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Anyone out there from ICELAND? Trying to find products that trade ISK (Krona) currencies. Options, futures, accounts, etc. Can't see anything offered for trading this currecny anywhere. Thanks
http://www.gocurrency.com/currency-trading.htm
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Most of us who have not heard of clich situation that any corporation involved in foreign trade in a big way incurring huge losses on account of currency differences can hardly make sense of such a situation. In this article, I will go about explaining the basics of differences in various currencies in no nonsense and no jargonized simple language.
Different currencies command different prices depending on their purchasing powers decided by market forces, to put it rather simplistically. In actual practice this is a significantly complicated situation and process like a country’s economic progress and foreign trade will have major bearing on the instant price.
Now, for a demonstration, let us see how much a US Dollar can buy/value in Europe and particularly in UK. We know beforehand that 1 US Dollar trades around 0.5136 GBP. This means that for what costs 0.51 Pounds one has to pay a full US Dollar. In other words, you will get roughly 2 US Dollars for every GBP. But this difference continuously fluctuates by nature, sometimes trending upwards and sometimes the other way. This difference arises fundamentally out of economic disparities between the two countries in trading lock but not essentially so.
Let us see how such a situation can arise which leads to difference in the currencies. When European Union brought to force the Euro, initially its value was set on par with the US Dollar, essentially based on the assumption that the economic mights of both European Union and United States were on par so that the trading values match between themselves and individually with their trading partners the world over.
As time progressed, US went through several unexpected turn of events which lead to federal funding of their budgetary and trading deficits. Domestic inflation meant that Americans spend more for the same service and goods which was not the case with their European counterparts.
But the same id not good for Japanese Yen which was trading at around 200 per US Dollar some twenty years ago is currently valued at 120 yens. This can straightly be attributed to the rise of Japanese economy vis a vis the American Economy.
The early attempts in the mid 1940s through Bretton Woods Agreement to standardize forex values were using gold for exchange. This was by fixing the exchange value of gold at US$ 35 per ounce. But again as the market forces would have it, this could not sustain for long before it was repealed.
What this means to a forex trader is longer the holding greater is the exposure to risk.
What is the relationship between the currency and the Trade Account? and why a country’s currency falls when the country suffers a huge trade deficit with it’s biggest trading partner?.
If country import more than exports then it means country supply domestic currency to international markets and demands more foreign currency, thus in accordance to supply/demand mechanics price of domestic currency expressed in foreign currency falls (depreciates) and price of foreign currency expressed in domestic currency appreciates.
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For currency demo trading account so as to be more familiar on what happens during the trading process, the best rated overall is GFT.
Their web site is http://www.gftforex.com/
For trade options, futures, stocks as well as currencies and does not matter what country you are residing in, then Interactive Brokers would be a nice start. Their complete Direct Access On line Trading Worldwide cannot be beat by any brokerage firm.
Their web site is http://www.interactivebrokers.com/ibg/main.php
Hope this is of some help to you.
TS
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If you thought trading with your own money was a risk, then trading with other peoples is nothing short of stupidity. For the new trader this is like passing your driving test, and immediately taking the wheel of a sports car. Press the pedal and you will be rocketed forward, probably straight into a brick wall, and then the hospital.
Imagine for a moment that you have gone to the casino with friends, but unfortunately you only have £50 in your wallet. Your friend kindly offers to lend you another £50 for the evening. Full of confidence you advance to the tables and promptly lose the lot! In the space of a few minutes you have not only lost your own money but also your friend’s. Had you just lost your own money you would have lost 100% (£50/£50). You have managed to lose 200% (£100/£50). This is what trading on margin is all about. It is called leverage and both losses and gains are magnified enormously.
In essence, trading on margin is borrowing money from your broker to buy shares and use your investments as collateral. Unfortunately margin exposes you to substantially higher risks and much bigger losses. You might ask why I am telling you all about it if it is so risky. The answer is twofold. First, I want you to understand the risks involved, and that it is NOT for the novice investor. Secondly, there are several instruments and markets that you can ONLY trade on margin. One of these is spread betting. Two others are options and currency. In the currency market which I know very well, as I trade it every day, some currency brokers offer leverage of 400:1. In other words for every £1 in your account you are able to trade 400 times that amount.
Let us suppose you bought a share at £10 and the price rises to £15. If you bought the share in a cash trading account (ie with just your own capital) you would earn a return of 50% ( £5 /£10). Now in a margin account your broker can lend up to 50% of the amount you deposit in the account. So suppose now you had bought this share using a margin trading account. You would have put in £5 and the broker would have lent you £5 to buy the share initially. It has now gone to £15. You pay back the broker the £5 he lent you, and you have been left with £10. Your profit is £5, a 100% return on your money!! ( £5/£5). So for a 50% increase in price, you have made a 100% return. Now let us look at the down side of trading on margin. Suppose the share you bought on margin at £10 falls to £5 – you pay your broker back the £5 you borrowed, and you are left with nothing. So on a 50% fall in value you have lost 100% of your capital!!!
This is what is called leverage. Leverage is a double edged sword, which amplifies both losses and gains to the same degree. Because leverage magnifies everything, it hugely increases the risk in your portfolio. In addition to the above there are two other factors to consider. Firstly there is interest to pay, as your broker does not lend you money for free. Secondly there is the dreaded margin call. If your margin account falls below very prescribed limits you will receive a margin call – this is the broker asking for more money to cover your losses. If this is not available immediately, your broker has the right to close some or all of your positions in order to reduce your exposure to the market. This is likely to happen in particularly volatile markets. If you receive a margin call, in my opinion, you are out of control.
If you are new to investing, I strongly recommend that you stay away from margin trading as long as possible. When and if you feel ready, remember you do not have to use the full 50%, you can start at a lower rate, so consider starting at 10% – you should still be able to sleep at night!