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The Beginner’s guide to Forex trading What is Forex trading? Who are the “major

The Beginner’s guide to Forex trading What is Forex trading? Who are the “majors” and the “exotics”? CSS can help your forex dealing Types of orders and other tools applying to forex Currency speculation; How do I calculate my gains and losses? What makes currencies move? What is “Forex trading”? “Forex” (foreign exchange) is the buying or selling of overseas currencies. “Forex trading” can be an extremely lucrative business. Famously wealthy currency speculators include Joe Lewis and George Soros. These guys have made fortunes identifying currency trends and anticipating market movements! When we buy overseas goods in local shops, or buy petrol or go abroad, we are part of a currency exchange. The retailer has acquired goods from a wholesaler, who has acquired the goods from a local or EU distributor. Somewhere in this process of goods changing hands, currency trading has been employed as the tool of international trade. The management of currencies is the task of the country’s central bank and/or the Government. There are many forex market participants, including banks, brokers, multi-national companies and investment institutions. Since the relaxation of UK exchange controls in 1979 individuals have been active in the forex market. Currency dealing or “forex” dealing/ trading takes place in every major city in the world. Major forex centres are London, New York, Tokyo and Sydney. London is the world’s biggest centre for foreign exchange trading worth $3,000bn per day. Forex dealing is popular because it is a highly liquid, transparent market open 24 hours and uses standard terms that are easily understandable. These days forex dealing is so easy you can trade from your own home computer! You can use leverage to increase your exposure to market movements. Forex dealing offers flexibility in that the investor is able to take a more intuitive approach. The “majors” and the “exotics” In forex trading “parlance” there are 6 “major” trades, they comprise over 70% of trading:- € / US$; 28.2% US$/ JPY; 16.7% £ / US$; 13.8% A$ / US$; 5.1% US$/ C$: 4.4% US$/ SwF; 4.0% Other trades involving the US$ account for 16.5% of trading. “Minor” currencies are usually those of developing countries including Russia, Brazil, South Korea, Malaysia, Mexico. The annual traded volumes of these currencies are around 6-10x annual the respective GNP. “Exotic” currencies are currencies that are thinly traded outside their own countries. The Thai baht is a good example of a currency traded mainly between neighbouring countries reflecting physical trade in goods. The Thai baht considered exotic because it trades only low volumes in international markets. The difference between trading the majors and the exotics is largely in the “spread”. For the very liquid majors, the spread ie the difference between the buying and selling price is very small. However for the exotics, the difference between buying and selling price can be quite large. The size of the spread is a key factor. For an investor to profit, the position has to “get though the spread” ie move in the investors favour by an amount larger than the spread. Hence it is easier to profit from engaging in major trades than in the exotics. CSS can help you with your forex trading strategies:- Hedging against market movements or against an existing portfolio. Markets are volatile. Forex dealing enables clients to hedge against an existing position or risk exposure or future cash flows. Assume you own a property in Japan that is rented for a year. You would receive periodic rent payments into your Japanese bank account. You could decide to remit money every month to your UK account or to receive one payment at the end of the year. You could hedge against adverse movements in the exchange rate by selling the Yen against sterling using a forward rate. Speculation occurs when the buyer buys a currency in the belief that it is likely to rise against other currencies. Speculation essentially means that you are creating an asset/ liability mix. When you buy an overseas currency then that becomes your “asset” currency whilst the currency that is sold is the “liability” currency. The speculator makes money when his asset currency exceeds his liability currency. One form of speculation involves the “carry trade”. The objective of a carry trade is to benefit from interest rate differentials ie the fact that some currencies pay higher rates of interest than others. One example is GBP/ Yen; GBP interest rates are currently around 5.0% against Japanese interest rates of 0.5% hence 10x more interest can be earned in GBP than in Yen. During periods when the market is quiet the “carry trade” can be left in place ie you would be receiving sterling interest income, paying interest in Yen and therefore likely to benefit from this income “profit”. Essentially the trading system would adjust your position daily in your favour, to reflect the net income earned from the difference in interest income. “Carry trades” are often used by other market participants helping your odds of success. Our foreign exchange platform allows our clients’ access to the forex markets ie the ability to trade in any currency and at anytime. It combines competitive exchange rates, leading back office systems and an online payments platform alongside specialist advice. We aim to ensure your business is conducted at opportune times and at good prices. We strongly suggest acquiring a good understanding of forex trading basics prior to pressing buttons and trading. We are here to help you do this. The best advice on how to trade profitably is to learn trading techniques from the experts. Our experts provide in-house advice that will explain market movements and provide mentoring enabling you to acquire an in depth understanding of the trade. Our charting techniques will provide an insight into how the market is behaving helping you to trade profitably. Understanding the forex quotation Currencies are always traded in “pairs” ie one currency’s value is expressed in terms of an overseas currency. There is a BASE CURRENCY against a VARIABLE CURRENCY. When we obtain a quote it is expressed in terms of its buying and selling price in the overseas currency. Let’s use “cable” as an example; that’s sterling vs US Dollar. The quote as it appears looks like this:- 1.7450 “BID” ie SELL 1.7453 “ASK” ie BUY This simply means that the sell price is US$1.745 whilst the buy price is $1.7453. If I went “Long” I would be buying GBP at US$1.7453. If I went “Short” I would be selling GBP at US$1.7450. USEFUL TIP: The “ask” or the “asking price”; it is a bit like when you instruct the estate agent to get offers on or as near as possible to the asking price. In the above quotation the last digit is known as the “pip” short for the price interest point. In this case the spread is worth 3 “pips”. In normal and especially in fast moving markets the movement in the “pip” is highly sensitive and moves quickly. Currency traders and specialists watch these small movements like hawks especially when central banks are making announcements. Currency Speculation; How do I calculate my gains/ losses? Assume for the purposes that I had £100k for forex trading. How would I make money from forex speculation? Let’s say I was convinced the US dollar would rise. I am willing to leverage up my position by 10x. Hence my £100k on deposit in my account would allow me to control a forex position worth £1m. Using the above example GBP/USD is 1.7450 (Bid) / 1.7453 (Ask); I would SELL £1m GBP at US$1.7450. The GBP/USD would fall as I expected:- The quotation is now GBP/ USD 1.7215 (Bid) / 1.7218 (Ask). I would then buy back GBP/USD at the ask price ie 1.7218. My profit would be: 1.7450 – 1.7218 * 1,000,000 = USD23,200 Note that my profit or loss is always expressed in terms of the overseas currency. Then let’s assume I wanted to continue trading but limiting my trading to movements of 50 pips and my leverage to 5x ie control a position of £500k with my £100k deposit. I would then use the CSS platform to limit my exposure. The CSS platform will let me know my net exposure at any time and should I close my position it would be described as “square”. A squared position typically clears on a T2 basis ie 2 business days after the transaction. What makes currencies move? What should you be mindful of? With currency trading, the investor needs to be mindful that there are a multitude of possible factors that can influence exchange rates. Some factors such as economic data occur at set times, other factors such as shocks or political changes occur randomly. Primarily the strength of a currency is based on the strength of that nation’s economy. The reason that currency values fall, sometimes precipitously, resulting in hyperinflation, (Zimbabwe dollar / the German mark during the 1920s) is due to the perception and performance of the uploads/Finance/ forex-guide.pdf