Gaming market expands

The gaming market is also still expanding ferociously. The traditional market focused on 15-25 year-olds, but Nintendo has been able to grow its market with products such as Wii and DS, which interest children as young as four. In the US, the DS is also enjoying strong sales to seniors, sometimes as an overt effort to keep brain activity stimulated. However, Nintendo is primarily followed by Japanese analysts who - as a rule - are conservative and may be underestimating its earnings potential.The Wii and the DS top the sales charts. Software figures released by Media Create last week show that Nintendo's flagship Wii Sports has now cracked the two million landmark. The wide scale upgrading of PCs to Microsoft's Vista expected in 2008 should also provide a fillip for chipmakers such as Intel. Of the three investment trusts in this sector, Herald Investment Trust (HRI) gained 22% over one year to the end of July, while RCM Technology Trust (RTT) put on 14% and Polar Capital Technology (PCT) returned 7%

Further growth

Software as a service is another growth market as corporates look to rent software instead of buying it. Salesforce.com (CRM) headquartered in San Francisco, is the leader in on-demand customer relationship management services, famously founded in 1999 by former Oracle executive Marc Benioff, who pioneered the delivery of enterprise applications via a simple website. More than 32,300 companies of every description now use Salesforce.com to manage their sales, marketing and customer services. Another beneficiary of higher user expectations could be Riverbed Technology (RVBD) which provides fast wide-area data services solutions for companies, enabling a distributed workforce to collaborate as if they in close proximity. Growth in use of the internet across Asia is exploding. The Chinese internet market is currently $50 billion, compared with over $350 billion for the US. But, as a technology develops, it often makes sense to run with the market leader until the market has shaken down.Baidu (BIDU) is the big Chinese search engine, with an online collaboratively-built encyclopaedia similar to Wikipedia, and extensive searchable discussion forums. Baidu.com boasts the first Chinese license to allow the search engine to become a fully-fledged news website, providing its own news reports. Netease (NTES) is also competing in the search engine space, on the back of 30-plus million customers who use its free email service.While Baidu earns almost a quarter of sales in China's rapidly expanding online advertising market and has modelled itself on Google, two local portals, Sina (SINA) and Sohu (SOHU), listed on Nasdaq, hold 19% and 13.3% respectively. Tencent (3iTCEHF) operates a strong internet community in China with its instant messaging service platform, QQ, which accounts for 80% of that market. In August, it announced results showing year-on-year profit growth of 24.9% and a HK$59.4 million share buyback programme. In electronic advertising, Focus Media (FMCN) is China's leader in out-of-home advertising in places such as office lift lobbies, entertainment venues, shopping districts, mobile phones and residential complexes. It commands a 95% market share in office TV-panel advertising for example and has installed flat-panel LCD displays in over 85,300 high-traffic areas, such as the elevator banks of commercial office buildings to target business professionals with higher-than-average income. Last year, Focus purchased 70% of ACL, a movie theatre network which has the right to three minutes of screen time prior to the showing of each movie in over 120 cinemas throughout China. In February, the company acquired internet advertising service company Allyes Information Technology. There is currently, however, some uncertainty around the company as it is late to file its accounts with Nasdaq.

Virtualisation: A growth area

An interesting growth area is server virtualisation, where server partitioning technology separates the software from the underlying hardware, enabling multiple operating systems, such as Windows and Linux, to run simultaneously in one Intel server. This allows a single computer to run multiple operating systems and applications independently, improving efficiency and flexibility. Market leader VMware (VMW) was recently listed in New York and rose 80% on its first day, giving the company a $20 billion market value that makes it even bigger than Ford. After some difficult early years, VMware has finally convinced businesses that consolidated server environments cut capital and management costs. Research firm IDC estimates that the virtualisation market will double over the next five years to almost $12 billion, and that by 2010, almost 15%
of servers sold will be virtualised, compared with 4.5% of those shipped in 2005.VMware will continue to benefit from its early-mover and industry-standard status. It may also be somewhat artificially supported by its must-have status relative to its true free float size. Its rivals are Symantec (SYMC) and Microsoft (MSFT) and smaller operations that may take a bite of the small to medium-size business market, such as Virtual Iron Software and XenSource. The latter has software with functionality to rival VMware's and has just been bought by Citrix (CTXS) for an alleged $500 million - not a bad figure for an operation that started as a university research project.

IT stocks at bargain prices

Amazon founder, Geoff Ballard, coined the truism that technology watchers dramatically overestimate the impact of developments over the next two years, but they equally underestimate the level of change that will take place over the next 10 years. The exponential rate of technological change is transforming the world's media and communication structures, but IT stocks remains oddly cheap by historical valuations, as investors' confidence is yet to be fully regained in the sector since the dotcom bubble at the turn of the millennium. With the squeeze on private equity and leveraged debt, IT companies with strong secular growth on low multiples may finally become appreciated."We think there is still a lot of growth in internet companies," says Simon White, head of investment trusts at RCM. "At the top of the dotcom boom, many IT companies were on price-earnings growth (PEG) multiples of four or five. Many attractive IT companies are now on PEGs of one or two, and some of those that are growing fastest are the cheapest. Even if PEs expand, we think the level of growth coming through will make the sector perform well relative to the rest of the market."

Market participants

In the last years, the foreign exchange market has expanded from one where banks would execute transactions between themselves to one in which many other kinds of financial institutions like brokers and market-makers participate including non-financial corporations, investment firms, pension funds and hedge funds.Its' focus has broadened from servicing importers and exporters to handling the vast amounts of overseas investment and other capital flows that currently take place. Lately foreign exchange day trading has become increasingly popular and various firms offer trading facilities to the small investor.Foreign exchange is an 'over the counter' (OTC) market, that means that there is no central exchange and clearing house where orders are matched. Geographic trading 'centers' exist around the world however and are: (in order of importance) London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris and Hong Kong. Essentially foreign exchange deals are made between participants on the basis of trust and reputation to deliver on an agreement. In the case of banks trading with one another, they do so solely on that basis. In the retail market, customers demand a written legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade.Some market participants may be involved in the 'goods' market, conducting international transactions for the purchase or sale of merchandise. Some may be engaged in 'direct investment' in plant and equipment, or may be in the 'money market,' trading short-term debt instruments internationally. The various investors, hedgers, and speculators may be focused on any time period, from a few minutes to several years. But, whether official or private, and whether their motive be investing, hedging, speculating, arbitraging, paying for imports, or seeking to influence the rate, they are all part of the aggregate demand for and supply of the currencies involved, and they all play a role in determining the exchange rate at that moment.

Origins of foreign exchange

In order to gain a complete understanding of what foreign exchange market is, it is useful to examine the reasons that lead to its existence in the first place. Exhaustively detailing the historical events that shaped the foreign exchange market into what it is today is of no great importance to the fx trader and therefore we happily will omit lengthy explanations of historical events such as the Bretton Woods accord in favor of a more specific insight into the reasoning behind foreign exchange as a medium of exchange of goods and services.Originally our ancestors conducted trading of goods against other goods this system of bartering was of course quite inefficient and required lengthy negotiation and searching to be able to strike a deal. Eventually forms of metal like bronze, silver and gold came to be used in standardized sizes and later grades (purity) to facilitate the exchange of merchandise. The basis for these mediums of exchange was acceptance by the general public and practical variables like durability and storage. Eventually during the late middle ages, a variety of paper IOU started gaining popularity as an exchange medium.The obvious advantage of carrying around 'precious' paper versus carrying around bags of precious metal was slowly recognized through the ages. Eventually stable governments adopted paper currency and backed the value of the paper with gold reserves. This came to be known as the gold standard. The Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, president Nixon suspended the convertibility to gold and let the US dollar 'float' against other currencies.Since then the foreign exchange market has developed into the largest market in the world with a total daily turnover of about 1.5 trillion USD. Traditionally an institutional (inter-bank) market, the popularity of online currency trading offered to the private individual is democratising foreign exchange and widening the retail market.

Advantages of trading forex

Although the forex market is by far the largest and most liquid in the world, day traders have up to now focused on seeking profits in mainly stock and futures markets. This is mainly due to the restrictive nature of bank-offered forex trading services.Advanced Currency Markets (ACM) offers both online and traditional phone forex trading services to the small investor with minimum account opening values starting at 5000 USD.There are many advantages to trading spot foreign exchange as opposed to trading stocks and futures. Below are listed those main advantages.1. Bid/Ask Spread ratesSpread rates have tightened dramatically in the last years. Most online forex brokers offer a spread of 5 pips on EURUSD which is the most widely traded and liquid currency pair. ACM offers a 3 pip spread on EURUSD. In stock trading, only liquid stocks offer tight spreads. Those spreads often represent on average between 0.04% and 0.06% of the value of the stock. In comparison ACM offers a 3 pip spread on all major currencies, this equates to approximately between 0.02% and 0.03% on the underlying dollar value.Exact percentages at current rates (May 2002)EURUSD 3 pips 0.03%GBPUSD 3 pips 0.03%USDJPY 3 pips 0.023%USDCHF 3 pips 0.018%In the futures market spreads can vary anywhere between 5 and 9 pips and can become even larger under illiquid market conditions (which tends to happen substantially more often in futures currencies).2. CommissionsACM offers foreign exchange trading commission free. This is in sharp contrast to (once again) what stock and futures brokers offer. A stock trade can cost anywhere between USD 5 and 30 per trade with online brokers and typically up to USD 150 with full service brokers. Futures brokers can charge commissions anywhere between USD 10 and 30 on a round turn basis.3. Margins requirementsACM offers a foreign exchange trading with a 1% margin. In layman's terms that means a trader can control a position of a value of USD 1'000'000 with a mere USD 10'000 in his account. By comparison, futures margins are not only constantly changing but are also often quite sizeable. Stocks are generally traded on a non-margined basis and when they are, it can be as restrictive as 50% or so.4. 24 hour marketForeign exchange market trading occurs over a 24 hour period picking up in Asia around 24:00 CET Sunday evening and coming to an end in the United States on Friday around 23:00 CET. Although ECNs (electronic communications networks) exist for stock markets and futures markets (like Globex) that supply after hours trading, liquidity is often low and prices offered can often be uncompetitive.5. No Limit up / limit downFutures markets contain certain constraints that limit the number and type of transactions a trader can make under certain price conditions. When the price of a certain currency rises or falls beyond a certain pre-determined daily level traders are restricted from initiating new positions and are limited only to liquidating existing positions if they so desire. This mechanism is meant to control daily price volatility but in effect since the futures currency market follows the spot market anyway, the following day the futures market may undergo what is called a 'gap' or in other words the futures price will re-adjust to the spot price the next day. In the OTC market no such trading constraints exist permitting the trader to truly implement his trading strategy to the fullest extent. Since a trader can protect his position from large unexpected price movements with stop-loss orders the high volatility in the spot market can be fully controlled.6. Sell before you buyEquity brokers offer very restrictive short-selling margin requirements to customers. This means that a customer does not possess the liquidity to be able to sell stock before he buys it. Margin wise, a trader has exactly the same capacity when initiating a selling or buying position in the spot market. In spot trading when you're selling one currency, you're necessarily buying another.