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Completely customizable, feature-rich trade station with an easy to use, intuitive interface. |
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Forex Factors Forex Rate Systems: Factor that Influence Prices. There are basically two types of exchange rate systems: FLEXIBLE Exchange Rate System, where the currency is ‘free’ to float and its value is determined by market forces and FIXED Exchange Rate System, where the currency is not allowed to fluctuate freely. Instead, its value is fixed either against a single currency, such as the USD, at a specific rate, or a basket of currencies. In a fixed system, the local central bank uses its currency reserves to prevent rate movements.
Below is a list of major participants: Banks
Non-bank Financial Entities Including real money and leveraged asset managers. New market makers, such as hedge funds and commodity trading advisors, have emerged over the past decade while international corporations have a natural interest to trade on account of their exposure to FX risk. Central Banks and Retail Forex Central Banks can also play an important role in the FX market. Retail FX has also expanded rapidly over the past decade and while precise figures are hard to come by, this sector is believed to represent as much as 20% of the FX market. Forex Essentials
What is a pip? Pip stands for "percentage in point" and is the smallest increment of trade in FX. In the FX market, prices are quoted to the fourth decimal point. For example, if a bar of soap in the drugstore was priced at $1.20, in the FX market the same bar of soap would be quoted at $1.2000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100th of 1%. Among the major currencies, the only exception to that rule is the Japanese yen. Because the Japanese yen has never been revalued since the Second World War, 1 yen is now worth approximately US$0.08; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i.e. to 1/100th of yen, as opposed to 1/1000th with other major currencies). What is a carry? Carry is the most popular trade in the currency market, practiced by both the largest hedge funds and the smallest retail speculators. The carry trade rests on the fact that every currency in the world has an interest rate attached to it. These short-term interest rates are set by the central banks of these countries: the Federal Reserve in the U.S., the Bank of Japan in Japan and the Bank of England in the U.K. to name a few. The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar was to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately. |
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