Complete Introduction to Forex Part1

Wednesday, January 23, 2008
Courtesy: Currency Trading Made Easy

Hey everyone..

WELL, I hope you guys like our new Forex domain

BTW i also registered

Planning to develop a Forex reviews Site on it or maybe sell it off if i get a decent offer ;)

So well Moving ahead.. The first POST since we changed our domain to

I am planning to post the Ebook "Introduction to Forex" by Mark McRae. This Forex Book is in 9 parts.

SO i will simply post a part each day hopefully.

Here is the first part


The purpose of this ebook is to introduce the forex market to you. As with many markets there are many derivative of the central market such as futures, options and forwards. For the purpose of this book we will only be discussing the main market sometime referred to as the Spot or Cash market.

The word FOREX is derived from Foreign Exchange and is the largest financial market in the world. Unlike many markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day. This tremendous turnover is more than the combined turnover of all the wordls' stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.

Unlike many other securities (any financial instrument that can be traded) the FX market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the reach of most investors.

You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency. INTER meaning between and Bank meaning deposit taking institutions normally made up of banks, large institution, brokers or even the government. The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency. It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so large institutions. This insures that if they place an order on your behalf that the institutions they have placed the order with is capable of fulfilling the order.

Now although we have spoken about orders being fulfilled, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of that particular currency.

Source: Bank For International Settlements
Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity.
Currency 1989 1992 1995 1998 2001
US Dollar 90 82.0 83.3 87.3 90.4
Euro 37.6
Japanese Yen 27 23.4 24.1 20.2 22.7
Pound Sterling 15 13.6 9.4 11.0 13.2
Swiss Franc 10 8.4 7.3 7.1 6.1

As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc(CHF). As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors.

--> Now, I hope you guys Enjoyed the first part.

Will post the second part soon.

You might check out the recent FOREX BOOKS I posted recently

Encyclopedia of Chart Patterns- Thomas Bulkowsky- Wiley Trading- Forex Book

Trading Systems and Methods Perry Kaufman

Encyclopedia of Trading Strategies-Forex Book Download

Day Trading the Currency Market -Kathy Lien

Intermarket Techinical analysis-forex book download

Download Come in to my Trading Room- Forex EBook