The Global ("FOREX") Foreign Exchange market for trading foreign currencies is the largest, most transparent and most liquid market of all. Whereas the entire combined total value of all world stock exchange trading might average about $50 billion daily, it is estimated that the total value alone of foreign exchange which is traded in a single day is at least 50 times more----or between $2.5 trillion to $3.5 trillion dollars. Unlike world stock exchanges, the global foreign exchange market is open 24 hours per day and six days per week.

Foreign exchange instruments and derivatives trading generally starts in Asia, moves to London, then to New York and back to Tokyo and Singapore. In the past, the only way for investors to gain access to this vast market was through banks which transacted large amounts of currencies primarily for their own commercial and investment purposes. Through Kerford even the smallest as well as the largest investor can trade in foreign currencies and also on a level playing field.

In Forex dealing, trades can be transacted in varying amounts and with different dates and denominations as well as without standardized contract sizes or dates. Foreign exchange spreads are known as "pips" with the difference between bid and ask is usually quoted at between 4 to 5 "pips". For example, with US$ v. Euro contract quoted at bid 135.00-ask 135.05, there is a five "pip" spread on the trade. (On average, one "pip" equals about $10.00 in the above transaction).

Characteristic Features :

• International Electronic link between all major banks.
  
  
• Less than 2% usually required for margin trading.
  
  
• Two way market with almost instant, transparent liquidity.
  
  
• Market Information publicly available via broadcast and press media.
  
  
• Internationally accepted pricing structure.
  
  
• Tracking of a dozen currency pairs at any given time.
  
  
• Contracts can be set for as much as one full year.
  
  

Characteristic Challenges :

• Relatively small price change can result in substantial gains or losses.
  
  
• Needs close monitoring especially when leverage is involved.
  
  
• Chart patterns tend to form as quickly and easily as in the stock market.
  
  
• Analysis, plus good entry/exit timing crucial as a result of leverage involved.
  
  
• Basic trend analysis and traditional indicators considered more reliable.
  
  

THE FOREIGN EXCHANGE MARKET

The Foreign Exchange Market (FX) is extremely large, liquid and, in terms of participants, highly professional. This is the largest financial market in the world, with a volume estimated at of more than $2.5 trillion daily trading in currencies. Unlike other financial markets, the Forex Market has no physical location and no central exchange. Foreign Exchange is traded Over - the - Counter (OTC), operating worldwide, 24 hours a day 6 days per week. It operates through an electronic network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another across the major financial centers.

A number of foreign exchange instruments, called derivatives are traded on exchanges. London in the world's largest FX trading centre, followed by New York and the Singapore. Trading tends to occur in a centre during its normal working hours. As a result, trading stars in Asia, then moves to London and continues in New York at the end of the working day in London. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely.

Although participants in the foreign exchange market are increasingly scattered around the globe, most transactions still take place in London, New York, and Tokyo. London dominates the foreign exchange markets, with 30 percent of all transactions; New York's share is 16 percent. Tokyo's share is now 10 percent and the rest is managed mainly by the markets in Singapore and Hong Kong. Singapore has become the world's fourth largest foreign exchange market, and Hong Kong has overtaken Switzerland to become the fifth largest. Even though 56 percent of the world's foreign exchange transactions are executed in the three largest financial centers, between one-half and three-fourths of daily turnover is cross-border during the centers' business hours, suggesting that one side of many transactions occurs outside of their business hours.

The foreign exchange market is highly liquid as the transactions tend to be large and are executed frequently. A typical dealing institution writes between 3,000 and 4,000 trading tickets for foreign exchange transactions during an average 24-hour day, and about 50 percent more than that on a busy day. Quoted prices can change 20 times a minute for major currencies, with the dollar-deutsche mark rates changing up to 18,000 times during a single day. During periods of extreme stress, a single dealer may execute a trade every two to four minutes.

The points ensure that FX is a product where a correctly informed outsider can more effectively execute their speculative trades and follow their chosen trading model. The level of institutional style trading has now become much more accessible for individual or start up hedge funds through advances in technology and the reduced cost of entry. The most inherent advantage of trading online is reduced execution risk.

The major factors contributing to a weak currency :

• Lower interest rates in home country than abroad.
  
  
• Higher rates of inflation.
  
  
• A domestic trade deficit relative to other countries.
  
  
• A consistent government surplus.
  
  
• Relative political / military stability in other countries.
  
  
• A collapsing domestic financial market.
  
  
• Weak domestic economy / stronger foreign economies.
  
  
• Frequent or recent default on government debt.
  
  
• Monetary policy that frequently changes objectives.
  
  

ADVANTAGES :

24-Hour Trading : Foreign exchange market is a true 24-hour market, which offers a major advantage over equities and exchange traded derivatives trading. There are buyers and sellers all over the world 24 hours a day, all active members of the foreign currency market. The large amount of trading and round the clock performance makes this the most liquid market in the world.

Unlimited Opportunities : FX is an efficient market. FX rates quoted by market participants reflect all news,supply and demand, the weighting of market direction and potentially resting orders. Unlike any market place for equities or exchange traded products, it does not have an opening time or closing time. It is not subject to 'after hours' announcements or earnings reports issued by analysts. FX traders have a level trading pitch.

Market Concentration : Nearly two thirds of daily foreign exchange transactions probably take place between bank dealers. Transactions involve non financial clients and financial institutions other than bank dealers. Many securities firms active in the international debt and equity markets enter into the foreign exchange market as intermediaries, providing one-stop shopping for their customers. Despite the growing diversity of customers, market concentration has increased as the proportion of trading carried out by the top banks continues to rise. This trend is most evident in the smaller markets, which are being abandoned by foreign banks seeking to consolidate their business in the major centers.

Liquidity / Deal Ability : The FX market has more depth and breadth superior to any other capital market instrument. Cash equities and equity derivatives are all subject to what is available in an 'order book' and orders of reasonable size may have to be worked before being filled. A Forex order has the potential to be filled at one rate in good size instantaneously. During periods of extreme stress, a single dealer may execute a trade every two to four minutes and the quoted prices can change 20 times a minute for major currencies.

Leverage / Gearing : Trading FX enables you to leverage your trading capital. An initial margin between 1-2% of the total underlying value of the position is normally sufficient to open a position. Leverage can assist hedge funds in a 'start up' situation to allocate monies efficiently. In addition it maybe possible, through certain FX providers, to allow funds not allocated through prime broker agreements to equity/futures, to be released to support FX overlay strategies. As little as a $1,500 deposit can control a typical $100,000 Forex contract.

FX Trading Platform : Kerford provides an innovative online trading platform to trade Forex. The real time quotes and execution along with low "pip" trading spreads can enhances the profit portfolio of the trader. Real-time position reporting, order status reporting and order placement capabilities allow a client to trade independently online without having to personally contact his broker. Additionally, Kerford's advanced platform will allow the client to place stop loss and limit orders from the same trading platform. These can help to reduce the risk on individual positions or can be placed to take advantage of price action, while the traders focus on other markets.

FEATURES :

Corporate Purchasing : Companies import or export goods, buying them in one currency and selling them in another. This means they pay out money in one currency and receive money in another. They therefore need to convert some of the money they receive into the currency in which they pay for goods. Similarly, a company that buys an asset in a foreign country has to pay for it in the local currency, and so will need to convert its home currency into the local foreign currency.

Speculation : The FX rate between two currencies varies in line with the relative supply and demand for the two currencies. Traders can make profits buying a currency at one rate and selling it at a more favorable rate.

Hedging : Companies who have assets, such as factories, in foreign countries are exposed to the risk of those assets varying in value in their home currency due to fluctuations in the FX rate between the two relevant currencies. While the foreign assets may retain the same value over time in the foreign currency, they produce a profit or loss in the company's domestic currency if the FX rate changes. Companies can eliminate these potential losses by hedging. This involves executing an FX transaction which will exactly offset the profit or loss in value of the foreign asset caused by changes in the FX rate.