The Role Of Commercial Banks In Trading Currencies Around The World

The process of trading currencies around the world is no longer simply a matter of banks exchanging currencies amongst themselves and today involves a very large number of different players with a wide variety of reasons for wishing to trade in currencies. Some for example will need to exchange currencies for the traditional purpose of buying goods and services overseas, but others will be participating in the market simply to earn short term profits from movements in the market or to influence exchange rates.

Whatever the reason for a player's participation in the market, this diverse group affects the supply and demand within the market, and thus the exchange rates at any given moment in time, and so it is important to understand just who the key players are. Here, we look at the most important players - the commercial banks.

The commercial banks account for by far the largest proportion of all trading of both a commercial and speculative nature and operate within what is known as the interbank market. This is essentially a market composed solely of commercial and investments which buy and sell currencies from each other. Strict trading relationships exist between the member banks and lines of credit are established between these banks before they are permitted to trade.

Commercial and investment banks are a fundamental part of the foreign exchange market as they not only trade on their own behalf and for their customers, but also provide the channel through which all other participants must trade. They are in essence the principal sellers within the Forex market.

One important thing to remember is that commercial and investment banks do not only trade on behalf of their customers, but also trade on their own behalf through proprietary desks, whose sole purpose is to make a profit for the bank. It should always be remembered that commercial and investment banks have exceptional knowledge of the marketplace and the ability to monitor the activities of other participants such as the central banks, investment funds and hedge funds.

Of course the commercial banks have been at the center of the Forex market for many years now and their role has remained basically the same throughout this time. However, the arrival of the first electronic brokering systems (Reuter's 'Monitor Dealing Service' in the early 1980s and Reuter's 'Dealing 2000-1' in 1989) started to change the face of the market. It was however the arrival of Reuter's 'Dealing 2000-3' system in 1992, quickly followed by the launch of 'Electronic Brokering Services (EBS)' in 1993 with the ability to automatically match buy and sell quotes from dealers that changed the face of the Forex market and the very nature of the market.

Electronic trading systems now allow dealers to conduct a number of trades simultaneously and to trade with much tighter spreads, greater efficiency, lower costs and, most importantly, far greater transparency than was provided by the old telephone dealing system.

The advantages of electronic dealing are clear for all to see, but it is the accessibility of the system and that fact that much greater access has been granted to it that has allowed many more players to enter the market alongside the commercial and investment banks.

E-Currency Trading - The Online Profits Machine

E-Currency Trading, or E-Currency Exchanging as its sometimes known, has grown out of the need for companies and individuals who transact on the Internet to have a common currency to trade with. Any world currency can be exchanged into e-currency through the many exchange companies around the world operating via the Internet, for a small fee of course.

Profits in this business are made by purchasing ‘shares’ which are offered by these exchange companies, and thereby providing currency liquidity for the exchange. Of course, world currency exchange rates fluctuate daily, so the e-currency, or shares that you are buying in these companies will also fluctuate. However, because you are simply lending them your funds and they are using those funds to facilitate the exchanging process and charging a fee, those fees are simply passed on to you and added to your account. So no matter what, you make some money each and every day you hold your shares. The amount obviously varies depending on the currency fluctuations you are dealing in.

That is why I’ve called this business a profits machine. It just seems to churn out profits daily without very much input from you at all. In fact, on average, you can expect to earn between 0.50% and 5% per day on your funds that are invested.

What’s the catch? Well, like any industry, it has its own unique set of protocols, language and systems that you need to be familiar with to get yourself up and running, let alone learning a strategy to succeed. It would be wise to invest some of your startup capital in some training and guidance from someone who is already working in this type of business and succeeding. That way, you can avoid all the costly mistakes and get straight to making those profits. Isn't that why we’re all in business.

Jeremy Gard is a Futures and CFD trader who also runs an Internet business helping people to create wealth and achieve financial freedom. He lives and works from his home in Brisbane Australia.

Forex Demo Account - What Are They Really

Forex practice accounts allow you to trade the forex market while not putting your hard earned capital at risk. These accounts are often also called forex demo accounts, these accounts should be free - so if a forex broker is trying to charge you for one – just say no thank you and look for another broker.

Most forex practice accounts will work for approximately 30 days, some are longer and some are shorter it all depends based on the broker that you choose to open your practice account with. We have found many forex brokers even let you continue to use the account for longer than the time period that they say it the account is for. However, other brokers will discontinue the account as soon as the time frame is expired.

Forex brokers offer forex practice accounts to people as a way to get other people interested in their forex trading tools and use their forex broker services. As a result - they will collect some basic contact information from you when you create your forex practice account. Depending on the broker, they may call you and see how you are doing with the account and see if they can help you get started in a live account. Remember brokers get paid a commission only when you are making trades in a live forex account not the forex practice account.

Our advice is to use a forex practice account until you have tested your forex trading strategy and are comfortable trading the foreign currency market. There is nothing worse than making a mistake in a live account, especially when its something that you should have learned not to do in your practice account. If you aren’t sure yet of how you are going to trade the foreign currency market and you are looking for a simple and easy to use system that will take about 15 minutes to use - you should check out Freedom Rocks - it is an effective and simple to use forex trading system.

We have learned a lot using forex practice accounts to test out different strategies and test new theories. Often times we will be running anywhere from 3 to 5 practice accounts at the same time just to try out different forex theories. Some brokers make it easy to have multiple accounts and other brokers make it hard. The broker we use allows us to create new practice accounts in just a few mouse clicks and they don’t care how many practice accounts you have – as a result – it makes it a lot easier to test theories on their software as opposed to other forex brokers.

Even after you have been trading the forex market for a many years you will want to experiment and try out new methods of trading and that is what forex practice accounts are great for. Test your new forex method without putting any money at risk in a practice account.

Global Forex Traders Come In All Shapes And Sizes

Despite the fact that there is no centralized market for foreign exchange trading and that Forex trading involves a variety of market makers rather than just a few specialists, there in nonetheless a structure and a hierarchy to the market.

At the top of the market is the interbank market which sees the highest volume of trading and principally trades in the currencies of the G8 nations, which together represent some 65 percent of the world economy. Here the major banks trade with each other on lines of credit which are established between individual banks and the rates at which trading takes place are clearly visible to all of the participants. Trading is conducted through interbank brokers, electronic brokerage systems or Reuters.

Below this 'top level' market other participants, such as smaller banks and corporations, must trade through commercial banks. Unlike the interbank market however here there are rarely established lines of credit and this means that traders below the interbank market often trade at less competitive rates and are tied to using just one bank for their foreign exchange dealings.

A few years ago the Forex market was very much dominated by the big banks and was very much an 'old boys club' which it was very difficult to get into. Today however technology has changed the market dramatically and even small investors can now access the market as global Forex traders and take advantage of the opportunities previously only available to the big boys.

Access to the market has also been helped considerably in recent years by the changing nature of the market itself. Foreign exchange dealing was formerly very much an activity associated with the international trade in goods and services and was essentially seen as servicing import and export markets. Today however investment plays a major role in the market with capital flowing between countries through participants such as insurance companies, institutional investors, mutual funds and others.

The size and diversity of today's market, combined with the ease of trading as a result of advances in technology, brings not only extremely high liquidity to the market, but also considerably price stability. Unlike equity markets, the Forex market always has an abundance of both buyers and sellers available and this also creates a very orderly market.

I Am Happy With My System - What's Next?

So, you now have a trading system. You devised it, you tested it and you are already using it to trade the market. You may have automated it or you may still have to put your buy and sell orders manually, but for the moment, you really have nothing much to do apart from following your system with ironclad self-discipline. The question is: Now what do you do?

If you are one of those traders who reached this stage, the chances are you may have spent your last few months or years arriving at your system and now that you have it, you have spare time. With this spare time, you may find yourself watching the market day in and day out.

The danger with doing this is that you create opportunities to feel emotional about every single one of your trades and this may lead to undoing the results of your hard work. You begin to feel elated when you are making money and you might start breaking your rules. Conversely, you may feel down when you are losing money and you start doubting your system and thus, begin disobeying your trading rules. The problem might be that you have a good system and you are simply not giving it enough time for it to work.

If you think this is happening to you, consider that it might be best that you only watch the market when your trading system requires you to. You should also consider other ways in which you can best fill your spare time to serve your need to work, create and create a meaningful life. You must have other interests and ambitions.

Personally, I have always wanted to create a business that would serve the planet and millions of people so I can leave behind a legacy when I die. I know this sounds very grandiose but I know that you, the reader, also have similar aspirations deep inside. I know this because we are both human beings and human beings have the need for self-actualization and self-transcendence (spiritual needs).

As a disciplined trader, you have many skills you can apply to business. You create systems, you are analytical, you are creative, you solve problems and you are results-oriented. These are all strengths that you can apply in the world of business. There are many opportunities out there for you to apply yourself and the lessons you learn from trading the financial markets.

Learn Forex Trading - The 4 Fundamentals Of A Good Trading Market

Whether you are trading stocks, bonds, futures, foreign exchange or just about anything else you care to mention the conditions that make a market suitable as a trading ground for the investor remain the same. In essence, there are four characteristics which are always present in a good investment market - liquidity, transparency, low trading costs and the existence of trends in the market.

Liquidity

All trading consists of two elements, a purchase and a sale, and liquidity in its simplest form refers to the ease with which traders can buy and sell. I say 'in its simplest form' because for a market to be truly liquid traders must also be able to buy and sell in substantial volume without any marked effect on prices.

The problem with a market that is not liquid is that traders will often find that there are delays in filling orders to buy, resulting in often substantial differences between the price at the time the order is placed and when it is actually executed. In addition, it can often be difficult to sell in a market that lacks liquidity.

The Forex market is an extremely liquid market with a huge number of trades being conducted daily and with a trading volume that is second to none.

Transparency

The transparency of a market is best defined as the ability of traders to access accurate information at all stages of the trading process.

Information is the key to most things in life and this is certainly true in many of the world markets. Indeed there are many examples, especially across the world stock markets, of companies and individuals running into difficulty because all of the parties involved in a trade did not have access to accurate information, or were given inaccurate information.

The Forex market is without doubt the most transparent of all of the world trading markets and this is especially true when it comes to pricing.

Low Trading Costs

All markets carry trading costs and the higher these costs the lower the trader's profit or the greater his loss. Any market therefore that can keep its trading costs low will be attractive to traders and will encourage greater trading volume.

The lack of commission and similar trading costs and the tight spread of prices in foreign exchange trading mean that trading costs in the Forex market are kept very low compared to other markets.

Trends in the market

One of the most difficult things in many markets is knowing just when to enter the market, or buy, and when to exit the market, or sell. For this reason it is important to have some mechanism which traders can use to assess the current state of the market and to predict its future course.

In the case of the Forex market this essentially means employing various different forms of technical analysis which rely on studying the past performance of the market and identifying trends which can then be used to predict the future.

Most markets will display some form of trend, but some markets have far more clearly defined and marked trends than others, making it far easier for traders to enter and exit trading positions. Fortunately, the Forex market is one market with a particularly strong trending characteristic.

Day Trading Systems - Why Do You Never Get a Real Track Record?

Day trading system are all over the net offering you fantastic opportunities to become yet, the odd fact is you never see any proof they work!

Why?

Because day trading simply doesn’t work!

Firstly, when we talk about a track record lets be clear about what we mean:

We mean a real ( THAT’S REAL DOLLARS ) made in the market over a long period of time say 2 or 3 years.

Not A hypothetical back tested one.

If we know the price data already it’s not hard to make a profit!

It’s funny how you never see a losing hypothetical track record – Wonder why?

The other trick is testimonials to support the system.

Their simply someone who has a lucky trade or a friend or relative of the vendor.

The real acid test is real money, made in the market over a long period of time.

So why don’t day trading systems work?

1. Price movement in a day is random

The fact is trillions of dollars are traded by millions of traders all with different aims and guess what?

The vast bulk have no interest in daily ranges.

The day trader takes his position and gets stopped out by random volatility, as support, resistance and daily pivot points don’t hold.

2. A rule of trading that always gets broken

Is to keep losses small and run profits to exceed losses.

Day traders certainly keep losses small and they take a lot of them, but that’s no problem - if you can run profits that are far bigger to compensate.

Of course, the day trader can’t do that, he is looking to scalp a few points and is generally happy with any profit.

So you have large number of losses, profits that are to small and this leads to an erosion and then a wipe out of equity.

Sorry forgot:

You need to add in higher than normal transaction costs, to add to losses and subtract from profits as well

Still not convinced?

Then ask for a day trader’s long term track record of real profits.

Day trading is one of the dumbest ways to trade – period.

Forex Trading - Tips On Buying Courses & Systems

Many traders are daunted by the thought of forex trading so they decide to get help from an expert mentor or guru.

Let’s look at some tips on how to choose one.

Firstly, the vast majority of advice sold on the net is either available free anyway, or simply does not work.

Think about it:

If you do trades with 70% accuracy, you would be to busy trading your way to millionaire status than bothering to crow about how good you are on the net, for $100 or so.

The Day trading myth

You have seen them guys promising you 10 – 100 pips a day in profit, or systems that are so accurate and consistent they can’t possibly be true.

Day trading is where the bulk of the courses are sold.

The myth is you can make money consistently and long term – Absolute rubbish.

Day trading is done in short time spans and all short term moves are random, so kiss goodbye to your equity.

Ask for a track record and see if you get one.

I never have! And by track record I mean a real not hypothetical one.

And don't fall for the testimonial from a friend, or guy with lucky trade.

The More Expensive advice is the better it is.

Some advice costs a lot more than $100 or so, you can pay thousands for it.

The novice trader thinks it must be good as its expensive - not so.

Judge A vendor simply by if they have made money – that’s the only criteria that counts.

Then decide if you understand the logic (if you don’t you wont be able to follow it with discipline) and without discipline you have no method in the first place.

Really want to succeed?

Go to your local bookstore and pick up some classic trading books, by traders who have walked the walk rather than are all talk.

Get these three great books

Market Wizards & The New Market Wizards – Jack Schwager

These are interviews with some of the top traders of all time and are great insight into what makes a great trader.

Trader Vic – Vic Sperandeo

This is a fantastic book - giving you everything you need to help you trade from money management to ideas on systems.

The above will cost you around $50.00 and will be money well spent.

There are other books but these are my favorites.

And if you read them:

They make clear that for success you rely on yourself and no one else.

Devise your own system (we have done loads of articles on this ) keep it simple, trade with discipline, show patience and perseverance and you can make it all on your own.

If you must buy advice get a track record and find one you understand and have confidence in but the best way to make money ( or the only way) is to do it on your own.

Forex Trading - Getting Rich Trading Forex

If you've read much of what I've written, you know that I solidly refute the idea that you can start trading with a couple thousand dollars and turn it into a million in 18 months or some other short amount of time.

That's true, and I stand by it.

However, you can get rich trading forex. There are two ways that I know of. Both require serious work, but I'm going to lay it down for you.

First, you could start your own hedge fund. There are companies that will help you set up your own hedge fund. With a hedge fund, you make money based off of how much you made for your clients.

Just for the sake of illustration, let's say that you have $20 million under management (a rather small amount). Let's say that you earned a 10% return that year on the $20 million. Your take is 20% of the profits (remember you don't take anything unless you make profits). You would make $400,000. How's that for an annual salary? Not bad.

And all the numbers I gave you above are conservative.

So how do you become a hedge fund manager? You need a track record. I'm not talking about a 2 year track record. You need at least 5 years of profitable trading under your belt.

The other thing you really need to consider if you're thinking about this at all is volatility. Nothing gives a high net worth individual ulcers quicker than an account balance of several million that is moving rapidly up and down. So steady gains are what they want.

Work on achieving consistency in your trading. Slow things down. After you have a number of profitable years of this kind of trading, have your trading record audited by some professional financial firm.

Congrats, you are now ready to start finding clients.

(As I said about, there are two ways to get rich with forex. The second way will be in part two...)

Do you want to learn more about how I trade? I have just completed my brand new guide, "Forex Trading - What Finally Worked For Me".

Forex Trading - Getting In On Long Term Trends a Live Example

When a trend has started how do you get in? There are always plenty of opportunities as trends can last for months or years.

Here we will outline a simple method on a live example.

Let’s look at it

If you read our recent article you will know that we wanted to get into US Dollar and Canadian Dollar and this set up has just come to fruition.

Here it is:

You can see it on any many chart services but the one we are using here is futuresource.com and were writing this on 06 03 PM CET.

Pull up the weekly chart and you will see the long term trend in US Dollar is down and you want to be in on the longer term trend

Now pull up the daily chart.

You will see the US Dollar is having a counter trend rally.

Last week we said that resistance and nearby highs would probably hold.

Check out the strong resistance and the top of the Bollinger band.

This is the line the US Dollar had to cross and it hasn’t and is faltering just below this level.

Get Confirmation

Rather than just jump in and trade, we look for a test and a fall off in near term price momentum.

If you want to time trade entries the stochastic momentum indicator is simply one of the best timing tools you will find.

It measures short term velocity of price and is a great timing tool and confirms weakening momentum.

The key here is to watch resistance and then wait for prices momentum to the upside to stall.

All you do is simply watch for the stochastic lines to cross and point downwards with bearish divergence which has just occurred.

It really is that simple.

Identify strong resistance look for a strong rally into it and WAIT for confirmation of weakening of momentum. Don’t jump too soon

The real key is to get confirmation of weakening momentum in the counter trend rally and that’s where the stochastic is so useful.

Many traders simply jump in near resistance and expect it to hold but this means you reduce the odds of being successful and support and resistance levels are broken all the time.

Right or wrong

This is a trade with low risk and good rewards and you can run it or simply wait for a quick blast to the middle of the Bollinger band.

Look it up on the net or read our other articles, its an under rated yet very useful tool