Posts tagged foreign
Foreign Exchange Accounting Policy – The Market Characteristic
Sep 26th
Foreign Exchange Accounting Policy
The forex markets is the largest and most liquid market in the world. The estimated worldwide turnover of reporting dealers, at around $1 ½ trillion a day, is several times the level of turnover in the U.S. Government securities market, the world’s second largest market.
Almost two-thirds of the total transactions represents transactions amongst the various dealers themselves – with only one-third accounted for by their transactions with financial and non-financial customers. Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom (1998: 32%), followed by the United States with 18%.
The forex trading market place is a 24 hour market with exchange rates and market conditions changing constantly. However, foreign exchange activity does not flow evenly. Over the course of a day, there is a cycle characterized by periods of very heavy activity and other periods or relatively light activity.
Business is most heavy when 2 or more market places are active at the same time such as Asia and Europe or Europe and America. Give this uneven flow of business around the clock, market participants often will respond less aggressively to an exchange rate development that occurs at a relative inactive time of day, and will wait to see whether the development is confirmed when the major markets open. Nonetheless, the twenty-four hour market does provide a continuous “real-time” market assessment of the currencies’ values. Foreign Exchange Accounting Policy
The market contain a limited number of major dealer institutions that are particularly active in foreign exchange, trading with customers and (more often) with each other. Most, but not all, are commercial banks and investment banks. The institutions are linked each other through telephones, computers and other electronic means. There are estimated 2,000 dealer institutions in the world, making up the global exchange market.
Each nation’s market has its own infrastructure. For foreign exchange market operations as well as for other matters, each country enforces its own laws, banking regulations, accounting rules, and tax codes. They also have different national financial systems and infrastructures through which transactions are executed and within the currencies are held.
When access to all of the foreign exchange markets generally open to participants from all countries, and with its vast amounts of market information transmitted simultaneously and almost instantly to dealers throughout the world, there is an enormous amount of cross-border foreign exchange trading amongst dealers as well as between dealers and their customers. At any moment, the exchange rates of major currencies tend to be virtually identical in all of the financial centers. Rarely are there such substantial price differences among these centers as to provide major opportunities for arbitrage. Foreign Exchange Accounting Policy
Daily Foreign Exchange Spot Rates – Everything You Ought to Know About a Foreign Exchange Spot Market
Sep 16th
Daily Foreign Exchange Spot Rates
Have you ever heard about the foreign exchange spot market? If you want to be successful in the realm of currency trading then, you have to be aware of the specifics in this system. In a simple definition, a spot market for foreign exchange is a currency trading market wherein a particular currency can be bought or sold into another currency within two days. It is deemed to be the biggest market in the globe which generates a currency transaction of more than $1 trillion per day.
A Forex spot market can enable you to sell or buy a foreign currency in accordance to the market’s requirements. However, the everyday movements of the spot exchange rates are distinguished by numerous inconsistencies and vagaries. The currency’s spot rate can be influenced by several factors such as the situation of the balance of payments or BOP, economic indicators, inflation rate, as well as the policies made by the banks and the government. This makes the process very intimidating especially for amateur investors or those who know so little about the movements in the market. Daily Foreign Exchange Spot Rates
You can trade currencies at a foreign exchange spot market. Embarking on such a market is quite risky on your part. Hence, you have to make sure to study and analyze a Forex spot market before starting your currency trading venture. This is imperative in order to play safe, to minimize your possible losses, and to ensure great trading returns. Know trader would want to risk all his money for nothing. Daily Foreign Exchange Spot Rates
Rates Fx Currency Converter – Factors Affecting Foreign Currency Exchange Rates
Sep 11th
Foreign currency exchange rates are one of the key tools that sustain your forex business. The way they behave and change in the forex market can drastically affect the course of your forex market business so you need to effectively monitor their course since these currencies tend to fluctuate a lot. Actually, there are many different reasons why these currency rates constantly rise and fall in the market. One of the most general reasons why currency rates fluctuate is because they are all tied in with their specific countries. The events happening in every country make an impact on the currency rates that play in the forex market.
Here are some of the important factors you need to take note of when assessing the behavior of foreign currency exchange rates:
1. Economic behavior of the country – Revenues are the key defining mechanisms that would tell you how stable the currency rate is going to be. The larger the revenues are brought in, the more likely it is that the country will enjoy a stable rate performance. The economic standing of the country makes or breaks its currency because there can be a budget surplus if there are no deficits. As such, outgoing currencies will not be too hard and limited and therefore its value may be able to compete and rise in the midst of the forex market. Rates Fx Currency Converter
2. Trading process between other countries – The entrance and exit of foreign currencies are specifically dependent on the imports and exports that that country does. It is through trading that most countries often get different types of currencies streaming in their areas and it is also through trades that they get to empower their own currency. Conversion rates can also be affected by the level of imports done versus the exports. The more a country exports as compared to the level of its imports, the more likely it is that there will be a budget surplus which will increase the rates of their currency in the market.
On a more specific level, even the traders themselves have an upper hand when it comes to commanding the foreign currency exchange rates. International events fueled by health hazards, political issues, or even the global economic crisis can potentially hold off traders from resuming their exports and imports. During this process, there can be an influx of rates as their trading behavior change drastically.
3. Political backdrop – Yes, even the political situation in a particular country can command the flow of the current forex market ground and affect the foreign currency exchange rates. When political instability happens, chances are traders will opt to be at the backseat to watch things unfold. This is a necessary action because they wanted to avoid making uncalculated risks by investing in imports which might eventually turn on down note. Traders have a way of studying their forex market before they choose to finally plunge in. Aside from traders, other countries may also note the current position of a politically unstable country. Even something such as foreign travel may be halted which also contributes to currency trade. Rates Fx Currency Converter
Foreign Exchange Accounting Treatment – Futures & Foreign Exchange
Sep 6th
Foreign Exchange Accounting Treatment
What is a CFD A CFD is a leveraged trading instrument that allows you to trade a large numbers of shares for a smaller outlay than buying the actual stock or contract. In doing so your gains OR losses can be magnified compared to holding ‘traditional’ positions. You can trade LONG [UP] or short [DOWN- selling something and buying it back for less in the future]. Foreign Exchange Accounting Treatment
Lets look at an example of trading stock ZYX….We will buy 1000 shares of ZYX at a value of $10
To purchase the real thing will cost us $10000, plus commission at around .4%.
To purchase 1000 CFDs of the same stock will only cost us $500 in ‘margin’- which we get back at the end of the trade IF we are right, Plus commission at around 1%.
This means that our R.O.I. [return on investment] is amplified much more when trading a CFD- and a WARNING- our losses can also be greater if we do not engage in sensible risk management.
Let’s assume we hold the position for 10 days and that the best brokerage rate we get is around .04% for traditional online broking and .01% with most CFD providers.
To ‘trade’ 1000 CFD’s will cost us a deposit of $500- deposits will vary anywhere from 3-20% depending on the stock and the provider, as a general rule count on 5% for the top 100 stocks.
When we ‘buy’ a CFD the provider is essentially lending us money to purchase our position. For the privilege they charge us the standard bank rate [RBA in Australia] which at time of writing is 5.75% + a ‘haircut’ of between 2 and 4%. This is a financing charge made by the provider let’s assume in our example the provider is adding 3.25% to take the interest rate to 9%. this equates to a charge of around $2.46 per day on a position size of 1000 shares.
Note when we sell short a stock the provider will PAY us interest. Though not at the same rate as when we buy usually the ‘haircut is in the 1 to 2% range so you would receive 5.75% -2%, or 3.75% on your short trade.
Dividends and adjustments:
CFD’s receive the full dividends that the normal stock does as well as any share splits or special payments. If in a short position you must pay the provider.
If we are taking a long position [planning that our share will rise] then CFD’s are a great short term option. If we bought a $10000 position and held it for a year we would need to pay $900 of interest. Similarly a Margin loan from a bank or other lending institution would charge you around 7 to 12% for the same privilege, but only lend you a maximum of 70% of the value of some shares.
FUTURES A Futures contract is an agreement to buy or sell something at a set price on a FUTURE date. I might agree to pay farmer Fred $25 for a bushel of wheat in August and it is now January… between now and January a hailstorm wipes most of the grain crop… A bushel of wheat is now worth $50, but Farmer Fred now has to sell it to me for the agreed ‘FUTURE’ we agreed on in August of $25. Similarly if there had been an over supply of wheat and it was selling for $13 a bushel to have harvested and delivered. I would still have to pay Farmer Fred $25.
A Futures contract is an AGREEMENT for payment at a set price on a future date.
Some futures contracts are DELIVERABLE. This means you do not want to be holding a contract for oil beyond the expiry date for example…. in the first place you need to cough up the cash for a barrel of oil— value $50000+, then they will come and pump it into your lounge room, unless you have a nearby oil storage facility!
Most contracts are NOT exercised, but just be aware of the time your contract terminates. Most brokers will be on the phone to you the week before- asking if you want to ‘roll’ your contract- that means getting out of the contract that is set to expire and taking up the next contract… In some cases this is monthly. Oil trades this way – expiring around the 20th of the month.
Others are bi-monthly or quarterly. The Australian Share Price Index contract or S.P.I is quarterly, March, June, September and December with expiry around the 15th of the month… you will need to KNOW these dates. Things can get volatile as contracts are ‘rolled over’ from one month to the next contract.
In Australia futures contracts are traded through the Sydney Futures Exchange- which recently merged with the Australian Stock Exchange to become the Australian Securities Exchange.
A number of Futures exchanges operate In the United States; from the East Coast to the West coast. Some of the ones you will be familiar with would be; Foreign Exchange Accounting Treatment
NYMX [New York Mercantile Exchange] this is the place where the Crude oil price you see on the news comes from- NYMX light sweet crude is the benchmark. It is traded in an open ‘pit’ session – yep, all those guys wearing funny jackets and doing funny hand signals…… trading takes place between 1000 & 1430 New York time and it then trades electronically for most of the rest of the day. We can also find Comex Gold and silver at the NYMX.
CME Chicago Mercantile exchange- home of the E-mini on the S&P 500. You can also trade Pork bellies here!
CBOT [Chicago Board of Trade] Here you can trade anything from Soybeans to Wheat and Dow futures to 10 Year Bonds
To trade coffee or sugar or frozen orange juice concentrate you need to go to NYBOT-The New York Board of Trade http://www.nybot.com
Euronext is the home of London Sugar, currencies and European interest futures contracts.
To trade a futures contract you will need to open an account with a broker- this will mean a lot of form filling and declaration. After this you will deposit funds to your account. You need to make sure you have enough money to trade the ‘instrument’ you are interested in.
For example to trade corn your may need a deposit of $1000 per contract. But to trade one contract of oil requires a deposit of U.S. $5500, and the range in a trading day might be up to $3000 at $50 a point….. tread carefully.
The Contract on the share price index in Australia is the S.P.I. and currently requires a deposit of AUD $6200- and each point of movement is equivalent to AUD $25.
The S&P 500 has a big contract valued at $250 a point and a ‘mini’ otherwise known as an E-mini contract. This is one of the most liquid futures contracts in the world and is traded ONLY online.
The deposit is U.S. $$3,563 and each 100 point move = $50 so a move from 1498 to 1500 = 200 points or $100. Often the S&P can move five to ten points in a night. Sometimes an astonishing 20! That’s on just one contract.
Currencies Some CFD providers allow you to trade currencies, but when the trading is thick and fast their platforms cannot keep up to dedicated forex providers…. In my experience.
Once again it’s the leverage equation. Most Forex providers give leverage at 100:1 some at 200 to 1 and a few at 400 to 1
This means that with $1000- you can CONTROL $100000 at 100:1
$200000 at 200:1
or $400000 worth of a currency ‘pair’ at 400:1.
Scary if it goes it wrong way!
All FOREX currencies are traded as a pair- I will stick to what are known as the 4 MAJORS these are
GBP/USD- the British pound Versus the U.S. Dollar
EUR/USD- the Euro versus the U.S. Dollar- this is the most highly traded currency pair accounting for 70% of all volume and can have a ‘spread’ [buy sell difference] of only 2 pips or points
USD/CHF The U.S. Dollar versus the Swiss Franc
USD/JPY The U.S. Dollar versus the Japanese Yen
In FOREX we Buy one currency and sell another against it… lets look at GBP/USD for instance
The Standard contract size is 100K or $100,000 of the currency You are trading
If I go ‘LONG’ 1 STANDARD contract of the GBP/USD it means I am buying $100,000 worth of US Dollars and simultaneously selling $100,000 worth of British pounds. We pay a small spread- but NO commission.
If the GBP rose in value against the US dollar then to terminate our trade we would have more POUNDS- the one we bought and less DOLLARS the one we sold- so we have made a profit. That’s the basics.
The FOREX market turns over almost 2 Trillion dollars a day, this is five times the money turned over in aLL the stock markets and futures exchanges in the WORLD!. Now that’s liquidity- you will always be able to buy or sell the four majors.
Trading begins at 6am Monday in New Zealand and goes through to 0700 GMT this is known as the “Asian session”, London- which is the ‘center’ of the financial universe then comes on board until around the United states session begins around 7.30 Am New York time…….. Some interesting trading takes place at this change-over time. So the week progresses until 5pm Friday New York time when the action ceases for the weekend and resumes at 6 am New Zealand time…….
One thing to be Very aware of is the wild ranges that can occur in FOREX; these are driven by ‘news’ events- GDP figures, employment figures, Interest rate rises or announcements can all provide phenomenal spikes on 15 minute and hourly charts, which are all very trade-able and profitable…. If you have the right strategy. Foreign Exchange Accounting Treatment
Opening A Foreign Exchange Account – How To Open A Foreign Currency Account
Sep 6th
Opening A Foreign Exchange Account
A foreign currency account is extremely effective in shielding an individual from risks associated with fluctuations in foreign currency. Such accounts are extremely helpful for those engaged in the business of export and import, as they deal most with foreign. People involved in such businesses must open their foreign currencies account in the currency in which they make most of their transactions. By doing, this they can hedge themselves against fluctuations in exchange rates. They can continue to hold the money in their respective accounts until the arrival of a beneficial rate.
Thus, such accounts enable good financial management for he businessmen. They can manage all receipts and payments received from various transactions through these accounts while trading internationally. They save money, as they don’t have to pay the conversion costs.
Open Your Foreign Currency Account:
Management of a foreign currency account is similar to managing a standard current account. There are several banks offering foreign currency accounts, however, their eligibility criteria and processing charges differ. Opening foreign currency accounts with banks is subject to various procedures of a usual diligence. Opening A Foreign Exchange Account
Types of Foreign Currency Accounts:
Foreign currency accounts can be broadly categorized into two Customer Foreign Currency (CFC) Accounts and Foreign Currency Accounts (FCA) for Individuals. Both of them eliminate the necessity of conversion upon receiving money from overseas. Both the types can be used to meet short-term requirement for cash. The interest on credit through such accounts is calculated on a daily basis on the balance amount, except for the company accounts. The basic rate of tax is generally automatically deducted from the interest paid.
You can opt for a foreign currency account that offers you the facility of making payments through check. However, while using such a facility you must be aware of the fact that the person who receives the payment will have o bear high local banking charges. Today, most banks provide foreign currency accounts to individuals and companies, but opening such accounts with large banks is preferable.
Things to Remember:
Several factors need to be considered before using FOREX trading method. If you are a beginner, you may choose a broker to help you with such trades in the beginning. There are various accounts ranging from small to big. The smallest account is known as a mini account and ca be opened with only $300. The standard foreign currency trading, however, requires minimum $2,000 of initial capital to begin trading. It is the standard account that gives the users flexibility to trade with several leverages.
Besides these, there are premium accounts that need $5,000 to $10,000. It functions as that of a standard account but offers many additional services. Opening A Foreign Exchange Account
