Currency Trading For Dummies®

Currency options are typically set to expire either at the Tokyo expiry (3 p.m. Tokyo time) or the New York expiry (10 a.m. ET). The New York option expiry is the more significant one, because it tends to capture both European and North American option market interest.

Of typical scheduled weekend events, the most common are quarterly Group of Seven (G7) meetings (see Chapter 3 for more on the G7) and national elections or referenda. Just be sure you’re aware of any major events that are scheduled.

The U.S. dollar index is a futures contract listed on the New York Board of Trade (NYBOT) and Dublin-based Financial Instruments Exchange (FINEX) futures exchanges. The dollar index is an average of the value of the U.S. dollar against a basket of six other major currencies, but it’s heavily weighted toward European currencies.

About midway through the Asian trading day, European financial centers begin to open up and the market gets into its full swing. European financial centers and London account for over 50 percent of total daily global trading volume, with London alone accounting for about one-third of total daily global volume, according to the 2004 BIS survey.

In most other markets, short selling either comes with restrictions or is considered too risky for most individual traders. In currency trading, going short is as common as going long. “Selling high and buying low” is a standard currency trading strategy.

Participants in the forex market generally fall into one of two categories: financial transactors and speculators. Financial transactors are active in the forex market as part of their overall business but not necessarily for currency reasons. Speculators are in it purely for the money.

Spot refers to the price where you can buy or sell currencies now, as in “on the spot.” If you’re familiar with stock trading, the price you can trade at is essentially a spot price. Technically, the term refers to the nearest settlement date on which a transaction can be made and is primarily meant to differentiate spot, or cash, trading from futu

Cross trades can be especially effective when major cross-border mergers and acquisitions (M&A) are announced. If a UK conglomerate is buying a Canadian utility company, the UK company is going to need to sell GBP and buy CAD to fund the purchase. The key to trading on M&A activity is to note the cash portion of the deal.

If you’ve heard anything at all about the forex market, it’s probably that it’s the largest financial market in the world, at least in terms of daily trading volumes. To be sure, the forex market is unique in many respects. The volumes are, indeed, huge, which means that liquidity is ever present. It also operates around the clock six days a week,