1. Introduction to theoretical Background

1.2. Forex

1.2.1 Defining of Forex

The foreign exchange market (Forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.

 The Economist – Guide to the Financial Markets

The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states especially Eurozone members and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

The foreign exchange market is unique because of the following characteristics:

• its huge trading volume representing the largest asset class in the world leading to high liquidity;

• its geographical dispersion;

• its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;

• the variety of factors that affect exchange rates;

• the low margins of relative profit compared with other markets of fixed income;

• The use of leverage to enhance profit and loss margins and with respect to account size.

http://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-1

1.2.2 History of Forex

• August 15, 1971, U.S. President Richard Nixon announced the decision to cancel the free convertibility of the dollar into gold (the gold standard abandoned), thus abandoning the unilateral implementation of the Bretton Woods agreements (under which the dollar backed by gold and all other currencies the dollar).

• In December 1971, in Washington, the Smithsonian has been reached an agreement whereby, instead of 1% currency fluctuations against the U.S. dollar were allowed fluctuations of 4.5% (9% for non-dollar currency pairs). It has destroyed the system of stable exchange rates and was the culmination of a crisis of the postwar Bretton Woods monetary system. Replaced by a Jamaican currency system, the principles which were laid in March 1971 on the island of Jamaica with the participation of the 20 most developed countries of the non-Communist bloc. The essence of the changes was to more liberal policy with regard to gold prices. Previously, exchange rates were stable by virtue of the gold standard, after making such a floating rate of gold has led to the inevitable fluctuations in exchange rates between currencies. This gave rise to a relatively new field of activity - currency trading, when the exchange rate began to depend not only on the gold equivalent currency, but also on market demand / supply it.

• Quickly enough, there were some issues to discuss that in 1975 the French President Valery Giscard d'Estaing and Chancellor Helmut Schmidt (both - the former finance minister) proposed heads of other leading Western countries to gather in a narrow range for informal communication, face to face. The first summit of the "Big Eight" (only six participants) was held in Rambouillet with the U.S., Germany, UK, France, Italy and Japan (in 1976 the work of the club joined Canada, and in 1998 - Russia). One of the main topics of discussion was the structural reform of the international monetary system.

• January 8, 1976 at the meeting of IMF member countries in Kingston (Jamaica), adopted a new agreement about the structure of the international monetary system, which took the form of amendments to the charter of the IMF. The system replaced the Bretton Woods monetary system. Many countries have virtually declined to the currency peg to the dollar or to gold. However, only in 1978, the IMF formally allowed such a failure. From this point on freely floating exchange rate has become the main way to exchange currency.

The new monetary system finally there was a refusal of the principle of determining the purchasing power of money based on the value of their gold equivalent (gold standard). Money countries participating in the agreement ceased to have official gold content, the exchange began to occur in the free exchange market at market prices.

Becoming a system of floating exchange rates has led to three significant results:

• Importers, exporters and service their banking institutions have been forced to become regular participants in the foreign exchange market, as changes in foreign exchange rates may affect the financial results of their work as a positive and a negative side.

• Central banks had the opportunity to have an impact on the currency and affect the economic situation in the country by market methods, not just administrative.

• Rates of the most liquid form of national currency on the basis of the search market equilibrium point between current demand and available supply and demand and supply in the market exchange rate causes a shift in one direction or another.

ru.wikipedia.org/wiki/Форекс#cite_note-alpina41-3

https://docs.google.com/file/d/0B1UyEHIajTBYSDh5enZRR01Sejg/edit

http://www.bull-n-bear.ru/history/history.php?history=m_market3