FOREX: The foreign exchange market where exchange ...

When in 1971, became floating exchange rates, banks have set up a global interbank market, to enable their customers to make exchange transactions. Today, Foreign Exchange, commonly known as Forex, is the largest market in the world. It allows you to buy or sell currency choice in order to achieve a foreign exchange transaction, but not only ... The establishment of a market for foreign exchange The exchange rate of a currency is its price relative to another. Also referred to as the "Parity of a currency." Until 1971, the exchange rate between currencies were fixed. Indeed, the system set up Bretton Woods was a system with the simple gold exchange standard based on the dollar. An ounce of gold was worth 35 dollars and other currencies were defined either directly against the dollar or via the price of gold in dollars. 


In 1971, Germany put an end to these agreements and the president of the United States decides to remove the gold convertibility of the dollar. Thus, the exchange became floating. Companies that export or import, individuals who travel abroad or any catering or borrowing in foreign currencies are facing problems of exchange. Forex, the foreign exchange market, will then meet this need because it allows to exchange one currency against another. The spot exchange is then simply to exchange two currencies at a price negotiated. Delivery is 2 working days after the trade date. Forex is the largest market in the world. It is an OTC market, reserved for central banks, commercial banks and financial institutions involved in their own behalf or on behalf of their clients. It is therefore essential for any private operator wishing to carry out foreign exchange transactions to use one of these financial institutions. Unlike other financial markets like stock markets, on which there several stock exchanges, each with a defined geographical location, there is only international foreign exchange market alone. This market, led by banks, is open 24 hours 24, from Sunday evening to Friday evening. So it is only closed on weekends. The session begins while in Australia, and continued in Asia, Europe and the United States finish. Another feature of the Forex is that it is price-driven, unlike other markets financial order-driven. In a market-driven prices, orders and sales are not transmitted immediately. Previously, information on the price level is required. The players then have the responsibility to inform the other participants on the level of prices practice and to accept any transaction at these price levels, for quantities that are however, be in a standard order of magnitude (from 1 to $ 10 million on the market exchange). They offer a price they are willing to buy the lowest (bid) and a price which they are willing to sell, the higher (ask). When giving the quotation of a currency, it is always given in comparison to another currency. This is called the quotes in pairs. Thus, we will never speak to the listing of the euro, but the Euro against the Dollar (EUR / USD), Yen (EUR / JPY) or the pound sterling (EUR / GBP). In this market, there is no way for all currency pairs. Indeed, during the broadcast correspond to the most common transactions. We thus find the time and all day during the Euro or the Dollar against all other currencies. For currency pairs that are not usually listed on the market, we pass through one of these two currency, to establish a cross-over or "cross". For example, to rate the couple JPY / CHF, we will use the USD / JPY and USD / CHF. The course JPY / CHF will be equal to (USD / CHF) / (USD / JPY). FOREX: The foreign exchange market where exchange ... 2 While banks and large institutions represent the majority of players on this market, these last are also intermediaries for individuals or corporations wishing to invest in this market. More than a market exchange, a real stock market Forex is more than a tool to exchange currencies. Over time, the share of transactions on the foreign exchange market devoted to such operations has been declining to represent less than 15% to date. The bulk of transactions taking place now other purposes, such as hedge or to speculate on exchange rates. Forex attracts so Many investment funds but also private individuals increasingly active in this market. Many options are possible for these stakeholders. The simplest is a cash position of a currency against another. This is called the "Spot". It consists of a short selling (borrowing) a currency to buy another. Specifically, an investor who is a buyer on the euro / dollar, actually borrows dollars to buy euros. In case of increase of the euro against the dollar, it reimburses dollars debt and keep the gain of the operation. This is however completely transparent to the user since it is the operator of the transaction that manages the internal different operations. The holding of a currency is subject to the payment of interest which corresponds to the interest rate Director set by the Central Bank of the State in which that currency circulates. For example, Currently the euro gives a value of about 1.09% per annum while the rand South Africa reported 7.64%. Conversely, the act of selling short a currency leads payment of such interest. Some investors will then take advantage of differences in rates to perform operations "Carry trade". These operations are to borrow in currencies with low interest rates buy another currency with high interest rates. For example, an investor in long position the South African rand and the euro seller will receive a 6.55% interest. Unlike the spot, the investor may also make forward currency exchange also called "forward". It consists of an exchange of two currencies at a date (the date of value) and a current (forward) traded. This type of contract can fix in advance a way between two currencies, and thus to hedge against currency risk. For example, a commercial enterprise will be able to protect its foreign claims against a negative trend currency. The company will take, for example with a forward, a position contrary to that already open. There is also another type of foreign exchange futures, the swap. It is in a double operation: one running from exchange with the implementation of the contract, and forward exchange, performed at a date negotiated. The difference between the cash and the course term is referred to as the "hot swap". With a swap, the investor will therefore provide immediate currency, then sell at a price negotiated at the establishment of the contract at maturity of the swap. This operation allows investors to play on rate differentials without taking risks exchange In addition to hedging or trading in interest rate differentials between currencies, these products simply allow traders and hedge funds to carry out operations speculative high leverage. They also offer investors a solution diversification from other asset classes. Other investors make so-called arbitrage trading. They look in fact to take advantage of price differences on the same incoherent currency. Sometimes such a currency pairs is proposed at a different rate by two intermediaries. The trader will then buy the currency where it is cheap and sell it where it is more expensive. This is called "spatial arbitrage" 2 In addition, rather than directly exchange two currencies, it is sometimes more profitable to go through a third. For example, instead of exchanging euros against dollars, an investor could get more dollars, if it sells euro against the yen and simultaneously buy it dollars against the yen. The trader will then use these differences to buy a currency and simultaneously sell it. Trade-offs required when a high speed of response and initial investment is very important. They are difficult to implement and are usually performed by professionals with powerful tools. Forex for individuals Forex attracts more and more individuals. Indeed they make in 2009 about 5% of Forex trading, while this percentage was almost zero 10 years ago. Indeed, compared to other markets in which individuals can invest to play currencies or other assets, the market is open 24 24 and 5 days out of 7. In addition, it offers a high liquidity. One of the other assets in this market are its cost, very low. Indeed, for trading Forex, financial intermediaries generally do not charge commissions. They are remunerated solely on the bid / ask (the "spread"), ie the difference between the buying and selling rates. On the major currency pairs, the spread is typically 2 to 3 units of base (or "pips "). A pip is the smallest tick. For example, when the euro / dollar rose from 1.3488 to 1.3491 it is said that the change is 3 pips. Thus, on average, a transaction on the euro / dollar costs less than 0.02%. A number of banks and brokers have set up specialized platforms to negotiate directly with individuals. Examples of ACM, eToro, FxPro Whselfinvest, SAXOBANK, GFC Markets .... These platforms centralize orders and act as counterparty to all their customers individuals and take the corresponding positions on Forex In France, the broker must have received approval from the CECEI (Committee on credit institutions and investment firms). There is in France at present only one broker who received this approval, it's Saxo Bank. In terms of taxation, Saxo Bank delivers an annual IFU (single tax) which includes all the operations of the year thus emphasizing the gain or loss. The investor is then taxed according to the taxation of capital gains on securities. In However, there is no threshold of sales and earnings are taxed from the first euro. These transactions are not included in calculating the threshold from sale of securities. If the investor is losing one year in this market, the loss is carried forward for 10 years regardless of the amount of sales of the year, on profits of the same nature. The capital gains of a similar nature include all capital gains on the values securities, even those who run the transfer threshold (so for example, shares) made this year and for 10 years. This tax is ultimately similar to that of turbo warrants and Euronext. The investor can also go through a broker abroad. In this case, the approach is more complex. Indeed, it must initially declare the opening of this account opened and held abroad by using the form 3916 to join his statement 2042. Must then report the gain or loss realized (abroad) with the help of the form 2047. Gains and losses are taxed under BNC (profit non-commercial). The loss is attributable solely on the profits of the same nature in the same year or six years. On the other hand, if the account is established Forex in another currency must be converted, as indicated in the notice of tax "if the income or profits in question were collected in foreign currency, they must be declared against their value in euros, calculated from the rate of exchange in Paris on the day of redemption (receiving cash credited to a account, etc.).. " With regard to the interest earned abroad, they must be listed in column Interest Form 2047, (cashed in euros net) and the line of the country where they were 2 collected. It must then refer to the agreement concluded between France and the country where the account is opened to determine the tax. For example, to an account established in the United States, we must first declare the forex account with the IRS (Internal Revenue Service). There are a Franco American avoidance of double taxation. The rule is: The capital gains are taxable in France but not in the U.S. States and the interest is taxable in the United States and are deductible as a credit tax in France. The agreements stipulate that interest is to be reported via the U.S. administration while gains or losses must be reported to the BNC French tax authorities. This is Embassy of the United States in Paris, which will make the steps to the investor. The foreign exchange market is turning increasingly to private individuals. They now at their disposal all the tools necessary to take positions in currencies, lower cost. But it's not because it has many advantages that must be it lay with closed eyes. The Forex is open only to sophisticated investors and willing to take high risks.