[...]... Copyright © 2004 by The McGraw-Hill Companies, Inc Click here for terms of use This page intentionally left blank FOREX MADE EASY This page intentionally left blank C H 1 A P T E R WHAT IS THE FOREX? G Introduction G FOREX Defined G A Brief History of FOREX G Free-Floating FOREX Market G Major FOREX Participants INTRODUCTION There are more than 48 million household traders in the United States and more... dollar 12 FOREX MADE EASY The FOREX has had a large impact on all the major banks, which are posting larger profits each year Bank of America reported in its 2002 annual report a $530 million profit from foreign exchange revenue Meanwhile, it reported only $384 million from equities and $86 million from commodities The 2002 revenues grew to $530 million from only $5 million in 2000 FOREX DEFINED FOREX. .. brother-in-law is a big salesman with the company The stock had split several times, and I bought some It went back to $80, and I had dreams of retiring one day from trading this stock A great FOREX MADE EASY 8 many investors made millions on Cisco as it went to $80 and split several times, so surely I could do the same thing After hitting the $80 range in mid-2000, the trend reversed, and it was an excellent... about 10 different tech stocks.” Sorry, that is all one sector 9 FIGURE 1-5 Cisco Weekly Chart 2002–2003 10 FOREX MADE EASY True diversification means just that Put a portion of your portfolio in different areas, such as bonds, mutual funds, stock, real estate, options, annuities, and the FOREX This is what the Fortune 1000 companies, big banks, and institutions do, so why don’t you? Probably because... 1-3 and 1-4) I won’t mention the firm I am referring to, but the improprieties continue However, here is some good news As I commented earlier, there CHAPTER 1 WHAT IS THE FOREX? FIGURE 1-2 James Dicks Buy Sell Hold 5 6 FOREX MADE EASY FIGURE 1-3 James Dicks Buy Sell Hold is a lot of legislation being introduced, if not passed, on Capitol Hill to help clear up some of these problems The New York Stock... how to take control of their financial lives I have spoken to many individual investors who have come up to me 1 Copyright © 2004 by The McGraw-Hill Companies, Inc Click here for terms of use 2 FOREX MADE EASY and told me their trading nightmares—told me that their portfolios have lost upwards of 90 percent of their value That in itself is a real tragedy, but what makes it worse is that many of these... biggest companies on Wall Street When the Enron stock price got to around the $65 mark, investors were somewhat relieved They probably were saying, “Okay, it is now 3 FIGURE 1-1 Enron 2002–2003 4 FOREX MADE EASY finally going back up.” Not so fast—the stock just retraced a little and started going back down again Enron stock did this two more times, at $50 and $35, before falling off the map, so to... THE FOREX? 13 in currency value before the goods are exchanged, one of the parties could lose all their expected profits This uncertainty in expected profits can be eliminated by offsetting the risk in the currency exchange As a result of these types of transactions, noninterbank turnover in the FOREX now accounts for about 25 percent of all transactions (21 percent in 1992) A BRIEF HISTORY OF THE FOREX. .. options, but it is important to understand that the free floating of currency was not by any means imposed This means that countries were free to peg, semipeg, or free-float their currencies 14 FOREX MADE EASY FREE-FLOATING CURRENCIES When the major currencies are free floating, such as the U.S dollar, they move independently of other currencies The value of the currency is determined by supply and... banks, it’s good enough for you This market was made available to the average investor in 1998, and it is one of the fastest growing markets in the world With daily volume of nearly 100 times that of the stock market and available to almost anyone in the world, it is almost mandatory for you to invest in this market to properly diversify your portfolio The FOREX allows you to practice money management .