downloadthepages

Saturday, July 25, 2015

Forex Tutorial: What is Forex Trading?

What Is Forex?The foreign exchange market is the "place" where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.

The need to exchange currencies is the primary reason why the forex market is the largest, most liquid financial market in the world. It dwarfs other markets in size, even the stock market, with an average traded value of around U.S. $2,000 billion per day. (The total volume changes all the time, but as of August 2012, the Bank for International Settlements (BIS) reported that the forex market traded in excess of U.S. $4.9 trillion per day.)

One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

Spot Market and the Forwards and Futures Markets There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market and the futures market. The forex trading in the spot market always has been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.

What is the spot market?More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal". It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.

What are the forwards and futures markets?Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement.

In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.

In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.

Both types of contracts are binding and are typically settled for cash for the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well. (For a more in-depth introduction to futures, see Futures Fundamentals.)

Note that you'll see the terms: FX, forex, foreign-exchange market and currency market. These terms are synonymous and all refer to the forex market.

Can Facebook Become the Next Google?

No two companies better represent the mainstreaming of tech products than Google Inc. (GOOGL) and Facebook (FB). While the former has reorganized the world's information, the latter has woven a social web for more than a billion people on the planet. Their efforts have been rewarded handsomely by the stock market, with Google and Facebook among the most highly-valued companies in the tech sector. As of this writing, Google is valued at approximately $362 billion by the markets and Facebook is valued at $241 billion.
Both companies have had similar growth trajectories, reaching exponential revenues in no time. But, going forward, the market has different expectations of Facebook as compared to Google. Thus, Facebook's shares are trading at 85 times their current earnings, while Google's are trading at a more reasonable 25 times their earning potential.
So is Facebook the next Google?
It certainly seems so.

Facebook: A Company On a Mission

The Menlo Park-based company reinvented social media in much the same way that Google reinvented search engines. It pioneered a lucrative advertising model and is making a serious bid to become the next tech conglomerate by doubling down on virtual reality (VR). (Google, on the other hand, is making serious investments in robotics.)
But that's where the similarities end. In fact, Facebook may be on its way to becoming bigger than Google. Google's dominant position is a result of growth in a single area: search. Facebook, however, has already diversified into other industries and has become a major destination for advertising and user services.
Facebook's success was achieved in an intensely competitive social media landscape and across multiple platforms. The company's development mantra – Move Fast Break Things – has stood it in good stead through its stratospheric growth. For example, the company's entry into mobile apps was a disaster with a buggy app that was slow to load. But in less than a year the app was rewritten, refined and has since become a major money driver for the social network. Facebook has grown its revenue from zero to 69 percent of its total revenues in fewer than three years. In the meantime, the company's product has evolved with user needs and market demands. It has undergone multiple iterations to incorporate features from competitors and user requests. (See also Mobile Ad competitors: Facebook Vs Google.)
The company has also made some deft business moves. For example, its 2012 acquisition of Instagram, a popular mobile social network that could have become a serious threat, was a master maneuver. The app, which subsequently has released a web version, is the fastest growing major social network and is used by celebrities and government agencies alike to connect with audiences.
Similarly, Facebook has also garnered a major chunk of the rapidly growing mobile messaging market with its acquisition of Whatsapp in 2013 for $19 billion. Facebook's acquisition of a hot virtual reality startup – Oculus Rift – can only serve the company well as VR gains a steady cult of enthusiasts and breaks out into a mainstream entertainment experience. (See also Facebook's future technologies.)

Google: A Besieged Firm

In contrast, Google is besieged on multiple fronts.
It is struggling to outline a coherent mobile strategy to investors in a mobile era. This could have serious consequences for the company's bottom line as mobile advertising is poised to overtake digital advertising as soon as 2019. In fact, the company is already cutting costs and hiring due to shrinking margins and slow growth. The company needs to diversify to maintain revenue growth and retain talent.
Google is also under attack from regulators in Europe, its second largest market, for its dominant position in the search industry. In addition to anti-trust lawsuits, the company may also face resistance from wireless carriers there. Recently, carriers leaked plans to block mobile ads of the kind displayed by Google, a move that could seriously affect the company's financial prospects because mobile searches outnumber its desktop searches and Europe is its second biggest revenue market after the United States.

The Bottom Line

Google's foray into social networking with Google Plus was a disaster and failed to produce revenues for the company. Like Facebook, Google has also made significant investments in emerging technologies. These include near term bets, such as robotics and Internet of Things technologies, as well as moonshots, such as sidestepping death and self-driving cars. But it will be some time before those bets make a difference to the company's bottom line. This is because each technology — be it is self-driving cars or robotics — requires a concert of circumstances and lobbying efforts, such as development of standards around IoT and the regulation of driverless cars.
Given these developments, it might be a good idea to rephrase the original question: When will Facebook overtake Google?

the difference between investing and trading

Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investors often enhance their profits through compounding, or reinvesting any profits and dividends into additional shares of stock. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts.
Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.
A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:

Position Trader – positions are held from months to years
Swing Trader – positions are held from days to weeks
Day Trader – positions are held throughout the day only with no overnight positions
Scalp Trader – positions are held for seconds to minutes with no overnight positions

Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.