"Investing in an alternative asset class"

FOREX

"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or Euro /Japanese Yen (EUR/JPY). The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with the equivalent of over $1.8 trillion changing hands daily; more than the aggregate amount of the global Equity and Bond markets combined. The interbank markets is not a formally organized exchange and interbank market transactions not being of standard size, are subject to individual negotiation between the counterparties involved. It is an informal global network of trading relationships among participants like central banks, insurance companies, investment houses, sophisticated traders, asset managers, pension funds, brokers, blue chip companies, commercial & investment banks etc.

PRICE VOLATILITY

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability, economic indicators, energy prices and so on. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

ADVANTAGES

The advent of the Internet has helped "level the playing field" and open up the potential of the Currency markets as a viable investment option for well-informed sophisticated and investment experienced individuals. This is a boon, because this market offers myriad advantages over the more traditional options of stocks, bonds and traditional investment opportunities.

24-HOUR TRADING - NO OPEN EXPOSURE TO "OUTSIDE-HOURS"

FX is a true 24-hour market, which offers a major advantage over both stock and futures trading. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls. After hours trading for stocks and futures brings with it several limitations. ECN's (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers - when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread. In contrast, Currency Trading in the Spot market brings the investor round-the-clock liquidity.

PROFIT POTENTIAL IN FALLING AND RISING MARKETS

In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells the base currency in anticipation that it will depreciate. This means that profit potential exists in a rising as well as a falling market. The ability to sell currencies without any limitations is another distinct advantage over equity trading. In many major equity markets, it is much more difficult to establish a short position due to the US Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale. Unlike certain commercial users, like hedgers of the interbank fx market, we are engaged for speculative purposes with the goal to profit from the short, medium or long-term movements of the currency market.

MINIMAL CORRELATION WITH OTHER MARKETS

Investors will be aware that other financial markets which receive the bulk of investor funds, viz., Equities ("Stocks") and Fixed-Income ("Bonds") are closely correlated. When prices are falling in one, they almost invariably fall in the other. In contrast, the foreign exchange markets are minimally correlated with any other financial instrument or market. This makes the FX market an ideal alternative for a part of your investment portfolio, to build a hedge against negative movements in the traditional investment markets like stocks and bonds.