Monday, December 14, 2009
The Forex History
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets
Large Round Figures
Many traders, from the individual speculator to the large fund will focus on the large round figures or round numbers when applying their analysis to the Forex market for a number of reasons. Option traders tend to select these price levels whether their exercising American, European, or Exotic options, as well as the placement of protective stop orders.
For that reason, the 'large round figure' such as 1.3100 or 1.3250 tend to carry a greater weight of importance. However this can be deceitful as the market often times will spill over to trade slightly above or below a price level of importance. For that reason we should naturally expect the ultimate highs and lows to rest at times slightly beyond these areas. For example, we can see the following (15-minute) chart, the EURUSD has recently found major turning points very close but not exactly on the 1.3100, 1.3200, and 1.3250 figures respectively. In fact notice, how each turning point was established within 15-pips of a figure. We should suspect the market as it approaches and fails to break beyond a large round figure, even if we cannot take the exact figure literally.

Sign by Danasoft - For Backgrounds and Layouts