Saturday, April 25, 2015

THE CURRENCY MARKET

The currency market is by far the most liquid and largest financial market in the world. More than $1.5 trillion USD is traded in the worldwide currency market every day. That is at least 15-20 times bigger than all of the equities markets in the United States and Europe combined.
Over 90% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
The currency markets only “close” on Saturdays, meaning there is little or no trading at all during that time — remember, most of the heavy trading is done by banks, which do not have open trading desks on Saturday. However, from Sunday morning Eastern Standard Time (which is already the start of the week in Asia), through Friday at about 5:00pm Eastern Standard Time, traders are moving the market.
Hedge funds have become huge players in the currency markets, as

the US stock market has simply not given these firms enough chances to stay in trades (many hedge funds

stay in some type of trades all the time). Currency markets tend to be more volatile (i.e., they move more), so active traders, such as hedge funds, can move in and out of trades nearly as often as they wish.
In currency trading, there is no central exchange – so all trading occurs in what is called “over the counter” trading – where buyers and sellers match themselves up through various dealers or directly to each other on the banking trading systems. Two prominent trading platforms for banks and hedge funds are Reuters and EBS.
Banks, hedge funds, and bigger traders execute trades using a the “Interbank” system – meaning, they look for buying and selling opportunities from each other directly, using a Reuters or EBS (or other) platform. These platforms allow them to see current prices, usually with a very tight spread of 1-3 pips on the majors. One other unique feature on these robust trading platforms is that traders can see orders to buy or sell outside the current market price. If a bank

trader wants to buy $100 million Euros, they can literally pick up an order for the entire amount from another bank trader someplace else — usually at a price slightly different from the current market price.
Individual speculators, like you and I, trade using a dealer like GFT, Oanda, or HotspotFX. When you place an order with a dealer, that dealer usually immediately takes the other side of the trade. Your dealer is NOT matching your order up with another trader in their system. That is practically impossible, because you are trading such small amounts.
I repeat: when you buy 1 mini lot (more on that later) of GBP/USD, your dealer is selling you 1 mini lot of GBP/USD. Your dealer is not matching you up with another trader who wants to sell you some British Pounds.
Don’t be alarmed that your dealer takes the other side of your trade. If they didn’t, then you would not be able to trade at all unless you had a significant amount of capital. Don’t assume that because your dealer takes the other side of the

trade that he is going to stop you out and take your money.

















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