Forex trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXXYYY or YYY/XXX, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EURUSD or USD/EUR is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the "base" currency, was the stronger currency at the creation of the pair. The second currency, counter currency or "term" currency, was the weaker currency at the creation of the pair. Currencies are occasionally incorrectly quoted with the pairs inverted e.g. EUR/USD but this is incorrect. The "/" acts the same as the divide mathematical operator and derives the actual exchange rate. e.g. an amount of $140,000 equates to €100,000. $140,000/€100,000 = $/€ = USD/EUR = a rate of 1.4 hence EURUSD or USD/EUR. See Exchange_rate

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

• EURUSD: 27%
• USDJPY: 13%
• GBPUSD (also called cable): 12%

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 table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.

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.

Forex retail foreign exchange brokers

Retail traders (individuals) are an explosively growing part of this market, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange scams. 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.

There are two main types of retail FX brokers offering the opportunity for speculative currency trading: Retail brokers who employ the "Agency Broker" model and Market-Makers who employ the "Broker as principal or specialist" model. "Agency Brokers" serve as 'your representative' in the broader FX market, by seeking the best prices for your orders, and then typically pass your orders through to some other market-maker, bank or dealer, after applying a small mark-up. Market-Makers, by contrast, typically play the role of 'final resting stop' for your orders by choosing to simply fill them immediately and then manage the resulting risk themselves. No one model is better than the other, and both have various benefits, advantages and drawbacks.

Nonetheless, it is not widely understood that some retail brokers (market makers) typically trade 'against' their clients (via the broker as "principal" model rather than the "agency" broker model) and frequently take the other side of their customers' trades. This may sometimes create a potential conflict of interest and give rise to some of the unpleasant trade-execution experiences some traders & customers have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but cautious optimism is still advised.

The earliest Retail FX brokers were CMC Markets, SAXO Bank (Formerly MIDAS), FXCM (formerly Shalish Capital Markets) GFT (Global Forex Trading) MG Forex (AKA "Money Garden"), eForex.com, and Matchbook FX, which was notable because it was the 1st and only FX broker that pursued a user-price driven ECN model, rather than a Dealer/Market Maker model.

Forex hedge funds as speculators

About 70% to 90% 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. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity 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.

Forex central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, 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. Milton Friedman 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 "stabilizing speculation" 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.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Forex commercial companies

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.

Forex banks

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 broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Forex market participants

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 commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller 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.

Forex market size and liquidity

The foreign exchange market is the largest and most liquid financial market in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.

FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms). Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market taker will buy ("bid") from a wholesale or retail customer. The customer will buy from the market-maker at the higher "ask" price, and will sell at the lower "bid" price, thus giving up the "spread" as the cost of completing the trade. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".

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 EUR/USD 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.

Forex

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.

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 floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of

• its trading volumes,
• the extreme liquidity of the market,
• its geographical dispersion,
• its long trading hours: 24 hours a day except on weekends (from 20:15 UTC on Sunday until 22:00 UTC Friday),
• the variety of factors that affect exchange rates.
• the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
• the use of leverage

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks.^{[citation needed]} According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

• $1.005 trillion in spot transactions
• $362 billion in outright forwards
• $1.714 trillion in foreign exchange swaps
• $129 billion estimated gaps in reporting

Grand Prix motor racing

Grand Prix motor racing has its roots in organised automobile racing that began in France as far back as 1894. It quickly evolved from a simple road race from one town to the next, to endurance tests for car and driver. Innovation and the drive of competition soon saw speeds exceeding 100 miles per hour (160 km/h), but because the races were held on open roads there were frequent accidents with the resulting fatalities of both drivers and spectators.

Grand Prix motor racing eventually evolved into formula racing, and Formula One can be seen as its direct descendant. Each event of the Formula One World Championships is still called a Grand Prix.

Other categories

• Autocross
• Autograss
• Banger racing
• Board track racing
• Demolition derby
• Dirt speedway racing
• Dirt track racing
• Drifting
• Folkrace
• High Performance Drivers Education
• Hillclimbing
• Ice racing
• Legends car racing
• Midget car racing
• Monster truck
• Pickup truck racing
• Rallycross
• Road racing
• Short track motor racing
• Slalom
• Sprint car racing
• Sprinting
• Street racing
• Time Attack
• Truck racing
• Wheelstand Competition

Historical racing

As modern motor racing is centered on modern technology with a lots of corporate sponsors and politics involved, historical racing tends to be the opposite. Because it is based on a particular era it is more hobbyist oriented, reducing corporate sponsorship and politics. Events are regulated to only allow cars of a certain era to participate. The only modern equipment used is related to safety and timing. A historical event can be of various different motorsport disciplines. Notably some of the most famous events of them all are the Goodwood Festival of Speed and Goodwood Revival in Britain and Monterey Historic in the United States. Championships range from "grass root" Austin Seven racing to the FIA Thoroughbred Grand Prix Championship for classic Formula One chassis.

While there are several professional teams and drivers in historical racing, this branch of auto sport tends to be contested by wealthy car owners and is thus more amateur and laid back in its approach.

Kart racing

Although often seen as the entry point for serious racers into the sport, kart racing, or karting, can be an economical way for amateurs to try racing and is also a fully fledged international sport in its own right. World-famous F1-drivers like Michael Schumacher or Fernando Alonso and most of the typical starting grid of a modern Grand Prix took up the sport at around the age of eight, with some testing from age three. Several former motorcycle champions have also taken up the sport, notably Wayne Rainey, who was paralysed in a racing accident and now races a hand-controlled kart. As one of the cheapest ways to go racing, karting is seeing its popularity grow worldwide.

Go-karts, or just "karts" - seem very distant from normal road cars, with diminutive frames and wheels, but a small engine combined with very light weight make for a quick machine.

Off-road racing

In off-road racing, various classes of specially modified vehicles, including cars, compete in races through off-road environments. In North America these races often take place in the desert, such as the famous Baja 1000. In Europe, "offroad" refers to events such as autocross or rallycross, while desert races and rally-raids such as the Paris-Dakar, Master Rallye or European "bajas" are called "cross-country rallies." many people have died while trying to win the world cup.

Sports car racing

In sports car racing, production versions of sports cars and/or grand tourers, and sports prototype cars compete within their respective classes on closed circuits. The races are often conducted over long distances, at least 1000 km, and cars are driven by teams of two or three drivers (and sometimes more in the US), switching every few hours. Due to the performance difference between production-based sports cars and purpose-built sports prototypes, one race usually involves several racing classes. In the US the American Le Mans Series (ALMS) was organized in 1999, featuring GT1, GT2, and two prototype classes, LMP1 (Le Mans Prototype 1) and LMP2. Manufacturers such as Audi and Acura/Honda field or support entries in the Prototype class. Another series based on Le Mans began in 2004, the Le Mans Endurance Series, which included four 1000 km races at tracks in Europe. A competing body, Grand-Am, which began in 2000, sanctions its own endurance series the Rolex Sports Car Series.

Famous sports car races include the 24 Hours of Le Mans, the 24 Hours of Daytona, 24 Hours of Spa-Franchorchamps, the 12 Hours of Sebring, and the 1,000-mile (1,600 km) Petit Le Mans at Road Atlanta.

Drag racing

In drag racing, the objective is to complete a given straight-line distance, from a standing start, ahead of a vehicle in a parallel lane. This distance is traditionally ¼ mile (400 m), though 1/8 mile (200 m) has become popular since the 1990s. The vehicles may or may not be given the signal to start at the same time, depending on the class of racing. Vehicles range from the everyday car to the purpose-built dragster. Speeds and elapsed time differ from class to class. Average street cars cover the ¼ mile in from 10 to 15 seconds whereas a top fuel dragster takes 4.5 seconds or less, reaching speeds of up to 530 km/h (330 mph). Drag racing was organized as a sport by Wally Parks in the early 1950s through the NHRA (National Hot Rod Association). The NHRA was formed to discourage street racing.

Launching, a top fuel dragster will accelerate at 4.5 g (44 m/s²), and when braking parachutes are deployed the deceleration is 4 g (39 m/s²), more than the Space Shuttle experiences. A top fuel car can be heard over 8 miles (13 km) away and generates a reading of 1.5 to 2 on the Richter scale.

Drag racing is two cars head-to-head, the winner proceeding to the next round. Professional classes are all first to the finish line wins. Sportsman racing is handicapped (slower car getting a head start) using an index (a lowest e.t. allowed), and cars running under (quicker than) their index "break out" and lose. The slowest cars, bracket racers, are also handicapped, but rather than an index, they use a "dial-in". Bracket racing has been viewed as the main cause of the loss of public interest in drag racing. People don't understand why the slower car wins or why somebody needs to hit the brakes to avoid going too fast. Many local tracks have also complained that bracket racers will also go out of their way to spend as little as possible while at the track by bringing their own food, beverages, fuel and supplies thus, making it more difficult for tracks to make money on these events. This causes gate prices to rise and tracks losing interest in having such events.

Targa Racing (Targa Rally)

Targa is a tarmac-based road rally which is run all around the world. This began with the Targa Florio. There are many races including Targa Tasmania held on the island state of Tasmania, Australia, run annually since 1992. The event takes its name from the Targa Florio, a former motoring event held on the island of Sicily. The competition concept is drawn directly from the best features of the Mille Miglia, the Coupe des Alpes and the Tour de Corse. Other events around the world include the Targa Newfoundland based in Canada, Targa West based in Western Australia, Targa New Zealand and other smaller events.

Rallying

Rallying, or rally racing, involves two classes of car. The modified Group A, but road legal, production-based cars and the Group N Production cars compete on (closed) public roads or off-road areas run on a point-to-point format where participants and their co-drivers "rally" to a set of points, leaving in regular intervals from start points. A rally is typically conducted over a number of "special stages" of any terrain, which entrants are often allowed to scout beforehand at reduced speeds compiling detailed shorthand descriptions of the track or road as they go. These detailed descriptions are known as "pace notes." During the actual rally, the co-driver reads the pace notes aloud (using an in-helmet intercom system) to the driver, enabling them to complete each stage as quickly as possible. Competition is based on lowest total elapsed time over the course of an event's special stages, including penalties.

The top series is the World Rally Championship (WRC), but there also regional championships and many countries have their own national championships. Some famous rallies include the Monte Carlo Rally, Rally Argentina, Rally Finland and Rally GB. Another famous event (actually best described as a "rally raid") is the Paris-Dakar Rally. There are also many smaller, club level, categories of rallies which are popular with amateurs, making up the "grass roots" of motor sports.

Stock car racing

Stock car racing, is hugely popular in the USA. It is the most popular form of racing in the United States

Usually raced on oval tracks stock cars may resemble production cars but are in fact purpose-built racing machines which are built to tight specifications.

The largest stock car racing governing body is NASCAR. NASCAR's premier series is the Sprint Cup Series, its most famous races being the Daytona 500 and the Brickyard 400. NASCAR also runs several feeder series. The Nationwide Series, and Camping World Truck Series (a pickup truck racing series) conduct races across the entire continental United States. The NASCAR Canadian Tire Series conducts races across Canada and the NASCAR Corona Series conducts races across Mexico. NASCAR also governs several smaller regional series.

NASCAR also governs the Whelen Modified Tour. Modified cars are best described as hybrids of stock cars and open-wheel cars. They are heavily altered from stock, with powerful engines, large tires, tubular chassis and light bodies. The Whelen Modified tour is NASCAR's oldest series.

There are also other stock car governing bodies, such as Automobile Racing Club of America and United Speed Alliance Racing.

In the UK, British Stock car racing is also referred to as "Short Circuit Racing". This takes place on shale or tarmac tracks - usually around 1/4 mile in length. The governing bodies for the sport are the Oval Racing Council (ORC) and BriSCA. Both bodies are made up of individual stadium promoters. There are around 35 tracks in the UK and upwards of 7000 active drivers. The sport is split into three basic "divisions" - distinguished by the rules regarding car-contact during racing.

Full Contact formulas include Bangers, Bombers and Rookie Bangers - and racing features Demolitions Derbies, Figure of Eight racing and Oval Racing

Semi Contact Formulas include BriSCA F1, F2 and Superstox - where bumpers are used tactically.

Non-contact formulas include National Hot Rods, Stock Rods and Lightning Rods.

UK Stock car racing started in the 1950s and grew rapidly through the 60s and 70s.