I am still acting moderator for Tradingsuccess blog as some urgent matters have claimed our mentor to fly off again.
Since the August seminar at SMU is just over from last weekend, my post is aimed at the newbies again.
Many of the attendees may not be familiar with the history or terms for forex trading.
Forex or FX are terms used to describe the trading of the world’s many currencies. The Forex Market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative with a low percentage of market activity representing governments’ and companies’ fundamental currency conversion needs.
There is also another aspect to fixed income market. The term fixed income is used to describe a collection of securities which have predefined pay-out terms. An example is the CD or Certificate of Deposit when one deposits an amount of money and receives a given amount of money which includes both the original deposit plus interest earned at maturity.
Fixed income securities come in various maturity dates. Those with initial maturities of one year or less trade in what is the Money Market. This term comes from short-term instruments which are very liquid and often trade between banks. Money market instruments include Banker’s Acceptance or a Draft or Bill of Exchange, Municipal Notes, Certificates of Deposits, Treasury Bills, and Commercial papers.
Most of these instruments are out of the realm of the individual traders but a handful can be traded via the futures markets.
Since the fixed income market is driven by interest rates, ie prices are inversely related to yields, there are factors which impact on rates to influence prices. The biggest driver of these rates is monetary policy, which central banks make in respect to the level of domestic interest rates. Central banks directly control interest rates in the short-term at least, and they do have a heavy influence over the direction of interest rates.
Other less direct influencers are fiscal policy, general economic growth, employment, inflation and currency exchange rates and trades.
Since the August seminar at SMU is just over from last weekend, my post is aimed at the newbies again.
Many of the attendees may not be familiar with the history or terms for forex trading.
Forex or FX are terms used to describe the trading of the world’s many currencies. The Forex Market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative with a low percentage of market activity representing governments’ and companies’ fundamental currency conversion needs.
There is also another aspect to fixed income market. The term fixed income is used to describe a collection of securities which have predefined pay-out terms. An example is the CD or Certificate of Deposit when one deposits an amount of money and receives a given amount of money which includes both the original deposit plus interest earned at maturity.
Fixed income securities come in various maturity dates. Those with initial maturities of one year or less trade in what is the Money Market. This term comes from short-term instruments which are very liquid and often trade between banks. Money market instruments include Banker’s Acceptance or a Draft or Bill of Exchange, Municipal Notes, Certificates of Deposits, Treasury Bills, and Commercial papers.
Most of these instruments are out of the realm of the individual traders but a handful can be traded via the futures markets.
Since the fixed income market is driven by interest rates, ie prices are inversely related to yields, there are factors which impact on rates to influence prices. The biggest driver of these rates is monetary policy, which central banks make in respect to the level of domestic interest rates. Central banks directly control interest rates in the short-term at least, and they do have a heavy influence over the direction of interest rates.
Other less direct influencers are fiscal policy, general economic growth, employment, inflation and currency exchange rates and trades.
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