United States trade deficit

The United States of America has held a trade deficit starting late in the 1960s. It was this very deficit that forced the United States in 1971 off the gold standard. Its trade deficit has been increasing at a large rate since 1997 (See chart) and increased by 49.8 billion dollars between 2005 and 2006, setting a record high of 817.3 billion dollars, up from 767.5 billion dollars the previous year.
It is worth noting on the graph that the deficit slackened during recessions and grew during periods of expansion. Also of note, many economists calculate trade deficits and/or current account deficits as a percentage of GDP. The US last had a trade surplus in 1991, a recession year. Every year there has been a major reduction in economic growth, it is followed by a reduction in the US trade deficit. The investor Warren Buffett has proposed a tool called Import Certificates as a solution to the United States' problem

Conditions where trade deficits may be considered harmful

Those who ignore the effects of long run trade deficits may be confusing David Ricardo's principle of comparative advantage with Adam Smith's principle of absolute advantage, specifically ignoring the latter. The economist Paul Craig Roberts notes that the comparative advantage principles developed by Davi Ricardo do not hold where the factors of production are internationally mobile Global labor arbitrage, a phenomenon described by economist Stephen S. Roach, where one country exploits the cheap labor of another, would be a case of absolute advantage that is not mutually beneficial.

Deteriorating U.S. net international investment position (NIIP) has caused concern among economists over the effects of outsourcing and high U.S. trade deficits over the long-run.Since the stagflation of the 1970s, the U.S. economy has been characterized by slower GDP growth. In 1985, the U.S. began its growing trade deficit with China. Over the long run, nations with trade surpluses tend also to have a savings surplus. The U.S. has been plagued by persistently lower savings rates than its trading partners which tend to have trade surpluses. Germany, France, Japan, and Canada have maintained higher savings rates than the U.S. over the long run.Some economists believe that GDP and employment can be dragged down by an over-large deficit over the long run.Wealth-producing primary sector jobs in the U.S. such as those in manufacturing and computer software have often been replaced by much lower paying wealth-consuming jobs such those in retail and government in the service sector when the economy recovered from recessions.Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt'
In 2006, the primary economic concerns centered around: high national debt ($9 trillion), high non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high externdebt (amount owed to foreign lenders) and a serious deterioration in the United States investmenpositio (NIIP) (-24% of GDP), high trade deficits, and a rise in illegal immigration
These issues have raised concerns among economists and unfunded liabilities were mentioned as a serious problem facing the United States in the President's 2006 State of the Union address On June 26 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand

Balance of trade

The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.A favourable balance of trade is known as a trade surplus and consists of exporting more than is imported; an unfavourable balance of trade is known as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance.

• The balance of trade form part of the current account, which include other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decrease the net international asset position.
  The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor the concept of importing goods to produce for the domestic market).
  Measuring the balance of trade can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by a few percent; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely.
  Factors that can affect the balance of trade include:
  The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy vis-à-vis those in the importing economy;
  The cost and availability of raw materials, intermediate goods and other inputs;
  Exchange rate movements;
  Multilateral, bilateral and unilateral taxes or restrictions on trade;
  Non-tariff barriers such as environmental, health or safety standards;
  The availability of adequate foreign exchange with which to pay for imports; and
  Prices of goods manufactured at home (influenced by the responsiveness of supply)
  In addition, the trade balance is likely to differ across the business cycle. In export led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion. However, with domestic demand led growth (as in the United States and Australia) the trade balance will worsen at the same stage in the business cycle.

Speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors.
Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against International Monetary Fund advice, this view is open to doubt

Algorithmic trading in foreign exchange

Financial instruments
Spot:
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), 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. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. NNM
Forward
See also: forward contract
One way to deal with the foreign exchange 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 one day, a few days, months or years. Usually the date is decided by both parties.
Future
Main article: currency future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 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.
Swap
Main article: foreign exchange swap
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 standardized contracts and are not traded through an exchange.
Option
Main article: foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world..
Exchange-traded fund
Main article: exchange-traded fund
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators

Economic factors trading:

These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators
Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector

Determinants of FX rates

The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed exchange rate regime, FX rates are decided by its government):
(a) International parity conditions viz; Relative Purchasing Power Parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
(b) Balance of payments model (see exchange rate). This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit.
(c) Asset market model (see exchange rate) views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by people’s willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) algorithm can be devised to predict prices. Large and small institutions and professional individual traders have made consistent profits from it. It is understood from above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: factors, political conditions and market psychology

Trading characteristics

Most traded currencies

Currency distribution of reported FX market turnover
Rank Currency I SO 4217 code(Symbol) % daily share(April 2007)
1 United States dollar USD ($) 86.3%
2 Euro EUR (€) 37.0%
3 Japanese yen JPY (¥) 17.0%
4 Pound sterling GBP (£) 15.0%
5 Swiss franc CHF (Fr) 6.8%
6 Australian dollar AUD ($) 6.7%
7 Canadian dollar CAD ($) 4.2%
8-9 Swedish krona SEK (kr) 2.8%
8-9   Hong Kong dollar HKD ($) 2.8%
10 Norwegian krone NOK (kr) 2.2%
11 New Zealand dollar NZD ($) 1.9%
12 Mexican peso MXN ($) 1.3%
13   Singapore dollar SGD ($) 1.2%
14   South Korean won KRW (₩) 1.1%
Other 14.5%
Total 200%

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.
The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.
Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXXYYY or YYY/XXX, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EURUSD or USD/EUR is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the "base" currency, was the stronger currency at the creation of the pair. The second currency, counter currency or "term" currency, was the weaker currency at the creation of the pair. Currencies are occasionally incorrectly quoted with the pairs inverted e.g. EUR/USD but this is incorrect. The "/" acts the same as the divide mathematical operator and derives the actual exchange rate. e.g. an amount of $140,000 equates to €100,000. $140,000/€100,000 = $/€ = USD/EUR = a rate of 1.4 hence EURUSD or USD/EUR. See Exchange_rate
The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.
On the spot market, according to the BIS study, the most heavily traded products were:
EURUSD: 27%
USDJPY: 13%
GBPUSD (also called cable): 12%
and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (17.0%), and sterling (15.0%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.
Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased

Retail foreign exchange brokers

There are two types of retail brokers offering the opportunity for speculative trading: retail foreign exchang brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated by the CFTC and NFA might be subject to foreign exchange scams At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
Central banks:
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high—that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Forex Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Market participants

Unlike a stock market, where all participants have access to the same prices, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tir inter-bank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the foreign exchange market to align currencies to their economic needs

Market size and liquidity

The foreign exchange market is the largest and most financial market in the world. Traders include large banks, central banks, currency speculatos, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. [Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded FX futures contracts introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.
FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 currency traders % of overall volume, May 2009
Rank
Name
Market Share
1
Deutsche Bank
20.96%
2
UBS AG
14.58%
3
Barclays Capital
10.45%
4
Royal Bank of Scotland
8.19%
5
Citi
7.32%
6
JPMorgan
5.43%
7
HSBC
4.09%
8
Goldman Sacs
3.35%
9
Credit Suisse
3.05%
10
BNP Paribas
2.26%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market taker will buy ("bid") from a wholesale or retail customer. The customer will buy from the market-maker at the higher "ask" price, and will sell at the lower "bid" price, thus giving up the "spread" as the cost of completing the trade. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".

Foreign exchange market

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.
The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.
In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of
its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks.[citation needed According to the Bank for International Settlements average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting

How to Master Forex Trading?

Join a Forex trading website. Some websites have a minimum of $200 investment, and some have practice accounts where you can work on your trading skills.
Step 2
Update yourself on terms frequently used in the Forex Trading world, such as 'intraday' and 'overnight position,' which relates to trading times.
Step 3
Study economic and political trends and stay up to date on current events. The best Forex traders have extensive knowledge on trends and other economic traits. This can take some time, but its' rewards are great.
Step 4
Invest in a bot. If you don't want to go deep into studying trends and such, you can buy a bot that recognizes trends and advises when to buy, and sell. You will want a bot that is frequently updated to optimize trading strategies.
Step 5
The last step is to give yourself time to get used to trading. It can take a long time to understand the Foreign Exchange.

Money Management

Is there a secret to becoming a successful trader?
There is a method that all successful traders use, and it’s no secret. It’s called money management.Money management is not some vague industry lingo – it simply means the knowledge and skill of managing your Forex trading account. As simple as that may seem, it’s the key to a long and successful trading career. And yet it is often forgotten or neglected in the thrill of the trade. We’d like to take this opportunity to lay out some ground rules by which you can effectively manage your account.Don’t go looking for the Big Win; it will most likely result in a big loss. Successful trading means consistent trading, where small wins amount to large long term profits. Never assume that all your trades will be profitable, and plan on losses.You should only risk a small percentage of your total account balance on each trade. This simply minimizes your risk, so that even if you end up losing your entire investment on a trade, it doesn’t have a critical effect on your account balance. The recommended amount is 2% of your account balance per trade. More aggressive traders go as high as 5%, but never higher than that. It is a very important rule to keep, since the lower your account balance drops, the harder it is to rebuild it.Using Limit OrdersLearn to use the Stop Loss and Take Profit orders effectively. These orders protect your investment and realize your profits. They are very simple tools that can make all the difference to your account balance.Size of TradesYou are suggested to open small trades, because in the case of a losing trade, you can then open the opposite trade with a bigger investment or higher leverage, thus compensating for losses.Practice with Virtual MoneyUse virtual money mode for practice. One of the unique features of eToro is that our platform provides you with a practice environment. Virtual money mode works exactly the same as real trading mode and uses the same real time rates, with the small difference of no risk involved. We recommend using the practice mode to get to know the platform and gain Forex trading experience.And even after you’ve begun trading with real money, it is the perfect place to try out your trading strategies. There is no point in risking your money to test out a possible theory, when you can do so with the same success minus the risk. After seeing that your strategy is consistently successful with virtual money, you can try it out for real.Now that you’re equipped for trading, take your time and start practicing your trading skills.

why is foreign trades use?

If you are reading this guide, you have most likely taken some sort of interest in the Forex market. But what does the Forex market have to offer you?
Accessibility – It’s no wonder that the Forex market has the trading volume of 3 trillion a day - all anyone needs to take part in the action is a computer with an internet connection.
24 Hour Market - The Forex market is open 24 hours a day, so that you can be right there trading whenever you hear a financial scoop. No need to bite your fingernails waiting for the opening bell.
Narrow Focus – Unlike the stock market, a smaller market with tens of thousands of stocks to choose from, the Forex market revolves around more or less eight major currencies. A narrow choice means no rooms for confusion, so even though the market is huge, it’s quite easy to get a clear picture of what’s happening.
Liquidity - The foreign exchange market is the largest financial market in the world with a daily turnover of just over $3 trillion! Now apart from being a really cool statistic, the sheer massive scope of the Forex market is also one of its biggest advantages. The enormous volume of daily trades makes it the most liquid market in the world, which basically means that under normal market conditions you can buy and sell currency as you please. You can never be in a jam for currency to buy or stuck with currency that you can’t unload.
The Market Can’t Be Cornered - The colossal size of the Forex market also makes sure that no one can corner the market. Even banks don’t have enough pull to really control the market for a long period of time, which makes it a great place for the little guy to make a move.

Understanding Forex Quotes

Quoting Foreign Currency:Currencies are always quoted in pairs. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed.The first currency in the quotes act as the 'base currency'.For example USD/JPY, EUR/GBP, and GBP/AUD, in such cases, USD, Euro Dollar, and Britain Pound are acting as the base currency. Base currency in a Forex quote will always has a value of 1. USD/JPY indicates how much Japanese Yens you can buy with 1 United States Dollar; similarly EUR/GBP indicates the exchange rate of Great Britain Pound with 1 Euro Dollar.FX Quoting: Bid/Ask and Spread:There are sometimes that you can only see one price but often currency exchange price are display in pairs with 'bid price and ask price'.For example EUR/USD 1.2385/1.2390, 1.2385 is known as the bidding price, while 1.2390 is the asking price. Bidding price is the price that you sell the base currency (EUR in our case here); asking price is the price that you buy the base currency. The different of the bidding and the asking price is called 'spread'.You might notice that bidding price is always lower than the asking price. Ever wonder why? The different of the bid-ask price (socall 'spread') is how currency brokers make profits without charging commissions to their clients (sell high and buy low in the same time.)
What's a pip?
A pip is the smallest value in a Forex quote. Take our example earlier on EUR/USD. If the exchange rate goes from 1.2385 to 1.2386; that's one pip. In mathematical definition, a pip means the last decimal place of a quotation.Note that as each currency has its own value, the value of a pip is different from one another. Say USD/JPY rate at 120.75, a pip would be 0.01 (the second decimal place); while for EUR/USD 1.2385, a pip would be 0.0001 (the fourth decimal place)Example of Forex Quotes:Confused about the quotes? Don't worry too much about it, you'll get used to them as soon as you move on and start your trades.For the beginners, here are some quick examples. Try not look at the answer and determine the value of bid price, ask price, spread value, and the pip value.EUR/USD 1.2385/1.2390:
Base currency= Eur
Bid price= 1.2385; Ask price= 1.2390
When selling Euros, 1 Euro = USD$1.2385; when buying Euros, USD$1.2390 = 1 Euro.
Spread = 1.2385 - 1.2390 = 0.0005
Pip value= 0.0001
GBP/USD 1.7400/10:
Base currency= GBP
Bid price= 1.7400; Ask price= 1.7410
When selling Pound, 1 Pound = USD$1.7400; when buying Pound, USD$1.7410 = 1 Pound.
Spread = 1.7400 - 1.7410 = 0.001
Pip value= 0.0001

Forex Trading Strategies

learn some basic Forex trading strategies. A very popular strategy that many Forex traders employ is to try and discern pricing patterns in the Forex rate between two currencies. Using Forex software, these investors track and graph the patterns of the Forex rate over a long period of time. Eventually, a pattern will begin to emerge. The investor then uses this pattern to predict what these currencies will do and how they will behave. Lucrative trades can be made in anticipation of the behavior of these currencies within the Forex trading system.Prediction and pattern assessment is just one example of many different kinds of Forex trading strategies that people use every day. For every Forex investor, this is generally a different and unique strategy - or blend of strategies. This is also where Forex simulation software can come in handy; people can try their strategies out without risking any real money. If their strategy seems to be fruitful, they can then make a real investment within the actual Forex market.

The best way to come up with a lucrative Forex trading strategy is to focus on a handful of different currencies. This way, an investor can become very familiar with how these currencies behave in the market, and how their Forex rates tend to fluctuate. Many Forex trading strategies revolve around a currency and how it reacts to global events in real time. Some major events in the world can cause a particular currency's rate to rise or fall dramatically. Over time, investors can learn what types of events trigger these movements and capitalize on them

The World Wide Forex

Forex is a trading ‘method’ also known as FX or and foreign market exchange. Those involved in the foreign exchange markets are some of the largest companies and banks from around the world, trading in currencies from various countries to create a balance as some are going to gain money and others are going to lose money. The basics of forex are similar to that of the stock market found in any country, but on a much larger, grand scale, that involves people, currencies and trades from around the world, in just about any country.Different currency rates happen and change every day. What the value of the dollar may be one day could be higher or lower the next. The trading on the forex market is one that you have to watch closely or if you are investing huge amounts of money, you could lose large amounts of money. The main trading areas for forex, happens in Tokyo, in London and in New York, but there are also many other locations around the world where forex trading does take place.The most heavily traded currencies are those that include (in no particular order) the Australian dollar, the Swiss franc, the British pound sterling, the Japanese yen, the Eurozone eruo, and the United States dollar. You can trade any one currency against another and you can trade from that currency to another currency to build up additional money and interest daily.The areas where forex trading is taking place will open and close, and the next will open and close. This is seen also in the stock exchanges from around the world, as different time zones are processing order and trading during different time frames. The results of any forex trading in one country could have results and differences in what happens in additional forex markets as the countries take turns opening and closing with the time zones. Exchange rates are going to vary from forex trade to forex trade, and if you are a broker, or if you are learning about the forex markets you want to know what the rates are on a given day before making any trades.The stock market Is generally based on products, prices, and other factors within businesses that will change the price of stocks. If someone knows what is going to happened before the general public, it is often known as inside trading, using business secrets to buy stocks and make money – which by the way is illegal. There is very little, if any at all inside information in the forex trading markets. The monetary trades, buys and sells are all a part of the forex market but very little is based on business secrets, but more on the value of the economy, the currency and such of a country at that time.

trading options

Aid this review FXOpen you determine if FXOpen is the best broker for you foreigners.One of the biggest advantages of the exchange is in its very FXOpen – Low start up the cost. It costs only $ 1 to open a small customer and $ 25 to open a standard client, you just can ‘t the beat of this anywhere else. This is great for beginners who don ‘t want to merge too much too early on the capital.Another important feature is that it supports the platform Metatrader 4, which means you can easily use an automated trading system as FAPTurbo foreigners or foreign MegaDroid. You can even install your automated robots of foreigners on their PDA or smartphone and FXOpen bear that.FXOpen also has very – the spreads of the low point of the power of leverage to 1:500, customers of Islamic background and has a team of wonderful and responsive support. Also work frequently deals and bonuses they sometimes find that customers in certain criteria.However, this review FXOpen would not be balanced if I did not report that users of some problems has FXOpen complained approximately.FXOpen look of eyebrows plaited practices of non-pure exchange of foreigners such as excessive Scalping and stop point and does not hesitate invalidate businesses using these methods. This caused great unhappiness among traders who use these strategies. In his defense, most other brokers do not allow foreigners also because these methods are lose-lose in the long term. If you ‘with reference to use these strategies in the foreign exchange unwanted, you could be in a better situation with a direct access broker that does not have a table of treatment.

learning of forex

Since professional Forex trading is always done with indicators, when someone does trading without them, it seems he is driving around with his eyes blindfolded! Similarly, people who trade without indicators or forex software are surprised at seeing people doing trading with 10 indicators on their charts just to place a trade. They treat these indicators as misleading to what the actual market scenario is. Trading without signals is also referred to as price action and is an age-old art. In such a trading scenario the trader is looking at the present price fluctuations, studying what happended in the past and from these two, predicting what are like to happen in future. He takes it as if ‘everything I need is right here in front of me, so why would I go for unnecessary indicators’?
Let us explain this with the help of an example. The Forex day market usually follows a set pattern which is by far predictable. But indicators like RSI or MACD usually lags behind, as it only gives us the past picture, which is known to everyone. But the real trick is to study the past and deploy your learning to predict the future. Thus traders who do Forex trading are perhaps people with a strong sense of intuition. For more education on the subject refer to a Report for more insight into Forex trading. They even help you with finding the best Forex broker and have recently compiled a list of some of the best known Forex brokers operating in the market.

forex futures

The practice of trading commodities is known as futures trading. Experience combined with patience can make such a transaction very lucrative. It involves the trading of tangible items, like silver, gold, oil or even crops. This practice is based on your ability to predict the future price of a commodity. Companies and individuals alike make investments in futures trading. The wisest way to begin futures trading is to set your financial goals and conduct a well-planned research, before you get into it. Consider hiring a professional broker because even though it may be initially expensive, the expertise of the broker will help you to avoid the common novice mistakes.Future trading endeavors can either be very beneficial or utter failures. Everything depends on how smart your moves and decisions are. You can be on your way to success, once you get an idea of the operations involved in this trade.

Automated Mini Forex Trading Account

With the expansion of forex trading activities into the investment portfolios of an average trader, the demand for automated trading systems has shown a steady increase. Especially during the past few years several high-end programmable trading softwares, specially devised for foreign exchange trade are introduced in the market. These trading softwares offer an automated trading platform which performs all the trading activities systematically and with great accuracy.Most of the people enter forex to earn some extra money in addition to their regular income. They do not have the expertise to understand the risks and opportunities involved in forex trading. However, most of them prefer trading on a low scale in the beginning. Due to this reason they try to trade on their own without hiring a full time broker. Since they lack enough knowledge and time to study the markets most of them end up incurring more losses than profits at the end of the first week.With such a bitter experience in the initial stage itself, half of the investors back off, while the other half decides to stay and watch a bit longer. Forex is a double edged weapon and it has to be taken seriously and not to be treated as a normal part time means of income. However, it is not too practical to dedicate your entire day watching currency movements. At this stage people start enquiring about automated trading systems and softwares available online.Trading softwares have a mixed review. Half of the users would claim them to be really beneficial, while the rest of them might warn you to keep away from such tools. As in the case of any other commodity available in the market trading softwares also differ in terms of quality and performance depending on the manufacturer and level of integrated programming used in them.You should check the warranties and prices offered by various software companies. After a general investigation regarding the performance of difference automated trading devices you should choose one which is neither too costly, not too cheap. Automated mini forex account is a suitable option for starters. It is auto trading system which is specially equipped to handle your mini forex account. This is a comparatively cheaper option and it will let you start trading with a fairly minimum level of investments starting from 50 dollars.Once you start earning profits on mini forex accounts you can migrate to a standard account, start another normal trading account, or opt for expanding your mini forex trade by increasing the size of transaction and leverage ratio. But before that you must make sure to learn the basics of the forex market which is the main purpose of all this. You can upgrade your automated trading system if the version is upgradeable or replace it for a software fit for high level trading.Forex is a market of great opportunities but only for those who understands its reach and potentials in real.

CFT Consulting

CFT Consulting provides a wide range of legal and consultancy services for:
foreign investors/companies setting up or operating in Sri Lanka, offering a one stop shop to help its clients effectively and efficiently do business in Sri Lanka; and
organisations doing business abroad, in particular in Europe.

cft of seilanka trades

One of the oldest trading companies in Sri Lanka, CFT was established in 1949 and became a publicly quoted company in 1978. Located in the heart of Colombo’s commercial hub, CFT has been trading for over 50 years and exports to customers in Asia, Australia, Europe, the Middle East, South and Central America, Russia and the United StatesIn addition to supplying its established clients, CFT’s goal is to enter niche markets and build a reputation for offering distinctive value added products and boost exports of its unique, high quality spices and desiccated coconut.Alongside its traditional commodity trading business CFT has diversified its operations into several sectors. CFT recently established an energy division (CFT Energy) to build on its existing trading operations and take advantage of emerging opportunitiesin the energy sector. Through CFT Finance, CFT act as direct sales associates for ICICI Bank (India's largest private sector bank) and are also exploring various opportunities in the Sri Lankan finance and insurance sectors. CFT Consulting provides a wide range of consultancy services for foreign investors in Sri Lanka, offering a one stop shop to help its clients effecively and efficiently do business in Sri Lanka.CFT has controlling interest in West Coast Lanka (Pvt) Ltd (WCL), a FMCG import and distribution company. WCL is the sole agent for ARS brand pest control products in Sri Lanka. CFT is also a substantial shareholder of Onally Holdings Limited, another publicly quoted company with substantial real estate interests in Sri Lanka

Forex Research & Commentary

With a 24-hour streaming news feed, professional forex research and live market commentary, you’ll always be up-to-date on important economic events, price movements and market developments,
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FOREX.com offers you access to a variety of forex charting packages and premium technical analysis tools to help you trade the Forex market.
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Online forex training courses

Our online training courses are designed to provide novice currency traders with a broad overview of the Forex market. Covering everything from the factors that drive currency movements through to reading and analysing charts, and effectively utilising leverage, the course will prepare you with the skills you need to trade forex. Our courses are available free of charge to clients - find out more from one of our forex experts, or
apply for an account now to get started today. Spot metals and oilFOREX.com also offers trading in spot gold and silver and Brent Crude Oil, providing interesting alternatives to diversify your portfolio beyond currencies. Learn more about these dynamic markets in our online Spot Metals Guide and Oil Guide

Learn to trade currencies, spot metals and oil

Whatever your level of experience, you can take advantage of FOREX expertiseto improve your trading skills. From advice on getting the most from our trading platforms,through to trading strategy ideas, we have a wealth of information to help you become a successful currency trader.
New to the Forex market?If you're new to the Forex market our online Forex Guide will take you through the basics: Learn how currencies trade, the importance of leverage and margin, and how to calculate profit and loss. We also explain the basics of technical and fundamental analysis and how to use these indicators to inform your trading decisions. Attend interactive webinarsJoin us for a free interactive webinar for hands on training, demonstrations and techniques to help you learn how to trade and analyse the Forex market. See our webinar schedule for upcoming events.

uk trades

FOREX.com UK Ltd is a trading name of GAIN Capital - FOREX.com UK Limited, a subsidiary of GAIN Capital Holdings, Inc. GAIN Capital is a global leader in foreign exchange trading, serving retail and professional clients in over 140 countries worldwide through its direct and partner brands, and supporting average trade volume of nearly $200 billion per month. With FOREX.com UK, you have 24 hour access to the global foreign exchange market, plus powerful charting tools, expert market research and commentary, and advanced forex trading tools. We also offer a wealth of education and training, covering everything from getting started in forex to understanding technical analysis and developing a trading strategy. Register for a practice account today to see for yourself.

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Global Payments and Transfers
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Currency Trading and Forex Tips
What is currency trading? Read this series of currency trading articles that incorporate dynamic forex tools such as Forex News headlines, Live Currency Rates, and Central Bank Rates.