Author Topic: FOREIGN EXCHANGE MARKET  (Read 53584 times)

Offline Prince

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FOREIGN EXCHANGE MARKET
« on: August 18, 2008, 06:11:36 PM »
Foreign exchange market

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is the largest and most liquid financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is almost US$ 4 trillion.



Market size and liquidity
The foreign exchange market is unique because of

        * its trading volumes,
        * the extreme liquidity of the market,
        * the large number of, and variety of, traders in the market,
        * its geographical dispersion,
        * its long trading hours: 24 hours a day except on weekends (from 3pm EST on Sunday until 4pm EST 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 BIS,[1] 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 $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 forex swaps
        * $129 billion estimated gaps in reporting

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 forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe.



Top 10 currency traders
         Rank    Name    Volume
1    Germany Deutsche Bank    21.70%
2    Switzerland UBS AG    15.80%
3    United Kingdom Barclays Capital    9.12%
4    United States Citi    7.49%
5    United Kingdom Royal Bank of Scotland    7.30%
6    United States JPMorgan    4.19%
7    United Kingdom HSBC    4.10%
8    United States Lehman Brothers    3.58%
9    United States Goldman Sachs    3.47%
10    United States Morgan Stanley    2.86%

Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms offered by companies such as First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. [3]

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. RPP

The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of currency, which is a standard "lot".

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e. 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.


Market participants
Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. 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 a profit based 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.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds

Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms
Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative spe...t currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of spe...t firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Retail forex brokers

There are two types of retail brokers offering the opportunity for speculative trading. Retail forex brokers or Market makers.Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail forex brokers, while largely controlled and regulated by the CFTC and NFA might be subject to forex scams[5] [6]. At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD(No Dealing Desk), And STP(Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

Other

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as Foreign Exchange Brokers but are distinct from Forex Brokers as they do not offer speculative trading but currency exchange with payments. i.e. there is usually a physical delivery of currency to a bank account.

It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money Transfer/Remittance Companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally.

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FOREIGN EXCHANGE MARKET
« on: August 18, 2008, 06:11:36 PM »

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Offline wisdomxy

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Re: FOREIGN EXCHANGE MARKET
« Reply #1 on: September 05, 2008, 08:56:35 PM »
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Offline crazypip

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Re: FOREIGN EXCHANGE MARKET
« Reply #2 on: September 11, 2008, 01:28:14 PM »
your post is very informative and detailed but i guess it's too long .  you have explained so many things together. and i need to know mor about Retail forex brokers.
 regards  :)

Offline realsbd

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Re: FOREIGN EXCHANGE MARKET
« Reply #3 on: October 14, 2008, 08:40:31 AM »
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Offline Offshore

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Re: FOREIGN EXCHANGE MARKET
« Reply #4 on: November 07, 2008, 01:11:21 AM »
 Top ten tips for trading FX

Thu, Jul 3 2008, 10:08 GMT
by Betsy Waters
from Deutsche Bank

How to make money from money


1. Practice before you start trading with real money.  Could you imagine an athlete going to the Olympic Games without preparation and training? Make sure you have practised your trading on a demo platform and get comfortable with it and your trading style before committing real money.

2. Know what moves currency markets.  Like any asset class, there are a number of factors that drive currency performance.  A country’s macroeconomic situation can have a major influence – economic data releases, policy decisions and political events can change an economist’s outlook on the country, and therefore the currency.  There are also technical factors such as interest rates, equity markets and international trade which may have an impact.  Spend time getting to know these.

3. Understand the strategies.  Yes there is a method to the madness.  As a trader you need to be aware of three crucial trading strategies which are often used by currency traders; the carry, momentum, and value trade.  Momentum tracks the direction of currency markets; the carry strategy sees investors selling currencies with low interest rates and buying those with high rates; and the valuation strategy takes a position based on the investor’s view of a currency’s value.  However, the strategies that you use are up to you.

4. Manage risk.  As with any investment decision, you must decide what risk you’re willing to accept.  Ask yourself, “how much am I prepared to lose on this position?” If you don’t have a convincing or comfortable answer then you should rethink the trade.  Do not risk more than you can afford to lose.  Think about how you can mitigate your downside risk by using of trading strategies such as stop losses or limit orders.

5. Stick to your knitting.  There are literally hundreds of currency pairs that can be traded in the currency markets, each of which have their own characteristics and considerations to understand and analyse.  If you’re participating in the market on a part time and non professional basis, it is probably better to concentrate on just a few pairs and commit to thorough and robust research on those, rather than superficial research on the many.  Some key things to consider when analysing a currency pair are its liquidity, transaction costs (the spread) and its volatility.  As a general rule, major currencies usually have better liquidity, tighter spreads and lower volatility, versus emerging market currencies which have poor liquidity, wide spreads and volatile movements.

6. Plan your trade, and trade your plan.  It’s one thing to have a plan, it’s quite another to execute it.  It is important in currency trading to not get caught up in the moment – the markets are fast moving and in the short term can be unpredictable.  Rather than trying to make a quick profit, stick to your long term plan based on your research.  Good currency traders make money in the long term by being disciplined, not necessarily by making short term bets.

7. Research, research, research.  It’s important to stay up to date.  All currencies move quickly and checking the price once a week is not going to help you make strong long term returns.  It is helpful to use an online provider that gives you up to the minute data and statistics.  Traders use this data to constantly assess their trading positions.

8. Keep your emotions in check.  Like many important decisions, it is vital to keep emotion out of any trading decision you make.  If you’re upset about missing out on an opportunity and want to trade yourself better, or want to go ‘off-piste’ to make up for a loss earlier in the day – reconsider, because you’ve got the warning signs of someone about to make a rash and irrational decision.  If you do feel yourself getting emotionally involved in a particular trade, take a deep breath, review your strategy, and establish how such a decision will affect your overall approach before going anywhere near the ‘execute’ button.

9. Don’t expect to win on every trade.  That may not sound like much of a sales pitch, but even the most successful of traders don’t win on every trade.  What they do have is a robust plan and long-term strategy which carefully considers the risks.  So don’t necessarily be disheartened if a trade doesn’t go your way; review why it went wrong and see if there is anything to learn from the experience.  But don’t think that currency trading is an option for those seeking quick money, because like any investment, it only should be played by those with a long-term end-game in mind.

10. Don’t put all your (nest) eggs in the currency basket.  Foreign exchange is only one of the many asset classes you should be considering as part of a balanced investment portfolio.  FX trading is not suitable for every investor, so if you are committing all of your financial resources to FX trading be sure you are fully aware of the risks and rewards of doing so, because it’s not recommended.  The same applies for currency trading itself; spread your risk by not placing all your faith in a single trade because diversification is key; no matter what asset class you’re investing with.

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Offline beibee

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Re: FOREIGN EXCHANGE MARKET
« Reply #5 on: November 13, 2008, 09:07:42 PM »


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Offline franclin8

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Re: FOREIGN EXCHANGE MARKET
« Reply #6 on: December 18, 2008, 10:33:15 AM »
nice piece of info my friend but i lost $500 which i dont know how it happen because i monitored the trade which i place to sell on friday last two weeks on non farm but just lost and i havent recieve update till today on how  i lost that money, i used fxopen brokers.

can you say something about this?

Offline Offshore

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Re: FOREIGN EXCHANGE MARKET
« Reply #7 on: January 03, 2009, 07:19:16 PM »
Accounts with only $500 don´t have a lot of cushion.   See if can look at the the graph and the price went up and then down.   Did it go too far the opposite way before it came back?

Post Merge: January 03, 2009, 12:13:46 PM
LearningMarkets. com
You gotta love the trend

Buyers and sellers are in a constant tug-o-war in the forex market.  Buyers drive the prices of currency pairs higher, and sellers drive the prices of currency pairs lower.  If you want to be profitable in your forex investments when buyers are in control, you need to follow the trend and be a buyer too.  If you want to be profitable in your forex investments when sellers are in control, you need to follow the trend and be a seller too.  Seems pretty easy, right?

Well. . . almost.

Most forex investors are able to make money when a currency pair is trending in one direction or another.  The trick is holding onto your profits and making money when the price of the currency pairs decides to turn around and start moving in the opposite direction.  How many times have you asked yourself the following:

"I've made some money on this trade.  Is it time to get out?"

"This trend has been going for a while.  Can I still jump in and make some money?"

"It looks like this currency pair is going to turn around.  When should I enter my trade in the opposite direction?"

If you can accurately identify the turning points for the currency pairs you are watching and then act on them, you can drastically improve your trading results.

Support and resistance levels are price ranges that can cause currency pairs to stop moving in their current direction, turn around and start moving in the opposite direction.

Support levels act like a floor for a currency pair.  As the price of the currency pair drops down to a support level, it tends to stop, turn around and move higher.

Resistance levels act like a ceiling for a currency pair.  As the price of the currency pair rises up to a resistance level, it tends to stop, turn around and move lower.

Support and resistance levels are not exact price points---they are price ranges.  A good friend of mine has a great analogy for support and resistance levels.  He says when you draw a support or resistance level on your chart, imagine you are drawing it on with a big fat crayon, not a fine-point pen.  That way you won't fool yourself into believing you have identified the exact price at which a currency pair is going to turn around and start moving in the opposite direction.

As you start identifying support and resistance levels on your charts with your big, fat crayons, it is important to remember that support and resistance levels can be either horizontal or vertical levels.

Horizontal support and resistance levels form as the price of the currency pair falls or rises to the same price level multiple times.

Diagonal support and resistance levels form as the price of the currency pairs falls or rises to new lows or new highs, respectively.

« Last Edit: January 03, 2009, 08:13:46 PM by Offshore »

Offline napstar12

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Re: FOREIGN EXCHANGE MARKET
« Reply #8 on: February 17, 2009, 12:31:36 PM »
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Offline Offshore

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Re: FOREIGN EXCHANGE MARKET
« Reply #9 on: February 17, 2009, 09:23:53 PM »
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« Last Edit: February 17, 2009, 09:37:02 PM by Offshore »

Offline mikabubakar

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2,507.78% Net Profit in One Month with Forex Day Trading
« Reply #10 on: March 11, 2009, 01:04:54 AM »
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Offline johnadey

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Re: FOREIGN EXCHANGE MARKET
« Reply #11 on: May 31, 2009, 08:02:30 PM »
Great post!

Forex Trading is wide and require a lot of patience. 
To become a profitable trader takes time. 
This industry is not meant for everybody because it requires a lot of discipline and determination. 

Losing is also part of the game,but how you manage your loses will determine how long you will stay in the market. 
My advice for everyone who desire to make it in Forex Trading is to take it as a business and never to give up despite the challenges on the way. 

Slowly and steadily you will get there. 

You can learn more on my blog www.  fxwealthlibrary.  net


Post Merge: June 02, 2009, 07:43:16 PM
FOREX Fundamental Analysis

Most FOREX traders rely on analysis to make plan their trading strategy.  This article will discuss fundamental analysis.  The other common form of analysis is technical analysis.  After reading this article you should have a better understanding of fundamental analysis and how to use it as part of your FOREX strategy.

Political and economic changes are the basis of fundamental analysis.  These can frequently affect currency prices.  Traders that take advantage of fundamental analysis will gather their information from a variety of news sources.  They are looking for information about unemployment forecasts, political ideologies, economic policies, inflation and growth rates.

Fundamental analysis will provide you with an overview of currency movements and a broad picture of the economic conditions.  Most traders then will combine their fundamental analysis with technical analysis to plot actual entrance and exit points as well as confirming the information provided by their fundamental analysis.

Just like most markets the FOREX market is controlled by supply and demand.  Many economic factors can affect the supply and demand but the two most critical ones are interest rates and the strength of the economy.  The over all strength of the economy is affected by changes in the GDP, trade balances and the amount of foreign investment.

There are many economic indicators released by government and academic sources.  These indicators are usually released on a monthly basis but will sometimes be released weekly.  These are pretty reliable measures of economic health and are closely followed by all traders.

There are many indicators that are released but some of the most important and commonly followed are : interest rates, international trade, CPI, durable goods orders, PPI, PMI and retail orders.

Interest Rates - can cause a currency to either strengthen or weaken depending on the direction of movement.  In some cases high interest rates will attract foreign money, however high interest rates will frequently cause stock market investors to sell of their portfolios.  They do this believing that the higher cost of borrowing money will adversely affect many companies.  If enough investors sell of their holdings in can cause a downturn in the market and negatively affect the economy.

Which of these two affects will take place depends on many complex factors, but there is usually an agreement among economic observers as to how the current change in interest rates will affect the general economy and the price of the currency.

International Trade - If there is a trade deficit (more items imported than exported) it is usually considered a negative indicator.  When there is a trade deficit it means that more money is leaving the country to buy foreign goods than is entering the country and this can have a devaluing effect on the currency.  Usually though trade imbalances are already factored into the market consideration.  If a country normally operates with a trade deficit then there should not be an affect on the currency price.  The currency price will normally only be effected by trade differences when the deficit is greater than the market expected.

The measurement of the cost of living (CPI) and the cost of producing goods (PPI) are a couple of other important indicators.  You should also watch the GDP which measures the value of all the goods produced in a country and the M2 Money Supply which measures the total amount of currency for a country.

In the US alone there are 28 major indicators, these can have a strong effect on the financial market and should be closely watched.  This information can be found many places on the internet and is provided by many brokers. 

www. fxwealthlibrary. net
« Last Edit: June 02, 2009, 07:43:16 PM by johnadey »
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Offline itsefinancialgroup

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Re: FOREIGN EXCHANGE MARKET
« Reply #12 on: June 08, 2009, 10:28:51 PM »
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Post Merge: June 08, 2009, 10:30:00 PM
check how i can help you without you having FOREX experience
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« Last Edit: June 08, 2009, 10:30:00 PM by itsefinancialgroup »

Offline mikabubakar

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Re: FOREIGN EXCHANGE MARKET
« Reply #13 on: June 28, 2009, 11:18:49 PM »
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hope thats clear.

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Offline tundebj

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Re: FOREIGN EXCHANGE MARKET
« Reply #14 on: June 30, 2009, 09:37:55 AM »
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Offline beibee

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Re: FOREIGN EXCHANGE MARKET
« Reply #15 on: June 30, 2009, 11:52:26 AM »
intriguing comments
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Offline FX TRADEAGT

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Re: FOREIGN EXCHANGE MARKET
« Reply #16 on: July 12, 2009, 01:45:52 AM »
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Offline Mikhail Tegin

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Re: FOREIGN EXCHANGE MARKET
« Reply #17 on: September 15, 2009, 07:23:45 AM »
Dear skilled.   .   .    and not that skilled traders! =)
when discussing forex (foriegn exchange market), i believe, we should not forget about the broker, 'cause it's inevitable part of trading.    which criteria is the most important when choosing one?
« Last Edit: September 15, 2009, 08:55:56 AM by Mikhail Tegin »
Best regards,
Mikhail Tegin

Offline beibee

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Re: FOREIGN EXCHANGE MARKET
« Reply #18 on: September 15, 2009, 08:37:19 AM »
beibee's clueless...
CLICK HERE TO MAKE NEW FRIENDS ON NBF SOCIAL NETWORK
You Need to Make 50 Posts For Your Link To Appear In your Signature
YOU DON'T HAVE TO SPAM TO INCREASE YOUR POSTS COUNT. START BY WELCOMING NEW MEMBERS AND HELPING OTHERS. SPAMMING WILL ONLY GET YOU BANNED!

Offline solo

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Re: FOREIGN EXCHANGE MARKET
« Reply #19 on: September 15, 2009, 10:36:15 AM »
sure?.
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Offline Mikhail Tegin

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Re: FOREIGN EXCHANGE MARKET
« Reply #20 on: September 17, 2009, 08:54:01 AM »
i think it's a great way to say: "hey, come on, trade on forex, trade with us!" =)
Best regards,
Mikhail Tegin

Offline kawasaki

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Re: FOREIGN EXCHANGE MARKET
« Reply #21 on: September 25, 2009, 10:16:35 AM »
so much of an advertisement. . .  nevertheless, forex is up to my minds one of the most risky sohere of money invrstment; and when it comes to brokers, it goes without saying that they try to attract clients though cheating themselves somtimes
I am trade in LiteForex

Offline Mikhail Tegin

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Re: FOREIGN EXCHANGE MARKET
« Reply #22 on: September 28, 2009, 11:03:51 AM »
kawasaki, what do you mean by "chaeting"? if someone tells you he/she was cheated, i. e.  lost his/her profit, it might maen that the trader was using the wrong trading strategy, or he/she might have niolated some trading rules accepted by him when he/she started trading with a particular briker etc.
Best regards,
Mikhail Tegin

Offline oshi

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Re: FOREIGN EXCHANGE MARKET
« Reply #23 on: September 28, 2009, 08:24:14 PM »
nice piece gud job

Offline Shuvalov

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Re: FOREIGN EXCHANGE MARKET
« Reply #24 on: October 09, 2009, 01:12:13 PM »
Are there trusted forex brokers in Nigeria?

Nigerian Best Forum . NBF

Re: FOREIGN EXCHANGE MARKET
« Reply #24 on: October 09, 2009, 01:12:13 PM »

 

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