Professional Documents
Culture Documents
CURRENCY TRADING
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Final Report Prepared Under the Sponsorship Of
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Table of Contents
Declaration.......................................................................................................7
Acknowledgements…………………………………………………………………………8
Abstract………………………………………………………………………………………9
Learning Experience……………………………………………………………………….10
Introduction…………………………………………………………………………………11
Project Proposed………………………………………………………........................11
Methodology……………………………………………………………........................11
Currency exchange………………………………………………………………………..15
Market participants………………………………………………………………………..18
Company profile…………………………………………………………......................19
The study…………………………………………………………………......................20
Offerings……………………………………………………………………………………21
Our schemes……………………………………………………………………………..22
Currency futures………………………………………………………………………….25
Research………………………………………………………………………………….25
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Chapter1 currency trading………………………………………………………………26
Speculating as an enterprise……………………………………………………..26
Hedge funds…………………………………………………………………42
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Bank for international settlements………………………………………..43
Trading online………………………………………………………………48
Phone trading……………………………………………………………..49
Orders………………………………………………………………………49
Types of orders……………………………………………………………50
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Definition of currency futures………………………………………………58
Future terminology…………………………………………………………...59
Conclusion………………………………………………………………………………….62
Bibliography………………………………………………………………………………..64
References………………………………………………………………………………….65
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Declaration
I hereby declare that this project work titled “Currency trading” conducted at
Religare Securities Ltd., New Delhi has been prepared by me during the academic year 2008-
09 under the guidance of my faculty guide Prof. Bijay Bhujabal (faculty-Marketing, IBS
Dehradun), and my Company guide Mr. Anand Sagar (Manager, Religare Securities ltd).
I also declare that this project is the result of my effort and has not been submitted
to any other University or Institution for the award of any degree, or personal favour
whatsoever. All the details and analysis provided in the report hold true to the best of my
knowledge.
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ACKNOWLEDGEMENT
As a part of the MBA curriculum at ICFAI Business School, the ‘Summer Internship Program’
enables the students to enhance their skills, expand their craniums by applying various
theories, concepts and laws to real life scenario which would further prepare them to face
in the near future.
Summer internship is the part of curriculum of ICFAI BUSINESS SCHOOL which helps in
overall development of the student and gives him or her platform to understand the
corporate environment as well as to implement the theoretical knowledge.
I would like to thank my company guide Mr. Anand Sagar, Branch Manager, Religare
Securities Ltd, Delhi for allowing me to work in such a great organization.
I would like to thank my faculty guide Dr. Bijay Bhujabal for his valuable guidance and
support during my summer internship.
I would also like to thanks Prof. Love raj Takru (Dean IBS, Dehradun) for giving me the
opportunity to work in such a great organization and carry the college’s name forward.
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Abstract
The study demonstrates how exchanges are versatile institutions, working across a variety of
developing country contexts, addressing a diverse range of challenges - some rooted in a
country's historical legacy, other arising with the globalization of the world currency
economy. Whilst the featured exchanges are operated by the private sector, the role of
government - establishing an appropriate enabling framework and providing ongoing
regulatory oversight - has been crucial in each country.
It was found that exchange risk management instruments - such as futures and options
contracts can be made accessible to and useable by small clients to reduce exposure to price
and, potentially, production risks.
The responsibility which I have got in the form of this project by the company, I have
completed the project in the best manner which I could do. I am enjoying working with
company also. Without any doubt in mind I can say that this opportunity of my life will
necessarily be beneficial for me and will add a value in terms of skills and knowledge that is
going to help me in near future.
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Learning Experience:
The project has been a great learning experience. It has provided me with learning
opportunities about currency market and various currency exchanges. The project involved
gaining information about various currency exchanges and getting awareness about various
terminologies associated with them.
After I began to use to use the personal network of my friends and asked them to speak to
their acquaintances- personal and official and check if they know anything about currency
markets.
The currency market trends, the rising currency prices giving rise to inflation, how some
currency linked are to linked with an economy also helped me a lot to gain more knowledge
about currency market.
By handling the project under the guidance of company guide and faculty guide has given
me exposure of organizational culture and environment. On the whole, I understood the
psyche of prospective and current trends of the market.
In the beginning of the project I was a bit uncomfortable as I did not knew anything about
currency market, but the project has made me realize that to reach heights of success and
position you have to start from the scratch.
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Introduction
Methodology
The methodology used is to study currency trading and its usage and utility, hedging and
arbitrage in currency trading. To study about factors deciding currency fluctuation. What
are the instruments to protect losses from currency fluctuation? How currency trading is
done. Currency trading in India. What are the initiatives taken by Indian government for
currency trading? Who are major participants in currency trading?
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To keep pace with the existing market I seek to consult various existing data also in the
related company products so that a comparative study is formulated. The sources to be
used includes internet, friends working in other companies, faculty members, books.
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SYNOPSIS OF THE PROJECT:
This project is about currency trading, its usage and utility, what are hedging and arbitrage
in currency trading. How is currency trading done? What are its operations? What is pricing
in currency trading. What are factors deciding currency fluctuations. What are instruments
to protect any losses from currency fluctuation? How trading is done. What are initiatives
taken by Indian government for currency trading? Who are major participants in currency
trading? What is currency trading system? How hedging is done in currency trading. What
are currency trading platforms? How is currency trading done online? How is currency
trading done online? What is forex trading and forex trading in India?
CURRENCY TRADING
Currency trading means to exchange one currency for another currency is termed as
currency trading. This industry is one of the largest in the world with regards to trading
volume. Foreign currency is the ratio of one currency in consideration with another. How
this process takes place. For example if we take an interbank currency trade for instance,
there are two banks A and B. Then bank A will call bank B and will ask for the quote of the
currency. For example rupee against the dollar. Then bank B will reply to bank A with the
rate of his bank. If the rate seems attractive to bank A then they will enter a deal. All the
basic information like price, amount, and purchased amount will be entered in their
systems. When the actual settlement takes place bank A will depart with the specified rupee
amount and bank B will follow suit by turning in the dollar amount. If the rupee rises against
the dollar then bank A will gain the difference as profit.
When traders enter into currency trading they give a two- way quote. One of them is the
rate of purchase and other is the price of sale. The two prices are mainly separated by a
hyphen. On the left is the price at which the trader will purchase and on the right is the price
at which is the price at which the trader will sell. The difference between the purchase rate
and sale is called the bid-ask spread. The trader expects the slight variations on the sale and
purchase rate. He will also trade in the similar amounts of what he had purchased. There
will not be any drastic differences. The margin thus earned by the trader is the difference of
the bid-ask spread.
The profit gained depends on the variation in the exchange rate and the size of the position.
Speculating over a period of time can be dangerous and hence every government has the
strict rules laid down which have to be adhered to, to prevent the chaos.
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FOREX CURRENCY TRADING
Currency trading is done in Paris. They follow the International standards organization (ISO),
which has built a code abbreviation. For instance EUR/USD- EURO AND US DOLLAR. Similarly
we have USD/CHF, GBP/USD etc. Thus foreign exchange is the trading of one currency for
another. It is the ratio of one currency as valued for another. While trading the first currency
is known as the base currency and the other is known as the counter of quote currency.
Counter currency is purchased on one unit of the base currency. While selling we are told
how much the counter or quote currency we will receive for every base currency unit.
For simplifying foreign currency trade one monetary unit is considered equal to the base
currency. So if we are talking of the base currency i.e. Rupee, Euro, Dollar, it is 1 Rupee, 1
Euro, and 1 Dollar. As the US Dollar is mostly traded with any currency paired with the US
Dollar is known as the direct rate. If the currency is not against the US Dollar it is known as
the cross rate. As the quote currency is lower than the base currency it is converted into
smaller units of the base currency. Foreign currency trading involves many intricacies but
once one gain knowledge and practice it, it soon get easy and attractive.
2) Cross bow Swiss trading system: this system is based on entering long on dips and selling
short on rallies, the system is designed to allow online trading, thus allowing online market
information and transactions.
Hedging is the kind of a transaction where two positions are made to offset each other in
case of price changes. It is the risk covered by those who are desirous of taking it and who
are capable of taking and handling it.
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In the currency trading market high amounts are traded with. Hence if there is sudden
decline in prices it can be quite demanding on the investors and the whole economy per
say.
Trading currency online gives one the advantage of working from home. If you are in
individual investor you can delineate your commands to your broker from the comfort of
your home. Receive confirmation and check the transfer of funds in your account. On the
other hand if you are an investor you can trade in the main market. Buy on dips and sell
on rallies or trade on whatever system. It’s possible from your home. Another advantage
of trading online is that no special software is required. Connect yourself to internet and
get working. You can get prices 24 hours a day. Through the internet you can access the
latest exchange rates, reports, news and analysis. It is absolutely commission free.
However it depends upon the portal you are using for online currency trading as the
charges differ from company to company.
CURRENCY EXCHANGE
With Indians going global and dealing in international trade, currency exchange is very
common. Indian rupee is exchange is anywhere in the world. However it’s still weak to US
Dollar, GB Pound and EURO, so the exchange rate varies according to vagaries of the day to
day market. For the common trader or professional who wished to invest in currency
exchange the best way to do is through official channels.
Banks, forex institutions, authorized travel agents are the only ones who can exchange the
rupee to any other currency. When a person goes abroad for a holiday or for a business, a
certain slab is reserved for exchange. Any amount of currency cannot be exchanged. Since
there a restrictions some people try to smuggle hard cash in suitcases. Which is an offence,
and if caught they can be deported or not allowed to leave the country, without giving
proper explanation.
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FACTORS DECIDING CURRENCY FLUCTUATION
1. CURRENCY FLUCTUATION
A market based exchange rate will change whenever the values of either of the two
component currencies change. A currency will tend to become more valuable whenever
demand for it is greater than the available supply. It will become less valuable whenever
demand is less then available supply (this does not mean people no longer want money, it
just means they prefer holding their wealth in some other form, possibly another currency).
Increased demand for a currency is due to either an increased transaction demand for
money, or an increased speculative demand for money. The transaction demand for money
is highly correlated to the country's level of business activity, gross domestic product (GDP),
and employment levels. The more people there are out of work, the less the public as a
whole will spend on goods and services. Central banks typically have little difficulty adjusting
the available money supply to accommodate changes in the demand for money due to
business transactions.
The speculative demand for money is much harder for a central bank to accommodate but
they try to do this by adjusting interest rates. An investor may choose to buy a currency if the
return (that is the interest rate) is high enough. The higher a countries interest rates, the
greater the demand for that currency. It has been argued that currency speculation can
undermine real economic growth, in particular since large currency speculators may
deliberately create downward pressure on a currency in order to force that central bank to
sell their currency to keep it stable (once this happens, the speculator can buy the currency
back from the bank at a lower price, close out their position, and thereby take a profit).
2. In the absence of government intervention, the main driver of currency fluctuations is the
demand for the currency relative to the demand for other currencies. If many people want to
trade dollars for Indian rupees, the value of the rupee will rise and the dollar will fall. This
happens when there is a greater demand for one country's products, denominated in its
home currency, relative to the demand for another country's products. India, I believe, runs a
large trade surplus with the rest of the world, while the U.S., on the other hand, and runs a
large trade deficit.
There are several factors that can influence this dynamic. A country's central bank can
reduce the money supply by issuing bonds and collecting currency for them. They can
increase the required reserve level that banks must hold, therefore reducing the amount they
can lend.
On the other hand, the central bank can buy back bonds, injecting more money into the
market, or they can simply start printing more money and buy things, thus getting it into
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circulation. This last tactic usually leads to runaway inflation, since the government often
winds up issuing more money to keep ahead of individuals' perception of its value.
Other governments can also affect the value of a country's currency, which has happened in
the case of the U.S. Since the U.S. dollar is the world's de facto reserve currency (the one
that most international transactions are done in), it is in the interest of many countries to
keep large stocks of U.S, currency on hand, and to keep the value of the dollar stable. This
allows the U.S. to float more of its debt on world markets without suffering the ill effects of
devaluing its currency.
Supply: If countries are inflating their currency, there will be more available on
international markets and it will not be as valuable. This will additionally cause lower
interest rates in the domestic market.
Demand: If investment opportunities are poor in the domestic economy, currency will
not be as valuable internationally.
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MARKET PARTICIPANTS
According to research data
33% are between a dealer (a bank) and a fund manager or other non- banking
financial institutions;
BANKS
The largest part of forex market belong to the banks. They cater both to the majority
of commercial turnover and large amounts of speculative trading every day. Daily
turnover of one large bank may reach billions of dollars. And only the small part of
trading this trading is undertaken on behalf of customers. The rest trading banks
arrange for their own account.
Today large banks have moved on to electronic systems such as EBS, the Chicago
mercantile exchange, Bloomberg and Trade book(R).
COMMERCIAL COMPANIES
Commercial companies that seek foreign exchange to pay for goods or services are
important part of forex market. Comparing with banks or speculators, commercial
companies trade fairly small amount. Besides there trade usually have little short
term impact on currency’s exchange rates. But sometimes multinational companies
can have unpredictable impact on market rates. Especially when market participants
do not know about very large positions, covered due to little known exposures.
CENTRAL BANKS
National central banks are one of the most important participants of foreign
exchange market. There purpose is to control money supply, inflation and interest
rates. Usually they have official or unofficial target rates for their currencies. Usually
their substantial foreign exchange reserves as a stabilization market tool. One of the
best stabilization strategies, used by central banks, is to buy while the exchange rate
is the loosest and to sell when the rate is high. In such a way central banks may get
a good profit. Nevertheless, central banks are more protected then other market
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participants, as they don’t go bankrupt if they make large losses. At the same time
there is no convincing evidence that central banks do not make a profit trading.
COMPANY PROFILE
Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises Limited
is a leading equity and securities firm in India. The company currently handles
sizeable volumes traded on NSE and in the realm of online trading and investments;
it currently holds a reasonable share of the market. The major activities and offerings
of the company today are Equity Broking, Depository Participant Services, Portfolio
Management Services, International Advisory Fund Management Services,
Institutional Broking and Research Services. To broaden the gamut of services
offered to its investors, the company offers an online investment portal armed with a
host of revolutionary features.
Religare has been constantly innovating in terms of product and services and
to offer such incisive services to specific user segments it has also started the
NRI, FII, HNI and Corporate Servicing groups. These groups take all the
portfolio investment decisions depending upon a client’s risk / return
parameter.
Religare has a very credible Research and Analysis division, which not only
caters to the need of our Institutional clientele, but also gives their valuable
inputs to investment dealers.
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The Study
Rationale for Study
It is reasonable to assume that a currency exchange generating high volumes of trade will in
some way deliver tangible benefit to its stakeholders. After all currency exchange imposes
additional costs on participants- membership fees, transaction fees, compliance costs, etc.
However, what type of benefits does currency exchanges deliver? Who gains and who loses?
How specifically have these institutions functioned in developing countries? Has there been a
notable development impact? The definition of development is heavily contested and
conceptually challenging. There is not scope to provide a full or adequate account here.
Whilst definitions vary widely, development approaches typically pursue some mixture of
two broad goals - poverty reduction and economic growth.
Objectives:
Awareness-raising: to build awareness of the solutions that currency exchanges provide, and
the extent of their track record in doing so, among key national, regional and international
stakeholders – including governments, regulators, the private sector, civil society and the
media.
Exchange of information: to share information, experience and perspectives from across the
major developing country regions.
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OFFERINGS
Trading in Equities with Religare truly empowers you for your investment needs. We
ensure you have a superlative trading experience through –
Further, Religare also has one of the largest retail networks, with its presence
in more than 1800* locations across more than 490* cities and towns. This
means, you can walk into any of these branches and connect to our highly
skilled and dedicated relationship managers to get the best services.
2. DEPOSITORY
Our customer centric account schemes have been designed keeping in mind the
investment psychology. With a competent team of skilled professionals, we manage
over 380,000 accounts and have a dedicated customer care centre, exclusively
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trained to handle queries from our customers. With our country wide network of
branches, you are never far from Religare depository services.
Religare’s depository service offers you a secure, convenient, paperless and cost
effective way to keep track of your investment in shares and other instruments over a
period of time, without the hassle of handling physical documents. Your DP account
with us takes care of your depository needs like dematerialization, dematerialisation,
transfer and pledging of shares, stock lending and borrowing.
Your demat account is safe and absolutely secure in our hands, every debit
instruction is executed only after its authenticity is established. Our hi-tech in-house
capabilities cater to the needs of software maintenance, database administration,
network maintenance, backups and disaster recovery. This extra cover of security
has gained the trust of our clients.
Religare PMS currently extends six portfolio management schemes, viz Monarque,
Panther, Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping
in mind the varying tastes, objectives and risk tolerance of our investors.
OUR SCHEMES
Monarque
At Religare, we understand ‘those who reign’ have truly inimitable needs and
objectives and deserve an equivalently matchless partner to provide your wealth the
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care it deserves to grow and be preserved. Monarque is a portfolio structured to
provide higher returns by taking aggressive positions across sectors and market
capitalizations. Monarque is ideally suitable for investors with "High Risk High
Return" appetite.
Panther
The Panther portfolio aims to achieve higher returns by taking aggressive positions
across sectors and market capitalizations. It is suitable for the “High Risk High
Return” investor with a strategy to invest across sectors and take advantage of
various market conditions.
Tortoise
The Tortoise portfolio aims to achieve growth in the portfolio value over a period of
time by way of careful and judicious investment in fundamentally sound companies
having good prospects. The scheme is suitable for the “Medium Risk Medium
Return” investor with a strategy to invest in companies which have consistency in
earnings, growth and financial performance.
Elephant
The Elephant portfolio aims to generate steady returns over a longer period by
investing in Securities selected only from BSE 100 and NSE 100 index. This plan is
suitable for the “Low Risk Low Return” investor with a strategy to invest in blue chip
companies, as these companies have steady performance and reduce liquidity risk
in the market.
Caterpillar
The Caterpillar portfolio aims to achieve capital appreciation over a long period of
time by investing in a diversified portfolio. This scheme is suitable for investors with a
high risk appetite. The investment strategy would be to invest in scrip’s which are
poised to get a re-rating either because of change in business, potential fancy for a
particular sector in the coming years/months, business diversification leading to a
better operating performance, stocks in their early stages of an upturn or for those
which are in sectors currently ignored by the market.
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Leo
We serve you with a diligent, transparent & process driven approach and ensure that
your money gets the care it deserves.
No experts, only expertise. PMS brought to you by Religare with its solid reputation
of an ethical and scientific approach to financial management. While we offer you the
services of a dedicated Relationship Manager who is at your service 24x7, we do not
depend on individual expertise alone. For you, this means lower risk, higher
dependability and unhindered continuity. Moreover, you are not limited by a
particular individual’s investment style.
Daily disclosures. Religare Portfolio Management Services gives you daily updates
on your investment. You can pinpoint where your money is being invested, 24x7,
instead of waiting till the end of the month to keep track.
No charge till you profit*.So sure are we of our approach to Portfolio Management
that we do not charge you for our services, until your investments start showing
profit. With customized investment options Religare Portfolio Management Services
invites you to invest across five broad portfolios to suit your investment needs.
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CURRENCY FUTURES
RESEARCH
We at Religare believe in providing independent research for clients to make
investment decisions, with strict emphasis on self-regulation, avoiding possible
conflict of interest in objectivity.
Fundamental Research
Technical Research
Daily Reports
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CHAPTER 1
CURRENCY TRADING
SPECULATING AS AN ENTERPRISE
Speculating is all about taking on financial risk in the hope of making a profit. But it’s not
gambling and it’s not investing. Gambling is about playing with money even when you know
the odds are stacked against you. Investing is about minimizing risk and maximizing return,
usually over a long time period. Speculating, or active trading, is about taking calculated
financial risks to attempt to realize a profitable return, usually over a very short time
horizon.
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huge, which means that liquidity is ever present. It also operates around the clock six days a
week, giving traders access to market any time they need it.
Few trading restrictions exist- no trading limits up or down, no restrictions on position sizes,
and no requirements on selling a currency pair short. Selling a currency pair short means
you are expecting the price to decline. Because of the way currencies are quoted and
because currency rates move up and down all the time, going short is as common as being
long.
Most of the action takes place in the major currency pairs, which pit the US dollar (USD)
against the currencies of the EUROZONE (the European countries that have adopted the
euro as their currency), Japan, Great Britain, and Switzerland. There’s also plenty of trading
opportunities in the minor pairs, which see the U.S. dollar traded against the Canadian,
Australian, and New Zealand dollars. On the top of that, there’s cross- currency trading,
which directly pits two non- USD currencies, against each other, such as the Swiss franc
against the Japanese yen. Altogether, there are anywhere from 15 to 20 different currency
pairs, depending on which forex brokerage you deal with.
Most individual traders trade currencies via the internet through a brokerage firm. Online
currency trading is typically done on a margin basis, which allows individual traders to trade
in larger amounts by leveraging the amount of margin on deposit.
The leverage, or margin trading ratios, can be very high, sometimes as much as 200:1 or
greater, meaning a margin deposit of $ 1,000 could control a position size of $ 200,000. But
trading on margin carries its own rules and requirements and is backdrop against which all
your trading will take place. Leverage is a two- edged sword, amplifying gains and losses
equally, which makes risk management the key to any successful trading strategy.
Before you ever start trading, in any market, make sure you are only risking money that you
can afford to lose, what’s commonly called risk capital. Risk management is the key to any
successful trading plan. Without a risk- aware strategy, margin trading can be an extremely
short- lived endeavour. With a proper risk plan in place, you stand a much better chance of
surviving losing trades and making winning ones.
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the value of one currency relative to another, so at the minimum, you are looking at the
themes affecting two major international economies.
There are also political and geopolitical fundamentals. An essential element of any
currency’s value is the faith or confidence that the market places in the value of the
currency. If political events, such as an election or scandal, are seen to be undermining the
confidence in a nation’s leadership, the value of its currency may be negatively reflected.
Gathering and interpreting all this information is just part of a currency trader’s daily
routine, which is one reason why we put dedication at the top of our list of successful trader
attributes.
UNLESS IT’S THE TECHNICALS THAT ARE DRIVING THE CURRENCY MARKET
The term technical’s refers to technical analysis, a form of market analysis most commonly
involving chart analysis, trend- line analysis, and mathematical studies of price behaviour,
such as momentum or moving averages.
We don’t know of too many traders who don’t follow some form of technical analysis in
their trading. Even the stereotypical seat-of- the-pants, trade-your-gut-traders are likely to
at least be aware of technical price levels identified by others. If you have been an active
trader in other financial markets, chances are, you have been engaged in some technical
analysis or at least heard of it.
Technical analysis is especially important in the forex market because of the amount of
fundamental information hitting the market at any given time. Currency traders regularly
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apply various forms of technical analysis to define and refine their trading strategies, with
many people trading on technical indicators alone.
Trade timeframe: how long you hold a position? Are you looking at short- term trade
opportunities (day trading), trying to capture more significant shifts in currency
prices over days or weeks, or something in between?
Currency pair election: are you interested in trading in all the different currency
pairs, or are you inclined to specialize in only one or two?
Trade rationale: are you fundamentally or technically inclined? Are you considering
creating a systematic trading model? Are you a trend follower or a breakout trader?
Risk appetite: how much are you prepared to risk and what are your return
expectations?
We are not telling you that trading is any easier than any other financial market speculation.
But we can tell you that trading with a plan will greatly improve your chances of being a
successful in the forex market over time. Most important, we want to caution you that
trading without plan is a surf ire recipe for disaster.
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EXECUTING THE TRADE PLAN FROM START TO FINISH
The start of ant trade comes when you step into the market and open up a position. How
you enter your position, how you execute the first step of your trading plan, can be as
important as the trade opportunity itself. After all, if you never enter the position, the trade
opportunity will never be exploited. And probably nothing is more frustrating as a trader
than having pinpointed a trade opportunity, having it go the way you expected, but having
nothing to show for it because you never put the trade on.
The effort and resources you invest in researching, monitoring, and analyzing the market
come to a concrete result when you open a trade. You are now exposed to price fluctuations
and your trading account will register a profit or loss as a result. But that’s just the beginning
of it.
Active trade management is also critical to keeping more of what you make in the market. In
our experience, making money in the forex market is not necessarily the hard part. More
often than not, keeping what you have made is the really hard part.
Exiting each trade is the culmination of the entire process and you are either going to be
pleased with a profit or disappointed with a loss. Every trade ends in either a profit or a loss
(unless you get out at the entry price); it’s just the way the market works. While you trade is
still active, however, you are still in control and you can choose to exit at any time.
Chapter 2
Today, however, global financial and investment flows dominate trade as the primary non
speculative source of forex market volume. Whether it’s an Australian pension fund in U.S.
Treasury bonds, or a British insurer allocating assets to the Japanese equity market, or a
German conglomerate purchasing a Canadian manufacturing facility, each cross- border
transaction passes through the forex market at some stage.
More than anything else, the forex market is a trader’s market without equal. It’s a market
that’s open around the clock six days a week, enabling traders to act on news and events as
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they happen. It’s a market where half-billion- dollar trades can be executed in a matter of
seconds and may not even move prices noticeably. Try buying or selling a half- billion of
anything in another market and see how prices react.
The bank for international settlements (BIS), the international supervisory body for banks
around the world, surveys forex market volumes every three years. The 2004 BIS survey (the
most recent available) revealed a daily spot-trading volume of about $620 billion, with
another $100+ billion in estimated gaps due to reporting. The rest of the volume that makes
up the $2 trillion figure is comprised of swap and outright forward currency trading (trades
made for settlement dates other than spot).
Estimates are that upwards of 90 percent of daily trading volume is derived from
speculation (meaning, commercial or investment-based FX trades account for less than 10
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percent of daily trading volume). The depth and breadth of the speculative market means
that the liquidity of the overall forex market is unparalleled among global financial markets.
The bulk of spot currency trading, about 75 percent by volume, takes place in the so-called
“major currencies”, which represent the world’s largest and most developed economies.
Trading in the major currencies is largely free from government regulation and takes place
outside the authority of any national or international body.
Liquidity refers to the level of market interest- the level of buying and selling volume-
available at any given movement for a particular asset or security. The higher the liquidity,
or the deeper the market, the faster and easier it is to buy or sell a security.
In addition to the major global financial centres, many financial institutions operate 24-
hour-a-day currency trading desks, providing an ever-present source of market interest. It
may be a U.S. hedge fund in Boston that needs to monitor currencies around the clock, or it
may be a major international bank with a concentrated global trading operation in one
financial sector.
Currency trading doesn’t even stop for holidays when other financial markets, like stocks or
futures exchanges, may be closed. Even though it’s a holiday in Japan, for example, Sydney,
Singapore, and Hong Kong may still be open. It might be the fourth of July in the United
States, but if it’s a business day, Tokyo, London, Toronto, and other financial centres will still
be trading currencies.
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THE OPENING OF THE TRADING STOCK
There is no officially designated starting time to the trading day or week, but for all intents
the market action kicks off when Wellington, New Zealand, the first financial centre west of
the international dateline, opens on Monday morning local time. Depending on whether
daylight saving time is in effect in your own time zone, it roughly corresponds to early
Sunday afternoon in North America, Sunday evening in Europe, and very early morning in
Asia.
The Sunday open represents the starting point where currency markets resume trading after
the Friday close of trading in North America( 5 p.m. eastern time). This is the first chance for
the forex market to react to news and events that may have happened over the weekend.
Prices may have closed New York trading at one level, but depending on the circumstances,
they may start trading at different levels at the Sunday open.
As a trading consideration, individual traders need to be aware of the weekend gap risk and
know what events are scheduled over the weekend. There’s no fixed set of potential events
and there’s never any way of ruling out what may transpire, such as a terror attack, a
geopolitical conflict, or a natural disaster.
Currency trading volumes in the Asia- pacific session account for about 21 percent of total
daily volume, according to the 2004 BIS survey. The principal financial trading centers are
Wellington, New Zealand, Sydney, Australia, Tokyo, Japan, Hong Kong and Singapore.
The overall trading direction for the NZD, AUD, and JPY can be set for the entire session
depending on what news and data reports are released and what they indicate.
In addition news from China, such as interest rate changes and official comments or
currency policy adjustments, may also be released. Occasionally as well, late speakers from
the United States, such as Federal Reserve officials speaking on the West Coast of the
United States, may offer remarks on the U.S. economy or the direction of U.S. interest rates
that affect the value of the U.S. dollar against major currencies.
For individual traders, overall liquidity in the major currency pairs is more than sufficient,
with generally orderly price movements. In some most liquid, non- regional currencies, like
GBP/USD or USD/CAD, price movements may be more erratic or nonexistent, depending on
the environment.
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TRADING IN THE EUROPEAN/ LONDON SESSION
About midway through the Asian trading day, European financial centers begin to open up
and the market gets into its full swing. European financial centers and London account for
over 50 percent of total daily global trading volume, according to the 2004 BIS survey.
The European session overlaps with half of the Asian trading day and half of the North
American trading session, which means that market interest and liquidity is at its absolute
peak during this session. Asian trading centers begin to wind down in the late- morning
hours of the European session and North American financial centers come in a few hours
later, around 7 a.m.
Expiry options
Currency options are typically set to expire either at the Tokyo expiry (3 p.m. Tokyo
time) or the New York expiry (10 a.m.). The New York option expiry is the most
significant one, because it tends to capture both European and North American
option market interest. When an option expires, the underlying option ceases to
exist. Any hedging in the spot market that was done based on the option being alive
suddenly needs to be unwound, which can trigger significant price changes in the
hours leading up to and just after the option expiry time.
The amount and variety of currency option interest is just too large to suggest any
single way that spot prices will always react around the expiry ( there may not even
be any significant option interest expiring on many days), but you should be aware
that option-related interest is most in evidence around the daily expiries.
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Squaring up the currency future markets
The Chicago mercantile exchange (CME), one of the largest future markets in the
world, offers currency futures through its international Monetary Market (IMM)
subsidiary exchange. Daily currency futures trading close each day on the IMM at 2
p.m. central time (CT), which is 3 p.m.ET. Many futures traders like to square up or
close any open positions at the end of each trading session to limit their overnight
exposure or for margin requirements.
The exact weightings of other currencies in the U.S. dollar index are
Euro: 57.6 percent
Japanese yen: 13.6 percent
British pound: 11.9 percent
Canadian dollar: 9.1 percent
Swedish krona: 4.2 percent
Swiss franc: 3.6 percent
The European currency share of the basket- Euro zone, United Kingdom, Sweden,
and Switzerland- totals 77.3 percent.
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As much as we like to think of the forex market as the be-all and end-all of financial
trading markets, it doesn’t exist in vacuum. There are some markets like gold, oil,
stocks, and bonds.
GOLD
Gold is commonly viewed as a hedge against inflation, an alternative to the U.S.
dollar, and as a store of value in times of economic or political uncertainty. Over the
long term, the relationship is mostly inverse, with a weaker USD generally
accompanying a higher gold price, and a stronger USD coming with a lower gold
price. However, in the short run, each market has its own dynamics and liquidity,
which makes short-term trading relationships generally tenuous.
Overall, the gold market is significantly smaller than the forex market, so if we were
gold traders, we would sooner keep an eye on what’s happening to the dollar, rather
than the other way around. With that noted, extreme movement in gold prices tend
to attract currency traders attention and usually influence the dollar in a mostly
inverse fashion.
OIL
A lot of misinformation exists on the internet about the supposed relationship
between oil and the USD or other currencies, such as CAD or JPY. The idea is that,
because some countries are oil producers, their currencies are positively (or
negative) affected by increases (or decreases) in the price of oil. If the country is an
importer of oil (and which countries aren’t today?)
The best way to look at oil is an inflation input and as a limiting factor on overall
economic growth. The higher the price of oil, the higher inflation is likely to be and
the slower an economy is likely to grow. The lower the price of oil, the lower
inflationary pressures are likely (but not necessarily) to be.
STOCKS
Stocks are micro economic securities, rising and falling in response to individual
corporate results and prospects, while currencies are essentially macroeconomic
securities, fluctuating in response to wider- ranging economic and political
developments. As such there is a little intuitive reason that stock markets should be
related to currencies. Long term correlation studies bear this out, with correlation
coefficients of essentially zero between the major USD pairs and U.S. equity markets
over the last five years.
The two markets occasionally intersect, though this is usually only at the extremes
and for very short periods.
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BONDS
Fixed income or bond markets have a more intuitive connection to the forex market
because they are both heavily influenced by interest rate expectations. However,
short term market dynamics of supply and demand interrupt most attempts to
establish a viable link between the two markets on a short term basis. Sometimes
the forex market reacts first and fastest depending on shifts in interest rate
expectations. At other times, the bond market more accurately reflects changes in
interest rate expectations, with the forex market later playing catch-up
(Because it takes longer to turn a bigger ship around).
Chapter3
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THE INTERBANK MARKET IS “THE MARKET”
When people talk about the “currency market”, they are referring to the interbank market,
whether they realize it or not. The interbank market is where the really big money changes
bands. Minimum trade sizes are one million of the basic currency, such as euro 1 billion of
EUR/USD or $ 1 million of USD/JPY. Much large trades of between $10 million and $100
million are routine and can go through the market in a matter of seconds. Even larger trades
and orders are a regular feature of the market. For the individual trading FX online, the
prices you see on your trading platform are based on the prices being traded in the
interbank market. The sheer size of interbank market is what helps makes it such a great
trading market, because investors of every size are able to act in the market, usually without
significantly affecting prices. It’s one market where we would say size really doesn’t matter.
We have seen spot traders be right with million-dollar bets, and sophisticated hedge funds
be wrong with half-billion-dollar bets.
Currency futures markets operate alongside the interbank market, but they are definitely
the tail being waged by the dog of the spot market. As a market currency futures are
generally limited by exchange-based trading hours and lower liquidity than is available in
the spot market.
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guarantors for the trades, just each bank’s balance sheet and the promise to make payment.
The bulk of spot trading in the interbank market is transacted through electronic matching
services, such as EBS and Reuters Dealing. Electronic matching services allow traders to
enter their bids and offers into the market, hit bids ( sell at the market), and pay offers ( buy
at the market). Price spreads vary by currency pair and change throughout the day
depending on market interest and volatility.
The matching systems have pre-screened credit limits and a bank will only see prices
available to it from approved counterparties. Pricing is anonymous before deal, meaning
you can’t tell which bank is offering or bidding, but the counterparties names are made
known immediately after a deal goes through. The rest of the interbank trading is done
through currency brokers, referred to as voice brokers to differentiate them from the
electronic ones. Traders can place bids and offers with these brokers the same as they do
with the electronic matching services. Prior to the electronic matching services, voice
brokers were the primary market intermediaries between banks.
Flow traders: sometimes called execution traders, these are the market makers,
showing two-way prices at which to buy or sell, for the bank’s customers. If the
customer makes a trade, the execution trader then has to cover the resulting deal in
the interbank market, hopefully at a profit. These traders are also responsible for
watching and executing customer orders in the market. These are the traders who
are generating most of the electronic prices and price action.
Proprietary traders: these traders are focused on speculative trading for the bank’s
own account. Their strategies can run the gamut from short term day trading to
longer-term macroeconomic bets.
Forward traders: are active in the forward currency market, which refers to trades
made beyond the normal spot value date. The forward market is essentially an
interest rate differential market, where the interest rates of the various currencies
are traded.
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Options traders: they manage the bank portfolio or book of outstanding currency
options. They hedge the portfolio in the spot market, speculate for the bank’s own
account with option strategies, and provide pricing to the bank’s customers on
requested option strategies.
Sales staff: The sales staff acts as the intermediary between the trading desk and
the bank’s customers. They advise the bank’s customers on market flow, as well as
who’s buying and selling; recommend spot and option trading strategies; and
execute trades between the bank and its customers.
Financial transactors are important to the forex market for several reasons:
Their transactions can be extremely sizeable, typically hundreds of millions
or billions.
Their deal is frequently one-time events.
They are generally not price sensitive or profit maximizing.
Trade related hedging regularly comes into the spot market in two main forms:
At several of the daily currency fixings.
Mostly in USD/JPY, where Japanese exporters typically have large amounts
of USD/ JPY to sell.
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2. Hedging for currency options.
Mergers and acquisitions activity is becoming increasingly international and shows no sign
of abating. International firms are now involved in a global race to gain and expand market
share and cross- border acquisitions are frequently the easiest and fastest way to do that.
When a company seeks to buy a foreign business, there can be a substantial foreign
exchange implication from the trade.
SPECULATORS
Speculators are market acquisitions who are involved in the market for one reason only: to
make money. In contrast to hedgers, who have some form of existing currency market risk,
speculators have no currency risk until they enter the market. Hedgers enter the market to
neutralize or reduce risk. Speculators embrace risk taking as a means of profiting from long-
term or short-term price movements.
Speculators are what really make a market efficient. They add liquidity to the market by
bringing their views and, most important, their capital into the market. That liquidity is what
smoothes out price movements, keeps trading spreads narrow, and allows a market to
expand. In the forex market, speculators are running the show. Conventional market
estimates are that upwards of 90 percent of daily trading volume is speculative in nature. If
you are trading currencies for your own account, welcome to the club. If you are trading to
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hedge a financial risk, you can thank the specs for giving you a liquid market and reducing
your transaction costs.
HEDGE FUNDS
Hedge funds are type of leveraged fund, which refers to any number of different forms of
speculative asset management funds that borrow money for speculation based on real
assets under management. For instance a hedge fund with $100 billion under management
can leverage those assets to give them trading limits of anywhere from $500 million to $ 2
billion. Hedge funds are subject to the same type of margin requirements as you or we are,
just with whole lots of zeros involved.
The other main type of leveraged fund is known as commodity trading Advisor (CTA). A CTA
is principally active in futures markets. But because the forex market operates around the
clock, CTAs frequently trade spot FX as well. The major difference between the two types of
leveraged funds comes down to regulation and oversight. CTAs are regulated by the
Commodity Futures Trading Commission (CFTC), the same governmental body that
regulates retail FX firms. As a result, CTAs are subject to raft of regulatory and reporting
requirements. Hedge funds, on the other hand, remain largely unregulated. What’s
important is that they all pursue similarly aggressive trading strategies in the forex market,
treating currencies as a separate asset class, like stock or commodities.
It refers to how national governments develop and invest their foreign currency reserves.
Foreign currency reserves are accumulated through international trade. Countries with large
trade surpluses will accumulate reserves of foreign currency over time. Trade surpluses arise
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when a nation exports more than it imports. Because it is receiving more currency for its
exports than it is spending to buy imports, foreign currency balances accumulate.
1. The perception problem stems from the continuing growth of U.S. deficits, which
equates to your continually borrowing money from a bank.
2. The portfolio-management problem arises from the need to diversify assets in the
name of prudence.
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Chapter 4
The mechanics of currency trading
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standardization organization (ISO) codes for each currency. Currency names and
nicknames can be confusing when you are following the forex market or reading
commentary and research.
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When you open an online currency trading account, you will need to pony up
cash as collateral to support the margin requirements established by your
broker. That initial margin deposit becomes your opening margin balance and is
the basis on which all your subsequent trades are collateralized. Unlike futures
markets or margin- based equity trading, online forex brokerages do not issue
margin calls. Instead, they establish ratios of margin balances to open positions
that must be maintained at all times.
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expect an interest gain/ expense for holding a currency position over the change
in value.
The catch currency in currency trading is that if you carry over an open position
from one value date to the nest, you have two bank accounts involved. Think of
it as one account with a positive balance (the currency you are long) and one
with a negative balance (the currency you are short). But because your accounts
are in two different currencies, the two interest rates of the different countries
will apply.
The difference between the interest rates in the two countries is called the
interest-rate differential. The larger the interest-rate differential, the larger the
impact from rollovers. The narrower the interest- rate differential, the smaller
the effect from rollovers. So how do interest rates get turned into currency
rates? After all, interest rates are in percent and currency rates are, well, not in
percent. The answer is that deposit rates yield actual returns, which are netted,
producing a net cash return. That net cash return is then divided by the net
position size, which gives you the currency pips, which is rollover rate.
SPREADS
A spread is the difference between the bid price and the offer price. Most online
brokers utilize spread- based trading platforms for individual traders. In one
sense you can look at the spread as the commission that the online brokers
charge for executing your trades. So even if they say you are commission free,
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they may be earning difference when one trader sells at the bid price and
another trader buys at the offer price. Another way to look at the spread is that
it’s the compensation the broker receives for being the market-maker and
providing a regular two-way market.
EXECUTING A TRADE
There are two main ways of executing trades in the FX market: live trades and
orders. If you are an adrenaline junkie, don’t focus only on the “ live dealing”
section- the orders section gives you a plenty of juice to keep you going, too.
TRADING ONLINE
The forex trading platform will respond back, usually within second or two, to
let you know whether the trade went through:
If the trade went through, you will see the trade and your new
position appear in your platform’s list of trades.
If the trade failed because of a price change, you need to start again
from the top.
If the trade failed because the trade was too large based on your
margin, you need to reduce the size f the trade.
When the trade goes through, you have a position in the market and
you will see your unrealized P&L, begin updating according to market
price fluctuations.
Here are the parameters that you can usually set up in advance:
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Some online brokers advertise narrower trading spreads as a
way to attract traders. If you click-and-deal trade attempts
frequently fail, and the platform then asks if you would like to
make the trade at a worse price, you are probably being re-
quoted.
PHONE TRADING
Placing live trades over the phone is available from most online forex brokers. You need to
find from your broker whether it offers this service and exactly what its procedures are
before you can ready to use it.
ORDERS
Currency traders use orders to catch market movements when they are not in front of their
screens. The forex market is open 24hours a day. A market move is just as likely to happen
while you are asleep or in the shower as it is while you are watching your screen. If you are
not a full-time trader, then you have to probably get a full-time job that requires your
attention when you are at work- at least your boss hopes he has your attention.
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Maintain trading discipline.
Protect profits and minimize losses.
TYPES OF ORDERS
2. Limit orders
To avoid buying or selling a stock at a price higher or lower than you wanted, you
need to place a limit order rather than a market order. A limit order is an order to buy
or sell a security at a specific price. A buy limit order can only be executed at the limit
price or lower, and a sell limit order can only be executed at the limit price or higher.
When you place a market order, you can't control the price at which your order will be
filled.
For example, if you want to buy the stock of a "hot" IPO that was initially offered at
$9, but don't want to end up paying more than $20 for the stock, you can place a limit
order to buy the stock at any price up to $20. By entering a limit order rather than a
market order, you will not be caught buying the stock at $90 and then suffering
immediate losses if the stock drops later in the day or the weeks ahead.
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Also known as a "stop order" or "stop-market order".
In other words, setting a stop-loss order for 10% below the price you paid for the
stock would limit your loss to 10%.
It's also a great idea to use a stop order before you leave for holidays or enter a
situation in which you will be unable to watch your stocks for an extended period of
time.
A stop loss is an order to buy (or sell) a security once the price of the security climbed
above (or dropped below) a specified stop price. When the specified stop price is
reached, the stop order is entered as a market order (no limit) or a limit order (fixed or
pre-determined price).
With a stop order, the trader does not have to actively monitor how a stock is
performing. However because the order is triggered automatically when the stop price is
reached, the stop price could be activated by a short-term fluctuation in a security's
price. Once the stop price is reached, the stop order becomes a market order or a limit
order.
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Chapter 5
Getting to know the major currency pairs
The vast majority of trading volume in the major currency pairs: EUR/USD, GBP/USD,
and USD/CHF. These currency pairs account for about two-thirds of daily trading
volume in the market and are the most watched barometers of the overall forex
market. When you hear about the dollar rise and falling, it’s usually referring to the
dollar against these other currencies.
Even though these four pairs are routinely grouped together as the major currency
pairs, each currency pair represents an individual economic and political
relationship. It’s important to understand of how different pairs rates move. Most
currency trading is very short-term in nature, typically from a few minutes to few
days. This makes understanding a currency pair’s price action a key component of
any trading strategy.
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a unified single currency. The move to a single currency was the culmination of
financial unification efforts by the founding members of the European Union. In
adopting the single currency, the nations agreed to abide by fiscal policy constraints
that limited the ratio of national budget deficits to gross domestic product among
other requirements.
EUR/USD has the euro as the base currency and the U.S. dollar as the secondary or
counter currency. That means
EUR/USD is traded in amounts denominated in Euros.
The pip value, or minimum price fluctuation, is denominated in USD.
Profit and loss accrue in USD.
Margin calculations in online trading platforms are typically based in USD.
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European central bank (ECB) interest rate decisions and press conferences after ECB
Central Council meetings.
Speeches by ECB officials and individual European finance ministers.
EU-harmonized Consumer price index (CPI), as well as national CPI and Producer
Price Index (PPI) reports.
Industrial production.
Retail sales.
Unemployment rates.
The price action behaviour in EUR/USD regularly exhibits a number of traits that traders
should be aware of:
USD/JPY has the U.S. dollar as the base currency and the JPY as the secondary or counter
currency. This means
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The pip value, or minimum price fluctuation, is denominated in JPY.
Profit or loss accrues in JPY.
Margin calculations are typically calculated in USD.
Industrial production.
Machine orders.
Trade balance and current account.
Retail trade.
Bank lending.
Domestic corporate goods price index (CGPI).
National CPI and Tokyo-area CPI.
All- industry activity index and tertiary industry activity index.
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Price action tends to be jumpy, even in normal markets.
Price action tends to see one-way traffic in highly directional markets.
False breaks of technical levels occur frequently.
Chapter 6
USD/CAD has the USD as the primary currency and the CAD as the counter currency. This
means
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AUD is the primary currency in the pair, and the USD is the counter currency, which means
A cross currency pair is any currency pair that does not have the U.S. dollar as one of the
currencies in the pairing. For example, one of the most active crosses is EUR/JPY, pitting the
two largest currencies outside the U.S. dollar directly against each other. But the EUR/JPY
rate at any given instant is a function of the current EUR/USD and USD/JPY rates.
The most popular cross pairs involve the most actively traded major currencies, like
EUR/GBP, EUR/GBP, and EUR/CHF. According to the 2004 BIS survey of foreign exchange
market activity, direct cross trading accounted for a relatively small percentage of global
daily volume-less than 10 percent for the major crosses combined.
Cross pairs represent entirely new sets of routinely fluctuating currency pairs that offer
another universe of trading opportunities beyond the primary USD pairs. Developments in
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the currency market are not always a simple but on what’s happening to the U.S. dollar.
Crosses are the other half of the story, and their significance appears to be increasing
dramatically as a result of electronic trading.
CHAPTER 7
CURRENCY FUTURES
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Currency futures can be cash settled or settled by delivering the respective obligation of
the seller and buyer. All settlements however, unlike in the case of OTC markets, go
through the exchange.
Currency futures are a linear product, and calculating profits or losses on Currency
Futures will be similar to calculating profits or losses on Index futures. In determining
profits and losses in futures trading, it is essential to know both the contract size (the
number of currency units being traded) and also what the tick value is. A tick is the
minimum trading increment or price differential at which traders are able to enter bids
and offers. Tick values differ for different currency pairs and different underlying. For
e.g. in the case of the USD-INR currency futures contract the tick size shall be 0.25paise
or 0.0025 Rupees.
FUTURES TERMINOLOGY
Spot price: The price at which an asset trades in the spot market. In
the case of USDINR, spot value is T + 2.
Futures price: The price at which the futures contract trades in the
futures market.
Contract cycle: The period over which a contract trades. The currency
future contracts on the NSE have one- month, two-month, three-month
upto twelve month expiry cycles. Hence the NSE will have 12 contracts
outstanding at any given point of time.
Expiry date: It is the date specified in futures contract. This is the last
day on which contract will be traded, at the end of which it ceases to
exist. The last trading day will be two business days prior to the value
date/final settlement date.
Contract size: the amount of asset that has to be delivered under one
contract. Also called as a lot size.
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delivery month for each contract. In the normal market, basis will be
positive. This reflects that futures prices normally exceed spot prices.
Cost of carry: The relationship between the spot prices and future
prices can be summarized as the cost of carry. This measures the
storage cost plus the interest that is paid to finance or carry the asset till
delivery less the income earned on the asset. For equity derivatives carry
cost is the rate of interest.
Quality of underlying.
Location of settlement.
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The rationale for introducing currency futures in the Indian context has been outlined in
the Report of the Internal Working Group on Currency Futures (Reserve Bank of India,
April 2008) as follows;
The rationale for establishing the currency futures market is manifold. Both residents
and non-residents purchase domestic currency assets. If the exchange rate remains
unchanged from the time of purchase of the asset to its sale, no gains and losses are
made out of currency exposures.
But if domestic currency depreciates (appreciates) against the foreign currency, the
exposure would result in gain (loss) for residents purchasing foreign assets and loss
(gain) for non residents purchasing domestic assets. In this backdrop, unpredicted
movements in exchange rates expose investors to currency risks. Currency futures
enable them to hedge these risks. Nominal exchange rates are often random walks with
or without drift, while real exchange rates over long run are mean reverting. As such, it
is possible that over a long – run, the incentive to hedge currency risk may not be large.
However, financial planning horizon is much smaller than the long-run, which is typically
inter-generational in the context of exchange rates. As such, there is a strong need to
hedge currency risk and this need has grown manifold with fast growth in cross-border
trade and investments flows. The argument for hedging currency risks appear to be
natural in case of assets, and applies equally to trade in goods and services, which
results in income flows and lags and get converted into different currencies at the
market rates.
Empirically, changes in exchange rate are found to have very low correlations with
foreign equity and bond returns. This in theory should lower portfolio risk. Therefore,
sometimes argument is advanced against the need for hedging currency risks. But there
is strong empirical evidence to suggest that hedging reduces the volatility of returns and
indeed considering the episodic nature of currency returns, there are strong arguments
to use instruments to hedge currency risks.
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Conclusion
During this project work I have tried my best to touch each and every aspect which would
affect the business process of the company.
All exchanges generate impacts in the core functions of price discovery, price risk
management and as a venue for investment. Each exchange offers liquid markets, a central
counter party to all but eliminate counter party risk, market data that is freely and
transparently disseminated and futures markets that are well-correlated with spot markets
to enable effective price risk management.
Only two positive impacts were opposed on the basis of experience in the featured markets
to date- that a currency exchange can enable hedging against inflation and quality
improvements generated by the exchange can reduce dependence on imports.
The parameters that decide the price of currency in different exchanges are:
The area of facilitating currency is perhaps the area where there is greatest scope for
exchanges to learn from each other's experience.
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These are the main aspects which could be concluded from the responses. On the basis of
these observations some recommendations could be provided to the companies about which I
will be discussing in the next part.
During my training period the work which I have done, has helped me a lot. I understood to
reach any heights you have to start from the scratch. I understand that if you want to be best
in any organization then you have to do your work with full dedication and sincerity.
First thing which I would like to suggest is the company should focus on its promotional
forces, so that it would be able to convey the product features to the common people. Once
the features will be exposed then only it can make new customers. Through the survey
responses we knew that advertisements are the most affective medium of creating awareness.
So to differentiate our product and to expose our exclusive benefits we need to take it out in
front of the people.
To create awareness about the product we can take several steps such as:
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Bibliography
1. http://www.bseindia.com
2. http://www.nseindia.com
3. http://investopedia.com
4. http://www.google.com
5. http://www.currencytradingweb.com
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References
Books Referred for the study:
Currency Trading for Dummies by Mark Galant and Brian
Dolan
Ncfm Currency Future Module
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