Foreign Exchange is the simultaneous buying of one
currency and selling of another. The foreign exchange market (FOREX) is the
largest financial market in the world, with a volume of over $1.5 trillion
daily; more than three times the aggregate amount of the US Equity and Treasury
markets combined. Unlike other financial markets, the Forex market has no
physical location and no central exchange. It operates through an electronic
network of banks, corporations and individuals trading one currency for another.
The lack of a physical exchange enables the Forex market to operate on a 24-hour
basis, spanning from one zone to another across the major financial centers.
Traditionally, investors' only means of gaining access to the foreign
exchange market was through banks that transacted large amounts of currencies
for commercial and investment purposes. Trading volume has increased rapidly
over time, especially after exchange rates were allowed to float freely in
1971.
Advantages of Forex
A 24-hour market - A trader may take advantage of profitable
market conditions at any time. There is no waiting for the opening bell. The
market trades 24 hours a day, from 5pm EST Sunday to 4pm EST Friday, and it
rarely has any gaps in price. Its sheer size (it trades nearly US$2 trillion
each day) and scope (from Asia to Europe to North America) makes the currency
market the most accessible market in the world
High liquidity - The most liquid market in the world means
that a trader can enter or exit the market at will in almost any market
condition with minimal execution risk.
Low transaction cost - All MFN clients qualify for a
margin requirement of US$50.00 per instrument, 0.5%, or 200 times invested funds.
Clients trade forex, commodities and stocks on the industry’s lowest margin and
spread requirements.
Risk/Rewards greater - Be careful managing leverage
positions, this is a high powered investment. With 50 times
more leverage available than with stock trading... risks and rewards are
greater. The possibility exists that you could sustain a loss of some or all of
your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
read disclosures.
Uncorrelated to the stock market - A trade in the Forex
market involves selling or buying one currency against another. There is limited
correlation between the foreign currency market and the stock market. A bull
market or a bear market for a currency is defined in terms of the outlook for
its relative value against other currencies. If the outlook is positive, we have
a bull market in which a trader profits by buying that currency against other
currencies. Conversely, if the outlook is pessimistic, we have a bear market for
that currency and traders may profit by selling the currency against other
currencies. In either case, there is always a good trading opportunity for a
trader.
No insider trading, uptick or size rules - There is no
uptick rule in FX as there is in stocks. There are also no limits on the size of
your position (as there are in futures); so, in theory, you could sell $100
billion worth of currency if you had the capital to do it. If your biggest
Japanese client, who also happens to golf with Toshihiko Fukui, the Governor of
the Bank of Japan, told you on the golf course that BOJ is planning to raise
rates at its next meeting, you could go right ahead and buy as much yen as you
like. No one will ever prosecute you for insider trading should your bet pay
off. There is no such thing as insider trading in FX; in fact, European
economic data, such as German employment figures, are often leaked days
before they are officially released.
Inter-bank market - The backbone of the Forex market
consists of a global network of dealers. They are mainly major commercial banks
that communicate and trade with one another and with their clients through
electronic networks and telephones. There are no organized exchanges to serve as
a central location to facilitate transactions the way the New York Stock
Exchange serves the equity markets. The Forex market operates in a manner
similar to the way the NASDAQ market in the United States operates; thus it is
also referred to as an over the counter (OTC) market.
No one can corner the market - The Forex market is so vast
and has so many participants that no single entity, not even a central bank, can
control the market price for an extended period of time. As the market has grown
even central bank interventions have become increasingly ineffectual and short
lived as a tool for controlling the value of a particular currency.
