FOREX


Description:

  • “The foreign exchange market, or FX market, is a network of financial organizations and brokers in which individuals, businesses, banks, and governments buy and sell the currencies of different countries. They do so in order to conduct international trade, invest in foreign countries, or speculate on currency price changes". (Federal Reserve Bank ofNew York)
  • The FOREX market is many, many times larger than the entireU.S.equity market.
  • The five primary currencies (USD, EUR, GBP, JPY and CHF) are heavily traded. Of these, the USD is the overwhelming leader, involved on one side or other of 87% of all transactions.
  • The FOREX market trades 24 hours per day.
  • Traditional market products: spot transactions and forward contracts (hedging).
  • On the most fundamental level “supply and demand” determines the value of a currency..

Process

  • Determine if buying or selling
  • Timeframe i.e. when do you require the funds? Depending on your settlement date either a forward contract or a spot transaction will be desired.
  • Rate, amount and settlement date set and agreed.
  • When time comes to book a FX transaction the rate and amount will be locked in.
  • Determine type of payment; both to make payment to a supplier as well as the settlement monies back to you.
  • Main types of settlement: Wire Transfer, Draft/Certified Cheque exchange, Company Cheque exchange.

FAQs:

  • What is the meaning of the terms “long” and “short” positions?
    • A long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. A short position is one in which the trader sells a currency in anticipation that it will depreciate
  • How can I manage risk?
    • The most common risk management tools in FX trading are the limit and stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be paid. A stop loss order ensures a particular position is automatically liquidated at a predetermine price.
    • A forward contract enables you to reserve an amount of currency to meet a future foreign exchange need, at an agreed rate as a “hedge” against any fluctuations.
  • Can a Contract be cancelled?
    • No, a forward contract is locked in and therefore cannot be cancelled.
  • Can I expect same day service?
    • If your spot transaction is booked prior to 10:00 am your trade can be settled that day.

For additional information please view the website of Jameson International at www.jamesonfx.com

Profit Guide article, March 2004