Par t 2 of 6.

Thembu Royals Magazine - - Contents -

Brief Con­text and back­ground:

Money in one form or other had been used as a means to ex­change be­tween the sell­ers and buy­ers World over. Gold or Sil­ver coins be­came very pop­u­lar in the begin­ning. The chal­lenge had al­ways been how to value the lo­cal cur­ren­cies as com­pared to the for­eign cur­ren­cies in the event that there was a trans-na­tional trade tak­ing place. Then the strength of the coun­try’s cur­rency was de­pen­dent on the amount of gold re­serves that coun­try “A” had. The larger the gold re­serves that a coun­try had, the stronger was their cur­rency. That was known as The Gold Stan­dard, which be­came ac­cepted in­ter­na­tion­ally around 1880. Nu­mer­ous ‘ cur­rency wars’ be­tween the na­tions of the world took place over many cen­turies with­out much cer­tainty up un­til on or about the 1940s when the Great Bri­tain and USA de­vel­oped pro­pos­als to sta­bi­lize the ‘ cur­rency wars’ among the Na­tions of the World. In July 1944 at Bren­ton Woods, New Hamp­shire, an agree­ment un­der the United Na­tions Mon­e­tary and Fi­nan­cial Con­fer­ence was en­tered into be­tween the na­tions of the world. The agree­ment be­came known as The Bren­ton Woods Agree­ment ( BWA). Un­der the BWA the cur­ren­cies of par­tic­i­pat­ing na­tions could be con­verted into US Dol­lar at a fixed rate, and for­eign cen­tral banks could convert the US Dol­lar into gold at a fixed rate, mean­ing that the world’s lead­ing cur­ren­cies were pegged against the US Dol­lar.

This con­text is of great sig­nif­i­cance be­cause in a real life trad­ing en­vi­ron­ment the US Dol­lar is still the dom­i­nant cur­rency even to date. This sys­tem con­tin­ued up un­til about the 1970s when the cur­rency wars again re-sur­faced. Dur­ing the later part of 1970 the cur­ren­cies of the world aban­doned the 1944 sys­tem and de­cided to ‘ float ‘ their cur­ren­cies in an open mar­ket. The idea be­ing to let the mar­ket de­cide the value of a given cur­rency based on the de­mand and sup­ply of the cur­rency and the eco­nomic health of a cur­rency’s na­tion. This was called In­ter­na­tional Mon­e­tary Mar­ket

( IMM). IMM is the col­lec­tion of fi­nan­cial in­sti­tu­tions of the world rang­ing from gov­ern­ment cen­tral banks, com­mer­cial banks, bro­ker­ages, fund man­agers, in­di­vid­u­als, and the like. This ‘ new mon­e­tary regime’ ef­fec­tively gave birth to the FOREX in 1971 as we know it to­day.

The DNA of the FOREX In­dus­try

It is pos­si­ble that some­one else might in­ter­pret the DNA of the FOREX dif­fer­ently but in essence it will lead to the same out­come.

The im­por­tant par­tic­i­pants

The cen­tral banks of dif­fer­ent coun­tries play a very im­por­tant part in the FOREX in­dus­try. Th­ese banks seek to con­trol the money sup­ply and some­times adopt an of­fi­cial and / or un­of­fi­cial tar­get rates for their cur­ren­cies.

Com­mer­cial Banks: Ma­jor Com­mer­cial Banks take part in FOREX, mainly on be­half of their cor­po­rate clients, and also for them­selves.

Hedge Funds: Hedge Funds are said to have the abil­ity to ex­ploit the coun­try’s eco­nomic weak­ness and ex­pose the coun­try’s un­sta­ble fi­nan­cial plight .

In­di­vid­u­als: A lot of in­di­vid­u­als all over the world take part in FOREX. In­di­vid­ual as an in­di­vid­ual may not have much im­pact but a com­bi­na­tion of all the in­di­vid­u­als world over is a force to be reck­oned with.

The ra­tio­nale be­hind trad­ing FOREX

FOREX trad­ing is very liq­uid, prob­a­bly the most liq­uid of all the fi­nan­cial mar­kets in the en­tire world. In the re­cent years Hedge Funds had grown an ap­petite in FOREX which has helped to im­prove the liq­uid­ity of this in­sti­tu­tion a great deal. Over and above FOREX trade has a lot of trans­parency at­tached to it. It is of crit­i­cal im­por­tance that any ( in­di­vid­ual) trader must watch the en­try level ( point) of th­ese mar­ket giants so as to gain fi­nan­cially in their trades.

The use of au­to­mated trad­ing sys­tems makes trad­ing FOREX very con­ve­nient. One can place a trade at 08h00am and go to work dur­ing which pe­riod the trad­ing goes on as if one was phys­i­cally watch­ing their graphs grow or fall. It is very cheap to start to trade. Depend­ing on the trad­ing agency that one has reg­is­tered with the av­er­age start­ing price is about R500

[ five hun­dred rand] .

The use of lever­age al­lows one to ac­quire a higher level of vol­umes of money than what one ac­tu­ally has.

The type of a suit­able dealer for you as a trader

There are nu­mer­ous deal­ers out there wherein a FOREX trader needs to reg­is­ter with be­fore one can trade. It is a con­fus­ing task for a new trader as to which dealer is best suit­able for their spe­cific needs. Nev­er­the­less the best ad­vice is that a novice trader must keep look­ing for other deal­ers as and when the traders gain more in­sight into the prac­tice. There are nu­mer­ous fea­tures that one should con­sider like, but not lim­ited to-tech­nol­ogy used, spreads, lever­age, tools, man­age­ment, se­cu­rity, and many more. In our next fea­ture we will con­tinue to fi­nal­ize The DNA of FOREX be­fore we move for­ward.

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