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[I469]Introduction To Capital Markets

by John J Callingham, Joh

The Forex Capital Market in the foreign exchange arena worldwide is a nonstop, no nonsense cash market. The different currencies of nations are traded here for profit and the transactions are typically taken care of by dedicated brokers. Foreign currencies in the Forex Capital Market worldwide are consistently bought and sold. This buying and selling of currencies takes place across local and global markets.

The overall exercise is to ensure that the investments of the traders involved increase in value. These profits are in turn generated by the currency movements. The conditions in the Forex capital market arena are subject to change at any time and are substantially influenced by a number of real time economic news and events. The main attraction of this market for retail traders includes 24x7 trading and nonstop access to the global Forex dealers. You can literally trade at any time of the day!

The currency markets worldwide are enormously liquid and this nature of the market makes it easy to trade the major currencies (U.S. Dollar, Euro, Swiss Franc, Japanese Yen and British Pound). This highly volatile and liquid market offers investors a number of profit raking opportunities. A trader's ability to quickly profit with the rising or falling of prices is what lures the industry big players to keep earning and investing regularly.

The market offers foreign exchange trading within a leveraged arena, with low margin requirements. The market also offers investors and traders ample of options to benefit from with zero commission trading.

The currency market deals with sensitive capital investments from all over the world, and aims to profit from volatile foreign currency movements around the globe. Forex trading within the dedicated market is always conducted in currency pairs. The numbers are referred to as foreign exchange rates and investors need to understand how to interpret its values. For example, the rate of EUR/USD = 1.4000 means that one Euro can be traded with 1.4000 U.S. Dollars.

The lucrative trading opportunities from all over the world enable the investor to enjoy the benefits of a high return on investment in the Forex market. Compared to other forms of trading, currency trading can potentially yield a 30% return (or more) within a very short time period. Also, compared to a stock which may be worth absolutely nothing in the case of a bankruptcy, it is highly unlikely that a currency can be completely worthless.

When trading currencies in this unique market, traders deal only when the currency being bought is expected to increase in value as compared to the currency being sold. This financial rostrum also flaunts scope for open trades or open positions, where the trader buys or sells a particular currency pair, but does not transact the equivalent amount to close the position.

The arena is very speculative in nature. The currencies in are traded in pairs and exchanged one against the other and exchange rates are mostly determined against the US dollar (USD). This financial market works along the determined minimum security that is intended to cover trading losses and the margin enables private investors to trade in high minimum units and enhanced rates of profit!

The capital that makes up your mortgage/ loan can come from a number of sources including other people's deposits and savings, stored up in the bank and other investors, all of which make up the Capital Markets. Of course, there isn't enough cash in the general consumers accounts to make up the capital needed for the mortgage markets so the majority comes from investors looking to buy debt instruments, which in this case are bonds.

The buyers of these bonds are looking for a good return on their investments, which is of course completely opposite to people looking for a low rate mortgage. In effect, you're borrowing money from an investor at a given rate (for you an interest rate and for the investor a rate of return). Of course, the investor is only willing to invest a certain amount of capital in such low yield bonds.

Now, the rates on a mortgage fluctuate from month to month and this rate is determined by how well 'mortgage bonds' are selling. A rise in sales will see a drop in yield and a drop in sales will see a rise in yield, thus attracting investors back into the market. The result of the average mortgage holder will be the opposite though. When investors leave the bond market, they will see a rise in mortgage interest rates.

Of course, the mortgage market is driven by a number of external factors, such as supply and demand but the greatest factors is that of inflation. Where inflation is low, the return for the investor is high, but when inflation increases, it devalues the investment and at the same time the mortgage. Suddenly a $120,000 mortgage can seem far less of a burden.

Inflation is kept under control by raising or lowering interest rates. When inflation is rampant, interest rates are raised, resulting in a rise in mortgage repayments.

Recent sub-prime mortgage lending issues in the US have had a knock on effect throughout the world. Billions of US dollars have been lost, simply because many of the associated bonds were bundled up and sold on to banks throughout the world. These mortgages were in effect over-subscribed in the states, with many people only able to afford a house with one of them. Unfortunately, the mortgages were being defaulted on and, having been sold on to UK, Hong Kong, German, French banks, they could not be easily recouped. The collapse in this market left many banks in serious problems. Losses could not be recouped and the bond market dried up as investors fled. New mortgages became difficult to find and their rates were much higher than previous. Interest rates have now been dropped so as to stimulate the market. Lenders have maintained bond rates at a higher level, giving them greater yield and the result will be a higher return for what is now percieved a greater risk.

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Both John J Callingham & Robert Thomson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

John J Callingham has sinced written about articles on various topics from Forex Online, Forex Guide and Finances. John Callingham is an authority on Forex Trading providing valuable advice at where you can. John J Callingham's top article generates over 5400 views. to your Favourites.

Robert Thomson has sinced written about articles on various topics from Personal Desktop, Finances and Pets. Richard A Johnson owner and author of a website providing advice for those looking to get a their home.. Robert Thomson's top article generates over 450000 views. to your Favourites.