ÿþ<html> <head><script type="text/javascript" src="/_static/js/bundle-playback.js?v=1WaXNDFE" charset="utf-8"></script> <script type="text/javascript" src="/_static/js/wombat.js?v=txqj7nKC" charset="utf-8"></script> <script type="text/javascript"> __wm.init("https://web.archive.org/web"); __wm.wombat("http://www.edisonlitho.com:80/forex.htm","20110124185624","https://web.archive.org/","web","/_static/", "1295895384"); </script> <link rel="stylesheet" type="text/css" href="/_static/css/banner-styles.css?v=S1zqJCYt" /> <link rel="stylesheet" type="text/css" href="/_static/css/iconochive.css?v=qtvMKcIJ" /> <!-- End Wayback Rewrite JS Include --> <title> LForex, foreign exchange, taux, change, conversion, monnaie, devises, devise, liquidité </title> <meta name="description" lang="fr" content=" LForex, foreign exchange, taux, change, conversion, monnaie, devises, devise, liquidité, trading, tradeur, broker, changes, euro, dollar, yen, étrangères, marché, financier, variation, spéculation, formation, analyses techniques, FX, brokers, France, français, forum, lexique, outils, marché, forex, conditions, videobourse, placements, uniquement, diversifier, fondamentale, convertisseur, interbanca"> <meta name="keywords" lang="fr" content=" Forex, foreign exchange, taux, change, conversion, monnaie, devises, devise, liquidité, trading, tradeur, broker, changes, euro, dollar, yen, étrangères, marché, financier, variation, spéculation, formation, analyses techniques, FX, brokers, France, français, forum, lexique, outils, marché, forex, conditions, videobourse, placements, uniquement, diversifier, fondamentale, convertisseur, interbanca"> <style> <!-- H1 { FONT-SIZE: 14pt; COLOR: #ff0000 } --> </style> </head> <body bgcolor="#605E5C"> <div align="center"> <table border="0" width="100%"> <tr> <td align="center" valign="baseline"><center> <table style="BORDER-COLLAPSE: collapse" id="AutoNumber3" border="0" cellspacing="0" bordercolor="#111111" cellpadding="0" width="100%" height="1"> <tr> <td height="1" width="100%" align="middle" style="color: #000; text-align: center; font-family: arial,sans-serif"> <h1>Welcome to E-global</h1> <h1 align="center">&nbsp;</h1> </td> </tr> <tr> <td style="color: #000; text-align: center; font-family: arial,sans-serif">&nbsp;</td> </tr> </table> <div align="center" style="color: #000; font-family: arial,sans-serif"> <pre id="line1" style="color: #FFFFFF"><b>Forex | Forex Trading | Forex Market - eGlobal-Forex </b></pre> </div> <b><font color="#FFFFFF">&nbsp;<script type="text/javascript"><!-- google_ad_client = "pub-1939198878098152"; /* 250x250, date de création 06/11/10 */ google_ad_slot = "3785890785"; google_ad_width = 250; google_ad_height = 250; //--> </script> <script type="text/javascript" src="https://web.archive.org/web/20110124185624js_/http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script></font></b></center> </td> </tr> <tr> <td align="center" valign="baseline"> <div id="content"> <div id="bodyContent"> <font color="#FFFFFF"> <u><b>The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized </b> </u> </font><b> <a title="Over-the-counter (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Over-the-counter_(finance)"> <font color="#FFFFFF">over-the-counter</font></a><font color="#FFFFFF"><u> financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.</u></font><sup id="cite_ref-0" class="reference"><a href="#cite_note-0"><font color="#FFFFFF">[1]</font></a></sup></b><p> <b><font color="#FFFFFF"> <u>The primary purpose of the foreign exchange market is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import European goods and pay </u> </font> <a class="mw-redirect" title="Euros" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Euros"> <font color="#FFFFFF">Euros</font></a><font color="#FFFFFF"><u>, even though the business's income is in </u> </font> <a class="mw-redirect" title="US dollars" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/US_dollars"> <font color="#FFFFFF">US dollars</font></a><font color="#FFFFFF"><u>. It also supports speculation, and facilitates the </u> </font> <a class="mw-redirect" title="Carry trade" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Carry_trade"> <font color="#FFFFFF">carry trade</font></a><font color="#FFFFFF"><u>, in which investors borrow low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some countries.</u></font><sup id="cite_ref-UNCTAD_1-0" class="reference"><a href="#cite_note-UNCTAD-1"><font color="#FFFFFF">[2]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to </u> </font> <a title="Floating exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Floating_exchange_rate"> <font color="#FFFFFF">floating exchange rates</font></a><font color="#FFFFFF"><u> from the previous </u> </font> <a title="Exchange rate regime" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rate_regime"> <font color="#FFFFFF">exchange rate regime</font></a><font color="#FFFFFF"><u>, which remained </u> </font> <a title="Fixed exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fixed_exchange_rate"> <font color="#FFFFFF">fixed</font></a><font color="#FFFFFF"><u> as per the </u> </font> <a title="Bretton Woods system" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bretton_Woods_system"> <font color="#FFFFFF">Bretton Woods system</font></a><font color="#FFFFFF"><u>.</u></font></b></p> <p><b><font color="#FFFFFF"><u>The foreign exchange market is unique because of its</u></font></b></p> <ul> <li><b><font color="#FFFFFF"><u>huge trading volume, leading to high </u> </font> <a class="mw-redirect" title="Liquidity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Liquidity"> <font color="#FFFFFF">liquidity</font></a></b></li> <li><b><font color="#FFFFFF"><u>geographical dispersion</u></font></b></li> <li><b><font color="#FFFFFF"><u>continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 </u> </font> <a class="mw-redirect" title="GMT" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/GMT"> <font color="#FFFFFF">GMT</font></a><font color="#FFFFFF"><u> on Sunday until 22:00 GMT Friday</u></font></b></li> <li><b><font color="#FFFFFF"><u>the variety of factors that affect </u> </font> <a title="Exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rate"> <font color="#FFFFFF">exchange rates</font></a></b></li> <li><b><font color="#FFFFFF"><u>the low margins of relative profit compared with other markets of fixed income</u></font></b></li> <li><b><font color="#FFFFFF"><u>the use of </u> </font> <a title="Leverage (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Leverage_(finance)"> <font color="#FFFFFF">leverage</font></a><font color="#FFFFFF"><u> to enhance profit margins with respect to account size</u></font></b></li> </ul> <p><b><font color="#FFFFFF"><u>As such, it has been referred to as the market closest to the ideal of </u> </font> <a title="Perfect competition" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Perfect_competition"> <font color="#FFFFFF">perfect competition</font></a><font color="#FFFFFF"><u>, notwithstanding </u> </font> <a title="Market manipulation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market_manipulation"> <font color="#FFFFFF">market manipulation</font></a><font color="#FFFFFF"><u> by </u> </font> <a title="Central bank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Central_bank"> <font color="#FFFFFF">central banks</font></a><font color="#FFFFFF"><u>.</u></font><sup style="WHITE-SPACE: nowrap" class="Template-Fact" title="This claim needs references to reliable sources from November 2009"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:Citation needed" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:Citation_needed"><font color="#FFFFFF">citation needed</font></a></i><font color="#FFFFFF"><u>]</u></font></sup><font color="#FFFFFF"><u> According to the </u> </font> <a title="Bank for International Settlements" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bank_for_International_Settlements"> <font color="#FFFFFF">Bank for International Settlements</font></a><font color="#FFFFFF"><u>,</u></font><sup id="cite_ref-BIS_2-0" class="reference"><a href="#cite_note-BIS-2"><font color="#FFFFFF">[3]</font></a></sup><font color="#FFFFFF"><u> average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, as of April 2007. $3.21 Trillion is accounted for in the world's main financial markets.</u></font></b></p> <p><b><font color="#FFFFFF"><u>The $3.21 trillion break-down is as follows:</u></font></b></p> <ul> <li><b><font color="#FFFFFF"><u>$1.005 trillion in </u> </font> <a title="Foreign exchange spot trading" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Foreign_exchange_spot_trading"> <font color="#FFFFFF">spot</font></a><font color="#FFFFFF"><u> transactions</u></font></b></li> <li><b><font color="#FFFFFF"><u>$362 billion in </u> </font> <a title="Forward contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forward_contract"> <font color="#FFFFFF">outright forwards</font></a></b></li> <li><b><font color="#FFFFFF"><u>$1.714 trillion in </u> </font> <a title="Forex swap" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forex_swap"> <font color="#FFFFFF">foreign exchange swaps</font></a></b></li> <li><b><font color="#FFFFFF"><u>$129 billion estimated gaps in reporting</u></font></b></li> </ul> <u> <b><font color="#FFFFFF"> <script type="text/javascript"> //<![CDATA[ if (window.showTocToggle) { var tocShowText = "show"; var tocHideText = "hide"; showTocToggle(); } //]]> </script> </font></b> </u> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Market size and liquidity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=1"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Market_size_and_liquidity" class="mw-headline"> Market size and liquidity</span></u></font></h2> <div class="thumb tright"> <div style="WIDTH: 302px" class="thumbinner"> <b> <a class="image" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/File:G_foreign_exchange_market_turnover.gif"> <font color="#FFFFFF"> <img class="thumbimage" alt="" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a3/G_foreign_exchange_market_turnover.gif/300px-G_foreign_exchange_market_turnover.gif" width="300" height="207"></font></a><font color="#FFFFFF"><u> </u> </font></b> <div class="thumbcaption"> <div class="magnify"> <b> <a class="internal" title="Enlarge" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/File:G_foreign_exchange_market_turnover.gif"> <font color="#FFFFFF"> <img alt="" src="https://web.archive.org/web/20110124185624im_/http://bits.wikimedia.org/skins-1.5/common/images/magnify-clip.png" width="15" height="11"></font></a></b></div> <b><font color="#FFFFFF"> <u>Main foreign exchange market turnover, 1988 2007, measured in billions of USD.</u></font></b></div> </div> </div> <p><b><font color="#FFFFFF"><u>The foreign exchange market is the largest and most </u> </font> <a class="mw-redirect" title="Liquidity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Liquidity"> <font color="#FFFFFF">liquid</font></a><font color="#FFFFFF"><u> financial market in the world. Traders include large banks, </u> </font> <a title="Central bank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Central_bank"> <font color="#FFFFFF">central banks</font></a><font color="#FFFFFF"><u>, currency </u> </font> <a class="mw-redirect" title="Speculators" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Speculators"> <font color="#FFFFFF">speculators</font></a><font color="#FFFFFF"><u>, corporations, </u> </font> <a class="mw-redirect" title="Governments" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Governments"> <font color="#FFFFFF">governments</font></a><font color="#FFFFFF"><u>, and other </u> </font> <a class="mw-redirect" title="Financial institutions" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Financial_institutions"> <font color="#FFFFFF">financial institutions</font></a><font color="#FFFFFF"><u>. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over </u> </font> <a class="mw-redirect" title="US$" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/US$"> <font color="#FFFFFF">US$</font></a><font color="#FFFFFF"><u>3.2 trillion in April 2007 by the </u> </font> <a title="Bank for International Settlements" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bank_for_International_Settlements"> <font color="#FFFFFF">Bank for International Settlements</font></a><font color="#FFFFFF"><u>. </u></font><sup id="cite_ref-BIS_2-1" class="reference"> <a href="#cite_note-BIS-2"><font color="#FFFFFF">[3]</font></a></sup><font color="#FFFFFF"><u> Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.</u></font><sup id="cite_ref-EMF_3-0" class="reference"><a href="#cite_note-EMF-3"><font color="#FFFFFF">[4]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>Of the $3.98 trillion daily global turnover, trading in </u> </font> <a title="London" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/London"> <font color="#FFFFFF">London</font></a><font color="#FFFFFF"><u> 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 </u> </font> <a title="New York City" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/New_York_City"> <font color="#FFFFFF">New York City</font></a><font color="#FFFFFF"><u> accounted for 16.6%, and </u> </font> <a title="Tokyo" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Tokyo"> <font color="#FFFFFF">Tokyo</font></a><font color="#FFFFFF"><u> accounted for 6.0%.</u></font><sup id="cite_ref-BIS_survey_4-0" class="reference"><a href="#cite_note-BIS_survey-4"><font color="#FFFFFF">[5]</font></a></sup><font color="#FFFFFF"><u> In addition to &quot;traditional&quot; turnover, $2.1 trillion was traded in </u> </font> <a class="mw-redirect" title="Derivative security" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Derivative_security"> <font color="#FFFFFF">derivatives</font></a><font color="#FFFFFF"><u>.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Exchange-traded FX </u> </font> <a title="Futures contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Futures_contract"> <font color="#FFFFFF">futures contracts</font></a><font color="#FFFFFF"><u> were introduced in 1972 at the </u> </font> <a title="Chicago Mercantile Exchange" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Chicago_Mercantile_Exchange"> <font color="#FFFFFF">Chicago Mercantile Exchange</font></a><font color="#FFFFFF"><u> and are actively traded relative to most other futures contracts.</u></font></b></p> <p><b><font color="#FFFFFF"><u>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 </u></font><a class="external autonumber" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://www.bseindia.com/deri/CDX/cdx_intro.htm?L=2&amp;id=hd4&amp;Lid=1"><font color="#FFFFFF">[1]</font></a><font color="#FFFFFF"><u>; </u> </font> <a class="external autonumber" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://www.nse-india.com/marketinfo/fxTracker/fxTracker.jsp"> <font color="#FFFFFF">[2]</font></a><font color="#FFFFFF"><u>) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.</u></font></b></p> <p><b><font color="#FFFFFF"><u>FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The </u> </font> <a class="mw-redirect" title="Wall Street Journal" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wall_Street_Journal"> <font color="#FFFFFF">Wall Street Journal Europe</font></a><font color="#FFFFFF"><u> (5/5/06, p.&nbsp;20).</u></font></b></p> <table style="TEXT-ALIGN: center; FONT-SIZE: 98%" class="wikitable" align="left"> <caption><font color="#FFFFFF"><u><b>Top 10 currency traders </b> </u> </font><b> <sup id="cite_ref-5" class="reference"> <a href="#cite_note-5"><font color="#FFFFFF">[6]</font></a></sup><font color="#FFFFFF"><u><br> <small>% of overall volume, May 2010</small></u></font></b></caption> <tr bgcolor="#ba00ee"> <th><font color="#FFFFFF"><u>Rank</u></font></th> <th><font color="#FFFFFF"><u>Name</u></font></th> <th><font color="#FFFFFF"><u>Market Share</u></font></th> </tr> <tr> <td><b><font color="#FFFFFF"><u>1</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Germany" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Germany"> <font color="#FFFFFF"> <img class="thumbborder" alt="Germany" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/b/ba/Flag_of_Germany.svg/22px-Flag_of_Germany.svg.png" width="22" height="13"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Deutsche Bank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Deutsche_Bank"> <font color="#FFFFFF">Deutsche Bank</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>18.06%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>2</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Switzerland" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Switzerland"> <font color="#FFFFFF"> <img class="thumbborder" alt="Switzerland" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Flag_of_Switzerland.svg/20px-Flag_of_Switzerland.svg.png" width="20" height="20"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a class="mw-redirect" title="UBS AG" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/UBS_AG"> <font color="#FFFFFF">UBS AG</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>11.30%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>3</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United Kingdom" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_Kingdom"> <font color="#FFFFFF"> <img class="thumbborder" alt="United Kingdom" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/ae/Flag_of_the_United_Kingdom.svg/22px-Flag_of_the_United_Kingdom.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Barclays Capital" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Barclays_Capital"> <font color="#FFFFFF">Barclays Capital</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>11.08%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>4</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United States" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States"> <font color="#FFFFFF"> <img class="thumbborder" alt="United States" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Flag_of_the_United_States.svg/22px-Flag_of_the_United_States.svg.png" width="22" height="12"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a class="mw-redirect" title="Citi" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Citi"> <font color="#FFFFFF">Citi</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>7.69%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>5</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United Kingdom" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_Kingdom"> <font color="#FFFFFF"> <img class="thumbborder" alt="United Kingdom" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/ae/Flag_of_the_United_Kingdom.svg/22px-Flag_of_the_United_Kingdom.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Royal Bank of Scotland" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Royal_Bank_of_Scotland"> <font color="#FFFFFF">Royal Bank of Scotland</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>6.50%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>6</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United States" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States"> <font color="#FFFFFF"> <img class="thumbborder" alt="United States" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Flag_of_the_United_States.svg/22px-Flag_of_the_United_States.svg.png" width="22" height="12"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a class="mw-redirect" title="JPMorgan" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/JPMorgan"> <font color="#FFFFFF">JPMorgan</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>6.35%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>7</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United Kingdom" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_Kingdom"> <font color="#FFFFFF"> <img class="thumbborder" alt="United Kingdom" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/ae/Flag_of_the_United_Kingdom.svg/22px-Flag_of_the_United_Kingdom.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="HSBC" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/HSBC"> <font color="#FFFFFF">HSBC</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>4.55%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>8</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Switzerland" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Switzerland"> <font color="#FFFFFF"> <img class="thumbborder" alt="Switzerland" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Flag_of_Switzerland.svg/20px-Flag_of_Switzerland.svg.png" width="20" height="20"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Credit Suisse" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Credit_Suisse"> <font color="#FFFFFF">Credit Suisse</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>4.44%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>9</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United States" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States"> <font color="#FFFFFF"> <img class="thumbborder" alt="United States" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Flag_of_the_United_States.svg/22px-Flag_of_the_United_States.svg.png" width="22" height="12"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Goldman Sachs" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Goldman_Sachs"> <font color="#FFFFFF">Goldman Sachs</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>4.28%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>10</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United States" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States"> <font color="#FFFFFF"> <img class="thumbborder" alt="United States" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Flag_of_the_United_States.svg/22px-Flag_of_the_United_States.svg.png" width="22" height="12"></font></a></span><font color="#FFFFFF"><u> </u> </font> <a title="Morgan Stanley" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Morgan_Stanley"> <font color="#FFFFFF">Morgan Stanley</font></a></b></td> <td align="right"><b><font color="#FFFFFF"><u>2.91%</u></font></b></td> </tr> </table> <p><b><font color="#FFFFFF"><u>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 </u> </font> <a title="United States dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States_dollar"> <font color="#FFFFFF">US$</font></a><font color="#FFFFFF"><u>50-60 billion (see </u> </font> <a title="Retail forex platform" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Retail_forex_platform"> <font color="#FFFFFF">retail trading platforms</font></a><font color="#FFFFFF"><u>).</u></font><sup id="cite_ref-6" class="reference"><a href="#cite_note-6"><font color="#FFFFFF">[7]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>Because foreign exchange is an </u> </font> <a title="Over-the-counter (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Over-the-counter_(finance)"> <font color="#FFFFFF">OTC</font></a><font color="#FFFFFF"><u> 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 </u> </font> <a class="mw-redirect" title="IFSL" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/IFSL"> <font color="#FFFFFF">IFSL</font></a><font color="#FFFFFF"><u> estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the </u> </font> <a class="mw-redirect" title="IMF" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/IMF"> <font color="#FFFFFF">IMF</font></a><font color="#FFFFFF"><u> calculates the value of its </u> </font> <a title="Special Drawing Rights" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Special_Drawing_Rights"> <font color="#FFFFFF">SDRs</font></a><font color="#FFFFFF"><u> every day, they use the London market prices at noon that day.</u></font></b></p> <p><b><font color="#FFFFFF"><u>The ten most active traders account for 77% of trading volume, according to the 2010 Euromoney FX survey.</u></font><sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><font color="#FFFFFF">[8]</font></a></sup><font color="#FFFFFF"><u> These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The </u> </font> <a class="mw-redirect" title="Bid/ask spread" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bid/ask_spread"> <font color="#FFFFFF">bid/ask spread</font></a><font color="#FFFFFF"><u> is the difference between the price at which a bank or </u> </font> <a title="Market maker" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market_maker"> <font color="#FFFFFF">market maker</font></a><font color="#FFFFFF"><u> will sell (&quot;ask&quot;, or &quot;offer&quot;) and the price at which a </u> </font> <a class="new" title="Market taker (page does not exist)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Market_taker&amp;action=edit&amp;redlink=1"> <font color="#FFFFFF">market taker</font></a><font color="#FFFFFF"><u> will buy (&quot;bid&quot;) from a wholesale or retail customer. The customer will buy from the market-maker at the higher &quot;ask&quot; price, and will sell at the lower &quot;bid&quot; price, thus giving up the &quot;spread&quot; as the cost of completing the trade. This spread is minimal for actively traded pairs of currencies, usually 0 3 </u> </font> <a title="Percentage in point" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Percentage_in_point"> <font color="#FFFFFF">pips</font></a><font color="#FFFFFF"><u>. For example, the bid/ask quote of EURUSD might be 1.2200/1.2203 on a wholesale broker. Minimum trading size for most deals is usually 100,000 units of </u> </font> <a class="mw-redirect" title="Base currency" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Base_currency"> <font color="#FFFFFF">base currency</font></a><font color="#FFFFFF"><u>, which is a standard &quot;lot&quot;.</u></font></b></p> <p><b><font color="#FFFFFF"><u>These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EURUSD are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.</u></font></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Market participants" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=2"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Market_participants" class="mw-headline">Market participants</span></u></font></h2> <table style="MARGIN: 0px 0px 1em 1em; WIDTH: 160px; FLOAT: right; CLEAR: right" class="navbox"> <tr> <th style="font-size: larger; background: lightblue"> <b> <a title="Financial market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Financial_market"> <font color="#FFFFFF">Financial markets</font></a></b></th> </tr> <tr> <td> <b> <a class="image" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/File:Bruxelles_Bourse.jpg"> <font color="#FFFFFF"> <img alt="Bruxelles Bourse.jpg" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/Bruxelles_Bourse.jpg/135px-Bruxelles_Bourse.jpg" width="135" height="101"></font></a></b><p> <b> <a title="Market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market"> <font color="#FFFFFF">Public market</font></a><font color="#FFFFFF"><u><br> &nbsp;</u></font></b></p> <hr> <p> <b> <a title="Exchange (organized market)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_(organized_market)"> <font color="#FFFFFF">Exchange</font></a><font color="#FFFFFF"><u>, organized market<br> </u> </font> <a class="mw-redirect" title="Securities" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Securities"> <font color="#FFFFFF">Securities</font></a></b></td> </tr> <tr> <th><b> <a title="Bond market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bond_market"> <font color="#FFFFFF">Bond market</font></a></b></th> </tr> <tr> <td> <b> <a title="Fixed income" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fixed_income"> <font color="#FFFFFF">Fixed income</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Corporate bond" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Corporate_bond"> <font color="#FFFFFF">Corporate bond</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Government bond" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Government_bond"> <font color="#FFFFFF">Government bond</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Municipal bond" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Municipal_bond"> <font color="#FFFFFF">Municipal bond</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Bond valuation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bond_valuation"> <font color="#FFFFFF">Bond valuation</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="High-yield debt" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/High-yield_debt"> <font color="#FFFFFF">High-yield debt</font></a></b></td> </tr> <tr> <th><b> <a title="Stock market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Stock_market"> <font color="#FFFFFF">Stock market</font></a></b></th> </tr> <tr> <td> <b> <a title="Stock" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Stock"> <font color="#FFFFFF">Stock</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Preferred stock" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Preferred_stock"> <font color="#FFFFFF">Preferred stock</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Common stock" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Common_stock"> <font color="#FFFFFF">Common stock</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Registered share" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Registered_share"> <font color="#FFFFFF">Registered share</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Voting share" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Voting_share"> <font color="#FFFFFF">Voting share</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Stock exchange" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Stock_exchange"> <font color="#FFFFFF">Stock exchange</font></a></b></td> </tr> <tr> <th><b> <a title="Derivatives market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Derivatives_market"> <font color="#FFFFFF">Derivatives market</font></a></b></th> </tr> <tr> <td> <b> <a title="Securitization" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Securitization"> <font color="#FFFFFF">Securitization</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Hybrid security" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hybrid_security"> <font color="#FFFFFF">Hybrid security</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Credit derivative" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Credit_derivative"> <font color="#FFFFFF">Credit derivative</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Futures exchange" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Futures_exchange"> <font color="#FFFFFF">Futures exchange</font></a></b><hr> </td> </tr> <tr> <th><b> <a title="Over-the-counter (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Over-the-counter_(finance)"> <font color="#FFFFFF">OTC</font></a></b><font color="#FFFFFF"><u>, non organized</u></font></th> </tr> <tr> <td> <b> <a title="Spot market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Spot_market"> <font color="#FFFFFF">Spot market</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Forward contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forward_contract"> <font color="#FFFFFF">Forwards</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Swap (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Swap_(finance)"> <font color="#FFFFFF">Swaps</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Option (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Option_(finance)"> <font color="#FFFFFF">Options</font></a></b></td> </tr> <tr> <th><font color="#FFFFFF"><u><b><strong class="selflink">Foreign exchange</strong></b></u></font></th> </tr> <tr> <td> <b> <a title="Exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rate"> <font color="#FFFFFF">Exchange rate</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Currency" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Currency"> <font color="#FFFFFF">Currency</font></a></b><hr></td> </tr> <tr> <th><font color="#FFFFFF"><u><b>Other Markets</b></u></font></th> </tr> <tr> <td> <b> <a title="Money market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Money_market"> <font color="#FFFFFF">Money market</font></a><font color="#FFFFFF"><u><br> </u> </font> <a class="mw-redirect" title="Reinsurance market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Reinsurance_market"> <font color="#FFFFFF">Reinsurance market</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Commodity market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Commodity_market"> <font color="#FFFFFF">Commodity market</font></a><font color="#FFFFFF"><u><br> </u> </font> <a class="mw-redirect" title="Real estate market" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Real_estate_market"> <font color="#FFFFFF">Real estate market</font></a></b></td> </tr> <tr> <th><b> <a title="Trader (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Trader_(finance)"> <font color="#FFFFFF">Practical trading</font></a></b></th> </tr> <tr> <td> <b> <a title="Financial market participants" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Financial_market_participants"> <font color="#FFFFFF">Participants</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Clearing house (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Clearing_house_(finance)"> <font color="#FFFFFF">Clearing house</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Financial regulation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Financial_regulation"> <font color="#FFFFFF">Financial regulation</font></a></b></td> </tr> <tr> <td><hr> <p><b> <a title="Finance" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Finance"> <font color="#FFFFFF">Finance</font></a><font color="#FFFFFF"><u> series<br> </u></font> <a title="Bank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Bank"> <font color="#FFFFFF">Banks and Banking</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Corporate finance" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Corporate_finance"> <font color="#FFFFFF">Corporate finance</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Personal finance" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Personal_finance"> <font color="#FFFFFF">Personal finance</font></a><font color="#FFFFFF"><u><br> </u> </font> <a title="Public finance" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Public_finance"> <font color="#FFFFFF">Public finance</font></a></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>&nbsp;</u></font></b><span style="font-size: xx-small; font-weight: 700; padding: 0px; background:" class="noprint plainlinks navbar"><a title="Template:Financial markets" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Template:Financial_markets"><span title="View this template"><font color="#FFFFFF">v</font></span></a><font color="#FFFFFF"><u>&nbsp;<span style="FONT-SIZE: 80%">" </span>&nbsp;</u></font><a title="Template talk:Financial markets" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Template_talk:Financial_markets"><span title="Discuss this template"><font color="#FFFFFF">d</font></span></a><font color="#FFFFFF"><u>&nbsp;<span style="FONT-SIZE: 80%">" </span>&nbsp;</u></font><a class="external text" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Template:Financial_markets&amp;action=edit"><span title="Edit this template"><font color="#FFFFFF">e</font></span></a></span><b><font color="#FFFFFF"><u>&nbsp;</u></font></b></td> </tr> </table> <p><b><font color="#FFFFFF"><u>Unlike a stock market, 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 </u> </font> <a class="mw-redirect" title="Commercial banks" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Commercial_banks"> <font color="#FFFFFF">commercial banks</font></a><font color="#FFFFFF"><u> and </u> </font> <a class="mw-redirect" title="Investment bank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Investment_bank"> <font color="#FFFFFF">securities dealers</font></a><font color="#FFFFFF"><u>. 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 </u> </font> <a title="Percentage in point" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Percentage_in_point"> <font color="#FFFFFF">pip</font></a><font color="#FFFFFF"><u> 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 &quot;line&quot; (the amount of money with which they are trading). The </u> </font> <a class="mw-redirect" title="Top-tier" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Top-tier"> <font color="#FFFFFF">top-tier</font></a><font color="#FFFFFF"><u> </u> </font> <a class="new" title="Inter-bank market (page does not exist)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Inter-bank_market&amp;action=edit&amp;redlink=1"> <font color="#FFFFFF">inter-bank market</font></a><font color="#FFFFFF"><u> accounts for 53% of all transactions. After that there are usually smaller 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.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Banks" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=3"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Banks" class="mw-headline">Banks</span></u></font></h3> <p><b><font color="#FFFFFF"><u>The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The </u> </font> <a class="new" title="Broker squawk box (page does not exist)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Broker_squawk_box&amp;action=edit&amp;redlink=1"> <font color="#FFFFFF">broker squawk box</font></a><font color="#FFFFFF"><u> lets traders listen in on ongoing interbank trading and is heard in most </u> </font> <a title="Trading room" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Trading_room"> <font color="#FFFFFF">trading rooms</font></a><font color="#FFFFFF"><u>, but turnover is noticeably smaller than just a few years ago.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Commercial companies" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=4"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Commercial_companies" class="mw-headline"> Commercial companies</span></u></font></h3> <p><b><font color="#FFFFFF"><u>An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Central banks" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=5"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Central_banks" class="mw-headline">Central banks</span></u></font></h3> <p><b><font color="#FFFFFF"><u>National central banks play an important role in the foreign exchange markets. They try to control the </u> </font> <a title="Money supply" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Money_supply"> <font color="#FFFFFF">money supply</font></a><font color="#FFFFFF"><u>, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. </u> </font> <a title="Milton Friedman" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Milton_Friedman"> <font color="#FFFFFF">Milton Friedman</font></a><font color="#FFFFFF"><u> argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank &quot;stabilizing speculation&quot; is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.</u></font></b></p> <p><b><font color="#FFFFFF"><u>The mere expectation or rumor of central bank </u> </font> <a title="Intervention" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Intervention"> <font color="#FFFFFF">intervention</font></a><font color="#FFFFFF"><u> might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a </u> </font> <a title="Managed float regime" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Managed_float_regime"> <font color="#FFFFFF">dirty float</font></a><font color="#FFFFFF"><u> currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.</u></font><sup id="cite_ref-8" class="reference"><a href="#cite_note-8"><font color="#FFFFFF">[9]</font></a></sup><font color="#FFFFFF"><u> Several scenarios of this nature were seen in the 1992 93 </u> </font> <a title="European Exchange Rate Mechanism" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism"> <font color="#FFFFFF">ERM</font></a><font color="#FFFFFF"><u> collapse, and in more recent times in Southeast Asia.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Hedge funds as speculators" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=6"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Hedge_funds_as_speculators" class="mw-headline"> Hedge funds as speculators</span></u></font></h3> <p><b><font color="#FFFFFF"><u>About 70% to 90%</u></font><sup style="WHITE-SPACE: nowrap" class="Template-Fact" title="This claim needs references to reliable sources from August 2009"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:Citation needed" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:Citation_needed"><font color="#FFFFFF">citation needed</font></a></i><font color="#FFFFFF"><u>]</u></font></sup><font color="#FFFFFF"><u> of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. </u> </font> <a title="Hedge fund" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hedge_fund"> <font color="#FFFFFF">Hedge funds</font></a><font color="#FFFFFF"><u> have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of </u> </font> <a class="mw-redirect" title="Equity investment" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Equity_investment"> <font color="#FFFFFF">equity</font></a><font color="#FFFFFF"><u> and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Investment management firms" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=7"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Investment_management_firms" class="mw-headline"> Investment management firms</span></u></font></h3> <p><b><font color="#FFFFFF"><u>Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Some investment management firms also have more speculative specialist </u> </font> <a class="mw-redirect" title="Currency Overlay" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Currency_Overlay"> <font color="#FFFFFF">currency overlay</font></a><font color="#FFFFFF"><u> operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Retail foreign exchange brokers" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=8"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Retail_foreign_exchange_brokers" class="mw-headline"> Retail foreign exchange brokers</span></u></font></h3> <p><b><font color="#FFFFFF"><u>Retail traders (individuals) constitute a growing segment of this market, both in size and importance. Currently, they participate indirectly through </u> </font> <a title="Commodity broker" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Commodity_broker"> <font color="#FFFFFF">brokers</font></a><font color="#FFFFFF"><u> or banks. Retail brokers, while largely controlled and regulated in the USA by the </u> </font> <a title="Commodity Futures Trading Commission" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commission"> <font color="#FFFFFF">CFTC</font></a><font color="#FFFFFF"><u> and </u> </font> <a title="National Futures Association" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/National_Futures_Association"> <font color="#FFFFFF">NFA</font></a><font color="#FFFFFF"><u> have in the past been subjected to periodic </u> </font> <a title="Forex scam" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forex_scam"> <font color="#FFFFFF">foreign exchange scams</font></a><font color="#FFFFFF"><u>.</u></font><sup id="cite_ref-WSJ1_9-0" class="reference"><a href="#cite_note-WSJ1-9"><font color="#FFFFFF">[10]</font></a></sup><sup id="cite_ref-NYTimes1_10-0" class="reference"><a href="#cite_note-NYTimes1-10"><font color="#FFFFFF">[11]</font></a></sup><font color="#FFFFFF"><u> To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone.</u></font></b></p> <p><b><font color="#FFFFFF"><u>There are two main types of retail FX brokers offering the opportunity for speculative currency trading: <i>brokers</i> and <i>dealers</i> or <i>market makers</i>. <i>Brokers</i> serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. <i>Dealers</i> or <i>market makers</i>, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at the customer has the choice whether or not to trade at that price.</u></font></b></p> <p><b><font color="#FFFFFF"><u>In assessing the suitability of an FX trading service, the customer should consider the ramifications of whether the service provider is acting as principal or agent. When the service provider acts as agent, the customer is generally assured of a known cost above the best inter-dealer FX rate. When the service provider acts as principal, no commission is paid, but the price offered may not be the best available in the market since the service provider is taking the other side of the transaction, a conflict of interest may occur.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Non-bank foreign exchange companies" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=9"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Non-bank_foreign_exchange_companies" class="mw-headline"> Non-bank foreign exchange companies</span></u></font></h3> <p><b><font color="#FFFFFF"><u>Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account. </u> </font> <a title="Send Money Home" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Send_Money_Home"> <font color="#FFFFFF">Send Money Home</font></a><font color="#FFFFFF"><u> offer an in-depth comparison into the services offered by all the major non-bank foreign exchange companies.</u></font></b></p> <p><b><font color="#FFFFFF"><u>It is estimated that in the UK, 14% of currency transfers/payments</u></font><sup id="cite_ref-11" class="reference"><a href="#cite_note-11"><font color="#FFFFFF">[12]</font></a></sup><font color="#FFFFFF"><u> are made via Foreign Exchange Companies.</u></font><sup id="cite_ref-12" class="reference"><a href="#cite_note-12"><font color="#FFFFFF">[13]</font></a></sup><font color="#FFFFFF"><u> These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Money transfer/remittance companies" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=10"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Money_transfer.2Fremittance_companies" class="mw-headline"> Money transfer/remittance companies</span></u></font></h3> <p> <b> <a title="Money transfer" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Money_transfer"> <font color="#FFFFFF">Money transfer companies</font></a><font color="#FFFFFF"><u>/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the </u> </font> <a class="new" title="Aite Group (page does not exist)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Aite_Group&amp;action=edit&amp;redlink=1"> <font color="#FFFFFF">Aite Group</font></a><font color="#FFFFFF"><u> estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (</u></font><a title="India" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/India"><font color="#FFFFFF">India</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="China" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/China"> <font color="#FFFFFF">China</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Mexico" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Mexico"> <font color="#FFFFFF">Mexico</font></a><font color="#FFFFFF"><u> and the </u> </font> <a title="Philippines" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Philippines"> <font color="#FFFFFF">Philippines</font></a><font color="#FFFFFF"><u>) receive $95 billion. The largest and best known provider is </u> </font> <a title="Western Union" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Western_Union"> <font color="#FFFFFF">Western Union</font></a><font color="#FFFFFF"><u> with 345,000 agents globally followed by </u> </font> <a title="UAE Exchange &amp; Financial Services Ltd." href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/UAE_Exchange_&amp;_Financial_Services_Ltd."> <font color="#FFFFFF">UAE Exchange &amp; Financial Services Ltd.</font></a><sup style="WHITE-SPACE: nowrap" class="Template-Fact" title="This claim needs references to reliable sources from May 2010"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:Citation needed" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:Citation_needed"><font color="#FFFFFF">citation needed</font></a></i><font color="#FFFFFF"><u>]</u></font></sup></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Trading characteristics" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=11"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Trading_characteristics" class="mw-headline"> Trading characteristics</span></u></font></h2> <table style="TEXT-ALIGN: center; FONT-SIZE: 98%" class="wikitable" align="right"> <caption><font color="#FFFFFF"><u><b>Most traded currencies</b></u></font><b><sup id="cite_ref-BIS_2-2" class="reference"><a href="#cite_note-BIS-2"><font color="#FFFFFF">[3]</font></a></sup><font color="#FFFFFF"><u><br> <small>Currency distribution of reported FX market turnover</small></u></font></b></caption> <tr bgcolor="#ba00ee"> <th><font color="#FFFFFF"><u>Rank</u></font></th> <th><font color="#FFFFFF"><u>Currency</u></font></th> <th> <a title="ISO 4217" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/ISO_4217"> <font color="#FFFFFF">ISO 4217</font></a><font color="#FFFFFF"><u> code<br> (Symbol)</u></font></th> <th><font color="#FFFFFF"><u>&nbsp;% daily share<br> (April 2007)</u></font></th> </tr> <tr> <td><b><font color="#FFFFFF"><u>1</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United States" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States"> <font color="#FFFFFF"> <img class="thumbborder" alt="United States" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Flag_of_the_United_States.svg/22px-Flag_of_the_United_States.svg.png" width="22" height="12"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="United States dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States_dollar"><font color="#FFFFFF">United States dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>USD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>86.3%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>2</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="European Union" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/European_Union"> <font color="#FFFFFF"> <img class="thumbborder" alt="European Union" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/b/b7/Flag_of_Europe.svg/22px-Flag_of_Europe.svg.png" width="22" height="15"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Euro" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Euro"><font color="#FFFFFF">Euro</font></a></b></td> <td><b><font color="#FFFFFF"><u>EUR (¬ )</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>37.0%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>3</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Japan" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Japan"> <font color="#FFFFFF"> <img class="thumbborder" alt="Japan" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/9/9e/Flag_of_Japan.svg/22px-Flag_of_Japan.svg.png" width="22" height="15"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Japanese yen" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Japanese_yen"><font color="#FFFFFF">Japanese yen</font></a></b></td> <td><b><font color="#FFFFFF"><u>JPY (¥)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>17.0%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>4</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="United Kingdom" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_Kingdom"> <font color="#FFFFFF"> <img class="thumbborder" alt="United Kingdom" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/a/ae/Flag_of_the_United_Kingdom.svg/22px-Flag_of_the_United_Kingdom.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Pound sterling" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Pound_sterling"><font color="#FFFFFF">Pound sterling</font></a></b></td> <td><b><font color="#FFFFFF"><u>GBP (£)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>15.0%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>5</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Switzerland" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Switzerland"> <font color="#FFFFFF"> <img class="thumbborder" alt="Switzerland" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Flag_of_Switzerland.svg/20px-Flag_of_Switzerland.svg.png" width="20" height="20"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Swiss franc" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Swiss_franc"><font color="#FFFFFF">Swiss franc</font></a></b></td> <td><b><font color="#FFFFFF"><u>CHF (Fr)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>6.8%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>6</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Australia" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Australia"> <font color="#FFFFFF"> <img class="thumbborder" alt="Australia" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/b/b9/Flag_of_Australia.svg/22px-Flag_of_Australia.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Australian dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Australian_dollar"><font color="#FFFFFF">Australian dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>AUD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>6.7%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>7</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Canada" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Canada"> <font color="#FFFFFF"> <img class="thumbborder" alt="Canada" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/c/cf/Flag_of_Canada.svg/22px-Flag_of_Canada.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Canadian dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Canadian_dollar"><font color="#FFFFFF">Canadian dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>CAD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>4.2%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>8-9</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Sweden" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Sweden"> <font color="#FFFFFF"> <img class="thumbborder" alt="Sweden" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/4/4c/Flag_of_Sweden.svg/22px-Flag_of_Sweden.svg.png" width="22" height="14"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Swedish krona" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Swedish_krona"><font color="#FFFFFF">Swedish krona</font></a></b></td> <td><b><font color="#FFFFFF"><u>SEK (kr)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>2.8%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>8-9</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Hong Kong" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hong_Kong"> <font color="#FFFFFF"> <img class="thumbborder" alt="Hong Kong" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/5/5b/Flag_of_Hong_Kong.svg/22px-Flag_of_Hong_Kong.svg.png" width="22" height="15"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Hong Kong dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hong_Kong_dollar"><font color="#FFFFFF">Hong Kong dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>HKD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>2.8%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>10</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Norway" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Norway"> <font color="#FFFFFF"> <img class="thumbborder" alt="Norway" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/d/d9/Flag_of_Norway.svg/22px-Flag_of_Norway.svg.png" width="22" height="16"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Norwegian krone" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Norwegian_krone"><font color="#FFFFFF">Norwegian krone</font></a></b></td> <td><b><font color="#FFFFFF"><u>NOK (kr)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>2.2%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>11</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="New Zealand" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/New_Zealand"> <font color="#FFFFFF"> <img class="thumbborder" alt="New Zealand" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/3/3e/Flag_of_New_Zealand.svg/22px-Flag_of_New_Zealand.svg.png" width="22" height="11"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="New Zealand dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/New_Zealand_dollar"><font color="#FFFFFF">New Zealand dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>NZD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>1.9%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>12</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Mexico" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Mexico"> <font color="#FFFFFF"> <img class="thumbborder" alt="Mexico" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/f/fc/Flag_of_Mexico.svg/22px-Flag_of_Mexico.svg.png" width="22" height="13"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Mexican peso" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Mexican_peso"><font color="#FFFFFF">Mexican peso</font></a></b></td> <td><b><font color="#FFFFFF"><u>MXN ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>1.3%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>13</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="Singapore" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Singapore"> <font color="#FFFFFF"> <img class="thumbborder" alt="Singapore" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Flag_of_Singapore.svg/22px-Flag_of_Singapore.svg.png" width="22" height="15"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="Singapore dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Singapore_dollar"><font color="#FFFFFF">Singapore dollar</font></a></b></td> <td><b><font color="#FFFFFF"><u>SGD ($)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>1.2%</u></font></b></td> </tr> <tr> <td><b><font color="#FFFFFF"><u>14</u></font></b></td> <td align="left"><b><span class="flagicon"> <a title="South Korea" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/South_Korea"> <font color="#FFFFFF"> <img class="thumbborder" alt="South Korea" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/0/09/Flag_of_South_Korea.svg/22px-Flag_of_South_Korea.svg.png" width="22" height="15"></font></a></span><font color="#FFFFFF"><u>&#8201;</u></font><a title="South Korean won" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/South_Korean_won"><font color="#FFFFFF">South Korean won</font></a></b></td> <td><b><font color="#FFFFFF"><u>KRW (&#8361;)</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>1.1%</u></font></b></td> </tr> <tr> <td colspan="3" align="right"><b> <font color="#FFFFFF"><u>Other</u></font></b></td> <td align="right"><b><font color="#FFFFFF"><u>14.5%</u></font></b></td> </tr> <tr> <td colspan="3" align="right"><font color="#FFFFFF"><u><b>Total</b></u></font></td> <td align="right"><font color="#FFFFFF"><u><b>200%</b></u></font></td> </tr> </table> <p><b><font color="#FFFFFF"><u>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 </u> </font> <a title="Over-the-counter (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Over-the-counter_(finance)"> <font color="#FFFFFF">over-the-counter</font></a><font color="#FFFFFF"><u> (</u></font><a title="OTC" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/OTC"><font color="#FFFFFF">OTC</font></a><font color="#FFFFFF"><u>) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies </u> </font> <a title="Financial instrument" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Financial_instrument"> <font color="#FFFFFF">instruments</font></a><font color="#FFFFFF"><u> are traded. This implies that there is not a <i>single</i> 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 </u> </font> <a title="Arbitrage" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Arbitrage"> <font color="#FFFFFF">arbitrageurs</font></a><font color="#FFFFFF"><u> 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 </u> </font> <a title="Chicago Mercantile Exchange" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Chicago_Mercantile_Exchange"> <font color="#FFFFFF">Chicago Mercantile Exchange</font></a><font color="#FFFFFF"><u> and </u> </font> <a title="Reuters" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Reuters"> <font color="#FFFFFF">Reuters</font></a><font color="#FFFFFF"><u>, called </u> </font> <a title="Fxmarketspace" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fxmarketspace"> <font color="#FFFFFF">Fxmarketspace</font></a><font color="#FFFFFF"><u> opened in 2007 and aspired but failed to the role of a central market </u> </font> <a title="Clearing (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Clearing_(finance)"> <font color="#FFFFFF">clearing</font></a><font color="#FFFFFF"><u> mechanism.</u></font><sup style="WHITE-SPACE: nowrap" class="Template-Fact" title="This claim needs references to reliable sources from June 2010"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:Citation needed" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:Citation_needed"><font color="#FFFFFF">citation needed</font></a></i><font color="#FFFFFF"><u>]</u></font></sup></b></p> <p><b><font color="#FFFFFF"><u>The main trading center is </u> </font> <a title="London" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/London"> <font color="#FFFFFF">London</font></a><font color="#FFFFFF"><u>, but </u> </font> <a title="New York" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/New_York"> <font color="#FFFFFF">New York</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Tokyo" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Tokyo"> <font color="#FFFFFF">Tokyo</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Hong Kong" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hong_Kong"> <font color="#FFFFFF">Hong Kong</font></a><font color="#FFFFFF"><u> and </u> </font> <a title="Singapore" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Singapore"> <font color="#FFFFFF">Singapore</font></a><font color="#FFFFFF"><u> 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.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Fluctuations in </u> </font> <a class="mw-redirect" title="Exchange rates" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rates"> <font color="#FFFFFF">exchange rates</font></a><font color="#FFFFFF"><u> are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in </u> </font> <a title="Gross domestic product" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Gross_domestic_product"> <font color="#FFFFFF">gross domestic product</font></a><font color="#FFFFFF"><u> (GDP) growth, inflation (</u></font><a title="Purchasing power parity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Purchasing_power_parity"><font color="#FFFFFF">purchasing power parity</font></a><font color="#FFFFFF"><u> theory), interest rates (</u></font><a title="Interest rate parity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Interest_rate_parity"><font color="#FFFFFF">interest rate parity</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Fisher hypothesis" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fisher_hypothesis"> <font color="#FFFFFF">Domestic Fisher effect</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="International Fisher effect" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/International_Fisher_effect"> <font color="#FFFFFF">International Fisher effect</font></a><font color="#FFFFFF"><u>), budget and </u> </font> <a class="mw-redirect" title="Trade deficits" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Trade_deficits"> <font color="#FFFFFF">trade deficits</font></a><font color="#FFFFFF"><u> or surpluses, large cross-border </u> </font> <a class="mw-redirect" title="M&amp;A" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/M&amp;A"> <font color="#FFFFFF">M&amp;A</font></a><font color="#FFFFFF"><u> 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' </u> </font> <a class="new" title="Order flow (page does not exist)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Order_flow&amp;action=edit&amp;redlink=1"> <font color="#FFFFFF">order flow</font></a><font color="#FFFFFF"><u>.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Currencies are traded against one another. Each </u> </font> <a title="Currency pair" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Currency_pair"> <font color="#FFFFFF">currency pair</font></a><font color="#FFFFFF"><u> thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the </u> </font> <a title="ISO 4217" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/ISO_4217"> <font color="#FFFFFF">ISO 4217 international three-letter code</font></a><font color="#FFFFFF"><u> of the currencies involved. The first currency (XXX) is the </u> </font> <a class="mw-redirect" title="Base currency" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Base_currency"> <font color="#FFFFFF">base currency</font></a><font color="#FFFFFF"><u> that is quoted relative to the second currency (YYY), called the </u> </font> <a class="mw-redirect" title="Counter currency" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Counter_currency"> <font color="#FFFFFF">counter currency</font></a><font color="#FFFFFF"><u> (or quote currency). For instance, the quotation <i>EURUSD (EUR/USD) 1.5465</i> is the price of the </u> </font> <a title="Euro" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Euro"> <font color="#FFFFFF">euro</font></a><font color="#FFFFFF"><u> expressed in </u> </font> <a class="mw-redirect" title="US dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/US_dollar"> <font color="#FFFFFF">US dollars</font></a><font color="#FFFFFF"><u>, meaning 1 euro = 1.5465 dollars. Historically, the base currency was the stronger currency at the creation of the pair. However, when the euro was created, the European Central Bank mandated that it always be the base currency in any pairing.</u></font></b></p> <p><b><font color="#FFFFFF"><u>The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency </u> </font> <a class="mw-redirect" title="Correlation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Correlation"> <font color="#FFFFFF">correlation</font></a><font color="#FFFFFF"><u> between XXXYYY and XXXZZZ.</u></font></b></p> <p><b><font color="#FFFFFF"><u>On the </u> </font> <a title="Spot price" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Spot_price"> <font color="#FFFFFF">spot</font></a><font color="#FFFFFF"><u> market, according to the BIS study, the most heavily traded products were:</u></font></b></p> <ul> <li><b><font color="#FFFFFF"><u>EURUSD: 27%</u></font></b></li> <li><b><font color="#FFFFFF"><u>USDJPY: 13%</u></font></b></li> <li><b><font color="#FFFFFF"><u>GBPUSD (also called </u> </font><i> <a title="Cable (foreign exchange)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Cable_(foreign_exchange)"> <font color="#FFFFFF">cable</font></a></i><font color="#FFFFFF"><u>): 12%</u></font></b></li> </ul> <p><b><font color="#FFFFFF"><u>and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (17.0%), and sterling (15.0%) (see </u> </font> <a href="#Trading_characteristics"><font color="#FFFFFF"> table</font></a><font color="#FFFFFF"><u>). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.</u></font></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Determinants of FX rates" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=12"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Determinants_of_FX_rates" class="mw-headline"> Determinants of FX rates</span></u></font></h2> <div class="rellink boilerplate seealso"> <b><font color="#FFFFFF"> <u>See also: </u> </font> <a class="mw-redirect" title="Exchange rates" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rates"> <font color="#FFFFFF">exchange rates</font></a></b></div> <p><b><font color="#FFFFFF"><u>The following theories explain the fluctuations in FX rates in a </u> </font> <a title="Floating exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Floating_exchange_rate"> <font color="#FFFFFF">floating exchange rate</font></a><font color="#FFFFFF"><u> regime (In a </u> </font> <a title="Fixed exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fixed_exchange_rate"> <font color="#FFFFFF">fixed exchange rate</font></a><font color="#FFFFFF"><u> regime, FX rates are decided by its government):</u></font></b></p> <dl> <dd><b><font color="#FFFFFF"><u>(a) International parity conditions: </u> </font> <a title="Relative Purchasing Power Parity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Relative_Purchasing_Power_Parity"> <font color="#FFFFFF">Relative Purchasing Power Parity</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Interest rate parity" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Interest_rate_parity"> <font color="#FFFFFF">interest rate parity</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Fisher hypothesis" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fisher_hypothesis"> <font color="#FFFFFF">Domestic Fisher effect</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="International Fisher effect" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/International_Fisher_effect"> <font color="#FFFFFF">International Fisher effect</font></a><font color="#FFFFFF"><u>. 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.</u></font></b></dd> </dl> <dl> <dd><b><font color="#FFFFFF"><u>(b) Balance of payments model (see </u> </font> <a title="Exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rate"> <font color="#FFFFFF">exchange rate</font></a><font color="#FFFFFF"><u>): 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.</u></font></b></dd> </dl> <dl> <dd><b><font color="#FFFFFF"><u>(c) Asset market model (see </u> </font> <a title="Exchange rate" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Exchange_rate"> <font color="#FFFFFF">exchange rate</font></a><font color="#FFFFFF"><u>): 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. </u></font></b></dd> </dl> <p><b><font color="#FFFFFF"><u>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) </u> </font> <a class="mw-redirect" title="Algo trading" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Algo_trading"> <font color="#FFFFFF">algorithm</font></a><font color="#FFFFFF"><u> 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, </u> </font> <a title="Supply and demand" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Supply_and_demand"> <font color="#FFFFFF">supply and demand</font></a><font color="#FFFFFF"><u> 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.</u></font></b></p> <p><b><font color="#FFFFFF"><u>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: </u> </font> <a class="mw-redirect" title="Economic" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Economic"> <font color="#FFFFFF">economic</font></a><font color="#FFFFFF"><u> factors, </u> </font> <a class="mw-redirect" title="Political" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Political"> <font color="#FFFFFF">political</font></a><font color="#FFFFFF"><u> conditions and </u> </font> <a class="mw-redirect" title="Market psychology" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market_psychology"> <font color="#FFFFFF">market psychology</font></a><font color="#FFFFFF"><u>.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Economic factors" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=13"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Economic_factors" class="mw-headline">Economic factors</span></u></font></h3> <p><b><font color="#FFFFFF"><u>These include: (a)economic policy, disseminated by government agencies and </u> </font> <a class="mw-redirect" title="Central banks" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Central_banks"> <font color="#FFFFFF">central banks</font></a><font color="#FFFFFF"><u>, (b)economic conditions, generally revealed through economic reports, and other </u> </font> <a class="mw-redirect" title="Economic indicators" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Economic_indicators"> <font color="#FFFFFF">economic indicators</font></a><font color="#FFFFFF"><u>.</u></font></b></p> <ul> <li><b><font color="#FFFFFF"><u>Economic policy comprises government </u> </font> <a title="Fiscal policy" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Fiscal_policy"> <font color="#FFFFFF">fiscal policy</font></a><font color="#FFFFFF"><u> (budget/spending practices) and </u> </font> <a title="Monetary policy" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Monetary_policy"> <font color="#FFFFFF">monetary policy</font></a><font color="#FFFFFF"><u> (the means by which a government's central bank influences the supply and &quot;cost&quot; of money, which is reflected by the level of </u> </font> <a class="mw-redirect" title="Interest rates" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Interest_rates"> <font color="#FFFFFF">interest rates</font></a><font color="#FFFFFF"><u>).</u></font></b></li> <li><b><font color="#FFFFFF"><u>Government budget deficits or surpluses: The market usually reacts negatively to widening government </u> </font> <a class="mw-redirect" title="Budget deficit" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Budget_deficit"> <font color="#FFFFFF">budget deficits</font></a><font color="#FFFFFF"><u>, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.</u></font></b></li> <li><b><font color="#FFFFFF"><u>Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, </u> </font> <a class="mw-redirect" title="Trade deficits" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Trade_deficits"> <font color="#FFFFFF">trade deficits</font></a><font color="#FFFFFF"><u> may have a negative impact on a nation's currency.</u></font></b></li> <li><b><font color="#FFFFFF"><u>Inflation levels and trends: Typically a currency will lose value if there is a high level of </u> </font> <a title="Inflation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Inflation"> <font color="#FFFFFF">inflation</font></a><font color="#FFFFFF"><u> in the country or if inflation levels are perceived to be rising. This is because inflation erodes </u> </font> <a title="Purchasing power" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Purchasing_power"> <font color="#FFFFFF">purchasing power</font></a><font color="#FFFFFF"><u>, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.</u></font></b></li> <li><b><font color="#FFFFFF"><u>Economic growth and health: Reports such as GDP, </u> </font> <a title="Employment" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Employment"> <font color="#FFFFFF">employment</font></a><font color="#FFFFFF"><u> levels, </u> </font> <a class="mw-redirect" title="Retail sales" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Retail_sales"> <font color="#FFFFFF">retail sales</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Capacity utilization" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Capacity_utilization"> <font color="#FFFFFF">capacity utilization</font></a><font color="#FFFFFF"><u> and others, detail the levels of a country's </u> </font> <a title="Economic growth" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Economic_growth"> <font color="#FFFFFF">economic growth</font></a><font color="#FFFFFF"><u> and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.</u></font></b></li> <li><b><font color="#FFFFFF"><u>Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector </u> </font> <a class="external autonumber" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://papers.ssrn.com/sol3/papers.cfm?abstract_id=711362"> <font color="#FFFFFF">[3]</font></a><font color="#FFFFFF"><u>.</u></font></b></li> </ul> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Political conditions" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=14"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Political_conditions" class="mw-headline"> Political conditions</span></u></font></h3> <p><b><font color="#FFFFFF"><u>Internal, regional, and international </u> </font> <a class="mw-redirect" title="Political" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Political"> <font color="#FFFFFF">political</font></a><font color="#FFFFFF"><u> conditions and events can have a profound effect on currency markets.</u></font></b></p> <p><b><font color="#FFFFFF"><u>All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative interest in a neighboring country and, in the process, affect its currency.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Market psychology" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=15"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Market_psychology" class="mw-headline">Market psychology</span></u></font></h3> <p> <b> <a class="mw-redirect" title="Market psychology" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market_psychology"> <font color="#FFFFFF">Market psychology</font></a><font color="#FFFFFF"><u> and trader perceptions influence the foreign exchange market in a variety of ways:</u></font></b></p> <ul> <li><b><font color="#FFFFFF"><u>Flights to quality: Unsettling international events can lead to a &quot;</u></font><a class="mw-redirect" title="Flight to quality" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Flight_to_quality"><font color="#FFFFFF">flight to quality</font></a><font color="#FFFFFF"><u>,&quot; with investors seeking a &quot;</u></font><a title="Safe haven" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Safe_haven"><font color="#FFFFFF">safe haven</font></a><font color="#FFFFFF"><u>.&quot; There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The </u> </font> <a title="United States dollar" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/United_States_dollar"> <font color="#FFFFFF">U.S. dollar</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Swiss franc" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Swiss_franc"> <font color="#FFFFFF">Swiss franc</font></a><font color="#FFFFFF"><u> and </u> </font> <a class="mw-redirect" title="Gold as investment" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Gold_as_investment"> <font color="#FFFFFF">gold</font></a><font color="#FFFFFF"><u> have been traditional safe havens during times of political or economic uncertainty.</u></font><sup id="cite_ref-13" class="reference"><a href="#cite_note-13"><font color="#FFFFFF">[14]</font></a></sup></b></li> <li><b><font color="#FFFFFF"><u>Long-term trends: Currency markets often move in visible long-term </u> </font> <a class="mw-redirect" title="Market trends" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Market_trends"> <font color="#FFFFFF">trends</font></a><font color="#FFFFFF"><u>. Although currencies do not have an annual growing season like physical commodities, </u> </font> <a title="Business cycle" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Business_cycle"> <font color="#FFFFFF">business cycles</font></a><font color="#FFFFFF"><u> do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.</u></font><sup id="cite_ref-14" class="reference"><a href="#cite_note-14"><font color="#FFFFFF">[15]</font></a></sup></b></li> <li><b><font color="#FFFFFF"><u>&quot;Buy the rumor, sell the fact&quot;: This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being &quot;oversold&quot; or &quot;overbought&quot;.</u></font><sup id="cite_ref-15" class="reference"><a href="#cite_note-15"><font color="#FFFFFF">[16]</font></a></sup><font color="#FFFFFF"><u> To buy the rumor or sell the fact can also be an example of the </u> </font> <a title="Cognitive bias" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Cognitive_bias"> <font color="#FFFFFF">cognitive bias</font></a><font color="#FFFFFF"><u> known as </u> </font> <a title="Anchoring" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Anchoring"> <font color="#FFFFFF">anchoring</font></a><font color="#FFFFFF"><u>, when investors focus too much on the relevance of outside events to currency prices.</u></font></b></li> <li><b><font color="#FFFFFF"><u>Economic numbers: While </u> </font> <a class="mw-redirect" title="Economic indicators" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Economic_indicators"> <font color="#FFFFFF">economic numbers</font></a><font color="#FFFFFF"><u> can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. &quot;What to watch&quot; can change over time. In recent years, for example, </u> </font> <a title="Money supply" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Money_supply"> <font color="#FFFFFF">money supply</font></a><font color="#FFFFFF"><u>, </u> </font> <a title="Employment" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Employment"> <font color="#FFFFFF">employment</font></a><font color="#FFFFFF"><u>, </u> </font> <a class="mw-redirect" title="Trade balance" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Trade_balance"> <font color="#FFFFFF">trade balance</font></a><font color="#FFFFFF"><u> figures and </u> </font> <a title="Inflation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Inflation"> <font color="#FFFFFF">inflation</font></a><font color="#FFFFFF"><u> numbers have all taken turns in the spotlight.</u></font></b></li> <li> <b> <a title="Technical analysis" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Technical_analysis"> <font color="#FFFFFF">Technical trading</font></a><font color="#FFFFFF"><u> considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.</u></font><sup id="cite_ref-16" class="reference"><a href="#cite_note-16"><font color="#FFFFFF">[17]</font></a></sup></b></li> </ul> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Algorithmic trading in foreign exchange" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=16"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Algorithmic_trading_in_foreign_exchange" class="mw-headline"> Algorithmic trading in foreign exchange</span></u></font></h2> <p> <b> <a title="Electronic trading" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Electronic_trading"> <font color="#FFFFFF">Electronic trading</font></a><font color="#FFFFFF"><u> is growing in the FX market, and </u> </font> <a title="Algorithmic trading" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Algorithmic_trading"> <font color="#FFFFFF">algorithmic trading</font></a><font color="#FFFFFF"><u> is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.</u></font><sup style="WHITE-SPACE: nowrap" class="Template-Fact" title="This claim needs references to reliable sources from May 2008"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:Citation needed" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:Citation_needed"><font color="#FFFFFF">citation needed</font></a></i><font color="#FFFFFF"><u>]</u></font></sup></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Financial instruments" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=17"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Financial_instruments" class="mw-headline"> Financial instruments</span></u></font></h2> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Spot" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=18"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Spot" class="mw-headline">Spot</span></u></font></h3> <p><b><font color="#FFFFFF"><u>A </u> </font> <a title="Spot price" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Spot_price"> <font color="#FFFFFF">spot</font></a><font color="#FFFFFF"><u> transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as opposed to the </u> </font> <a title="Futures contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Futures_contract"> <font color="#FFFFFF">futures contracts</font></a><font color="#FFFFFF"><u>, 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.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Forward" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=19"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Forward" class="mw-headline">Forward</span></u></font></h3> <div class="rellink boilerplate seealso"> <b><font color="#FFFFFF"> <u>See also: </u> </font> <a title="Forward contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forward_contract"> <font color="#FFFFFF">forward contract</font></a></b></div> <p><b><font color="#FFFFFF"><u>One way to deal with the foreign exchange risk is to engage in a </u> </font> <a title="Forward contract" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forward_contract"> <font color="#FFFFFF">forward</font></a><font color="#FFFFFF"><u> 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 one day, a few days, months or years. Usually the date is decided by both parties. and foreward contract is a negotiated and agreement between two parties</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Future" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=20"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Future" class="mw-headline">Future</span></u></font></h3> <div class="rellink relarticle mainarticle"> <b><font color="#FFFFFF"> <u>Main article: </u> </font> <a title="Currency future" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Currency_future"> <font color="#FFFFFF">currency future</font></a></b></div> <p><b><font color="#FFFFFF"><u>Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates  for example, $1000 for next November at an agreed rate </u> </font> <a class="external autonumber" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://www.bseindia.com/deri/CDX/cdx_intro.htm?L=2&amp;id=hd4&amp;Lid=1"> <font color="#FFFFFF">[4]</font></a><font color="#FFFFFF"><u>,</u></font><a class="external autonumber" rel="nofollow" href="https://web.archive.org/web/20110124185624/http://www.nse-india.com/marketinfo/fxTracker/fxTracker.jsp"><font color="#FFFFFF">[5]</font></a><font color="#FFFFFF"><u>. 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.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Swap" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=21"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Swap" class="mw-headline">Swap</span></u></font></h3> <div class="rellink relarticle mainarticle"> <b><font color="#FFFFFF"> <u>Main article: </u> </font> <a title="Forex swap" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Forex_swap"> <font color="#FFFFFF">foreign exchange swap</font></a></b></div> <p><b><font color="#FFFFFF"><u>The most common type of forward transaction is the </u> </font> <a title="Currency swap" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Currency_swap"> <font color="#FFFFFF">currency swap</font></a><font color="#FFFFFF"><u>. 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 standardized contracts and are not traded through an exchange.</u></font></b></p> <h3><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Option" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=22"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Option" class="mw-headline">Option</span></u></font></h3> <div class="rellink relarticle mainarticle"> <b><font color="#FFFFFF"> <u>Main article: </u> </font> <a title="Foreign exchange option" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Foreign_exchange_option"> <font color="#FFFFFF">foreign exchange option</font></a></b></div> <p><b><font color="#FFFFFF"><u>A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world..</u></font></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Speculation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=23"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Speculation" class="mw-headline">Speculation</span></u></font></h2> <p><b><font color="#FFFFFF"><u>Controversy about currency </u> </font> <a title="Speculation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Speculation"> <font color="#FFFFFF">speculators</font></a><font color="#FFFFFF"><u> and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including </u> </font> <a title="Milton Friedman" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Milton_Friedman"> <font color="#FFFFFF">Milton Friedman</font></a><font color="#FFFFFF"><u> have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for </u> </font> <a title="Hedge (finance)" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hedge_(finance)"> <font color="#FFFFFF">hedgers</font></a><font color="#FFFFFF"><u> and transferring risk from those people who don't wish to bear it, to those who do.</u></font><sup id="cite_ref-17" class="reference"><a href="#cite_note-17"><font color="#FFFFFF">[18]</font></a></sup><font color="#FFFFFF"><u> Other economists such as </u> </font> <a title="Joseph Stiglitz" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Joseph_Stiglitz"> <font color="#FFFFFF">Joseph Stiglitz</font></a><font color="#FFFFFF"><u> consider this argument to be based more on politics and a free market philosophy than on economics.</u></font><sup id="cite_ref-18" class="reference"><a href="#cite_note-18"><font color="#FFFFFF">[19]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>Large </u> </font> <a class="mw-redirect" title="Hedge funds" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Hedge_funds"> <font color="#FFFFFF">hedge funds</font></a><font color="#FFFFFF"><u> and other well capitalized &quot;position traders&quot; are the main professional speculators. According to some economists, individual traders could act as &quot;noise traders&quot; and have a more destabilizing role than larger and better informed actors </u></font><sup id="cite_ref-19" class="reference"> <a href="#cite_note-19"><font color="#FFFFFF">[20]</font></a></sup><font color="#FFFFFF"><u>.</u></font></b></p> <p><b><font color="#FFFFFF"><u>Currency speculation is considered a highly suspect activity in many countries.</u></font><sup style="WHITE-SPACE: nowrap" class="noprint Inline-Template" title="The geographic scope in the vicinity of this tag is ambiguous"><font color="#FFFFFF"><u>[</u></font><i><a title="Wikipedia:WikiProject Countering systemic bias" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Wikipedia:WikiProject_Countering_systemic_bias"><font color="#FFFFFF">where?</font></a></i><font color="#FFFFFF"><u>]</u></font></sup><font color="#FFFFFF"><u> While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply </u> </font> <a title="Gambling" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Gambling"> <font color="#FFFFFF">gambling</font></a><font color="#FFFFFF"><u> that often interferes with economic policy. For example, in 1992, currency speculation forced the </u> </font> <a title="Sveriges Riksbank" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Sveriges_Riksbank"> <font color="#FFFFFF">Central Bank of Sweden</font></a><font color="#FFFFFF"><u> to raise interest rates for a few days to 500% per annum, and later to devalue the krona.</u></font><sup id="cite_ref-20" class="reference"><a href="#cite_note-20"><font color="#FFFFFF">[21]</font></a></sup><font color="#FFFFFF"><u> Former Malaysian Prime Minister </u> </font> <a class="mw-redirect" title="Mahathir Mohamad" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Mahathir_Mohamad"> <font color="#FFFFFF">Mahathir Mohamad</font></a><font color="#FFFFFF"><u> is one well known proponent of this view. He blamed the devaluation of the </u> </font> <a title="Malaysian ringgit" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Malaysian_ringgit"> <font color="#FFFFFF">Malaysian ringgit</font></a><font color="#FFFFFF"><u> in 1997 on </u> </font> <a title="George Soros" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/George_Soros"> <font color="#FFFFFF">George Soros</font></a><font color="#FFFFFF"><u> and other speculators.</u></font></b></p> <p> <b> <a title="Gregory J. Millman" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Gregory_J._Millman"> <font color="#FFFFFF">Gregory J. Millman</font></a><font color="#FFFFFF"><u> reports on an opposing view, comparing speculators to &quot;vigilantes&quot; who simply help &quot;enforce&quot; international agreements and anticipate the effects of basic economic &quot;laws&quot; in order to profit.</u></font><sup id="cite_ref-21" class="reference"><a href="#cite_note-21"><font color="#FFFFFF">[22]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>In this view, countries may develop unsustainable financial </u> </font> <a title="Economic bubble" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Economic_bubble"> <font color="#FFFFFF">bubbles</font></a><font color="#FFFFFF"><u> or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.</u></font></b></p> <h2><span class="editsection"><font color="#FFFFFF"><u>[</u></font><a title="Edit section: Risk Aversion in Forex" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/w/index.php?title=Foreign_exchange_market&amp;action=edit§ion=24"><font color="#FFFFFF">edit</font></a><font color="#FFFFFF"><u>]</u></font></span><font color="#FFFFFF"><u> <span id="Risk_Aversion_in_Forex" class="mw-headline">Risk Aversion in Forex</span></u></font></h2> <div class="thumb tright"> <div style="WIDTH: 182px" class="thumbinner"> <b> <a class="image" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/File:Equities_usd.JPG"> <font color="#FFFFFF"> <img class="thumbimage" alt="" src="https://web.archive.org/web/20110124185624im_/http://upload.wikimedia.org/wikipedia/commons/thumb/1/1c/Equities_usd.JPG/180px-Equities_usd.JPG" width="180" height="93"></font></a><font color="#FFFFFF"><u> </u> </font></b> <div class="thumbcaption"> <div class="magnify"> <b> <a class="internal" title="Enlarge" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/File:Equities_usd.JPG"> <font color="#FFFFFF"> <img alt="" src="https://web.archive.org/web/20110124185624im_/http://bits.wikimedia.org/skins-1.5/common/images/magnify-clip.png" width="15" height="11"></font></a></b></div> <b><font color="#FFFFFF"> <u>Fig.1 Chart showing MSCI World Index of Equities fell while the US Dollar Index rose.</u></font></b></div> </div> </div> <p><b><font color="#FFFFFF"><u>Risk Aversion in the Forex is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions.</u></font></b></p> <p><b><font color="#FFFFFF"><u>This behavior is caused when risk averse traders </u> </font> <a title="Liquidation" href="https://web.archive.org/web/20110124185624/http://en.wikipedia.org/wiki/Liquidation"> <font color="#FFFFFF">liquidate</font></a><font color="#FFFFFF"><u> their positions in risky assets and shift the funds to less risky assets due to uncertainty.</u></font><sup id="cite_ref-22" class="reference"><a href="#cite_note-22"><font color="#FFFFFF">[23]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe haven currencies, such as the US Dollar.</u></font><sup id="cite_ref-23" class="reference"><a href="#cite_note-23"><font color="#FFFFFF">[24]</font></a></sup></b></p> <p><b><font color="#FFFFFF"><u>Sometimes the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics.</u></font></b></p> <p><b><font color="#FFFFFF"><u>An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened.( See Fig.1 ) This happened despite the strong focus of the crisis in the USA.</u></font><sup id="cite_ref-24" class="reference"><a href="#cite_note-24"><font color="#FFFFFF">[25]</font></a></sup></b></div> </div> <p>&nbsp;</td> </tr> </table> </div> <!-- FILE ARCHIVED ON 18:56:24 Jan 24, 2011 AND RETRIEVED FROM THE INTERNET ARCHIVE ON 00:27:54 Jun 27, 2023. JAVASCRIPT APPENDED BY WAYBACK MACHINE, COPYRIGHT INTERNET ARCHIVE. ALL OTHER CONTENT MAY ALSO BE PROTECTED BY COPYRIGHT (17 U.S.C. SECTION 108(a)(3)). --> <!-- playback timings (ms): captures_list: 111.924 exclusion.robots: 0.077 exclusion.robots.policy: 0.068 RedisCDXSource: 2.592 esindex: 0.007 LoadShardBlock: 92.834 (3) PetaboxLoader3.datanode: 932.579 (4) load_resource: 916.348 PetaboxLoader3.resolve: 56.776 -->