Monday, June 1, 2009
There are many different variations of the idea, including a possibility that it would be administered by a global central bank or that it would be on the gold standard. Supporters often point to the euro as an example of a supranational currency successfully implemented by a union of nations with disparate languages, cultures, and economies. Alternatively, digital gold currency can be viewed as an example of how global currency can be implemented without achieving national government consensus.
A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing Special Drawing Rights and used as reserve assets by all national and regional central banks. Indeed, on March 26, 2009, a UN panel called for a new global currency reserve scheme which with "greatly expanded SDR (Special Drawing Rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity.
Russia and China call for global reserve currency
On March 16, 2009, in connection with the April 2009 G20 summit, the Kremlin called for a supranational reserve currency as part of a reform of the global financial system. In a document containing proposals for the G20 meeting, it suggested that the "IMF (or an Ad Hoc Working Group of G20) should be instructed to carry out specific studies to review the following options:
Enlargement (diversification) of the list of currencies used as reserve ones, based on agreed measures to promote the development of major regional financial centers. In this context, we should consider possible establishment of specific regional mechanisms which would contribute to reducing volatility of exchange rates of such reserve currencies.
Introduction of a supra-national reserve currency to be issued by international financial institutions. It seems appropriate to consider the role of IMF in this process and to review the feasibility of and the need for measures to ensure the recognition of SDRs as a "supra-reserve" currency by the whole world community.
On March 24, 2009, Zhou Xiaochuan, governor of the People's Bank of China, called for "creative reform of the existing international monetary system towards an international reserve currency," believing it would "significantly reduce the risks of a future crisis and enhance crisis management capability. Zhou suggested that the IMF's Special Drawing Rights, a currency basket comprising dollars, euros, yen, and sterling and could serve as a super-sovereign reserve currency, not easily influenced by the policies of individual countries. US President Obama, however, rejected the suggestion stating that "the dollar is extraordinarily strong right now.
Arguments for a global currency
Advocates, notably Keynes, of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a global currency would make conducting international business more efficient and would encourage Foreign direct investment (FDI).
Arguments against a single global currency
Some economists[who?] argue that a single global currency is unworkable given the vastly different national political and economic systems in existence.
Friday, May 22, 2009
Wednesday, May 13, 2009
- Capital markets which consist of:
- Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
- Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.
- Commodity markets, which facilitate the trading of commodities.
- Money markets, which provide short term debt financing and investment.
- Derivatives markets, which provide instruments for the management of financial risk.
- Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.
- Insurance markets, which facilitate the redistribution of various risks.
- Foreign exchange markets, which facilitate the trading of foreign exchange.
The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.
To understand financial markets, let us look at what they are used for, i.e. what is their purpose?
Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages.
More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold.
Many individuals are not aware that they are lenders, but almost everybody does lend money in many ways. A person lends money when he or she:
- puts money in a savings account at a bank;
- contributes to a pension plan;
- pays premiums to an insurance company;
- invests in government bonds; or
- invests in company shares.
Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it via short term markets called money markets.
There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to lenders (e.g. via a share buyback.) Alternatively, they may seek to make more money on their cash by lending it (e.g. investing in bonds and stocks.)
Individuals borrow money via bankers' loans for short term needs or longer term mortgages to help finance a house purchase.
Companies borrow money to aid short term or long term cash flows. They also borrow to fund modernisation or future business expansion.
Governments often find their spending requirements exceed their tax revenues. To make up this difference, they need to borrow. Governments also borrow on behalf of nationalised industries, municipalities, local authorities and other public sector bodies. In the UK, the total borrowing requirement is often referred to as the Public sector net cash requirement (PSNCR).
Governments borrow by issuing bonds. In the UK, the government also borrows from individuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation.
Municipalities and local authorities may borrow in their own name as well as receiving funding from national governments. In the UK, this would cover an authority like Hampshire County Council.
Public Corporations typically include nationalised industries. These may include the postal services, railway companies and utility companies.
Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets.
During the 1980s and 1990s, a major growth sector in financial markets is the trade in so called derivative products, or derivatives for short.
In the financial markets, stock prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk. Derivative products are financial products which are used to control risk or paradoxically exploit risk. It is also called financial economics.
Seemingly, the most obvious buyers and sellers of foreign exchange are importers/exporters. While this may have been true in the distant past, whereby importers/exporters created the initial demand for currency markets, importers and exporters now represent only 1/32 of foreign exchange dealing, according to BIS.
The picture of foreign currency transactions today shows:
- Government spending (for example, military bases abroad)
Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy.
- The raising of capital (in the capital markets);
- The transfer of risk (in the derivatives markets);
- International trade (in the currency markets)
and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.
The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges.
Financial markets can be domestic or they can be international.
Thursday, April 30, 2009
Supply and demand drive economies, Whether it's the euro, dollar, or peso, they're driven by money. It can be a problem if you deal in pesos while your suppliers use dollars. Because of this, there is a corresponding value in dollars approximated to a peso known as an exchange rate. And we all know how much economies fluctuate with inflations, depressions, and so on that these exchange rates should be changed. That's where Forex Trading strategy comes handy.
You can earn money online and earn a supplemental income with Forex Trading.
A Forex Trading course will show you how to take advantage of the shifting economies and earn money on the exchange rates of foreign currency. The wonderful part about a Forex Trading course is that you can have it online so you can study when you have time. Also, once you've finished the course and learn how to create a Forex Trading strategy, you can continue working over the World Wide Web.
By learning Forex Trading, you become your own boss and you make what you work for. A Forex Trading course may just be the thing you require to liven up your money-making efforts.
You have a chance to know the economy of the country you're living in and different countries around the globe. This is a world that is ever changing and you could be involved in it. As economic situations are always changing, there are always chances to buy and sell, making the market very workable.
Sparing time to research into a Forex Trading course might alter the way you look at investing forever. Why not spend time to examine another way to gainfully handle your money? Be a captain of your money rather than a slave. A Forex course might be the key that unlocks the door of chance for you.
Tyler Green writes for ioVentures, Inc. To find the best forex trading course on the market go now to ForexStrategySecrets.com. Learn forex trading through simple, easy to follow video tutorials. With their forex training, you will be well on your way to dominating the forex market with your own forex trading strategy.
To start your global Forex trading you need to open a Forex account first. Just fill in the application form and sign the margin agreement which let’s the broker intervene at any time. Here are some tips one must know before dealing with the forex trading or forex exchange
• Know your forex trading market
Know about the currencies that you want to trade with. Try to get the details about the country whose currency you’re trading in the forex market. The more you know about the country more profit you can make, currency you are trading with. With the knowledge of the country you can better understands the strategies of the market and will be able to predict the movement of the money.
• Pick a forex trading system – and stick with it
The better strategy to win the forex trading game is picking a forex trading system and sticking to it. Being a forex trader one should analyze the market and certain calculated risks associated with the market. Market analysis is based on technical analysis which is the interpretation of facts and data based on the data generated by the market. Fundamental analysis seeks to trace out the factors and conditions which influence the market economy and play a pivotal role in altering opinions. Several economic, political, social events affect the forex and its workings. A perfect trader in forex is one who can understand these factors and feel the pulse of the market before striking gold.
• Practice makes one perfect
Practice makes one perfect whether it is forex trading or some other field. Take some time to be a smart player of the currency trading game. If you are not making profit initially, never make a rush.
• Keep your eye on the margin
If you are not properly aware of the margin trading try to keep away. It is often said to be a great way to lose a lot of money quickly. Stay away from forex margin trading until you are not properly aware of it. In forex trading, the bottom line is how much money you made at the end of the day.
• One should try to start with Micro Forex
Micro forex is a boon for the beginners in the forex trading. With the help of micro forex trading, a novice with limited knowledge can make profit in the forex trading market.
• Try to Keep the Trading System Simple and look for Long Term Trends
Your trading must be as simple as possible. Try to follow the guide lines and look for long term trends in the currency market. Analyze the market efficiently and then invest.
Forex is the largest market place of Currency trading. While currency trading in Forex Market or dwelling over currency market, one should mull over the present scenario and future prospects of the country, currency of which he is trading.
• The first currency listed first is the base currency and
• The value of the base currency is always 1.
While trading forex, two-sided quotes come across, which consists of a bid and an Ask
Bid: Bid is the price at which one can sell the base currency
Ask: Ask is the price at which one can buy the base currency and at the same time selling the counter currency.
Foreign Exchange Trading Quotes Tips
• US dollar is considered as the 'base' currency for quotes. It includes USD/JPY, USD/CHF and USD/CAD in the majors.
• Combination of two currencies involved in trade is known as “cross”. USD/JPY means that the forex quote is valid for someone who wants to use United States Dollars to buy Japanese Yen.
• Quotes are generally expressed as a unit of $1 USD per the second currency quoted in pair. A quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen.
• When a currency quote goes up, it means that dollar has appreciated in value and the other currency has gone down.
• If the USD/JPY quote increases to 123.01, the dollar is stronger because it will now buy more Yen than before. British pound (GBP), the Australian dollar (AUD) and the Euro (EUR) are the three exceptions to the above mentioned rule. If a quote is GBP/USD 1.436 it means that one British pound equals 1.4366 U.S. dollars. In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.
• An important point to remember about the forex quotes is, if a currency quote goes higher it increases the value of the base currency and a lower quote means the base currency is moving down.
Forex is the largest market place of Currency trading. While currency trading in Forex Market or dwelling over currency market, one should mull over the present scenario and future prospects of the country, currency of which he is trading.
However smart you’re in the forex trading you should consider a few points when you go out to opt for a broker to deal with your currency trades. Here are some important points about the forex broker:
• The most important thing about the forex broker is to ensure whether he is qualified or not. Go for a broker registered with the Commodity Futures Trading Commission CFTC) as a Futures Commission Merchant (FCM). This will provide you a legal security against the scams.
• Make sure to keep your funds separate from the broker’s operating fund. When you sign up to use brokers services you will have protection and insurance against any internal fraud.
• Know about the business model used by the broker you are working with.
• The spread is the difference between the bids and ask prices of the currencies you trade. Usually brokers offer fixed or variable spreads, and they can be different for large accounts and miniaccounts.
• Ask for the details of what slippage the broker would expect to occur during normal and fast moving markets.
• Ensure about their margin requirements. Make sure about percentage of the investment in your trades do they expect you to pay to open a trade. Do they have any minimum margin requirements which they use to earn interest on any overnight positions?
Once you perform your complete research and have selected one or more Forex brokers, then it is time to set up your trading account. There are a myriad of institutions facilitating currency trading for the individual investor but choosing the right one can make a difference between your profit and loss. Gather all available information before taking the first step and hiring a broker.
Forex is the largest market place of Currency trading. While currency trading in Forex Market or dwelling over currency market, one should mull over the present scenario and future prospects of the country, currency of which he is trading
So trading the forex market is simply trading foreign currencies. If you focus on the Forex for a few months you can make that dream a reality and create time and money to do what you REALLY want. If you plan to trade forex full time, you need to treat it like a job or a business, and not like a get rich quick scheme.
You really should familiarise yourself with any forex trading software as soon as possible. There is much complexity involved in the foreign exchange market, and if you are not completely knowledgeable about the concepts and processes involved, you may not be able to enter into the proper Forex trading patterns. This is of primary interest to any forex trader as any positions taken can yield enormous returns.
Trade smartly, and gain the maximum out of FOREX, good luck. As trades are always done in pair of currency pairs, FOREX traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency. The liquidity of the Foreign Exchange Market is also very attractive for the Forex investor as trades range.
Traders will inevitably make mistakes - consequently, they will lose real money. Forex is gives you a 40% return on your investment. Other factors that make the forex market unique are the high liquidity of the market, the wide variety of traders and institutions involved, and the wide variety of factors which affect prices. This versatility attracts many investors to become Forex traders. For this reason Forex traders are not limited to the general time constraints of the New York Stock Exchange or NASDAQ.
When you recognize an uptrend or a downtrend in Forex charts try to create the channel that includes this trend. These "mini-trading" accounts are a good way to begin forex trading and often there is no commission attached to your trading. Irrespective of any stock market collapse, the forex market continues 24 hours every day without fail.
Thousands of investors are now turning the benefits of Forex trading into great returns. Whether it be an at home forex trading course or a live forex seminar, take the time to get educated. Forex offers the possibility of huge profits in relatively short periods of time. The forex market is the most liquid and most actively traded market in the world. You should find Forex companies with the ability to provide you with timely news and the latest updates on the currency situation so that you will be properly informed and be aware of what is happening currently.
Forex trading companies allow an automatic take profit option which allows the investor to preset the rate at which you want to see and it will do it for you.
The greatest advantage tagged with online forex trading or online currency trading is of course its real time accessibility. Today just with a single click, a trader of forex market can access online forex firms and brokers. They offer real time forex quotes, charts and transaction details after meticulous observation and analysis. With such a help, a trader can easily remain aware about every latest occurring of the forex market.
Online currency trading or online forex trading is again beneficial for its ease of use and accessibility. What you need to have is a computer with access to internet. Without getting out of your doors, you can analyze the market and decide every trading agreement. However before trading, you need to have a clear concept about the market, its basics and trading secrets.
To get the basics of forex trading, online method is again the best option available for you. Innumerable tutorial programs regarding online currency trading are available online which are generally run by online forex firms. With access to such programs, you can remain up to date about the market as well as understand the basics and secrets of the forex market. Several forex firms specializing in online currency trading provide live forex help. These programs are run by expert forex traders and teachers. Thus, getting help for your question regarding forex market is never a tedious task as long as online forex trading classes and tutorial programs are available at your disposal.
Online forex trading is again beneficial for it helps you to perform complex analysis without mistakes. With access to your computer; you can solve complex charting, sort out details of each trading agreement minutely. Add to this, you have several forex trading tools available online. These tools offer quick assistance for trading in volumes. This is indeed a blessing for newcomer, who often finds it tedious to track down the facts and figures of forex market and trading agreement.
Thus, online forex trading or online currency trading is marked with several advantages. Here, you can obtain every latest happening of the forex market, get free tutorials from masters, access tools and techniques for a winning forex trading; all these at the comfort of your own home. The advent of World Wide Web has fine-tuned the whole process of forex trading.
To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are always expressed in pairs. In the following example, your pair of currencies are the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The currency to the left of the "/" (USD in this example) is referred to as base currency and its value is always 1. The currency to the right of the "/" (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central currency of the Forex market, and it is always treated as the base currency in any Forex quote where it is one of the pairs.
Let's go now to our hypothetical Forex investment to show how you can profit or come up short in Forex trading. In this example, your pair of currencies are the U.S. Dollar and the Euro. The Forex rate of EUR/USD on August 26, 2003 was 1.0857, which means that one U.S. Dollar was equal to 1.0857 Euros, and was the weaker of the two currencies. If you had bought 1,000 Euros on that date, you would have paid $1,085.70.
One year later, the Forex rate of EUR/USD was 1.2083, which means that the value of the Euro increased in relation to the USD. If you had sold the 1,000 Euros one year later, you would have received $1,208.30, which is $122.60 more than what you had started with one year earlier.
Conversely, if the Forex rate one year later had been EUR/USD = 1.0576, the value of the Euro would have weakened in relation to the U.S. Dollar. If you had sold the 1,000 Euros at this Forex rate, you would have received $1,057.60, which is $28.10 less than what you had started out with one year earlier.
As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the currency exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you.
If you’re reading this article, probably one of your endeavors is or will be some type of activity in the financial markets. Now which of the markets are “right” for you, meaning the best fit for your circumstances and your goals? Addressing this question will be far more profitable then trading the first market you happen to come into contact with. I’ll help in this process by discussing some of the relevant features of the Forex or cash Foreign Exchange market.
One of the first Forex concepts to note is that the currency you are trading is a representation of a nation’s economy. Why is this important? Because it’s notable that national economies don’t perceptibly change in a day or even a month. Contrast this with individual stocks, commodities or futures that are easily affected by daily news or even weather events. Thus the price moves of the major currencies take place against a broader backdrop than the before mentioned markets. This is expressed in the tendency of currencies to show strongly trending behavior in contrast to staying in tight trading ranges. Many will realize that tight trading ranges are some of the most difficult trading conditions while the “trend is your friend” because it is easier to profitably trade by hitching a ride. Trending markets also lend themselves to rules based technical trading systems. Do you prefer to have your trading choices laid out in advance, or do you “shoot from the hip”?
Are you planning to trade as a business or significant avocation? Do you plan to be active on a full or part time basis? If part time, are you otherwise occupied during regular business or market hours? Did you know that Forex trades 24 hours a day, six days a week? This makes sense if you realize that the Forex markets are serving the needs of nations and traders in every time zone. To facilitate this, most trading is done with online trading platforms that are considered to make an Over The Counter (OTC) market. Do your plans call for flexible or outside of regular hours scheduling?
How much capital would you like to allocate to your chosen trading activity? Someone whose trading is part time and viewed as a hobby may have a different amount of trading capital available than someone whose plan is to structure their trading as a business activity. Regarding capital requirements, the Forex market can accommodate almost any trading plan. This is possible because there are two trading unit sizes available. The full size lot is 100,000 currency units and may be controlled by a 1% or 1,000 unit margin. There is also a “mini” size lot of 10,000 currency units that may be controlled by a .5% or 50 unit margin. Dollar based traders can put the dollar sign ahead of the above figures for illustration. To translate this to trading account requirements; a “mini” account can be started for as little as $300.00 US.
The above discussion of just a few facets of the Forex market is hoped to stimulate thoughtful consideration of the best trading situation for…You, and will continue as a series of articles to consider relevant features of the Forex markets.
Forex is also considered the economic indicator of economy and help to ascertain the financial picture of the nation. Also, forex market is the biggest financial and economical market of the world. Its money capacity is considered even larger than the equity and treasury markets.
Currency trading is the chief work undertaken in this market and thus, great risk factors are involved with them. It is also said that it reflects the true financial and economic condition of the country in a defined way. Moreover, currency trading also highlights the factors connected with the assets that country store.
It is generally said that forex is a very volatile market and prices fluctuate very quickly in fraction of seconds. So, while trading meticulous concentration should be paid so that you do not miss out any prominent moment where price has gone steeply upwards. This is considered as the most important forex trading strategy which can bring you huge sums of profits.
As per the different forex trading signals, emphasis must be paid upon the mediums through which you can get instant information. Thus, internet and mobile phones can serve the purpose in the most appropriate way. These different forex trading signals can get you access to the forex alerts all 24/7. This makes them highly convenient and hassle free service mediums.
Forex strategy system works on the economic driving force of demand and supply concept. Once the demand f any product increases steeply, it directly influences the supply side. On the overall picture of the forex trading system, it highlights the profitability of the forex market.
Forex alerts are also needed for the awareness about the changes that take place in the financial market of forex, forex signals so that economic feasibility of that country can be determined accordingly. This in turn helps the economists for analyzing the different trends that influence the market. They after bring the new theories of economics that can help in understanding the forex strategy system in a better way.
Currency trading also help in exchanging the most used currency in which most of the trades of the country can be undertaken. In case, company wants to trade with any other country, at that time it requires its currency so that it can further undertake the business. Also, currency trading forms a vital part of investment that can help to earn profits.
Forex signals, forex strategy system, forex trading signal, forex alerts, forex signal and current trading are all important components often market of forex and influence the financial position of a country in a big way. So, Forex signals, forex strategy system, forex trading signal, forex alerts, forex signal and current trading should be studied in details so that you can trade in the financial markets in the most appropriate way.
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The EMAs that I use crossed upwards on the 4 hour chart of both the USD/JPY and the FTSE 100. On the USD/JPY pair I used the 2 hour chart to get a good entry point and entered on a pull-back at 100.25. I then closed half my position for 40 points just after midnight last night and let the other half run, moving my stop loss to break-even. I was only targeting 101.00 but unfortunately the price came back and hit my adjusted stop loss so I was stopped out at break-even.
On the FTSE there was a textbook EMA crossover and using the 2 hour chart I entered a long position on a pull-back at 3966.5. I was hoping to close out before the London market closed and was starting to regret this trade as it was hardly moving, but as the position was slightly in profit I decided to move my stop loss to break-even and set my target price at 4006.5 (a 40 point profit) and let it run after hours. Thankfully the Dow rallied strongly and took the FTSE up with it and I was automatically closed out at this level.
So although it wasn't a bumper week overall, it's still nice to make some modest profits, particularly in a week leading into a holiday period which are notoriously quiet anyway.
If you would like to check out my main 4 hour trading strategy in more detail, you can access it by filling in the form above and subscribing to my newsletter.
Wednesday, April 29, 2009
In financial markets, the retail forex (retail off-exchange currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times. Whilst there may be a number of fully regulated, reputable international companies that provide a highly transparent and honest service, it's commonly thought that about 90% of all retail FX traders lose money.
It is now possible to trade cash FX, or forex (short for Foreign Exchange (FX)) or currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry."
Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzerland now requires forex brokers to become a bank before conducting FX brokerage business from Switzerland.
Algorythmic or machine based formula trading has become increasingly popular in the FX market,with a number of popular packages allowing the customer to program his own studies.
The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.
According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite, and perhaps because of, losses in other markets like global equities in 2008.
Key Concepts Behind a Retail Forex Trade
Currency prices can only fluctuate relative to another currency, so they are traded in pairs. Two of the most common currency pairs are the EUR/USD (the price of US dollars quoted in euros) and the GBP/USD (the price of US dollars quoted in British pounds).
The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.
Typically a trader's retail forex platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If one of his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.
If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.
Transaction Costs and Market Makers
Market makers are compensated for allowing clients to enter the market. They take part or all of the spread in all currency pairs traded. In a common example, EUR/USD, the spread is typically 3 pips (percentage in point) or 3/100 of a cent in this example. Thus prices are quoted with both bid and offer prices (e.g., Buy EUR/USD 1.4900, Sell EUR/USD 1.4903).
That difference of 3 pips is the spread and can amount to a significant amount of money. Because the typical standard lot is 100,000 units of the base currency, those 3 pips on EUR/USD translate to $30 paid by the client to the market maker. However, a pip is not always $10. A pip is 1/100th of a cent (or whatever), and the currency pairs are always purchased by buying 100,000 of the base currency.
For the pair EUR/USD, the quote currency is USD; thus, 1/100th of a cent on a pair with USD as the quote currency will always have a pip of $10. If, on the other hand, your currency pair has Swiss francs (CHF) as a quote instead of USD, then 1/100th of a cent is now worth around $9, because you are buying 100,000 of whatever in Swiss francs.
There are several types of financial instruments commonly used.
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.
A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market.
The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed exchange rate regime, FX rates are decided by its government):
(a) International parity conditions viz; purchasing power parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
(b) Balance of payments model (see exchange rate). This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit.
(c) Asset market model (see exchange rate) views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by people’s willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) algorithm can be devised to predict prices. Large and small institutions and professional individual traders have made consistent profits from it. It is understood from above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.
There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fix market space opened in 2007 and aspired but failed to the role of a central market clearing mechanism.
The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.
Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.
The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.
Unlike a stock market, where all participants have access to the same prices, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle.
The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions.
After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the foreign exchange market to align currencies to their economic needs.
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds.The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).
Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euro money FX survey.
These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".
Now, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euro money’s annual FX Poll, volumes grew a further 41% between 2007 and 2008.
The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.
FX, Forex or Foreign Exchange, is all about exchange of currencies from one hand to another at an ongoing price in the market. Forex is all about investing money in foreign currencies, just gain profit by selling at a higher price, the one you hold, just to buy another one at a lower price. Earlier, not many traders were clear about the Forex trading and that Forex is just short for "foreign exchange", as it did not get much publicity through media. Foreign Exchange market is the biggest financial market in the world, with a potential of fast and great gains and a sizable number of investors. The advent of internet technology is what made Forex trading grow considerably popular as well as accessible with various types of investors. About a decade ago, currency trading was only limited to large banks and financial firms because they were the only ones to have access to the tools and methods required to trade Forex market. However recently, due to up and coming efficient online platforms, technology has advanced to the point of being accessible to any and every individual trader who wishes to trade or invest in Forex. Marketforex.net being one of finest online trading platforms is easily accessible by all who are interested in investing in Forex.
FOREX.com is a division of GAIN Capital Group, LLC, one of the most respected online forex trading firms in the industry. The company's flagship service, GAIN Capital, is used by institutional investors, professional money managers and experienced day traders from over 140 countries. GAIN Capital Group is pleased to offer individual investors access to its award-winning trading platform and professional levelservicesviaFOREX.com.FOREX.com is a registered Futures Commission Merchant (NFA ID #0339826) and a member of the National Futures Association. As an FCM, FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC), must uphold the highest standards and business practices and is subject to strict financial requirements and reporting.
24-hour currency trading
Foreign exchange market trading occurs over a 24 hour period picking up in Asia around 23:00 GMT (6:00 PM EST) Sunday evening and coming to an end in the United States on Friday around 22:00 GMT (5:00 PM EST). So, whether it's 6 PM or 6 AM, somewhere in the world there are buyers and sellers actively trading foreign currencies. Traders involved in currency trading can always respond to breaking news immediately.
Although after-hours trading in stocks can be achieved via ECNs (electronic communications networks) and in futures via electronic systems like Globex, the prices can be uncompetitive since the liquidity is often low. For foreign currency trading this is not the case. The currency trader can get tight spreads around the clock and can thus pick and choose whatever trading hours are the most convenient for him.
Online discount brokers typically charge anywhere from $5 to $30 a stock trade. Full-service brokers usually charge $100 or more for each stock transaction. Futures trades can be from $10 to $30 a round turn. Forex trading with Currency Trading USA is commission free. Thus, investors involved in foreign currency trading could limit the cost associated with trading. Currency Trading USA is compensated through the Bid/Ask spread..
Lower operation fees
To be a serious stock day trader, a person needs a direct access trading system. These systems can cost from about $250 to $400 or more a month. Currency trading can be done through a sophisticated online system for free. Our Currency Trading USA trading platform is top-of-the-line and has the same (or more) features that quality stock trading systems provide. The main difference is that our currency trading system is free
Tighter Bid/Ask Spreads
If we compare our currency trading platform's typical spread of 3 pips on a the EUR/USD currency pair to a stock transaction, we could see how online currency trading could offer tighter spreads than stocks. A 3 pip spread (0.0003) on 1 lot (100,000 per lot) is $30. If a stock trader trades a stock with an average price of $25 a share, he would have to trade 4,000 shares to reach the 100,000 value of one currency lot. Assuming the stock is very liquid, the spread would vary between 0.01 to 0.02 or more per share throughout the day. This is equivalent to $40 to $80 per transaction, much higher than for our currency trading example.
Low Margin Requirements
Our 100:1 margin (1%) requirement for foreign currency trading allows a trader to control $100,000 worth of currency for only $1,000. This is much higher than the requirement for stocks and futures. The typical requirement for stock trading is 2:1 and 15:1 for futures trading (Increasing leverage increases risk).
The substantial leverage available in the foreign currency market is essential because the average daily move of a major currency is less than 1%. While certainly not for everyone, the substantial leverage available from online currency trading may be useful to traders that employ a disciplined trading style with strict money management principles (High Leverage and low margin can magnify or lead to both substantial profits and losses).
Superior liquidity in the currency markets
The foreign currency trading market has a daily trading volume that is larger than that of all the world stock markets put together. This means that there are always currency broker/dealers willing to buy or sell currencies in the forex markets. Consequently, price stability is assured, especially for the major the major currencies. Currency traders can almost always open or close a position at a fair market price; a key advantage of currency trading.
Because the stock market and other exchange-traded markets only have a fraction of the volume of the currency market, these investors run a greater risk of having wide dealing spreads or large price fluctuations while trading.
No Limit up / limit down in the currency spot market
Under certain price conditions, the number and types of transactions that a futures trader can make are limited. The futures market restricts a trader from initiating new positions and only liquidating existing ones, if the price of a specific currency rises or falls beyond a specific predetermined daily level. This is an artificial way to control daily price volatility. This mechanism is meant to control daily price volatility, but since the futures currency market follows the spot currency market anyway, the next day the futures price can gap up or gap down to readjust to the spot price. In the foreign currency spot market these artificial restrictions are nonexistent, so the trader can trade freely without limitations, applying his trading strategy with stop losses to protect himself from unexpected price fluctuations caused by high volatility.
No short-selling restrictions in currency trading
There are no restrictions to sell currencies short, unlike stocks which have to be sold short on an Uptick rule. This means that with currency trading you can make money just as easily in rising and falling markets. This advantages is especially attractive to currency day traders who want might want to sell a currency short quickly, without any possibility of the trade being delayed by artificial means.
All of these advantages make currency trading superior to stock and futures trading in may ways.
Sunday, April 26, 2009
Time of release: 04/27/2009 06:10 GMT, 02:10 EST
Primary Pair Impact : EURUSD
April 2009 German GfK Consumer Confidence Survey
The GfK consumer confidence survey failed to meet expectations in April as the index slipped lower for the first time in seven months, and households may turn increasingly pessimistic towards the economy as they face a weakening labor market paired with tightening credit conditions. The confidence index slipped to 2.4 from a revised reading of 2.5 in March, while the gauge for economic expectations fell to -32.8 from -27.9 in the previous month, and the data foreshadows a weakening outlook for private-consumption as the region faces a deepening recession. Meanwhile, after lowering the benchmark interest rate by 25bp to 1.25% in March, ECB President Trichet signaled that borrowing costs could fall lower as growth and inflation falter however, as the central bank head remains reluctant to overshoot the interest rate, policymakers may place a floor on rates and adopt unconventional measures to manage policy going forward.
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
"What is a Virtual Private Server or VPS?"
A VPS is basically another computer running on a hosted server. You interact with it in the same way you would with a normal Windows®-based desktop on your PC or laptop. The only difference is, you don't need to keep your computer running at home 24/7, and you don't need to rely on your internet or power connection in order for the VPS to keep running. That is taken care of by the VPS host.
All you need to do is open an account, log in to your VPS, and set up your EA like you normally would on your home computer. You can also set up any other trading platform on your VPS. Then, disconnect and go about your normal day, safe in the knowledge that you can turn off your home computer without missing a trade!
Forex VPS supports both Windows®, MAC and Linux operating systems.
* You don't have to leave your computer running 24/7
* You don't have to rely on your internet or power connection
* You can run as many platforms and EA's as you wish
* You can access any trading platform from any computer anywhere in the world
What is the Forex Trend System?
The Forex Trend System is a manual indicator that identifies changes in trend and allows you to capture the major market moves. It has been designed for MetaTrader 4, a freely available trading platform which you can download for free using the link we provide you with.
Who am I?
I am a trading veteran of ten years - options, cfd's and for the last seven years, forex. I have learnt from the school of hard knocks and am now offering you the opportunity to benefit from my hard work. I too took all the courses, bought all the systems, traded demo then live, wiped out a few accounts, and experimented ad nauseum. I'm sure you've heard all this before.
In my opinion you are EXTREMELY unlikely to find a better opportunity in today's marketplace, especially at the price. However, don't just take my word for it, take a look at what some of my customers have said.
The foreign exchange market is unique because of
* its trading volumes,
* the extreme liquidity of the market,
* its geographical dispersion,
* its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
* the variety of factors that affect exchange rates.
* the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
* the use of leverage
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
* $1.005 trillion in spot transactions
* $362 billion in outright forwards
* $1.714 trillion in foreign exchange swaps
* $129 billion estimated gaps in reporting
According to AzureBloom,
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.
In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—; ) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.
According to AzureBloom,
FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 currency traders 
% of overall volume, May 2008 Rank Name Volume
1 Flag of Germany Deutsche Bank 21.70%
2 Flag of Switzerland UBS AG 15.80%
3 Flag of the United Kingdom Barclays Capital 9.12%
4 Flag of the United States Citi 7.49%
5 Flag of the United Kingdom Royal Bank of Scotland 7.30%
6 Flag of the United States JPMorgan 4.19%
7 Flag of the United Kingdom HSBC 4.10%
8 Flag of the United States Lehman Brothers 3.58%
9 Flag of the United States Goldman Sachs 3.47%
10 Flag of the United States Morgan Stanley 2.86%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms). Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a
Friday, April 24, 2009
Source of Funds
Ability to tap a broader universe of investors as well as larger pool of investment capital.More capital can be raised through additional stock offerings if sufficient investor interest exists.In a tight monetary cycle, with high debt costs, equity markets are a more efficient and cost effective way for companies to get funded.
Flexibility of Use
Hire new staff, expand existing operations or fund acquisitions.Use Listed Shares as “swaps” for acquisitions and mergers; this can accelerate domestic, regional and global growth strategies.Decreases a company’s reliance on raising funds on debt markets and reduces annual interest payments.Be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value, especially in a tight labor market.KSE is amongst the lowest listing and annual fees in the region.
Existing shareholders can more easily sell their interests at retirement, for diversification, or for any other reason. A ready market always exists for a publicly listed company. Profile BuildingMore public attention due to more media interest.Coverage from Investment Analysts both domestically and internationally can provide the company with a greater profile and visibility.Ultimately, a more diversified group of investors will take an interest in the company, increasing demand for its shares thus raising its value.
Although ownership of 50% of shares does result in 50% ownership of a company, it does not give the shareholder the right to use a company's building, equipment, materials, or other property. This is because the company is considered a legal person, thus it owns all its assets itself. This is important in areas such as insurance, which must be in the name of the company and not the main shareholder.In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. Nonetheless, as Martin Whitman writes:...it can safely be stated that there does not exist any publicly traded company where management works exclusively in the best interests of OPMI [Outside Passive Minority Investor] stockholders. Instead, there are both "communities of interest" and "conflicts of interest" between stockholders (principal) and management (agent). This conflict is referred to as the principal/agent problem. It would be naive to think that any management would forgo management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs.Even though the board of directors runs the company, the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Each shareholder typically has a percentage of votes equal to the percentage of shares he or she owns. So as long as the shareholders agree that the management (agent) are performing poorly they can elect a new board of directors which can then hire a new management team. In practice, however, genuinely contested board elections are rare. Board candidates are usually nominated by insiders or by the board of the directors themselves, and a considerable amount of stock is held and voted by insiders.Owning shares does not mean responsibility for liabilities. If a company goes broke and has to default on loans, the shareholders are not liable in any way. However, all money obtained by converting assets into cash will be used to repay loans and other debts first, so that shareholders cannot receive any money unless and until creditors have been paid (most often the shareholders end up with nothing).
Means of financing
Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing (for example issuing bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).
Stock Exchange Intro A stock exchange, securities exchange or (in Europe) bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.