years ago, I was watching Hong Kong in the evening as the city
became a brilliant silhouette of pure commerce against the dark
Communist backdrop of mainland China. The rickshaw drivers,
rivers of neon lights, open-air markets, and steel high-rises always
make me think of foreign exchange, the fundamental transaction of
capitalism and the building block of modern globalization.
I couldn’t speak Chinese, but as I approached a currency
exchange booth on the Kowloon side of Hong Kong, I silently prepared
to engage in an ancient conversation. I pulled out $100 in 20s,
and the young man behind the counter smiled and said in broken
English, “I love LA, Hollywood. All right.” He held his smile artificially
long. “No,” I said, “New York.” “Ah,” he replied, “Statue of
Liberty. All right.” And he smiled again. I was sure he could deliver
a greeting in every language listed on the board behind him.
The electric board was black with red lights. It displayed the
currency prices, a small flag for those who couldn’t read the currencies,
and a two-sided quote with a buy and sell price. The young
man pulled out a beat-up calculator with masking tape holding
down the screen and started to punch numbers. Exchange rate, buy
side, times the number of U.S. dollars, 100, minus broker fee,
equals 778 Hong Kong dollars. He looked up and I nodded in
agreement. He unrolled a wad of colorful Hong Kong bills,
counted them out carefully, and slid them over to me.
At that moment, it was hard to understand that in this little
booth, lit by bad fluorescent lights, next to a vendor selling Peking
duck and knock-off Chanel bags, I had access to the world’s
largest, most liquid, and most influential financial market—Forex.
A Market for the 21st Century
Since then, the Forex market has only grown more accessible,
increased in size, and captured the public’s attention. Spurred by
investments in technology and communication over the past decade,
the world is trading goods and services at ever-faster speeds, a
process broadly called globalization. With the economic world
drawing together faster, the Forex market has become its most critical
market. And for the new breed of global trading and investors,
the opportunities in Forex are just beginning.
You can see globalization and trading today in cities around the
world. Every morning at Grand Central Station in midtown
Manhattan, tourists wait in line outside a well-lit and welldesigned
Travelers Money Exchange to trade their currency for
dollars. With dollars in their pockets, they can dine out in Little
India, buy cheap electronics in Chinatown, take a ride on the
Staten Island Ferry, or do anything else money can buy.
This money fills up local cash registers, but it doesn’t stay there
for long. It is spent again. Perhaps it is used to buy some of the
goods that are carried by ships into America’s harbors. With their
decks stacked impossibly high with containers, these ships steam
past the Statue of Liberty and slide into docks bristling with giant
cranes. The containers are whisked off the decks and hitched to
tractor-trailers, which pull out onto the New Jersey Turnpike in an
endless stream, carrying goods into the nation.
The goods are bought and the money flows back, much of it
into New York again. Foreign corporations now look to trade the
dollars they’ve made back into their native currencies. Far above
the booths and lines of tourists, floors filled with brokers, traders,
bankers, and trading terminals carry out these transactions.
Go to any major city in the world—New York, London, Tokyo,
Bombay, Rio de Janeiro—and the same process is being carried out.
This time, it may be British pounds or Japanese yen buying
American goods and services, or foreign investors buying local
stock or government securities. Billions of dollars flow back and
forth across national borders every hour—sometimes passed by
hand or voice, sometimes at the click of a button. At the end of
each day, an average of $1.5 trillion has been traded, dwarfing the
daily volume of the New York Stock Exchange, the NASDAQ, the
FTSE, the DAX, and the Tokyo Nikkei combined.
It should come as little surprise that the volume is so high.
Currencies bind the world together, form the bedrock of globalization,
and are the means of exchange of world trade and investment.
But it isn’t just the tourists and traders who participate in foreign
exchange every day. So, most likely, do you. Take a typical day
in the life of a Kansas resident. In the morning, he dresses in underwear
made in China, a suit manufactured in Turkey, and a pair of
shoes assembled in Italy. He brews a cup of coffee made of beans
from Colombia. He drives a car with a transmission made in Japan
and a steel frame from Canada. The gas powering the engine is
refined from Saudi Arabian oil. At work, he turns on a computer
fashioned with components made in Thailand, Indonesia, Taiwan,
and China. The software is American.
All these goods were bought, and a portion of each purchase
must be translated back into the currency of the country of origin.
Although the Kansan may not be aware of it, his dollars are sent on
a journey in which they are traded for yen, euros, baht, won, real,
shekels, and yuan. We take this for granted, but without the currency
market, our Kansan would be unable to get through the day
unless his paychecks were issued in several currencies. Imagine trying
to buy a hamburger in Kansas with yen! In short, foreign
exchange has become woven into the fabric of our daily lives. It is
impossible to be a resident of the modern world and avoid it.
After all, in these vast flows of money across borders lies an
enormous investing opportunity. This market is old, but for the
first time in history, due to a revolution in communication, technology,
and credit, this market is available to small investors.
It’s no coincidence that we are now seeing an enormous rise in
Forex trading by both speculators and users. Forex is not a fad
asset class pushed by analysts or created by an exchange to increase
dwindling volume. It reflects fundamental market needs in today’s
environment.
A progressive market must meet two criteria today, and
Forex has always met both. The market must be global, and it
cannot be controlled by a single entity. The Forex market is truly
global. It does not have a center and does not obey the rules of
any one nation.
That applies especially to time. As different parts of the world
move from darkness to light, trading activity comes to life. Currency
is bought and sold in Tokyo while New York slumbers. When night
descends on Tokyo, London offices are opening and starting to trade.
By the time London approaches mid-afternoon, New Yorkers are
arriving at their desks, ready to make money. The markets reflect
these rhythms, with trading volume rising and falling depending on
when workers are entering work or leaving to go home.
With this ability to trade the exact same currency at any time, the
Forex can be called a 24-hour market that is open from late Sunday
Eastern Standard Time, when the Forex week starts with the Monday
morning open in Wellington, New Zealand, then on to Sydney
Tokyo, Hong Kong, Singapore, Moscow, Frankfurt, London, and
then finishing the week on Friday at five o’clock in New York.
The Forex market also doesn’t obey any one holiday schedule.
New York banks don’t close to celebrate May Day, but
London does. London is open when Americans are sitting down
to turkey dinners on Thanksgiving. Tokyo offices are filled on
Christmas Day, when most Americans and Brits are at home
unwrapping presents.
However, this vast market is united by two characteristics—
ancient capitalism and new technology. At its core, the market is
nothing new. The Forex market has roots that stretch back thousands
of years, where cultures rubbed shoulders and merchants
swapped goods at borders and in back alleys of ancient cities. This
market grew out of itself—out of the human need to trade for
goods that one society had but the other didn’t. It grew out of the
desire to make a profit.
For most of history, access was controlled by gatekeepers—merchants,
bankers, industrialists—who wanted the profits for themselves.
In the past 10 years, however, that has changed. Technology
allows anyone with an Internet connection—via a terminal or cell
phone—to not only trade Forex but also to have access to the information
that gives traders a more level playing field.
Source: Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange Trading
