InstaForex Education

InstaForex gives the opportunity all the newcomers to have video tutorials for free. The program, which is developed by the professional traders, contains not just the classic trading strategies, but also the modern ones. During the learning, you will answer to the main questions and apply your newly acquired knowledge in practice. Take your training course right now.
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Task №1. Introduction to InstaForex training course.

Evolution of stock exchange

The first stock exchange was established in Bruges, Belgium. In the 15th century, traders from all around the world gathered in the house of Van der Burse, a renowned and wealthy merchant. They shared the latest news, exchanged various securities such as bills and notes and conducted trading operations, without having to present any purchase and sale documents. The word bourse, which is a less common term for stock exchange, is thought to have derived its name from Van der Burse. The merchant’s name itself could be related to Medieval Latin bursa denoting a small leather bag for carrying money.
The first international “bourse” in compliance with the new standards was founded in 1531 in the city of Antwerp. It was the first stock exchange which had its own separate trading floor for transactions. Over the entrance hung the legendary sign stating “For traders of all nations and languages”.
In the 17th century, the Amsterdam Stock Exchange played the key role in the European financial structure. It served the functions of both a stock exchange and commodity market. At that time, contracts for forward delivery appeared that became increasingly popular later on. Over time, the mechanisms of exchange transactions reached a relatively advanced level.
London turned into the European center of trading in the 18th century. Stock exchanges grew more and more popular as they served as the meeting places for wealthy people seeking to multiply their capital. The “bourses” in London and Amsterdam even developed their own professional jargon, giving rise to such slang terms as bulls and bears (i.e. exchange buyers and sellers), jockeyship (speculation in national lottery tickets) and many other samples of the fascinating exchange lingo.
In the Russian financial history, exchange trading developed during the times of Peter the Great. Russian exchange merchants only traded contracts for commodities at first, but as time went on, securities and other instruments also started to appear in the market.
The famous Wall Street in New York, US played a remarkable role in the evolution of exchanges. In the late 18th century, there grew a buttonwood tree, under which traders and speculators met in order to trade securities. In 1792, they made a landmark decision to institutionalize their gatherings by concluding the so-called Buttonwood Agreement. This document laid the foundation for the New York Stock Exchange.

Definition and types of exchanges

An exchange is a marketplace in which buyers and sellers execute trading transactions in various financial instruments. Such exchanges act as legal entities facilitating the ongoing operation of the organized market, where an extensive range of stocks, bonds, commodities, securities, and derivatives is traded every day. Trading may be conducted either through special financial contracts or in lots, in accordance with the rules and regulations of the particular exchange. The size of such lots is usually standardized and set out by the exchange.
Nowadays, exchanges and trading venues are the places where the prices of numerous goods such as oil and gold are determined. These prices then come out into the open, primarily through mass media and the Internet. Prices may be influenced by any economic or non-economic factors including demand, supply, information related to a certain good and its production, market conditions, competition, crop setbacks, crucial political news, and monetary policies in various countries. Therefore, the prices of a whole array of goods are based on the results of trading in major global exchanges

Depending on the type of traded instruments, exchanges are classified into several types:

  • Commodity exchange (a sort of a wholesale market that offers a wide variety of goods, from precious metals and oil to lean beef and cotton);
  • Currency exchange (a marketplace where national currencies are bought and sold at the exchange rates determined by current supply and demand);
  • Stock exchange (a regularly operating market for securities and other financial instruments);
  • Futures exchange (a trading venue that specializes in contracts for delivery of goods or securities);
  • Options exchange (a marketplace where long-term financial obligations are traded).
International forex market

Forex is a global financial market, in which foreign currencies are traded. Forex is defined as speculative trading with the help of commercial banks and brokerage companies. Earlier only commercial banks and large capital owners had an opportunity to make profit on Forex. In our days, any individual can start earning in the forex market, thanks to online trading and numerous brokers. The special virtue of Forex is that market participants are those who influence currency prices with the help of supply and demand.
It would be a serious mistake to call Forex a currency exchange, as it is an over-the-counter (OTC) market. It has no central marketplace where trading could be performed. This is a distinct advantage, which enables traders to make deals all over the world.
Market participants use the forex market to exchange foreign currencies. There are traders who manage to earn good profits on currency exchange. They make money on a difference in exchange rates of currencies, performing speculative trading activity. That becomes possible thanks to frequent fluctuations in the currency exchange rates.

Forex market history

The origin of the forex market traces its history to the eighteenth centuries. It was established in Paris in 1867. Every foreign currency could be freely converted into an amount of gold specified on a banknote. The exchange rate was almost fixed. The British pound served as a reserve currency during that time.
In 1944 the Bretton Woods system was developed. All foreign currencies were pegged to the US dollar, which in its turn was pegged to gold. A new order resulted in a so-called floating exchange rate. Besides, that was the time when the International Monetary Fund was created in the US.
At the Jamaican Conference, which took place in Kingston in 1976, new principles of international trading in the currency market were officially established with the US dollar confirmed as the world’s major reserve currency.

Forex set-up

The forex market is the world’s largest and most volatile financial market. Up-to-date technologies allow information to be instantly distributed across state borders, which makes it available in real time for market entities all over the world. The number of market participants totals hundreds of millions. All of them differ in size of trading capital and functions, which they cover.
Overall, the currency exchange market represents the process of interaction of traders, brokers, and banking institutions performed through the interbank system. For this reason, banks are often called market makers.
To put it simply, the forex market is a system of interaction among regional currency markets using the latest communication technologies.
Forex market participants can be nominally divided into the following groups:

Central banks:
  • Fed — the US Federal Reserve System
  • ECB — the European Central Bank
  • BoE —the Bank of England, the world’s oldest banking system («Old Lady»)
  • BoJ — the Bank of Japan
  • BB — the German Bundesbank
  • BoF — the Bank of France
  • BoC — the Bank of Canada etc.
Commercial banks

Commercial banks usually act as market makers. Their quotes are used as a base for level pricing. Such banks actively cooperate with the market to respond to their clients’ requests and to meet their own interests.

Banks acting as market users, apply the market quotes. As a rule, their main activity is to respond to their clients’ requests.

There are several leading financial institutions, including Citigroup (US), HSBC (UK), Deutsche Bank (Germany), CSFB (Switzerland), Bank of Tokyo-Mitsubishi (Japan), Barclays Capital (UK), ABN Amro Bank (Netherlands), Bank of America (US), RBC Dominion Securities (Canada), Morgan Stanley (US).

Exchanges:
  • NZX - New Zealand Exchange
  • ASX - Australian Securities Exchange
  • TSE – Tokyo Stock Exchange
  • HKE - Hong Kong Stock Exchange
  • SES - Stock Exchange of Singapore
  • DBG - Frankfurt Stock Exchange
  • TLSE - Luxembourg Stock Exchange
  • SWX - Swiss Exchange
  • PSE - Paris stock exchange
  • LSE - London Stock Exchange
  • NYSE - New York Stock Exchange
  • CHX - Chicago Stock Exchange
  • PCX - Los Angeles Stock Exchange
  • MICEX - Moscow Interbank Currency Exchange
  • RTS - Russian Trading Systems Stock Exchange
Financial institutions

Financial institutions include various consulting companies, mutual funds, and hedge funds.

There are such transnational companies as XEROX, IBM, CrowCork etc.

Non-institutional investors can be of two types non-commercial funds and voluntary associations.

A broker is a company that acts as an intermediary between buyers and sellers. Brokers’ clients are private investors.

Four latest categories often operate through their banks.

Forex is open from Monday to Friday, excluding holidays when banks in some countries are closed. You can find a list of holidays following this link.

Forex trading hours
Region City Open Close
ASIA Tokyo 03:00 12:00
Hong Kong 04:00 13:00
Singapore 04:00 12:00
EUROPA Frankfurt 09:00 17:00
London 10:00 18:00
AMERICA New York 16:00 24:00
Chicago 17:00 01:00
PACIFIC Wellington 00:00 08:00
Sydney 01:00 09:00

Markets’ behavior greatly differs from one session to another. The US and Asian sessions are notable for aggression and considerable enthusiasm of the market participants, whereas most trading operations are executed during the European session. The Australian and New Zealand sessions are rather calm as during these hours, only banks of two countries and some financial corporations perform deals. With the opening of the Asian session, market participants start active trading. During these hours, the Japanese economic events and the yen determine the market behavior.

At the beginning of the London trading session, fluctuations in the currencies’ prices can be rather sharp.
However, the most interesting events occur at the US session due to the publication of most macroeconomic data and other news. The revealed information has a significant influence on the market expectations and consequently on the currency pairs quotes.

Many traders at the dawn of their career got tangled in the intricacies of financial definitions and wonder whether they can become successful investors and if it is possible to make a living by trading on Forex. In order to give a detailed answer to this question, let us consider the following example which is widely used in business.

In the end of 1983, there was an advertisement placed in Wall Street Journal, Barron and New York Times which read that Richard Dennis is looking for people who want to become traders. The main requirement was to move to Chicago, where the future investors would get a modest salary and a percentage of the profit, while Dennis would teach his trading methods to them.

It is worth saying that the advertisement was extremely important because Richard was known as the “Prince of the Pit” (a pit is a place on the US exchanges where the assets are traded, a specific area). He started to be engaged in trade when he was 17 with the starting trading capital of $1,200. At the age of 25, he made his first million.

So, in 1983, Dennis recruited 14 people from those who expressed their desire and came to him. Among the candidates there were two professional card players, an actor, a security guard, a low-paid bookkeeper, two quite unsuccessful traders, a financial advisor, a fresh school graduate, a woman who worked as an exchange clerk, and even a fantasy game designer. Richard trained them only for two weeks. Then he gave them a trading limit from the budget of his firm and let them trade freely. It was the beginning of the legendary history of the Turtles. All of those people became successful and they started to earn millions.

The Turtles appeared as a result of an argument between two old friends and partners, Richard Dennis and William Eckhardt, who tried to answer the following question: Is it possible to learn trading? William considered trading ability as some sort of a gift, an innate skill. According to him, a trader should have an instinct and a sense of the profit. Meanwhile, Richard shared a different point of view. He linked the success to self-discipline, dedication to learning, and most of all to the use of certain trading methods, which a trader should follow strictly. He was sure that trading skills are limited to a set of rules which can be passed from one successful trader to another. So, the dispute lasted for several years, until they made a one-dollar bet. They decided to carry out an experiment to settle the argument. The partners formed a group of people and tried to teach them everything they knew. Therefore, the two traders were trying to find an answer to their question whether it was possible to learn successful trading. The results of this experiment have been already mentioned to you. It must be said that the story proved two undeniable truths.

Truth No.1. Success in trading is not a gift from above. Every average individual can learn how to trade. It is very important to have the willingness to learning and a good teacher.

Truth No. 2. The secret behind success lies in following a profitable strategy step by step. The sequence is the key factor.

Even if a person does not plan to relate their future profession to financial floors or to become a trader, they still have to know some basics; like what a price trend is, what financial instruments there are, how to hedge currency risks etc. Knowledge plays a huge role and it cannot be overestimated.

Even successful businessmen often wonder how to prevent losses caused by currency fluctuations or how to develop a hedging strategy and so on.

This video tutorial will teach you how to make well-thought-out decisions on financial markets. You will find out more about the market and efficiency of various trading methods, thus raising your winning chances.

Important information for MetaTrader users
InstaForex offers its clients:
  • Global currencies;
  • Shares of leading US companies;
  • Precious metals (gold, silver).

A broker acts as an intermediary between you and the market. It is difficult and, actually, hardly possible to enter a financial market without a broker.

Direct trading on an exchange is also impossible. Only certified individuals or institutions may become exchange members. Being an individual, you can sell or buy shares only through such companies.

Usually, traders stay in contact with their brokers through a trading platform - a special program installed to a computer. The connection is carried out via the Internet. Investors receive valuable information (quotes, news) and opportunity to conduct deals on various financial instruments. A platform also keeps the history of previous deals, placed orders etc. The choice of a brokerage company highly depends on the platforms it offers. We provide our customers with the most popular MetaTrader 4 platform. It enables users to open positions, monitor quotes in a real-time mode, and track their deals history as well as keep abreast of the market situation with the help of charts and technical indicators. Moreover, MetaTrader 4 has been named the most convenient and effective software product in this field.

Questions for revision
  • What is the forex market?
  • Who are forex market participants?
  • How and when was the currency market established?
  • Trading hours. Where does the first session of a trading day start?
Literature

The complete list of recommended literature is presented on our educational website. There you will also gain free access to one of the largest libraries dedicated to currency trading.


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