Forex

RECENT NEWS
Mondo Visione  Aug 3  Comment 
The U.S. Commodity Futures Trading Commission (CFTC) today announced the unsealing of a civil enforcement action filed in the U.S. District Court for the Middle District of Alabama, charging Husam Tayeh of Oak Lawn, Illinois; Dinar Corp.,...
Mondo Visione  Aug 3  Comment 
New service enables clearing of the $275bn a day FX options market, with other physically settled FX products to follow Bringing capital efficiency to the FX markets Planned launch in 2016, subject to regulatory approval LCH.Clearnet...
Benzinga  Aug 3  Comment 
In a report published Monday, Wedbush analyst James Hardiman maintained an Outperform rating on Royal Caribbean Cruises Ltd (NYSE: RCL), while raising the price target $88 to $100, due to improved yield, FX and fuel. Long-Term...
Mondo Visione  Aug 3  Comment 
Thomson Reuters today announced the addition of foreign exchange trading capabilities for corporate treasurers on its flagship financial markets desktop Thomson Reuters Eikon. The Company has integrated FXall QuickTrade, its state-of-the-art...
Clusterstock  Aug 3  Comment 
HSBC is putting aside $1.3 billion (£830 million) to cover settlements and court actions covering allegations the bank manipulated benchmarks used to price foreign exchange trades. HSBC paid out around £390 million ($$610 million) in...
The Economic Times  Aug 3  Comment 
Most emerging Asian currencies rose on Monday after weak U.S. wage growth clouded views on when U.S. interest rates were likely to rise.
Mondo Visione  Aug 3  Comment 
Financial performance Reported profit before tax (‘PBT’) up 10% in the first half of 2015 (‘1H15’) at $13,628m compared with $12,340m in the same period in 2014 (‘1H14’). Adjusted PBT up 2% in 1H15 at $13,002m compared with...
The Economic Times  Aug 3  Comment 
"Global scares will surface from time to time, India with it's stable government & improved forex reserves will cushion itself effectively."
The Hindu Business Line  Aug 2  Comment 
Alternative cures can emerge as a forex earner comparable to IT, and make up for the lack of allopathic facilities




 
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Overview

Forex (FX) is short for foreign exchange and refers to the trading of one currency for another. Unlike stocks or futures, currency trading is an over-the-counter market with no central exchange.

Currencies typically trade in pairs such as the EUR/USD or USD/JPY. Currencies common to Forex tend to be the most liquid currencies such as the U.S. Dollar (USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), and Australian Dollar (AUD).

FOREX[1] is the world's most traded market with an average daily turnover of USD $3.2 trillion[2].

Trades occur 24 hours a day, starting Monday morning in the Asia-Pacific region and ending Friday evening in North America.

Common FX Practices

Corporate FX Programs

Many corporations who receive a significant portion of their revenue from overseas (overseas refers to any sites outside of the chartering country - "headquarters") may wish to participate in FX Hedging. This is primarily because currency volatility can majorly effect a company's stated income. A long-winded example is below.

Say Google receives more than 50% of its revenue from outside the United States. This creates a situation in which the relative strength of the U.S. Dollar (USD) can impact its financials. If the Euro (EUR) strengthens against the dollar, it has a net positive impact on Google's income statement. If EUR/USD decreases, meaning more USD can be bought with 1 EUR, then when the company calculates the value of its EUR-denominated revenue, it will see a higher than average USD amount. Forex

Retail FX

In the last several years, the Retail FX market has opened up substantially with the spread of the internet and online trading. This segment is said to occupy about 4% of all forex transactions and is growing rapidly. One of the main reasons for this phenomenon is the simplified trading platforms like TradeStation that were recently developed by innovative internet brokers, aiming to educate the lay person and help get into this lucrative market.

Example with Fake Numbers and no Transaction Costs

Let's say, for ease of demonstration, that 1 EUR = 2 USD, or that 1 Euro can purchase 2 U.S. Dollars (this is not the case, but it's easy math). Furthermore, we can claim that Google makes 1 million Euros in December 2008 in France. If Google recognizes that revenue in USD, we'd say that Google made 2 million dollars that month (from France). Suppose, however, that the Dollar strengthens against the Euro, and instead we get 1 EUR = 1.5 USD (USD appreciates, which means that 1 Euro now buys less than before). This would instead result in 1.5 million dollars for December, instead of the previous 2 million.

On your own, try seeing what would happen if the USD weakens against the Euro (1 EUR = 3 USD). This volatility is something that most companies desperately seek to avoid. One can probably see already, the more money at risk, the greater the trading activity. Vis-à-vis, the more currencies that impact revenue, the greater the trading activity. As a result, these companies engage in all sorts of Hedging practices, including using currency swaps and Derivatives (Options, Futures, and forwards), to limit their exposure to currency movement, especially for the primary currencies as listed above.

Example Currency Pairs

U.S. Dollars to Euros





Euros to U.S. Dollars



U.S. Dollars to Canadian Dollars



Canadian Dollars to U.S. Dollars



U.S. Dollars to Japanese Yen



References

  1. FOREX
  2. Forex 101
  3.   WHAT IS FOREX
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