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 Friday, 28 September 2007 10:02


Department of Business Administration

International Financial Management

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FX Online Trading
Introduction News Basic & Policy Readings
What Makes FOREX So Different?
by: Boris Schlossberg

At its core, business in the largest, most liquid and most competitive market in the world – spot forex – is essentially conducted on a handshake. Here’s what you need to know.

Forget the Gap
Because trading is continuous, gaps in prices that are almost a daily occurrence in the stock and bond markets rarely happen in forex. Certainly unexpected news can rattle the markets. On August 6, 2004, for example, non-farm payrolls printed materially lower than the market expected, and EUR/USD skyrocketed, jumping 150 points higher in less than one minute as the market tried to absorb new information. International Bank of Settlements reported that during that day – in a period of a mere ten seconds after the release – more than $1 billion worth of deals were completed on the Reuters terminals the world over, or a rate of approximately $360 billion per hour! To put that number into perspective, NYSE trades equate to about $45 billion for a whole day.

Two other differences that make the forex market quite different from other markets – no volume and no commission. Let’s examine volume first. For diehard stock traders who view time and sales data as their key decision support tool, the absence of volume is very difficult to accept. A possible substitute for traders is to watch volume of the Chicago Mercantile Exchange’s (CME) EUR/USD (euro) futures contract.

However, be warned that because of constant arbitrage activities between spot and futures markets by large trading houses like Morgan Stanley, volume may offer few tradable clues. The EUR/USD futures contract, in many quarters referred to as the EuroDollarFX so as not be confused with Eurodollars (interest rate), has exploded in popularity, often trading 250,000 contracts per day and is now the third most popular electronic contract on CME after E-mini S&Ps (ES) and E-mini Nasdaq (NQ). Ultimately, however, traders have to accept the fact that, unlike futures, spot forex lives in a decentralized marketplace with no reporting requirements, and volume analysis is just not possible.

Turning to the concept of “no commission” trading, perhaps nothing causes more controversy or misunderstanding than this spot forex practice. Because it is an unregulated market, there are no exchange fees, no Securities and Exchange Commission fees, no broker access fees, and all the other little, hidden costs that affect most stock and futures traders. In the spot market, the cost of doing business is just the spread between the bid and ask. A trader cannot buy a currency pair at the bid, nor can he sell it at the ask price. However, that’s it. Most reputable spot forex market makers do not impose any other charges.

Foreign Exchange Committee Releases FX Volume Survey Results

Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2004 - Preliminary global results



The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies

Capital Controls: Country Experiences with Their Use and Liberalization, IMF 2000


IMF Vulnerability Indicators

The evolution of FX trading clearing and settlement, by James Chrispin


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Links Opinion & Editorial Academic Research
Online Fx Trading

Real Time Online Quotes

Historical data - The Pacific Exchange Rate Service 

Quick FX rates & converters

World Currencies and Abbreviations

ISO currency codes

Current Currency Regimes

Map & Graph: Currency: Regime by country

The choice of currency regimes:

Capital and Exchange Controls

Data on Interest Rates

Inflation Data

Asia should impose foreign exchange controls, says Krugman

No More for Argentina


Currency and Monetary Arrangements for East Timor

Central Banking and the Choice of Currency Regime in Accession Countries

Monetary Regimes and Macroeconomic Policy Coordination in Mercosur

Distinguishing global dollar reserves from official holdings in the United States


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Reports and Studies Selected Essays by former Students (not corrected or edited)
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