A

Project report
On
Currency trading at FOREX
In Partial Fulfillment of the
Requirements of the degree of
Bachelor of Business Administration

S.S.Agrawal College of Arts

Commerce and Management

2011-12

SUBMITTED BY
Mehul.v.malaviya (13)

PROJECT GUIDE
Miss. jaya Dakhwani

1
 DECLARATION

I, the undersigned, Mr. Mehul.v.malaviya here by, declare that this project work titled
currency trading (Forex) at YOU TRADE FX, Has been prepared by me during the academic
year 2011-12 under the guidance of Miss. Jaya Dakhwani Professor, S.S.Agrawal Collage
Of Arts, Commerce And Management, NAVSARI.

The empirical findings in this report are based on the data collected and have not been taken
from any other reports.

This dissertation does not form any basis for other degree or diploma.

Date: Mr., Mehul.v.malaviya

Place: Surat Roll No: 13

2
 ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any
task would be incomplete without the mention of the Leaders, whose constant
guidance and encouragement crown all the efforts with success.

I am highly obliged to the South Gujarat University for arranging the

programmed of practical training in Bachelor of Business Administration in
such a manner.

It is my privilege to express my dee p sense of gratitude to Prof Miss.jaya

dakhavani for her efforts, guidance, valuable comments and suggestions for
making this project report. She helped me to complete my report on the
practical study and gave contribution to improve and expand my practical
knowledge.

I would like to extend my gratitude to all the staff and especially to

Mr. Mr.Dharmesh Vora, Mr. Chirag Vaghani, Mr. Praful Patel of O’fern Investment,
who provided me useful information and data regarding the subject with their
cent percent participation and supported in making this project report a
successful task. It was a memorable experience to work with them and
complete my winter training.

Finally, I express my intense gratitude to my parents whose blessings and

helped me to translate my efforts into fruitful achievement.

3
4
 INDEX

SR NO. TOPIC PAGE NO.

I DECLARATION 2

II ACKNOWLEDGEMENT 3

III CERTIFICATE-I (From Organization) 4

1 INDUSTRY PROFILE 6

2 COMPANY PROFILE 17

3 CONCEPTUAL FRAMEWORK 26

4 REASEARCH METHODOLOGY 37

5 DATA ANALYSIS 39

6 CONCLUSION & RECOMMANDATION 52

7 BIBILIOGRAPHY 54

5
 INDUSTRY PROFILE
Foreign exchange market
The foreign exchange market (forex, FX, or currency market) is a global, worldwide-
decentralized financial market for trading currencies. Financial centers around the world
function as anchors of trading between a wide range of different types of buyers and sellers
around the clock, with the exception of weekends. The foreign exchange market determines
the relative values of different currencies.

The foreign exchange market assists international trade and investment, by enabling currency
conversion. For example, it permits a business in the United States to import goods from the
United Kingdom and pay pound sterling, even though its income is in United States dollars.
It also supports direct speculation in the value of currencies, and the carry trade, speculation
on the change in interest rates in two currencies.

In a typical foreign exchange transaction, a party purchases a quantity of one currency by

paying a quantity of another currency. The modern foreign exchange market began forming
during the 1970s after three decades of government restrictions on foreign exchange
transactions (the Bretton Woods system of monetary management established the rules for
commercial and financial relations among the world's major industrial states after World War
II), when countries gradually switched to floating exchange rates from the previous exchange
rate regime, which remained fixed as per the Bretton Woods system.

6
The foreign exchange market is unique because of
 its huge trading volume representing the largest asset class in the world leading to high
liquidity;
 its geographical dispersion;
 its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15
GMT on Sunday until 22:00 GMT Friday;
 the variety of factors that affect exchange rates;
 the low margins of relative profit compared with other markets of fixed income; and
 the use of leverage to enhance profit and loss margins and with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition,
notwithstanding currency intervention by central banks. According to the Bank for
International Settlements, as of April 2010, average daily turnover in global foreign exchange
markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion
daily volume as of April 2007. Some firms specializing on foreign exchange market had put
the average daily turnover in excess of US$4 trillion.

The $3.98 trillion break-down is as follows:

 $1.490 trillion in spot transactions

 $475 billion in outright forwards
 $1.765 trillion in foreign exchange swaps
 $43 billion currency swaps
 $207 billion in options and other products

7
The foreign exchange market is the most liquid financial market in the world. Traders include
large banks, central banks, institutional investors, currency speculators, corporations,
governments, other financial institutions, and retail investors. The average daily turnover in
the global foreign exchange and related markets is continuously growing. According to the
2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements,
average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this
$3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright
forwards, swaps and other derivatives.

Trading in the United Kingdom accounted for 36.7% of the total, making it by far the most
important center for foreign exchange trading. Trading in the United States accounted for
17.9%, and Japan accounted for 6.2%.

Turnover of exchange-traded foreign exchange futures and options have grown rapidly in
recent years, reaching $166 billion in April 2010 (double the turnover recorded in April
2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange
turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago
Mercantile Exchange and are actively traded relative to most other futures contracts.

8
Currency distribution of reported FX market turnover

9
Market participants
Unlike a stock market, the foreign exchange market is divided into levels of access. At the
top is the interbank market, which is made up of the largest commercial banks and securities
dealers. Within the interbank market, spreads, which are the difference between the bid and
ask prices, are razor sharp and not known to players outside the inner circle. The difference
between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for a currencies
such as the EUR) as you go down the levels of access. This is due to volume. If a trader can
guarantee large numbers of transactions for large amounts, they can demand a smaller
difference between the bid and ask price, which is referred to as a better spread. The levels of
access that make up the foreign exchange market are determined by the size of the "line" (the
amount of money with which they are trading). The top-tier interbank market accounts for
53% of all transactions. From there, smaller banks, followed by large multi-national
corporations (which need to hedge risk and pay employees in different countries), large
hedge funds, and even some of the retail market makers. According to Galati and Melvin,
“Pension funds, insurance companies, mutual funds, and other institutional investors have
played an increasingly important role in financial markets in general, and in FX markets in
particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown
markedly over the 2001–2004 period in terms of both number and overall size”. Central
banks also participate in the foreign exchange market to align currencies to their economic
needs.

10
Banks

The interbank market caters for both the majority of commercial turnover and
large amounts of speculative trading every day. Many large banks may trade
billions of dollars, daily. Some of this trading is undertaken on behalf of
customers, but much is conducted by proprietary desks, which are trading desks
for the bank's own account. Until recently, foreign exchange brokers did large
amounts of business, facilitating interbank trading and matching anonymous
counterparts for large fees. Today, however, much of this business has moved
on to more efficient electronic systems. The broker squawk box lets traders
listen in on ongoing interbank trading and is heard in most trading rooms, but
turnover is noticeably smaller than just a few years ago.

Commercial companies
An important part of this market comes from the financial activities of
companies seeking foreign exchange to pay for goods or services. Commercial
companies often trade fairly small amounts compared to those of banks or
speculators, and their trades often have little short term impact on market rates.
Nevertheless, trade flows are an important factor in the long-term direction of a
currency's exchange rate. Some multinational companies can have an
unpredictable impact when very large positions are covered due to exposures
that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets.
They try to control the money supply, inflation, and/or interest rates and often
have official or unofficial target rates for their currencies.

11
 They can use their often substantial foreign exchange reserves to stabilize the
market. Nevertheless, the effectiveness of central bank "stabilizing speculation"
is doubtful because central banks do not go bankrupt if they make large losses,
like other traders would, and there is no convincing evidence that they do make
a profit trading.

Foreign exchange fixing

Foreign exchange fixing is the daily monetary exchange rate fixed by the
national bank of each country. The idea is that central banks use the fixing time
and exchange rate to evaluate behavior of their currency. Fixing exchange rates
reflects the real value of equilibrium in the market. Banks, dealers and traders
use fixing rates as a trend indicator.

The mere expectation or rumor of a central bank foreign exchange intervention

might be enough to stabilize a currency, but aggressive intervention might be
used several times each year in countries with a dirty float currency regime.
Central banks do not always achieve their objectives. The combined resources of
the market can easily overwhelm any central bank. Several scenarios of this
nature were seen in the 1992–93 European Exchange Rate Mechanism collapse,
and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90% of the foreign exchange transactions are speculative. In other
words, the person or institution that bought or sold the currency has no plan to
actually take delivery of the currency in the end; rather, they were solely
speculating on the movement of that particular currency. Hedge funds have
gained a reputation for aggressive currency speculation since 1996. They control
billions of dollars of equity and may borrow billions more, and thus may

12
 Overwhelm intervention by central banks to support almost any currency, if the
economic fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf
of customers such as pension funds and endowments) use the foreign exchange
market to facilitate transactions in foreign securities. For example, an investment
manager bearing an international equity portfolio needs to purchase and sell
several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist

currency overlay operations, which manage clients' currency exposures with the
aim of generating profits as well as limiting risk. Whilst the number of this type
of specialist firms is quite small, many have a large value of assets under
management), and hence can generate large trades.

Retail foreign exchange traders

Individual Retail speculative traders constitute a growing segment of this market

with the advent of retail foreign exchange platforms, both in Size and
importance. Currently, they participate indirectly through brokers or banks.
Retail brokers, while largely controlled and regulated in the USA by the
Commodity Futures Trading Commission and National Futures Association
have in the past been subjected to periodic Foreign exchange fraud. To deal with
the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements,
particularly in relation to the amount of Net Capitalization required of its
members. As a result many of the smaller and perhaps questionable brokers are
now gone or have moved to countries outside the US. A number of the foreign

13
 exchange brokers operate from the UK under Financial Services Authority
regulations where foreign exchange trading using margin is part of the wider
Over-the-counter derivatives trading industry that includes Contract for
differences and financial spread betting.

There are two main types of retail FX brokers offering the opportunity for
speculative currency trading: brokers and dealers or market makers. Brokers
serve as an agent of the customer in the broader FX market, by seeking the best
price in the market for a retail order and dealing on behalf of the retail customer.
They charge a commission or mark-up in addition to the price obtained in the
market. Dealers or market makers, by contrast, typically act as principal in the
transaction versus the retail customer, and quote a price they are willing to deal
it.

Non-bank foreign exchange companies

Non-bank foreign exchange companies offer currency exchange and
international payments to private individuals and companies. These are also
known as foreign exchange brokers but are distinct in that they do not offer
speculative trading but rather currency exchange with payments (i.e., there is
usually a physical delivery of currency to a bank account).It is estimated that in
the UK, 14% of currency transfers/payments are made via Foreign Exchange
Companies. These companies' selling point is usually that they will offer better
exchange rates or cheaper payments than the customer's bank. These companies
differ from Money Transfer/Remittance Companies in that they generally offer
higher-value services.

14
Money transfer/remittance companies and bureaux de change
Money transfer companies/remittance companies perform high-volume low-
value transfers generally by economic migrants back to their home country. In
2007, the Aite Group estimated that there were $369 billion of remittances (an
increase of 8% on the previous year). The four largest markets (India, China,
Mexico and the Philippines) receive $95 billion. The largest and best known
provider is Western Union with 345,000 agents globally followed by UAE
Exchange

Bureaux de change or currency transfer companies provide low value foreign

exchange services for travelers. These are typically located at airports and
stations or at tourist locations and allow physical notes to be exchanged from
one currency to another. They access the foreign exchange markets via banks or
non bank foreign exchange companies.

The currency market is over 53 times BIGGER! It is HUGE! But hold your
horses, there's a catch! That huge $4 trillion number covers the entire global
foreign exchange market, BUT retail traders (that's us) trade the spot market and
that's about $1.49 trillion. So you see, the forex market is definitely huge, but
not as huge as the media would like you to believe.

15
Do you feel like you already know what the forex market is all about? We're just
getting started! In the next section we'll reveal WHAT exactly is traded in the
forex market.

One of the questions we get asked all the time is “What is forex trading?” When
did it start? How big is it? Who are the major players? What makes currency
rates change?

16
Company Profile
YoutradeFX has made online Forex trading hassle-free with the most
advanced trading technology and services. As a Forex trader, we can enjoy thier
trading conditions which are the best in the industry. Each Forex strategy
devised by their team of experts focuses on your profit goals. Additionally, they
ensure optimal information technology security for their clients. Both new and
experienced traders can make use of our Forex forum to discuss various Forex
trading issues openly.

YoutradeFX is an internet brokerage and investment firm. Through our

company’s website and trading platform, traders can invest in CFD’s
(certificates for difference) on stock, commodities, indices and the foreign
exchange market. We are dedicated to building long-term relationships with our
clients based on trust, performance and our corporate values: delivering the most
optimal trading environment, unparalleled in quality and function, and supplying
every client with the highest levels of service at all times.

Services
YoutradeFX caters to a growing client base of private and institutional traders,
24 hours a day, 6 days a week, providing specialized trading services in over 10
languages. We are committed to providing our clients and partners with the most
comprehensive and competitive trading solutions in the industry, delivering
tighter spreads, excellent liquidity, the highest level of customer service and
17
technological innovation.

YoutradeFX offers the latest range of trading technology, featuring the

Powerful, MetaTrader 4 trading platform for individual traders and multi-
account platforms for asset managers. We also offer our cutting Edge web
trading application and will soon introduce a mobile PDA and smart phone
solution for trading on the move.
Through our in-house R&D department we inspire our clients to become better
informed traders, offering premium, daily technical analysis, macroeconomic
reports developed by a team of professional experts with extensive Forex
industry experience so that our clients will be as successful as possible.

YoutradeFX has developed automated trading tools (expert advisors, custom

indicators and scripts) that require minimal intervention and allow traders to
automate their trading strategy, improve discipline, remove emotion, and capture
opportunities. Traders can choose from over 20 predefined trading strategies to
create custom portfolios and automatically execute trades according to their
specifications.
To further our commitment to education, their website features video tutorials to
help beginner traders. The tutorials range from basic trading techniques,
technical analysis, fundamental analysis, to the types of risk and money
management needed to become a successful trader. You can easily apply the
lessons to the real time Forex market and trade like a professional in no-time.

YoutradeFX also offers world-class business partnership solutions for financial

institutions, brokers and private investors through our White Label, Asset
Manager and Introducing Broker programs. Partnership solutions can be

18
 customized according to the partner’s business strategy, with flexible income
sharing plans and other value-added support features.

Trading Technology
Our team of experts ensures that our clients operate in optimal
conditions at all times. Accessibility, security, reliability, innovation and user-
friendliness are YouTradeFX's cornerstones in providing the industry’s most
advanced trading conditions.

Information Technology Security

Our electronic trading infrastructure uses the most advanced technology
to give you the best possible edge for online trading. This high-performance
design offers optimal security against connectivity and latency issues thanks to a
strategic arrangement of internet providers and data centers set up to
accommodate clients across the globe. Our infrastructure is secured for business
continuity with safeguards against data loss and downtime via a core disaster
recovery plan as well as internal and external backup solutions.

Trading Technology Solutions

YoutradeFX offers the most comprehensive and advanced trading
technology solutions, keeping business partners and clients ahead of the
competition with the market’s most versatile, cutting-edge, secure, and user-
friendly trading tools.

19
Corporate Philosophy
Maintaining sound business practices that respect ethical values is a key
part of our philosophy. We base our service concept on four core principles:
1.Offering the most competitive, straightforward and simple execution to our
customers.
2. Operating in full transparency in everything we do, from the way we present
our company to potential customers to our method of execution.
3. Keeping tight profit margins per trade, hence increasing trade volume and
decreasing costs for individual traders.

4. Only calling customers that ask to be called. By using skillful marketing

techniques we know how to approach prospective customers while respecting
their rights to privacy.

Mission Statement

20
 The main objective of youtradeFX is to provide exceptional customer service for
its traders as well as strong trading and education instruments that allow clients
to make prudent, yet profitable, forex trading decisions.

Our mission is to:

•Continually expand our global presence
•Offer traders the most advanced investment products
•constantly introduce new benefits and services to our valued clients
•Create high value to introducing brokers and white label partners
•Provide excellent customer service and support to all of our stakeholders

Our Advantages
Spreads: Competitive and low spreads from just 1 pip, fixed 24 hours a day.

Leverage: Greater buying power with leverage up to 1:500.

Fees: Commission free for all trading instruments.

Margin: There are no margin requirements for accounts under $100,000. We

feature guaranteed Stop-Loss which means that traders cannot lose more than
their original investment.

Mini Trading: Traders may deposit as little as $100, and open a position with
as little as $10,000 or 0.01 Lots.

21
Account Classes: Traders can choose between four different account types:
Mini for under $2,000, Standard $2000 -$10,000, Classic $10,000 - $100,000
and Premium Account for $100,000 and over.

Trading Tools

Trading Tools: Especially designed and developed for traders, these include a
currency converter, market news, quotes, charts, an economic calendar as well
as daily market analysis and trade recommendations written by our chief analyst.

Technology: Our trading platform is the award winning MT4 trading platform
from the comfort of your desktop computer, laptop and now also from your
mobile phone (iPhone).

22
Awards
FX Empire BROKER AWARDS 2011
youtradeFX is proud to be awarded this exclusive prize amongst more than 500
Forex broker candidates of this prize.

23
Regulation and License
As a financial investment company, YouTradeFX has a Category 1 Global
Business License issued by the Financial Services Commission (FSC) of the
Republic of Mauritius under the name of International Youtrade Investments
MA Ltd. Company No.: 097392 C1/GBL; Category 1 Global Business, License
№ C110008678.

 Securities Act 2005

 Securities (Licensing) Rules 2007
 Financial Services Rules 2008

24
What is forex?

Forex is the international market for the free trade of currencies. Traders place
orders to buy one currency with another currency. For example, a trader may want
to buy Euros with US dollars, and will use the forex market to do this.
The forex market is the world's largest financial market. Over $4 trillion dollars
worth of currency are traded each day. The amount of money traded in a week is
bigger than the entire annual GDP of the United States!
25
 The main currency used for forex trading is the US dollar.

When did forex start?

As the world continued to tear itself apart in the Second World War, there
was an urgent need for financial stability. International negotiators from 29
countries met in Bretton Woods and agreed to a new economic system where,
amongst other things, exchange rates would be fixed.

The International Monetary Fund (IMF) was established under the Bretton
Woods agreement, and started to operate in 1949. All exchange rates changes
above 1% had to be approved by the IMF, which had the effect of freezing these
rates. By the late 1960's the fixed exchange rate system started to break down, due
to a number of international political and economic factors. Finally, in 1971,
President Nixon stopped the US dollar being converted directly to gold, as part of
a set of measures designed to stem the collapse of the US economy. This was
known as the Nixon shock, and lead to floating rate currency markets being

established in early 1973. By 1976, all major currencies had floating exchange
rates.
With floating rates, currencies could be traded freely, and the price changed
based on market forces. The modern forex market was born.

Who trades on the forex market?

There are many different players in the forex market. Some trade to make profits,
others trade to hedge their risks and Others simply need foreign currency to pay
for goods and services. The participants include the following:

26
  Government central banks
 Commercial banks
 Investment banks
 Brokers and dealers
 Pension funds
 Insurance companies
 International corporations
 Individuals

When is the forex market open?

Unlike stock exchanges, which have limited opening hours, the forex
market is open 24 hours a day, five days a week. Banks need to buy and sell
currency around the clock and the forex market has to be open for them to do
this.

What factors influence currency exchange rates?

27
 As with any market, the forex market is driven by supply and demand:

If buyers exceed sellers, prices go up

If sellers outnumber buyers, prices go down

The following factors can influence exchange rates:

 National economic performance

 Central bank policy
 Interest rates
 Trade balances – imports and exports
 Political factors – such as elections and policy changes
 Market sentiment – expectations and rumours
 Unforeseen events – terrorism and natural disasters

Despite all these factors, the global forex market is more stable than stock
markets; exchange rates change slowly and by small amounts.

What are the advantages of the forex market?

There are many benefits and advantages of trading forex. Here are just a few
reasons why so many people are choosing this market:

28
1. No commissions
No clearing fees, no exchange fees, no government fees, no brokerage fees. Most
retail brokers are compensated for their services through something called the
"bid-ask spread".

2. No middlemen
Spot currency trading eliminates the middlemen and allows you to trade directly
with the market responsible for the pricing on a particular currency pair.

3. No fixed lot size

In the futures markets, lot or contract sizes are determined by the exchanges. A
standard-size contract for silver futures is 5,000 ounces. In spot forex, you
determine your own lot, or Position size. This allows traders to participate with
accounts as small as $25 (although we'll explain later why a $25 account is a
bad idea).

4. Low transaction costs

The retail transaction cost (the bid/ask spread) is typically less than 0.1% under
normal market conditions. At larger dealers, the spread could be as low as
0.07%. Of course this depends on your leverage and all will be explained later.

5. 24-hour market
There is no waiting for the opening bell. From the Monday morning opening in
Australia to the afternoon close in New York, the forex market never sleeps. This
is awesome for those who want to trade on a part-time basis, because you can
choose when you want to trade: morning, noon, night, during breakfast, or in
your sleep.

29
6. No one can corner the market
The foreign exchange market is so huge and has so many participants that no
single entity (not even a central bank or the mighty Chuck Norris himself) can
control the market price for an extended period of time.

7. Leverage
In forex trading, a small deposit can control a much larger total contract value.
Leverage gives the trader the ability to make nice profits, and at the same time
keep risk capital to a minimum.

For example, a forex broker may offer 50-to-1 leverage, which means that a $50
dollar margin deposit would enable a trader to buy or sell $2,500 worth of
currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars
and so on. While this is all gravy, let's remember that leverage is a double-
edged sword. Without proper risk management, this high degree of leverage can
lead to large losses as well as gains.

8. High Liquidity
Because the forex market is so enormous, it is also extremely liquid. This means
that under normal market conditions, with a click of a mouse you can
instantaneously buy and sell at will as there will usually be someone in the
market willing to take the other side of your trade. You are never "stuck" in a
trade. You can even set your online trading platform to automatically close your
position once your desired profit level (a limit order) has been reached, and/or
close a trade if a trade is going against you (a stop loss order).

30
 9. Low Barriers to Entry
You would think that getting started as a currency trader would cost a ton of
money. The fact is, when compared to trading stocks, options or futures, it
doesn't. Online forex brokers offer "mini" and "micro" trading accounts, some
with a minimum account deposit of $25.

We're not saying you should open an account with the scare minimum, but it
does make forex trading much more accessible to the average individual who
doesn't have a lot of start-up trading capital.

10. Free Stuff Everywhere

Most online forex brokers offer "demo" accounts to practice trading and build your
skills, along with real-time forex news and charting services. And guess what?!
They're all free! Demo accounts are very valuable resources for those who are
"financially hampered" and would like to hone their trading skills with "play
money" before opening a live trading account and risking real money. Now that
you know the advantages of the forex market, see how it compares with the stock
market!

Determinants of exchange rates:

The following theories explain the fluctuations in exchange rates in a floating

exchange rate regime (In a fixed exchange rate regime, rates are decided by its
government):

1. International parity conditions: Relative Purchasing Power Parity,

interest rate parity, Domestic Fisher effect, International Fisher effect. Though
to some extent the above theories provide logical explanation for the
31
 fluctuations in exchange rates, yet these theories falter as they are based on
challengeable assumptions [e.g., free flow of goods, services and capital] which
seldom hold true in the real world.

2. Balance of payments model (see exchange rate): This model,

however, focuses largely on tradable goods and services, ignoring the
increasing role of global capital flows. It failed to provide any explanation for
continuous appreciation of dollar during 1980s and most part of 1990s in face
of soaring US current account deficit.

3. Asset market model (see exchange rate): views currencies as an

important asset class for constructing investment portfolios. Assets prices are
influenced mostly by people's willingness to hold the existing quantities of
assets, which in turn depends on their expectations on the future worth of these
assets. The asset market model of exchange rate determination states that “the
exchange rate between two currencies represents the price that just balances the
relative supplies of, and demand for, assets denominated in those currencies.”

None of the models developed so far succeed to explain exchange rates

and volatility in the longer time frames. For shorter time frames (less than a few
days) algorithms can be devised to predict prices. It is understood from the
above models that many macroeconomic factors affect the exchange rates and in
the end currency prices are a result of dual forces of demand and supply. The
world's currency markets can be viewed as a huge melting pot: in a large and
ever-changing mix of current events, supply and demand factors are constantly
shifting, and the price of one currency in relation to another shifts accordingly.
No other market encompasses (and distills) as much of what is going on in the
world at any given time as foreign exchange.

32
 Supply and demand for any given currency, and thus its value, are not
influenced by any single element, but rather by several.

These elements generally fall into three categories: economic factors, political
conditions and market psychology.

Economic factors

These include: (a) economic policy, disseminated by government agencies and

central banks, (b) economic conditions, generally revealed through economic
reports, and other economic indicators.

33
 Economic policy comprises government fiscal policy
(budget/spending practices) and monetary policy (the means by which a
government's central bank influences the supply and "cost" of money, which is
reflected by the level of interest rates).

 Government budget deficits or surpluses: The market usually reacts

negatively to widening government budget deficits, and positively to narrowing
budget deficits. The impact is reflected in the value of a country's currency.

 Balance of trade levels and trends: The trade flow between countries
illustrates the demand for goods and services, which in turn indicates demand
for a country's currency to conduct trade. Surpluses and deficits in trade of
goods and services reflect the competitiveness of a nation's economy. For
example, trade deficits may have a negative impact on a nation's currency.

 Inflation levels and trends: Typically a currency will lose value if there
is a high level of inflation in the country or if inflation levels are perceived to be
rising. This is because inflation erodes purchasing power, thus demand, for that
particular currency. However, a currency may sometimes strengthen when
inflation rises because of expectations that the central bank will raise short-term
interest rates to combat rising inflation.

 Economic growth and health: Reports such as GDP, employment levels,

retail sales, capacity utilization and others, detail the levels of a country's
economic growth and health. Generally, the more healthy and robust a country's

34
 economy, the better its currency will perform, and the more demand for it there
will be.

 Productivity of an economy: Increasing productivity in an economy

should positively influence the value of its currency. Its effects are more
prominent if the increase is in the traded sector.

Political conditions
Internal, regional, and international political conditions and events can have a
profound effect on currency markets.

All exchange rates are susceptible to political instability and anticipations about
the new ruling party. Political upheaval and instability can have a negative
impact on a nation's economy. For example, destabilization of coalition
governments in Pakistan and Thailand can negatively affect the value of their
currencies. Similarly, in a country experiencing financial difficulties, the rise of
a political faction that is perceived to be fiscally responsible can have the
opposite effect. Also, events in one country in a region may spur
positive/negative interest in a neighboring country and, in the process, affect its
currency.

Market psychology
Market psychology and trader perceptions influence the foreign exchange
market in a variety of ways:

35
 Flights to quality: Unsettling international events can lead to a "flight to
quality", a type of capital flight whereby investors move their assets to a
perceived "safe haven". There will be a greater demand, thus a higher price, for
currencies perceived as stronger over their relatively weaker counterparts. The
U.S. dollar, Swiss franc and gold have been traditional safe havens during times
of political or economic uncertainty.

 Long-term trends: Currency markets often move in visible long-term

trends. Although currencies do not have an annual growing season like physical
commodities, business cycles do make themselves felt. Cycle analysis looks at
longer-term price trends that may rise from economic or political trends.

 "Buy the rumor, sell the fact": This market truism can apply to many
currency situations. It is the tendency for the price of a currency to reflect the
impact of a particular action before it occurs and, when the anticipated event
comes to pass, react in exactly the opposite direction. This may also be referred
to as a market being "oversold" or "overbought". To buy the rumor or sell the
fact can also be an example of the cognitive bias known as anchoring, when
investors focus too much on the relevance of outside events to currency prices.

 Economic numbers: While economic numbers can certainly reflect

economic policy, some reports and numbers take on a talisman-like effect:

The number it becomes important to market psychology and may have an

immediate impact on short-term market moves. "What to watch" can change over
time.

36
Risks Involved With Trading in Forex
The forex market is not a place for amateur investors. Investing here
with any chance of success requires a good understanding of the processes and
techniques involved. The investor will also need a good grasp of various factors
affecting the markets and how he must react in order to turn any circumstances
to his advantage. The greatest advantages of the forex markets, its size, liquidity,
adaptability and opportunities can also become the pit falls if an investor begins
trading without understanding the risks.

Amplification of Losses
Leverage is considered the most attractive aspect of forex trading. An investor
can make massive gains with just a small investment because of a high leverage
in the forex market. The high liquidity in the market and the constant
fluctuations in price help a smart investor make quick substantial gains by
putting up just 1% of the total investment amount from his own funds. The rest
can be borrowed from the dealer.

In a forex trade, the price fluctuation is not the only basis for profit. It is the
leverage which causes gains to multiply. The actual price fluctuation in the value
of currency is very small.

However, leverage works both ways. With a high leverage, huge losses are also
just as possible as huge gains. When you increase the potential for gains, you
automatically increase your risk too. A small fluctuation in the price of currency
on the higher side lets the investor multiply his investment. But the same

37
 movement downwards can wipe out his funds completely and leave him liable to
pay the broker.

Constant Fluctuations
The forex market is open and active 24 hours a day. When trading ends in the
US, other markets may just be opening for the day. Several traders across the
world operate in the forex market and a combination of trades by many different
traders can influence prices to a large extent.

Traders who are actively trading at any point of time react immediately to
factors that can impact currency values. Unless you are trading at that moment,
you cannot take advantage of the situation. This may leave you with an
unsustainable currency pair position whose profitability has eroded overnight.

This is one disadvantage of the 24 hours trading in the forex market. There is no
guarantee that the prices will remain at the same levels that you left them at
when your trading day starts because trading is constantly going on elsewhere
around the globe.

Lack of Information
What affects the US economy may not have a significant impact on another
economy. A decision taken on the basis of incomplete knowledge of a country’s
economic situation can lead to disastrous results in forex. A thorough
understanding of the political, geographic and economic factors of the country
whose currency you are interested in is critical to success in forex. Without this,
forex trading is an extremely risky affair.

High Maintenance

38
A forex trade requires high maintenance. The investor needs to be updated on
price, trends and changes at all times in order to take action to prevent losses.

The market is purely speculative and time is money in forex trading. The
investor cannot sit back for years or even months with a forex investment like he
would after investing in the equity of a blue chip company. The Forex
transaction requires hands on, constant tracking and high maintenance to remain
lucrative.

Absence of Regulations
The absence of regulation makes it difficult for an investor to get arbitration
when disputes arise. There is no intermediary to help in settlement processes and
issues. The trades are entered into by the two parties directly and the terms are
negotiated by them. Although a formal contract is created, there is no structured
channel for disputed deals to be managed or settled.

The deals are based largely on trust and it is the responsibility of the investor to
ensure that he deals with an ethical and trustworthy party. Investors can opt for
NFA registered brokers to make sure they have some recourse if the broker fails
to fulfill obligations.

Frauds
The possibility of huge gains and the lack of regulation make the forex market a
fertile ground for frauds of all sorts. Although the CFTC registration is a means
of checking the credentials of a broker, it is up to the investor to make sure of
these aspects and to keep a close eye on his forex trading account to ensure the
safety of his funds.

Price Uncertainty
39
The absence of an exchange brings uncertainty in the price of a currency.
Different brokers may offer different bid and ask prices in the same market. A
lot of effort and time needs to be invested in determining the right price in order
to maximize gains. The uncertainty in price also makes predictions more
complex and difficult.

40
Problem statement
“Currency trading at forex”

Objective of study
How to trade in currency with forex!

With company’s software learning trading different types of currency pair.

To know Most traded currency pair by value in different country.

Significance of study
To provide basic knowledge about currency market!

It will help trader to understand how to trade in currency pair.

To know that which currency most traded by value in different economy!

Scope of study
Introduction to currency trading at forex!

Trading in EUR v/s USD and GBP v/s USD!

41
Data collection
1) Primary data collection:-
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 project 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?

2) Secondary data sources:-

To keep with 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.

In this project analysis done through secondary data

The analysis was purely based on the secondary data. So, any error in
the secondary data might also affect the study undertaken.

Tools of techniques

 Chart
 Capture from software mete trader

42
Limitation of project
 Study is limited to currency trading and its usage and utility.
 Study is limited to currency exchange and factor deciding currency fluctuations.
 Study is limited to forex exchange and how forex trading is done.
 Study is limited to forex brokers.
 Owing to the dynamic nature of the global economy in particular, the finding of
the report will not be applicable after appoint of time.
 No practical access to global market exchanges.
 Time constraint.

43
Most traded currency by value

Rank Currency Code (Symbol)

1. United states dollar $

2. Euro €

3. Japanese yen ¥

4. Pound Sterling £

5. Australian dollar $

6. Swiss franc Fr

7. Canadian dollar $

8. Hongkong dollar $

9. Newzeland dollar $

10. South Korean won ₩

11. Singapore dollar $

12. Mexican pesd $

13. Indian rupee

44
Region wise most traded currency pair
In London:
London remains by far the highest volume trading center for foreign exchange.
It therefore won’t come as much surprise that the global pair ranking is very
similar to the one for this specific center. Based on the most recent data, here are
the most traded currency pairs in for the London market.

1. EUR/USD
2. GBP/USD
3. USD/JPY
4. AUD/USD
5. USD/CHF
6. EUR/GBP

As was the case with the global figures, EUR/USD does about 50% more
volume itself than the next two pairs combined.

In New York:

The second largest of the trading centers is the U.S., with New York still the
main focal point. Here are the most traded currency pairs in for this region.

1. EUR/USD
2. USD/JPY
3. GBP/USD
4. AUD/USD
5. USD/CAD
6. EUR/JPY

The top non-majors currency pair in this region is USD/MXN, with USD/BRL
only doing about a third of that volume
45
In Tokyo:

Here are the most traded currency pairs in for the Japanese market. As indicated
above, the Japanese report does not have very much depth in terms of
specifically parsing out the most traded currency pairs, so the list isn’t as long as
for other regions.

1. USD/JPY
2. EUR/USD
3. EUR/JPY
4. AUD/USD
5. GBP/USD

There is a big drop off from USD/JPY to the EUR pairs, with the former doing
batten three and four times as much volume.

In Australia:
Australia (primarily Sydney) has become a very significant market in global
foreign exchange on a total volume basis. It’s not a broad market, hoitver, in that
trading in the Aussie dollar dominates (not surprisingly). Here are the most
traded currency pairs.

1. AUD/USD
2. EUR/USD
3. USD/JPY
4. GBP/USD
5. USD/CAD
6. EUR/JPY
7. EUR/GBP
8. USD/CHF

Among the pairs trading in Australia, AUD/USD does about four times as much
volume as EUR/USD, and it drops rapidly off even further after that.

46
In Singapore:

Singapore can’t compare to London or New York for sheer trading volume, but
it is a broad-based market where most of the major Asian regional currencies
trade. Here are the most traded forex pairs.

1. EUR/USD
2. USD/JPY
3. GBP/USD
4. AUD/USD

In India:

In India, during my one month study I realized that Indian people is most traded
no currency as are follow

1. EUR/USD
2. GBP/USD
3. AUD/USD
Because only reason is that here people don’t want to take risk to trade in
different currency which are they not very much aware about it to creating more
loss.

47
How to make purchase in forex

Choose your currency pair

Decide on your deal volume

Set your profit goals

Set your loss limits

Check again and place your order

Get confirmation

Close your position

48
1. Choose your currency pair

Analyze the market and select a currency pair that you want to trade.
Decide which currency you think will go up, and which one will go
down.

49
Currency pair and indicator value

50
2. Decide on your deal volume

Choose the amount of currency you want to trade. The more volume you trade, the more you
can earn or lose. If you're a beginner, it recommends that you have to make small trades.

51
3. Set your profit goals

When you make a trade, you should set a profit target. When this target is reached, your
position will be closed automatically, and your profit and original stake will be transferred to
your account.

52
4. Set your loss limits

Similarly, you need to decide how much you're willing to lose. Set this and once again your
position will be closed automatically once the price reaches this limit. Your remaining stake
will be transferred to your account. Remember not to risk all your money.

53
5. Check again and place your order

Look at the parameters you've just selected. Make any changes that are needed. Confirm that
the price you wanted is still available; the price is only available for a short time and may
have changed. If it has changed, decide if you still want to trade. If you do place your orders.

54
6. Get confirmation

As

soon as you enter your order, the data is sent to our servers. It checks the details and executes
your order right away. Once the deal is made, it sends you a confirmation, and your open
position appears on your trading terminal.

Click “OK” to confirm an order

55
7. Close your position

Once the price reaches a point where you want to sell, close you position and it will transfer
the money to your account. Note that your account balance does not reflect your profit or loss
until you do this.

Your position will be closed automatically if the price reaches the profit or loss limits you
set.

Click on the yellow button to close the position.

56
Conclusion

During this project work I have tried my best touch each and every aspect which
would affect the business process of the company.
The parameters that decide the price of currency in differentex
changes are:
 Volume of currency being traded.
 Demand and supply forces.
 Worldwide demand and supply of a given currency.
The area of facilitating currency is perhaps the area where there is greatest scope
for exchanges to learn from each other's experience.
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 besting any organization then you have to do
your work with full dedication and sincerity.

57
Recommendations to the Company
After such observations and some conclusions made on the basis of that I would
like to recommend some important points, upon which company should focus
and try to grow its business by tapping the market through making new
customers. In this recommendation part of this project work I am suggesting
these points.

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:

 Arranging various kinds of activities at public gathering.

 Placing the customer facilitating desks at various places.
 Approach to the various offices to get new leads or customer contacts.

58
 BIBILIOGRAPHY AND REFERENCES

1. Primary Sources of Data

(Interview conducted with the following personnel from the
Company):
Mr.Dharmesh.J.Vora(Partnership broker at YoutradeFX)

Mr.Chirag Vaghani (portfolio manager at YoutradeFX)

2. Secondary Sources of Data

(A).The Internet
www.forex.com
www.babypips.com
www.youtradefx.com
www.investopedia.com

(B).Print Media
Project report on forex exposure management 2000-2001 (Narsi
Monji Institute of Management

(C).Book Referred for Study

International Financial Management-P.G.APTE
The Management of Foreign Exchange Risk- Ian H. Giddy & Gunter
Dufay
Currency Trading For Dummies By Mark Galant and Brian Dolan
NCFM Currency Future Model

59