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How Do Banks and Brokers Make Their Money on FX Options and How Much Do They Make?

Globals Forex — Wed, 17 Mar 2010 11:32:49 +0000

The FX Options Market is far less transparent and far less competitive than the Deliverable FX Market. Thus, without any competition banks have been taking sometimes very large profit margins out of Option structures. Sometimes as much as 2-3%, which on a $10 million dollar Option accounts to $200,000 to $300,000 in profit. Just like deliverable FX, brokers will buy Options at a specific rate and sell to you at another rate, their profit being the difference. The reason brokers can offer you better pricing is a result of the volumes they transact over the course of the year, economies of scale allow them to improve your price compared to the bank and make their profit in the difference. For Zero Premium Options, brokers will sell their structures to banks, the sale amount being their profit.

On Zero Premium FX Options, better pricing accounts to you achieving a more competitive protection rate (or worse case rate) in addition to greater upside. In order to achieve the best pricing it’s important to create competition in the trade. Make sure you’re bank & broker is aware there is competition on the trade. It’s good practice to have a broker price up the same option structure too as a gauge on the pricing competitiveness. It is easy for your supplier to smudge the transparency if you are comparing different structures, make a choice from the variety of structures open to you and ask a number of provider to price this up to directly compare.

Forex Volume – Trading Using Volume

Globals Forex — Mon, 15 Mar 2010 19:54:01 +0000

Why is Volume Important
Let’s take a look at why Volume is important. Currency price moves up and down at different speeds. Sometimes a price change can rocket up over a 15 minute period, Volume always increases when market activity increases. In fact, that is exactly what market activity means. Also, when the market activity (Volume) is low, one can expect a slower moving market. Once market activity (Volume) increases, pricing usually stays in the same direction. Let me give you an example. The USA market opens and for the first 2 hours the volume is low, and the price of the EUR/USD remains about the same. Then, things start to happen. The USD begins to fall, and at the same time the Volume increases from 20% to 30%. A huge 10% increase in Volume. As the Volume stays at 30%, the price continues to fall. This makes perfect sense. You stay hold the trade. Now what? You are looking for the change in Volume. If the Volume increases or stays the same, then you continue to hold your position. If the market Volume returns back to 20% or lower, then it is time to liquidate your trade. Currency trading can be understood simply by reading the Volume.

How Volume Indicators Work
It’s actually very simple. Each time there is a price change, a tick counter counts the tick. If the tick is up, then it adds 1 to the total of earlier ticks. If the price is down 1 pip, then it also adds a number 1 to the earlier total. No matter if the price is up or down, the number value 1 is added to the previous total, and this is displayed using a vertical bar. At the end of each period 1 minute, 15 minutes, 30 minutes ect. The entire process begins again at zero.

Is your Volume Indicator really a Tick Counter?
Here is an easy test.
1. If your Volume indicator always moves up, and never moves down it is a tick indicator.
2. If your Volume indicator always displays zero at the beginning of each period it is a tick counter.

ProScanTM from Forex Global Center
Now see what a real Volume indicator looks like. Start using the tools professionals use. Don’t get caught in a range trade, or even worse, lose your profits because you are not able to see changes in Volume. See if Forex Global Center has what you are looking for?

Fred Worthy is President of Forex Global Center.
ProScanTM trading modules will provide you with Forex signals used by professional traders. Watch the free video tutorials and learn how to make successful trades.

International Foreign

Globals Forex — Wed, 02 Sep 2009 12:45:35 +0000

FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.

Forex: GBP/USD finds support at 1.6255

Globals Forex — Sat, 29 Aug 2009 07:41:45 +0000

Cable fell so far during the American session against the Dollar erasing previous gains. Current price at 1.6277/79 is only 0.03% above today’s opening price. GBP/USD failed earlier to hold above 1.6300 and weakened, falling to 1.6255, posting a fresh intra-day low.

Against the Euro and the Swiss Franc, Cable is rising for the first time in more than a week. GBP/CHF is holding above 1.7200 but the pair retreated from intra-day high at 1.7305. EUR/GBP is back below 0.8800. The pair fell and found support at 0.8775.

James Chen, Chief analyst at FX Solutions, comments: “After traversing up a dramatically steep parallel uptrend channel for the past week and a half, price action on EUR/GBP, a 4-hour chart of which is shown, has finally shown signs of a potential bullish exhaustion by making a tentative breakdown below the channel. This occurs after price hit a 12-week high of 0.8837 on Thursday. With continued bearishness on this breakdown, a clear initial support target to the downside resides around the 0.8700 price region.”

Currency Exchange: Floating Rate Vs. Fixed Rate

Globals Forex — Sat, 22 Aug 2009 16:16:53 +0000

Did you know that the foreign exchange market (also known as FX or forex) is the largest market in the world? In fact, more than $3 trillion is traded in the currency markets on a daily basis as of 2009. This article is certainly not a primer for currency trading, but it will help you understand exchange rates and why some fluctuate while others do not.

What Is an Exchange Rate?
An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country’s currency compared to that of your own. If you are traveling to another country, you need to “buy” the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for example, and the exchange rate for U.S. dollars 1:5.5 Egyptian pounds, this means that for every U.S. dollar, you can buy five and a half Egyptian pounds. Theoretically, identical assets should sell at the same price in different countries, because the exchange rate must maintain the inherent value of one currency against the other.

Fixed Exchange Rates
There are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged. (To learn more, read What Are Central Banks? and Get To Know The Major Central Banks.)

If, for example, it is determined that the value of a single unit of local currency is equal to US$3, the central bank will have to ensure that it can supply the market with those dollars. In order to maintain the rate, the central bank must keep a high level of foreign reserves. This is a reserved amount of foreign currency held by the central bank that it can use to release (or absorb) extra funds into (or out of) the market. This ensures an appropriate money supply, appropriate fluctuations in the market (inflation/deflation), and ultimately, the exchange rate. The central bank can also adjust the official exchange rate when necessary.

Floating Exchange Rates
Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed “self-correcting”, as any differences in supply and demand will automatically be corrected in the market. Take a look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.

In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency does reflect its true value against its pegged currency, a “black market”, which is more reflective of actual supply and demand, may develop. A central bank will often then be forced to revalue or devalue the official rate so that the rate is in line with the unofficial one, thereby halting the activity of the black market.

In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation; however, it is less often that the central bank of a floating regime will interfere.