Forex

Economic importance

This worldwide market, which is primarily interbank, is the second Financial market of planet in term of total volume, behind that of the Interest rate. It nevertheless is concentrated the most and the first for the Liquidité of the most treated products, like the parity Euro/dollar.

To give an idea of the liquidity in circulation, the daily volume of the exchanges was in 2004, of 1 900 billion US Dollar, is:

600 billion in cash transactions and
1.300 billion in in the long term

quasi-uniquement in transactions Private, according to the triennial study of the Bank for international settlements (BIS).

The transactions, in volume, were:

for 53% between banks;
for 33% between a bank and a manager of funds or a nonbanking financial institution;
and finally for 14% between a bank and a non-financial company.

In each important bank, the operators (known as moneychangers ) make the 3x8, although generally with different sites. With a team located in Asia or Australia another located in Europe then finally a third located in North America, and so on succeeds.

Nevertheless, in spite of this world character and this time dissemination between the continents, a big part (31% of total volume, according to the BIS) of the activity of the market remains physically localized with London.

In its last triennial study, the BIS (Bank off International Settlements) showed that a growing number of private individuals choose to invest on Forex. Although they still represent a very weak minority of the transactions and volumes, a market dedicated to the private investors developed in parallel. It is enough to note the number of platforms of trading placed at their disposal on Internet as well as the tools of information in real-time formerly reserved for the professional traders in the rooms of market. From now on, the active trader of the foreign exchange market can invest minimal sums and - grace to the existence of the action leverage trader under conditions almost (!) similar to those of the professional trader. Tools of information in real-time (Dataprod) diffuse the news forex and fundamental information (economic indicators) and thus offer to the private individuals the possibility of trader under the conditions of real-time.

History

See: US Dollar and Currency

The foreign exchange market exists under its current form, known as mode of the floating exchanges , since March 1973 and the abandonment of the fixity of foreign exchange rates of the various currencies compared to the standard dollar exit of the Accords of Bretton Woods in 1944.

Treated products

Spot

The cash (one says Spot ), the principal treated parities were in 2004, according to the BIS:

the Euro/dollar - 28%
the dollar Yen - 17%
the Sterling /dollar (known as cable in English) - 14%

In spite of the strong development of the euro, the dollar remains the pivot dominating , present in 89% of the transactions (against 37% for the euro, 20% for the yen and 17% for the pound sterling, the whole on a total of 200% since each transaction implies two currencies). For a non-European currency XXX, a transaction between the euro and this currency will generally break up into a transaction EUR/USD and a transaction USD/XXX.

Change in the long term

The Change in the long term breaks up into two products, both interbank, the dry Terme (one says outright in English), rather little treated, and the swap S of exchange. Contrary to the other financial markets, the organized futures markets took never a lead in the foreign exchange market and remain marginal.

Options of exchange

Lastly, the market of the option S of exchange is most various and most inventive of the markets of options. It is him which is at the origin of almost all the forms of options known as exotic or of second generation (options with barrier, options Asian, options on options, etc).

Trading and Exchange transactions

The cover (hedging)

The principle consists in taking positions opposite so as to cancel the risks.

The forecast

It is a question of anticipating the movements of the market thanks to a more or less advanced observation of the financial, economic and political environment. The interest of the anticipation of the movements of exchange is the speculation. For that, of many information sources are at the disposal of the trader forex (Reuters, TELERATE, Bloomberg_L.P. DATAPROD) giving access to him all useful quotations and financial informations for its trading. It also has access to the economic indicators principal countries like with the world financial informations. It is able to forge an opinion on the evolution of the courses or rate and thus to anticipate future movements.

The arbitration

It consists in trying to benefit from specific shifts of price or course on the same support, the same currency on 2 different markets. The abitragist can carry out these operations on only one market - for example the spot or on several markets - for example the swaps of exchange. Powerful computer tools (known as pricers) allowing him to calculate various prices or interest of an operation of arbitration. This strategy requires a reactivity and a management of the stress in real-time on behalf of the trader.

External bonds

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