. Therefore, foreign exchange traders use this economic indicator as a potential trading signal.
Capacity utilization indicator consists of total industrial output divided by total production
capability. The term refers to the maximum level of output a plant can generate under normal business conditions. In general, capacity utilization is not a major economic indicator for the foreign exchange market. However, there are instances when its economic implications are useful for fundamental analysis. A "normal" figure for a steady economy is 81.5 percent. If the figure reads 85 percent or more, the data suggests that the industrial production is overheating, that the economy is close to full capacity. High capacity utilization rates precede inflation, and expectation in the foreign exchange market is that the central bank will raise interest rates in order to avoid or fight inflation.
Factory orders. Refer to the total of durable and nondurable goods orders. Nondurable goods
consist of food, clothing, light industrial products, and products designed for the maintenance of durable goods. Durable goods orders are discussed separately. The factory orders indicator has limited significance for foreign exchange traders.
Durable goods orders. Consist of products with a life span of more than three years. Examples of durable goods are autos, appliances, furniture, jewelry, and toys. They are divided into four major categories: primary metals, machinery, electrical machinery, and transportation.
In order to eliminate the volatility pertinent to large military orders, the indicator includes a
breakdown of the orders between defense and non-defense. This data is fairly important to foreign exchange markets because it gives a good indication of consumer confidence. Because durable goods cost more than nondurables, a high number in this indicator shows consumers' propensity to spend. Therefore, a good figure is generally bullish for the domestic currency.
Business inventories. Consist of items produced and held for future sale. The compilation of this information is facile and holds little surprise for the market. Moreover, financial management and computerization help control business inventories in unprecedented ways. Therefore, the importance of this indicator for foreign exchange traders is limited.
Economic indicators
The Gross National Product (GNP). The Gross National Product measures the economic performance of the whole economy. This indicator consists, at macro scale, of the sum of consumption spending, investment spending, government spending, and net trade. The gross national product refers to the sum of all goods and services produced by United States residents, either in the United States or abroad.
The Gross Domestic Product (GDP). The Gross Domestic Product refers to the sum of all goods and services produced in the United States, either by domestic or foreign companies. The differences between the two are nominal in the case of the economy of the United States. GDP figures are more popular outside the United States. In order to make it easier to compare the performances of different economies, the United States also releases GDP figures.
Consumption Spending. Consumption is made possible by personal income and discretionary
income. The decision by consumers to spend or to save is psychological in nature. Consumer
confidence is also measured as an important indicator of the propensity of consumers who have discretionary income to switch from saving to buying.
Investment Spending. Investment — or gross private domestic spending — consists of fixed
investment and inventories.
Government Spending. Government spending is very influential in terms of both sheer size and its impact on other economic indicators, due to special expenditures. For instance, United States military expenditures had a significant role in total U.S. employment until 1990. The defense cuts that occurred at the time increased unemployment figures in the short run.
Net Trade. Net trade is another major component of the GNP. Worldwide internationalization and the economic and political developments since 1980 have had a sharp impact on the United States' ability to compete overseas. The U.S. trade deficit of the past decades has slowed down the overall GNP. GNP can be approached in two ways: flow of product and flow of cost.
Monday, April 14, 2008
Risks by the foreign exchange on Forex
As it was mentioned above the trading on the Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.
Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide
market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes.
The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.
Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.
Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:
1. Replacement risk occurs when counterparties of the failed bank find their books are subjected
to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.
2. Settlement risk occurs because of the time zones on different continents. Consequently,
currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.
Therefore in assessing the credit risk, end users must consider not only the market value of their
currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.
Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.
Friday, April 4, 2008
FOREX ADVANTAGE- LIQUIDITY/ ACCESS/ TWO WAY MARKET/ LEVERAGE/ EXECUTION QUALTIY
There are numerous advantages for parties wishing to trade in the FOREX. They include:
Liquidity: In the FOREX market there is always a buyer and a seller! The FOREX absorbs trading volumes and per trade sizes which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggests the freedom to open or close a position at will 24 hours a day.Once purchased, many other high-return investments are difficult to sell at will. FOREX traders never have to worry about being “stuck” in a position due to lack of market interest. In the 1.5 trillion U.S. dollar per day market, major international banks a “bid” (buying) and “ask” (selling) price
Access: The FOREX is open 24 hours daily from about 6:00 P.M. Sunday to about 3:00 P.M. Friday. An individual trader can react to news when it breaks, rather than waiting for the opening bell of other markets when everyone else-has the same information. This allows traders to take positions before the news details are fully factored into the exchange rates. High liquidity and 24 hour trading permit market participants to take positions or exit regardless of the hour. There are FOREX dealers in every time zone, in every major market center (Tokyo, Hong Kong, Sydney, Paris, London, United States, etc.) willing to continually quote buy and sell prices.
Two-Way Market: Currencies are traded in pairs, for example dollar/yen, or dollar/Swiss franc. Every position involves the selling of one currency and the buying of another. If a trader believes the Swiss franc will appreciate against the dollar, the trader can sell dollars and buy francs (“selling short!’). If one holds the opposite belief, that trader can buy dollars and sell Swiss francs (“buying long”). The potential for profit exists because there is always movement in the exchange rates (prices).
FOREX trading permits profit taking from both rising and falling currency values in relation to the dollar. In every currency trading transaction, one of the sides of the pair is always gaining and the other side is losing.
Leverage: Trading on the FOREX is done in currency “lots.” Each lot is approximately 100,000 U.S. dollars worth of a foreign currency. To trade on the FOREX market, a “margin account” must be established with a currency broker. This is, in effect, a bank account into which profits may be deposited and losses may be deducted. These deposits and deductions are made instantly upon exiting a position.
Execution Quality: Because the FOREX is so liquid, most trades can be executed at the current market price. In all fast moving markets, slippage is inevitable in all trading (stocks, commodities, etc.), but can be avoided with some currency broker’s software, which informs you of your exact entering price just prior to execution. You are given the option of avoiding or accepting the slippage. The huge FOREX market liquidity offers the ability for high quality execution.
A FOREX Internet trader does not have to speak with a broker by telephone. The elimination of the middleman (broker salesman) lowers expenses and makes the process of entering an order faster
and has eliminated the possibility for misunderstanding. ¬ Execution Costs: Unlike other markets, the FOREX does not charge commissions. The cost of a trade is represented in a Bid/Ask spread established by the broker. (Approximately 4 pips) ¬ Trendiness: Over long and short historical periods, currencies have demonstrated substantial and identifiable trends. Each individual currency has its own “personality,” and each offers a unique historical pattern of trends, providing diversified trading opportunities within the spot FOREX market.
¬ Focus: Instead of attempting to choose a stock, bond, mutual fund or commodity from the tens of thousands available in those markets, FOREX traders generally focus on I to 4 currencies. The most common and most liquid are the Japanese Yen, British Pound, Swiss Franc and the new EURO. Highly successful traders have always focused on a limited number of investment options. Beginning FOREX traders usually will focus on one currency and later incorporate one to three more into their trading activities.
¬ Margin Accounts: Trading on the FOREX requires a margin account. You are committing to trade and take positions today. As a speculator trader you will not be taking delivery on your product that you are trading. As a Stock Day Trader, you will only hold a trading position for a few minutes to a few hours, and then you need to close out your position by the end of the trading session.
Forex Lost Coin
Lost Coin
