Forex Investment Market Montrose CO

“A lot of people are making good money on their equity positions here [in the U.S.]. But is that real money? Is that real value? If you take a look at what’s happening to the value of the U.S. dollar against some of the other major currencies...net overall you’re really not making that much. And that’s why sometimes you need to diversify into FX [foreign exchange],” Eugene Hawkin, chief operating officer of CMS Forex in New York City, said.

The foreign exchange market (also called forex or FX) is the largest asset class in the world, with a global trading volume of more than $2 trillion per day, Hawkin said. “It’s a market of both exchange and speculation on currency prices.”

The forex market is 10 to 15 times the size of the bond market and 50 times the size of the equities market, Richard Olsen, founder of Olsen Limited, a Zurich-based e-finance technology and service provider, and one of the founders of OANDA FX Trade, a retail foreign exchange dealer, said.

Despite its enormous size, the forex market has only recently become popular with retail investors, Hawkin said.

“Retail investors make up maybe 1 to 2 percent of the total volume traded on the market....The major players are large banks, multinational corporations, anyone from Toyota and Honda doing large transactions to both offset their currency exposures as well as actually transfer funds from continent to continent.”

Because the market is global, trades are happening 24 hours a day, seven days a week. Constant trading makes for a liquid, volatile market.

The forex market developed out of the need to exchange funds from currency to currency. While the U.S. dollar was pegged to the price of gold—until the late 1970s—and many other major currencies were pegged to the U.S. dollar, the market remained fairly stable. But “once the peg had been removed, currencies started moving against one another,” Hawkin said.

This opened up the opportunity for currency speculation. Today, “about 85 to 90 percent of all volume traded on the market is purely for speculative purposes,” Hawkin said.

Market Factors

One major market factor that impacts currency demand is interest rates. “Interest rates really create the basis for the supply and demand for different currencies,” Hawkin said. “When you see higher interest rates in a given currency, you see people moving money there, buying up that currency so they can invest and receive those higher interest earnings.”

Other factors include geopolitical events, such as wars and political crises, which also can “create fairly large currency moves,” Hawkin said.

Country economic indicators, political issues and natural disasters are all capable of affecting the forex market, forex investor James Cheong said.

Olsen said he has a different view on what causes currency moves. “I kind of don’t believe in the traditional arguments, where people say it’s political news, interest rates, etc. I think actually the true driving forc...

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