Aussie Rebounds on Hopes for Positive Outcome of Greece’s Crisis

Written by admin on May 10, 2010 — Leave a Comment

The Australian dollar gained against most other major currencies, including its U.S. counterpart and excluding the euro, on the speculation that the Group of Seven nations will take measures to contain the spread of the Greece’s debt crisis.

The Reserve Bank of Australia improved the forecasts for the domestic growth and the inflation today. The central bank should remain cautious about raising the interest rates in the light of the European troubles. The report about the employment surge in the U.S. also helps the Aussie, as the Australian currency nicknamed, by the potential improvement of the risk sentiment and the increasing number of Aussie buyers.

The analysts say that there are enough investors, which don’t believe in the worst outcome for the Europe and the global economy, to support the riskier currencies. Yet the Australian currency remains rather weak as most investors tend to keep the pessimistic opinion about the outcome of Greece’s crisis.

AUD/USD traded today near 0.8870 as of 17:23 GMT after it opened at 0.8848. AUD/JPY rose to 81.33 from its opening level of 80.11. EUR/AUD advanced to about 1.4311 from the opening rate of 1.4258.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Posted in Australian Dollar

The risks of trading in the Forex market

Written by admin on May 6, 2010 — Leave a Comment

Although every investment involves some risk, the risk of loss in trading off-exchange forex contracts can be substantial. Therefore, if you are considering participating in this market, you should understand some of the risks associated with this product so you can make an informed decision before investing.

Off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital – i.e., funds you can afford to lose without affecting your financial situation. There are other reasons why forex trading may or may not be an appropriate investment for you, and they are highlighted below.

The market could move against you

No one can predict with certainty which way exchange rates will go, and the forex market is volatile. Fluctuations in the foreign exchange rate between the time you place the trade and the time you close it out will affect the price of your forex contract and the potential profit and losses relating to it.

You could lose your entire investment

You will be required to deposit an amount of money (often referred to as a “security deposit” or “margin”) with your forex dealer in order to buy or sell an off-exchange forex contract. As discussed earlier, a relatively small amount of money can enable you to hold a forex position worth many times the account value. This is referred to as leverage or gearing. The smaller the deposit in relation to the underlying value of the contract, the greater the leverage.

If the price moves in an unfavorable direction, high leverage can produce large losses in relation to your initial deposit. In fact, even a small move against your position may result in a large loss, including the loss of your entire deposit. Depending on your agreement with your dealer, you may also be required to pay additional losses.

You are relying on the dealer’s

creditworthiness and reputation Retail off-exchange forex trades are not guaranteed by a clearing organization. Furthermore, funds that you have deposited to trade forex contracts are not insured and do not receive a priority in bankruptcy. Even customer funds deposited by a dealer in an FDIC-insured bank account are not protected if the dealer goes bankrupt.

There is no central marketplace

Unlike regulated futures exchanges, in the retail off-exchange forex market there is no central marketplace with many buyers and sellers. The forex dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price.

The trading system could break down

If you are using an Internet-based or other electronic system to place trades, some part of the system could fail. In the event of a system failure, it is possible that, for a certain time period, you may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. A system failure may also result in loss of orders or order priority.

You could be a victim of fraud

As with any investment, you should protect yourself from fraud. Beware of investment schemes that promise significant returns with little risk. You should take a close and cautious look at the investment offer itself and continue to monitor any investment you do make.

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What transaction costs will I pay?

Written by admin on May 6, 2010 — Leave a Comment

Although dealers who are regulated by NFA must disclose their charges to retail customers, there are no rules about how a dealer charges a customer for the services the dealer provides or that limit how much the dealer can charge. Before opening an account, you should check with several dealers and compare their charges as well as their services. If you were solicited by or place your trades through someone other than the dealer, or if your account is managed by someone, you may be charged a separate amount for the third party’s services.

Some firms charge a per trade commission, while other firms charge a mark-up by widening the spread between the bid and ask prices they give their customers. In the earlier example, assume that the dealer can get a EUR/USD spread of 1.2173/75 from a bank. If the dealer widens the spread to 1.2170/78 for its customers, the dealer has marked up the spread by .0003 on each side.

Some firms may charge both a commission and a mark-up. Firms may also charge a different mark-up for buying the base currency than for selling it. You should read your agreement with the dealer carefully and be sure you understand how the firm will charge you for your trades.

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How are foreign currencies quoted and priced?

Written by admin on May 6, 2010 — Leave a Comment

Currencies are designated by three letter symbols. The standard symbols for some of the most commonly traded currencies are:

EUR Euros
USD United States dollar
CAD Canadian dollar
GBP British pound
JPY Japanese yen
AUD Australian dollar
CHF Swiss franc

Forex transactions are quoted in pairs because you are buying one currency while selling another. The first currency is the base currency and the second currency is the quote currency. The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency. For example, if EUR/USD has an ask price of 1.2178, you can buy one Euro for
1.2178 US dollars.

Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price) and the second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). In other words, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178.

A dealer may not quote the full exchange rate for both sides of the spread. For example, the EUR/USD spread discussed above could be quoted as 1.2170/78. The customer should understand that the first three numbers are the same for both sides of the spread.

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How does the off-exchange currency market work?

Written by admin on May 6, 2010 — Leave a Comment

The off-exchange forex market is a large, growing and liquid financial market that operates 24 hours a day. It is not a market in the traditional sense because there is no central trading location or “exchange.” Most of the trading is conducted by telephone or through electronic trading networks.

The primary market for currencies is the “interbank market” where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates. The true interbank market is only available to institutions that trade in large quantities and have a very high net worth.

In recent years, a secondary OTC market has developed that permits retail investors to participate in forex transactions. While this secondary market does not provide the same prices as the interbank market, it does have many of the same characteristics.

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The Foreign Currency Markets

Written by admin on May 6, 2010 — Leave a Comment

What are foreign currency exchange rates?

Foreign currency exchange rates are what it costs to exchange one country’s currency for another country’s currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.

Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (£565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds. If £565.83 isn’t enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only £557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.

Assume that you have £100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.

Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ÷ .56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1÷ 1.78536 = .56011). This is how newspapers often report currency exchange rates.

As a practical matter, however, you will not be able to buy and sell the currency at the same price, and you will not receive the price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it.

How can I trade foreign currency exchange rates?

As you can see from the example, currency exchange rates fluctuate. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits. Retail customers also participate in the forex market, generally as speculators who are hoping to profit from changes in currency rates.

Foreign currency exchange rates may be traded in one of three ways:

1. On an exchange that is regulated by the Commodity Futures Trading Commission (CFTC). For example, the Chicago Mercantile Exchange offers Forex futures and options on futures products. Exchange-traded forex futures and options provide their users with a liquid, secondary market for contracts with a set unit size, a fixed expiration date and centralized clearing.

2. On an exchange that is regulated by the Securities and Exchange Commission (SEC). For example, the Philadelphia Stock Exchange offers options on currencies (i.e., the right but not the obligation to buy or sell a currency at a specific rate within a specified time). Exchange-traded options on currencies have characteristics similar to exchange-traded futures and options (e.g., a liquid, secondary market with a set size, a fixed expiration date and centralized clearing).

3. In the off-exchange, also called the over-the-counter (OTC), market. A retail customer trades directly with a
counterparty and there is no exchange or central clearing house to support the transaction. Off-exchange trading is
subject to limited regulatory oversight.

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The New Zealand Dollar Rise with Improving Jobless Rate

Written by admin on May 6, 2010 — Leave a Comment

The New Zealand dollar strengthened today after the jobless rate improved and Alan Bollard, governor of the Reserve Bank of New Zealand, suggested that the central bank may increase the interest rates as the economy become “less fragile”.

New Zealand’s jobless rate fell to 6 percent in the first quarter, compared to 7.1 percent in the previous three months, the lowest level since 1986. Bollard declared that:

Financial markets currently expect the Reserve Bank to begin raising the official cash rate around the middle of the year and continue to do this in small steps for some time. This is broadly in line with our current views.

NZD/USD traded near 0.7253 today as of 10:11 GMT up from its opening rate of 0.7171.

If you want to comment on the New Zealand dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Posted in New Zealand Dollar | Tagged ,

Investors are Pessimistic About EU Economy, Causing Euro to Fall

Written by admin on May 5, 2010 — Leave a Comment

The euro extended its slump today for the fourth day as

Jean-Claude Trichet, the President of the European Central Bank, announced that the buying of the government bonds wasn’t discussed at the ECB meeting today.

The ECB kept its benchmark interest rate at the record low 1 percent. Trichet said: “We call for decisive actions by governments to achieving a lasting and credible consolidation of public finances”. He claimed that European economy was slowed in the first quarter of this year by the harsh winter and should strengthen in the spring. He also tried to convince that Greece’s fiscal crisis isn’t spreading to other countries.

Most economists remained unconvinced though. Moody’s showed in today’s report that the debt crisis threatens such countries as the U.K., Spain, Portugal, Italy, and Ireland; the agency explained:

Each of these countries’ banking systems faces different challenges of different magnitudes, but warns that contagion risk could dilute these differences and impose very real, common threats on all of them.

EUR/USD trade at about 1.2621 today as of 22:48 GMT after it opened at 1.2813. EUR/JPY traded near 114.33 down from the opening level of 120.22.

If you want to comment on the Euro’s recent action or have any questions regarding this currency, please, feel free to reply below.

Posted in Euro | Tagged

Euro Drops to Lowest Level Since April 2009

Written by admin on May 4, 2010 — Leave a Comment

The euro plummeted today to the lowest level in a year against the U.S. dollar and dropped against other most trading currencies on the concern that the bailout for Greece won’t resolve the nation’s budget problems and the crisis will spread to other European countries.

The speculation that the rescue package for Greece won’t be supported by all European governments saps the euro of its strength. The outlook for the European Central Bank to increase the interest rates by only 46 basis points, the slowest pace since September, caused the stocks to fall, resulting in the declining demand for the assets priced in the euro. The bailout meets significant resistance in Greece as the government plans to cut wages and increase taxes in order to receive the aid from the European Union.

So far most investors are not convinced that the Greece’s crisis will be actually resolved by the EU aid and that the troubles wouldn’t contaminate other countries, like Spain. Some economist say that only reason that won’t allow the euro to go further down is that the markets already are very short on the currency.

EUR/USD traded at 1.3030 today as of 17:00 GMT after it opened at 1.3194. EUR/GBP traded at about 0.8590 down from the opening level of 0.8652. EUR/JPY traded near 123.06

If you want to comment on the Euro’s recent action or have any questions regarding this currency, please, feel free to reply below.

Posted in Euro

High Risk Appetite Boosts New Zealand Dollar

Written by admin on May 3, 2010 — Leave a Comment

The New Zealand dollar rose today against other most-traded counterparts as the outlook for Greece to receive the rescue package valued as much as €110 billion ($146 billion) improved the investors’ risk sentiment and attracted them to the South Pacific nation’s higher-yielding assets.

The investors are attracted to New Zealand because of its high interest rates, which is 2.5 percent, compared to 0.1 in Japan and about zero in the U.S., but as such trades carry risk that the profits would be erased by the moves at the currency markets, the investors’ risk appetite has to be high enough to encourage them use differences in the interest rates. And the prospect for the Greece to receive the aid soon makes the investors more willing to risk.

NZD/USD traded near 0.7294 as of 11:57 GMT today after it opened at 0.7291. EUR/NZD traded at about 1.8137 after opening at 1.8275.

If you want to comment on the New Zealand dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Posted in New Zealand Dollar | Tagged , ,
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