forex market

A bureau de change (plural bureaux de change, both pronounced /ˌbjʊəroʊ də ˈʃɒ̃ʒ/) (British English) or currency exchange (plural currency exchanges)^[1] (American English) is a business whose customers exchange one currency for another. Although originally French, the term bureau de change is widely used throughout Europe, and European travellers can usually easily identify these facilities when in other European countries. It is also common to find a sign saying "Exchange" or "Change." Since the adoption of the euro, many exchange offices incorporate its logotype prominently on their signage.

The term bureau de change is not used in the United States. It is not in major American dictionaries^[2][3] and not even recognized by the search engines of major tourism websites, for example the website of the Port Authority of NY & NJ and the official New York State tourism website.^[4] Instead, the terms used in the United States and in Canadian English are currency exchange and sometimes money exchange, sometimes with various additions such as foreign, desk, office, counter, service, etc., for example foreign currency exchange office.

A bureau de change (plural bureaux de change, both pronounced /ˌbjʊəroʊ də ˈʃɒ̃ʒ/) (British English) or currency exchange (plural currency exchanges)^[1] (American English) is a business whose customers exchange one currency for another. Although originally French, the term bureau de change is widely used throughout Europe, and European travellers can usually easily identify these facilities when in other European countries. It is also common to find a sign saying "Exchange" or "Change." Since the adoption of the euro, many exchange offices incorporate its logotype prominently on their signage.

The term bureau de change is not used in the United States. It is not in major American dictionaries^[2][3] and not even recognized by the search engines of major tourism websites, for example the website of the Port Authority of NY & NJ and the official New York State tourism website.^[4] Instead, the terms used in the United States and in Canadian English are currency exchange and sometimes money exchange, sometimes with various additions such as foreign, desk, office, counter, service, etc., for example foreign currency exchange office.

Since 1996, when retail forex trading was first introduced, several brokers who lacked the sufficient tools developed their own trading platforms tailored specifically to their needs. The 1st retail FX brokers were MG Forex, The Matchbook FX ECN, GFT, CMC Markets, Saxo Bank (then known as Midas)and a handful of others. Most except CMC, Saxo & Matchbook FX were based on the ACT forex trading technology & GUI. These platforms were good enough at the time but required constant investments in R&D and this development cost too much. This was the first wave.

The second wave was in the early 2000s: several software companies entered the retail forex trading market by launching their own versions of trading platforms. Typically these versions were cumbersome for both front-end users (retail traders) and back-end users (retail brokers) due to the misunderstanding of the developers about the forex market and also because of the insufficient programming tools/languages at the time. Simultaneously most of the retail brokers kept using and developing their own systems as they waited for better platforms which were yet to be developed.

There are currently few to no brokers which were part of the first wave trading systems. By now most of the first wave brokers have either vanished, merged or progressed to the second wave trading platforms – the most common example of which is Metaquotes.

It is only in the last couple of years that the advanced trading platforms started to emerge. These platforms put much stronger emphasis on the user interface (GUI) making it more accessible to the retail traders while making trading on it very simple and intuitive. Moreover a very strong emphasis was put on the back-end which allowed the retail brokers better control over their operations, better reporting and accurate system and ways to manage marketing campaigns. Gradually this wave is replacing the previous second wave with a major shift now to the friendlier and more intuitive systems of the third wave which according to Aite Group are necessary in order to maintain growth ^[3].

Nowadays, banks have also jumped on the retail forex trading platform bandwagon and have started offering those services to individual traders and money mangers, expanding the forex trading appeal. DBFX and Citibank are some of the banks that are currently offering this service.

Retail forex trading is a segment of the vast foreign exchange market. It has been speculated that it represents 5 percent of the whole forex market which amounts to $50-100 billion ^[1][2] in daily trading turnover. One thing is certain: The retail forex market is explosively growing and is increasingly becoming an powerful force in the broader FX marketplace. Due to the increasing tendency in the past years of the gradual shift from traditional intrabank 'paper' trading to the more advanced and accurate electronic trading, there has been spur in software development in this field. This change provided different types of trading platforms and tools intended for the use by banks, portfolio managers, retail brokers and retail traders.

One of the most important tools required to perform a forex transaction is the trading platform providing retail traders and brokers with accurate currency quotes.

Forex AB is a Swedish financial services company. The company was started in 1927 as a currency exchange service for travellers, at the Central Station in Stockholm. The owner of Gyllenspet's Barber Shop, according to the legend, discovered that most of his customers were tourists in need of currency for their trips. The owner began keeping the major currencies on hand.

The company was subsequently acquired by Statens Järnvägar (now SJ AB), the Swedish State Railways, which expanded the operations until it was sold off to one of the managers, Rolf Friberg, in 1965. The company was the only one apart from the banks that was licensed to conduct currency exchange in Sweden.

The company, which is still wholly owned by the Friberg family, has expanded into Denmark, Finland, Norway and Iceland and has over 60 shops, usually located at train stations or airports. The decrease in the business brought on by introduction of the euro has made the company look for alternative sources of revenue, like applying for a banking licence and attempting to move into more regular transaction services, earlier handled by Svensk Kassaservice, a subsidiary of the state owned Swedish postal company, Posten.

Since 2003 Forex is a licensed bank.

Currency swaps were originally conceived in the 1970s to circumvent foreign exchange controls in the United Kingdom. At that time, UK companies had to pay a premium to borrow in US Dollars. To avoid this, UK companies set up back-to-back loan agreements with US companies wishing to borrow Sterling.^[4] While such restrictions on currency exchange have since become rare, savings are still available from back-to-back loans due to comparative advantage.

Cross-currency interest rate swaps were introduced by the World Bank in 1981 to obtain Swiss francs and German marks by exchanging cash flows with IBM. This deal was brokered by Salomon Brothers with a notional amount of $210 million dollars and a term of over ten years.^[5]

During the global financial crisis of 2008, the currency swap transaction structure was used by the United States Federal Reserve System to establish central bank liquidity swaps. In these, the Federal Reserve and the central bank of a developed^[6] or stable emerging^[7] economy agree to exchange domestic currencies at the current prevailing market exchange rate & agree to reverse the swap at the same exchange rate at a fixed future date. The aim of central bank liquidity swaps is "to provide liquidity in U.S. dollars to overseas markets."^[8] While central bank liquidity swaps and currency swaps are structurally the same, currency swaps are commercial transactions driven by comparative advantage, while central bank liquidity swaps are emergency loans of US Dollars to overseas markets, and it is currently unknown whether or not they will be beneficial for the Dollar or the US in the long-term.^[9]

The People's Republic of China has multiple year currency swap agreements of the Renminbi with Argentina, Belarus, Hong Kong, Indonesia, Malaysia, and South Korea that perform a similar function to central bank liquidity swaps.^[10]

Currency swaps are over-the-counter derivatives, and are closely related to interest rate swaps. However, unlike interest rate swaps, currency swaps can involve the exchange of the principal.^[1]

There are three different ways in which currency swaps can exchange loans:

The most simple currency swap structure is to exchange the principal only with the counterparty, at a rate agreed now, at some specified point in the future. Such an agreement performs a function equivalent to a forward contract or futures. The cost of finding a counterparty (either directly or through an intermediary), and drawing up an agreement with them, makes swaps more expensive than alternative derivatives (and thus rarely used) as a method to fix shorter term forward exchange rates. However for the longer term future, commonly up to 10 years, where spreads are wider for alternative derivatives, principal-only currency swaps are often used as a cost-effective way to fix forward rates. This type of currency swap is also known as an FX-swap.^[2]

Another currency swap structure is to combine the exchange of loan principal, as above, with an interest rate swap. In such a swap, interest cash flows are not netted before they are paid to the counterparty (as they would be in a vanilla interest rate swap) because they are denominated in different currencies. As each party effectively borrows on the other's behalf, this type of swap is also known as a back-to-back loan.^[2]

Last here, but certainly not least important, is to swap only interest payment cash flows on loans of the same size and term. Again, as this is a currency swap, the exchanged cash flows are in different denominations and so are not netted. An example of such a swap is the exchange of fixed-rate US Dollar interest payments for floating-rate interest payments in Euro. This type of swap is also known as a cross-currency interest rate swap, or cross-currency swap.^[3]

A currency swap is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency; see Foreign exchange derivative. Currency swaps are motivated by comparative advantage.^[1] A currency swap should be distinguished from a central bank liquidity swap.

where:

• F = forward rate
• S = spot rate
• r₁ = simple interest rate of the term currency
• r₂ = simple interest rate of the base currency
• T = tenor (calculated according to the appropriate day count convention)

The forward points or swap points are quoted as the difference between forward and spot, F - S, and is expressed as the following:

where r₁ and r₂ are small. Thus, the absolute value of the swap points increases when the interest rate differential gets larger, and vice versa.

A forex swap consists of two legs:

• a spot foreign exchange transaction, and
• a forward foreign exchange transaction.

These two legs are executed simultaneously for the same quantity, and therefore offset each other.

It is also common to trade forward-forward, where both transactions are for (different) forward dates.

By far and away the most common use of FX swaps is for institutions to fund their foreign exchange balances.

Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another. In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close out any foreign balances and re-institute them for the following day. To do this they typically use tom-next swaps, buying (selling) a foreign amount settling tomorrow, and selling (buying) it back settling the day after.