The Synapse Network

What is the Forex Market or Currency Market?

The foreign exchange (forex) market is the global hub where banks, institutions, and individuals engage in buying, selling, and exchanging currencies. As the largest financial market worldwide, it recorded an impressive daily trading volume of $7.5 trillion in 2022. This market, comprising banks, central banks, commercial companies, hedge funds, retail forex brokers, and individual investors, has grown over sevenfold in daily trading value since the early 2000s.

Understanding the Forex Market

Unlike other financial markets, the forex market is decentralized, functioning through a global network of computers and brokers. Forex brokers often act as market makers, setting buy and sell prices for currency pairs, sometimes differing from the most competitive market bids.

As an OTC market, the forex market facilitates direct trading between parties, supported by brokers. Interbank trading plays a significant role, impacting exchange rate fluctuations as major banks trade currencies for various purposes, such as hedging risks and adjusting balance sheets.

In October 2023, North America’s OTC foreign exchange market had an average daily trading volume of $1.021 billion.

Forex Market Operations

The forex market operates continuously from Monday morning in Asia to Friday afternoon in New York, unlike other markets that close in the late afternoon EST. However, some emerging market currencies may have short breaks during the trading day.

History of the Forex Market

Before World War I, currencies were tied to precious metals like gold and silver. This system was abandoned during the Great Depression and World War II, leading to the creation of the Bretton Woods Agreement. This agreement established the International Monetary Fund and the World Bank and pegged international currencies to the U.S. dollar, replacing gold. However, in 1971, President Richard Nixon ended the dollar’s convertibility into gold, leading to free-floating exchange rates determined by market forces.

Since then, the forex market has undergone significant changes due to technological advancements, regulatory updates, and global economic events. The U.S. dollar continues to be the dominant reserve currency worldwide.

Forex Currency Pairs

In the forex market, currencies are traded in pairs, where one currency is quoted against another. For example, in the EUR/USD pair, the euro is the base currency, and the U.S. dollar is the quote currency. The exchange rate shows how much of the quote currency is needed to purchase one unit of the base currency.

Recent Developments in Forex

The introduction of electronic trading platforms in the 1990s transformed the forex market, making it more accessible, efficient, and liquid. Key regulatory changes, such as the launch of the euro in 1999, significantly impacted currency trading. Economic crises, including the 2008 financial crisis and the COVID-19 pandemic, have also led to increased volatility in currency markets.

Major currency pairs like EUR/USD, USD/JPY, GBP/USD, and USD/CAD dominate global forex transactions due to their economic and political significance. While emerging market currencies like the Chinese yuan (CNY) and Indian rupee (INR) have gained traction, they still trail the most traded currencies.

Cryptocurrencies have introduced a new aspect to the forex market, though they represent a small fraction of daily trading volumes. Despite their growing popularity, cryptocurrency trading remains minimal compared to the vast amounts traded in traditional fiat currencies.

Types of Forex Markets

The forex market can be categorized into three main types: spot, forward, and futures markets.

1. Spot Forex Market: This market involves the immediate exchange of currencies at the current exchange rate. It accounts for the majority of daily forex transactions, with significant participation from commercial and investment banks.
– Features include ease of access, decentralization, immediate settlement, and real-time rate reflection.

2. Forward Forex Market: In this market, two parties agree to exchange currencies at a predetermined future date and price. These contracts are typically used for hedging and can be customized, although they are less liquid.
– Key characteristics include hedging opportunities, customization, privacy, and counterparty risk.

3. Futures Forex Market: Futures markets are similar to forward markets but are traded on centralized exchanges, offering greater liquidity and transparency while reducing counterparty risk.
– Features include exchange-trading, margin requirements, and public price availability.

Other Forex Markets

– Options Market: This market allows traders to buy or sell currency options, giving them the right, but not the obligation, to exchange currency at a specified rate before a set date. It is used for both hedging and speculative purposes.
– Swap Market: In the swap market, two parties exchange cash flows in different currencies, often used by banks to manage currency exposure and liquidity.

Forex Market Examples

– Spot Market Example: A trader exchanges $1,000 for euros at an exchange rate of 1.08, anticipating that the dollar will weaken. If the exchange rate later rises to 1.10, the trader profits from the change in currency value.
– Swap Forex Example: Two banks in different countries agree to swap currencies and later return them at an agreed rate, managing currency exposure and ensuring liquidity.

Types of Forex Trading

– Hedging: Used to protect against unfavorable currency movements, common among multinational corporations.
– Speculation: Involves taking risks to profit from short-term currency fluctuations.
– Arbitrage: Exploits price differences in different markets to make a profit.
– Interest Rate Differences: Capitalizes on varying interest rates between countries.
– Diversification: Forex trading can diversify a portfolio, reducing risk by spreading investments across different asset classes.

Pros and Cons of Forex Trading

Advantages:
– 24-hour market with high liquidity and low transaction costs.
– Leverage can amplify gains significantly.

Disadvantages:
– Less regulation increases counterparty risk.
– High volatility and leverage can lead to substantial losses.

Can You Get Rich by Trading Forex?

While forex trading can be highly profitable, particularly for those with significant capital and expertise, it is also very risky. Individual traders must be well-prepared and disciplined to succeed.

Getting Started with Forex Trading

To begin trading forex, it is essential to develop a solid understanding of the market and create a trading strategy. Most forex accounts can be opened with as little as $100, but investing more may be necessary to effectively implement trading strategies and cover associated costs.

Concluding Thoughts

Forex trading offers flexibility and significant potential rewards but comes with considerable risks. Successful trading requires a disciplined approach, robust risk management, and continuous learning. While forex trading can be highly rewarding, it is crucial to approach it cautiously and with a well-informed strategy to mitigate the inherent risks.

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Spencer Li

SkillsFuture Investing & Trading Course (Perfect for Beginners!)

Last weekend, we conducted another online workshop on the basics of trading and investing, and since it is a SkillsFuture Credit-Eligible Course, participants could use their SkillsFuture credits to pay for the course instead of cash.

Thanks for the support!

During the 9 hours of training, participants learnt portfolio strategies to build and protect their wealth, as well as trading skills like market-timing, chart-reading and risk management to improve their trading results.

Here is some of the feedback and learning points from participants, after our hands-on market analysis session to find trading opportunities in the market.

If you are keen to learn more using your SkillsFuture credits, you can check out our courses:

P.S. To ensure optimal learning, we have capped the maximum class size.

Register early to avoid disappointment!

 

skillsfuture feedback 080823 1 skillsfuture feedback 080823 2

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Spencer Li

Weekly Market Wrap: Will Tech Stocks Live Up to Earnings Expectations?

Thumbnail banner weekly market wrap x3

Thumbnail banner weekly market wrap x3

For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technicals, economics, and portfolio management:

Click here for last week’s market report (24 July 2023)
Click here to subscribe for the latest market report (31 July 2023)
Click here to see the archives of all our past market reports

Market Recap & Upcoming Week

Last week was marked by significant financial and technological achievements with tech giants Google and Microsoft posting impressive earnings. Both companies showcased enhanced revenue growth and profitability for the quarter ending in June. A highlight was the resurgence of Google’s main advertising business after two quarters of decline, and Microsoft’s cloud and enterprise software sectors exceeded Wall Street expectations despite a global slowdown in tech spending.

Additionally, the duo’s commitment to generative AI technology was noteworthy. With Microsoft’s proactive adoption of this technology, its stock experienced a 46% surge since the start of the year. Google-parent Alphabet, meanwhile, saw a moderate 39% stock increase this year, further boosted by a 6% jump after their recent earnings report.

Meanwhile, on the stock market front, the Dow Jones Industrial Average reached a record with its 12th consecutive day of gains, significantly assisted by a surge in 3M shares. Despite 3M reporting a quarterly loss due to a litigation settlement, the company’s shares rose 5.3% after it announced improved margins and an increase in its yearly earnings expectations.

The U.S. Federal Reserve also raised interest rates by 0.25% in response to ongoing inflation, marking the highest policy rate in 16 years. Internationally, rumors of a possible shift in Japan’s longstanding bond yield repression policy caused minor upheaval in U.S. markets, triggering a rise in Treasury yields and a reversal rally in the S&P 500. This speculation, if confirmed, could signal a more restrictive policy stance in Japan, potentially disrupting international trades tied to Japanese markets.

As the earnings season carries on, the market eagerly anticipates reports from tech giants such as Apple and Amazon. These high-profile companies’ financial results will need to significantly exceed expectations to drive share prices further. Given their current near-all-time-high status, any average earnings reported could potentially lead to a decrease in share prices.

Investors also await economic data, including the June JOLTS report and ADP’s National Employment Report, as well as the July nonfarm payrolls report to get insights into the state of the labor market. Adding to the roster of vital data is a series of PMI readings from S&P Global and the ISM, which will offer indications of the health of the manufacturing sector.

Investors will also keep an eye on the eurozone’s inflation and GDP numbers, potentially influencing international investment decisions. Finally, the Bank of England’s interest rate decision will be critical as markets globally adjust to changing monetary policy signals.

Daily Trading Signals (Highlights)

We cover 3 main markets with a total of 200+ counters, so we will never run out of trading opportunities:

By covering a broad range of markets, we can focus our attention (and capital) on whichever market currently gives the best returns.

Subscribe for real-time alerts and weekly reports:
👉🏻 https://synapsetrading.com/daily-trading-signals

 

Trading Signals USDSGD 280723

USDSGD – Prices were unable to break the support despite multiple tries, this is a sign of bullishness.

 

Trading Signals NZDCAD 280723

NZDCAD – Prices are now halfway to the TP, will continue holding. 💪🏻

 

Trading Signals US100 280723

NASDAQ 100 (US100) – Prices tried breaking higher but got rejected and closed lower. This shows a lack of buying conviction and could lead to a small correction.

 

Trading Signals 3067 280723

China tech stocks ETF (3067) – Following up, prices have broke above the mini ascending triangle, and are likely to test the prior swing high.

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Spencer Li

Weekly Market Wrap: Will We See More Rate Hikes Next Week?

Thumbnail banner weekly market wrap x3

Thumbnail banner weekly market wrap x3

For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technicals, economics, and portfolio management:

Click here for last week’s market report (17 July 2023)
Click here to subscribe for the latest market report (24 July 2023)
Click here to see the archives of all our past market reports

Market Recap & Upcoming Week

Last week was marked by significant geopolitical and financial events that could have substantial implications in various sectors. On the international political front, Moscow’s withdrawal from humanitarian cooperation at the United Nations and its decision to shut down a Syrian aid route could raise concerns over regional stability.

Meanwhile, in the tech sector, Tesla finally started production of the much-anticipated Cybertruck at its Texas factory. For its earnings, Tesla reported a 20% increase in profit, attributing it to price cuts and higher deliveries, but its share price took a beating. Notably, Ford also slashed the price of its F-150 Lightning Electric Truck by up to $10,000.

The UK took a significant step towards globalization by joining the £12 trillion Indo-Pacific Trade Bloc.

In terms of financial markets, China’s debt sector has been caught in ambiguity and financial squeeze, and the global wheat prices are surging due to Russia’s withdrawal from the grain deal.

ARK Investment Management’s Cathie Wood decreased her stake in Twitter by 47%, but still remains optimistic about the company’s future prospects. In the corporate world, tech giants Microsoft and Meta have collaborated to offer new AI software for businesses. Netflix’s crackdown on password sharing has led to a surge in new subscribers, reflecting changes in consumer behavior.

Elsewhere, hiring patterns have indicated a possible looming recession, even as companies continue to recruit heavily. Notably, the semiconductor industry is experiencing a downturn, with TSMC reporting a profit drop for the first time in four years.

On the monetary front, Turkey raised its key interest rate to combat soaring inflation, while UK borrowing costs decreased following lower-than-expected inflation, making a Bank of England interest rate hike less likely in August.

As we step into the next week, the major focus will be the two-day policy meeting convened by Federal Reserve officials, commencing on Tuesday. The highly anticipated interest rate decision, due on Wednesday, will potentially impact financial markets significantly.

Concurrently, earnings season is escalating with a vast array of major corporations slated to release their reports. Giants from the tech industry like Microsoft, Meta Platforms, and Google’s parent company, Alphabet, will be in the limelight, along with influential entities like Visa, Mastercard, Texas Instruments, Coca Cola Company, McDonald’s, Boeing, AT&T, Verizon, Ford Motor Company, Chevron, and ExxonMobil.

The economic calendar of the week remains densely packed. Thursday will see the unveiling of the advance estimate for the second-quarter gross domestic product (GDP). To follow, on Friday, we have the release of the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, which will provide insights into the current inflation scenario.

Moreover, the latest updates on home prices, including new and pending home sales for June, are also on the schedule, which could bring further attention to the state of the housing market.

Daily Trading Signals (Highlights)

We cover 3 main markets with a total of 200+ counters, so we will never run out of trading opportunities:

By covering a broad range of markets, we can focus our attention (and capital) on whichever market currently gives the best returns.

Subscribe for real-time alerts and weekly reports:
👉🏻 https://synapsetrading.com/daily-trading-signals

 

Trading Signals CADCHF 190723

CADCHF – Following up on this trade, prices have hit our TP with 268 pips profit! Congrats to those who took this trade! 💪🔥💰

 

Trading Signals NZDCAD 190723

NZDCAD – Trade got triggered, great shorting opportunity near the top of the trend channel.

0 Comments/by
Spencer Li

Birthday Reflections Upon Turning 37

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As I greet another year of life, I find it fitting to reserve this day for introspection, gratitude, and projection. This ritual of quiet contemplation serves not just as a moment of pause, but also as an opportunity for recalibration.

In no particular order, here are my areas of focus for the coming years, each one a beacon to guide my journey:

The idea of embracing new experiences, like an artist exploring different mediums, resonates deeply with me. Whether it’s mastering the culinary artistry of cooking, learning a new sport like surfing, losing myself in the rhythm of Salsa (hopefully some day), discovering the nuanced layers of fine wine, or dabbling in traditional and contemporary art forms, these pursuits represent the unquenchable thirst for knowledge that I hold dear.

The desire to nurture my relationships, to tend to the garden of friendship, has never been stronger. In the years to come, I intend to invest not just my time, but my attention, care, and love, into these vital connections. The richness of human connection is not in the number of friends and family we have but in the depth and authenticity of the bonds we cultivate.

In the realm of romantic relationships, I stand at the precipice of hope and commitment. I am learning, growing, and striving to be a better partner every day. It’s a journey of understanding, patience, and unending love that is as much about self-discovery as it is about discovering another soul. In the coming years, I aspire not just to find that extraordinary love but to build and nurture it with all the care and tenderness it deserves.

My journey towards personal growth includes a commitment to understanding the intricacies of the human mind. Diving into realms of psychology, philosophy, and cognitive mental models promises to unlock doors to self-awareness, thereby empowering me to navigate life’s maze with more wisdom and compassion.

A commitment to health, both physical and mental, remains a cornerstone of my life’s priorities. Regular exercise, mindful eating, and mental wellness practices are not mere activities, but a pact with myself to cherish and respect the gift of life.

My aspiration to traverse the globe remains unwavering, with the ambitious goal of experiencing 100 countries before I turn 40. Each journey represents a unique opportunity to broaden my horizons, to learn, to grow, and to create memories that will last a lifetime.

As I progress on this journey, I aim to espouse the principles of minimalism further. It is not about denying oneself but about channeling one’s focus, attention, and resources to what truly matters, to what brings joy, peace, and fulfillment.

Mindfulness, empathy, gratitude, and self-esteem are the pillars of my quest for personal growth. My ambition is to evolve continually, to be better at showing love, extending kindness, and celebrating the abundance of life.

My passion for enlightening and inspiring others through my writing, through sharing my thoughts, experiences, and learnings, is a flame that burns brighter each day. In the upcoming years, I plan to enrich my blog and various channels with more diverse and meaningful content.

Lastly, I will continue to seek avenues that allow me to make a positive impact in others’ lives. Whether through my career, volunteer work, or in the simple, everyday acts of kindness, I want my existence to resonate with purpose.

As I conclude this reflection, I extend my deepest gratitude to all those who have stood by me, supported me, and contributed to making my 37th birthday unforgettable. I look forward to the upcoming years with eagerness and optimism, ready to embrace all that life has in store.

 

 

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If you are excited to get more life hacks, also check out: “Beyond Financial Freedom: An Unofficial Guide to Living Your Best Life”

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