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Showing results for tags 'forex'.
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Since these transactions are done at central banks, and in large quantities, this tends to create a great deal of volatility for the underlying currency. Currency interventions tend to have questionable levels of success. In general a central bank’s economic policy will be directly tied to the acceptable value of a currency and when markets deviate from these levels, a central bank will attempt to reverse the trend. Since the value of the currency is a direct function of supply versus demand, a central bank can choose to weaken a currency by increasing supply, or strengthen a currency by limiting supply.
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A Hawkish central bank is one that is more likely to raise the interest rate tied to the national currency. This is important for forex traders because higher interest rates tends to increase the value of the underlying currency, and any evidence that a central bank is planning in raising interest rates will likely push the value of that currency higher. When using the term “Hawkish” forex traders are generally referring to comments that are suggestive of a rise in interest rates or a robust national economy.
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Monetary tightening is conducted to restrict economic growth by making it more difficult to finance investment capital. One key consequence of tightening policies can be seen with lower inflation levels and a increase in the value of the underlying currency. When consumer spending is affected in this way, the national economy will generally see a decrease in spending and productivity and this will eventually lead the central bank to reverse policy as a way of restarting the economy.
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A Dovish central bank is one that is more likely to lower the interest rate tied to the national currency. This is important for forex traders because lower interest rates tend to decrease the value of the underlying currency, and any evidence that a central bank is planning in lowering interest rates will likely push the value of that currency downward.
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Central banks act as both major players in the currency market (conducting many foreign exchange transactions) and as a data source for understanding the strength of the country’s underlying economy. In some cases, central banks will actively intervene in currency markets to control volatility and bring liquidity into unstable markets. The main role of a central bank is to ensure price stability with respect to inflation.
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The Central Bank Rate determines the rate that commercial banks are charged when loans are initiated and this is directly related to the interest rate determined by the country’s Federal Banking System. Higher rates are put in place to discourage lending in overheated economies, while low rates are given when an economy is viewed as being in need of stimulus measures.
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Monetary Easing refers to any practice by the central bank of a country that is used to stimulate economic grow. Monetary easing is conducted to create economic growth by making it easier to finance investment capital. One key consequence of easing policies can be seen with rising inflation levels and a decrease in the value of the underlying currency. When consumer spending is affected in this way, the national economy will generally see an increase in spending and productivity and this will eventually lead the central bank to reverse policy as a way of cooling the economy. Monetary Easing is generally seen when a country is experiencing a trend of negative economic data. Monetary Easing will often help stimulate credit lending and consumer spending once enacted.
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In all cases, Forex trades will involve the purchase of one currency and the sale of another. For example, a buy position in EUR/USD involves the purchase of Euros with the sale of an equivalent number of units in US Dollars. In other words, a trader will be “shorting” the US Dollar and buying Euros as the trader’s expectation is that the US Dollar will be declining against the Euro. The position will lose money if the EUR/USD drops.
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In all cases, Forex trades will involve the purchase of one currency and the sale of another. For example, a long position in EUR/USD involves the purchase of Euros with the sale of an equivalent number of units in US Dollars. In other words, a trader will be going “long” the Euro and selling US Dollars as the trader’s expectation is that the US Dollar will be declining against the Euro. The position will lose money if the EUR/USD drops.
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The US Dollar is the world’s reserve currency, and the most liquid currency in the world. Traders with a positive outlook for the performance of the US Dollar versus other currencies will often put this bias into practice by buying the USD and using it to sell another currency, such as the Euro or Yen. When US Dollar buy positions are established, traders can only make money when the value of the US Dollar increases. If the value of the currency declines, the trade will lose money.
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The US Dollar is the world’s reserve currency, and the most liquid currency in the world. Traders with a negative outlook for the performance of the US Dollar versus other currencies will often put this bias into practice by selling the USD and using it to buy another currency, such as the Euro or Yen. When US Dollar sell positions are established, traders can only make money when the value of the US Dollar declines. If the value of the currency increases, the trade will lose money.
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Day traders tend to focus on technical analysis rather than on long term trends based on fundamental forecasting. Intraday price fluctuations in the forex market develop quickly and many Day traders will implement trading software to identify relevant chart patterns and establish trades. Stop loss levels and profit target tend to be smaller than what is seen in longer term trades, because daily price activity can change in unanticipated ways.
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Traders will never just buy or sell an individual currency. Instead, currency are bought and sold in relation to each other. A currency pair is comprised of a base currency and a quote currency, for example, the EUR/JPY. Here, Euro is the base currency and the Yen is the quote currency. The value of the currency pair shows the value of one unit of the base currency relative to the quote currency. If EUR/JPY trades at 110.15, this means one Euro will buy 110.15 Japanese Yen.
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As an example, the US Dollar can be quoted as USD$0.75 per CAD$1. This quote shows you that 0.75 US Dollars are required to purchase one unit of CAD (the Canadian Dollar). By extension, CAD$1000 could be purchased with USD$750.
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Forex Direct Markets - Ultra Low Spreads
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Jeremy du Plessis, author of The Definitive Guide to Point & Figure, reently took part in a live webinar on FXStreet.com's The Traders Bookshelf: http://www.fxstreet.com/webinars/sessions/session.aspx?id=9e70e1f7-a8ba-4b9c-bae6-c914e94e9257 The webinar opened with a short introduction to Jeremy's book which was described by the shows host, Gonçalo Moreira, as a masterpiece. The book has been added to FXStreet.com’s selection of ‘books that provide the best value for currency traders’. The webinar then went into a 45 minute live Point & Figure charting session on the currency market using Updata's technical analysis software. This webinar will be beneficial to traders who are interested in Point & Figure and using P & F charting methods for their FX trading. The methods can be applied to other markets ofcourse. Really good webinar all in all. Chartist Lion
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The ADX indicator is a trend indicator. The ADX indicator has three lines: the main indicator line, the +D1 line and the –D1 line. The +D1 and –D1 lines are the signal lines, and crosses of these lines indicate signals with which to take positions. If the +D1 line crosses the –D1 line upwards, a Buy signal is generated. If the +D1 line crosses below the –D1 line, a sell signal is generated. The ADX line itself has readings which fluctuate between 0 and 100. If the ADX line is >40, the signal/trend is strong. If the ADX is <20, then the trend is weak or the market is ranging.
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The term underlying asset is sometimes used interchangeably with financial asset, financial instrument, etc. The underlying assets are the items being traded and everything about trading is based on them. Without the underlying asset, there is no basis for trade on the financial markets. For a trade to be valid, there must be a financial asset.
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The RBNZ is the central bank of New Zealand and is the organ of the New Zealand government saddled with the responsibility of determining monetary policy for the country. The structure of the RBNZ differs from the central banks of the other major currencies in that the determination of the monetary policy lies solely with the RBNZ Governor. The RBNZ meets 8 times a year and its core mandate is to maintain price stability as well as stability in interest rates and exchange rates. The RBNZ has an inflation target of 1.5% and pursues this target aggressively.
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The Producer Price Index (PPI) is also known as Producer Inflation. This is a very important report as the rate of producer inflation directly affects the rate at which consumers will buy goods, affects consumer sentiment towards the economy and impact consumer spending. The PPI is actually a collection of indexes that mirrors price changes at three stages of production: industry stage, processing-stage based and commodity-based stages. An increase in PPI is generally viewed as bullish for the currency in view, while a decrease in PPI is generally viewed as bearish. This is because of the expectation that this will have on interest rates as fixed by the central banks. However, the effect that the PPI value has on the currency has to be put in context of the prevailing situation of the country in focus before being traded.
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A liquid market is one where traders are prepared to buy and sell a financial asset in the market. It can also be used to describe a situation where there is plenty of tradable cash made available by the various market players to trade the markets. It can also be used to describe a state where there are many traders available to buy and sell instruments. As such, it makes trade executions faster as there are always ready buyers and sellers. Cost of transactions is also lower in a liquid market. This explains why the EUR/USD pair which is the most traded pair in the forex market has spreads which are as low as 0.8 pips with some brokers, but less traded currency pairs like the EUR/SEK have spreads of up to 50 pips.
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The discount rate is one of the tools used by the central bank of a country to set the interest rates of a country. Commercial banks borrow money from the central bank periodically to enable them meet up their financial obligations and perform their banking operations. They pay an interest on this money and this is known as the discount rate. Banks now lend this money to other financial institutions and also to customers at rates that are slightly marked up from the discount rate. If the central bank increases the discount rate, this will in turn force banks to increase the rates at which they lend to customers and also to other financial institutions. Similarly, if the central bank reduces the discount rate, there will be simultaneous reductions in the commercial lending rates and fund rates.
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Daily trading limits can occur as a result of the inherent behavior of the underlying asset, or they can be fixed artificially by the regulatory authorities by setting a price floor and a price ceiling. Some stock exchanges like the Nigerian Stock Exchange operate a daily trading limit where the maximum rise or fall of an underlying asset is pegged at 5%. This is an example of an artificially induced daily trading limit. Some currencies tend to trade within a range. The Hong Kong Dollar and Singaporean Dollar is an example, but again this is a function of the actions of the central banks of these countries. Intraday traders are usually advised to trade with caution on assets that have daily trading limits as the restrictions on the daily movements of the underlying assets restrict profitability on intraday trades.
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Credit ratings are done to determine one's ability to meet debt obligations. This is done by a critical examination of the financial history of the company or government in view. Credit ratings range from the highest rating of AAA (sometimes called Triple A in business news reports) to the lowest rating of D. These terminologies have become commonplace as the focus of the financial world has zeroed in on the crisis in the Eurozone with emphasis on Greece, Italy and Spain. These countries have suffered downgrades recently as a result of problems with meeting their debt obligations.
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It is a measure of price movements by a comparison between the retail prices of a representative shopping basket of goods and services. The CPI directly impacts purchasing behavior of consumers and affects consumer spending, which in turn will affect the profitability of companies that manufacture consumer goods and those companies that service the manufacturers. Generally speaking, a high CPI reading is seen as bullish for the currency in view, while a low reading is seen as bearish for the currency in view.
