Friday, July 23, 2010

A Detailed Overview of Forex Market

The following facts and figures relate to the foreign exchange market. Most of the information comes from the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2004, and published in March 2005. 52 central banks and monetary authorities participated in the survey, collecting information from approximately 1200 market participants.StructureDecentralised, over-the-counter market, also known as the 'interbank' marketMain participants: Central Banks, commercial and investment banks, hedge funds, pension funds, corporations & private speculatorsThe free-floating currency system began in 1973, and was officially mandated in 1978Online trading began in the mid to late 1990'sSource: BIS Triennial Survey 2004Trading Hours24 hour marketSunday 5pm EST through Friday 4pm EST. Rollover at 5pm ESTTrading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and AmericaSizeLargest market in the world$1.9 trillion average daily turnover, equivalent to:More than 10 times the average daily turnover of global equity markets 140 times the average daily turnover of the NYSE 2$300 a day for every man, woman, and child on earthAn annual turnover more than 10 times world GDP 3The spot market accounts for about one-third of daily turnover1. About $167 billion - World Federation of Exchanges aggregate 2004 2. About $46 billion - NYSE 2004 3. About $36 trillion - World Bank 2003Source: BIS Triennial Survey 2004Major MarketsThe US & UK account for more than 50% of turnoverMajor markets: London, New York, TokyoTrading activity is heaviest when major markets overlapNearly two-thirds of NY activity occurs in the morning hours while European markets are open 4 4. NY Federal ReserveAverage Daily Turnover by CountryConcentration in the Banking Industry16 banks account for 75% of turnover in the U.K.11 banks account for 75% of turnover in the U.S.11 banks account for 75% of turnover in JapanNote: The reference here is to individual banking offices rather than banking organisations.Source: BIS Triennial Survey 2004TradingAn estimated 95% of transactions are speculativeMore than 40% of trades last less than two daysAbout 80% of trades last less than one weekBrokers research: 90% of traders lose money, 5% break even, 5% make moneyTechnical AnalysisCommonly used technical indicators:Moving averagesRSIFibonacci retracementsStochasticsMACDMomentumBollinger bandsPivot pointElliott WaveCurrenciesThe US dollar is involved in approximately 90% of all foreign exchange transactions, equivalent to over $1.5 trillion a dayCurrency CodesUSD = US DollarEUR = EuroJPY = Japanese YenGBP = British PoundCHF = Swiss FrancCAD = Canadian DollarAUD = Australian DollarNZD = New Zealand DollarAverage Daily Turnover by CurrencyN.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.Source: BIS Triennial Survey 2004Currency PairsMajors: EUR/USD, USD/JPY, GBP/USD, USD/CHFDollar bloc: USD/CAD, AUD/USD, NZD/USDMajor crosses: EUR/JPY, EUR/GBP, EUR/CHFAverage Daily Turnover by Currency Pair


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