Forex Trading Facts

Forex trading, or foreign exchange current exchange trading, is a global phenomenon. This is the single largest market in the world. There are many different market sectors that are involved with Forex trading. These include, but are not limited to; " Banks" Corporations" Governments" Individuals

What is Forex trading you ask? At its simplest, Forex trading is currency being traded for another currency. However, Forex trading is anything but simple. The market has massive trade volume and is very fluid. Not to mention the hundreds of different currencies being traded and their ever changing value.

Forex trading is a very focused area of trading, but the amount of time and energy most people and companies spend getting trained and educated on Forex trading and its inner workings and pitfalls, is at least as much time as it takes to learn the stock market.

Because of the complexity, Forex Trading is not your typical overnight success operation. There are many large corporations, such as GCI Financial which is a market leader in this space.

Forex trading is unique in that everyone does not have access to all of the same information and prices at the same time, as they do with the stock market. I won't get into specifics here, but basically there is a tiered level whereby different levels of access are given to the Forex traders and Forex firms.

The other main thing to remember about Forex trading is, until such time that the world adopts a single currency, Forex Trading will be around for a very long time.

India expects to add $100 bn to forex reserve

New Delhi, January 30: At a time when managing capital flows is becoming a challenge for the authorities, the Government today said it expects to add USD 100 billion to the forex reserves in the current financial year.

"We added USD 47 billion last fiscal. In 2007-08, we expect to add USD 100 billion," Finance Minister P Chidambaram said here at a lecture on 'Law - an Instrument for Economic Growth.'

Overall, India's forex reserves stands at USD 284.8 billion for the week ended January 19.

In this context, Chidambaram said the government's response to today's situation would be different from 1991, when India's forex reserves dipped below a billion dollars.

"A few years ago, we were bemoaning our forex position.

I remember (the) day in 1991... (when) the forex reserves had dipped below a billion dollars. Today, our problem is not that we do not have foreign exchange but what to do with that foreign exchange," he said.

Yesterday, Chidambaram had said he would discuss with RBI Governor Y V Reddy shortly, measures to manage the flow of capital.

While agreeing that RBI's status quo on interest rates and US Federal Reserve's move to cut interest rates would increase the gap between the rates in the two countries, he had said there was no certainty that this would increase capital flows.

Capital can also flow out due to payment obligations abroad, he had said.

India's forex must find a better use

NEW YORK: India has wasted three years debating a modest proposal for diverting some of its foreign reserves to plugging the country’s abysmal infrastructure deficit.

It’s only now when China is all set to carve out $200 billion from its reserves into a sovereign wealth fund that India is hastening to reach a decision on what to do with its own low-yielding cache.

Finance Minister P Chidambaram said in a speech at the London Business School last week that the government has “persuaded” the Reserve Bank of India to lend $5 billion from its $212 billion kitty.

The money will go to a special-purpose vehicle formed last year to enable long-gestation projects to raise funds cheaply. India urgently needs to boost investments in roads, ports, airports, power stations and railways. The latest official estimate puts the amount of funds required in these areas at a massive $475 billion over five years.

Better balance

Bloated order books bear testimony to serious supply constraints. Bharat Heavy Electricals, India’s biggest maker of power equipment, has a three-year order backlog. Pakistan’s cement makers are hoping to benefit from a shortage of building materials in India.

All of this provides a perfect setting for spending a few billion dollars from foreign reserves to import turbines, railway coaches, port equipment and air-traffic control systems. With adequate leverage, even $5 billion can have an amplified impact on a $1 trillion economy. India Infrastructure Finance, the special-purpose vehicle, can then have a significant corpus to provide credit lines to companies that will import capital goods.

Spending foreign reserves at home may shore up domestic liquidity and inflation, utilising the funds overseas will help the economy achieve a better balance between strong demand and tepid supply.

At $65 billion, the annual trade deficit is both large and widening. However, that shouldn’t deter the country from accelerated machinery imports. India’s basic balance of payments, or the sum of net exports of goods and services and foreign direct investment, is quite healthy.

The minuscule $1.2 billion shortfall in the year ended March 31 was only a third as large as in the previous year. Those who support the plan to make use of reserves emphasise the low returns on the central bank’s foreign assets, which are financed by selling high-cost local debt.

The Forex Market

For the last three decades Foreign Exchange market, - briefly Forex or FX, had integrated into the world's biggest financial market. The volume of daily transactions is about 1-3 trillion of US dollars. The trading instruments on this market are the currencies of different countries, so the fluctuation of currency's rates allows to gain a real profit.

Of course monetary assets of different countries exchanged since the term money appeared as well as an idea to obtain profit from currency's rates difference. Now it is not a new idea, but the transformation of foreign exchange market to the modern stage with an opportunity to conduct conversional operations of such volumes arose only after an introduction of floating rates regime by the state-members of IMF. Within this regime's framework the rate of one currency to another is defining only by the supply and demand on the market.

Presently Forex market is a global telecommunication network of banks and different financial organizations. It does not have any fixed trading place and time restrictions - the trade starts on Monday morning in New Zealand and closes on Friday evening in USA

The advantages of Forex market are:

Round-the-clock trading access: the ability to trade for 24 hours a day;

Liquidity: the market works with a huge money and gives the customers complete freedom to open or close their position of different volume;

Leverage: an ability to use leverage. It decreases requirements to the sum of the initial deposit (margin trade). So in case you deposit 10 000 USD into your account you'd have an opportunity to work with 1 000 000 USD (leverage 1:100);

Objectivity: no exterior regulated structures, so the currency's rate is establishing in accordance with current supply and demand on the market;

Globality: everyone can become a market participant irrespective to the living place, as trading requires only your skills and Internet access.

At present mostly all the operations on the market are conducting only to obtain profit. With the development of Internet and other means of communication this sector of the financial markets becomes more accessible and attractive for the investors of different levels.