roller coaster

In quiet times, the forex market would be like a kiddy world roller coaster. but in times of economic change and volatility, it would be more like the superman roller coaster at Movie world(really high, really scary, really exhilarating!).

When you go to a foreign exchange counter, you'd see two numbers, the bid(buy) and ask(sell) price, and if in doubt as to which applies to you, follow common sense that states that from a business point of view, we buy low sell high.

Thus if you want to buy USD, and the bid-spread is 1.78/1.83 (totally fictional prices) then by intuition, the higher price of 1.83 would apply to you! And vice versa if you were to sell...

So why is there a spread(difference between the bid and ask)? That's where they make the profits, spreads also depend on the overall demand and supply of the underlying currencies, the lesser the demand, the lesser the chance that it will be traded out again, thus it would command a higher premium.

There are many reasons why people/companies go into forex deals, because they need money in a different currency to pay for a deal, or because their kid is going overseas and they are making provisions for them, etc. Hedges are used, usually, to hedge against the risk of losing money when there is change in the rates between different currencies and to lock in the profit on the companies balance sheet.

Hedges that increase exposure to forex fluctuations should be called speculation, and has lead to big loses, even Buffet has had his share.

The forex market has been really active in Malaysia in the past year and because of that, big losses and big gains were made.

Well, I hope this gave you some insight into the world of forex!

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