What Exactly Is A Foreign Exchange Dealer?

A foreign exchange dealer is simply a person or a company that exchanges one currency to another. It all seems simple, but a lot of factors surround the exchange. The exchange rate varies almost every second. So the exact time when the exchange would happen is important.

Foreign exchange is surrounded by a lot of risks. A person who deals with foreign exchange business are familiar of with these risks and even uses it to their advantage. Before dealers become one, they should be experts in the foreign exchange risk management.

Foreign exchange dealers are usually banks, commercial companies, investment management firms, brokers, and their authorized agents. Individuals who are practicing foreign exchange deals are called retail traders or small speculators. Let's look deeper into these foreign exchanges dealers.

1. Banks. International banks and its bankers holds the majority of foreign exchange transactions worldwide. They turnover very large amounts of money every day. Most of the time, banks trade as much as one billion dollars into the foreign exchange market. They usually work on behalf of their customers, but usually for their own accounts alone.

2. Commercial Companies. These are the common players on the foreign exchange market. Companies, international or otherwise, needs dollars when they have to purchase something out of the country. These companies trade just a small amount if compared with large banks. But they are a big factor to the market. Large companies can make a big impact on the foreign exchange rates too.

3. Investment Firms. Investment firms are those institutions that handles pension funds, insurances, and endowments. They can also become a foreign exchange dealer on behalf of their customers, just like the banks. But they mainly penetrate the market to facilitate their institution's transactions regarding foreign securities.

4. Foreign Exchange Brokers. Foreign exchange brokers is that small group of currency retailers. They also comprise just 2% of the money market which is predominantly governed by large banks. But these small retailers are getting bigger over time. Individuals could hire the services of these brokers for their simple currency exchanges, or for business and investment purposes. Brokers can also represent individuals in the foreign exchange market.

5. Small Speculators. These are individuals who are not affiliated with any company but is on the foreign exchange market. They deal entirely out of their own and decides on their own whether to buy or not to buy. Small speculators who are not adept with the market usually end up losing rather than making profits. Small speculators who became successful in the field can be considered experts in the foreign exchange market.

A foreign exchange dealer is an entity that has extensive knowledge and instincts about the foreign exchange market. It is not easy to be a dealer. Most people who have tried had lost a lot because they do not know how the market moves and what to do about it.

Before stepping into the bumpy world of foreign exchange, individuals should find the foreign exchange dealer that they trust. They should select a dealer that could help them along the way and explain how the market is and its effect on the investment.

The foreign exchange market is a fast-paced world of planning and dealing. If your foreign exchange dealer is a good one, they can produce gold for you. Your success depends upon your choice of a foreign exchange dealer.

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Market Psychology

Today we are inundated with tons of information about the economy, stocks, government agencies and foreign governments. They show us charts and graphs of the increase/decrease in oil production over the last 5 years, the amount of maple syrup produced in Vermont for the past century, the time it takes to bounce a signal off the moon and all kinds of other nonsense that we can live without. The talking heads on the investment programs, both radio and TV, tell us how this is going to affect the price of certain stocks and the market in general. Well, maybe.

When you step back to get a better view of the market because the trees are in the way you really get a different view. No matter what stock or mutual fund you own there is one important factor that is causing all of them to change. It is the mass thinking of all the people who own equities of any type. The stock market is a reflection of this mass thinking and causes changes in human behavior. This mass thinking does not necessarily reflect what the economy is doing at any specific moment.

Take the euphoria of stock buyers at the end of 1999 and the beginning of 2000. All the mass psychology was bullish and everyone knew the market was going to go higher. The economy knew better and stocks headed down. The market was a reflection of what we could not see.

Currently many people are becoming bearish and think the market is headed lower, but no one really knows until after the fact. It is dangerous to be either bullish or bearish at this moment. So what is the best course of action when you are not sure of what to do with your money? Keep in mind that protection of your capital, especially your retirement money, is a prime consideration. If you own a stock now that has been going up you dont want to sell it, but you can protect yourself against loss and lock in profit by placing an Open Stop-Loss Order with your broker. Keep moving the stop up as the stock goes higher.

If you have a stock or fund that is going down you must either sell out or place an order to get out if it goes down further. Usually 10% is about right. If your stock is $40 place your stop at $36.

If the mass psychology becomes too negative it can cause massive selling and even the best equities get flushed. All boats go down when the tides goes out. If you do not have a loss limit in place at all times you will lose your investment capital. The example of this was what happened when the World Trade Center was destroyed. Selling was caused by mass psychology and had little to do with valuation.

It is a herd instinct and you dont want to be led to slaughter will all the other dumb animals. Protect your money. Put in a stop today.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870