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What is the FOREX


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53 minutes ago, Chivas said:

lol 75% here simply dont understand how Sterling/Baht Euro/Baht AUD/Baht etc was calculated prior to your post

 

Make that 99% now....

 

In your own words it wasn't an explanation of how to trade forex

 

For Christs sake if you're a Brit its simply (Sterling/Dollar) x (Dollar/Baht)

 

If you're holding AUD or Euro (or whatever) substitute that to where Sterling is above in the equation.....simple as that

 

End....

 

(PS nice copy and paste)

I wrote the opening post to try and help posters understand how the global forex system works, not how to trade forex or to understand how the value of GBP/THB is derived. I invite anyone to run any part of my post that is not in quotes, through any plagarism checker, you wont find any part of it written elsewhere.

 

The opening post is not about how to trade forex. The post is about how FOREX works, there is a big difference. 

 

You keep telling everyone that the value of GBP/THB comes from USD/THB and USD/GBP, what you fail to tell everyone is where the value of USD/THB and USD/GBP comes from in the first place! Where it comes from is through the aggregation of millions of buy and sell USD/THB, THB/USD, USD/GBP and GBP/USD transactions every second. They translate into PIP adjustments to the value of GBP and THB and other  currencies in the FOREX tree, using the algorithms contained in FOREX. That's where GBP/THB comes from, not from any multiplier and certainly NOT from any Central Bank fix.

Edited by nigelforbes
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Currency pairs can be divided in major, minor, exotics and cross pairs. There are about seven major currency pairs, all involving USD that is paired with another currency; seven minor currency pairs involving other reserve currency pairs, and exotic currency pairs which pair USD against a minor currency such as THB. In addition, any currency that is not paired with USD directly is referred to as a cross pair, GBP/THB is an example of a cross pair albeit a minor cross pair because THB is relatively small in FOREX currency terms.

 

Before the value of any cross pair can be calculated, say GBP/THB for example, the value of GBP and THB (or the other components of the cross) against USD must be calculated separately. The value of THB can be determined by the net value of all USD/THB and THB/USD trades over a given period and this is what the FOREX does so this part is simple because USD/THB is NOT a cross pair.

 

Establishing the value of USD/GBP is slightly more complex because the value of USD itself is determined in part by the value of five base currencies, one of which is GBP, along with all the other usual factors that determine a currency value. Nevertheless, USD/GBP is not a cross pair and the FOREX can determine the net value of all trades to establish the value of GBP. Currencies that determine the value of the US Dollar Index include the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. You can see from this that any change in the relative value of GBP impacts not only the value of GBP cross pairs but also the value of USD itself.

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Let me wrap up this explanation with some misc. FOREX market trivia:

 

Daily turnover of the global FOREX is about USD 6.6 trill and is increasing at about 40% per decade.

 

As of 2019, the most traded currency was USD which amounted to over 88% of all traded volume, GBP amounted to about 13% whilst THB amounted to 0.5%. Note: total volume must equal 200%.

 

The Spot price is the market price, the Bid Price is the highest price a buyer will pay, the Ask Price is the lowest Price a seller will sell.

 

The rules of the FOREX Wholesale market are set out in the FX Global Code. The FX Global Code is a set of principles of good practice for foreign exchange market participants. It aims to promote the integrity and effective functioning of the wholesale foreign exchange market.

 

The founder of Forex trading is typically credited to be a man by the name of Richard D. Wyckoff, who created the Wyckoff Stock Market Institute.

 

The FOREX software uses a proprietary scripting language, MQL4/MQL5, which enables traders to develop Expert Advisors, custom indicators and scripts.

 

The software used in the FOREX is called MetaTrader 4, also known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. The software is owned by Metaquotes Software Co.

 

As the bankers' bank, the Bank of International Settlements (BIS) serves the financial needs of member central banks. It provides gold and foreign exchange transactions for them and holds central bank reserves. The BIS is also a banker and fund manager for other international financial institutions. The BIS is the mechanism used to settle claims between Central Banks for related FOREX activity which are netted daily.

 

One of the key roles of BIS in the FOREX market is to monitor the risk assumed by member banks and to ensure FOREX market quotes are balanced globally. The following note from the BIS website explains:

 

“The purpose of this note is to consider the prudential aspects of banks' foreign exchange activities. It is not directly concerned with the restrictions that countries may place on their banks' foreign exchange business for exchange control, monetary or other macro-economic reasons. In exercising prudential control over this area of banks' activities, however, supervisory authorities need to take into account the role of the banks as "market-makers" in foreign exchange. This role has two aspects. Firstly, banks have to quote rates to their customers (including other banks) at which they stand ready to buy and sell currencies. Secondly, by themselves taking open positions in currencies, banks (as well as non-banks) help to ensure that the foreign exchange markets are balanced at any point of time without excessive and erratic exchange rate fluctuations. In other words, supervisors have to weigh prudential considerations against the need to enable the banks to play their part in the smooth and efficient functioning of the exchange markets. Whatever may be the exact balance struck between these considerations, supervisory authorities must seek to ensure that the risks assumed by banks in their foreign exchange operations are never so large as to constitute a significant threat either to the solvency and liquidity of individual banks, or to the health and stability of the banking system as a whole”.

 

https://www.bis.org/publ/bcbs00e.htm

 

 

 

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A recent exchange with another poster prompted me to post an explanation of how the value of USD is reported for FOREX purposes. The following extract from Marketwatch explains nicely:

 

"There’s a number of ways to judge the dollar’s performance and one of the most common is by using the ICE U.S. Dollar Index, which is calculated about every 15 seconds from a feed of spot prices on different currencies. Six currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc — are weighted against the dollar to come up with a calculation of how the U.S. currency is performing".

 

https://www.marketwatch.com/story/the-u-s-dollar-continues-to-soar-what-that-means-for-the-stock-market-and-investors-11666208052?siteid=yhoof2

 

There are a number of ways to assess the value of USD and each one has its place. The Dollar Index reports on the strength or weakness of USD in a FOREX context; the volume of Treasury notes issued by the Fed measures it on a credit basis whilst Foreign Currency Reserves asses USD strength from a trading perspective. It's only necessary to understand the Dollar Index to asses the current value of USD, the remaining two ways are used to determine the future direction of the currency.

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6 minutes ago, Sparktrader said:

Wise has multi currencies. The aud went to 1.1usd now 0.61. Safe play if you can hold.

 

St trading more risky.

Please do not turn this thread into a discussion about how to trade FOREX for personal benefit, it's not about that. Thanks

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1 minute ago, Sparktrader said:

Buying and holding usd for 3 or 4 years isnt trading.

 

Its an investment.

This thread is not about FOREX investments either, as you well know! It's purpose, as stated in the first post, is to help posters understand how the FOREX operates at the global level and all that involves. Now please!

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Some off topic posts about trading have been removed, the topic is about helping posters understand how the global forex system works, not how to trade.

 

From the OP:

A number of posters recently have said they don't understand how the FOREX or foreign exchange works, maybe this will help:

 

What is The FOREX?

 

 

 

 

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