FOREX is an inter-bank market that took shape in 1971 when global trade shifted
from fixed exchange rates to floating ones. This is a set of transactions among
FOREX market agents involving exchange of specified sums of money in a currency
unit of any given nation for currency of another nation at an agreed rate as of
any specified date. During exchange, the exchange rate of one currency to another
currency is determined simply: by supply and demand – exchange to which both parties
The scope of transactions in the global currency market is constantly growing, which
is due to development of international trade and abolition of currency restrictions
in many nations. Global daily conversion transactions came to $1,982 billion in
mid-1998 (the London market accounted for some 32% of daily turnover; the New York
market exchanged approx. 18%, and the German market, 10%). Not only the scope of
transactions but also the rates that mark the market development are impressive:
in 1977, the daily turnover stood at five billion U.S. dollars; it grew to 600 billion
U.S. dollars over ten years – to one trillion in 1992. Speculative transactions
intended to derive profit from jobbing on the exchange rate differences make up
nearly 80% of total transactions. Jobbing attracts numerous participants – both
financial institutions and individual investors.
With the highest rates of information technology development in the last two decades,
the market itself changed beyond recognition. Once surrounded with a halo of caste
mystique, the foreign exchange dealer’s profession became almost grassroots. FOREX
transactions that used to be the privilege of the biggest monopolist banks not so
long ago are now publicly accessible thanks to e-commerce systems. And the foremost
banks themselves also often prefer trade in electronic systems over individual bilateral
transactions. E-brokers now account for 11% of the FOREX market turnover. The daily
scope of transactions of the biggest banks (Deutsche Bank, Barclays Bank, Union
Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank) reaches
billions of dollars.
The FOREX market is a place to apply one’s personal financial, intellectual
and psychic powers and is not designed for flights of fancy. Sometimes
someone manages to survive in this manner, but for a short time only. The key advantage of a FOREX
market is that one can succeed there just by the strength of one’s intelligence.
Another essential feature of the FOREX market, no matter how strange it might seem,
is its stability. Everybody knows that sudden drops are very typical of the financial
market. However, unlike the stock market, the FOREX market never falls. If shares
devalue it means a collapse. But if the dollar slumps, that only means that another
currency gets stronger. For instance, the yen strengthened by a quarter against
the dollar late in 1998. On some days the dollar fell by dozens of percentage points. However,
the market did not collapse anywhere; trading continued in the usual manner. It
is here that the market and the related business stability lie - currency is an
absolutely liquid commodity and will be always traded.
The FOREX market is a 24-hour market that does not depend on certain business hours
of foreign exchanges; trade takes place among banks located in different corners
of the globe. Exchange rates are so flexible that significant changes happen quite
frequently, which enables you to make several transactions every day. If we have an
elaborate and reliable trade technology we can make a business, which no other business
can match by efficiency. It is for this reason reason that the pivotal banks buy expensive
electronic equipment and maintain the staff of hundreds of traders operating in
different sectors of the FOREX market.
The starting costs of joining this business are very low now. Actually, it costs
several thousands of dollars to take a course for initial training, to buy a computer,
to purchase an information service and to create a deposit; no real business can
be established with this money. With excessive offers of services, finding a reliable
broker is also quite a daunting thing. After this the rest depends on the trader himself or herself.
Everything depends on you personally, as in no other area of business now.
The main thing the market will require for successful operations is not the quantity
of money you will deposit into it – the main thing is the ability to constantly focus
on studying the market, understanding its mechanisms and participants’ interests;
FOREX calls for this constant improvement of one’s trade approach and disciplined implementation.
Nobody has achieved success in that market by forcing one’s way with one’s capital in an unfocused
undisciplined manner. The market is stronger than anything else; it is even stronger than central
banks with their huge foreign exchange reserves. George Soros, a national hero of
the FOREX market, did not win over the Bank of England at all, as many of us believe
– he made the right guess that, with existing contradictions inherent in the European
financial system, there were plenty of problems and interests that would not prop up
the pound. That’s exactly what happened. The Bank of England, having spent
nearly $20 billion to maintain the pound rate, jacked it up, by giving in to the market.
The market settled this problem, and Soros got his billion.
The global monetary system has gone a long way over thousands of years of the
human history, but it is surely experiencing the most exciting and unthinkable
changes. The two main changes determine a new image of the global monetary system:
- the money is fully separated from any tangible media;
- powerful information and telecommunications technologies made it possible to consolidate
monetary systems of different nations into the single global financial system that
has no boundaries.