Are you new to Forex Market ?There is a lot of information one should know as a FOREX currency trading beginner. If you have decided that your ultimate goal is to become an expert foreign exchange trader, you should take a look at some must-have information. The first thing that should concern you is to find out what exactly FOREX is all about. What is a Forex Market ? The Foreign Exchange Market goes by many namesCurrency Exchange, Foreign Exchange, Forex, FXbut no matter the term, it is simply the trading of one currency against another. Currencies are traded in the form of currency pairs with pricing based on exchange rates and spreads established by participants in the forex market. Unlike many markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion turnover every day. Evolution of Forex Market The forex market is an inter-bank or inter-dealer network first established in 1971 when many of the worlds major currencies moved towards floating exchange rates. It is considered as an overthe-counter (OTC) market, meaning that transactions are conducted between two counter parties that agree to trade via telephone or electronic network. OTC trades are not centralized in one location like some equity stock markets such as the New York Stock Exchange (NYSE) or the Chicago Options Board Exchange (CBOE) where options and futures are traded. As FX trading has evolved, several locations have emerged as market leaders. Currently, London, England contributes the greatest share of transactions with over 32% of the total trades. Other trading centerslisted in order of volume are New York, Tokyo, Zurich, Frankfurt, Hong Kong, Paris, and Sydney. As these trading centers cover most of the major time zones, FX trading is a true 24-hour market that operates five days a week. For example: as a trader in New York, you have access to the FX market starting Sunday evening when the market opens in Sydney for the start of the trading week. Trading centers around the globe then come online until New York closes at 4:30 PM EST. Of course, by this time, Sydney will have reopened for the next trading day so you can continue to trade round the clock until the New York close on Friday. With the advent of web-based trading applications small retail traders and even individuals now participate directly in the forex market on equal footing with large institutions. What does Forex market do? Individuals and organizations exchange currencies whenever they require foreign goods or services. Unlike many other securities (any financial instrument that can be traded) the FX market does not have physical market and central exchanges. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. Trades are executed through phone and now increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the reach of most investors. FOREX trading involves people buying and selling different currencies of the world. To be exact, every time you trade, you buy one currency while selling another. This is because currency trading always involves pairs. Thus, quotes of currencies will come in one currency paired with another. The major players include the U.S. dollar and the Canadian dollar (USD/CAD), the Euro and the U.S. dollar (EUR/USD), the U.S. dollar and the yen (USD/JPY), USD/CHF and the Australian dollar and the U.S. dollar (AUD/USD). The Main Players in Forex Market

1. Banks 2. Reserve banks 3. Hedge funds 4. Individual traders 5. Brokers Benefits of Forex Market There are many advantages to trading in the FOREX market. 1. The currency exchange market is a true 24-hour market, operating five days a week. As there is no central exchange it is not restricted to the operating hours of the various exchanges. 2. The transactions are fast because everything is electronic. There are so many people who are trading everyday and every hour of the day. You can buy and sell at anytime whenever you want to. 3. A currency transaction typically incurs no commission or transaction fee outside of the quoted spread (a small difference between buying and selling prices). 4. Key to any efficient market is high liquidity. High volumes and round-the-clock trading ensures an active market for currency traders and greater liquidity. 5. One other attractive aspect of currency trading is leverage. With very minimal initial cash you can already manage a large amount of currency. This is probably the main reason why the market is quite attractive for those who want to increase their earnings impressively. But it is wrong, however, to think that you can immediately get rich in FOREX trading. People can lose too in currency trading. If you do not take the time to learn the inner wheels of FOREX trading and the technical aspects of leveraging, then you could lose everything you have put into currency trading. Conclusion: As a FOREX currency trading beginner, the best way to make sure that you have a rewarding and fulfilling experience with currency trading is to prepare yourself before diving into actual trading. If you are a small-time online investor, you can pick an online company that can help you learn. Many of them will allow you to first practice trading with imaginary currencies without any substantial cost or loss to you. Position yourself as a beginner and learn from the seasoned player, you will have a good chance of becoming an expert in this field.

Operation of the Forex MarketThe International Forex Market is a non-physical market and has no central exchange. Participants in Forex market: The major participants in this foreign exchange trading market are Central Banks, prime multinational banks, large corporations, brokerage houses and individual investors. Forex agents offer various services to investors, including financial analysis, information gathering and market situation updates. Most transactions are conducted via the telephone or through online forex trading systems. The high liquidity in the forex market is due to the enormous volume of transactions generated by the primary market called the "interbank market" where banks, large financial institutions, insurance companies and other large corporations deal with each other in huge quantities to manage their own currency risks. The secondary over-the-counter market, where retail clients participate in forex transactions, has benefited from this liquidity provided by the big institutions. The growth of the average daily volume of Forex trading has been phenomenal and is now

currently trading currency to the tune of $1.6 trillion a day, having grown 50% in the last decade from an already large $1.0 trillion a day in 1992. It reached a high level in 2001 with approximately $2.2 trillion but adjusted back to the current $1.6 trillion by 2003. This was likely due to the birth of the single Euro currency in place of the then existing 12 European currencies. The Traded Currencies The six major currencies of Forex dominate the overall market share. 76% of all trades have both currencies in the currency pair as a major, and more than 98% of all trades involve at least one major. The most common currency pairs are EUR/USD (30%), USD/JPY (20%), GBP/USD (11%), and USD/CHF (5%), which together totals 66% (two-thirds) of all Forex spot trades. The Dollar, Euro, Yen, and Pound are the most traded currencies. The six majors combine for a huge bulk of the trading transactions in a single day. Corporations and banks have known this for years, and have often used Forex for hedging purposes. With the increase in global trade, multinational corporations have likewise used the forex market to manage their risk in changes in currency rates. Market share The largest part of the largest financial market in the world consists overwhelmingly of speculation, in the form of spot forex trades (95%). The remaining 5% consists of companies swapping currencies back to their home currency to repatriate profits, forwards moves, and all other transactions. Last Tip Dealer and Broker Dealer is an individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the positioning a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Forex Market Participants (in detail)To understand the forex market, we need to understand the following market participants and their motivations: 1. Banks 2. Reserve banks 3. Hedge funds 4. Individual traders 5. Brokers 1) Banks Banks comprise a large portion of the total turnover. They use the foreign exchange market to buy and sell currencies that are needed for foreign exchange for their customers, to hedge or protect against market movements on behalf of their customers (for example when an importer may wish to protect against adverse currency movements) as well as for trading purposes. 2) Reserve banks These are government owned organizations that are responsible for managing the economy of their countries by setting interest rates and they also may take positions on foreign exchange in an attempt to regulate or smooth exchange rates. Examples include the Bank of England, the Bank of Japan, the Federal Reserve and the Reserve Bank of Australia. For example, the Bank of Japan may enter the market to sell Japanese Yen and buy Euros if they

believe that Japanese Yen are priced too high relative to Euros. Reserve banks are typically active in their own currency. They may make enormous trades that can quickly result in significant short term market movements. Usually the actions of reserve banks can be seen when there are sudden spikes or dips in a currency. In addition, reserve banks often manage the release of key economic statistics. This information is eagerly awaited by market participants and results in immediate price movements if the statistics differs from the consensus view. 3) Hedge funds Hedge funds are professional investment firms that usually manage funds on behalf of high net worth investors. They may invest in a variety of financial instruments, including foreign currencies. Their motivation is speculative profit for their investors, as they earn their money from a percentage of profits earned. 4) Individual traders Individual traders are increasingly active in the FX markets. This is driven by the ready access to the market through the Internet and the opportunities available to earn significant profits with a relatively low capital investment. Individual traders are often unsuccessful. In fact, about 90% of individual traders lose money during their time in the FX markets. Individual traders often dont have systems, and dont manage risk well. In addition, individual traders face higher transaction costs than professional traders as they dont have direct access to the market and have to use a broker. Also, individual traders cant watch the market all the time as they usually have other commitments such as work or family life. These factors are a disadvantage, but the advantage is that the individual trader can choose whether to participate in the market at any given point in time. Professional traders are pretty much obliged to trade all the time by the nature of their jobs which means that they may not be able to be as selective about the trades that they enter. 5) Brokers Brokers provide access to the FX market to individual traders. Typically banks and hedge funds have direct access to the market as they are a part of the market. A broker will provide account keeping services, execute trades and usually provides some software to place orders and allow you to look at current prices and charts. Brokers earn their profit by charging a spread. This is a difference between the buying and selling price. For example to buy EUR/USD, the price may be quoted 15/19, which means that the broker makes a spread of 4 basis points per trade. A trade is either buying or selling a foreign currency position.

Forex InstrumentsSpot A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar and the Mexican Nuevo Peso, which settle the next day), as opposed to the futures contracts, which are usually three months. This trade represents a direct exchange between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The spot market or cash market is a commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective. Spot markets can operate wherever the infrastructure exists to conduct the transaction. The spot market for most securities exists

primarily on the Internet. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. Forward One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years. A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders, where the time of trade is not the time where the securities themselves are exchanged. The forward price of such a contract is commonly contrasted with the spot price, which is the price at which the asset changes hands on the spot date. The difference between the spot and the forward price is the forward premium or forward discount, generally considered in the form of a profit, or loss, by the purchasing party. This process is used in financial operations to hedge risk, as a means of speculation, or to allow a party to take advantage of a quality of the underlying instrument which is time-sensitive. A closely related contract is a futures contract and they differ in certain respects. Future Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates for example, $1000 for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance 125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date. Swap The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. A forex swap consists of two legs: 1. a spot foreign exchange transaction, and 2. a forward foreign exchange transaction. These two legs are executed simultaneously for the same quantity, and therefore offset each other. It is also common to trade forward-forward, where both transactions are for (different) forward dates. The most common use of FX swaps is for institutions to fund their foreign exchange balances. Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another. In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close

out any foreign balances and re-institute them for the following day. To do this they typically use tom-next swaps, buying (selling) a foreign amount settling tomorrow, and selling (buying) it back settling the day after. The interest collected or paid every night is referred to as the cost of carry. As currency traders know roughly how much holding a currency position will make or cost on a daily basis, specific trades are put on based on this; these are referred to as carry trades. Option A foreign exchange option (commonly called FX option) or currency option is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency Options have gained acceptance as invaluable tools in managing foreign exchange risk. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates. The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Most of the FX option volume is traded OTC and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts. Naturally the option owner exercises this right when it is to his/her advantage. Currency options specify a foreign exchange contract and give the owner the right to enter into the specified contract during a pre-agreed period of time. Example: Assume that an investor believes that the USD/EUR rate is going to increase from 0.80 to 0.90 (meaning that it will become more expensive for a European investor to buy U.S dollars). In this case, the investor would want to buy a call option on USD/EUR so that he or she could stand to gain from an increase in the exchange rate (or the USD rise).

Most Commonly Used Forex OrdersDepending on the forex broker you use to trade, there may be a slight variation of the order types you can use, but the basics are the same. They all have Market Orders, Limit Orders, Stop Losses etc. There are some additional automated orders that can be triggered at pre-set exchange rates and that can be positioned to control the downside and consolidate the upside. Investor should be familiarized with the various types of Forex orders, so they can protect them and assure more profits in the long run. Let us discuss some of the most commonly used forex orders: Market Order It is an order where you can buy or sell a currency pair at the market price the second that the order is processed. Customers utilizing online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instant; this means that the price assured at the exact time of the click will be given to the customer. Setting a market order by phone is quite similar but normally takes a few seconds more time. Entry order It is an order where you can buy or sell a currency pair when it attains a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period. Stop Order - An order that becomes a market order when a specific price level is achieved and broken. A stop order is placed below the current market value of that currency. The main difference between a limit order and a stop order is that stop orders are ordinarily used to

limit loss potential on a transaction while limit orders are used to enter the market, add to a pre-existing situation and profit taking. The same variants are used to specify duration as in limit orders (GTC and GFD). Limit Order - An order that turns into a market order when a specific price level is reached. An order to buy or to sell at a specified price. A buy limit order can only be executed at the limit price or lower (better), and a sell limit order can only be executed at the limit price or higher (better). A limit order is placed above the current market value of that currency. A limit order can also be said as an order placed to buy or sell at a certain price. The order basically contains two variables, price and duration. The trader defines the price at which he likes to buy/sell a certain currency pair and also specifies the duration that the order should remain active. OCO Order An order placed so as to take advantage of price movement, which comprises of both a Stop and a Limit price. Once one level is achieved, one half of the order will be executed (either Stop or Limit) and the left order canceled (either Stop or Limit). This type of order would lock your position if the market moved to either the stop rate or the limit rate, thereby closing your trade, and, at the same time, canceling the other entry order. If Done Order If Done Orders are subsidiary orders whose placement in the market is contingent upon the execution of the order to which it is associated. The If-done order is a kind of orders regarding to combination. It is made by two steps of limit orders or stop loss orders. The first one is filled, the other would work well. In other words, the second order does not go valid unless the first one is executed. You need to pay attention that the If-done order is quite different from the OCO order. Position order - Position orders are directly related to individual positions. These orders are only active for as long as the position stays open and can be a stop loss or limit order. Stop Loss order - A stop loss order is an order type whereby an open position is automatically liquidated at a specific price. It can also be said as an order that becomes a market order if and when a security sells at or below the specified stop price. It is used to defend oneself against a potential downward slide in a security. It is often used to minimize exposure to losses if the market goes against an investors position. If someone wants to learn forex, stop loss order is quite important. Stop Market - Buy or sell at market once the price reaches or passes through a specified price. Used by traders who either have a position (long or short) and want to close the position if it moves against them OR by traders who wish to open a new position once the currency rises to a specific level. The stop price on a sell stop must be below the current bid. The stop price on a buy stop must be above the current offer. Stop orders do not guarantee you an execution at or near the stop price. Once triggered, the order competes with other incoming market orders. Example: This order type is used mostly for protection. If we are long the EUR/USD at 1.1888, our concern is to not lose more than 10 pips to the downside (Pending trading strategy used). So we would enter a sell stop market order with a stop price of 1.1878.

Stop Limit -Works like a Stop Market order with one major exception. Once the order is activated (by the currency trading at or through the stop price), it does not become a market order. Instead, it becomes a limit order with a specified limit price. The advantage of this order is that you set a specified price at which your order can be filled. The disadvantage is that your order may not be filled. In this case, your exposure to loss will continue until the position is closed. Example: This order type is used mostly for protection. If we are long the EUR/USD at 1.1888, our concern is to not lose more than 10 pips to the downside (Pending trade strategy used). However, we do not want to be filled via a market order, but rather be filled at a price we specify or better. In this case, we would choose the stop limit order type. You are prompted to enter your stop price and to enter a limit price. So if you set your stop price at 1.1880 with a limit to sell at 1.1878 then you would sell at your price of 1.1878 or better (higher than your limit) if executed.

Types of Forex Accounts:There are different types of foreign exchange accounts and most traders keep two or more accounts while trading. These accounts are basically categorized according to how much capital a broker can invest. Generally there are three types of Forex accounts namely: 1. Mini account which is ideal for beginners who have an initial capital of less than $10,000. Basically, one is allowed to engage in Forex with just $250. Mini account can be a good starting point which can build up the confidence of new and less experienced traders in the market. With just a small capital, one should not expect a high profit; nevertheless your money is subject to low risks of loss.This type of account is also called "Mini Forex". Mini forex trading is an excellent way for small investors to learn about and take part in forex trading 2. Standard account which requires a trader an initial investment of $2,000. 3. Premium accounts with significant amounts of capital required. These accounts can have different trading services and tools for innovation. With the presence of these kinds of accounts, it is worth pointing out that a good managed Forex account can do miracles in trading. A trader can gain much by choosing a managed account backed up with good track records. Aside from these facts, certain benefits are worth mentioning such as: Managed Forex accounts can let a trader participate in trading market without the hassle of monitoring it 24 hours. Managed accounts are handled by professionals There are managed accounts that are not attached to the stock market, thus assets can be more diversified. Greater profit maximization can be possible in both falling and rising markets. Assets are liquid and can be withdrawn regularly Monthly reports of account are accessible and there is a real time management of account. Choosing a right account and investing in it poses a risk. It is important therefore to know what steps are to take in order to minimize. Here are the few things to remember when opening a Forex account:

1. In signing up for an account, identification is necessary; this is required by the Federal Law to avoid fraud. A trader will be asked to sign a margin agreement. Prepare the necessary documents and read the agreements thoroughly to avoid confusions. 2. Try the practice or demo account to learn the basics of trading. There are brokers who impulsively leap into trading and quickly lose their money. Take your time and learn how the trading process works. 3. Avoid being emotional while in a trade. Traders should stick to their decisions and not let their emotions control them. Foreign exchange can be considered as the biggest and most interesting market in the world. Certain individuals, even inexperienced ones get hooked on trading it. Before opening a Forex account, it is but necessary to be knowledgeable in all the aspects involved in trading.

Forex Market VS Stocks MarketForeign currency exchange (Forex) market and stocks market work quite differently. Neither Forex market nor stock market is greater than each other but the investing concept in them differs quite a lot. 1. Most investors in Forex market aim for a short-term deal. Individual Forex traders are normally trading Forex on a day-trade basis. Forex day-traders normally take small daily profits (averaging 10~30 pips), entering and exiting the market in the same day. Professional Forex traders normally will implement their own trading system in order to partially automate their day-trade process. While day-traders do exist in stock market, majority of the stock traders are more interested in doing long-term trade nevertheless. Trades in stock exchange might last for months or years where traders will get the profit in one lump sum. 2. Due to various limitations in stock markets (for example, restrictions on short selling), stock market trading depends a lot on the market trends. There are few stock traders who manage to gain in down trend market. On the other hand, Forex market offers equal earning potential regardless on the rise or fall of a country currency. There is no structural bias to the market and there are no restrictions on short selling in FX market. Trades in Forex are always done in pairs; rise or fall of a country currency will only affect its relative value compare to other currency and will not affect the chances of profit in the trades. 3. Forex brokers offer trade margin of 50, 100, 150, or even 200 to 1 of trade margin. Forex traders often find themselves controlling a huge sum of money with little cash outlay on the table. For example, a $1,000 in a 150:1 Forex account will gives you the purchase power of $150,000 in the currency market. In contrasts, stockbrokers do not offer such kind of high leverage to their clients. The max you can get when trading in stocks might only be 2:1. 4. One of the advantages in Forex trading is that you can start small always by investing in foreign currencies for as little as a $300 deposit with mini contracts. The smaller trade size enables you to take smaller risks and this is especially handful for beginners who wish to gain their trade experience in FX market. However, this benefit is not available with stock trading. Most stock brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $20 and $500, which can mean an investment of $2,000 to $50,000 or more. 5. There are thousands of stocks to choose from stocks exchange market but major traded currency in Forex is only seven. You work less by analyzing fewer accounts in Forex trading.

Further more, countries are often more stable than companies and it's easier to predict their overall economic direction. These characteristics of Forex market reduce the hassle of selecting and filtering potential accounts. 6. Forex market and stocks exchange market structure differs a lot. Stocks are traded in a centralized market. Forex market is an over-the-counter market where there is no centralized market place for Forex trading. 7. Stock trading requires buyer and seller to meet at a centralized market to do the exchange (for example, NYSE). Meaning that, all stock exchanges all traders orders are put through same dealer and pass through a single clearing firm. Stock traders will get same price on stock worldwide. On the other hand, Forex trades can be done via different brokerage agents or dealers. Each agents/ dealer has the ability and the authority to execute trades independently of each other. This structure is inherently competitive as traders are faced with a choice between varieties of firms with an equal ability to execute their trades. Currency dealers are in competition with each other, thus currency market price remain transparent and the spreads are kept tight all the time. This will then give a better market for individual Forex traders to profit from.

Foreign Exchange Market in IndiaIntroduction: The foreign exchange market in India is growing in both volume and depth. Various kinds of transactions are facilitated by the banks both on a spot and on a forward basis. Foreign and Indian banks also assist in offshore loan syndication. Other services provided include, financing of foreign trade, arranging the most economical source of supplier credit, etc. Banks also assist in foreign exchange management such as currency management strategies and designing, assessing of liability structures namely swaps, interest rates, income, etc Foreign Exchange Markets in India a brief history The foreign exchange market in India started almost three decades ago when in 1978 the government allowed banks to trade foreign exchange with one another. RBI took an important step in that year to allow banks to undertake intra-day trading in foreign exchange. During the period 1975-1992, the exchange rate of rupee was officially determined by the RBI and there were significant restrictions on the current account transactions. The liberalization process, which started in 1991, has significantly boosted the foreign exchange market in the country by allowing both banks and corporations greater flexibility in holding and trading foreign currencies. The unification of the exchange rate of the rupee marks the beginning of the era of market determined exchange rate regime of rupee, based on demand and supply in the forex market. It is also an important step in the progress towards current account convertibility, which was finally achieved in August 1994 by accepting Article VIII of the Articles of Agreement of the International Monetary Fund. The appointment of an Expert Group on Foreign Exchange (popularly known as Sodhani Committee) in November 1994 is a landmark in the design of foreign exchange market in India. It recommended greater freedom to participating banks, allowing them to fix their own trading limits, interest rates on FCNR (Foreign Currency Non-Resident) deposits and the use of derivative products. The Group studied the market in great detail and came up with far reaching recommendations to develop, deepen and widen the forex market. In the process of development of forex markets, banks have been accorded significant initiative and freedom to operate in the market. To quote a few important measures relating to market development and liberalization banks were allowed freedom to fix their trading limits, permitted to borrow and invest funds in the overseas markets up to specified limits, accorded freedom to determine interest rates on FCNR deposits within ceilings and allowed to use derivative products for asset-liability management purposes. Similarly, corporates were given flexibility to book forward cover based on past turnover and allowed to use a variety of instruments like interest rates and currency

swaps, caps/collars and forward rate agreements in the international forex market. Rupee-foreign currency swap market for hedging longer -term exposure has developed substantially in the last few years. Today over 70% of the trading in foreign exchange continues to take place in the inter-bank market. The market consists of over 90 Authorized Dealers (mostly banks) who transact currency among themselves. Trading is regulated mainly by 2 1. Foreign Exchange Dealers Association of India (FEDAI) - a self regulatory association of dealers. 2. Clearing Corporation of India Limited (CCIL) which takes care of clearing and settlement functions in the foreign exchange market, approximately 3.5 billion US dollars a day, about 80% of the total transactions. In 2004, as per survey conducted by BIS (Bank for International Settlements), the Indian Rupee featured in the 20th position among all currencies in terms of being on one side of all foreign transactions around the globe, and ranked 23rd among all countries in terms of turnover. In April 2008, in order to facilitate the market participants in managing the exchange rate volatility, the joint working committee of RBI and SEBI (Securities and Exchange Board of India) finalized the guidelines for exchange-traded Currency Futures. Based on the guidelines, RBI framed the directives on currency futures trading on recognized stock exchanges and new exchanges. Indias biggest stock exchange, National Stock Exchange of India, started trading in currency futures on August 6th, 2008. Currency Futures trading already proved to be a success within this short time period. Intervention of Government in Foreign Exchange Markets Since the value of a countrys currency has significant bearing on its economy, foreign exchange markets frequently witness government intervention in one form or another, to maintain the value of a currency at or near its desired level. Interventions can range from quantitative restrictions on trade and cross-border transfer of capital to periodic trades by the central bank of the country or its allies and agents so as to move the exchange rate in the desired direction. It is safe to say that over the years since liberalization, India has allowed restricted capital mobility and followed a managed float type exchange rate policy. Officially speaking, India moved from a fixed exchange rate regime to market determined exchange rate system in 1993, which has got more volatility in exchange rates without targeting any specific levels and which has been hard to do in practice. The Reserve Bank of India has used a varied mix of techniques in intervening in the foreign exchange market indirect measures such as press statements (sometimes called open mouth operations in central bank speak) and, in more extreme situations, monetary measures to affect the value of the rupee as well as direct purchase and sale in the foreign exchange market using spot, forward and swap transactions. Current Status: The rupee breached the psychological Rs.50 level in November 2008 and has been under sustained pressure against the greenback that initiated the Reserve Bank of India (RBI) to sell dollars to resist the fall in domestic currency. Indian Rupee depreciated 12.58 percent between September 2008 and January 2009. From a peak of $315.6 billion in June 2008, Indias forex reserves dropped to $248.6 billion in January 2009.

Role of CCIL in Indian FX MarketThe Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing

exclusive clearing and settlement for transactions in Money, Govt. Secs and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, insulate the financial system from shocks emanating from operations related issues, and to undertake other related activities that would help to broaden and deepen the money, debt and forex markets in the country. A brief history The company commenced operations on February 15, 2002 when the Negotiated Dealing System (NDS) of RBI went live. CCIL started providing the settlement of forex transactions since November 2002. CCIL launched the Collateralised Borrowing and Lending Obligation (CBLO) in January 2003, a money market product based on Gilts as collaterals. It has developed a forex trading platform called FX-CLEAR which went live on August 7, 2003. CCIL has started the settlement of cross-currency deals through the CLS Bank from April 6, 2005. At the request of RBI, CCIL developed and currently manages the NDS-OM (Order Matching) and NDS-CALL electronic trading platforms for trading in the government securities and call money. It has also developed the NDS-Auction module for Treasury Bills auction by RBI. CCIL has received the ISO/IEC 27001:2005 certification from M/s Det Norsk Veritas in 2006 for securing its information assets. CCIL has introduced many innovative products/tools like ZCYC (Zero Coupon Yield Curve), Bond and T-Bills indices, Sovereign Yield Curve, Benchmark reference rates like CCILMIBOR/MIBID and CCBOR/CCBID, etc. CCIL regularly comes out with many publications for the benefit of the market participants. Who can become a member of CCIL Forex Segment? All Authorized Dealers in Foreign Exchange, as licensed by Reserve Bank of India, and maintaining a Current Account with Reserve Bank of India, Mumbai are eligible to seek membership to CCILs Forex Segment, provided they are members of RBI INFINET (INdian FInancial NETwork). Benefits By choosing to settle their trades through CCIL, market participants will gain in the following ways: Assurance of settlement on the settlement date Reduction in counterparty exposure. In case of government securities, the exposure will get extinguished upon acceptance of trades for settlement; in forex clearing & settlement, since a Loss Allocation Procedure is stipulated, the exposure will not get extinguished but will come down from the gross level to the net level. Operational efficiency Easier reconciliation of accounts (in case of forex trades) Improved liquidity and better leveraging (e.g., shorter holding periods for government securities) Lower operational cost, overall Settlement Procedures CCIL commenced settlement of forex operations from 08th November, 2002 covering interbank USD/INR spot and forward trades. From February, 5 2004 cash and Tom trades were included for guaranteed settlement. The netting scheme adopted by CCIL is netting by

substitution. The netting scheme adopted by CCIL is netting by novation where the bilateral relationship between the two participants/members is substituted with bilateral contracts between each participant/member and CCIL. The multilateral netting system provides a netting benefit of over 85%. Every eligible foreign exchange contract, entered into between members, will get substituted and be replaced by two new contracts - between CCIL and each of the two parties, respectively. Deal confirmation files will be transmitted over the INFINET to CCIL, and will form the starting point for processing by it. Following the multilateral netting procedure, the net amount payable to, or receivable from, CCIL in each currency will be arrived at, member-wise. The Rupee leg will be settled through the members' current accounts with RBI and the USD leg through CCIL's account with the Settlement Bank at New York. Details of eligible trades done are received from members in a prescribed format. The trades are validated and matched. Matched trades are subjected to an exposure check and trades that pass such exposure check are Accepted for settlement. The matched Forward deals are guaranteed for settlement from S-2 day and Cash, Tom, Spot deals are guaranteed for settlement from trade date. Various reports are generated to update members on the status of deals reported by it to CCIL and the net settlement obligations that become due to and from them. These reports are accessed by members over a Report Browser on their INFINET network. FX- Clear CCIL has developed FX-CLEAR, a Forex Dealing System, which has been launched on August 7, 2003. FX-CLEAR offers both Order Matching and Negotiation Modes for dealing. The FXCLEAR covers the inter-bank US Dollar-Indian Rupee (USD- INR) Spot and Swap transactions and transactions in major cross currencies (EUR/USD, USD/JPY, GBP/USD etc.) The USDINR constitutes about 85% of the transactions of the total Forex transactions in India in terms of value. To sum up, as a central counterparty for foreign exchange, government securities and repos in India, CCIL plays a critical role in this fast-growing market.

Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers - ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. Its major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis--vis public and liaison with RBI for reforms and development of forex market. Functions of FEDAI: Presently some of the functions are as follows: 1.Guidelines and Rules for Forex Business. 2.Training of Bank Personnel in the areas of Foreign Exchange Business.

3.Accreditation of Forex Brokers 4.Advising/Assisting member banks in settling issues/matters in their dealings. 5.Represent member banks on Government/Reserve Bank of India/Other Bodies. 6.Announcement of daily and periodical rates to member banks. Role of FEDAI: Due to continuing integration of the global financial markets and increased pace of de-regulation, the role of self-regulatory organizations like FEDAI has also transformed. In such an environment, FEDAI plays a catalytic role for smooth functioning of the markets through closer co-ordination with the RBI, other organizations like FIMMDA (Fixed Income Money Market and Derivatives Association), the Forex Association of India and various market participants. FEDAI also maximizes the benefits derived from synergies of member banks through innovation in areas like new customized products, bench marking against international standards on accounting, market practices, risk management systems, etc. FEMA and FEDAI: Due to the continuous process of rationalisation and simplification of procedures and various measures of liberalisation being announced by RBI from time to time, the provisions of the Foreign Exchange Management Act, 1999 have also undergone critical changes in the recent past. FEDAI has taken the initiative of bringing out an updated Second Edition of the Regulatory Requirements under FEMA, 1999 within two years of its first publication, to provide the member banks with a handy reference book. Regulatory Requirements under FEMA current as on 15th October 2004 (with updates up to 31st December 2004) have been presented comprehensively trusting that this will serve the purpose it is intended for. Member Banks: Public Sector Banks (27) 2. Foreign Banks (29) including Deutsche Bank A.G 3. Private Sector Banks / Co-Operative Banks (26) 4. Financial Institutions / Others (5)

Total Members (as of September 2007): 87 Managing Committee Members: Managing Committee for the Year 2007 08 Chairman - State Bank of India Vice Chairman - Citibank N A Additional Vice Chairman - The Federal Bank Limited

Members - Allahabad Bank, AXIS Bank Limited, Bank of America, Bank of Baroda, BNP Paribas, Canara Bank, Corporation Bank, Deutsche Bank A.G., HSBC, HDFC Bank, ICICI Bank. IDBI, Syndicate Bank, Union Bank of India, UCO Bank, Vijaya Bank, Syndicate Bank etc FEDAI Local Committees: Centre Bangalore Chairman C/o. Canara Bank Head Office P.B. No.6648 112, J C Road Bangalore - 560 002 Managing Committee Members Canara Bank... Chairman State Bank of Mysore.. Vice Chairman Bank of India .. Member Vijaya Bank UCO Bank Bank Muscat ING Vysya Bank ICICI Bank Limited State Bank of India Kolkata United Bank of India... Chairman, Allahabad Bank .. Vice Chairman Kochi - State Bank of Travancore... Chairman Chennai - Indian Overseas Bank... Chairman, Indian Bank... Vice Chairman New Delhi - Punjab National Bank... Chairman, Oriental Bank of Commerce... Vice Chairman Jaipur - State Bank of Bikaner and Jaipur... Chairman, State Bank of India... Vice Chairman Definition of Dealer An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of currencies. Dealers trade for their own account and risk. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

10 Tips for your success in Forex trading1. Implement a trading plan If you fail to plan, you plan to fail. A trading plan is especially crucial in Forex trading to stay in-control against the emotional stress in speculative situation. Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized operation has to be predetermined and strictly followed. 2. Trade within your means

If you cannot afford to lose, you cannot afford to win. Losing is a not a must but it is the natural in any trading market. Trading should be always done using excess money in your savings. Before you start to trade in Forex, we suggest you to put aside some of your income to set up your own investment funds and trade only using that funds. 3. Avoid emotion trading If you do not have a trading plan, make one. If you have a trading plan, follows it strictly! Never ever attempt to hold your weakened position and hope the market will turn back in your favor direction. You might end up losing all your capital if you keep holding. Move on, stay within your trading plan, and admit your mistakes if things do not turn as you want. 4. Ride on a win and cut your losses Forex trader should always ride till the market turns around whenever a profit is show; while during losing, never hesitate to admit your mistakes and exit the market. It is human nature to stay long on loses and satisfy with small profits this is why as we mentioned earlier that a strictly followed trading plan is a must-have. 5. Love the trends Trends are your friends. Although currency values fluctuate but from the big picture it normally goes in a steady direction. If you are not sure on certain moves, the long term trend is always your primary reference. In long run, trading with the trends improves your odds in the Forex market. 6. Stop looking for leading indicators There aren't any in the Forex market. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be giving the secret away. 7. Avoid trading in a thin market Trade on popular currency pairs and avoid thin market. The lack of public participation will cause difficulties in liquidate your positions. If you are beginners, we suggest the big five: USD/EUR, USD/JPY, USD/GBD, USD/CHF, and EUR/JPY. 8. Avoid trading in too many markets Do not confuse yourself by overtrading in too many markets especially if you are a beginner. Go for the major currency pairs and drill down your studies in it. 9. Implement a proper trading system There is hundreds of trading systems available on line. Pick one that you are most comfortable with and stick with it. Stay organized in your trades and fully utilized stop-loss or limit functions in your trades. 10. Keep learning The best investment is always the investment on your brain. Without a doubt, Forex trading needs much more than just a few guidelines or tips to be successful. Experience, knowledge, capital, fortitude, and even some help of luck are all crucial in ones success in the FX market. if you lose in a trade, do not lose the experience in it. Learn from your mistakes and regain your position in the next trade. FOREX Trade in brief The Foreign Exchange Market, or Forex market is a worldwide market where buying and selling of currencies takes place. These transactions take place 5 days a week, 24 hours a day and daily are worth approximately 1.5 trillion dollars (US). The Forex market opened in 1971 when the fixed currency exchanges market was closed. Thanks to the technology now available this market has grown from trading 70 billion dollars (US) a day to the current level. There are approximately 5,000 institutions in Forex. Some are banks, some commercial

companies and some foreign currency brokers. The largest Forex trading centers are located in New York, London, Tokyo, Hong Kong, Paris, Frankfurt, Singapore and Paris. As mentioned above, technology has produced a boom in the Forex market. With the advent of online investing even small investors can take advantage of the Forex market. Over the years many regulations have changed allowing smaller transactions to take place. There are no longer minimum transaction sizes. Some of the advantages to Forex are: Brokers earn money by setting the spread, they do not work on a commission basis. The spread is known as the difference between what a currency can be bought for and sold at. The market is open, as mentioned above, 24 hours a day, 5 days a week and is available to you at the push of a button over the internet. The Forex market is a huge one and with bids and ask offers and the high number of transactions taking place on a daily basis the market remains liquid. This means there is always a buyer and a seller for any currency type. Because there are always movements between currencies even small changes can result in profits for investors. This is due to the fact that the market is broken down into what are called lots. Each lot is worth approximately 100 thousand dollars (US). Individuals can invest through what are called leverage loans. Generally a $1,000.00 investment can get you started.

Risks in Forex MarketHow high are the risks in Forex trading? The risks of losing money in Forex trading are high, but it is controllable via proper education and trading system. Trading system is a must in Forex trading. Charts, graphs, or pivot points are handful to indicate the right time to enter or exit the market. An 'automated system', such as make you easier as in any trade market, discipline, control of emotion, and money management are the traits needed to be succeed in Forex trading. Rewards in Forex trading can be very lucrative if traders manage their risk nicely. One benefit to using the recommended brokerage firm is that they guarantee fills at your Limit and Stop-Loss order prices with no slippage. This means you can have total control over the amount you risk on each trade. But remember, FOREX Trading is speculative and any capital used should be risk capital. In fact, it is recommended that you trade on a demo account until you have shown profit for at least three consecutive months before trading real money. Risk Warning The following should be read carefully, as it describes some of the main risks in dealing in the Forex and CFD (Contract For Differences) markets. This notice cannot and does not disclose or explain all of the risks and other significant aspects involved in dealing in such products, but you should particularly note the following: 1. Under margin trading (When you open a new margin account with a Forex broker, you must deposit a minimum amount with that broker. This minimum varies from broker to broker and can be as low as $100 to as high as $100,000) conditions, even small market movements may have great impact on the customer's trading account. You must consider that if the market moves against you, you may sustain a total loss greater than the funds deposited. You are responsible for all the risks, financial resources you use and for the chosen trading strategy. 2. Some instruments trade within wide intraday ranges with volatile price movements. Therefore, you must carefully consider that there is a high risk of losses as well as profits. Understanding the risks involved

1. It is important that the Customer should not engage in trading unless he/she understands the nature of the transaction he/she is entering into and, the true extent of the exposure to the risk of loss. 2. These products may not be suitable for all investors; therefore if the Customer does not fully understand the risks involved, he / she must seek independent advice. Last Tip: Who are the major players in Forex trading? According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades; followed by UBS in the second and Citi Group in third; taking 12.5% and 7.5% of the market. Other large financial corporation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.

How to avoid Forex Risks?To trade, or not to trade in Forex?. Many are reluctant to involve in Forex trading because of its risks. Generally speaking, there are risks everywhere in our life. The Forex market behaves differently from other markets. The speed, volatility, and enormous size of the Forex market are unlike anything else in the financial world. Forex market is uncontrollable - no single event, individual, or factor rules it. Enjoy trading in the perfect market. Just like any other speculative business, increased risk entails chances for a higher profit/loss. Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in relation to any or all other currencies in a matter of days, hours, or sometimes, in minutes. This unpredictable nature of the currencies is what attracts an investor to trade and invest in the currency market. But we need to ask ourselves, "How much are we ready to lose?" When we terminated, closed or exited our position. We have to understand the risks and take steps to avoid them. Let's look at some foreign exchange risk management issues that may come up in your day-to-day foreign exchange transactions. 1. Unexpected corrections in currency exchange rates 2. Wide variations in foreign exchange rates 3. Volatile markets offering profit opportunities 4. Lost payments 5. Delayed confirmation of payments and receivables 6. Divergence between bank drafts received and the contract price These are areas that every trader should cover both BEFORE and DURING a trade. There are risks everywhere! The important issue here is how you learn and maintain your risk. So if you are considering participating in Forex market, you should learn managing the risk involved, instead of being terrified. Methods to avoid risks 1. Picking up the right Forex dealer One of the best methods to avoid unnecessary risks is avoid fraud dealer. Forex is a special trading business with no centralized market. Thus, unlike regulated futures exchanges, there is no

central market place for Forex buyers or sellers therefore the price offered by different Forex dealers may vary a lot. When you are trading in Forex market, you are totally relying on the dealers integrity for a fair deal. Furthermore, you need to select a right Forex dealer to avoid scams. There may be Forex dealers that are not regulated legally and there maybe investment scams, especially on the Internet. Be very careful on who you are dealing with in Forex and always check cautiously on the investment offer. 2. Stop loss order The Forex market could move against you. No one can predict with certainty which way exchange rates will go, and the Forex market is volatile. Fluctuations in the foreign exchange rate between the time you place the trade and the time you attempt to liquidate it will affect the price of your Forex contract and the potential profit and losses relating to it. To avoid losing all of your investment capital, you should have a pre-arrangement on your risk profile. A solid risk profile will limit the Forex dealer not to overtake risk that you cannot handle. For example, if you have 100,000 to invest, you can say that you are willing to risk 10,000 of that capital with the potential to gain another 100,000. This can be easily implemented by a fund manager, so your losses can be limited to 10% or 5% of invested capital. 3. Avoid too high margin trade Another way to manage your risks well in Forex market is to trade without overleveraged. Forex dealers want you to trade with high leverage values as this means more spread income for them. Also, trading in high leverage may increase your profit or your losing. There are high possibilities that one loses money more than he/she can afford in margin trading. Forex can be extraordinarily beneficial to a variety of people. It gives huge leverage rates, it gives incompatible liquidity to your money, it gives convenience to trade on the Internet, and it can definitely give you a lot of money if you trade smartly.4.

A Forex Demo Account and Great Forex Currency E-books

Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your wings. Seminars, eBooks, Internet, papers, video courses all these are handy to get yourself ready. You can also try out your skill on the demo account provided free, where you are given play chips. You will have a chance to earn "play money" but if you deposited real money you would be earning real money. Almost every single online Forex trading site offers you this chance. This gives you the perfect "hands on" opportunity to try out your skills and experience following the Forex e-books, Forex Trading courses you could buy. After all, Forex trades 24hours a day and there is always money to make in the market, so have patience until you are fully ready for it. 5. Diversification in Forex trading Diversification is another way to manage risks in Forex market. Trading one currency pair will generate few entry signals. If you wish to lower your risk in Forex market, it would be better to diversify your trades between several currencies. Try simultaneously trade on different pair of currency. Say you have capital of $1,000, instead of putting all your money to long EUR/USD, you can split the money half to long EUR/USD and GBD/USD ($500 each) as these two currencies are highly correlated and tends to move in the same directions. Conclusion Needless to say, knowledge is another key of handling your risks well. Before you get into Forex market, the best thing you should do is educate yourself. To be frank, Forex can be very profitable but the risk lie beneath is equally great. But what else in life does not involve risk? Learning in risk management is the key to handle your life.

Buying and Selling in Forex MarketForeign Exchange is the buying or selling of one currency against another currency. All

trades result in the buying of one currency and the selling of another, simultaneously. In forex trading, you place an order to buy (go long) or sell (go short) the first currency in a currency pair at current exchange rates. In forex trading, long means buying and short means selling.

BuyingBuying a currency pair implies buying (longing) the first (base*) currency and selling (shorting) an equivalent amount of the second (quote**) currency to pay for the base currency. For example, buying EUR/USD means that you are buying Euros (EUR) using US Dollars (USD). It is not necessary for the trader to own the quoted currency prior to selling, as it is sold short. A speculator buys a currency pair if he/she believes the exchange rate*** for the base currency will go up relative to that for the quote currency (that is, the value of the pair will go up).

SellingSelling the currency pair implies selling (shorting) the first (base) currency and buying (longing) an equivalent amount of the second (quote) currency to buy the base currency. For example, selling EUR/USD means that you are buying US Dollars (USD) using Euros (EUR). A speculator sells a currency pair if she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

Placing an OrderWhen you request to buy or sell a currency pair, you place an order (also called "opening a trade" so that you take a position****) based on the exchange rate at the time. Right after you place an order, the value of the position will be closed to zero, because the value of the base currency is more or less equal to the value of the equivalent amount of the quote currency. As time goes on and exchange rates change, the value of the position will evolve to be profitable (or not). When you eventually decide to take a profit or stop a loss on the position, you "close" the trade. When you close the trade, Profit/Loss is calculated from the difference between the exchange rate at the time you opened the trade to the time you closed it. Examples ---Suppose EUR/USD = 1.5000, and you sell 10,000: Your base currency position is 10,000 EUR Your quote or counter currency position is 10,000*1.5000=15,000.00 USD ---Let's say, hypothetically, that there is political turmoil in Japan. If you believe that the Yen will depreciate as a result of this turmoil, you have the following outlook: It is a good time to be long (buy) USD It is a good time to be short (sell) JPY ---If you think the USD/CAD will move up: You are bullish on the USD You believe the USD/CAD is undervalued You want to be long USD/CAD

Definitions of Terms*Base Currency The base currency is the first currency in any currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6350, then one USD is worth CHF 1.6350. In the Forex markets, the U.S. dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar. **Quote Currency

The quote currency is the second currency in any currency pair. This is frequently called the pip currency and any unrealized profit or loss is expressed in this currency. ***Exchange Rates An exchange rate refers to the number of units of one currency needed to purchase one unit of another, or the value of one currency in terms of another. Exchange rates, influenced by real world events, change constantly. Exchange rates are quoted in currency pairs. The first currency is referred to as the base currency and the second as the counter or quote currency. For example, the exchange rate quoted for the EUR/USD would tell you how many Euros (the base currency) would be needed to buy USD (the quote currency). If buying, an exchange rate specifies how much you have to pay in the quote currency to obtain one unit of the base currency. If selling, the exchange rate specifies how much you get in the counter or quote currency when selling one unit of the base currency. ****Taking a position Making a trade in FX is sometimes called taking a position [in something]. Cross Currency A cross currency is any pair in which neither currency is the U.S. dollar. These pairs exhibit erratic price behavior since the trader has, in effect, initiated two USD trades. For example, initiating a long (buy) EUR/GBP is equivalent to buying a EUR/USD currency pair and selling a GBP/USD. Cross currency pairs frequently carry a higher transaction cost. The three most frequently traded cross rates are EUR/JPY, GBP/EUR and GBP/JPY .

Letter Code A currency exchange rate is always quoted using standard International Standards Organization (ISO) 3-letter code abbreviations. For example, USD/JPY refers to two currencies: the U.S. Dollar and the Japanese Yen. Quote Convention Exchange rates in the Forex market are expressed using the following format: Base currency / Quote currency Bid / Ask Bid and Ask Prices FX Trade Platform uses the bid/ask (bid/offer) method for quoting prices. For example, the exchange rate for EUR/USD might look like one of the following: 146.972/981 146.972 vs. 146.981 The first number is the bid price, or the rate used if you sell a currency. The next set of numbers (after the slash) shows the last few digits of the ask price if you buy a currency. Bid Price The bid is the price at which the market is prepared to buy a specific currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote EUR/USD 1.2812/15, the bid price is 1.2812. This means you can sell on U.S. dollar for 1.2812 Euros.

Ask Price The ask is the price at which the market is prepared to sell a specific currency pair in the Forex market. At this price, you can buy the base currency. It is shown on the right side of the quotation. For example, in the quote EUR/USD 1.2812/15, the ask price is 1.2815. This means you can buy one U.S. dollar for 1.2815 Euros. The ask price is also called the offer price. Spread The difference between the bid and the ask price is referred to as the spread. In the example above (EUR/USD at 146.972/981), the spread is .009 or 9 pips. A pip is the smallest unit by which a cross price quote changes. Although a pip may seem small, a movement of one pip in either direction can translate into thousands of dollars in gains or losses in the inter-bank market. The critical characteristic of the bid/ask spread is that it is also the transaction cost for a roundturn trade. Round-turn means both a buy (or sell) trade and offsetting sell (or buy) trade of the same size in the same currency pair. In the case of the EUR/USD rate of 1.2812/15, the transaction cost is three pips. The broker makes money from the spread between the bid and the ask prices and some brokers may charge a commission as well.

Examples of Forex QuotesConfused about the forex quotes? Here are some quick examples for the beginners. Try not to look at the answer and determine the value of bid price, ask price, spread value, and the pip value. 1. EUR/USD 1.2385/1.2390 Base currency= Eur Bid price= 1.2385; Ask price= 1.2390 When selling Euros, 1 Euro = USD$1.2385; when buying Euros, USD$1.2390 = 1 Euro. Spread = | 1.2385 - 1.2390 | = 0.0005 Pip value= 0.0001 2. EUR/JPY 127.95/128.00 Base currency= Eur Bid price= 127.95; Ask price= 128.00 When selling Euros, 1 Euro = JPY127.95; when buying Euros, JPY128.00 = 1 Euro. Spread = | 127.95 - 128.00 | = 0.05 Pip value= 0.01 3. GBP/USD 1.7400/10 Base currency= GBP

Bid price= 1.7400; Ask price= 1.7410 When selling Pound, 1 Pound = USD$1.7400; when buying Pound, USD$1.7410 = 1 Pound. Spread = | 1.7400 - 1.7410 | = 0.001 Pip value= 0.0001 4. USD/JPY 119.8 Base currency= USD No bid-ask price is displayed, spread value not available. Pip value= 0.1 Spread The difference between the bid and the ask price is referred to as the spread. The broker makes money from the spread between the bid and the ask prices and some brokers may charge a commission as well. Pip A pip is the smallest value in a Forex quote. Take our example earlier on EUR/USD. If the exchange rate goes from 1.2385 to 1.2386; that's one pip. In mathematical definition, a pip means the last decimal place of a quotation.

Two way prices OR Two-sided quoteMeaning Two-way prices are dual price quotations that include both an offer price and a bid price. This type of quote is commonly used in foreign exchange markets where investors engage in the buying and selling of currency. E.g: The bid/ask price for EUR/USD is quoted as 1.2320/23, meaning you can buy 1 euro with 1.2323 US dollars or sell 1 euro for 1.2320 US dollars. Banks also make use of a two-way price when calculating the current rate of exchange in order to conduct wire transfer of funds between various countries. A two-way price is also often employed with bond prices as well. Importance When it comes to Forex trading, a two-way price allows the investor to see what he or she will receive in the way of a return by purchasing or selling a particular set of currencies. The details of the proposed transaction will depend on the specific dealer who would handle the transaction, and the current rate of exchange that exists between the two currencies. Because the two-way price includes both an offer and a bid price, it is easy for the investor to determine if the proposed exchange is advantageous or should be avoided at the present time. It is important to note that the bid and offer prices associated with any given foreign exchange quote are usually slightly different. Referred to as a spread, the difference between the offer and bid price in a two-way price strategy is usually identified in terms of pips. Pip stands for "percentage in point" and is the fourth decimal point, which is 1/100th or 1% of the current worth of the particular unit of currency. In most cases, the spread between the offer and bid prices included in the two-way price will not amount to a great deal. But the difference between the two price components can be just enough to make it possible for an investor to either lose or gain from the transaction.

Points to be noted When quoting terms for a two-way price, there are some generally accepted procedures. Many currencies around the world are quoted based on the number of units required to equal one American dollar (E.g: USD/JPY, which quoted as 114.05/114.08). However, this is not true with most of the other major currencies in circulation. Currencies such as the Euro, the Irish punt and the British pound are often quoted in terms of how many American dollars are required to equal one unit of the currency in question (E.g: EUR/USD which is quoted as 1.2500/1.2503). To keep it in a simple way, in the Forex Markets, the U.S. dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar.

Trade Date and Value DateTrade Date: The date on which a trade occurs. This is also called the Transaction Date. Value Date: This is also called the Maturity Date.

Definitions: General: Date on which a transaction actually takes place.Accounting: Date on which allocated, budgeted, or contracted funds are paid, received, or used. Banking: (1) Date on which an account holder can use the funds from deposited checks that have passed through the bank's clearing cycle. (2) Date on which a deposit starts to earn interest. Trading: Date on which the item that was bought or sold must be delivered. For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date, (one day for Canada). The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country (ies) of the foreign currency (ies). The value date then moves forward a day. The enquirer is the party who must make sure that his spot day coincides with the one applied by the respondent. The forward months maturity must fall on the corresponding date in the relevant calendar month. If the one month date falls on a non-banking day in one of the centers then the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not affect the other maturities that will continue to fall on the original corresponding date if they meet the open day requirement. If the last spot date falls on the last business day of a month, the forward dates will match this date by also falling due on the last business day. In forward trade it corresponds to the future date indicated in the forward contract. To sum up it is date on which either the security or cash equivalent is settled on completion of a trade.

Forex Day Trading

Day trading is a way of trading that generally relates to entering and exiting trades such that all positions are closed off before the end of the trading day. As a style, it refers more to people who are willing to execute multiple trades within a relatively short period, attempting to make money off what more long-term traders would see as fluctuations. Some seasoned Forex traders prefer this method as opposed to long-term methods for various reasons. You can see the results of your efforts in shorter periods. It can be very profitable, particularly if you have a large amount of money in your account. Large institutions engage in this sort of trading quite a bit because they have millions, maybe billions in their accounts. A very small move might earn the small-time trader - only a few hundred dollars. That same fluctuation might earn the big traders tens of thousands of dollars or more. It means that you have many more opportunities to open positions and thus, make profits. Unfortunately, it also means you have many more opportunities to lose your money. As with all forms of trading, the trick is managing your money effectively; something that is a lot more difficult when operating in shorter time frames. One of the obstacles cited by some traders in their case against day trading is the necessity of spending more time in trading mode. This means staring at a computer screen, for most people. It can also mean listening to news, constantly browsing the information websites etc. These traders may be able to overcome the higher risks that Day Trading might entail; they just dont have the time to do that. This is where an automated system comes in. If any of these traders could program his trading system into a Forex Trading Software, then that problem would be solved. In that situation, the trader no longer has to devote all that time. When there is a Buy or Sell signal, the trader can have a quick look at the markets and confirm this by opening the position. It is also possible to have the software enter and exit trades for you, hence the term automated. To use this, the trader would have to have complete trust in his system. Many automated systems are now available from a large variety of traders and gurus. Its easy enough to test on a demo account. If you wish to try any of these on a live account, then you should start out using the signals, while you actually enter the trades yourself. They usually have a free trial period, so you can evaluate whether or not you are comfortable using them. That way, if it doesnt work out, you can get your money back, or just not buy the full product. As with any of the other trading styles, techniques or whatever you might choose to call them, this one has takers and those who are against it. Some experts argue that it is simply not possible to do any meaningful analysis when operating within such a short time frame. This method of trading, in their opinion, reduces Forex Trading to something more akin to gambling. They would argue rightfully that entering and exiting a trade should not be like throwing dice. There should be a clear strategy in place. This concept is just much more complicated to implement when engaging in day trading. You are also significantly more exposed to price spikes due to news. It can be a wild ride. Adding an automated system to the mix goes even further down the road in that respect. Regardless of that, there are those who thrive on it. Its hard to argue with facts and figures. For some people, Day Trading is Forex trading. They wouldnt have it any other way. Its not for everyone, but that doesnt mean it cant be done profitably. Ultimately, you will have to try it yourself to see how it sits with you.

Currency ValuationMeaning Keeping global trade going is imperative. It is important that we have a process whereby the value of currency issued by any given country can be compared to that of another country. This process of determining the currency exchange rate is referred to as currency valuation. Currency Valuation Past and Present

In years past, the process of currency valuation tended to rest upon criteria such as the amount of gold bullion that is held by the treasury of a given country. Simply put, the more gold on hand, the more secure the currency was considered to be. It would be worth more when exchanged for currency issued by as country that possessed smaller reserves of gold. This criterion, often referred to as the gold standard, has not been the norm for almost a century now. Today, there are a number of other factors that influence the process of currency valuation. Today, currency valuation will involve evaluating the current rate that goods and services are exported to other countries, as well as taking into consideration the rate that goods and services are received from other countries. Factors affecting Flow of commerce - has a direct impact on the currency valuation between any two countries. Along with using a current snapshot of the import and export rates of goods and services, there is also the indicator of how the currency of a given country is being purchased. Many entities will purchase the currency of a country at its current rate of exchange, with the expectation that it will increase in value against other currencies. This expectation, if focused on the currency of one particular country, will become a self fulfilling prophecy, at least in the short term as demand drives the currency valuation for a given country upward. Other factors - also come into play. Most notably, natural disasters can have a large impact on the currency valuation process. A country that is no longer able to export key goods and services and must for a time rely on imports to reconstruct the internal economy after a natural devastation will see the currency of the country decrease significantly in value, at least for the short term. As conditions within the country improve and the balance between imports and exports becomes of equitable, the currency valuation will once again begin to rise. Conclusion: Currency valuation is simply the way we make it possible for trade to continue on world wide basis by determining how our respective currencies will be exchanged for currencies of other countries. Without this process of currency valuation, we would not be able to enjoy a number of the products that we take for granted every day.

Why Currency Values Fluctuate?What causes the fluctuations in the currency values? Basically the fluctuations are caused by the demand and supply of the currency. The demand and supply is generally affected by a country's trade and its macro-economy policies. 1. Interest Rates When the interest rates of a country are high, investors and speculators will take advantage of the higher interest rates. Money will flow into the country. This will boost the demand for the country's currency and can cause the currency to appreciate. Interest rate has a great influence on the short term movement of capital. If interest rate in a country rises due to increase in bank rate or otherwise, there will be a flow of short term funds into the country and the exchange rate of the currency will rise. Reverse will happen in case of fall in interest rates. When the interest rate at the centre rises, it attracts short term funds from other centers. This would increase the demand for the currency at the centre and its value. Rising of interest rate may be adopted by a country due to tight money conditions or as a deliberate attempt to attract foreign investment. 2. Money Supply and Inflation An increase in money supply in the country will affect the exchange rate through causing inflation in the country. It can also affect the exchange rate directly. When central banks prints money, money supply will increase. There will be more money in circulation. Inflation goes up, the currency value becomes weaker and this causes the currency to depreciate. Inflation in the country would increase the domestic prices of the commodities. With increase in prices

exports any dwindle because the price may not be competitive. With the decrease in exports the demand for the currency would also decline, this in turn would result in the decline of external value of the currency. It may be noted that it is the relative rate of inflation in the two countries that cause changes in exchange rates. 3. Balance of Payments When a country exports more than it imports, the country is known to be in a trade surplus. Demand for its currency usually follows and this causes the currency to appreciate. Balance of payments represents the demand for and supply of foreign exchange which ultimately determine the value of the currency. Exports, both visible and invisible represent the supply side for foreign exchange. Imports, visible and invisible create demand for foreign exchange. When the balance of payments of a country is continuously at deficit, it implies that the demand for the currency of the country is lesser than its supply. Therefore its value in the market declines. If the balance of payments is surplus continuously, it shows that the demand for the currency in the exchange market is higher than its supply and therefore the currency gains in value. 4. Economic Growth When a country anticipates weakening economy, investors will cash out their investments and transfer their money to other countries with higher growth prospects. Demand for the currency falls and the currency will depreciate. This is evident in the recent financial crisis in Oct 2008. The Euro and GBP depreciated as investors cash out to buy US Treasury bonds. 5. Increase in National Income An increase in national income reflects increase in the income of the residents of the country. This increase in the income increases the demand for goods in the country. If there is under utilized production capacity in the country, this will lead to increase in production. There is a chance for growth in exports too. But more often it takes time for the production to adjust to the increased income. Where the production does not increase in sympathy with income rise, it leads to increased imports and increased supply of the currency of the country in the foreign exchange market. 6. Market Speculators Speculators will sell currencies they anticipate will weaken, and buy currencies they anticipate will strengthen. Central banks have limited foreign reserves and if the volume sold and bought by speculators is huge, even central banks cannot do much to stabilize their currencies. This is evident in the 1997 Asian financial crisis whereby speculators short Asian currencies, causing these currencies to devalue. 7. Foreign Debt Many nations, especially the developing and under developed nations, are fond of getting loans from developed nations and international funding sources like IMF and World Bank. This money is immediately added to the balance of payment of the borrowing nation. This will lower the currency value of the borrowing nation. The currencies of the under developed and developing nations always go down because of this unplanned borrowing. African, Caribbean and South eastern nations are good example of this scenario. 8. Political Stability Political stability induces confidence in the investors and encourages capital inflow into the country. This has the effect of strengthening the currency of the country. On the other hand, where the political situation in the country is unstable, it makes the investors withdraw their investments. The outflow of capital from the country would weaken the currency. Any news about change in the government or political leadership or about the policies of the government would also have the effect of temporarily throwing out of gear the smooth functioning of exchange rate mechanism. 9. Psychological factors

The behavior of the major participant in the market can affect the exchange rate. The influence may make the rate move differently from that determined by long term economic forces. A large scale buying or selling by the major participant would make others in the market to follow suitable steps. This will have the effect on the trend of the market. 10. Technical and market factors. Isolated large transactions in the market may upset the markets ability to balance the supply of and demand for the currency. The immediate effect will be the wide distortion to the exchange rate. The situation will continue till the amount is fully absorbed in the market and regularity is restored.

What is a Currency Symbol?A currency symbol is a symbolic representation of type of currency used, mostly designated by the country producing the currency. It shouldnt be confused with the name for different types of money. Euro or dollar is not symbol but actual name. Instead the symbol is a substitution of a symbol meant to indicate the name. For instance in the US we may use $ to indicate US Dollars (USD). Not all countries have currency symbols, and some symbols of the past have been swept away by the introduction of the Euro. For instance the common used to indicate the British pound may now be replaced with , the currency symbol for euros. Similarly for the French Franc, for the Italian Lira, have all been replaced by for euro. Sometimes a currency symbol may be used to represent more than one countrys money. For instance Canada and America both use the $ sign for dollars. Lira and pound symbols are almost identical. The cent sign used in the US, is used in several countries to indicate fractions of money. Both China and Japan use the symbol as their currency symbol. The symbol can refer to Chinas yuan, or Japans yen. Other Asian countries do not use this symbol. Thailand, as an example uses , as a symbol for their currency called baht. There are different ways of notating a currency symbol when using it with a currency amount. Some countries place their symbol after the money amount and others before it. In the US, Canada and Latin America symbols tend to be placed before the money amount, with the exception of the sign, which tends to follow the amount. In Europe and in other countries, the currency symbol may follow the money amount. If something cost 20 Euros you might see this written as 20 , but in some countries the may precede the money amount. Theres also some dispute about how part of a euro is expressed. If something costs 20.50 in euros, this may be written as 2050 or 20.50. Another expression that is equally common is 20,50, where a comma replaces the decimal point. When you are unaware of the currency symbol for