Top Countries Globally in Forex Trading

Trading in foreign exchange, which saw global daily volumes of more than $3 trillion (Dh11trn) last year, has been drawing interest from investors across the world. Estimated to be 20 times higher than the daily volume of the New York Stock Exchange, providers of online forex trading platform are quite buoyant on the growth of this asset class in spite of the global economic crisis.

Betsy Waters, Global Director, dbFX, an online margin foreign exchange trading platform launched by Deutsche Bank, says forex trading is in for massive growth. Excerpts from an interview:

What has been the impact of the ongoing volatility in global markets on forex trade?

Forex trading has gone up. If I look at our bank, we were 200 per cent of our normal weekly average this month [October] in volumes. The impact of volatility has been positive as people who do not want to trade other asset classes have been moving into forex. For instance, in case of equities, investors are not able to buy and hold at the moment, given the global financial turmoil.

In case of forex trading, volatility is good. It means one can always buy and sell and make a positive investment. Volatility is in fact good for trading of currencies unlike other asset classes, a factor that is making it much more attractive.

Has this been a good period?

It is proving to be the best period for volumes. As far as investments are concerned, it depends whether you are right or not.

How has forex trade grown in the Middle East? Where is maximum growth in the region coming from?

Of the four regions that we have categorised - the United States, Europe, Asia and Middle East - we see high potential in Middle East. We recorded a year-on-year growth of 70 per cent this year and countries in the Middle East have significantly contributed to it. The UAE and Jordan have been among the best performing countries in this region and we have a heavy clientele here.

What are the factors that are driving growth in this region and how would you describe investor behaviour here vis-á-vis other countries?

The driving factor is that people here like to trade and earn quick money. Investor behaviour is also unique. Unlike other countries where we saw investors focusing on a wider variety of currencies, Middle Eastern foreign currency traders have been trading heavily in the euro/dollar currency pair. As much as 60 per cent of our second quarter volume from the Middle East came from euro/dollar, whereas in other regions euro/dollar formed 25 per cent to 30 per cent of the volume. This is interesting and reflects that investors here are really looking to trade the currency that trades the most, which shows that they seek quick returns.

They are looking at this as purely a trading opportunity. Other factors that would push trade are the low entry costs for forex trading. We open accounts from as low as $5,000 (Dh18,350). The platform is easily accessible and understandable. Besides, technical analysis makes it easy for people to trade.

Deutsche Bank has a large share of forex trading globally. How was this been built and how is it maintained?

We have a 20 per cent market share, which is the highest. Backed by strong research team, good technicals have helped us to maintain this position. It has been built over a period of years. We launched our online products several years ago. As a bank and being in foreign exchange we always look forward to innovations and launching product and that has helped us to keep up.

How do you see the overall forex trading segment growing in 2009?

The scenario looks quite bright. Due to high volatility, people are not necessarily able to trade in asset classes such as equities. In our business, we had a 70 per cent year-on-year increase, and we look forward to maintaining at least a similar growth rate next year. As per the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity 2007, daily turnover of the world's currency markets is close to $3trn a day, compared to $500 billion for the US Government bond market and $70bn for the New York Stock Exchange.

The growth next year is expected to be quite high. The factor that would drive growth next year is the rising inclination towards forex trading.

What are the risks associated with forex trading and how can an investor minimise them?

Over-leveraging is the biggest risk. Using too much of leverage could lead to losses. Another risk is that one does not use the tools provided in the system like stop losses. One needs to plan the trade carefully before executing it.

Betsy Waters: Global Director, dbFX

Waters is the Global Director at dbFX, Deutsche Bank's market-leading online margin forex trading platform. In this role, she is responsible for overseeing sales and trading for dbFX's diverse retail client base - located in more than 70 countries around the world. Waters has had a long and established career in forex, with more than 20 years experience in sales and trading roles. Her experience - initially in an institutional capacity at Goldman Sachs and Citibank - has been instrumental in the development of dbFX as a trading platform of choice for retail investors.

Top Best Ways to Forex Trade

Forex is the acronym of Foreign Exchange. Typically, it denotes the exchange of one country’s money with another’s. Many use it as a kind of business. In fact currency trading can be an interesting area of investment. In it, a person has to take care that he or she is exchanging a currency with another that will earn the person money in future.

There are factors that can change the value of a currency. It can change from market news or from the financial developments around the globe. To give an example, a person will make profit if he or she closes the position when the price of a currency appreciates in value.
However, in that case, the person is only dealing with the counter currency. Thus in the currency markets, one currency is valued against another and consequently, a rate of worth can be found out. The reason of this is the fact that the value of the currency of a country is always relative and it can not be measured without comparing it to the currency of the other countries.

As one can clearly see; the trading needs a lot of understanding. The person must have a strong understanding and a simultaneously strong sense to judge the potential value of a currency. Most importantly, a successful trader must have the capability to interpret different Forex trade signals.

Fortunately, there are different tools available to solve the problem. There are different charting programs along with trading guides that are sure to help a person understand Forex systems better. There are also interactive training rooms with live video footages to teach an interested person the pros and cons of the business. The World Bank publishes Forex report every day. This report can be of great help in making the right decisions.

Launched in 1973, FOREX has now become one the most prolific areas of investment when it comes to currency trading. As far the report goes, as much as $1.2 trillion worth of exchange takes place everyday. Obviously, there are certain forex advantages that have lured investors into it. Unlike most securities, FOREX does not trade on a fix rate.

Here, the exchange is basically done between the banks, non-banking corporations, private investors and speculators. In the initial days, the large amount of investment would dissuade small investors. However, as the competition grew tougher, the requirements to take part in FOREX have come down too. Now, smaller investors can try it out as well.

Another major forex advantage is its accessibility. One can trade for 24 hours a day, 5 days a week. One can do their entire trading on computer as well.

Now, to make it a successful deal, one needs the help of experts who will help understand FX signals. And utilize tools that can present comprehensive market analysis right in front of your eyes. At the same time, it is important the information be updated on a regular basis.

The AFFX desktop is a tool that helps you get what you need. It offers all the essential information and much more. It provides forex alerts and other useful services. It is also offered at a reasonable price. No wonder why it has become one of the most preferred tools in this sector.

Forex Trade History

The origin of FOREX trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon.

In those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World war, most Central banks supported their currencies with convertibility to gold. However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in FOREX market activity. From 1931 until 1973, the FOREX market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the FOREX markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The FOREX exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions, at present it also includes the dot com booms and the world wide web. The size of the FOREX market now dwarfs any other investment market. The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It is estimated that more than USD 1,200 Billion are traded every day. It can be said easily that FOREX market is a lucrative opportunity for the modern day savvy investor.