Forex strategies and ideas under development

That's probably that missing link we needed for our website — a page with ideas and strategies under development!

While making a final well balanced trading system is challenging for any trader (be you a beginner or a pro), almost all of us have some bright ideas about specific parts of Forex trading routine: good entries, ideal exits, excellent stops etc.

On behalf of our Team I'd like to welcome you to join our discussion area where we are going to look at new trading ideas and innovative approaches, make notes and conduct testing, and, of course, share trading strategies that are still under development.

Should I add that I'm truly excited about this new opportunity, because I also have my not-so-old-not-so-new notebook, where I carefully wrote down interesting ideas which sparked in my mind over the time.

I didn't know how to properly introduce them since they never grown into a system, they've never been traded live, they remained just ideas - the ideas, which someone else somewhere might be looking for, the ideas which could make someones' trading better!

I'm giving all the credits for this new page to a person, who submitted to us the first strategy under development thus making all of us think about where we should publish it :). Thank you.

History

BRIEF HISTORY OF FOREX TRADING

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.

The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.

But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

The Basics on Understanding Forex Options

There are many different options a trader can use when trading on the foreign currency exchange or Forex market. Any trader can find which option works best for their personal needs when they look at all of the different options that are available. Using options when trading on the Forex, offers many benefits to the trader.

When trading on the Forex, there are two major types of options available to traders. The most common option is call the call/put option, which works similar to stock options and the other called single payment option trading, or SPOT. This option gives traders more flexibility when it is done properly.

UNDERSTANDING THE FOREX TRADING

The Foreign Exchange market, also referred to as the “Forex” or “FX” market, is the largest financial market in the world, with a daily average turnover of well over US $1 trillion - 30 times larger than the combined volume of all U.S. equity markets. The word FOREX is derived from the words FOReign EXchange.

Spot and Forward Foreign Exchange

Forex trading may be for spot or forward delivery. Spot transactions are generally undertaken for an actual exchange of currencies - delivery or settlement - for a value date two business days later.

Forward transactions involve a delivery date further in the future, sometimes as far as a year or more ahead. By buying or selling in the forward market, it is possible to protect the value of any anticipated flows of foreign currency, in terms of one's own domestic currency, from exchange rate volatility.

Difference Between Foreign Currency and Foreign Exchange

Anyone who has traveled outside their country of residence would have had some exposure to both foreign currency and foreign exchange.

For example, if you live in the United States and travelled, lets say, to London, England you may have exchanged your home currency i.e. US $ for British Pounds. The British Pounds are referred to as a foreign currency and the act of exchanging your US $ for British Pounds is called foreign exchange.

The Foreign Exchange Market

Unlike some financial markets, the foreign exchange market has no single location as it is not dealt across a trading floor. Instead, trading is done via telephone and computer links between dealers in different trading centres and different countries.

The FX market is considered an Over The Counter (OTC) or ‘interbank’ market, as transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as it is with the stock and futures markets.

Reasons for Buying and Selling Currencies

Through the mechanism of the foreign exchange market companies, fund managers and banks are enabled to buy and sell foreign currencies in whatever amounts they want. The demand for foreign currency is stimulated by a number of factors such as capital flows arising from trade in goods and services, cross-border investment and loans and speculation on the future level of exchange rates. Exchange deals are typically for amounts between $3 million and $10 million, though transactions for much larger amounts are often done.

There are two basic reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.

Currency Speculation

Speculators desire to trade forex for the opportunity to profit from a movement in currency exchange rates. For example, if a trader believes that the Euro will weaken relative to the U.S. dollar, then the trader can sell Euros against U.S. dollars in the Forex market. This is referred to as being "short Euros against the dollar" which, from a trading perspective, is the same as being "long dollars against the Euro". If the Euro weakens against the dollar, then the position will profit

For speculators, the best trading opportunities are usually with the most commonly traded and therefore most liquid currencies, called “the Majors.” Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

True 24 Hour Market

Forex is a true 24-hour market and trading begins each day in Sydney, and moves around the globe as the business day begins in each financial centre, first to Tokyo, then London, and then New York. Unlike any other financial market, traders can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

As with all financial products, FX quotes include a "‘bid" and "offer". The "bid" is the price at which a dealer is willing to buy - and clients can sell - the base currency for the counter currency. The "offer" is the price at which a dealer will sell - and clients can buy - the base currency for the counter currency.

The US Dollar is the Centre-piece

The US dollar is the centre-piece of the Forex market and is normally considered the "base" currency for quotes. In the “Majors,” this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions to USD-based quoting include the Euro, British pound (also called Sterling), and Australian dollar. These currencies are quoted as dollars per foreign currency as opposed to foreign currencies per dollar.

What Affects the Currency Prices

Currency prices are affected by a variety of economic and political conditions, most significantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention.

Any of these factors, as well as large market orders, can cause volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumour.

Rewards and Risks in the Forex Trading Market

Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced traders.

However, there is considerable exposure to risk in any foreign exchange transaction. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency.

Moreover, the leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses.

Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, you should not invest money you cannot afford to lose.

As an investor you may lower your exposure to risk by employing risk-reducing strategies such as "stop-loss" or "limit" orders.

There are also risks associated with utilizing an Internet-based deal execution software application including, but not limited to, the failure of hardware and software.

Stephen S Alison is a retired "bean counter" who spent 26 years in middle management positions for major US financial institutions in Europe and a further 10 years as an adviser/consultant to a number of European financial institutions. He owns and operates a number of "hand built" niche websites including: http://www.24carat-gold.com http://www.forex-arbitrage.com

Article Source: http://EzineArticles.com/?expert=Stephen_S_Alison

5 Most Important Network Layer Protocols

Among the seven layers in the OSI reference model, layer 3 belongs to the network layer. There are some important network layer protocols that you should know of. Protocol is nothing but a set of rules that determine how messages are being exchanged between different computers.

Let us now briefly consider five important protocols that are related to the network layer message transfers. They are: IPv4, IPv6, CLNP, IPSec, and ICMP.

IPv4:

IP stands for Internet Protocol while v4 indicates that it is the version 4. Here, version 4 refers to the fourth revision of the Internet Protocol that was later widely deployed. There exists an IPv4 header structure that is the basis for network layer transfer of packets. This is one of the most important network layer protocols.

IPv6:

This is also an Internet Protocol that is of version 6. Though IPv4 is widely used these days, it is expected that this IPv6 is going to take over the rest of the attention. Hence, it is called the next generation protocol. There are just a few basic differences between both the protocols. The address space of IPv6 is larger than that of the IPv4.

CLNP: CLNP stands for Connectionless Network Protocol. The service that this protocol renders is called CLNS. This routes the messages to their destination independently.

IPSec: Internet Protocol Security is one such protocol that enables encryption and also authentication of every IP packet that moves in the data stream. Encryption and authentication are two techniques to ensure secure message transfer from the source to the destination.

ICMP: ICMP stands for Internet Control Message Protocol. This particular protocol is very important among all the network layer protocols. This is used by the operating systems of network computers to send error messages indicating that a particular service was not available or the connection to a router failed, etc.

UNDERSTANDING THE FOREX WITH IPV6

TO UNDERSTAND THE FOREX WITH IPV6 CLICK HERE TO KNOW BETTER

IPv6 Implementations

CLICK HERE TO SEE THE IPV6 IMPLEMENTATIONS

How can I get help with IPv6? Or find out more about it?

A new mailing list for IPv6 users has been established. If you are interested in deploying IPv6 for your site, this could be a valuable resource for you.
We've also compiled a list of other sites with IPv6 information.
CLICK HERE TO KNOW FOR OTHER SITES THAT PROVIDING IPV6 INFO

What applications run over IPv6 today?

Many common Internet applications already work with IPv6, and more are being ported.

Where can I get an IPv6 implementation for my system?

There is software available for most operating systems in common use today. Find your favorite OS on our list of IPv6 implementations. We also have a collection of "how to install" documents for various systems.
CLICK HERE FOR HOW TO INSTALL DOCUMENTS

IPV6

What is IPv6?

IPv6 is short for "Internet Protocol Version 6". IPv6 is the "next generation" protocol designed by the IETF to replace the current version Internet Protocol, IP Version 4 ("IPv4").

Most of today's internet uses IPv4, which is now nearly twenty years old. IPv4 has been remarkably resilient in spite of its age, but it is beginning to have problems. Most importantly, there is a growing shortage of IPv4 addresses, which are needed by all new machines added to the Internet.

IPv6 fixes a number of problems in IPv4, such as the limited number of available IPv4 addresses. It also adds many improvements to IPv4 in areas such as routing and network autoconfiguration. IPv6 is expected to gradually replace IPv4, with the two coexisting for a number of years during a transition period.

Some introductory information about the protocol can be found in our IPv6 FAQ. For those interested in the technical details, we have a list of IPv6 related specifications.

TYPES

Float
Main article: Floating exchange rate

Floating rates are the most common exchange rate regime today. For example, the dollar, euro, yen, and British pound all float. However, since central banks frequently intervene to avoid excessive appreciation or depreciation, these regimes are often called managed float or a dirty float.
Pegged float

Here, the currency is pegged to some band or value, either fixed or periodically adjusted. Pegged floats are:

* Crawling bands: the rate is allowed to fluctuate in a band around a central value, which is adjusted periodically. This is done at a preannounced rate or in a controlled way following economic indicators.
* Crawling pegs: Here, the rate itself is fixed, and adjusted as above.
* Pegged with horizontal bands: The currency is allowed to fluctuate in a fixed band (bigger than 1%) around a central rate.

Fixed
Main article: Fixed exchange rate

Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves. A pegged currency with very small bands (< class="editsection">

market size and liquidity

The foreign exchange market is the largest and most liquid financial market in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India

WHAT IS FOREX

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of

* its trading volumes,
* the extreme liquidity of the market,
* its geographical dispersion,
* its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
* the variety of factors that affect exchange rates.
* the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
* the use of leverage

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

* $1.005 trillion in spot transactions
* $362 billion in outright forwards
* $1.714 trillion in foreign exchange swaps
* $129 billion estimated gaps in reporting

FIXED EXCHANGE RATE

A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.

A fixed exchange rate is usually used to stabilize the value of a currency, against the currency it is pegged to. This makes trade and investments between the two countries easier and more predictable, and is especially useful for small economies where external trade forms a large part of their GDP.

It is also used as a means to control inflation. However, as the reference value rises and falls, so does the currency pegged to it. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability.

A former president of the Federal Reserve Bank of New York described fixed currencies as follows:
Fixing value of the domestic currency relative to that of a low-inflation country is one approach central banks have used to pursue price stability. The advantage of an exchange rate target is its clarity, which makes it easily understood by the public. In practice, it obliges the central bank to limit money creation to levels comparable to those of the country to whose currency it is pegged. When credibly maintained, an exchange rate target can lower inflation expectations to the level prevailing in the anchor country. Experiences with fixed exchange rates, however, point to a number of drawbacks. A country that fixes its exchange rate surrenders control of its domestic monetary policy.

MAINTAINING FIXED EXCHANGE RATE

Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the desired rate, the government buys its own currency off the market using its reserves. This places greater demand on the market and pushes up the price of the currency. If the exchange rate drifts too far above the desired rate, the opposite measures are taken.

Another, less used means of maintaining a fixed exchange rate is by simply making it illegal to trade currency at any other rate. This is difficult to enforce and often leads to a black market in foreign currency. Nonetheless, some countries are highly successful at using this method due to government monopolies over all money conversion. This is the method employed by the Chinese government to maintain a currency peg or tightly banded float against the US dollar.Throughout the 1990s, China was highly successful at maintaining a currency peg using a government monopoly over all currency conversion between the yuan and other currencies
Newer Post Older Post Home

CURRENCY BAND

The currency band is a system of exchange rates by which a floating currency is backed by hard money.

A country selects a range, or "band", of values at which to set their currency, and returns to a fixed exchange rate if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate. For example, the exchange rate of the renminbi of the mainland of the People's Republic of China has recently been based upon a currency band; the European Economic Community's "snake in the tunnel" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism (ERM) and ultimately the Euro.

LINKED EXCHANGE RATE

A linked exchange rate system is a type of exchange rate regime to link the exchange rate of a currency to another. It is the exchange rate system implemented in Hong Kong to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD). The Macao pataca (MOP) is similarly linked to the Hong Kong dollar.

Unlike a fixed exchange rate system, the government or central bank does not actively interfere in the foreign exchange market by controlling supply and demand of the currency in order to influence the exchange rate. The exchange rate is stabilised by a mechanism.
History

As a response to the Black Saturday crisis in 1983, the linked exchange rate system was adopted in Hong Kong on October 17, 1983 through the currency board system. The redemption of certificates of indebtedness (for backing the banknotes) were sent out by note-issuing banks to peg the domestic currency against the US dollar at an internal fixed rate of HKD $7.80 = USD $1.

The Hong Kong Monetary Authority (HKMA), Hong Kong's de facto central bank, authorised note-issuing banks are to issue banknotes. These banks are required to have the same amount of USD to issue banknotes. The HKMA guarantees to exchange USD into HKD, or vice versa, at the rate of 7.80. When the market rate is below 7.80, the banks will convert USD for HKD from the HKMA, HKD supply will be increased, and the market rate will climb back to 7.80. The same mechanism also works when the market rate is above 7.80, and the banks will convert HKD for USD.

In practice, the HKMA also set a lower limit at 7.80 (7.85 as an upper limit and 7.75 as a lower limit since May 18, 2005) for the HKD to flow within. The HKMA will buy or sell HKD in the market when the exchange rate is at (or extremely close) the lower limit and upper limit respectively. The HKD is backed by one of the world's largest foreign exchange reserves, which is several times the amount of money supplied in circulatio

FLOATING EXCHANGE RATE

A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. It is not possible for a developing country to maintain the stability in the rate of exchange for its currency in the exchange market. There are two options open for them- Let the exchange rate be allowed to fluctuate in the open market according to the market conditions, or An equilibrium rate may be fixed to be adopted and attempts should be made to maintain it as far as possible. But, if there is a fundamental change in the circumstances, the rate should be changed accordingly. The rate of exchange under the first alternative is know as fluctuating rate of exchange and under second alternative, it is called flexible rate of exchange. In the modern economic conditions, the flexible rate of exchange system is more appropriate as it does not hamper the foreign trade. There are economists who think that, in most circumstances, floating exchange rates are preferable to fixed exchange rates. As floating exchange rates automatically adjust, they enable a country to dampen the impact of shocks and foreign business cycles, and to preempt the possibility of having a balance of payments crisis. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty. This may not necessarily be true, considering the results of countries that attempt to keep the prices of their currency "strong" or "high" relative to others, such as the UK or the Southeast Asia countries before the Asian currency crisis. The debate of making a choice between fixed and floating exchange rate regimes is set forth by the Mundell-Fleming model, which argues that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It can choose any two for control, and leave third to the market forces.

In cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. A central bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling large lots in order to provide price support or resistance, or, in the case of some national currencies, there may be legal penalties for trading outside these bounds.

FEAR OF FLOATING

A free floating exchange rate increases foreign exchange volatility. There are economists who think that this could cause serious problems, especially in emerging economies. These economies have a financial sector with one or more of following conditions:

• high liability dollarization
• financial fragility
• strong balance sheet effects

When liabilities are denominated in foreign currencies while assets are in the local currency, unexpected depreciations of the exchange rate deteriorate bank and corporate balance sheets and threaten the stability of the domestic financial system.

For this reason emerging countries appear to face greater fear of floating, as they have much smaller variations of the nominal exchange rate, yet face bigger shocks and interest rate and reserve movements.This is the consequence of frequent free floating countries' reaction to exchange rate movements with monetary policy and/or intervention in the foreign exchange market.

The number of countries that present fear of floating increased significantly during the nineties.

CURRENCY FUTURE

CURRENCY FUTURE
A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

History

Currency futures were first created at the Chicago Mercantile Exchange (CME) in 1972, less than one year after the system of fixed exchange rates was abandoned along with the gold standard. Some commodity traders at the CME did not have access to the inter-bank exchange markets in the early 1970s, when they believed that significant changes were about to take place in the currency market. They established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1972. Today, the IMM is a division of CME. In the second quarter of 2005, an average of 332,000 contracts with a notional value of $43 billion were traded every day. Currently most of these are traded electronically

Retail forex platform

Retail forex trading is a segment of the vast foreign exchange market. It has been speculated that it represents 2 percent of the whole forex market which amounts to $50-60 billion ^[1][2] in daily trading turnover. Due to the increasing tendency in the past years of the gradual shift from traditional intrabank 'paper' trading to the more advanced and accurate electronic trading, there has been spur in software development in this field. This change provided different types of trading platforms and tools intended for the use by banks, portfolio managers, retail brokers and retail traders.

One of the most important tools required to perform a forex transaction is the trading platform providing retail traders and brokers with accurate currency quotes.

History and new developments

Since 1996, when retail forex trading was introduced, several brokers who lacked the sufficient tools developed their own trading platforms tailored specifically to their needs. These platforms were good enough at the time but required constant investments in R&D and its development cost too much. This was the first wave.

The second wave was in the early 2000s: several software companies entered the retail forex trading market by launching their own versions of trading platforms. Typically these versions were cumbersome for both front-end users (retail traders) and back-end users (retail brokers) due to the misunderstanding of the developers about the forex market and also because of the insufficient programming tools/languages at the time. Simultaneously most of the retail brokers kept using and developing their own systems as they waited for better platforms which were yet to be developed.

There are currently few to no brokers which were part of the first wave trading systems. By now most of the first wave brokers have either vanished, merged or progressed to the second wave trading platforms – the most common example of which is Metaquotes.

It is only in the last couple of years that the advanced trading platforms started to emerge. These platforms put much stronger emphasis on the user interface (GUI) making it more accessible to the retail traders while making trading on it very simple and intuitive. Moreover a very strong emphasis was put on the back-end which allowed the retail brokers better control over their operations, better reporting and accurate system and ways to manage marketing campaigns. Gradually this wave is replacing the previous second wave with a major shift now to the friendlier and more intuitive systems of the third wave which according to Aite Group are necessary in order to maintain growth.

Nowadays, banks have also jumped on the retail forex trading platform bandwagon and have started offering those services to individual traders and money mangers, expanding the forex trading appeal. DBFX and Citibank are some of the banks that are currently offering this service.