Financial Instruments Awaiting For You in IVIC 2011

Currency market / Forex market

Currency  market (Forex or foreign exchange) is a global market, where currency of one country is exchanged for currency of another country. Currency market doesn't have any fixed trading place and by the nature of trade it can be defined as an over the counter market (OTC markets). Forex is a huge network of currency dealers, connected between each other with telecommunication facilities, functioning as a single mechanism 24 hours a day.

The main currencies with the biggest share in currency market are US dollar (USD), euro (EUR), Japanese yen (JPY), Swiss franc (CHF) and English pound sterling (GBP). Each currency pair has its own requirements.

Currency market operates 24 hours a day, 5 days a week (except for national holidays), since in each time zone there are institutions, which buy and sell currency during the working day. The market opens at 00:00 (GMT) on Monday and closes at 0:00 on Saturday. Such continuous operation makes the currency market especially attractive for investments and speculative trading.

Another important feature of Currency market is the biggest leverage:

Leverage ratio 1:100 at the currency market allows transactions with sums hundred times higher than the deposit. Daily rate fluctuations (Volatility) at the currency exchanges are 150-250 points. This means that every day there is a possibility to earn 1500-2500 USD from each bought or sold contract. At the currency market, of course, sometimes there are stronger (intervention of central banks, important news) and less strong (anticipation of significant events) fluctuations, but with efficient management this market gives the maximum profitability in combination with low margin requirements. The recent popular service is trading of 1/10 lots, when profits and losses are reduced by 10 times correspondingly, which provides an opportunity to study in the real market environment, not risking with a lot of money.

Stock market / Stock exchange

The stock exchange is a market, where securities are sold and bought with value determined by demand and supply. The main function of the stock exchange is to provide opportunities to public companies and the state to attract investments by selling securities. The stock exchange also acts as a secondary market, allowing some investors to sell their securities to other investors, ensuring liquidity and reducing risks, associated with investment activity. Liquidity at a stock exchange is lower than at Forex exchanges. Money is money, and it is impossible that, for example, Great Britain or Japan declare their currencies invalid. Hence, liquidity of world currencies is 100%; however, bankruptcy of a commercial company is quite possible.

Operating time of stock exchanges usually does not exceed standard working hours, so time for trading is limited. If, for example, you chose stocks of American companies, traded at New York Stock Exchange, the period of transactions with them is from 14:30 (GMT) till 21:00. But there are certain advantages here - speculations at differences at opening. Such opportunity is absent at the currency market.

Marginal requirements at the stock exchange are higher than at the currency market. This is due to stronger fluctuations of stock price than that of currencies. For example, daily fluctuation of Microsoft stocks may reach $1-2 and more. With the market value $30, such fluctuation is quite big. That is why, leverage provided at such market has 1:10 ratio.

Commodity market

The commodity market is a market, where commodities are bought and sold. The commodity market differs from a regular market by a specific organizational form of trading according to established rules. The main function of the commodity exchange is assurance of regular communication between buyers and sellers, when transactions are carried out with available batches of goods. The exchange, while developing, started establishing trade customs, commodity standards, standard contracts, performing price quotations, resolving dispute, etc.

Items of international trade now are about 70 types of goods, having 30% of the international commodity turnover. They include metals (precious, base, rare), 'soft products' (coffee, cocoa, sugar, pepper), grain, seeds, livestock, energy sources (gas, raw materials, oil products).

Commodities are not present at the exchange, but sold and bought without presentation and examination. Transactions are concluded on the basis of standard exchange contracts, strictly regulating quality and terms of delivery. At the exchange they sell and buy not certain batches of goods, but stock contracts, specifying amounts of goods of certain sort, type, class, as established by the exchange. The seller at the exchange delivers to the buyer not commodities, but a document, confirming the title to goods. Most of the international exchange turnover takes place at the futures and options exchange, where they trade option and futures contracts.

Trading volume at such exchange has increased by several hundred times due to the fact, that almost all transactions are fictitious (only 1-2% of transactions end up with delivery of goods, all the rest - with payment of price difference). Prices at such exchanges are more volatile in comparison with the stock exchange, and the major risk is associated with the direction of price movement. Quotation fluctuations are mainly caused by speculative actions; that is why it is very difficult to maker forecasts for such markets. Therefore, beginners are not recommended to trade at commodity exchanges.

Taken from the courtesy of: http://www.lh-broker.com