Foreign exchange market

Foreign exchange market

Foreign Exchange

Exchange Rates
Currency band
Exchange rate
Exchange rate regime
Fixed exchange rate
Floating exchange rate
Linked exchange rate

Foreign exchange market
Futures exchange

Currency future
Non-deliverable forward
Forex swap
Currency swap
Foreign exchange option

See also
Bureau de change

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion.[1]


  • 1 Market size and liquidity
  • 2 Market participants
    • 2.1 Banks
    • 2.2 Commercial companies
    • 2.3 Central banks
    • 2.4 Investment management firms
    • 2.5 Hedge funds
    • 2.6 Retail forex brokers
  • 3 Trading characteristics
  • 4 Factors affecting currency trading
    • 4.1 Economic factors
    • 4.2 Political conditions
    • 4.3 Market psychology
  • 5 Algorithmic trading in forex
  • 6 Financial instruments
    • 6.1 Spot
    • 6.2 Forward
    • 6.3 Future
    • 6.4 Swap
    • 6.5 Option
    • 6.6 Exchange Traded Fund
  • 7 Speculation
  • 8 References
  • 9 See also
  • 10 External links

Market size and liquidity

The foreign exchange market is unique because of

  • its trading volumes,
  • the extreme liquidity of the market,
  • the large number of, and variety of, traders in the market,
  • its geographical dispersion,
  • its long trading hours: 24 hours a day (except on weekends),
  • the variety of factors that affect exchange rates.
  • the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
Foreign exchange market turnover, 1998 - 2007, measured in millions of USD.
Foreign exchange market turnover, 1998 - 2007, measured in millions of USD.

As such, it has been referred to as the market closest to the ideal perfect competition. According to the BIS,[1] average daily turnover in traditional foreign exchange markets is estimated at $3.21 trillion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:

This $3.21 trillion in global foreign exchange market "traditional" turnover was broken down as follows:

  • $1,005 billion in spot transactions
  • $362 billion in outright forwards
  • $1,714 billion in forex swaps
  • $129 billion estimated gaps in reporting

In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

Average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market. [2]

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. RPP

The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of currency, which is a standard "lot".

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e. 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

Market participants

Financial markets

Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt

Stock market
Preferred stock
Common stock
Registered share
Voting share
Stock exchange

Foreign exchange market
Retail forex

Derivatives market
Credit derivative
Hybrid security

Other Markets
Commodity market
OTC market
Real estate market
Spot market

Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation

v d e
Top 10 Currency Traders % of overall volume, May 2007

Source: Euromoney FX survey[3]

Rank Name Volume
1 Deutsche Bank 19.30%
2 UBS AG 14.85%
3 Citi 9.00%
4 Royal Bank of Scotland 8.90%
5 Barclays Capital 8.80%
6 Bank of America 5.29%
7 HSBC 4.36%
8 Goldman Sachs 4.14%
9 JPMorgan 3.33%
10 Morgan Stanley 2.86%

Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.


The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[4] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Hedge funds

Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Retail forex brokers

There are two types of retail broker: brokers offering speculative trading and brokers offering physical delivery i.e. the bought currency is delivered to a bank account.

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25–50 billion daily, which is about 2% of the whole market. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and might be subject to forex scams[5] [6].

Trading characteristics

Most traded currencies[1]
Currency distribution of reported FX market turnover
Rank Currency ISO 4217 code
% daily share
(April 2004)
1 Flag of the United States United States dollar USD ($) 88.7%
2 Flag of Europe Euro EUR (€) 37.2%
3 Flag of Japan Japanese yen JPY (¥) 20.3%
4 Flag of the United Kingdom British pound sterling GBP (£) 16.9%
5 Flag of Switzerland Swiss franc CHF (Fr) 6.1%
6 Flag of Australia Australian dollar AUD ($) 5.5%
7 Flag of Canada Canadian dollar CAD ($) 4.2%
8 Flag of Sweden Swedish krona SEK (kr) 2.3%
9 Flag of Hong Kong Hong Kong dollar HKD ($) 1.9%
10 Flag of Norway Norwegian krone NOK (kr) 1.4%
Other 15.5%
Total 200%

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. A joint venture of the Chicago Mercantile Exchange and Reuters, called FxMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.

The main trading centers are in London, New York, Tokyo, Hong Kong and Singapore, but banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.

The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

  • EUR/USD: 28 %
  • USD/JPY: 18 %
  • GBP/USD (also called sterling or cable): 14 %

and the US currency was involved in 88.7% of transactions, followed by the euro (37.2%), the yen (20.3%), and the sterling (16.9%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.

Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

Factors affecting currency trading

See also: Exchange rates

Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.

Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors

These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).

Economic conditions include:

Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.

Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.

Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets.

For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.

Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. [7]

"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[8] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.

Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns. [9]

Algorithmic trading in forex

Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.

Financial instruments


A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.


One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.


Main article: Currency future

Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.


Main article: Forex swap

The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.


Main article: Foreign exchange option

A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

Exchange Traded Fund

Main article: Exchange-traded fund

Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakness versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.


Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators.

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.[10]

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.



Avonko Systems was founded in 2007 as a proprietary trading software development company by trader and software developer Bryce Hutchinson. The company specializes in developing auto-trading software platforms for the Retail forex market for use by individual consumers and small to mid-size trading desks.

Avonko is best known for publishing its Avonko Elite automated trading software. The software attaches to the popular online Meta Trader 4 FX platform and allows users to enable automatic trading within MT4.[1] The system is designed to focus on inefficiencies in the currency market for the GBP-USD pair, specifically relating to the relative opening and closing of the major trading days on the three largest interbank markets in the world - London, Tokyo, and the US.


Avonko first made headlines in January of 2007 when it caught the attention of Las Vegas residents with a series of small classified advertisements in the local newspapers offering a wager to interested parties.[2] Founder and acting executive Bryce Hutchinson offered fellow traders 2:1 odds that the newly released beta version of Avonko Elite 4.3 would beat the benchmark S&P500 index, by a factor of 3 or more, for calendar year 2007. While it was never publicly disclosed if any wagers were placed, Avonko published their system's trading results live and had them independently confirmed with several traders beta testing the system.[3] The publicity stunt did not backfire, as Avonko's Elite EA went on to beat the S&P500 benchmark index by a factor of 17.5 (93.2% vs. 5.3%)

Foreign Exchange Dealers Coalition (FXDC)

Foreign Exchange Dealers Coalition (FXDC)

Globe icon

The Foreign Exchange Dealers Coalition (FXDC) is an alliance of the largest U.S. foreign exchange market dealers. The FXDC partnership was formed in the fall of 2007 to pool together industry resources to demonstrate the viability of the forex industry and to ensure fair regulation and oversight that do

Merge arrows

es not hamper freedom of choice, innovation or job creation.


  • 1 What is a forex dealer?
  • 2 How does forex trading work?
  • 3 Popularity of forex trading
  • 4 A legacy of innovation and entrepreneurship
  • 5 Creating and sustaining American jobs
  • 6 Government and self-regulation
  • 7 Worldwide leaders in technology
  • 8 Acceptance among investors
  • 9 References

What is a forex dealer?

A forex dealer provides online trading services to allow individuals to speculate on rapidly changing foreign exchange rates. Forex Dealer Members (FDMs) are regulated by the CFTC and National Futures Association in the United States, as well as by national and local regulatory bodies where they conduct business, and are held to stringent business and ethical standards.

How does forex trading work?

Many U.S. and international companies provide online trading software and services for individuals (traders) who want to speculate on the exchange rate differences between two currencies. In doing so, these speculators buy or sell currencies with the objective of making a profit when the value of the currencies changes in their favor, whether those fluctuations derive from market news, supply and demand principles, or geo-political events taking place throughout the world. In addition, the forex market is available to trade 24 hours a day, 5.5 days a week, so customers can trade at nearly any time, not just when an exchange is open.

Popularity of forex trading

The growth of trading OTC foreign exchange (known as retail FX or retail forex trading) has nearly doubled from 2004 to 2007[1], and has been projected to continue well beyond 2010[2]. Industry innovation, competition and consumer demand helped spur this growth.

The public has recognized U.S. forex companies as leaders in technology, with three of the leading forex firms named to the Deloitte Technology Fast 500[3], a ranking of the top North American technology companies, for three consecutive years. The leading U.S. forex companies have also been named to the Inc. 500 list of the country’s fastest growing companies. In 2006, the top FX companies made up nearly 20 percent of the total number of financial services industry firms on the Inc. 500 list[4]. As indicated by these rankings, the popularity of this growing market with active traders has helped to make foreign exchange one of the fastest growing industries in the United States.

A legacy of innovation and entrepreneurship

In the late 1990s, a group of American entrepreneurs saw the future of trading. Over-the-counter (or “off exchange”) foreign exchange trading was generating significant profits for large banks and corporations and, likewise, it lured individual traders who were increasingly becoming interested in participating in this large, but seemingly closed, market.

However, individuals with relatively small capital and no access to proprietary bank-to-bank computer systems were only able to trade currencies as futures through two exchanges. There was no method for traders to participate in the over-the-counter (OTC) forex market. The rapid pace of the currency market made it very difficult to trade on exchange, as most exchanges still traded currencies in the pit – an age-old system requiring multiple interactions to place a single trade. In addition, there were only a handful of currency markets available to trade, with inconsistent pricing and trading volumes. The pricing spreads fluctuated to widen significantly during times of increased market volatility, and market liquidity was not sufficient for overnight trading.

Meanwhile, Internet technologies were making rapid advances, and small upstarts recognized that these new technologies could solve the service delays and other problems faced when trading currencies with exchanges. These entrepreneurs became forex dealers who saw the Internet as an ideal avenue to provide customers with what they needed – instant and efficient access to the rapidly moving currency markets. Image:Chart1.pngImage:Chart2.png

Creating and sustaining American jobs

Forex dealers primarily rely on customers outside of the United States, with upward of 70 percent of all customers coming from more than 140 countries. International customers must go through a stringent account-opening process, which includes depositing money in U.S. banks. These international deposits mean that tens of millions of dollars are flowing to the U.S. banking industry each day. In fact, it is estimated that the banks of forex dealers held $1.3 billion in customer deposits in 2007 alone.


Government and self-regulation

For many years, the foreign exchange industry was unregulated in the United States. Regulation was long overdue, especially in light of the fact that foreign exchange trading had been regulated in such locales as Hong Kong and London for over a decade. Some rules were formally put in place when the President signed and Congress passed the Commodities Futures Modernization Act[5] in December of 2000, which regulated the retail foreign exchange industry for the first time.

In the U.S., forex firms [6]are members of the CFTC [9]and the self-regulating National Futures Association (NFA) [[10]], operating under the same guidelines set forth for FCMs in the futures brokerage business. Other developed countries have effectively regulated the OTC foreign exchange market, and each member believes that the U.S. can do this as well.

On a regular basis, all forex dealers submit financial reports to its regulators and are subject to lengthy regulatory audits covering everything from marketing practices to employee training regimens. In addition, many of these long-established regulatory bodies extend specific regulations solely to retail forex dealers[7], such as higher capital requirements[8], disclosure statements and the requirement that all dealers disclose to customers that their funds may not be safe in the event of bankruptcy.


Worldwide leaders in technology

The retail forex market has thrived since its inception. The entrepreneurial members of the FXDC that began this industry have continued to push each other and push the envelope, expanding their reach to more than 140 countries to compete and excel in the global marketplace. This very competition has benefited individuals in service and value as market technology rapidly evolves to provide traders with the latest equipment and tools for online trading.

What’s more is that the leading forex companies have become global leaders; the dominant players in the forex market are based in the United States. These companies took the age-old process of on-exchange trading and shaped it into something new. The fast-paced nature of the industry has led to rapid innovations in technology; customers can now monitor and trade the markets 24 hours a day while placing orders almost instantly with sophisticated desktop trading software, from any computer via a web browser, or even from their mobile phones.

Acceptance among investors

The retail forex trading community provides a service that the global banking community cannot. Since forex dealers were originally intended to serve individual traders, they can provide around-the-clock service while managing risk to give customers consistent pricing and market liquidity, 24 hours a day. This is something that even the largest banks cannot provide 24 hours a day: to constantly deliver competitive prices day or night to individual traders.

These small forex dealer startups have evolved into major global financial institutions, yet their commitment to innovation and customer service allows everyday citizens to access the world’s prime market, all because of the emergence of online technologies and the determination of a few dedicated leaders.



Forex Capital Markets
Type Private
Founded 1999
Headquarters New York City
Key people Drew Niv, CEO
Industry Finance
Products Foreign Exchange
Revenue $216.9 Million (2005) [1]
Employees Approximately 500

Forex Capital Markets (FXCM) is one of the largest "forex dealer member"[1][2] (or financial services firm specializing in retail forex), supplying online trading services for retail and institutional speculators in the foreign exchange market. The company has over 90,000 clients and over 400 institutional customers from more than 200 countries. Approximately 500 employees, based in offices in New York City, London, Dallas, San Francisco, Hong Kong, and Tokyo provide 24-hour, multi-lingual sales, dealing, administrative, and technical support 7 days a week.


  • 1 History
  • 2 Services
  • 3 FXCM New Business Model
  • 4 Old Business Model
  • 5 Speculative focus
  • 6 References
  • 7 External links


In November 2005, Forex Capital Markets (FXCM) became entrenched in the bankruptcy proceedings of Refco, Inc (OTC:RFXCQ). Refco, a big commodities brokerage that collapsed amid an accounting scandal, has been largely purchased by Man Group. At the time Refco owned a 35% share in FXCM. The 35% that belonged to Refco was auctioned off, and now belongs to an investment group that includes Lehmann Brothers. FXCM is currently backing a client-led lawsuit against Refco.

Forex Capital Markets, LLC (FXCM) the global forex broker, announced that an agreement had been reached with Refco and its affiliates to sell at auction an outstanding non-voting minority interest in the company. [3]

FXCM is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Ownership and regulatory information on FXCM are available at its National Futures Association (NFA) listing [2].

FXCM is also regulated in Canada (BCSC) United Kingdom (FSA), and Hong Kong (SFC)


The company supplies most of its services through three primary websites: FXCM, the company's flagship site; FXCM Trading Room, which offers numerous resources for trading the market; and Daily FX, which is a leading source for foreign exchange and economic news, as well as information, advice, and resources pertaining to the global currency market. For new traders, FXCM also provides a variety of learning resources, through such products as the FX Powercourse and free live webinars. The firm's Chief Strategists, Kathy Lien and Boris Schlossberg have been quoted by information providers such as Investopedia. [3]

FXCM New Business Model

FXCM has migrated all their customers away from a dealing desk platform, and they said are now offering a No Dealing Desk (NDD) trading platform passing on orders to six major banks. The FXCM client can now:

  • Trade during news or periods of high volatility without requotes
  • Place entry orders anywhere even between the spread
  • Scalp the market without dealer intervention or trade restrictions [4]

The No Dealing Desk model eliminates the potential conflict of interest between broker and client; all prices for FXCM's No Dealing Desk execution are provided by some of the worlds largest banks.

Old Business Model

Like most market makers, FXCM's revenues come from five main sources:

  1. The Spread - The difference between the spread FXCM quotes to clients and the spread FXCM receives from the banks they offset from. If FXCM is unable to match a buyer and seller internally, FXCM will, after the positions become sufficiently large, offset with larger banks that quote them cheaper spreads.
  2. Internal matching of client trades - If the spread is 3 pips, and FXCM is able to match a buyer and a seller internally, they collect 3 pips.
  3. Interest on client deposits (like most online brokers, such as E*TRADE, these are a dependable and large source of income)
  4. The firm's own speculative positions in the market.
  5. Losses on clients' trades that were never offset.

Not all of the above apply to FXCM's "no-dealing-desk" trading option. In this set-up, trades are routed to other interbank market participants. FXCM then may not derive income from source two through five. This allows clients direct access to bank liquidity. However, all trades are still cleared through a dealing desk of some type as all banks have dealing desks.

Speculative focus

The New York Times quoted Marc Prosser, Chief Marketing Officer at FXCM saying "Don't just call it investing - this is speculation, and people should only be putting up risk capital they can afford to lose."[5].

Even the U.S. government approved self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a Forex Training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation. [6]. 100-1 leverage makes this type of trading especially risky[7].

Retail forex is controversial because the high degree of leverage available in the market leads most retail traders to lose money, and because of the existence of many forex scams. Quoted in the Wall Street Journal regarding retail forex, (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "

Forex Trader's Bill of Rights

Forex Trader's Bill of Rights

The Forex Trader's Bill of Rights
Author OANDA
Language English
Genre(s) Nonfiction
Publisher OANDA
Publication date 2005
Media type Print (Paperback)
Pages 115
ISBN ISBN 0-9766863-0-9

The Forex Trader’s Bill of Rights (2005) is a non-fiction book about the foreign currency trading market, published by OANDA_Corporation. It is primarily a call to arms for currency traders to call for greater transparency and accountability within the market. The overleaf provided with the printed version of the book states: “Big banks and confederated brokerages have overcomplicated forex: trading costs are inflated, unnecessary risk abounds, and the system is grossly unfair.” Essentially, the book elaborates on this premise, detailing ways in which traders are being unfairly treated and encouraging them to take action.

OANDA is a company that provides currency trading tools for investors, travelers, and businesses. As such, there is an unavoidable marketing aspect to this publication. However, OANDA is not mentioned throughout the book. There has been a clear effort to maintain a relatively neutral point of view. The back cover does state “OANDA is a leading provider of online currency trading…FXTrade…enables all currency investors to change the way forex trading is done”.

The authors believe currency investors have 10 basic rights which are being violated: each short chapter deals with one of these rights. They are:
1. The right to immediate, uncensored access to the marketplace
2. The right to trade real spot
3. The right to know
4. The right to trade whenever you want
5. The right to equal treatment
6. The right to choose and manage risk
7. The right to understand cost
8. The right to learn – on your own, or through free exchange with other traders
9. The right to full disclosure
10. The right to pay and receive interest

1) The right to immediate, uncensored access to the marketplace Chapter one argues that when trading traditionally (with banks etc.,) execution and price are affected by who you are (size of your order/ relationship with your market maker etc.), the amount of greed on the part of the market maker, and manual intervention which can delay the trade. The chapter calls for transparency, fairness, and efficiency for traders from market makers.

2) The right to trade real spot
Chapter two addresses unnecessary delays in settlement of trades, which according to the authors increase risk for investors.

3) The right to know
The third chapter states that market makers share information based on who you are: in some cases they share information that should not be shared; in other cases they do not share information that should be publicly available. This leads to an unfair advantage.

4) The right to trade whenever you want
The chapter asserts that market makers may advertise 24 hour trading but they close the books on Friday. However, world events which affect currency price occur on weekends. The argument continues that since the technology for 24/7 trading is available, it should be offered by all market makers.

5) The right to equal treatment
Chapter five argues that every trader should be given the same price and spread, and that market makers should not discriminate between traders.

6) The right to choose and manage risk
Traders are encouraged to use a market maker who does not require high minimums, lets them trade any amount, and provides immediate settlement as a way of minimizing risk.

7) The right to understand cost
It is reasoned that traders have the right to understand spreads, as well as who gets a “cut” and why. This chapter also includes a profitability calculator.

8) The right to learn – on your own, or through free exchange with other traders
This chapter covers multiple ways to learn about trading, and test new strategies, including trading games offered by online market makers and other sources of Internet information.

9) The right to full disclosure
The book claims that a lack of transparency in pricing, execution, and after the trade needs to addressed. Market makers should publish statistics regarding real spreads and prices and traders should demand that they do this.

10) The right to pay and receive interest
It is argued that continuous interest should be introduced, which would make for price flows that are less volatile.

Profiting with forex

Profiting with Forex is a book co-authored by John Jagerson and S. Wade Hansen, published in 2006.


  • 1 Overview
  • 2 Chapters
  • 3 Release details
  • 4 External links


The book discusses a number of topics designed to expose the reader to the foreign exchange market.


  1. Profiting with forex
  2. Basic lingo lesson
  3. How the forex market works
  4. Genesis and growth of the forex market
  5. Fundamental analysis tools
  6. The US government
  7. Inflation
  8. The US stock market
  9. China
  10. Oil
  11. Breaking news
  12. Seesaw of supply and demand
  13. Technical analysis tools
  14. Support, resistance, and Fiboncacci
  15. Putting it all together - Trading techniques
  16. Money management
  17. Getting started

Forex simulator

Forex simulator

A forex (foreign exchange market) simulator is a software program that enables foreign currency exchange traders and students to expedite their learning and understanding of currency exchange. Unlike a live forex demo account that functions in real time, a forex simulator enables users to upload, view and review historical data at any given point in time. Used to confirm one's understanding of pattern recognition and trading signals, data can be rewound and fast forwarded to test and retest one's knowledge and understanding.

Gold exchange-traded fund

Gold exchange-traded fund



  • 1 History
  • 2 Fees
  • 3 Funds
    • 3.1 Exchange Traded Gold
    • 3.2 iShares COMEX Gold Trust
    • 3.3 ZKB Gold ETF
    • 3.4 Central Fund of Canada
    • 3.5 Central Gold Trust
    • 3.6 ETFS Physical Gold
    • 3.7 Gold Benchmark Exchange Traded Scheme
    • 3.8 UTI Gold Exchange Traded Fund
    • 3.9 Gold-Price-Linked Exchange Traded Fund
  • 4 Criticism
  • 5 See also
  • 6 References
  • 7 External links


The idea of a gold ETF was first officially conceptualised by Benchmark Asset Management Company in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval and was only launched later in March 2007. The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol "GOLD"). Gold Bullion Securities (GBS) are fully backed by gold which is both deposited and insured. GBS was launched to give financial institutions and private investors the ability to own gold and gain exposure to the price, without the inconvenience of storing physical bars.


Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. In some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold coins and bars.


Exchange Traded Gold

Following the launch of Gold Bullion Securities on 28 March 2003 in Australia, a number of associated GETFs were soon launched on other stock exchanges. These GETFs are grouped under the name Exchange Traded Gold.[1]

Exchange Traded Gold is listed under:

  • Gold Bullion Securities (ASX: GOLD)
  • Lyxor Gold Bullion Securities (LSE: GBS and Euronext: GBS)
  • streetTRACKS Gold Shares (NYSE: GLD)
  • New Gold Issuer (JSE: GLD)

Exchange Traded Gold is sponsored by the World Gold Council, and as of August 2007 held 627.92 tonnes of gold in storage.[1] streetTRACKS Gold Shares marketed by State Street Global Markets LLC, an affiliate of State Street Global Advisors, accounts for over 80 percent of this gold. As of 2007, streetTRACKS was the largest and most liquid GETF on the market.

iShares COMEX Gold Trust

The iShares COMEX Gold Trust was launched by iShares on 21 January 2005 and is listed on the New York Stock Exchange (NYSE: IAU). As of November 21, 2007 the fund held 54.14 tonnes of gold in storage.[2]


The ZKB Gold ETF was launched on 15 March 2006 by Zürcher Kantonalbank and is listed in Switzerland under the symbol ZGLD. Shares are sold in 1 kg gold units, with a minimum purchase of one unit. As of August 2007, ZKB Gold ETF held 22.0 tonnes of gold in storage.

Central Fund of Canada

The Central Fund of Canada (TSX: CEF.A and NYSE: CEF) is a closed-end fund headquartered in Calgary, Alberta, Canada, mandated to keep the bulk of their net assets in a mixture of gold and silver with a small percentage of cash. The custodian of the gold and silver assets is the main Calgary branch of CIBC. As of March 2008, the Central Fund of Canada held 28.48 tonnes of gold and 1423.66 tonnes of silver in storage.

Central Gold Trust

The Central Gold Trust (TSX: GTU.UN, TSX: GTU.U and NYSE: GTU)) is a closed-end fund operated by many of the same individuals, and employing many of the same practices, as the Central Fund of Canada. Unlike its sister fund, however, the Central Gold Trust is mandated to keep the bulk of its assets in gold, and does not hold silver. As of March 2008, the Central Gold Trust held 5.21 tons of gold in storage.

ETFS Physical Gold

In September 2006 ETF Securities launched ETFS Gold (LSE: BULL) which tracks the DJ-AIG Gold Sub-Index, and later in April 2007 ETFS Physical Gold (LSE: PHAU) which is backed by allocated gold bullion. As of Jan 08 ETFS Physical Gold held 20 plus tonnes of gold in storage.[3] this is the cheapest gold etf at 39 bps and most efficient for creations. its also part of a stable including ETFS Physical Silver (PHAG) ETFS Physical Platinum (PHPT) ETFS Physical Palladium (PHPD) and ETFS Physical PM basket (includes all 4 metals) (PHPM).

Gold Benchmark Exchange Traded Scheme

On 19 March 2007 Benchmark Asset Management Company, a Mumbai-based mutual fund house, launched Gold BeES (ticker symbol "GOLDBEES") on the National Stock Exchange of India. Shares are sold in approximately 1 gram gold units.

UTI Gold Exchange Traded Fund

On 17 April 2007 UTI Mutual Fund listed Gold Exchange Traded Fund (ticker symbol "GOLDSHARE") on the National Stock Exchange of India. The objective of UTI Gold Exchange Traded Fund is to endeavor to provide returns that, before expenses, closely track the performance and yield of Gold. Every unit of UTI Gold Exchange Traded Fund approximately represents one gram of pure gold. Units allotted under the scheme will be credited to investors’ demat accounts.

Gold-Price-Linked Exchange Traded Fund

On 10 August 2007, Gold-Price-Linked Exchange Traded Fund (code "1328") listed on the Osaka Securities Exchange, Japan. Shares are sold in 1 gram gold units, with a minimum purchase of ten units. Due to Japanese regulations restricting ETFs linked to commodities and precious metals, this GETF is not backed by physical gold but by special bonds traded in London which are linked to the gold price.


Unlike physical gold bullion which is held in personally allocated storage, the investor will only become a general creditor if an ETF provider went into liquidation. Gold ETFs are a form of debenture.

During an economic crisis GETF assets may be subject to a compulsory purchase by governments, as seen in Executive Order 6102 of 1933 and the Gold Reserve Act of 1934.

Digital gold currency

Digital gold currency

Digital gold currency (or DGC) is a form of electronic money denominated in gold weight. It is a kind of representative money, like a paper gold certificate at the time (prior to 1933) that these were exchangable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.

Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue independent currency, which normally carries the same name as their company. In terms of the most popular providers, e-gold has the greatest number of users and GoldMoney holds the greatest quantity of bullion (as of January 2007).

As of January 2007, DGC providers held in excess of 9.5 tonnes of gold as disclosed reserves, which is worth approximately $184 million.


  • 1 Features
    • 1.1 Asset protection
    • 1.2 Bullion investing
    • 1.3 Exchanging fiat currency
    • 1.4 Non-reversible transactions
    • 1.5 Universal currency
  • 2 Risks
  • 3 Providers
  • 4 Criticisms
  • 5 See also
  • 6 References
  • 7 External links

Asset protection

e-gold is, according to their website, "100% backed by gold"
e-gold is, according to their website, "100% backed by gold"

Unlike fractional-reserve banking, DGCs (such as e-gold and GoldMoney) hold 100% of clients' funds in reserves with a store of value. Proponents of DGC systems contend that deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency. It is also theoretically much harder for governments and/or creditors to seize or confiscate digital gold currency from someone, as most DGC companies are incorporated in offshore financial centres.

Bullion investing

Main articles: Gold as an investment and Silver as an investment

Digital currencies backed by gold are the most popular, although e-gold, e-Bullion and e-dinar also provide digital currency backed by silver, while GoldMoney and Crowne Gold also provide storage in silver. Other digital silver currencies include the eLibertyDollar and Phoenix Silver. In addition to gold and silver, e-gold supplies digital currency backed by platinum and palladium. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.

Exchanging fiat currency

Some providers, like e-gold, do not sell DGC directly to clients. In the case of an e-gold account, currency must be bought and sold via a digital currency exchanger (DCE). According to their website the reason they do this is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. DGCs are known as private currency as they are not issued by governments.

Non-reversible transactions

Unlike the credit card industry, DGC issuers generally do not bundle services such as repudiation. Thus having transactions reversed, even in case of a legitimate error, unauthorized spend, or failure of a vendor to supply goods is not possible. In this respect, a DGC spend is more akin to a cash transaction while PayPal transfers, for example, could be considered more similar to credit card transactions.

Universal currency

Proponents claim that DGC offers a truly global and borderless world currency system which is independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.


Digital gold currency is a form of representative money as it directly represents metal deposits stored in gold units rather than fiat currency. The purchasing power of DGC therefore fluctuates in relation to the gold price. If the price of gold increases, then an account becomes more valuable, but if the price of gold falls, so does the value of the account.

There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore do not need to comply with bank regulations. However the Global Digital Currency Association (GDCA), which was founded in 2002, is a non-profit association of online currency operators, exchangers, merchants and users. The GDCA is an example of the DGC industry's attempt at self-regulation. On their website they claim their goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities, arbitrate disputes and act as escrow agent when and where required."[1] Of the current DGC providers, Pecunix, Liberty Reserve and eight others have become members of the association. It costs one gram of gold to file a complaint if you are not a member, and the list of filable complaints is not exhaustive. Their domain name is registered anonymously through domains by proxy, see [1].

Following April 27, 2007, the United States Department of Justice forced e-gold to liquidate some 10 to 20 million dollars worth of e-gold (a small part of which was all the assets of 1mdc which were held in e-gold), and is attempting to bring a case against e-gold.[2] e-gold has committed to counter what it considers groundless allegations.[3] Pecunix, GoldMoney, e-Bullion and other DGCs continue to operate normally,


Comparison of DGCs (as of January 2007):

Digital gold currency ↓ Date
founded ↓
member ↓
stored ↓
of user
accounts ↓
DCE transfers accepted ↓ Wire transfers accepted ↓ Annual storage fee ↓ Processing fee
(when receiving from another user) ↓
c-gold 2007 YesY 200 oz (as of 17 July 2007) Undisclosed NoN NoN 1% 1 - 5% (with min. 5% plus 0.0002 grams - max. 0.05 grams)
Crowne Gold 2002 NoN Undisclosed Undisclosed NoN YesY 1% 0%
e-Bullion 2000 NoN Undisclosed Undisclosed YesY YesY 4 gold grams 0%
e-dinar 2000 NoN Undisclosed Undisclosed NoN YesY 1% 1% (with max. 0.015 gold dinar)
e-gold 1996 NoN 111,779 oz gold, 138,567 oz silver, 400 oz platinum, 396 oz palladium 3,571,496 YesY NoN 1% 1 - 5% (with min. 5% plus 0.0002 gold grams - max. 0.05 gold grams)
GoldExchange 2006 NoN Undisclosed Undisclosed NoN YesY 1% $0.35 USD
GoldMoney 2001 NoN 193,921 oz gold, 3,229,907 oz silver Undisclosed NoN YesY 1.2 gold grams, 0.986% silver 1% (with min. 0.01 - max. 0.1 gold grams)
Liberty Reserve 2005 YesY Undisclosed Undisclosed YesY NoN 0% 1% (min. $0.01 - max. $0.25 USD)
Pecunix 2002 YesY 2,375 oz gold Undisclosed YesY NoN 0% 0.15 - 0.50% (with min. 0.0001 - max. 3.0 gold grams)
VirtualGold 2006 NoN Undisclosed Undisclosed NoN YesY 0% 1% (with min. $0.10 - max. $2.00 USD)


DGC providers and exchangers have been accused of being a medium for fraudulent high-yield investment program (HYIP) schemes. In January 2006, BusinessWeek reported that ShadowCrew, an online gang, used the e-gold system in a massive identity theft and fraud scheme.[4] Allegations that e-gold is a safe medium for crime and fraud are strongly denied by its Chairman and founder, Dr. Douglas Jackson.[5]

Many DGC providers do not disclose the amount of bullion stored (see table) or allow independent external bullion audits, raising concerns that such companies do not maintain a 100% reserve ratio, or that their currency is entirely virtual and not backed by physical gold at all.


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