Forex Trading Guide

1. In April 2010 global forex turnover was 20% higher than in April 2007, with the average daily turnover rising from $3.3 trillion to $4.0 trillion.
   
   
2. The primary increase was driven by short-term trading which, in terms of turnover, grew by 48%. ‘Spot’ transactions now represent 37% of global turnover, rising from $1.0 trillion in April 2007 to $1.5 trillion in April 2010. In relation to spread trading and CFDs, read ‘spot’ as a daily market rather than a futures market.
   
   
3. With regards to the various parties trading the forex markets, the higher turnover is associated with the increased activity of ’other financial institutions’ - these include, but are not limited to, non-reporting banks, pension funds, hedge funds, insurance companies, mutual funds and central banks.
   
   Turnover by this group of ’other financial institutions’ grew by 42%, increasing from $1.3 trillion in April 2007 to $1.9 trillion in April 2010.
   
   
4. The 2010 survey showed how the EUR/USD market eclipsed all other currency pairs:
   
   
   • EUR/USD: accounted for 28% of all forex turnover
   • USD/JPY: 14%
   • GBP/USD: 9%
   • No other pair accounted for more than 6%
   
   
5. As a percentage share of overall turnover, the US dollar has continued its decline since the April 2001 survey. The euro and Japanese yen have gained relative to April 2007.
   
   Looking at the 10 most traded currencies, the Canadian and Australian dollars both increased market share and the Swiss franc and sterling lost ground. Certain emerging market currencies became far more popular and the largest increases were seen with the Korean won and Turkish lira based pairs.
   
   
6. Forex trading activity has become increasingly global. Cross-border transactions represented 65% of trading activity in April 2010 and local transactions accounted for 35%.
   
   
7. The UK remains the number one forex market with UK based banks accounting for 36.7% of the entire market. This is a small increase on 2007 when the UK accounted for 34.6%.
   
   
   • UK: accounted for 36.7% of turnover
   • US: 18%
   • Japan: 6%
   • Singapore: 5%
   • Switzerland: 5%
   • Hong Kong: 5%
   • Australia: 4%
   • All other countries accounted for 3% or less

EUR / USD Daily - Spread Size	1	1	1	2	0.8	1	1	1
EUR / USD Daily - Min Stake	£1	£0.50	£0.50	£0.5	£1	£1	£1	£1
GBP / USD Daily - Spread Size	2	2	2	3	0.8	2	2	2
GBP / USD Daily - Min Stake	£1	£0.50	£0.50	£0.5	£1	£1	£1	£1
EUR / GBP Daily - Spread Size	1	2	2	1	1	1	1	3
EUR / GBP Daily - Min Stake	£1	£0.50	£0.50	£0.5	£1	£1	£1	£1
USD / JPY Daily - Spread Size	0.8	2	1	2	0.8	0.8	0.8	3
USD / JPY Daily - Min Stake	£1	£0.50	£0.50	£0.5	£1	£1	£1	£1

• You've done your forex market analysis, and
• Your research suggests the euro-dollar rate will move above $1.29859

• Reversal Patterns - these indicate the likelihood of a given trend reversing and typically involve the formation of:
  
  
  • Head and Shoulders (Tops)
  • Head and Shoulders (Bottoms)
  • Double Tops
  • Double Bottoms
  • Triple Tops
  • Triple Bottoms
  
  
• Continuation Patterns – these indicate whether a trend is likely to continue its current levels of momentum. Typical examples include the formation of:
  
  
  • Flags
  • Pennants
  • Triangles
  • Wedges.

• Inflation - Countries with consistently lower levels of inflation will often experience a rising currency value. Likewise those countries with higher levels of inflation will typically see the value of their currency fall.
  
  
• Interest Rates - High interest rates will often attract overseas investment and capital if an opportunity exists for a higher return relative to other currencies. Therefore high interest rates can drive up the value of a given currency. Note however that high inflation can also counteract a rise in value.
  
  
• Public Debt - Countries with high levels of public debt are often less attractive to overseas investors. These countries will sometimes encourage inflation and run the risk of defaulting on their debt obligations, as such they end up with a poor debt rating. This can then devalue the local currency.
  
  
• Terms of Trade - This is linked to the country’s current account and its balance of payments. The terms of trade compares import and export prices. If the price of exports rises by more than the price of imports, a country may see its currency rise.
  
  
• Political Stability / Economic Performance - Countries that are stable and have a strong economic performance will be more likely to attract overseas investment than less stable countries. Political turmoil and/or instability will often result in the relevant currency losing value.