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Foreign Exchange [Forex] involves exchanging of different foreign currencies for a profit. The reason for buying the currency of another country may be the need to buy some commodity of the said country as well, besides making money through the difference in exchange rates.

In the latter case, people buy currency of a foreign country when the rate in the market is low, and sell it off when the rates go up. Currency trading is usually done between the central banks, the government, speculators and MNCs. Nations cannot trade with each other without the presence of a foreign market.

A huge amount of money is daily traded in the Forex market, though the amount invested by an individual trader may be very low. No one individually can have any influence on the Forex fluctuations, not even the government. So it can easily be concluded that the level of the currency reflects the strength or the weakness of the economy of a country. So this makes the Forex market a good place for competition.

The government and the central bank do try to stabilize the currency of their country by speculating, by buying and selling currencies at appropriate times. So they can influence the market if they conduct a trade in huge volumes, though. To buy its own currency, however, the government or the central bank must have huge reserves of foreign currency with them. So it is virtually impossible to inflate the currency value artificially.

Banks trade a lot in foreign currencies and this forms a chunk of the volume in the Forex market. They buy currencies not only as individual bodies, but also on behalf of their clients. They trade in lots of futures. Till a few years back, the brokers could influence the volumes of trading in the Forex market. But due to the electronic services available now, the services of brokers is not required. It’s easy to operate electronically.

Trading with international countries is possible only with the existence of Forex markets. When there is no Forex market, there is no common currency between two countries, so one cannot evaluate the value of one currency with respect to the other.

The buyer pays the seller in the former’s currency. With the money so received, the seller buys goods in the buyer’s country and sells those goods in his [seller] country.

Only then he is able to know how much he has earned through the export. In the presence of a Forex market, though, it is very easy for a seller to know of his earnings at the very instant that he conducts an export trade. In the same manner, the buyer too will have a thorough knowledge of the cost he will have to incur to buy goods from an international country.

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Steven Cohen's Picasso: After Insider Trading Payout, Hedge Fund Billionaire Spends $155 Million On Masterpiece

It did not take long for Steven Cohen, the billionaire behind SAC Capital, to get over his $600 million payout to the Securities and Exchange Commission (SEC). Not even two weeks after the hedge-fund manager settled over insider trading allegations, the 117th richest man in the world purchased a famous Picasso painting. The price tag on the masterpiece? A whopping $155 million.

According to The New York Post's anonymous source:

“Steve bought ‘Le Rêve’ as a gift to himself. This was supposed to be a top- secret sale because of the government investigation and settlement.”

Well, the sale was not so secret now, and neither is the backstory behind Cohen's recent acquisition. He attempted to buy the Picasso in 2006 from fellow billionaire and casino mogul Steve Wynn. But Wynn accidentally put his elbow through the canvas while showing it off to some pals, Nora Ephron famously reported in a blog for The Huffington Post. The Three Stooges-esque snafu resulted in about $45 million in damage and the loss of a sale to Cohen.

Christopher Burge, chairman of Christie's (L), starts the bidding for Pablo Picasso's painting, 'Le Reve', 10 November in New York at an auction of the collection of Victor and Sally Ganz. The painting, one of 58 pieces of 20th century art offered for sale, was bought for 48 million USD by an unidentified bidder. (STAN HONDA/AFP/Getty Images)

Fast forward to 2013 and Wynn, who originally paid $48 million for the famed painting, not only sold the Picasso to Cohen but he made a hefty profit along the way. The original asking price from 2006 jumped from $139 million to $155 million, according to New York Magazine. (Note to future collectors: When a Vegas hot-shot puts their appendage through a work of art, the value of the piece might just increase if you wait it out.)

In case you were interested in the rest of Cohen's illustrious art collection, the billionaire investor has also laid down big bucks for works like Edvard Munch’s "Madonna" ($11 million), Damien Hirst’s "The Physical Impossibility of Death in the Mind of Someone Living" ($8 million), Willem de Kooning’s "Woman III" ($137 million), Andy Warhol’s "Turquoise Marilyn" ($80 million), and Jasper Johns' "Flag" ($110 million). He also recently donated works by Cy Twombly and Martin Kippenberger to the Museum of Modern Art's permanent collection, the New York Times reports.

Sometimes retail therapy works, we suppose.

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Government Drops Insider Trading Probe Of Media Companies, Baffling Investors

The dismissal of an investigation into major media companies suspected of giving clients a sneak peek at crucial data drew great surprise on Wall Street, where traders make their living profiting from blips of information moving at the speed of light.

Federal authorities had been pursuing allegations that various media companies -- including Bloomberg LP, Thomson Reuters and Dow Jones and Co. -- leaked key economic data to select investors, the Wall Street Journal reported Monday. But the investigators dropped the probe, according to the paper, in part because they could not conclusively determine that investors were able to use the advance look at the numbers to extract profits.

Wall Street analysts pronounced that explanation baffling, noting that in modern markets -- fueled by high-frequency trading and robotic transactions -- a mere fraction of a second can be enough to execute trades worth billions of dollars.

“We have certainly reached a point where information advantage in millisseconds, possibly microseconds, definitely means a difference,” said Zach Ziliak, an attorney at law firm Mayer Brown in Chicago, which advises clients on issues surrounding high-frequency trading. “The millions that have been invested in microwave communication between New York and Chicago is a testament to the fact that firms expect to make a profit on informational advantages measured in microseconds.”

It’s difficult to determine how much such an edge could mean in dollars and cents. But the meltdown suffered in August of last year by market-maker Knight Capital offers an example that helps illustrate how quickly firms relying on algorithmic trading can make or lose money: When a trading algorithm went awry, the company burned through $440 million in just over 45 minutes.

According to the Journal, federal investigators were trying to determine if the news outlets were taking unemployment and economic data provided to them by the Bureau of Labor Statistics and sending it off to clients a few milliseconds before they were allowed to publish the information.

The BLS provides a select group of news agencies with sensitive statistics every month in advance of its legal 8:30 a.m. issue time, allowing reporters to write articles to coincide with the data's public release. But news agencies are forbidden from breaking the embargo, lest the information be used by capital markets traders to gain an edge on competitors.

Spokesmen for two of the companies named in the report, Dow Jones and Reuters, told The Huffington Post they were not aware of an ongoing federal investigation. Ty Trippet, a spokesman for Bloomberg, said that upon noticing some shortfalls in the way the government was securing data in 2012, the news organization "suggested solutions to secure their system and they thanked us for alerting them to the issue."

According to the Journal’s report, the government couldn’t link patterns seen in trading to specific actions by the media companies, and, equally important, didn’t feel it “could prove in court that a time advantage for a trader of a sliver of a second -- as little as a few thousandths -- was enough to conduct profitable trades on confidential information.”

"I don’t know how they could argue that having the information out a second before couldn’t make a difference," said Jason Roberts, a software consultant in Los Angeles who spent most of the past decade building trading systems. "It's like saying you don’t know how much speed is a part of the NFL."

“It’s absolutely amazing they would say that because we've shown it a million times over to be true,” said Eric Scott Hunsader, founder and CEO of market research firm Nanex, which has developed specialty software that can look at market activity at the microsecond level.

Hunsader also points to the behavior of the trading tape in markets for equity futures and Eurodollar options throughout 2011 as evidence that select firms were given statistical data in advance of the official release time. It's “obvious as night and day,” he said, that such activity occurred.

It's not only people with roots in Wall Street trading floors who saw the government's reported explanation for dropping its probe as suspect.

“Seconds now matter, and the incentives are there," said Keith Hall, who was a commissioner at the BLS from 2007 through early 2012 and is now a senior research fellow at George Mason University’s Mercatus Center. For Hall, the issue goes deeper than the fact that traders might be making money off insider information. He believes it puts into question the integrity of at least part of the federal government.

“This data belongs to the American public. Taxpayers have paid a lot” to have it collected, he said. “And it’s a real problem if the government is making this information available to some before others -- even if accidentally -- and they’re profiting from it.”

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