3.27.2009

Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 Meeting

The market’s barometers of risk are showing steady improvement, just like many key instruments; however, the burden of uncertainty and threats of financial shocks are just greater now than they were a few weeks and months ago. Market participants are now left to discern whether the rebound in relatively high yield/ high risk assets is genuine or a relief rally as the eye of the storm passes.

• Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 Meeting
• Will Global Policy Makers Agree On A Coordinated Effort And New Reserve Currency?
• Is Protectionism The Next Threat To Market Sentiment?

The market’s barometers of risk are showing steady improvement, just like many key instruments; however, the burden of uncertainty and threats of financial shocks are just greater now than they were a few weeks and months ago. Market participants are now left to discern whether the rebound in relatively high yield/ high risk assets is genuine or a relief rally as the eye of the storm passes. Taking measure, we can see that most of the favored gauges for market sentiment are producing impressive improvements. Each day the equity market climbs, news headlines splash impressive statistics of its performance. For example, now at a four-week high, the S&P 500 is working on its best monthly performance in 35 years. Elsewhere, credit default swaps have dropped to their lowest levels in five years while the TED spread (the difference between the rate on the three-month US government notes and equal tenor Libor) has held close to its multi-year lows. It is the currency market however that provides the most interesting readings as reflects the seeming rebound in risk while also showing the changes that have developed between a calm in current market conditions and those from just a few years ago. The Carry Trade Index is in its most consistent rally since Spring of 2008 while the DailyFX Volatility Index extends its drop from December highs. On the other hand, it is no longer clear which currencies are safe havens and which promise outsized returns. If the outlook for health of the global financial system and economy were clear, this would not be an issue.

Indicators are frequently misinterpreted; and sometimes lose their relevance in certain market conditions. Considering the fundamental uncertainty that persists across the world, it is prudent to remain skeptical of the immediate recovery of investment confidence that will precede an influx of capital back into the speculative markets. This past week, policy officials increased their efforts to prevent what is now a severe recession from turning into a depression. Definitions for this state are loose, but its essential components are a sustained downturn in growth; high volatility in exchange rates; bankruptcies; severe restrictions on credit; and stunted trade. All of these circumstances have been met to this point; and a few of them are set to deteriorate further. At this point, the health of the global economy and the flow of money is a problem that must be addressed by every nation. However, only a few major players have made the effort with introducing massive stimulus plans, funds meant to draw out toxic debt, guarantee sound investments and bolster liquidity. This is the contention that leaders from the US and UK will bring with them to the G-20 summit on April 2nd. If there is no tangible and coordinated plan to come out of these meeting of nations, this rebound in optimism may very well collapse. With growth expected to slow further in the first half of 2009, protectionist threats rising and options running short; the future is fragile.

Written by John Kicklighter, Currency Strategist
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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!