FOREX BROKERS

Until recently, foreign exchange brokers did large amounts of business,facilitating interbank trading and matching anonymous counterparts forsmall fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS (now owned by ICAP), Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg,and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeablysmaller than just a few years ago

PROFIT TRADING

Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for profitbased on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

PIPS AND ITS VALUE

What we are earning here?
While during trading stocks traders are earning cents or its fractions, when trading futures points are being earned or lost during forex trading we are earning or losing pips. Depending on currency pair pips are second or fourth place after coma. For example exchange rate (or currency pair price) for EUR/USD is as for now 1.2068. If it raise to 1.2075 it will be 7 pips up. USD/JPY price is 118.51, pips here are describing second place after coma. Pips can have different values depending in which currency account is denominated. If account is denominated in USD each pip earned in different currency than USD need to be exchanged to USD. In example when we trade USD/JPY we are earning or losing JPY pips. To add then to our USD denominated trading account we need to exchange them to USD. We will look then for JPY/USD exchange rate and we will see how much JPY pip is worth. Every trading platform does such calculations automatically but its good to know why on some pairs we are earning more dollars per pip when on others we earn less. On major currency pairs pips value vary from as low as $0.7 to as high as $1.6. These values are of course approximations as they depend on exchange rates which are changing every minute.