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This quote makes me question the rest of the article: "Historically, currencies were always priced against US dollars." Foreign exchange precedes the _existenc

by dsjoerg 11y ago

This quote makes me question the rest of the article: "Historically, currencies were always priced against US dollars." Foreign exchange precedes the _existence_ of the US Dollar, so wtf.

dingwallr 11y ago
Really it should say "Since the collapse of the Bretton Woods system". https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
jackgavigan 11y ago
Yes, it would be more accurate to say that historically, currencies were priced against GBP, until the US Dollar took over that role when the US became the world's leading economy after WWII. The article's mostly correct. Some assertions and definitions aren't quite right, as if the author doesn't have direct experience but is instead regurgitating their own research/reading. For example, they define a "pip" as being equal to a basis point but that's not the case. In fact, the reason they're called "pips" instead of "bips" (market slang for basis points) is because they're not the same thing.[1] Also, the article kind of glosses over the fact that the wholesale (or interbank) FX market (the article uses the term "Spot Market" which is more commonly used to refer to the subset of the interbank market for spot deals) operates at large scale (e.g. a minimum deal size of $100,000). You can only get the tight spreads (<= 1 pip) available in the interbank market if you're willing to deal in large sizes. In the same way that the per-unit price for buying several container-loads of cans of beans direct from Heinz will be lower than if you buy a single can from your local retail store, a retail customer looking to exchange $300 can't expect to get the interbank rate. 1: This page - http://www.londonfx.co.uk/trading.html http://www.londonfx.co.uk/trading.html - (written by a friend and former colleague) gives a more accurate description of what a pip is.

by dsjoerg 11y ago

This quote makes me question the rest of the article: "Historically, currencies were always priced against US dollars." Foreign exchange precedes the _existence_ of the US Dollar, so wtf.

dingwallr 11y ago

Really it should say "Since the collapse of the Bretton Woods system". https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system

jackgavigan 11y ago

Yes, it would be more accurate to say that historically, currencies were priced against GBP, until the US Dollar took over that role when the US became the world's leading economy after WWII. The article's mostly correct. Some assertions and definitions aren't quite right, as if the author doesn't have direct experience but is instead regurgitating their own research/reading. For example, they define a "pip" as being equal to a basis point but that's not the case. In fact, the reason they're called "pips" instead of "bips" (market slang for basis points) is because they're not the same thing.[1] Also, the article kind of glosses over the fact that the wholesale (or interbank) FX market (the article uses the term "Spot Market" which is more commonly used to refer to the subset of the interbank market for spot deals) operates at large scale (e.g. a minimum deal size of $100,000). You can only get the tight spreads (<= 1 pip) available in the interbank market if you're willing to deal in large sizes. In the same way that the per-unit price for buying several container-loads of cans of beans direct from Heinz will be lower than if you buy a single can from your local retail store, a retail customer looking to exchange $300 can't expect to get the interbank rate. 1: This page - http://www.londonfx.co.uk/trading.html http://www.londonfx.co.uk/trading.html - (written by a friend and former colleague) gives a more accurate description of what a pip is.