Day Trading Strategies With FOREX

Sept. 26, 2011 - PRLog -- Forex stands for foreign exchange market, with a variety of participants being involved in financial transactions. Commercial companies, central banks, and banks trade currencies on the financial market. Other players include hedge funds, retail foreign exchange traders, and investment management firms.

Many top Canadian banks participate in the currency market daily, and only part of the trading takes place on behalf of customers. Regardless of this, most trading is carried out to benefit banks themselves. Central banks fall into another group of participants in that they aim to control interest rates, inflation, and the money supply. For these reasons, central banks have official and unofficial rates for their currencies. A major goal of central banks is to stabilize the market. They do this by using considerable amounts from their foreign exchange reserves. In general, central banks play an important role on the foreign exchanges in New York, Tokyo, and London. While there are other forex trading locations, these three are the most important in terms of trading.

Retail exchange currency traders make use of retail forex platforms, participating indirectly on the currency market through banking establishments and brokers. The share of retail foreign exchange traders is insignificant, making for just 2 percent of the whole volume. The National Futures Association has announced that the volume of retail forex trading has increased considerably, especially over the last couple of years. At the same time, forex fraud is also a more prominent phenomenon. Retail forex traders work with two main types of trading desks. One of them is the non-dealing desk, with trading in the hands of the proprietary. Foreign exchange trading takes place on this desk. (http://www.canadabanks.net/default.aspx?article=Forex)The dealing or trading desk is the second desk, and off-exchange trading is carried out there.

Investment management firms constitute another group of participants on the currency market. Endowments, pension funds, and other entities have large accounts, which are managed by investment management firms. The latter trade on the currency market as to carry out transactions in foreign securities. Some firms also conduct currency overlay operations in order to limit the risk and generate profits.

Hedge funds are aggressively managed, private funds, which make use of sophisticated strategies and tools in order to generate high returns. Hedge funds employ advanced strategies, among which short, long, derivative, and leveraged positions in the international and domestic markets. Since the 1990s, hedge funds have been known for aggressive currency speculation. They control huge amounts of equity and play against central banks when the latter aim to support some currency. Notably, over 70 percent of transactions on the foreign exchange market have a speculative nature.

A final group of participants, which is worth mentioning, are commercial companies. Given that commercial companies trade a relatively small volume, unlike speculators and banks, their transactions do not have much of a short-term impact on exchange rates. However, cash flows have impact on the currency rates in the long run.

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