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No good definition for Forex market

  • #1
  • First Post: Sep 25, 2014 6:56am Sep 25, 2014 6:56am
As for now we don't have a good definition for Forex.

Let me remind everybody the Wiki definition:
'The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies'.

But everybody knows what he does when trading on Forex, he trades or can trade not only currencies, but also, say, stocks and metals in addition, right?
So, the definition is not right, meaning it doesn't match everyday life of Forex traders (or anybody considering himself a Forex trader, no matter a newbie or experienced one).
There are other questions for the authors of this definition.

P.S.
I have found only one place discussing this matter, but cannot fully understand the text and looking for partners to discuss this matter.
Could please somebody help me in understanding this text?

http://www.liteforex.com/tutorial/margin-trading/
"...Financial markets are an economic system where its participants trade in specific goods - financial instruments...
In the most general sense, financial instruments are certain obligations (contracts)...

common (usual) goods and raw materials are also sold at the financial markets. On the basis of it the financial markets may be divided into foreign exchange markets, stock markets and raw materials markets...

In our course we will pay general attention to foreign exchange market Forex..."

I.e. Forex is a part (division) of a system of 'financial markets' ('economic system' with 'financial instruments'), it is OK.

But, financial instrument is a 'contract' and at the same time currencies, stocks and raw materials, right?
Contract = raw materials?
How could it be?
  • #2
  • Edited 12:51pm Sep 25, 2014 12:27pm | Edited 12:51pm
Quoting KyrForex
As for now we don't have a good definition for Forex. Let me remind everybody the Wiki definition: 'The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies'. But everybody knows what he does when trading on Forex, he trades or can trade not only currencies, but also, say, stocks and metals in addition, right? So, the definition is not right, meaning it doesn't match everyday life of Forex traders (or anybody considering himself a Forex trader, no matter a newbie or experienced one)....
There are different exchanges you have the foreign exchange, which deals in currencies. You also have a “commodities” exchange which also deals in currencies. Think of them as 2 different stores.

They both deal with currency. But they are 2 different & separate “entities”. They are similar in structure, but yet different. Think of them as two different stores
Commodities are sold as future contracts. They are a contract between 2 individuals. However, the actual delivery of those “goods” is determined on a “future” time..

The foreign exchange market is similar in nature, but the delivery of those “goods” happens “on the spot” at the moment the trade is put on.

The difference between foreign exchange & the commodities exchange? The best analogy I can think of is 2 different store models
Costo (commodities exchange) and the neighbor corner store (foreign exchange)

If you go to the store and 1 beer = 1.00, if you wanted to by 12 beers, 1 beer X 12 = 12.00
Not always the case!

You’d think 1.00 = 1.00, it’s not the same but not the case when you buy in bulk (“goods”). Commodities are “goods” sold in bulk quantities.
Now if you went to Costco (commodities exchange) those 12 beers would only cost = 8.00

The corner store owner buys the beer as a Costco as a “commodity” of goods at bulk prices, he sells a lot of beer in order to turn a profit. Because he needs to sell a lot of beer to turn a profit, he pays a Costco membership fee in order to buy his “goods” (beer) in bulk, to get discount pricing.
If he paid 1.00 for each bottle of beer he couldn’t sell for to you for 1.00 and return a profit.

Currency works the same way. On the Foreign exchange 1.00 = 1.00 and is delivered right there “on the spot” (hence to word “Spot market”)

On the commodities exchange when you buy dollars as “bulk goods” you receive different pricing, based & determined by future prices……

If you just want to trade & swap dollars the fx exchange market does just that, however when you have a “use” and deal with lots of dollars for business purposes (bank) you would need to deal in “bulk” to get the best pricing.

When you dealing with beer as a commodity you need to buy in bulk to turn a profit.

If you deal with currency as a “commodity” it’s considered “goods”, you also need to buy in bulk/blocks. A block of currency has a different pricing structure than it would if you were simply exchanging one currency for another…..

Futures Contract = bulk quantity of goods whether it be a bushel of soybeans or a bushel of dollars………

Also, most people aren't really interested in buying an actual bushel of dollars, soybeans, ...etc.
They swap and exchange with each other the "contracts" as a way to make money without actually taking "possession" of the "goods" themselves.
Markets are not efficient, rather they are effective - Jones
  • #3
  • Edited 6:45am Sep 26, 2014 6:05am | Edited 6:45am
Quoting mzvega
{quote} There are different exchanges you have the foreign exchange, which deals in currencies. You also have a “commodities” exchange which also deals in currencies. Think of them as 2 different stores. They both deal with currency. But they are 2 different & separate “entities”. They are similar in structure, but yet different. Think of them as two different stores Commodities are sold as future contracts. They are a contract between 2 individuals. However, the actual delivery of those “goods” is determined on a “future” time.. The foreign exchange...
Thank you for your answer.

But mostly you are discussing not the key issues, as it seems to me.

The question is what do currency and commodity (and stock) markets have in common, not what is a difference between them,
because
currency and commodity both are traded on what we call 'Forex', so they have to have something in common. What exactly?
(One thing in common is what you mentioned above, people on both markets actually don't want to buy or sell something, they buy in order to sell and sell in order to buy exactly the same thing.)

And the key question I would call the following one:
why do we trade commodities on Forex in reality, but the 'scientific' definition of Forex says that we cannot trade commodities, but only currencies?

I would propose to do something with the mismatch between 'theoretical' definition of Forex and what we call 'Forex' in everyday life.
Would you support the proposition?
...
  • #4
  • Edited 4:43am Sep 27, 2014 4:24am | Edited 4:43am
Quoting KyrForex
{quote} Thank you for your answer. But mostly you are discussing not the key issues, as it seems to me. The question is what do currency and commodity (and stock) markets have in common, not what is a difference between them, because currency and commodity both are traded on what we call 'Forex', so they have to have something in common. What exactly? (One thing in common is what you mentioned above, people on both markets actually don't want to buy or sell something, they buy in order to sell and sell in order to buy exactly the same thing.) And...
You are wrongly taking the word FOREX to mean "Financial Instrument"
What you should be asking is, what is the definition of a "financial Instrument", not FOREX

What do stocks, commodities, and currencies all have in common?
All 3 are defined as "Financial Instruments"

All three are individual "entities” each having its own Exchange
Stock Exchange NYSE
Commodities Exchange CME
Foreign Exchange "FX" Exchange

Again the store analogy……………….

You cannot go to the Stock exchange market and buy or sell "Currencies”, they only deal in Stocks.

Nor can you go to the Foreign Exchange Market (Forex) and expect to buy or sell Soy bean futures, they only deal in currencies

You also can not go to the commodities exchange and expect to buy some Google Stock

Quoting KyrForex
{quote} because currency and commodity both are traded on what we call 'Forex' . ...
"On" what?
Quoting KyrForex
{quote} why do we trade commodities on Forex in reality,.. ...
Again....... "ON" What??? .....Your trading platform?

Just because your Forex Broker offers you oil, gold, (commodities) quotes and you "SEE" them ON your trading platform does not mean they are a part of or belong to the Foreign exchange Market (Forex). Those trades are routed to the proper Exchanges. Why would your Forex Broker offer you commodity quotes? I’m pretty sure he’ll sell you anything he can make a commission on. In this case, any "financial instrument" he can make a commission on.

I propose you stick with the scientific definition ……….
Markets are not efficient, rather they are effective - Jones
  • #5
  • Sep 29, 2014 3:53am Sep 29, 2014 3:53am
Thank you for your answer.
Why has our conversation been moved to the Garbage Can, BTW?
I am trying to move it back.

Quoting mzvega
...Just because your Forex Broker offers you oil, gold, (commodities) quotes and you "SEE" them ON your trading platform does not mean they are a part of or belong to the Foreign exchange Market (Forex). Those trades are routed to the proper Exchanges...
I propose you stick with the scientific definition ……….
If you stick to 'scientific definition', then you have to come up with a new definition for what we call 'Forex' in everyday life now.
(Forex 'scientific definition' differs from 'everyday use' of the term 'Forex'.)

Let me explain my point of view.

The situation here is like this, as I see it.
In short.

I.
Some companies
(1) offers everybody currencies, commodities and stocks quotes for trading,
(2) are being called 'Forex brokers'.

So, from logical and natural point of view
it means that 'Forex' is about currencies, commodities and stocks quotes together, not only about currencies,
that is what is being implied in everyday life by the term 'Forex'.

II.
The definition of Forex is that Forex is about currencies only.

So, I. and II. contradict each other.


There are 2 ways to correct this contradiction.

1. To change the 'scientific' definition of 'Forex', making it about not only currencies, but also commodities and stocks.

Or, if you stick to the definition strongly.

2. To change the definition of companies that we call 'Forex brokers' now, to call them, say, 'brokers of Universal Net Exchange'.

I.e. I would suggest to come up with a new definition (' Universal Net Exchange'?) for a 'place-structure-service' or whatever,
something/somewhat/somewhere where people can trade currencies, commodities and stocks together through the Internet
(as now this 'place-structure-service' wrongfully is called 'Forex' in everyday life).

Without having a term-name-definition for something people cannot discuss this something, right?

So, there is a new area of activities that doesn't have name. This must be changed, do you agree?
Right now 95% of people fail trading Forex, this results in fleeing people from Forex, right?
A possible reason of this situation is that people cannot discuss the area and don't know what they are doing.
  • #6
  • Sep 30, 2014 12:26pm Sep 30, 2014 12:26pm
Quoting KyrForex
Thank you for your answer. Why has our conversation been moved to the Garbage Can, BTW? I am trying to move it back. {quote} If you stick to 'scientific definition', then you have to come up with a new definition for what we call 'Forex' in everyday life now. (Forex 'scientific definition' differs from 'everyday use' of the term 'Forex'.) Let me explain my point of view. The situation here is like this, as I see it. In short. I. Some companies (1) offers everybody currencies, commodities and stocks quotes for trading, (2) are being called 'Forex...
What Are Forex Brokers?
Brokers are what currency traders think they are. They will organise trades on behalf of their clients, the traders. This is the main difference. Dealers trade with and against their clients. Brokers are middlemen who will try to match the buy and sell orders from their clients to other clients buy and sell orders. It is similar to an estate agent attempting to sell a property for a client to another client who wishes to buy a property.

What Are Dealers?
The vast majority of amateur forex traders use the services of dealers and not brokers. Dealers are also known as liquidity providers and market makers, which you may have heard of.
Dealers are not brokers. They are traders that trade with their clients (other traders), by buying low and selling high to make their profit. Brokers and dealers alike need clients to utilise their service, however, dealers take the reverse side of their client’s trade. That is their business model. Brokers do not buy or sell with their clients, they match their clients with other traders.

Forex dealers in any country are subject to close supervision by one or more government regulatory bodies and usually pay very high fees for the right to be involved in the foreign currency exchange trade. Usually, a Forex dealer plays on the market using his own account, while Forex brokers act as intermediaries between their clients and the market, acting as agents on behalf of the client. There is also a third interstitial category of foreign exchange dealers called “broker-dealers” who act as both brokers and principals.

This great specialisation and the nature of the Forex market prevent some brokers and dealers from engaging in currency transfers, limiting their activities to currency trading. One would argue that it is easy for a broker, individual or institutional, engaged in the foreign currency exchange business to also conduct currency transfers. This appears to be true only on the surface. In reality, currency transfers abroad are subject to different regulations and often are supervised by a different government body so a broker or a dealer must also have expertise in this market niche to obtain all the necessary licences and to be familiar with the respective legislation. Thus, not all Forex dealers and brokers are willing to offer such services.

Moreover, some dealers prefer to specialise in niche markets such as exotic currencies; therefore, they can offer their clients favourable currency exchange rates against a particular not widely known currency and even to provide a currency transfer service but they have limited resources when the transaction in question is to provide a full-scale service covering more than several currency pairs.
Attached File(s)
File Type: pdf FXMicrostructure-Survey_07-15-08 (1)1.pdf   630 KB | 324 downloads
Markets are not efficient, rather they are effective - Jones
  • #7
  • Sep 30, 2014 1:10pm Sep 30, 2014 1:10pm
Quoting KyrForex
. I. Some companies (1) offers everybody currencies, commodities and stocks quotes for trading, (2) are being called 'Forex brokers'. So, from logical and natural point of view it means that 'Forex' is about currencies, commodities and stocks quotes together, not only about currencies, that is what is being implied in everyday life by the term 'Forex'. II. The definition of Forex is that Forex is about currencies only. So, I. and II. contradict each other.
No, some those companies, you are assuming to be “Forex Brokers” are “Dealers”. They both offer currency, but Dealers are not brokers. They are separate entites, each work according to a different set of rules & regulations.

It depends if you’re dealing with a broker or a dealer. A forex broker may only deal and allow you to access currencies in the forex markets, where as a “dealer” can offer you access to other markets as well. The Markets are all still separate entities,

You can’t change the definition the foreign exchange market, it only deals with currency period!

It’s WHO you use to access that market that makes the difference. Just because some Broker/dealers are licensed to offer you commodities as well as currency, doesn’t mean that you need to change the definition of the “forex market”. Its the definition of WHO you use to access the markets that determines what Markets & trading instruments you have access to.
Markets are not efficient, rather they are effective - Jones
  • #8
  • Sep 30, 2014 1:38pm Sep 30, 2014 1:38pm
Quoting KyrForex
So, there is a new area of activities that doesn't have name. This must be changed, do you agree? Right now 95% of people fail trading Forex, this results in fleeing people from Forex, right? A possible reason of this situation is that people cannot discuss the area and don't know what they are doing.
No, I don't agree, I believe 95% fail due to the lack educating themselves to the structure each of the many different markets and the roles each that each of the different market participants play.
Markets are not efficient, rather they are effective - Jones
  • #9
  • Oct 1, 2014 9:59am Oct 1, 2014 9:59am
Thank you for your answer again.
I really appreciate your participation in the discussion while I struggle with the administration of this Garbage Can to leave it.
The discussion seems to me an important and interesting one.

Quoting mzvega
No, some those companies, you are assuming to be “Forex Brokers” are “Dealers”...
Generally speaking I cannot distinguish a broker from a dealer,
meaning that I don't have any reliable means to find out whether I use a broker or a dealer (or a broker-dealer) while trading.

I may do some homework and find out some documents describing the company, but I can be cheated, right?
Everybody knows examples of cheating schemes for billions, I cannot rely on public documents, and I don' t have access to insider's information which can be incorrect also.

From the point of view of a user BROKERS AND DEALERS ARE EXACTLY THE SAME, is it right?

And actually as a user I don't want to know anything about how this thing works, I just want to use it and that's it.

(Say, I don't want to know how does my car work, I just want to know how to use it (how to drive it, how to maintain it.
Although from a point of view of a mechanic all cars are quite different, but for just a driver all cars are almost the same:
4 wheels, 4 or 2 seats, roof, windows, brakes and gas pedals and a steering wheel.)

Somebody (not myself) has to know how it works in order to repair it for me,
but for me it is enough to know how to use, that's it.

Similarly, I don't want to know much about what company I use, I just want a steering wheel (i.e. button 'Order') etc.

Quoting mzvega
...The Markets are all still separate entities...
Again, technically speaking, from the point of view of a user
there is no any difference at all between, say, currencies and stocks, while trading them, right?

Thanks to the Internet, a user sees only graphs with some signs describing different axes, that is it.
E.g. I may never see any currency of Australia or Pepsi stocks, but I can trade them, right?

There is no any connection with the real world for a trader/user, thanks to the Internet again.

From the point of view of a user
stocks, commodities, currencies markets are the same single united market (let's call it, say, the Universal Net Market (UNM)).

Again, I don't want to know how this thing (UNM) works, I just want to use it.

So, I have come to a theoretical conclusion that
in reality just recently there has been practically created a new entity, the Universal Net Market (UNM) surrounded by UNM companies.

The UNM exists, because people use it, although they don't realize its existence.

People don't know or have a human right not to know about stock, currency or commodity exchanges,
they use SOMETHING (that doesn't have a public name) that gives them means to trade all of them with the same Internet connection and software, thanks to the Internet.

This is what I would like to express:
THERE EXISTS A NEW ENTITY WHICH IS BEING PRACTICALLY USED BUT THEORETICALLY NOT REALIZED,
i.e.
the Universal Net Market (UNM) surrounded by UNM-companies,
which make it possible for people to trade stocks, currencies and commodities altogether via the Internet without knowing anything about the things, about how the things look or smell, and how an exchange works.

PS
I beg your pardon, I am in a great rush now, I have written only the main thing, which seems to be of a big importance and interest, as I see it.
  • #10
  • Last Post: Oct 7, 2014 9:29am Oct 7, 2014 9:29am
I don't know how to get connected with administration and appeal to it.
Am I accused in promoting something?
What exactly?
Why nobody wants to talk with me about it?

Audiatur et altera pars.
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