The Bank for International Settlements (BIS) reported results from a survey of 54 central banks that in April, 2007, daily trading of currencies reached $3.2 trillion; USD remains the most important currency in the forex markets today, constituting 2/5 of all currency transactions. Total forex trading has risen more than 71% over 2004 levels—the largest increase since the BIS started doing the survey in 1989. Improving and cheaper technology has augmented the increase. Hedge funds and individual investors represented a significant part of the increase. The use of currency derivatives to hedge risk or make profits has also increased significantly—70% since 2004, with over $2.1 trillion worth traded daily. The largest increase, 281%, was in cross-currency swaps which are used to hedge bonds denominated in foreign currency. Cross-currency swaps are transacted when 2 parties agree to exchange interest payments in different currencies for a specified time. Emerging market currencies now account for almost 20% of all currency trading.

Fractional Pip Pricing

FXCM has introduced fractional pip pricing for their major currency pairs. So instead of seeing a quote of EUR/USD 1.401/04, you may see a quote such as EUR/USD 1.04014/038. While, theoretically, this should yield some savings to the forex trader, it may be more a marketing gimmick than anything else. It would be very difficult to tell if there were any real savings, because the average spread could be just as wide as before, except that you would be subtracting 5 digits instead of 4. Example: 1.44235-1.41235=1.4423-1.4123=3 pips. And even though there will be many differences of fractional pips, that does not mean that the average is better than before.

Fractional pip pricing would be most powerful on an organized exchange where the best bid/ask prices from all market participants are displayed, and would certainly result in narrower spreads. However, there is yet no organized exchange for currency. While FXCM advertises a No Dealing Desk, where quotes from forex traders is shown to a number of participating banks, I don't know how well this works. Someone would have to do a statistical analysis of spreads displayed by FXCM and competing forex dealers, and see if it results in narrower spreads.

For forex dealers, marketing is the name of the game, and certainly fractional pip pricing does sound good. Of course, 1 or 2 pip spreads that are widely advertised by forex dealers sound good, too. I have used FXCM, and they provide a very good service, but I rarely saw 2 pip spreads, even on major currency pairs such as EUR/USD. It's one thing to advertise such spreads, and another to actually see them and trade them.

Global Financial Holidays

GoodBusinessDay.com

Goodbusinessday®.com is a continuously updated source of information on holidays and observances affecting global financial markets—bank holidays, public holidays, currency non-clearing days and trading and settlement holidays affecting exchanges. Data is organized by country, city, currency and exchange. Interactive calendars and one-click search facilities provide the information you need in an instant.

Forex Scams

Be wary of forex scams. In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.

The CFTC and NASAA have prepared a list of warning signs investors should watch for before investing in a forex opportunity. The warning signs include:

The regulators also urged those who have recently acquired or have accumulated large sums of cash to be on guard. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. “Getting your money back once it is gone can be difficult or impossible,” Dunn and Borg said.

Investors should make sure that anyone offering a forex investment is properly licensed and has a reputable business history. The public can obtain information about any firm or individual registered with the CFTC, including any actions taken against a registrant, through the National Futures Association (NFA) Background Affiliation Status Information Center (BASIC), available on the NFA website at: www.nfa.futures.org/basic. You can also find out if someone is registered by calling the National Futures Association at 1-800-676-4632.

The CFTC’s Division of Enforcement has established a toll-free telephone number to assist members of the public in reporting possible violations of the commodities laws: 866-FON-CFTC (866-366-2382). If you think that you have been a victim of a forex scam, you can report it on the CFTC’s website, http://www.cftc.gov/enf/enfform.htm, or by mail addressed to the Office of Cooperative Enforcement, CFTC, 1155 21st St., NW, Washington, DC 20581.

Many state securities regulators also have the right under their state laws to take action against illegal commodities investments. Visit NASAA’s website at www.nasaa.org to contact your state or provincial securities regulator.

Different Ways to Invest in Currency

Betting on the Buck

There are other ways of investing in currency besides buying the currency itself. Now with the U.S. dollar at historic lows against other currencies, some banks have introduced new products to take advantage of the current currency market. Barclays PLC, for instance, has recently introduced 3 exchange-traded notes (ETNs) that offer investment opportunities in the Euro, yen, and the pound.

Other ways to invest in foreign currency is to buy foreign bonds or stocks, or to invest in currency mutual funds, or bond funds, or to invest in trusts that hold bank deposits in foreign countries, such as the CurrencyShares Euro Trust from Rydex Investments. However, some of these investments may have more risk than the currency alone, since some investments are using leverage, futures, or other derivatives to increase returns, which also increases potential losses.

Other investment vehicles are trying to benefit from the risky carry trade, where futures are bought in countries with a high interest rate and sold in countries with a low interest rate.

Currency Exchange Resources

Market Overview: Foreign Exchange Rates/Currencies, Key Cross Rates and Currency Converter - MarketWatch

Displays quotes for current foreign exchange rates for the world's major currencies, that is updated continually. Includes a currency converter, news about the currency markets, and provides cross rates for the U.S. dollar (USD), the United Kingdom pound (GBP), the Euro (EUR), and the Japanese Yen (JPY). Also has basic, advanced, and interactive charts that displays the exchange rates over time.

Forex

Wired News: Fearless Traders Flock to Forex

Preventing Fraud Trading Currencies

Some investors are losing money by sending money to fraudulent companies promising them riches by trading currencies, or by offering employment to solicit others in the scam. These investors are most often contacted by phone in boiler room operations, or by targeting specific ethnic groups. The best way to prevent fraud is don't respond to telephone solicitations, or to friends, who may have been defrauded themselves. Seek out and research any companies yourself with the help of these resources:

Information is provided 'as is' and solely for education, not for trading purposes or professional advice.