Frequently Asked Questions
What is Foreign Exchange?
The Forex market is a cash inter-bank or inter-dealer market established in 1971 when floating exchange rates began to materialize.
The simplest definition of foreign exchange is trading one currency for another. The New York Stock Exchange, for example, has a daily trading volume of approximately $50 billion. In comparison to the daily trading volume averages of $300 billion in the U.S. Treasury Bond market the Forex market is huge. In September 1992 The Wall Street Journal estimated the trading volume at $1 trillion per day. Today, it is believed the number has grown in excess of $1.5 trillion worth of volume per day.
The most important foreign exchange activity is the spot business between the dollar and the five major currencies (US Dollar, British Pound, Euro, Swiss Franc, and Japanese Yen).
Participants in the market consist of five main groups: central banks, commercial banks, other financial institutions, corporate customers, and brokers. Commercial brokers conduct by far the largest volume of trading.
But Forex is not a "market" in the traditional sense.
Trading occurs over the telephone and through computer terminals at hundreds of locations worldwide.
What moves the Foreign Exchange markets?
There are two general factors which can affect the Foreign Exchange markets. The first factor is Fundamental while the second factor is Technical analysis.
Fundamental factors include capital flows and trade related flows. The capital related flows are international portfolio movements which move funds from one currency to another to take advantage of favourable conditions in Bond, Equity or Money markets. Trade related flows are directly tied to a country’s export and imports. Countries with a net Trade Surplus are more likely to see a rise demand for their currency while countries with a net Trade Deficit are likely to see a lower demand for their currency.
Technical factors examine price and volume data to help in forecasting potential price movements. Technical analysis will primarily focus on charts and various indicators to identify major and minor trends, support/resistance levels and market reversals. Technical analysis includes Trend analysis, Fibonacci Retracements, Oscillators, Candlestick analysis, Moving Averages and Bollinger Bands.
Why trade currencies?
Transacting in foreign currencies offers clients the opportunity to hedge or manage their exposure to fluctuations in exchange rates in a proactive manner
Who participates in the FX market?
Participants in the foreign exchange market include Banks, Other Financial Institutions, Corporates, Exporters, Importers, Fund managers and Private Individuals
What is the bid? What is the ask?
The "Bid" is that price where Bendix will purchase the foreign currency from the client while the "Ask" is that price where Bendix will sell the foreign currency being requested.
What is a "pip"?
Most currencies are quoted in five digit figures, irrespective of the position of the decimal point. A PIP is the phrase used to describe the smallest part of an exchange rate. Example: on the ? v US$ rate of ?/$ 1.6500 a pip is 0.0001. Accordingly if the rate moves up by 5 pips the resulting rate in the example will be 1.6505. A POINT is generally 100 pips. In the above example if the rate moves up by 100 pips (one point) the resulting rate will be 1.6600.
What does it mean to be "long" or "short" a position?
To be "long" is to have purchased or have a positive balance in a currency, while to be "short" is to have a negative balance in that currency.
What is the difference between market and limit orders?
Market orders are orders to buy or sell a currency at the current market price while limit orders are orders at a specified price in hope that the market will reach that level.
What is a price forecast?
A price forecast is the prediction of a future value of a currency for a specified time frame. It may be based on either fundamental or technical factors.
What is a "round trip" transaction?
A round trip transaction is both the transaction to enter into a position and also the transaction to close out the position.
Where can I get information on the "central banks"?
Information about Central Banks may be obtained from their respective web pages. See "Useful Links" for some Central Bank Web Sites
Where can I get "advice" on the currency markets?
Advice about currency markets may be obtained from a variety of sources. Call Bendix Foreign Exchange at 416 366-9000 and ask to speak with a trader to find out more.
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