Belgium exported in June 10.67 million carats of rough diamonds worth $763.17 million. This is an 11 percent decline in volume and 35.3 percent decline in value compared to June 2008.
In the first half of 2009, exports or rough diamonds fell 52 percent to $3.03 billion, reeling from the drop in demand as well as the drop in prices.
The value of imports in June declined 37.6 percent to $657.9 million on imports of 7.8 million carats. In the January-June period imports sagged 54.9 percent to $2.65 billion.
It is interesting to note that rough diamond imports were on a continued rise since April, as were polished diamond exports, though the correlation may only be partial.
Next months figures may confirm the trend. Demand for rough diamonds is growing and prices of many of the articles are rising. Antwerp based Diamond Trading Company (DTC) Sightholders reported small price hikes and improved assortments at the Sight in London this week. If demand is truly growing - and resting on sound economic foundations - it should translate into another month of increased trade.
Business was slow in the U.S. during this second week of the traditional vacation period for diamond dealers. Those retailers that remained open reported better than expected sales, attributing this to other vendors being closed. As usual, bridal constituted the majority of the traffic. However, some retailers reported higher consumer interest in studs, right-hand rings and pendants, which is a good sign for the fashion jewelry sector. Rounds and cushions appear to be the most coveted shapes, in 1.20-1.50 ct., F-H, SI and VG-EX makes.
The market in Belgium is stable. There are indications that rough prices are reversing in some areas, although price hikes at this week’s Diamond Trading Company (DTC) sight has people confused. Nevertheless, there is still demand for rough, and dealers are buying. In the polished market, there is good demand for 1.00-2.00 ct., D-G, VS-SI goods. Stones of 0.30-0.90 ct., D-H, VS-SI are also selling, while 2.00 ct., D-G are selling in VVS1-VS2 clarities. Also very strong are 0.50 ct., triple Ex goods. In fancies, princess-cut stones are emerging as the hot item again.
The market in Israel is steady but slowing down as the August vacations approach. There is a shortage of rough on the market, causing rough stones to sell at high prices, which is deterring people from buying. Profit margins on polished goods remain very slim, if they exist at all. There is demand for 0.90-1.50 ct., H-K, SI goods, as well as for collection VVS2-VS1, D-E. Cushions are also in demand.
In India, activity has slowed as buyers are resisting high asking prices. Exchange rate volatility continues to impact local demand, as the weakness of the rupee against the U.S. dollar adds to the expense of buying diamonds. The market is very price-sensitive and is expecting some downward correction for polished stones. Activity in the rough market has also been slow, although price increases at the DTC sight have caused a stir. Dealers are expecting an influx of Russian goods soon. Nevertheless, laborers are still hesitant to return to factories, despite recent wage increases, for fear of another crash in the market and a lack of job security.
The market in China is stable, as demand remains strong for round, 0.30-1.10 ct., D-H, VS triple Ex and double Ex goods. I-J, VVS goods appear to be selling better outside the Shanghai market. Uncertified stones below 0.20 ct., H-I, SI are also selling well. Promotional, round, 0.30 ct., K-L, SI items have also gained a fair share of the market recently.
Buyers are becoming attracted to the Hong Kong market, as it appears they can get better deals there than at the cutting centers of Antwerp and Ramat Gan. Shortages are still apparent in the market. Trade continues to be seasonably quiet through the summer months, and the market is only expected to pick up closer to the September show. Demand remains focused on 0.50-2.00 ct., G-I, VVS and 0.50-2.00 ct., D-F, SI goods.
Between The Lines
The increases in rough prices seen in the past few months appear to be tapering off and the rush for rough seems to be stabilizing. It is little wonder, therefore, that initial reports from the DTC sight this week revealed that sightholders were left confused at the price hikes that the De Beers company imposed. We’ll have more about the sight in next week’s report, but for now it appears that DTC is again one step higher on its prices than the rest of the market. Various reports this week confirmed the recent rise in rough prices — most significantly, the results that Gem Diamonds, owner of the high-end Letseng mine, published in its quarterly trading report. The report showed that prices from Letseng, considered the highest value per carat mine in the world, rose to $1,496 per carat in the second quarter, up 47 percent from the previous quarter. Gem showed similar increases at its Ellendale mine, and Rockwell Diamonds reported that average prices at its monthly tenders grew from $531 per carat in March to $585 in May, to $700 in June and $835 in July. While the increases are viewed by some in the industry as a correction from the exaggerated declines that were experienced when the crisis hit, further such increases will fuel concerns that another rough bubble is developing.
Shrenuj & Co. bought out a diamond manufacturing factory in Botswana to become one of the 16 DTC sightholders in the country. Sources indicated that the factory in question was that of DDA Botswana. While mining stopped for three months in Botswana, it appears the country’s beneficiation industry was only slightly affected. Reportedly, just 10 percent of the workforce was laid off during the downturn, and DTC Botswana has remained fully operational, with its full complement of 462 employees staying at the company. The source said that 13 of the country’s 16 licensed manufacturers are operating at the moment, with one due to begin in August. The Shrenuj buyout ensures that 150 jobs will not be lost and is a strong vote of confidence for the prospects of manufacturing in Botswana.
Indian company Gitanjali Gems increased its profile in the U.S. by acquiring 51 percent of diamond jewelry maker Diamlink. This follows its purchases, in the past two years, of retailers Rogers and Samuels Jewelers. With annual sales already over $1 billion, even through the recessionary fiscal 2008-09, Gitanjali is firmly established as a global diamond and jewelry powerhouse, and one should expect more such transactions from the company.
At theretail level there was no reason to celebrate as department store sales in the U.S. reported a sales decline of 9.4 percent for June. The major retail chains broke the trend of posting double-digit sales declines, dropping only by low single-digit decreases during the month. In particular, luxury retailers Saks and Nordstrom saw sales fall 4 percent and 6 percent, respectively, and JC Penney reported improved jewelry sales. Consumers remained skeptical about future prospects for the U.S. economy, as reflected by the consumer sentiment index, which fell 8.8 percent in June, according to the monthly University of Michigan survey.
Quote of the Week
With the diamond industry in somewhat of a state of limbo through the summer months of July and August, we take time to assess our situation and remember that, “When things are bad, we take comfort in the thought that they could always be worse. And when they are, we find hope in the thought that things are so bad they have to get better.” — Malcom S. Forbes
The short answer is 'When you need it.' You cannot approach gold the way you approach stock or real estate investments. Timing is not the real issue. The first question you need to ask yourself is whether or not you believe you need to own gold. Once you answer that question in the affirmative, there is no point in delaying your actual purchase. The real goal is to diversify so that your overall wealth is not compromised by economic dangers and uncertainties.
Answer. We probably get that question more than any other -- pretty much on a daily basis. The answer, however, is not as straightforward as you might think. What you buy depends upon your goals. We usually answer the "What should I buy?" question with a question of our own: "Why are you interested in buying gold?"
If your goal is simply to capitalize on price movement, then bullion coins will serve your purposes. If you are interested in long-term asset preservation and you have additional concerns about capital and/or monetary controls -- a more complicated scenario -- then you might want to include the lower premium variety of pre-1933 European and American gold coins in the mix. These have been treated by the U.S. government since the 1930s as historical items, and, as a result, afford the privacy-minded investor a greater degree of safety than gold bullion.
But what I just gave you is a rough sketch. To develop a more refined strategy, we recommend spending time with your broker here at USAGOLD-Centennial Precious Metals. We can help you design a portfolio capable of weathering these uncertains times and in keeping with your long-term goals.
Thank you for taking the time from your busy day to read the Certified Gold Exchange online version of our newsletter. We have been providing gold news to the public since 1992 and can help with your gold investments. Please enjoy the newsletter and let us know if we can help.
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What are the best ways to buy gold? That's what we'll explain on this page.
We'll show you how professionals have arranged the world gold market so that they can deal physical bullion gold much cheaper and much more safely than you.
Then we'll show you how you can participate in their professional market.
To do that we'll introduce you to BullionVault. We'll also tell you about the other ways you might choose to buy gold : i.e. coins and small bars, ETFs, certificates, gold futures and mining stocks. When you've understood these alternatives we're sure you'll have even more confidence you're making the right choice with BullionVault.
More than 100,000 people from 83 countries use BullionVault.
In the last two years they bought more gold through BullionVault than through any other direct bullion ownership service in the world.
BullionVault now stores over 16 tonnes of gold, which is much more than most of the world's central banks. Every ounce is owned privately, by people like you, and stored in the accredited professional bullion market vault of their choice, in London, Zurich or New York.
OK then? Now you know you're not wasting your valuable time let's get on with understanding how the professional gold market works, and how BullionVault.com lets you use it.
* Gold Bars, Good Delivery, and the Professional Gold Market
* Fine gold is 100% pure gold
* Retain high bullion integrity in a professional vault
You can learn everything you need to know about gold bullion and how to buy it here and now.
Ready to Buy Gold will help you. It explains how to make buying gold safe, and easy, and it will ensure you pay the lowest gold prices in the world.
It is on-line. It's a completely free educational service. You won't have to register, and it's simply one click away. Use it and in about ten minutes time you will be able to choose how to buy gold with confidence.
Ready to Buy Gold is the best introduction to gold bullion ownership we can give you.
Why Buy Gold?
If you're still thinking about whether or not you should buy gold you can continue your research here.
Research how to Buy Gold
Google, shows you many ways to buy gold and gold-related investments.
BullionVault will be at or near the top of the list. That's no accident. It's the most popular service there is, and we'll come back to it in a minute.
There are others. Most of them, however, either charge you high fees to buy gold, or they make it too complicated. They wrap-up what should be a simple transaction to make a sophisticated financial product.
That's because with a modern financial product it is usually necessary to have enough management fee income to pay a large kickback to a distribution channel. That's how they take their sophisticated product to market, and you end up paying for it.
But if you want to buy gold, then you should do exactly that buy gold and not some quasi-gold credit-based instrument. It is important that you keep it simple.
As the founder of itulip.com (Eric Janszen) puts it "If you're going to own gold, the nature of the risk you are hedging is such that owning stocks in mining companies and ETFs don't cut it, you need to own the physical stuff. And not only that, but you don't want it in vaults here, you want it in a politically stable country that's friendly, but not too friendly, if you know what I mean. Zurich is good, and that's what these guys (BullionVault) do."
Mr Janszen understands the pointlessness of buying Gold Futures or Gold ETFs as a hedge against financial failure.
Fortunately there really is a safe, simple, way to buy gold, and it's the most reliable and competitively priced gold in the world. It's between 4 and 8 percent cheaper than it would be to buy gold coins or small bullion bars, because it's the form of gold which coin and bar manufacturers themselves buy - professional bullion market gold. You can now buy gold the same way they do.
So whether or not you're a novice or an expert we recommend you read just one more page of incredibly useful information before you buy gold. You'll not regret it.
Gold Trading has a long history dating thousands of years, and has been a
basis for currency for just as long. Many investors like the idea of gold trading
because it is a commodity that has intrinsic value, and will never be worth
nothing versus the dollar which is a fiat currency. Bullion is a precious metal that
has a fundamental value.
In 2005, it was estimated that the total world supply of gold was 3,859 tonnes, and the current demand was 3,754. This means there is currently a surplus of just over 100 tonnes. The largest amount held anywhere in the world is held in the underground vault at the Federal Reserve Bank in New York, which holds approximately 3% of all the gold ever mined. The second largest amount is held at the United State Bullion Depository, which is located at Fort Knox, Kentucky.
As with FOREX, or the currency market, the central banks and the International Monetary Fund (IMF) play a great role in determining the trading or spot price. The universal price is called the London Gold Fixing, and it is considered to be the benchmark for all international pricing. It is decided up twice daily, out of London, and the rate is developed between the largest 5 bullion trading companies and priced per the ounce. Prior to just recently, the all time high price was $850/ounce, and that record was set on January 21, 1980. That stayed the high price until March 17, 2008, when it hit an all-time high of $1,023.50. The all-time low was $252.90 an ounce, and that record was set on June 21, 1999
Since April 2001 the gold price has more than tripled in value against the US dollar, prompting speculation that the long secular bear market (or the Great Commodities Depression) has ended and a bull market has returned. A World Gold Council report released on February 18, 2009 showed physical gold demand rose sharply in the second half of 2008. Identifiable investment demand for gold, which includes ETFs (exchange-traded funds), bars, and coins, was up 64 percent in 2008 over the year before
In the last century, major economic crises (such as the Great Depression, World War II, the first and second oil crisis) lowered the Dow/Gold ratio, an indicator of how bad a recession is and whether the outlook is deteriorating or improving, to a value well below 4. The ratio fell on February 18, 2009 to below 8. During these difficult times, investors tried to preserve their assets by investing in precious metals, most notably gold and silver
The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes. Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e. growth due to anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system.This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The peak of 1980 also coincided with the Soviet Union's invasion of Afghanistan and the threat of the global expansion of communism. The ratio peaked on January 14, 2000 a value of 41.3 and has fallen sharply since.
In November 2005, Rick Munarriz of Motley Fool.com posed the question of which represented a better investment: a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment community and is serving to crystallize the broader debate.[28][29] At the time of writing, a share of Google's stock and an ounce of gold were both near $700. On January 4, 2008 23:58 New York Time, it was reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on U.S. market exchanges. On January 24 2008, the gold price broke the $900 mark per ounce for the first time. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the United States.[30] Google closed 2008 at $307.65 while gold closed the year at $866.
Technical analysis
As with stocks, gold investors may base their investment decision partly on, or solely on, technical analysis. Typically, this involves analyzing chart patterns, moving averages, market trends and/or the economic cycle in order to speculate on the future price.
Using leverage
Bullish investors may choose to leverage their position by borrowing money against their existing gold assets and then purchasing more gold on account with the loaned funds. This technique is referred to as a carry trade. Leverage is also an integral part of buying gold derivatives and unhedged gold mining company shares (see gold mining companies). Leverage via carry trades or derivatives may increase investment gains but also increases risk, as if the gold price decreases, the investor may be subject to a margin call.
In 2008, ETF Securities launched ETFS Leveraged Gold (LSE: LBUL) which is designed to change each day by twice the daily percentage change in the DJ-AIG Gold Sub-Index (before fees and adjustments). Therefore if the DJ-AIG Gold Sub-Index rises (or falls) by 1% in one day, then ETFS Leveraged Gold will rise (or fall) by 2%.
Investors generally buy gold for two main reasons: to financially gain from increasing gold prices, and/or as a hedge or safe haven against any economic, political, social or currency-based crises.
Methods of Investing In Gold
Investment in gold can be done directly through bullion or coin ownership, or indirectly through gold exchange-traded funds, certificates, accounts, spread betting, derivatives or shares.
Fundamental Analysis
Investors using fundamental analysis analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the yearly global gold supply versus demand. Over 2005 the World Gold Council estimated yearly global gold supply to be 3,859 tonnes and demand to be 3,754 tonnes, giving a surplus of 105 tonnes] While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very different from almost every other commodity
Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand. Unlike most other commodities, the hoarding and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists and is potentially able to come on to the market for the right price] At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnesThis can be represented by a cube with an edge length of just 20.2 meters.
Given the huge quantity of stored gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.[11] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnesAbout 2,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds] This translates to an annual demand for gold to be 1000 tonnes in excess over mine production which has come from central bank sales and other disposal
Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves] The Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 400 tonnes a year European central banks, such as the Bank of England and Swiss National Bank, have been key sellers of gold over this period.[ Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005] In early 2006, China, which only holds 1.3% of its reserves in gold announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks
A 500,000,000,000 (500 billion) Yugoslavia dinar banknote circa 1993, the largest nominal value ever officially printed in Yugoslavia, the final result of hyperinflation. Photo courtesy of National Bank of Serbia.
Bank failures
When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and to outlaw the ownership of gold by US citizens.[19]
Low or negative real interest rates
If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals
War, invasion, looting, crisis
In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises
The Gold Anti-Trust Action Committee
Organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities They argue that there could be no US gold in the Fort Knox
Throughout history gold has often been used as money and, instead of quoting the gold price, all other commodities were measured in gold. After World War II a gold standard was established following the 1946 Bretton Woods conference, fixing the gold price at $35 per troy ounce.
The system held up until 1971 Nixon Shock, when the US stopped the direct convertibility of the United States dollar to gold. Since 1968 the usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily (telephone) meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day. The following table sets forth the gold price versus various assets and key statistics:
Gold
Silver,
USD
USD
USD
1970
37.4
1.6
838.9
3.3
370.1
1975
140.3
4.2
852.4
6.4
533.2
1980
589.5
15.5
964.0
11.8
907.7
1985
327.0
5.8
1,546.7
13.0
1,823.1
1990
353.4
4.2
2,633.7
22.2
3,233.3
1995
369.6
5.1
5,117.1
29.8
4,974.0
2000
272.7
4.6
10,786.9
31.9
5,662.2
2005
513.0
8.8
10,717.5
45.1
8,170.4
2008
865.0
10.8
8,776.4
54.6
10,699.8
In March 2008, the gold price reached above $1000[ reaching an all-time nominal high of $1002.80 which, in real terms was still well below the $850 peak in 1980. It then fell, going as low as $709.50 in November, then resumed its upward trend, temporarily breaking the $1000 barrier again in late February 2009.
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or safe haven against any economic, political, social, or currency-based crises. These crises include investment market declines, inflation, war, and social unrest. Investors also buy gold during times of a bull market in an attempt to gain financially.
At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes.[1] This can be represented by a cube with an edge length of just 20.2 meters.
Gold (pronounced /ˈɡoʊld/) is a chemical element with the symbol Au (Latin: aurum) and an atomic number of 79. It has been a highly sought-after precious metal in jewelry, in sculpture, and for ornamentation since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial deposits. Gold is dense, soft, shiny and the most malleable and ductile pure metal known. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. It is one of the coinage metals and formed the basis for the gold standard used before the collapse of the Bretton Woods system in 1971.
At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes.] This can be represented by a cube with an edge length of just 20.2 meters. Modern industrial uses include dentistry and electronics, where gold has traditionally found use because of its good resistance to oxidative corrosion and excellent quality as a conductor of electricity. Chemically, gold is a transition metal and can form trivalent and univalent cations upon solvation. At STP it is attacked by aqua regia (a mixture of acids), forming chloroauric acid and by alkaline solutions of cyanide but not by single acids such as hydrochloric, nitric or sulfuric acids. Gold dissolves in mercury, forming amalgam alloys, but does not react with it. Since gold is insoluble in nitric acid which will dissolve silver and base metals, this is exploited as the basis of the gold refining technique known as "inquartation and parting". Nitric acid has long been used to confirm the presence of gold in items, and this is the origin of the colloquial term "acid test", referring to a gold standard test for genuine value.
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors
Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[19] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.
An algorithmic trader needs to be mindful of potential fraud by the broker. Part of the weekly algorithm should include a check to see if the amount of transaction errors when the trader is losing money occurs in the same proportion as when the trader would have made money.
Financial instruments
Spot
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market. NNM
Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years. Usually the date is decided by both parties.
Future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
Option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in India, Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.
Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality
Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.
Long-term trends
Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.
"Buy the rumor, sell the fact"
This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[14] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers
While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations
As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.
