forex
The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional 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.
The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollars, Euros, Japanese yen, Pounds Sterling, etc., and the need for trading in such currencies.
Market size and liquidity
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. 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
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%.[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded FX futures contracts were 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—[2]; [3]) 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).
| Rank | Name | Volume |
|---|---|---|
| 1 |  Deutsche Bank | 21.70% |
| 2 |  UBS AG | 15.80% |
| 3 |  Barclays Capital | 9.12% |
| 4 |  Citi | 7.49% |
| 5 | Royal Bank of Scotland | 7.30% |
| 6 | JPMorgan | 4.19% |
| 7 | HSBC | 4.10% |
| 8 | Lehman Brothers | 3.58% |
| 9 | Goldman Sachs | 3.47% |
| 10 | Morgan Stanley | 2.86% |
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).[6] 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.[3] 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-maker will buy ("bid") from a wholesale customer. 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".
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e., 0.0003). Competiti
Today's Market Update
LIVE FOREX QUOTES
New York Session Published: June 16, 2009 4:59 PM
The buck recovered a big portion of overnight losses in NY trading as risk aversion once again gripped the marketplace. Our proprietary risk aversion index ticked up to 1.95 from 1.83 and to the highest level now in five trading days. The S&P sank another -1.3% on top of yesterday's poor showing and now has the 200-day SMA within striking distance at 907.91 here. Below there would open up potential to the May lows and Ichimoku cloud top near 880 next. The VIX crept back up to 30.8 and the highest read since 4 June, highlighting the jitters in equity space. US bonds were better bid and the 10-year Treasury yield sank seven basis points towards 3.65% after sneaking above the 4% handle last week. Gold recovered and ended the day nearly $7 higher by 935/934. The precious metal should find good support into 925 where the 50-day SMA, 100-day SMA and daily up-trendline lurk รข€“ below opens up to 900/880 next.
Dollar strength was pretty well across the board. EUR/USD dropped about -70 pips in the session towards 1.3840 as the close approached. The 1.3810/00 looks likely to be contested and a snap below should see more aggressive selling pressure emerge. USD/JPY sank -60 points into the 96.40/50 area and flirted with the 100- and 200-day SMAs which sit at 96.48 and 96.46, respectively. The daily close below should now open up potential for more weakness overnight. EUR/USD was absolutely annihilated -150 pips into the 133.40/50 range. The currencies of the resource-based economies were also under pressure as commodity prices corrected lower. USD/CAD popped more than 100 pips into 1.1340/50 while AUD/USD shed -90 pips into the 0.7940 area as a result.
Upcoming Economic Data Releases (Asia Session) prior expected
6/17 1:00 GMT AU Westpac Leading Index (MoM) APR 0.30% - -
6/17 1:30 GMT AU Dwelling Starts 1Q -9.90% - -
6/17 5:00 GMT JN BOJ Monthly Report
London SessionPublished: June 16, 2009 6:19 AM
USDJPY has moved off it the 96.10 low which was seen in very early London hours. Even so, the JPY is holding onto significant gains vs the USD and also on the crosses. Heavy losses in stock markets in the US and Asia overnight are coincide with the JPY's overnight gains, the better tone of stocks in European hours has relieved some of that demand. The approach of key technical support at 917 in the S&P will be watched this afternoon.
As expected the BoJ left rates unchanged at 0.1% at its regular meeting. While it had little market impact the BoJ upgraded its economic outlook stating that conditions have begun to stop worsening and are likely to show clearer evidence of levelling out over time.
The AUD has had a positive session despite the move away from risk implied by the overnight stock market falls and JPY gains. The release of the minutes of the June RBA meeting encouraged speculation that RBA rates have now bottoming. While the RBA included the warning that rates could again go lower, the minutes state that board members did not see a pressing case for further action. Given that Australian Q1 GDP, employment and confidence data have subsequently beat market forecasts the AUD found buyers on the news though it has failed to move beyond AUD/USD0.8100 this morning.
EUR/USD found a bottom in Asian hours and pushed higher from the 1.3750 level. While confidence in the ability of the Eurozone economy to recover over the coming months has been undermined by concerns over the outlook for its banking sector, this morning's profit-taking on short EUR/USD positions found further encouragement in the better than expected German June ZEW survey. The sentiment index rose to 42.7 in June from 28.5 in May. The current sentiment index rose for the first time since September 08, moving up 3.1 points to -89.7. The move higher in EUR/USD has failed to extend beyond 1.4000.
The release of the UK CPI data was stronger than expected at 2.2% y/y. Contrary to market expectations the index again stayed above the BoE's 2.0% inflation target. This will further diminish fears over deflationary risk. While base effects suggest inflation will fall further in the months ahead, on the margin the stronger data could encourage speculation that the BoE could bring forward rate hike fears sooner than previously expected, though the focus of policy is set to remain expansionary for some months yet. EUR/GBP has probed a touch lower, though most of this morning's rise in cable is on the back of the move higher in EUR/USD.
This afternoon, the market will be keeping an eye on the BRIC conference currently underway in Russia. US May housing starts and industrial production data will be keenly watched. US PPI and consumer confidence data is also due.
Asia SessionPublished: June 16, 2009 1:17 AM
Asian equities picked up where the US stock market left off, with most indices falling lower, led by the Nikkei's drop of 2.5% and followed by investors fleeing from riskier positions thus boosting both the Dollar and the Yen. Traders fled from risky assets like cockroaches scampering from a light being switched on, pushing the Yen to strong gains against the dollar and most notably the Aussie and Kiwi Dollars as fears that the current economic malaise is far from over. USD/JPY made dynamic moves in Asia, flying through various support levels to hit a 96.53 low after a drop totaling almost 140 pips for the day. Murmurs that tomorrow's US data including industrial production and housing starts might be unsavory helped push USD/JPY lower, and the move was further exacerbated when the BoJ left rates unchanged at .10%. Although the BoJ surprised no one by leaving its rate untouched, the BoJ followed up the move by stating that,''...economic conditions, after deteriorating significantly, have begun to stop worsening'', thus adding more fuel to the Yen moves higher. AUD/JPY saw a significant drop of nearly 165 pips, from 77.81 down to 76.16, and not to be left behind, NZD/JPY followed with a 130 pip drop from 61.73 to just under 60.45.
Although looking weak against the Yen, the Greenback made slight gains initially, but seemed to stumble late in the session against the Euro. EUR/USD, tumbling out of the gate hit a 1.3748 low, a level not seen since late May, before pushing back up over 1.3820 near sessions end despite uncertainties that still facing the Euro Zone economy. The Dollar did make up ground against the Pound, as the GBP/USD dropped from 1.63210 highs to lows under the 1.62200 level before stabilizing closer to 1.62700. As well as falling to the Yen, the Aussie and Kiwi both also fell against the Dollar as c ommodity prices continued to drift lower. Amidst the uncertainty, spot gold bounced from a 4 week low of $925.25 to breech the $932.85 per ounce level. Traders should be prepared for a good deal of data to be released later in the London markets...
Upcoming Economic Data Releases (London Session) prior expected
6/16/2009 7:15 SZ Industrial Production (QoQ) 1Q 0.10% -11.80%
6/16/2009 :15 SZ Industrial Production (YoY) 1Q -5.90% -10.00%
6/16/2009 8:30 UK CPI (MoM) MAY 0.20% 0.30%
6/16/2009 8:30 UK CPI (YoY) MAY 2.30% 2.00%
6/16/2009 8:30 UK Core CPI YOY MAY 1.50% 1.50%
6/16/2009 8:30 UK Retail Price Index MAY 211.5 212
6/16/2009 8:30 UK RPI (MoM) MAY 0.10% 0.20%
6/16/2009 8:30 UK RPI (YoY) MAY -1.20% -1.50%
6/16/2009 8:30 UK RPI Ex Mort Int.Payments (YoY) MAY 1.70% 1.30%
6/16/2009 9:00 GE ZEW Survey (Econ. Sentiment) JUN 31.1 35
6/16/2009 9:00 GE Zew Survey (Current Situation) JUN -92.8 -92.6
6/16/2009 9:00 EC Euro-Zone CPI (MoM) MAY 0.40% 0.00%
6/16/2009 9:00 EC Euro-Zone CPI (YoY) MAY 0.00% 0.00%
6/16/2009 9:00 EC Euro-Zone Labour Costs (YoY) 1Q 3.80% 3.00%
6/16/2009 9:00 EC ZEW Survey (Econ. Sentiment) JUN 28.5 34
6/16/2009 9:00 EC Euro-Zone CPI - Core (YoY) MAY 1.80% 1.60%
