EUR/USD Slumps on Worsening Consumer Confidence

EUR/USD is currently posting a biggest daily drop since July 10th as the consumer confidence report for July along with the housing data for May cut the traders’ hopes for the fast economical recovery and boosted the attractiveness of the U.S. dollar in the Forex market. EUR/USD is now trading near 1.4173.

S&P/Case-Shiller Home Price index for 20 U.S. states was at a seasonally adjusted level of 140.05 in May — that’s a 17.05% drop compared to a year before. A decline by 17.90% was expected following an 18.10% drop in April.

Consumer confidence decreased from 49.3 in June to 46.6 in July in United States. It was a rather unexpected drop (forecasts pointed at a decline only to 49.0).

On the good side, yesterday, a report on the June’s new home salesshowed a growth from 346k to 384k annualized seasonally adjusted rate. That report surpassed the optimistic forecast of gain to 355k rate.

forex

The Forex trading market is a relatively new phenomenon. Never before in the history of the world have we seen such an amazing event. In only 30 years, this industry has developed from almost nothing to a daily US$1.5 trillion market. How did this happen? Was it by design? Or was it by accident?
Well the answer falls somewhere in between. There are three distinct time frames that set the stage for today's style of currency trading. The first time frame is the pre-currency trading era of the 1950s. The second time frame is the worldwide, politically volatile atmosphere of the 1970s. The third time frame is what has occurred in this free market economy since the demise of the gold standard 30 years ago. In each time frame, there have been three catalysts: war, gold, and foreign banks- that have played a significant role in propelling currency development.

Major Participants

There are three major participants in the Forex market: customers, banks and brokers.
Customers

Customers can further be divided into individuals, small business and larger corporate type businesses.

Corporate Businesses often need to make cross boarder transactions in order to trade their goods or services.

Many companies have to import or exports goods to different countries all around the world. Payment for these goods and services may be made and received in different currencies.

Many billions of dollars are exchanged daily to facilitate trade. The timing of those transactions can dramatically affect a company's balance sheet.

Although you may not think it, all of us play a part in today's FX world. Every time someone goes on holiday overseas he or she normally needs to purchase that country's currency and again change it back into his/her own currency once he/she returns. Unwittingly he or she is in fact trading forex.

He or she may also purchase goods and services whilst overseas and their credit card company has to convert those sales back into his base currency in order to charge him.

If you think of just how many tourists are traveling at any given time, then you can imagine just how much this can add up.
Banks

Under the heading bank we could also include the larger of the funds who are also deposit taking institutions. As a forex speculator you are actually taking the place of a bank for the duration of a trade, if you think about you are holding large amounts of foreign exchange just as a bank would.

Policies that are implemented by governments and central banks can play a major roll in the FX market. Central banks can play an important part in controlling the country's money supply to insure financial stability.

Large banks can literally trade billions of dollars daily. This can take the form of a service to their customers, trades executed on behalf of large clients or they themselves can speculate on the FX market.

Because of the size of some transactions banks may be unable to deal directly with other banks and will state the price they are prepared to accept for a currency or pay for a currency. This is called market making.

They will quote the buying or selling rates they are prepared to pay for pairs of currencies e.g. the Dollar to Japanese Yen or Pound to Dollar.

The market maker (in this case the bank) makes its profit from the difference between the buying and selling rate (spread).
Hedge Funds

As we know the FX market can be extremely liquid, which is why it can be desirable to trade. Hedge Funds have increasingly allocated portions of their portfolios to speculate on the FX market.
Another advantage for Hedge Funds is that they can utilize a much higher degree of leverage than would typically be found in the equity markets.
Brokers

The broker’s main function is to facilitate trade between two parties.

They normally have links to other brokers, banks and institutions and often become mini market makers themselves.

Because of the varied source of clients who use brokers it is quite common to find the best rates through a broker as opposed to a bank.

With a broker you can shop for the best rates in order to transact your business.

The broker makes his commission from either the difference between the buying and selling rate or as a flat fee per transaction

All of the three main groups will also speculate in the market, which is why the market has so much volume and liquidity.

Buying and Selling

Order Basics :

• Sellers are asking for a high price.
• Buyers are Bidding at a lower price.
• Trading is an auction.
• Slippage occurs with most Market Orders.
• The diffrence between the ASK and the BID price is the spread.

A trader must understand what each order is, what it and what part it plays in capturing profit.

A FOREX Trader must use three types of orders: a Market Order, a Limit Order, and a Stop Order.

The two primary orders used for entering and exciting the market are a Limit Orders, and a Stop Orders. Once an order is placed your order to enter the market, there are two critical procedures: One-Cancels-the-Other( OCO ) and Cancel-and-Replace. Properly exectuing orders and understanding these procedures are a vital step to profitables trading.

IMP : all good carpenters carry a toolbox. The sharper the tools and the more skilled he is at using them, the more effective he is. The sharper you become as a trader the more effcient and lucrative you will be.

What orders do : A clear understanding of what each order does is essential before exectuing orders.

VF 2Q Net Down 27% On Pensions, Forex; Sees Share Gains

VF Corp.'s (VFC) second-quarter profit fell 27% amid higher pension costs and currency changes as the world's largest apparel maker by revenue reported a bigger-than-expected revenue drop.

The company has outperformed its struggling retail competitors during the economic downturn. It vowed in March to maintain a five-year plan to expand and diversify through acquisitions and new boutiques. But the strong dollar has hurt international revenue, which had been a key source of growth.

"Business remains undeniably tough across most categories, channels and geographies, but I am pleased that our largest brands - Wrangler, Lee, The North Face and Vans - continue to gain share in most markets," said Chairman and Chief Executive Eric C. Wiseman. While highlighting cost cuts, he also said, "We see some signs of stabilization occurring." Still, VF is cautious about consumer spending the rest of the year.

The company posted a profit of $75.5 million, or 68 cents a share, down from $ 104 million, or 94 cents a share, a year earlier. The latest results included a 14-cent impact on higher pension costs and a net 8-centhit from foreign exchange.

Revenue decreased 11% to $1.49 billion, with three percentage points of the drop due to currency changes.

A survey of analysts by Thomson Reuters expected earnings of 58 cents a share on $1.53 billion in revenue.

Gross margin rose to 43.9% from 43.8%.

International revenue fell 4% on a constant-currency basis.

Sales of outdoor apparel were down 2%, but up 2% on a constant-currency basis. The North Face rose 4% on that measurement, with Vans jumping 14%. Jeanswear, though, fell 12% excluding foreign exchange.

Shares of VF, which reiterated its 2009 forecast, rose 3.6% to $62.78 in after-hours trading.

Forex Trading Market

When it comes to trading systems that you can use to trade on the Forex market you have plenty of options but it’s very important to choose the right Forex trading system for you.
Some may find fundamental factors easier to take while others will do better with technical indicators. Everyone is different and which system isn’t important – what is important is matching individual to system. So how do you find the right system?
Well it starts with you understanding the methods of analysis that are used when you are trading on the Forex currency market. When you know what the tools are and how to use them you can analyze what is best for you.
Some of the most popular technical analysis tools include pivot points, Fibonacci retraces, chart patterns, candlestick patterns, trade balances, interest rates, and GDP which stands for gross domestic product.
You will need to determine the profitability of the Forex trading system you are considering choosing. Use a real time demo to determine how profitable a trading system is. This lets you begin to understand what the system’s capabilities are and it also let’s you become familiar with the trading platform.
Next you need to have a look at the expectancy which tells you what type of profits you expect to make over a period of time. You calculate expectancy using this simple formula:(Probability of winning × average win) – (Probability of losing × average loss) = the average profit per trade. If this number is a negative number you need to look at a different Forex trading system. Of course the higher the number the better the profits you can expect.
You should also examine the opportunity factor which is just how often you can expect to trade using the trading system. You multiply your expectancy figure with the opportunity factor and it tells you how much you can expect to profit during a specific time period. The more opportunity the more profit you can expect to put in your pocket.
Now that you know how to choose the right Forex trading system for you to reap the most profitability.

Main Currency Markets

Foreign exchange is traded essentially in two distinctive ways. Over an organized exchange and 'over the counter'. Exchange traded foreign exchange represents a very small portion of the total currency market the great majority of foreign exchange deals being traded between banks and other currency market participants 'over the counter'.

1. Exchange traded currencies

In the case of an organized exchange like the Chicago Mercantile exchange (CME) in the US, standardized currency contract sizes that represent a certain monetary value are traded in the International money market (IMM). A central clearing house organizes matching of transactions between counter-parties. There are various disadvantages to trading currency futures as outlined in the chapter Advantages of trading FX.

2. Currency market

In comparison the over the counter market is traded around the world by a multitude of participants and price quality, reputation and trading conditions determine who a participant wishes to trade with. It is probably the most competitive market in the world and brokers like ACM must insure they live up to the highest standards of service and be compliant with market standards and practices if they want to acquire new customers and retain their existing ones. In 2007 a survey under the auspices of the Bank for International Settlements (BIS), global turnover of reporting dealers was estimated at about USD 3.2 trillion per day, representing a more than 60% increase since 2004.

Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom, even though that nation's currency, the British pound is less widely traded in the currency market than several others. As shown in the graph underneath, the United Kingdom accounts for about 34 percent of the global total; the United States ranks a distant second with about 17 percent, Switzerland is third with 6.1 percent, whereas Japan is only fourth with 6 percent.

Forex Market Participants

In the last years, the foreign exchange market has expanded from one where banks would execute transactions between themselves to one in which many other kinds of financial institutions like brokers and market-makers participate including non-financial corporations, investment firms, pension funds and hedge funds.

Its' focus has broadened from servicing importers and exporters to handling the vast amounts of overseas investment and other capital flows that currently take place. Lately foreign exchange day trading has become increasingly popular and various firms offer trading facilities to the small investor.

Foreign exchange is an 'over the counter' (OTC) market, that means that there is no central exchange and clearing house where orders are matched. Geographic trading 'centers' exist around the world however and are: (in order of importance) London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris and Hong Kong. Essentially foreign exchange deals are made between participants on the basis of trust and reputation to deliver on an agreement. In the case of banks trading with one another, they do so solely on that basis. In the retail market, customers demand a written legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade.

Some market participants may be involved in the 'goods' market, conducting international transactions for the purchase or sale of merchandise. Some may be engaged in 'direct investment' in plant and equipment, or may be in the 'money market,' trading short-term debt instruments internationally. The various investors, hedgers, and speculators may be focused on any time period, from a few minutes to several years. But, whether official or private, and whether their motive be investing, hedging, speculating, arbitraging, paying for imports, or seeking to influence the rate, they are all part of the aggregate demand for and supply of the currencies involved, and they all play a role in determining the exchange rate at that moment.

Forex History

The world's largest financial market

As mentioned earlier, the FX Market is by far the worlds largest. With over 2 trillion dollars being traded daily there are several distinct advantages brought forward to the investor.

The first are the hours. The FX market never closes, and because of the huge volumes the market always has plenty of liquidity within it so that any investor knows that when he wants to enter or exit a trade, it will always be possible.

24-hour 5-day a week market

The FX Market is always open. On Monday morning trading starts in Sydney, Australia and as the day goes on more financial markets join in; through Asia – Hong Kong, Singapore and Tokyo - then through to the Middle East, Europe and finally the Americas. The most liquid hour of trading occurs in the European mornings when the U.S has joined in and Europe and the Middle East are still trading.

When the U.S starts to close, Australasia begins again and the process goes on 24-hours a day until the markets close at 5pm New York time on Friday.

The totally global FX market allows investors to trade at any time and never be caught out, in the event of a world event or an economic announcement without the ability to trade. This is truly unique to the FX market.

What is the location of the FX Market?

The FX market is considered to be an Over the Counter (OTC) or "inter-bank" market, since transactions are conducted directly between two counterparts either over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.

The world's most liquid financial market

The liquidity in the market also gives the investor the confidence of knowing that the FX market will always behave the same, day or night, anywhere in the world – unlike other financial markets that either close their doors for trading or widen up the spreads due to the illiquid time of day, simply because there are not enough players in the market.

Streaming Rates

Through the LiderTrader platform, traders are able to view on-line, real-time, executable foreign exchange spot rates on streaming prices.The rates rates are generated by Lider's liquidity providers who are the world's major international banks and leaders in foreign exchange. The rates seen on the LiderTrader platform are Lider's rates as a market maker and reflect the world wide flow of FX supply and demand.

The world's most transparent market

In other financial markets, large players have been known to move a particular share or commodity in order to profit. Because of the vast volumes in the FX markets it is almost impossible for even the largest groups to interfere with the general market forces.

Zero Costs

There are zero costs for trading in foreign exchange with Lider Forex. No costs for trading, no commissions, no hidden fees, or brokerage charges – in fact no costs at all. Lider Forex earns its income through the difference between the buy and sell prices.

When comparing the FX Market to other financial markets, the savvy investor immediately realizes the difference. In the equity markets, for instance, investors pay anywhere from $7 to $30 per trade, via on-line discount brokers. When using full-service brokers this can often be $100 per trade.

When comparing the futures market, trading commissions, exchange fees and clearing fees are all part of the package.

For every investor cost is a serious issue, and when you compare the world's main financial markets in terms of cost, the FX Market is clearly head and shoulders above the rest.

Spreads

Another cost to trading is the spread between the buy and sell price. With Lider Forex offers the tightest spreads are offered - 3-4 pips on major currency crosses. This represents a cost of 0.025% which is or one-quarter of one per mile, or one-twenty-fifth of one-percent.

In the equity markets, for example, a standard spread is often 0.125%. That’s five times the spread in the foreign exchange market, not including the added transaction costs mentioned above.

If looking at the futures markets the situation isn't much better. When comparing like traded instruments for example the EUR/USD contract for example, we find the spreads available with Lider Forex are 40% less than those available in the futures market. Once again that is without taking into account the added fees charged when trading futures.

Accessibility

In order to start live trading with Lider Forex, an investor can open up a trading account for as little as $100. That barely pays for the opening commission in the other financial markets. The high degree of leverage that is obtainable in the trading of off-exchange foreign currency transactions can work against you as well as for you. Leverage can lead to large losses as well as gains.

No Restrictions

When trading with Lider Forex, clients can trade amounts as small as 5,000 units of the base currency and in integral sizes thereof. When comparing similar instruments in the Futures markets the amount is 125,000 units and integral sizes thereof. Your entry to trading is much easier with Lider Forex.

Leverage

With Lider Forex, investors can trade with leveraged amounts up to 200 times their current equity value or 200:1. This dwarfs what is normally offered in the equity markets, being 2:1 (100 times as much). The futures markets margins vary greatly from one instrument to another but do not often fall below 10:1 (20 times as much).

Currency crosses generally fluctuate a lot less than equities or futures and so leverage is essential to successful investment in the FX market. The investor should use the tools available to him within Lider Forex's platform, such as limit and stop-loss orders. Combining these orders with correct money management is also important to successful trading.

The high degree of leverage that is obtainable in the trading of off-exchange foreign currency transactions can work against you as well as for you. Leverage can lead to large losses as well as gains.

Shorting – Profit with both Rising and Falling Markets

In various financial markets throughout the world, there are many limitations against the possibility of shorting certain instruments. In the FX market, whenever you enter a trade you are immediately long (bought) one currency and short (sold) another. Therefore the opportunities to go long or short are the same and the opportunities to profit are endless.
In general terms you are considered long if you bought the major currency and short if you sold the major currency.

FOREX TRADING

Compared to other financial markets, the forex market offers many advantages, such as 24h trading, no commissions and margin trading. Most of the advantages forex trading offers are listed here below.

Advantages of forex trading

Although the forex market is by far the largest and most liquid in the world, day traders have up to now focused on seeking profits in mainly stock and futures markets. This is mainly due to the restrictive nature of bank-offered forex trading services.

Advanced Currency Markets (ACM) offers both online and traditional phone forex trading services to the small investor with minimum account opening values starting at 5000 USD.

There are many advantages to trading spot foreign exchange as opposed to trading stocks and futures. Below are listed those main advantages.

1. Bid/Ask Spread rates

Spread rates have tightened dramatically in the last years. Most online forex brokers offer a spread of at least 3 pips on EURUSD which is the most widely traded and liquid currency pair. ACM offers a spread as low as 1.8 pips on EURUSD. In stock trading, only liquid stocks offer tight spreads. Those spreads often represent on average between 0.04% and 0.06% of the value of the stock. In comparison ACM offers a 1.8 - 3 pip spread on all major currencies, this equates to approximately between 0.014% and 0.023% on the underlying dollar value.

Exact percentages at current rates (February 2009):

EURUSD 1.8 pips 0.014%

GBPUSD 2.8 pips 0.019%

USDJPY 1.8 pips 0.019%

USDCHF 2.8 pips 0.023%

In the futures market spreads can vary anywhere between 5 and 9 pips and can become even larger under illiquid market conditions (which tends to happen substantially more often in futures currencies).

2. Forex trading commissions

ACM offers forex trading commission free. This is in sharp contrast to (once again) what stock and futures brokers offer. A stock trade can cost anywhere between USD 5 and 30 per trade with online brokers and typically up to USD 150 with full service brokers. Futures brokers can charge commissions anywhere between USD 10 and 30 on a round turn basis.

3. Forex trading margins requirements

ACM offers a forex trading with a 1% margin. In layman's terms that means a trader can control a position of a value of USD 1'000'000 with a mere USD 10'000 in his account. By comparison, futures margins are not only constantly changing but are also often quite sizeable. Stocks are generally traded on a non-margined basis and when they are, it can be as restrictive as 50% or so.

4. 24 hour forex trading

Forex trading market occurs over a 24 hour period picking up in Asia around 24:00 CET Sunday evening and coming to an end in the United States on Friday around 23:00 CET. Although ECNs (electronic communications networks) exist for stock markets and futures markets (like Globex) that supply after hours trading, liquidity is often low and prices offered can often be uncompetitive.

5. No Limit up / limit down

Futures markets contain certain constraints that limit the number and type of transactions a trader can make under certain price conditions. When the price of a certain currency rises or falls beyond a certain pre-determined daily level traders are restricted from initiating new positions and are limited only to liquidating existing positions if they so desire. This mechanism is meant to control daily price volatility but in effect since the futures currency market follows the spot market anyway, the following day the futures market may undergo what is called a 'gap' or in other words the futures price will re-adjust to the spot price the next day. In the OTC market no such trading constraints exist permitting the trader to truly implement his trading strategy to the fullest extent. Since a trader can protect his position from large unexpected price movements with stop-loss orders the high volatility in the spot market can be fully controlled.

6. Sell before you buy

Equity brokers offer very restrictive short-selling margin requirements to customers. This means that a customer does not possess the liquidity to be able to sell stock before he buys it. Margin wise, a trader has exactly the same capacity when initiating a selling or buying position in the spot market. In spot trading when you're selling one currency, you're necessarily buying another.

THE FOREX MARKET

Contrary to popular belief, the unification of many European currencies into one single currency (the Euro) has only strengthened and rendered more popular the usage of foreign exchange as an investment, a hedging instrument and as a tool for speculation. The most marked development has been the democratisation of foreign exchange in the retail forex market, the tightening of spreads and drastic improvement of trading conditions for the small trader.

In practically all investments there is a Foreign Exchange (Forex) transaction to be made. Whether in international trade, import-export, or practically any type of business, resorting to some form of forex foreign exchange operation is practically unavoidable. It is not surprising then that the forex market is by far the largest in the world, in fact it is approximately 32.5 times larger than all equities markets put together.

New to Forex Trading

For those of you that are new to the foreign exchange (forex) market, it is important to familiarize yourselves with this market’s characteristics and unique attributes. The forex market allows traders to buy and sell distinct currency pairs. No commission is charged per trade, the broker is compensated through the buy and sell price differential – commonly known as the “spread”. Below are a few guidelines to start trading with Advanced Currency Markets – your gateway to the largest and most liquid market on earth.

What is Forex (Foreign Exchange, FX) ?

ACM offers online forex trading services for traders wanting to make speculative transactions on the exchange rate between two currencies.

These rates may be influenced by world economic and political events, currency rate differentials, as well as many other factors including extreme weather conditions (hurricanes), acts of terror etc.

Forex is the largest marketplace in the world with more than 3.2 trillion dollars changing hands daily and so making it one of the most attractive and lucrative markets.

How does the foreign exchange market work?

The forex market allows you to buy and sell currencies against each other and speculate on the differences in exchange rates.

Making a transaction on the forex market is simple: the procedures are identical to that of any other market so switching to trading currencies is straightforward for most traders.

Buying/Selling - B/S

If you want to open a position (i.e.: place an order to sell – to make a profit if the exchange rate falls) you have to choose the amount (i.e.: 100.000 EURUSD) from the drop down menu on the platform and then click the mouse on the sell currency button: SELL (if you want to place an order to buy, you should act in reverse).

This will open a position in the market and you will receive an immediate notification of it on your trading station.

To close an open position, you have to do the opposite of the initial operation – in our case buy the 100.000 EURUSD back.

Different order types also exist to open or close a position under a certain condition.

How does the B/S system work?

As with any market, for each currency pair, there are 2 prices. The difference between them is called the spread.

The spread is measured in points or pips – lowest decimal figure in a currency rate.

For a EURUSD a pip equals 0.0001 (or 10 dollars on 100.000), for EURJPY a pip equals 0.01 (or 1000 yen on 100.000). More information on P/L calculation on the following page: profit and loss.

Forex currencies quotation system

Currencies are quoted in pairs, for example – EUR/USD or USD/JPY.

The first currency in the pair is called the base currency and the second is called the counter currency.

The base currency is the ‘basis’ for purchases and sales.

For example, if you buy EUR/USD, then you acquire Euros and sell Dollars. You do this if you expect the Euro to grow against the Dollar.

It is also possible for a currency pair to be quoted as USD/EUR, but this method is used extremely rarely.

Each transaction must have 2 sides – a buy and a sell (or a sell and a buy).

By this we mean that it is impossible to buy 100.000 EUR/USD and then exchange it for another currency pair (i.e.: EUR/JPY) without closing the first position.

Also please note that no physical currency delivery will be made. For these purposes banks and exchange companies, which specialize in low-rate currency conversions are available.

Forex market working hours

The forex market, based on ‘spot’ transactions, is unique in comparison with all other global markets.

This is because trading takes place 24 hours a day, 5 days a week (ACM platform works from Sunday 22:00 to Friday 23:00 CET). Financial centers are open for work, and banks and other organizations exchange currencies in different parts of the world for different purposes.

Therefore, trading never stops apart from a short break during the weekend.

Early closings are possible depending on calendar arrangement such as, for example, Christmas or new year’s eve.

Forex trading margins

A margin deposit is not, as many traditional traders suggest, the payment in cash for purchasing market shares. A margin is in fact a guarantee or a trust deposit, providing protection from losses during a deal? It allows traders to open positions on amounts that greatly exceed their account limits and so increase their buying power. ACM offers a 1% margin (or 1:100 leverage), which means you can control 100 times your deposit in the real market.

If the funds in the account, in the course of trading, fall below the prescribed margin, your positions will be closed automatically without prior notice. Using this system, the client’s account cannot go overdrawn even under volatile, fast-changing market conditions.

The formula for calculating margins is as follows: (account balance + profit/loss) : open position = the margin

Rollover of positions (swap)

For the sake of transparency and unlike any other online broker we actually have a complete explanation of applied cost of carry on behalf of the market or the customer on open positions held overnight. This overnight cost of carry is presented as a simple flat fee either paid or charged on a customer's account. This process makes for extremely simple statements and greatly increased executional transparency since we do not modify the original price of the position entered into by the customer.