Trading in the Global Currency Market

Posted by Allison on 13 April 2009, 10:45

The foreign currency exchange markets has the highest trading volume of any financial market in the world, but despite its tremendous size and influence there are a great many investors who do not understand what the market is and how it works.  Trading in the Global Currency Markets is an excellent resource on the subject, covering all aspects of the foreign currency exchange market so that all readers, novice to expert, will take away a wealth of good information.     

Solid explanation and clear information

Many books attempt to explain the various aspects of the foreign currency exchange market, but few do it as well as Trading in the Global Currency Markets does.  It contains real, solid explanations of every topic, presented with exceptionally clear information and easy to understand language.  There is no doubt that this is one of the best books of its kind to be found in the book store.

The list of topics covered is long and comprehensive, including:

  • Why the foreign currency exchange exists and how it has developed through the years – The basic, underlying reasons for the very existence of the foreign currency exchange market are discussed, drawing a clear picture of why this extremely high market developed in the first place.  The book goes on to examine the development and history of the foreign currency market, including a detailed discussion of the Bretton Woods Accord, why this important accord ultimately failed, and events that unfolded after the accord became useless.  There is also an especially interesting discussion of free floating markets for foreign currency exchange and the events surrounding the crisis of emerging markets in the 1990's.
  • The history and rise of the European Monetary Union – The European Monetary Union plays an integral role in the modern foreign currency exchange market, so it is extremely helpful to understand the history and background of this organization.  The book does a good job of discussing the European monetary system, how and why the euro was created, and how the euro has emerged into a major currency in the currency market.  There is also a good overview and history of the European Central Bank and the vital role it plays.
  • Major currency markets and characteristics – The world's foreign currency exchange markets are distinct entities, but they are inevitably linked together in effect and practice.  The book talks about all of the major foreign currency exchange markets in existence, including an overview of the major players involved in those markets.  It goes on to provide details and characteristics of several of the major currencies (the U.S. dollar, the Euro, the British Pound, the Japanese Yen, and the Swiss Franc).
  • Understanding market risk – The foreign currency exchange market is potentially quite profitable, but it is certainly not without substantial risk.  The book looks at market risk from several standpoints, including the risks associated with the exchange rate, interest rate, general credit issues, and different countries whose currencies are traded in the market.
  • The importance and role of the central banks – Central banks play a huge role in all of the foreign currency exchange markets, so it is important to have a good understanding of what they are and what they actually do.  The book looks closely and the U.S. Federal Reserve and the large role it plays in the currency markets, followed by a good discussion about the other important central banks from countries belonging to the G-7.

Details of the market and how it works

Once the history and foundation of the foreign currency exchange market is established, Trading in the Global Currency Markets moves into detailed explanations of the structure and types of activities found on the currency market.  The reader is led through each topic in a logical and effective way, helping to make each topic clear and understandable.

Some of the topics covered include:

  • Terms and structure of the foreign exchange market – The foreign currency exchange market comes with its own set of terms and definitions, which are covered in fairly good detail.  The book also discusses the structure of the marketplace, including the forward market, the spot market, and the futures market.
  • The role and importance of corporate currency trading – Large corporations are major players in the foreign currency exchange markets, so it is important to understand the role that they play.  The book discusses why corporations get involved in the currency markets in the first place, what types of corporations participate in the currency markets, the types of risk exposure they face, the function and value of hedging, and how corporations factor in to the execution of foreign currency trades.
  • How the market conducts and settles trades – The actual mechanisms of conducting and settling currency trades are important to understand because they affect many other aspects of the market.  The book provides excellent discussions of how trading is conducted (brokers' market, matching systems, direct dealing, dealing systems) and how settlement of trades occurs (SWIFT, CHIPS, ACCORD, Advisory Bilateral Foreign Exchange Netting Service).
  • Defining and understanding the spot market – The spot market is foreign currency trading at its most basic; what it is, why it is important, and how it actually works are all covered quite thoroughly.  The book also provides good overview and discussion of what characteristics are typical of a spot trader and what every trader should know about profit and loss.
  • Examining the forward, futures, and options market – Some of the most active foreign currency trading occur in the forward, futures, and options marketplaces.  The book looks at each of these areas in depth, covering issues such as types of forward spread, interest rate differentials, maturity dates, margins, contracts, arbitrage, traded premium, option pricing, trading hours, trading overlap, and much more.
  • Understanding technical analysis and its tools – Technical analysis is a major part of what every trader must do to find and act upon opportunities in the foreign currency exchange markets.  It is a huge subject in and of itself, but the book does an excellent job of breaking it down into discrete, manageable pieces for easy and clear explanation.  The tools of technical analysis are also discussed in depth, especially the role of charting and the many different types of charts available as technical analysis tools
  • Key trading strategies – Trading on the foreign currency exchange market is not something to be taken lightly or done on a whim; it requires research, analysis, and development of solid trading strategies to minimize risk and maximize profit potential.  The book takes a close look at a variety of key trading approaches, such as compound strategies, average options, spreads with currency and options, ratio spreads, exotic options, and the like.
  • Other factors affecting currency markets – There are many other factors that affect global currency markets, such as political crises and events, global economic statistics, and the like.  The book looks at these factors as well as the fundamentals of global economics that all affect and influence the foreign currency exchange markets.

Final thoughts

As a foreign currency trading resource, Trading in the Global Currency Markets definitely falls into the category of one of the best available.  It is comprehensive and complete without sacrificing anything in terms of clear information and easy to understand language.  The book covers all significant aspects of the foreign currency trading markets, starting with the development and history of currency markets and continuing right through the tools and strategies that are most important for traders to understand and use.

Trading in the Global Currency Markets is a very solid book, containing excellent discussions of important issues without falling into the trap of complicated language or complex explanations.  Its use of charts and illustrations is quite good, adding even more to the value of the book as an information source.  It is a book that every trader should consider adding to their library.

Direct link to this book at Amazon