Forex trading india wiki
With the improvement in communications technology in the late 20th century, the need for a physical location became less important and traders started to transact from remote locations in what became known as electronic trading. Set up in , NASDAQ was the world's first electronic stock market, though it originally operated as an electronic bulletin board [ citation needed ] , rather than offering straight-through processing STP.
By investment firms on both the buy side and sell side were increasing their spending on technology for electronic trading. Traders also increasingly started to rely on algorithms to analyze market conditions and then execute their orders automatically.
The move to electronic trading compared to floor trading continued to increase with many of the major exchanges around the world moving from floor trading to completely electronic trading. While the majority of retail trading in the United States happens over the Internet, retail trading volumes are dwarfed by institutional, inter-dealer and exchange trading.
However, in developing economies, especially in Asia, retail trading constitutes a significant portion of overall trading volume . For instruments which are not exchange-traded e. US treasury bonds , the inter-dealer market substitutes for the exchange.
This is where dealers trade directly with one another or through inter-dealer brokers i. They acted as middle-men between dealers such as investment banks. This type of trading traditionally took place over the phone but brokers moved to offering electronic trading services instead. Similarly, B2C trading traditionally happened over the phone and, while some still does, more brokers are allowing their clients to place orders using electronic systems. Many retail or "discount" brokers e.
Charles Schwab , E-Trade went online during the late s and most retail stock-broking probably takes place over the web now. Larger institutional clients, however, will generally place electronic orders via proprietary electronic trading platforms such as Bloomberg Terminal , Reuters Xtra , Thomson Reuters Eikon , BondsPro, Thomson TradeWeb or CanDeal which connect institutional clients to several dealers , or using their brokers' proprietary software.
For stock trading, the process of connecting counterparties through electronic trading is supported by the Financial Information eXchange FIX Protocol. Used by the vast majority of exchanges and traders, the FIX Protocol is the industry standard for pre-trade messaging and trade execution. While the FIX Protocol was developed for trading stocks, it has been further developed to accommodate commodities,  foreign exchange,  derivatives,  and fixed income  trading.
For retail investors, financial services on the web offer great benefits. The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience. Web -driven financial transactions bypass traditional hurdles such as logistics. Exchanges typically develop their own systems sometimes referred to as matching engines , although sometimes an exchange will use another exchange's technology e. Exchanges and ECNs generally offer two methods of accessing their systems —.
From an infrastructure point of view, most exchanges will provide "gateways" which sit on a company's network, acting in a manner similar to a proxy , connecting back to the exchange's central system. Many brokers develop their own systems, although there are some third-party solutions providers specializing in this area. However, times have changed: Dollar USD recently fell to record lows, and everyone, from car dealers to bartenders, is waking up to the impact of currencies.
Unlike the trading of stock , futures , or options , Forex trading does not take place on a centralized exchange, but instead through different forex brokers.
Forex Partners However, this arrangement works exceedingly well in practice: The currency market is one of the most sophisticated markets in the world, attracting trillions of dollars per day in volume from central banks, corporations, hedge funds , and individual speculators. It operates on a hour basis, beginning with trading in Wellington, New Zealand, and continuing on to Sydney, Australia; Tokyo, Japan; London, England; and finally, ending with New York before the whole cycle begins all over again.
Although the currency market exists mainly for importing and exporting activities and for corporations to hedge their foreign exchange risk, like all markets, there are speculators.
Here are five key factors that move currency markets:. Yield is the most important factor of exchange rates between currencies. This means when the central bank of a country moves the interest rate either up or down, it affects the movement of the currency substantially. This is because, in general, speculators will buy currencies with high yields and finance those same purchases with low yielding currencies. In the fall of , the short-term rates in the U.
In this case, traders would buy long on dollars in order to receive basis points  of interest and sell yen to only pay 25 basis points on that end of the trade, making a total spread of basis points  , allowing to not only gain profit from interest income flows, but also from capital appreciation Please note: You will pay interest when you sell a currency with a high interest yield and in exchange buy a currency with a low interest yield.
Similarly, when the Bank of England surprisingly raised interest rates in August of from 4. In , the euro zone lagged behind significantly in terms of GDP growth, averaging a meager 1. The influence of geopolitics on currencies is large and can best be understood through realizing that speculators run first, and ask questions later. They will quickly run to the sidelines until they are certain that the political risk has dissipated.
Therefore, the rule of thumb when dealing with currency is that politics almost always trumps standard economics. Despite Canada enjoying the position of no.
Trade flows is how much income the country brings in through trade and capital flows is how much foreign investment the country attracts are critical components of currency movement. In general, trade flows matter much more for commodity-dollar currencies such as the Canadian, Australian, and New Zealand dollars.
In Canada, oil is the primary source of revenue; in Australia, industrial and precious metals dominate trade; and in New Zealand, agricultural goods are a crucial source of income. Trade flows are also very important for other export heavy countries such as Japan and Germany. Though for countries such as the U.
These countries have financial services that are extremely important. On the surface, the U. Currently, the massive deficit in trade flows does not affect the U.
Understanding this, one can easily see why studying the trade flows and capital flows of a country can be so important when gauging which direction a currency may move. Although this may be the fifth factor in importance for what can affect long-term currency movements, it can be the most powerful near-term-movement influencer of the five. The basic definition of mergers and acquisitions as it pertains to currency is when a company from one economic region wants to make a transnational transaction and buy a corporation from another country.
Typically, these types of deals are not price sensitive but rather time sensitive because the acquirer may have a date by which the transaction must be completed.