Forex Trading system and the mundo currency

The Mundo is a pragmatic concoction of co-author Jim Bickford and represents a syn-
thetic global spot currency. In some ways it is analogous to the U.S. Dollar Index
(ticker symbol DX), which is an openly traded futures contract offered by the New
York Board of Trade since 1973. The U.S. Dollar Index is computed using a trade-
weighted geometric average of the forward futures contracts of the six currencies
listed in Table 23.1.

IMM currency futures traders monitor the U.S. Dollar Index to gauge the dollar’s
overall performance in world currency markets. If the U.S. Dollar Index is trading
lower, then it is very likely that a major currency that is a component of the Index is trading higher.

INTERNATIONAL CURRENCY UNIT

Stock and commodity traders have numerous composite indices which can be used as
barometers in the selection of which securities to trade. Outside of the U.S. Dollar Index, spot currency traders have none. For that purpose, we created the hypothetical
currency, the International Currency Unit, and nicknamed it the Mundo for short. We
will give it a fictitious ISO (International Standards Organization) designation of
“ICU.” The Mundo will be used to define the arithmetic average of a selection of spot
currency pairs.

MUNDO CALCULATION

In this study of U.S. major currency pairs, we will restrict our selection of Mundo components to EURUSD, GBPUSD, USDCHF, and USDJPY.

The first step is to ensure that the USD is the quote currency in each pair, which
means the arithmetic reciprocal must be substituted for the USDCHF and USDJPY
pairs.

The second step is to convert all exchange rates to integral pip amounts. This
means multiplying 10,000 times the exchange rates for the EURUSD, GBPUSD, and
CHFUSD pairs. Multiply the JPYUSD by 100,000.
The final step is to sum the four pairs and divide by four. To convert the pips back toan exchange rate, divide by 10,000.
Because the Mundo is an aggregate currency, it is natural to think that anomalies
in the individual component currency pairs would be smoothed over for the most
part. Yet a closer examination of the Mundo chart shows that anomalies appear to be
accentuated.

MUNDO DIFFERENTIAL CHART

The Mundo Differential Chart is a new addition to the technical analysis of spot cur-
rency pairs. Its purpose is to determine the degree of divergence that one USD major
currency pair deviates from the Mundo currency comprised of the EURUSD, GBPUSD,
CHFUSD, and JPYUSD pairs. (See Figures 23.2 through 23.5.)
In the upper portion of Figure 23.2 are two curves, one solid and one dotted. The
solid line represents the daily closes in the EURUSD currency pair after the first
close in the time series has been subtracted from all the subsequent closes. The same
is true for the dotted line except that it represents the Mundo currency. This scalingoperation coerces both time series to start at the same point on the left side of thechart.

USAGE

The differential chart is experimental and still requires thorough testing. One observation is that when the scaled major currency pair exceeds an arbitrary number of pipsabove the scaled Mundo currency, an upward trend is indicated. The converse appears true for a downward trend also.
Leader/lagger relationships (also called dominance and dependence) may also be
detected by the use of the Mundo differential chart. (See Figure 23.6.)
The authors are currently involved in writing online software that will test the deviation of a single currency pair from the Mundo as a potential market entry indicator.

The difficulty is that, while arbitrage opportunities are frequently present, they are usually very short-lived.

Lastly, the authors wish to state that the readers should not restrict themselves to
trades that involve only the major currencies. There are numerous trading opportunities with the minor currency pairs also (such as the Canadian Dollar, the Australian Dollar, the New Zealand Dollar, the Swedish Krona, the Hong Kong Dollar, the Singapore Dollar, and several others). In fact, many of these exhibit greater volatility than the major currency pairs. The disadvantage, though, is their diminished liquidity. So it is expedient to schedule trading sessions during periods of peak activity when dealing with the minor currency pairs.

Forex Trading system and precious metals

Universal fascination with gold is an obvious understatement. All Forex and futures
traders are very intrigued about the correlation between precious metal prices and currency prices.

The ISO (International Standards Organization) designation for gold is XAU, where
“X” is the identifier for financial vehicles other than currencies and “AU” is short for aurum, Latin for gold. Spot gold prices are represented in the same manner as Forex currency pairs: base currency on the left and quote currency on the right. XAU is always the base currency in the pair when quoting gold prices. Examples are XAUUSD,XAUEUR, XAUGBP, and XAUCHF.

The streaming spot prices represent what gold customers are willing to pay at the
current moment in time for gold coins, bullion, ingots, bars, wafers, and so on.
Historical data on compact disks for spot gold prices is available through Disk
Trading, Ltd., and the quotes are supplied in the identical format as currency pairs.
Thus upticks and downticks are supplied with time intervals of one minute and
higher.

Major U.S. and British Spot Gold Dealers

Gold Information Network
www.goldinfo.net
Kitco
www.kitco.com
American Precious Metals Exchange
www.ampex.com
Gold Masters
www.goldmasters.com
Gold Prices
www.goldprices.com
London Metal Exchange
www.metalprices.com
Bullion Direct
www.bulliondirect.com

SILVER STATISTICS

Analogous to the gold study above, we will again use the coefficient of variation as an indicator to determine how closely major currencies follow the prevailing price of silver.
It is interesting to note that after the coefficients of variation for both gold and silver were sorted with the highest correlation at the top, the major currencies are in the same order. However, none of the coefficients exhibited enough deviation or uniqueness to devise any hard and fast rules that traders can employ presently. We intend to probe this side venue of currency trading in more detail.

CAVEAT

Both trading in spot precious metals and currency trading have their intrinsic risk/reward factors. Readers should be aware of one interesting historical note on the volatility of silver prices.

In 1973 the Hunt family of Texas began taking delivery on silver futures contracts as
a hedge against inflation when silver was in the $1.95 per ounce range. By 1979, the Hunt brothers (Nelson Bunker and William Herbert), with the assistance of some wealthy Arabs, amassed over 200 million ounces of silver, accounting for nearly half of the world’s deliverable supply.

In early 1980, silver peaked at $54 per ounce, then plummeted on March 17 from
$21.62 to $10.80 in a single day. A combination of changed trading rules on the New
York Metals Market (COMEX) and the intervention of the Federal Reserve brought the
entire fiasco to a close and in 1988 the Hunt brothers were convicted of conspiring to
manipulate the market when their liabilities had grown to $2.5 billion against assets of $1.5 billion.

Amazingly, there is an upside to this rather scary tale. Numerous economists pro-
claim that market prices are merely the result of random walk theory and that technical analysis is simply human folly.

Given the history of silver prices from 1789 to 1973 as a mathematical
database, the likelihood of hitting a price of $54 in the subsequent seven years is not impossible using random walk theory, merely astronomically small. The moral is simple: Never initiate a currency trade without a stop loss limit order. Also, it is not wise to trade securities under SEC investigation regardless of how lucrative they may appear to be.

Forex Trading System for major currencies and futures

A futures contract is an agreement between two parties: A short position is taken by the party who agrees to deliver a commodity, and a long position is taken by the party who agrees to receive a commodity on a pre-arranged date. For example, a grain farmer would be the holder of the short position (agreeing to sell the grain), while the bakery would be the holder of the long position (agreeing to buy the grain).

In every futures contract, everything is precisely specified: the quantity and quality
(or grade) of the underlying commodity, the specific price per unit, and the date and
method of delivery. The price of a futures contract is represented by the agreed-upon
price of the underlying commodity or financial instrument that will be delivered in the future. For example, in the above scenario, the size of the contract is 5,000 bushels of soft red #2 wheat at a price of 317 cents per bushel, and the delivery date may be the third Wednesday in September of the current year.

The Forex market is essentially a cash or spot market in which over 90 percent of
the trades are liquidated within 48 hours. Currency trades held longer than this are normally routed through an authorized commodity futures exchange such as the Interna-
tional Monetary Market (IMM). It was founded in 1972 and is a division of the Chicago
Mercantile Exchange (CME) that specializes in currency futures, interest-rate futures,and stock index futures, as well as options on futures. Clearing houses (the futures exchange) and introducing brokers are subject to more stringent regulations from the SEC, CFTC, and NFA agencies than the Forex spot market (see www.cme.com and
www.cbot.com for more details).

FUTURES VOLUME AND OPEN INTEREST

Volume is the number of futures contracts traded within a given time period. Open in-
terest is the number of open futures contracts at any given time. Even though the volume and open interest of Forex spot currencies are presently not accessible, it is still possible to compare them with currency futures just as a point of perspective. Table 21.1 summarizes the trading activity of selected futures contracts in currencies, precious metals, and some financial instruments. The volume and open interest readings are intended only to provide a brief synopsis of each market’s liquidity and volatility based on the average of 30 trading days.

Table 21.2 lists the identical contracts but for the date June 4, 2004.

Note that all currency contracts (except the Canadian Dollar) exhibited a signifi-
cant increase in volume and most showed an increase in open interest over the five-
month time frame.

Forex Trading System- Cross rate charts

OVERVIEW

A cross rate is any currency pair in which neither the base currency nor the quote currency is the U.S. Dollar. For example, a long position in the British Pound with a simultaneous short in the Swiss Franc is a cross rate. Obviously. this definition is relative.

When trading Forex markets in Tokyo, the EURUSD currency pair is considered a
cross rate.

Cross rate futures provide a way for banks, corporations, money managers, and
individuals with the tools to manage the risks associated with currency rate fluctua-
tion and to take advantage of profit opportunities stemming from changes in cur-
rency rates. Currency cross rate futures are physically delivered at expiration.
Exercised options contracts are settled by the delivery of futures contracts.

Visit http://www.cme.com/trading/prd/fx/crossrate2625.html for additional information.

In the analysis below, we will restrict ourselves to those cross rates involving the
major currencies EUR, GBP, CHF, and JPY.

Forex Trading System- The History of Japanese Yen

WHY TRADE THE YEN?

The Japanese economy is one of the strongest in the world. Only the United States has a higher Gross Domestic Product. Japan’s main export goods are cars, electronic devices, and computers. The most important single trade partner is the United States, which imports more than one-quarter of all Japanese exports. Other major export countries are Taiwan, Hong Kong, South Korea, China, and Singapore.

Japan has a large surplus in its export/import balance. The most important import
goods are raw materials such as oil, foodstuffs, and wood. Major suppliers are the
United States, China, Indonesia, South Korea, and Australia. Manufacturing, construc-
tion, distribution, real estate, services, and communication are Japan’s major industries today. Agriculture makes up only about 2 percent of the GNP. The most important agricultural product is rice. Resources of raw materials are very limited and the mining industry rather small.

HISTORICAL PERSPECTIVE

The history of Japan is lost in legend, and reliable records date back only to about A.D. 400. Korean invaders probably introduced bronze and iron implements around the first century. Portuguese sailors made the first European contact with Japan in 1542. Commercial trading with the West developed gradually but only on a very limited scale. The Yen was established as the official unit of currency in 1871 by order of the Meiji government. The Bank of Japan, established in 1882, issued its first Yen bank notes in 1885.

In 1945, in accordance with the emergency measures intended to suppress the post-
war hyperinflation, the Japanese people were obligated to deposit their money by a certain date in monetary institutions for a specific period of time. Banknotes then in
circulation were made invalid. Withdrawal of the frozen deposits in the form of the new banknotes was then allowed to a limited extent. But not enough new banknotes were
printed for withdrawal. To cope with this, existing banknotes with adhesive stickers
were regarded as new banknotes and circulated until the end of October in that year as a makeshift arrangement.

Japan’s economy crashed as a result of defeat by the Allies, causing a 49.6 billion
Yen loss due to wartime damages. The total reached 1.38 trillion Yen by the end of 1947 (equal to 20 percent of Japan’s pre-war domestic assets). National income dropped to 6.5 million Yen.

In 1946 the Economic Stabilization Board was established, which put almost all sec-
tors of the national economy (commodities, prices, transport, banking, etc.) under the systematic control of the board. In October the Reconstruction Finance Bank was established, which furnished enormous volumes of funds to industries vital to economic recovery, such as the coal, steel, and chemical fertilizer industries.

In 1949 Joseph Dodge, the economic advisor to the General Headquarters of the Al-
lied Occupation Forces, mapped out the Dodge Line Policy to promote a self-sustaining
economy. This plan established a single exchange rate for the Yen and attempted to stabilize the currency as well as close the gap between domestic and overseas prices in general. It also curtailed government spending with a tight-money policy. By this time, the exchange rate had risen to 360 Yen to the U.S. dollar.

During the Korean War (1950–1953), special procurement contracts by the Ameri-
can government for goods and services generated $315 million for Japan. During this
time period, Japan attempted to reduce dependence on imports by increasing modern-
ization of processing in the four major industries (steel, coal, etc.), importing new technologies, and improving on old ones (synthetic fibers and petrochemicals). Japan’s foreign exchange reserves quadrupled from $260 million in 1949 to $1.06 billion in 1951.

In 1953 Japanese exports were 50 percent greater than before the Korean War. Domestic
prices rose in response to the increase in export and import prices.

Due to a drop in exports from 1963 to 1965, Japan experienced another reces-
sion. The government issued long-term public bonds. Foreign exchange reserves re-
mained stable at about $2 billion. From 1965 to 1970, the Japanese economy began to
prosper. Average growth rate of the economy remained stable at 11.8 percent for
these five years. Today, Japan has the second highest GNP in the world behind the
United States.

In 1971 Japan’s foreign exchange reserves reached $15.2 billion. Modernization
of industrial equipment over the past 10 years resulted in better prices and more efficient production of goods. The Bretton Woods system of fixed exchange rates for
currency worldwide collapsed as a result of the devaluation of the U.S. dollar. President Nixon enacted an emergency policy that applied a 10 percent surcharge to
imports to the United States and also suspended the conversion of the U.S. dollar
into gold.

The Smithsonian floating exchange rates for worldwide currencies were imple-
mented in 1973. The Japanese Yen was revalued against the U.S. dollar at a lower rate,causing an increase in imports into Japan due to cheaper import prices. In the sameyear war broke out in the Middle East, the export of crude oil was temporarily suspended, and oil prices increased worldwide. Japan was one of the many nations that underwent severe recession due to the oil crisis and collapse of the fixed exchange rate system. In 1979 a second oil crisis broke out, and plunged Japan from a positive $13.9 billion to a $7 billion deficit by 1980.

The rise of the Japanese Yen from 1971 to the present is one of the most dramatic
economic phenomena in recent years. This fact alone makes it a prime Forex trading
candidate. Additionally, the trading volume of the Yen at the Chicago Mercantile Ex-
change is exceeded only by the Euro currency. Further historical information on the Yen can be found at http://www.imes.boj.or.jp.

BANKNOTES AND COINS

The Japanese currency is the Yen, which literally means “circle” since the previous
coinage was oblong. One Yen corresponds to 100 sen. However, sen are not used in
everyday life anymore. Coins come in 1 Yen, 5 Yen, 10 Yen, 50 Yen, 100 Yen and 500 Yen.

Bank note denominations are 1000 Yen, 2000 Yen, 5000 Yen, and 10000 Yen.

Forex Trading System- History of Swiss Franc

WHY TRADE THE SWISS FRANC?

With its long tradition of political and military neutrality, Switzerland holds a position of elevated respect in the arena of international banking and finance. Countries undergoing social and political uncertainty frequently convert liquid assets to the Swiss Franc in hopes of achieving a modicum of economic stability and security.

The International Standards Organization (ISO) symbol for the Swiss Franc is CHF
which is an abbreviation for Confoederatio Helvetica (Latin for the Helvetian Confederation). This nomenclature avoids giving preference to any of the four official languages of Switzerland: German, French, Italian, and Romansh.

HISTORICAL PERSPECTIVE

The roots of modern Swiss sovereignty began in the 13th century. In 1291, the cantons
of Uri, Schwyz, and Unterwalden conspired against the ruling Habsburgs. Their union is recorded in the Federal Charter, a document probably written after the fact. At the battles of Morgarten in 1315 and Sempach in 1386, the Swiss defeated the Habsburg armyand secured a de facto independence.

By 1353, the three original cantons, joined by the cantons of Glarus and Zug and the
city states of Lucerne, Zurich, and Berne, formed the “Old Federation” of eight states that persisted during much of the 15th century.

In 1518 Huldrych Zwingli was elected priest of the Great Minster church in
Zurich. Zwingli’s Reformation of 1523 was supported by the magistrate and popula-
tion of Zürich and led to significant changes in civil life and state matters. The
reformation spread from Zürich to five other cantons of Switzerland, while the re-
maining five sternly held onto the Roman Catholic faith, leading to intercantonal
wars in 1529 and 1531.

The Thirty Years War (1618–1648), a religious conflict between Protestants and
Catholics, was fought principally on the territory of current day Germany, but in-
volved most of the major continental powers. During this period, Switzerland re-
mained a relative oasis of peace and prosperity in war-torn Europe, mostly because
all the major powers in Europe were depending on Swiss mercenaries, and they
would not let Switzerland fall into the hands of one of their rivals. This is probably the first example of Swiss neutrality being enforced by outsiders. At the Treaty of Westphalia in 1648, Switzerland attained legal independence from the Holy Roman Empire.

During the French Revolutionary Wars, Napoleon’s armies moved eastward through
Switzerland in their battles against Austria. In 1798 Switzerland was completely overrun by the French and became the Helvetic Republic. The Congress of Vienna of 1815 fully reestablished Swiss independence, and the European powers agreed to permanently recognize Swiss neutrality.

During both World War I and World War II, Switzerland managed to maintain a po-
sition of armed neutrality and was not involved militarily. Switzerland reacted to Nazi Germany’s invasion of Poland by a mobilization of some 430,000 troops. On May 11, 1940, the day following Hitler’s attack on Belgium, general mobilization of the full army was ordered, which for the first time included some 15,000 women. Switzerland observed a restrictive immigration policy during the war, but nevertheless some 26,000 Jews and other refugees were granted asylum. Nazi Germany drew up plans to invade Switzerland, most notably “Operation Tannenbaum,” but the invasion was never carried out.

In 1963, Switzerland joined the Council of Europe. Women were granted the right to
vote only in 1971, and an equal rights amendment was ratified in 1981. In 1979, parts of the canton of Berne attained independence, forming the new canton of Jura.
Switzerland’s role in many United Nations and international organizations helped to
mitigate the country’s concern for neutrality. In 2002, Switzerland was officially ratified as a member of the United Nations—the only country joining after agreement by a popular vote.

Switzerland is not a member state of the EU, but has been (together with Liechten-
stein) surrounded by EU territory since Austria joined the EU in 1995.
In 2005, Switzerland agreed by popular vote to join the Schengen Treaty (an
agreement among European states that allows for common immigration policies
and a border system) and the Dublin Convention (a European Union law to stream-
line the application process for refugees seeking political asylum under the Geneva
Convention).

The Swiss Franc has historically been considered a safe haven currency with virtu-
ally zero inflation and a legal requirement that a minimum 40 percent is backed by gold reserves. However, this link to gold, which dates from the 1920s, was terminated on May 1, 2000, following an amendment to the Swiss Constitution. The Swiss Franc has suffered devaluation only once, on September 27, 1936, during the Great Depression, when the currency was devalued by 30 percent following the devaluations of the British Pound, U.S. Dollar and French Franc.

BANKNOTES AND COINS

Since 1907, when the first series of Swiss banknotes was printed, eight series have been printed, six of which have been released for use by the general public. The current (8th) series of banknotes was designed by Jörg Zintzmeyer around the theme of the arts and was released starting in 1995.

The first Swiss coins were released in 1850. Before this date, the different Swiss
cantons had their own money, with different names and values. (See Table 11.1.)
In addition to these general circulation coins, numerous series of commemora-
tive coins have been issued, as well as gold coins including the well-known Vreneli.
These coins generally remain legal tender, but are not used as such because their
material or collector’s value usually exceeds their face value. (See Figures 11.3
through 11.5.)

For additional details, visit http://en.wikipedia.org.

Forex Trading System- History of pound

WHY TRADE THE BRITISH POUND?

Aside from being one of the most actively traded currency pairs, the British Pound
holds a position of being the king of currencies in the international arena. Its stability and status as legal tender globally during the period of the British Empire contribute to its appeal.

HISTORICAL PERSPECTIVE

As a unit of currency, the term pound originated from the value of a troy pound of high purity silver known as sterling silver. The sterling was originally a name for a silver penny of 1/240 pound. Originally a silver penny had the purchasing power of slightly less than a modern pound.

The pound sterling, established in 1560 by Elizabeth I, brought order to the financial
chaos of Tudor England that had been caused by the “Great Debasement” of the
coinage, which brought on a debilitating inflation during the years 1543–1551. By 1551, the silver content of a penny had dropped to one part in three. The coinage had become a mere fiduciary currency (as modern coins are), and the exchange rate on the European continent deteriorated accordingly. All the coins in circulation were called in for reminting at the higher standard, and paid for at discounted rates.
The pound sterling maintained its intrinsic value uniquely among European curren-
cies, even after the United Kingdom officially adopted the gold standard, until after
World War I; it weathered financial crises in 1621, in 1694–1696, and again in 1774 and 1797. Not even the violent disorders of the Civil War devalued the pound sterling in European money markets. England’s easy credit, security of contracts, and rise to financial superiority during the 18th century all contributed to the fact that the pound was never devalued over the centuries. The pound sterling has been the money of account of the Bank of England from its inception in 1694.

THE GOLD STANDARD

Sterling unofficially moved to the gold standard from silver due to an overvaluation of gold in England that drew gold from abroad and caused a steady export of silver coin, in spite of a reevaluation of gold in 1717 by Sir Isaac Newton, Master of the Royal Mint.

The de facto gold standard continued until its official adoption following the end of the Napoleonic Wars in 1816. This lasted until the United Kingdom abandoned the standard after World War I in 1919. During this period, the pound was generally valued at around U.S. $4.90.

In an attempt to resume stability, a variation on the gold standard was reintroduced
in 1926, under which the currency was pegged to the gold price at pre-war levels, al-
though people were only able to exchange their currency for gold bullion, rather than
for coins. This was abandoned on September 21, 1931, during the Great Depression, and
the pound was devalued by 20 percent.

In common with all other world currencies, the pound no longer has any link to
precious metals. The U.S. dollar was the last to leave gold, in 1971. The pound was
made fully convertible in 1946 as a condition for receiving a U.S. loan of $3.75 billion in the aftermath of World War II. At this time the pound sterling was used as the currency of the British Empire. As the Empire became the Commonwealth of Nations, dominions introduced their own currencies (such as the Australian pound).

Visit http://en.wikipedia.org/ for further details.

BANKNOTES AND COINS

As of July 2005, the Bank of England circulates the following banknotes, known as
Series E:

•5-pound note depicting Elizabeth Fry, showing a meeting of people possibly dis-
cussing prisoners’ rights.
•10-pound note depicting Charles Darwin, a hummingbird, and the HMS Beagle. (See
Figure 7.2.)
•20-pound note depicting Sir Edward Elgar, with a view of the west face of Worces-
ter Cathedral.
•50-pound note depicting Sir John Houblon, with a view of his house in Threadnee-
dle Street.

Forex Trading System- Daily Composite Charts

DAILY COMPOSITE CHARTS

Refer to Chapter 2, Tools of the Trade, for a detailed description of both daily and
weekly composite charts

The time frame in the following charts (Figures 6.1 through 6.9) spans 1/1/2005
through 4/14/2006. Daily composite activity charts are calculated by averaging the sum of the upticks and downticks over that period using one-minute time intervals. Their purpose is to assist traders in determining when to schedule online trading sessions based upon traders’ predilection to the nebulous risk/reward factor and the volatility of the targeted currency pair.

The vertical numeric scale on the right of each chart is activity expressed in total
number of ticks (upticks plus downticks) during each time interval. The bottom band
(the darkest) represents the activity for the current one-minute interval. The central band plus the lower band represents 3-minute activity. The sum of the all three bands represents the 5-minute activity.

A close inspection of the composite charts above reveals that each daily chart is
unique. This can be primarily attributed to intervention and to the fact that various regulatory agencies schedule their news releases on different days of the week, and at any time between 8:30 A.M.ET and 4:00 P.M.ET (usually). Without invention, these charts would most likely exhibit a smoother, less “spikey” behavior.

CAVEAT

Traders should be aware that starting around 3:30 P.M.Eastern Time, many currency
brokers begin gradually increasing their transaction costs. One NY broker raises the
EURUSD transaction cost from its standard 3 pips to 5 pips. Shortly after 4:00 P.M., this is again incremented to 7 pips then 10 pips by 4:30 P.M.Unless traders intend to stay in an open position over the weekend and risk rollover charges, they should liquidate all trades prior to 3:00 P.M. Friday Eastern Time. It is possible, for whatever reason, to trade over the weekend, but the high transaction costs and lack of volatility usually defeat the prospect of any profitability.

Additionally, traders should also be aware of another phenomenon which, though it
occurs very infrequently, can have a very damaging effect on placing orders. The transaction cost may spike wildly without warning and for no apparent reason.

Currency brokers protect themselves whenever the electronic order book becomes lopsided. Thisbook is a list of the incoming trades at the lowest level. Normally, buy orders must be offset with corresponding sell orders of the same quantity, thus maintaining a state of equilibrium (in futures contracts, this equilibrium is rigidly enforced; a long always has a corresponding short). If the number of incoming buy orders far exceeds the number of incoming sell orders (or vice versa), the broker may increase the bid-ask spread to ensure liquidity and to avoid brokerage house losses.