3.07.2009

Mounting Strains In Global Financial Markets Threaten To Topple Government's Efforts To Revive Sentiment

Economic and financial conditions are worsening. And, despite the global effort to stabilize markets and revive growth, it is only a matter time before feeble optimism gives way to fear once again. Indications of building strains are visible in economics, market operations and certainly price. Looking at the market’s more traditional asset classes, the sense of risk aversion is unmistakable.

• Mounting Strains In Global Financial Markets Threaten To Topple Government’s Efforts To Revive Sentiment
• Nationalizing Major Financial Firms And Need For Emergency Aid In Eastern Europe Reveals Desperate Circumstances
• Another Wave Of Interest Rate Cuts Highlights The RBA’s Decision To Pass

Economic and financial conditions are worsening. And, despite the global effort to stabilize markets and revive growth, it is only a matter time before feeble optimism gives way to fear once again. Indications of building strains are visible in economics, market operations and certainly price. Looking at the market’s more traditional asset classes, the sense of risk aversion is unmistakable. The FTSE 100 has closed pushed to six year lows, the Dow Jones Industrial Average has outpaced its slump in the great depression to close for 12 year lows and the Nikkei 225 is just off of levels not seen in over a quarter of a century. However, there is a reserve to these declines as investors hold back from fully divesting themselves. This endurance cannot hold up though should the signs of systemic risk build. World-wide, treasury prices are forging new highs, default protection on corporate debt is pushing records and liquidity is prized as a safe haven quality over traditional notions of what is risk free. This is what he have seen in the currency market. Once the most prominent funding currency and refuge in times of uncertainty, the Japanese yen has been unseated by skeptical markets. And, as the market tries to discern the risk laden currencies from the risk free with interest rates deflated, we have seen the Carry Trade Index left to chop. Nevertheless, the ultimate break will genuinely reflect the true sentiment of the crowd.

Despite their best efforts, governments are fighting trends in economics and investor sentiment that perhaps cannot be artificially curbed. Starting with the global recession; there is little doubt from market participants or policy officials that the world wide economy is on pace to suffer a far worse contraction through the first half of this year than what has been confirmed through the end of 2008. This translates into rising unemployment, a surge in bankruptcies and defaults, and a plunge in consumer spending which naturally reduces potential returns and the availability of credit. With the threat of a global depression at hand, we have seen policy makers take increasingly drastic steps to rescue their own economies. Stimulus packages have ballooned for the US, Germany, UK, Japan and others. Taking the last steps available to them through traditional policy channels, central banks issued another round of rate cuts this past week – leaving some boards looking at quantitative easing as the next option. Perhaps the most controversial move though is the trend towards nationalization. This is a last resort for any free-market economy; and though only a very few deals have been defined as such, their presence is growing (Lloyd’s, Citi, AIG, etc). Looking ahead, there are two major events that look as if they could fundamentally shift sentiment: the potential collapse of some Eastern European economies and the G20 meeting in early April. From the latter, a plan to address the global impact of the economic and financial crisis may genuinely turn things around.

Written by John Kicklighter, Currency Strategist
Article Source - Mounting Strains In Global Financial Markets Threaten To Topple Government's Efforts To Revive Sentiment
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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!