Q: What is Forex?
A: All countries have a currency. If you want to purchase Chocolate from Switzerland, you need to pay in Swiss Francs, so the Chocolate maker can go buy the things he needs in Switzerland.
When a country sells its goods and services, payment is eventually received in their local currency. If their goods are in high demand, there will be a short supply of their currency, as people will be willing to pay more and more. Thus we have a free-floating currency system where countries trade their currencies based on trade value and also interest. Each holder of any dollars receives interest on that money, and the higher the interest the more attractive that currency is. During the 1990's, people all over the world wanted to invest in the DOW, the NASDAQ, in small U.S. based businesses, and various real estate properties. All of these investors, before purchasing the above, needed to purchase US Dollars! This directly affected the strength of the dollar.
After World War 2, Franklin D. Roosevelt and the Bretton Woods Treaty laid out an economic policy for currency and exchange rates which were fixed, and that the U.S. would act as a world banker (all foreign central banks would hold U.S. dollars as a reserve currency). The U.S. dollar was to be backed by Gold and Silver, but in 1971, U.S. President Richard Nixon abandoned the Gold and Silver requirement, and soon currencies began freely floating against each other based on market demands.
Today, it is possible for anyone with a computer to trade in the currency market. Americans, for example, may not understand that by NOT investing in currency they actually lost 50% since 2002, but they understand that gas is more expensive, along with many other imported products. Therefore an investment in forex is not a traditional 'investment' with the hope of potential return, it is a hedge against inflation caused by your local currency fluctuations.
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Q: Where does my Money go?
A: To expedite the placement of your funds into the currency exchange market, MBFX has established treasury account relationships with major International Banks. These major banks hold your funds at all times. See steps 1 thru 4 below to better understand where your money actually goes:
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Once you are accepted as a currency account Customer, you will be provided with wiring instructions to transfer your funds into your currency account at MBFX. |
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| Step 2. |
In accordance with your currency exchange agreement, MBFX will then place your funds into a leading currency exchange clearing house account in a major bank to be managed by Value Asset Management. |
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| Step 3. |
Pursuant to their contract with MBFX, Value Asset Management will manage your funds (directly or indirectly) with its team of track record proven professionals. |
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| Step 4. |
On the last day of every month, the currency exchange clearing houses will return any gains and/or principal (you have requested) to your MBFX account, which will then be wired out to your designated bank account. |
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Q: How do I open an Account?
A: Simply Click Open An Account and follow the easy step-by-step Instructions.
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Q: What is Currency Hedging?
A: Definition: Hedge (verb)
To hem in, hinder, or restrict with or as if with a hedge
To minimize or protect against the loss of by counterbalancing one transaction, such as a bet, against another.
A securities transaction that reduces the risk on an existing investment position
If your business does regular international business, you may implement a "hedging" strategy. This can be done in many ways, but typically, a business will buy a year's worth of foreign currency at a set rate. Whatever the purchase rate is, the company can rest assured that it will remain at that rate which prevents fluctuations in a currency to affect the budget of the business.
A hedge is simply a strategy to safen an investment. Buying gold is a hedge if you hold US Dollars, because they have an inverse relationship.
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Q: What are Deliverables?
A: Deliverables are "real deals" or banks actually sending currencies to other countries. A commercial bank may pack thousands of orders together to form a large wire of say a billion dollars to another bank, where that currency is exchanged for the local one. This is what actually drives the forex market.
This does NOT mean PHYSICAL NOTES. Electronic signals are just as legitimate as paper cash.
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Q: How does Currency Trading work?
A: A forex dealer can buy and sell currencies speculating that they will go up or down in value. While owning a currency, you bear the interest of that currency.
The main difference between FOREX TRADING and EQUITY TRADING is that you are not investing in an instrument, or a derivative, but in MONEY ITSELF. When you purchase shares, you are buying the belief that they will go up, and investing in the experience and quality of the company management. When buying USD, you are essentially investing in the entire economy of the US, as if you are investing in all US shares at once. While single companies may rise and fall, the entire US economy will not be wiped out in one day.
While you could argue that buying a countries currency is like investing in that country, in today's world it doesn't quite work like that. American companies have more factories outside the US than inside. 65% of US assets are owned by foreigners. It is more complicated than saying okay, I'm investing in Europe when I buy Euros.
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Q: What's the difference between Banking and A Forex Managed Account?
A: Central banks play a major role in the forex market, as they are responsible for keeping their own trade balance, currency value, and stable economy. If the currency market became as volatile as the stock market, you would see chaos everywhere, as companies would either be out of business or very rich in a matter of hours, ALL AROUND THE WORLD. Central banks will intervene in the markets to ensure stability, or for example, print money and inject it into the economy to increase money supply.
However, central banks do not speculate in the forex market. Their business is real or 'deliverable'. They may print money or buy a foreign currency to keep in their 'reserves', but since World War 2 the primary reserve currency has been the US Dollar, although now the Euro is competing for this position.
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Q: Why keep my money with a FOREX Trader vs a Bank?
A: Why keep money with a forex trader vs. keeping it in a bank? Cash is the most liquid instrument, but imagine having a bank that could constantly switch currencies to the strongest one? Your monthly bank statement might include forex trades, that on a certain day, your deposit of $129,002 was switched to Euros.
All money in forex trading platforms are held with the largest investment banks in the world. They are the ones that have access to the currency markets. Your money is still in a bank, but it is managed by a group of people who have it in their best interest for you to profit, and watch the markets constantly.
The money is just as liquid, or "on call", as you can request a full withdrawal and receive the money according to your contractual terms.
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Q: What are Online Platforms?
A: To increase market liquidity even further, many banks have offered software that investment professionals can gain access to the currency markets that banks have. Your funds are held at that bank, but instead of sitting in one position, they may be switched to a different currency. Sometimes this is done by third party.
There is little difference between a trading platform and your online banking platform. Online banking is designed to allow multiple daily transfers of funds in between different accounts, usually to pay bills. In a forex account, this is done to switch currency positions as the markets move.
Q: How does FOREX stack up with Stocks, Bonds, and Options?
A: The stock market can crash, the currency market cannot. If the forex market for some reason collapsed, we would be back in the stone age, trading cows for gold, and banks would not exist. Unless you are willing to accept this abstract reality, you can be safe and sound knowing that the forex market will never crash.
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