Friday, July 24, 2009
Forex Chart
Forex charts assist the investor by providing a visual representation of exchange rate fluctuations. Many variables affect currency exchange rates, such as interest rates, bank policies, geopolitics, and even the time of day may affect exchange rates.
In order to help the investor attempt to predict when or in what direction a rate may change, advisors provide forex charts. Quality forex websites provide subscribers with a daily newsletter that includes a forex chart, forex signals and a forex forecast.
There are a variety of forex charts available for the investor to use and study. Some are very simple using only a couple of forex signals or indicators and are ideal for beginners. Others include 30 or 40 forex signals or indicators and live on-line streaming data so that the investor may analyze trades quickly and accurately.
In order to make an accurate forex forecast, it would seem that the more indicators, the better, but some analysts prefer a simpler system.
The idea behind studying forex charts is that history repeats itself. Instead of trying to “see the future”, a forex forecast evaluates the past. That is to say that the analyst who is responsible for attempting to predict future currency moves analyzes what happened to an exchange rate yesterday, last week, last month or last year and uses this knowledge to the best degree he knows how.
Some people trade short term, some intermediate term, and some long term. All three types of traders may benefit from the use of forex charts, just adapted to their own trading time frame.
Investors also create their own forex charts to evaluate their own performance. Creating a forex strategy for oneself is the goal of many investors. Instead of looking to a professional to analyze forex signals, these investors choose to create their own forex forecast.
Others, however, create their own strategy but also follow the opinions of professional currency traders at the same time. It all depends on your personal preferences.
There are other forex charts that deal with known correlations between two currency pairs, that is, how they move in relation to each other. Some exchange rates are known to affect other exchange rates, either by moving in the same or the opposite direction depending on the correlation.
Charts are available that explain these correlations in detail and show which pairs have strong correlations or strong negative correlations, so that an investor can use the movement of the exchange rate of one currency as a signal to trade another currency. These correlations are also the basis for some forex forecasts.
It can be difficult and overwhelming to enter the world of forex trading alone. Experts recommend education, practice with a demo account and advice from a reputable broker who is backed by a quality institution. Learning to read forex charts and evaluate forex signals is a skill that comes with time, skills that are essential when an accurate forex forecast is the the goal.
In order to help the investor attempt to predict when or in what direction a rate may change, advisors provide forex charts. Quality forex websites provide subscribers with a daily newsletter that includes a forex chart, forex signals and a forex forecast.
There are a variety of forex charts available for the investor to use and study. Some are very simple using only a couple of forex signals or indicators and are ideal for beginners. Others include 30 or 40 forex signals or indicators and live on-line streaming data so that the investor may analyze trades quickly and accurately.
In order to make an accurate forex forecast, it would seem that the more indicators, the better, but some analysts prefer a simpler system.
The idea behind studying forex charts is that history repeats itself. Instead of trying to “see the future”, a forex forecast evaluates the past. That is to say that the analyst who is responsible for attempting to predict future currency moves analyzes what happened to an exchange rate yesterday, last week, last month or last year and uses this knowledge to the best degree he knows how.
Some people trade short term, some intermediate term, and some long term. All three types of traders may benefit from the use of forex charts, just adapted to their own trading time frame.
Investors also create their own forex charts to evaluate their own performance. Creating a forex strategy for oneself is the goal of many investors. Instead of looking to a professional to analyze forex signals, these investors choose to create their own forex forecast.
Others, however, create their own strategy but also follow the opinions of professional currency traders at the same time. It all depends on your personal preferences.
There are other forex charts that deal with known correlations between two currency pairs, that is, how they move in relation to each other. Some exchange rates are known to affect other exchange rates, either by moving in the same or the opposite direction depending on the correlation.
Charts are available that explain these correlations in detail and show which pairs have strong correlations or strong negative correlations, so that an investor can use the movement of the exchange rate of one currency as a signal to trade another currency. These correlations are also the basis for some forex forecasts.
It can be difficult and overwhelming to enter the world of forex trading alone. Experts recommend education, practice with a demo account and advice from a reputable broker who is backed by a quality institution. Learning to read forex charts and evaluate forex signals is a skill that comes with time, skills that are essential when an accurate forex forecast is the the goal.
Characteristic of Forex market
In recent years, the foreign exchange market could favor more and more people, it becomes a favorite for the international investors, and this is strongly related to the characteristics of the Forex market. The main characteristics of the foreign exchange market are:
1st, It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".
But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.
2nd, Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.
Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.
This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.
3rd, Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.
In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.
1st, It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".
But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.
2nd, Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.
Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.
This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.
3rd, Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.
In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.
Forex Margin Trading
Comparing to other investment, the Foreign Exchange margin trading is one of the fairest and the most attractive investment method.
The Foreign Exchange margin trading meaning the traders borrow loan from bank, finance organization or broker house to carry on the foreign currency trading. Generally, the financing proportion is above 20 times, which means the Forex traders’ fund may enlarge to 20 times to carry on the trading. The bigger the financing proportion, means the Forex traders just need to pay very less fund, for example, the financing proportion provided by the financial organization is 400 times, namely the lowest margin request is 0.25%, the traders just need to pay 25 US dollars, then he or she could trade as high as 10,000 US dollars, fully using the contra method to make big profit by only paying a very less price.
Besides the fund enlargement, another attraction of the Forex margin trading method is that it can be traded in both ways, you can make profit by buying the currency when the currency rise (makes many), or to sell a currency when the currency is dropping to make profit (short-selling), thus does not need to be restricted by the restriction so-called bear market is unable to make money.
Making Profit in the Foreign Exchange Market
The currency fluctuate continuously due to reasons such as political, economical reasons, sometimes the changes could be extremely great, therefore, the Forex traders also can have the opportunity in among which makes a profit. For example, the Japanese Yen daily fluctuation is probably between 0.7% to 1.5%, Forex traders may make profit through buying and selling. All trading could be completed in a short time, the trading strategy could be carry up according to the market conditions, it is extremely flexible, even if the direction looks wrong, the lost could be stop immediately, the lost could reduce but profit potential is still great. Therefore, the Foreign Exchange margin trading is the most flexible and the most reliable investment method.
Foreign Exchange Margin Trading elementary knowledge
Currency name Commonly used currency code
Singapore dollar
Thai Bath
Swedish krona
Danish Krone
Norwegian krone
Spanish peseta
German Mark
US dollar
Euro
Japanese Yen
Pound
Swiss franc
Australian dollar
New Zealand Yuan
Canadian dollar
Hong Kong dollar
French franc
Italian lira
Belgian franc SGD
THB
SEK
DKK
NOK
ESP
DEM
USD
EUR
JPY
GBP
CHF
AUD
NZD
CAD
HKD
FRF
ITL
BEF
The Foreign Exchange margin trading meaning the traders borrow loan from bank, finance organization or broker house to carry on the foreign currency trading. Generally, the financing proportion is above 20 times, which means the Forex traders’ fund may enlarge to 20 times to carry on the trading. The bigger the financing proportion, means the Forex traders just need to pay very less fund, for example, the financing proportion provided by the financial organization is 400 times, namely the lowest margin request is 0.25%, the traders just need to pay 25 US dollars, then he or she could trade as high as 10,000 US dollars, fully using the contra method to make big profit by only paying a very less price.
Besides the fund enlargement, another attraction of the Forex margin trading method is that it can be traded in both ways, you can make profit by buying the currency when the currency rise (makes many), or to sell a currency when the currency is dropping to make profit (short-selling), thus does not need to be restricted by the restriction so-called bear market is unable to make money.
Making Profit in the Foreign Exchange Market
The currency fluctuate continuously due to reasons such as political, economical reasons, sometimes the changes could be extremely great, therefore, the Forex traders also can have the opportunity in among which makes a profit. For example, the Japanese Yen daily fluctuation is probably between 0.7% to 1.5%, Forex traders may make profit through buying and selling. All trading could be completed in a short time, the trading strategy could be carry up according to the market conditions, it is extremely flexible, even if the direction looks wrong, the lost could be stop immediately, the lost could reduce but profit potential is still great. Therefore, the Foreign Exchange margin trading is the most flexible and the most reliable investment method.
Foreign Exchange Margin Trading elementary knowledge
Currency name Commonly used currency code
Singapore dollar
Thai Bath
Swedish krona
Danish Krone
Norwegian krone
Spanish peseta
German Mark
US dollar
Euro
Japanese Yen
Pound
Swiss franc
Australian dollar
New Zealand Yuan
Canadian dollar
Hong Kong dollar
French franc
Italian lira
Belgian franc SGD
THB
SEK
DKK
NOK
ESP
DEM
USD
EUR
JPY
GBP
CHF
AUD
NZD
CAD
HKD
FRF
ITL
BEF
Forex Basics
The following is an introduction to some of the basic terms and concepts used in forex trading.
Foreign Exchange : The simultaneous buying of one currency and selling of another.
Foreign Exchange Market : An informal network of trading relationships between the world's major banks and other market participants, sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.
Spot Market : Market for buying and selling currencies for settlement within two business days (the value date). USD/CAD = 1 day. Most dealers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time.
Rollover : The process whereby the settlement of a transaction is rolled forward to the next value date. The cost of this process is based on the interest rate differential between two currencies.
Exchange Rate : The value of one currency expressed in terms of another. For example, if the exchange rate for EUR/USD is 1.3200, 1 Euro is worth US$1.3200.
Currency Pair : The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.
Base Currency : The first currency in the pair.
Counter Currency : The second currency in the pair. Also known as the terms currency.
ISO Currency Codes :
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
Currency Pair Terminology
EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada" (CAD referred to as the "Loonie")
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"
The following pairs might also be referred to by the following nicknames:
EUR/USD = "Fiber"
USD/JPY = "Gopher"
EUR/GBP = "Chunnel"
GBP/CHF = "Geppy"
Market Maker :A market maker makes a market for a particular financial instrument, providing liquidity and a two-way price quote. A market maker takes the opposite side of your trade.
Broker : A firm that matches buyers and sellers for a fee or a commission.
Counterparty : One of the participants in a transaction.
Sell Quote : The quote on the left is the price at which you can sell currency. (Also known as the bid price). e.g. For EUR/USD 1.3200/03, you can sell 1 Euro for US$1.3200.
Buy Quote : The quote on the right is the price at which you can buy currency. (Also known as the ask or offer price). e.g. For EUR/USD 1.3200/03, you can buy 1 Euro for US$1.3203.
Spread : The difference between the sell quote and the buy quote. If the quote for EUR/USD reads 1.3200/03, the spread is 3 pips. In order to break even, the currency must shift in your direction by an amount equal to the spread.
Pip : Price Interest Point. The smallest price increment a currency can make. Also known as points. e.g. 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.
Pip Value : The value of a pip. 1 pip = $10 for EUR/USD, GBP/USD, AUD/USD & NZD/USD with 100k lots, or $1 per pip with 10k lots. To calculate the pip value of other currency pairs, use a pip value calculator .
Tick : Minimum change in price
Lot : The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, or 10,000 units for a mini.
Standard Account : Trading with standard lot sizes
Mini Account : Trading with mini lot sizes
Margin : The deposit required to open a position. A 1% margin requirement allows you to open a $100,000 position with a $1,000 deposit.
Leverage : The amount of times the value of your transaction exceeds your margin. e.g. 100:1 leverage implies a 1% margin.
Long Position : A position whereby the trader profits from an increase in price. (Buy low, sell high)
Short Position : A position whereby the trader profits from a decrease in price. (Sell high, buy low)
Market Order : An order at the current market price
Entry Order : An order that is executed when the price touches a pre-specified level
Limit Entry Order : An order to buy below the market or sell above the market at a pre-specified level, believing that the price will reverse direction from that point.
Stop-Entry Order : An order to buy above the market or sell below the market at a pre-specified level, believing that the price will continue in the same direction from that point.
Limit Order :An order to take profits at a pre-specified level
Stop-Loss Order : An order to limit losses at a pre-specified level
OCO Order : One Cancels Other. Two orders whereby if one is executed, the other is cancelled.
Manual Execution : The order is executed with human intervention.
Automatic Execution : The order is executed automatically by computer without human intervention or involvement.
Slippage : The difference in pips between the order price and the price the order is filled at.
Example Transaction : Assume you have a trading account of $20,000 and you have chosen to use 100:1 leverage on your account. The current quote for EUR/USD is 1.3225/28. You place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to strengthen against the dollar. At the same time you place a stop-loss order at 1.3203, and a limit order at 1.3328.
The value of this trade is $132,280 (100,000 * 1.3228) but because you are using 100:1 leverage, you only need to deposit 1% of the total, which is $1322.80 ($132,280 * 0.01).
The Euro strengthens against the dollar as expected, rising to 1.3328 where your limit order is reached. Your position is closed. You have made 100 pips.
Your total profit for this trade is $1,000 (100,000 * (1.3328 - 1.3228)), and the return on your investment is 75.6% ($1000/$1322.80).
Foreign Exchange : The simultaneous buying of one currency and selling of another.
Foreign Exchange Market : An informal network of trading relationships between the world's major banks and other market participants, sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.
Spot Market : Market for buying and selling currencies for settlement within two business days (the value date). USD/CAD = 1 day. Most dealers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time.
Rollover : The process whereby the settlement of a transaction is rolled forward to the next value date. The cost of this process is based on the interest rate differential between two currencies.
Exchange Rate : The value of one currency expressed in terms of another. For example, if the exchange rate for EUR/USD is 1.3200, 1 Euro is worth US$1.3200.
Currency Pair : The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.
Base Currency : The first currency in the pair.
Counter Currency : The second currency in the pair. Also known as the terms currency.
ISO Currency Codes :
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
Currency Pair Terminology
EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada" (CAD referred to as the "Loonie")
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"
The following pairs might also be referred to by the following nicknames:
EUR/USD = "Fiber"
USD/JPY = "Gopher"
EUR/GBP = "Chunnel"
GBP/CHF = "Geppy"
Market Maker :A market maker makes a market for a particular financial instrument, providing liquidity and a two-way price quote. A market maker takes the opposite side of your trade.
Broker : A firm that matches buyers and sellers for a fee or a commission.
Counterparty : One of the participants in a transaction.
Sell Quote : The quote on the left is the price at which you can sell currency. (Also known as the bid price). e.g. For EUR/USD 1.3200/03, you can sell 1 Euro for US$1.3200.
Buy Quote : The quote on the right is the price at which you can buy currency. (Also known as the ask or offer price). e.g. For EUR/USD 1.3200/03, you can buy 1 Euro for US$1.3203.
Spread : The difference between the sell quote and the buy quote. If the quote for EUR/USD reads 1.3200/03, the spread is 3 pips. In order to break even, the currency must shift in your direction by an amount equal to the spread.
Pip : Price Interest Point. The smallest price increment a currency can make. Also known as points. e.g. 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.
Pip Value : The value of a pip. 1 pip = $10 for EUR/USD, GBP/USD, AUD/USD & NZD/USD with 100k lots, or $1 per pip with 10k lots. To calculate the pip value of other currency pairs, use a pip value calculator .
Tick : Minimum change in price
Lot : The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, or 10,000 units for a mini.
Standard Account : Trading with standard lot sizes
Mini Account : Trading with mini lot sizes
Margin : The deposit required to open a position. A 1% margin requirement allows you to open a $100,000 position with a $1,000 deposit.
Leverage : The amount of times the value of your transaction exceeds your margin. e.g. 100:1 leverage implies a 1% margin.
Long Position : A position whereby the trader profits from an increase in price. (Buy low, sell high)
Short Position : A position whereby the trader profits from a decrease in price. (Sell high, buy low)
Market Order : An order at the current market price
Entry Order : An order that is executed when the price touches a pre-specified level
Limit Entry Order : An order to buy below the market or sell above the market at a pre-specified level, believing that the price will reverse direction from that point.
Stop-Entry Order : An order to buy above the market or sell below the market at a pre-specified level, believing that the price will continue in the same direction from that point.
Limit Order :An order to take profits at a pre-specified level
Stop-Loss Order : An order to limit losses at a pre-specified level
OCO Order : One Cancels Other. Two orders whereby if one is executed, the other is cancelled.
Manual Execution : The order is executed with human intervention.
Automatic Execution : The order is executed automatically by computer without human intervention or involvement.
Slippage : The difference in pips between the order price and the price the order is filled at.
Example Transaction : Assume you have a trading account of $20,000 and you have chosen to use 100:1 leverage on your account. The current quote for EUR/USD is 1.3225/28. You place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to strengthen against the dollar. At the same time you place a stop-loss order at 1.3203, and a limit order at 1.3328.
The value of this trade is $132,280 (100,000 * 1.3228) but because you are using 100:1 leverage, you only need to deposit 1% of the total, which is $1322.80 ($132,280 * 0.01).
The Euro strengthens against the dollar as expected, rising to 1.3328 where your limit order is reached. Your position is closed. You have made 100 pips.
Your total profit for this trade is $1,000 (100,000 * (1.3328 - 1.3228)), and the return on your investment is 75.6% ($1000/$1322.80).
Introduction of Foreign Exchange Markets
Being the main force driving the global economic market, currency is no doubt an essential element for a country. However, in order for all the countries with different currencies to trade with one another, a system of exchange rate between their currencies is needed; this system, is formally known as foreign exchange or currency exchange.
In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.
For floating exchange rate, its value is determined by the supply and demand of the global market where the supply and demand is bound by all these factors such as foreign investment, inflation and ratios of import and export. Normally, this system is adopted by most of the advance countries like for example UK, US and Canada. All of these countries have a similarity where their market is well developed and stable in economic terms. These countries choose to practice this system due to the reason where floating exchange rate is proven to be much more efficient compared to the pegged exchange rate. The reason behind this is because for floating exchange rate, the market itself will re-adjust the exchange rate real-time in order to portray the actual inflation and other economic forces. However, every system has its own flaw and so does the floating exchange rate system. For instance, if a country suffers from economic instability due to various reasons such as political issues, a floating exchange rate system will certainly discourage investment due to the high risk of suffering from inflationary disaster or sudden slump in exchange rate.
Another form of exchange rate is known as pegged exchange rate. This is a system where the value of the exchange rate is fixed by the government of a country and not the supply and demand of the market. This system is called pegged exchange rate because the value of a country’s currency is fixed to another country’s currency. As a result, the value of the pegged currency will not fluctuate unlike the floating currency. The working principle behind this system is slightly complicated where the government of a country will fixed the exchange rate of their currency and when there is a demand for a certain currency resulting a rise in the exchange rate, the government will have to release enough of that currency into the market in order to meet that demand. However, there is a fatal flaw in this system where if the pegged exchange rate is not controlled properly, panics may arise within the country and as a result of that, people will be rushing to exchange their money into a more stable currency. When that happens, the sudden overflow of that country’s currency into the market will decrease the value of their exchange rate and in the end, their currency will be worthless. Due to this reason, only those under-developed or developing countries will practice this method as a form to control the inflation rate.
However, the truth is, most of the countries do not fully practice the floating exchange rate or the pegged exchange rate method in reality. Instead, they use a hybrid system known as floating peg. Floating peg is the combination of the two main systems where one country will normally fixed their exchange rate to the US Dollars and after that, they will constantly review their peg rate in order to stay in line with the actual market value.
The Foreign exchange market, or commonly known as FOREX, is the largest and most prolific financial market because each day, more than 1 trillion worth of currency exchange takes place between investors, speculators and countries. From this, we can deduce that the actual mechanism behind the world of foreign exchange is far more complicated than what we may already know, and that, the information mentioned earlier is just the tip of an iceberg.
In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.
For floating exchange rate, its value is determined by the supply and demand of the global market where the supply and demand is bound by all these factors such as foreign investment, inflation and ratios of import and export. Normally, this system is adopted by most of the advance countries like for example UK, US and Canada. All of these countries have a similarity where their market is well developed and stable in economic terms. These countries choose to practice this system due to the reason where floating exchange rate is proven to be much more efficient compared to the pegged exchange rate. The reason behind this is because for floating exchange rate, the market itself will re-adjust the exchange rate real-time in order to portray the actual inflation and other economic forces. However, every system has its own flaw and so does the floating exchange rate system. For instance, if a country suffers from economic instability due to various reasons such as political issues, a floating exchange rate system will certainly discourage investment due to the high risk of suffering from inflationary disaster or sudden slump in exchange rate.
Another form of exchange rate is known as pegged exchange rate. This is a system where the value of the exchange rate is fixed by the government of a country and not the supply and demand of the market. This system is called pegged exchange rate because the value of a country’s currency is fixed to another country’s currency. As a result, the value of the pegged currency will not fluctuate unlike the floating currency. The working principle behind this system is slightly complicated where the government of a country will fixed the exchange rate of their currency and when there is a demand for a certain currency resulting a rise in the exchange rate, the government will have to release enough of that currency into the market in order to meet that demand. However, there is a fatal flaw in this system where if the pegged exchange rate is not controlled properly, panics may arise within the country and as a result of that, people will be rushing to exchange their money into a more stable currency. When that happens, the sudden overflow of that country’s currency into the market will decrease the value of their exchange rate and in the end, their currency will be worthless. Due to this reason, only those under-developed or developing countries will practice this method as a form to control the inflation rate.
However, the truth is, most of the countries do not fully practice the floating exchange rate or the pegged exchange rate method in reality. Instead, they use a hybrid system known as floating peg. Floating peg is the combination of the two main systems where one country will normally fixed their exchange rate to the US Dollars and after that, they will constantly review their peg rate in order to stay in line with the actual market value.
The Foreign exchange market, or commonly known as FOREX, is the largest and most prolific financial market because each day, more than 1 trillion worth of currency exchange takes place between investors, speculators and countries. From this, we can deduce that the actual mechanism behind the world of foreign exchange is far more complicated than what we may already know, and that, the information mentioned earlier is just the tip of an iceberg.
RealWorld Trading Interview with Hannah Terhune, Attorney
Dave: Are these documents boiler plate or created individually for each fund?
Hannah: They are created individually for each client.
Dave: Does this paperwork need to be filed with the SEC or anyone?
Hannah: Form D is filed with the SEC and other forms may be required to be filed with each state where investors are located.
Dave: What is the definition of “accredited investor”?
Hannah: The safe harbor protection most often relied upon by hedge funds under Rule 506 exempts offerings that are made exclusively to “accredited investors.” Issuers are permitted under these provisions to sell securities to an unlimited number of “accredited investors.” In addition, if the offering is made only to accredited investors, no specific information is required to be provided to prospective investors. The term “accredited investors” is defined to include: Individuals who have a net worth, or joint worth with their spouse, above $1,000,000, or have income above $200,000 in the last two years (or joint income with their spouse above $300,000) and a reasonable expectation of reaching the same income level in the year of investment; or are directors, officers or general partners of the hedge fund or its general partner; and Certain institutional investors, including: banks; savings and loan associations; registered brokers, dealers and investment companies; licensed small business investment companies; corporations, partnerships, limited liability companies and business trusts with more than $5,000,000 in assets; and many, if not most, employee benefit plans and trusts with more than $5,000,000 in assets.
Dave: Does everyone who invests in a hedge fund need to be an “accredited investor” or high net worth individual?
Hannah: No.
Dave: I have several friends who would love to invest in a hedge fund, but don’t meet the above criteria. Is there anyway around the regulation?
Hannah: Yes, non accredited investors can invest in a hedge fund. It depends on the fund manager’s discretion.
Dave: Does the manager need to have a Series 7 or other licenses?
Hannah: No, a Series 7 is not relevant to this discussion.
Dave: How about registration? Does the manager need to register with the SEC?
Hannah: Yes, in certain cases, given recent law changes.
Dave: Does the manager need to register in the state the fund is domiciled in?
Hannah: Form D needs to filed with the SEC.
Dave: What about the funds trader (s). Do they need to register with anyone?
Hannah: Yes, in certain cases. This requires a state-by-state determination. A fund manager must sign up with their state as the investment adviser if they have less than $25 million under management. Between $25 million and under $30 million under management, the fund manager may choose the regulator—either the state or the SEC. If the fund manager has more than $30 million under management, the fund manager would need to register with the SEC as an investment adviser.
Dave: What if the investors are from different states? Does the manager need to register in every state an investor is from?
Hannah: Yes, usually a notice filing is required as long as they are registered in another state or with the SEC.
Dave: Is this in all cases? What about very small start up funds?
Hannah: It depends on the state and the structure the fund manager opts to use.
Dave: Is there anyway to legally avoid registration?
Hannah: You either have to register or you fall within an exemption.
Dave: If the manager is a CTA does he still need to register as a fund manager?
Hannah: The difference between a CPO and a CTA is that a CTA manages individual accounts, while a CPO manages only the hedge fund, or Pool. Few of our clients remain interested in the CTA option once they realize the administrative hassle associated with managing the separate accounts. No sponsor is needed to take the Series 3 exam. The Series 3 exam is given under the auspices of the NASD’s testing program. Two different testing services provide their services to the NASD.
Unlike a traditional hedge fund (where the SEC may end up being a regulator if enough money is under management), the government regulator that may associated with CPOs is the CFTC—the Commodity Futures Trading Commission.
The CFTC has allowed the National Futures Association (NFA) to become the primary regulator of futures and commodity products (as a Self-Regulatory Organization, similar to the NASD’s status with the SEC). It is my opinion that the NFA is a very effective and competent regulator.
Dave: How about if the manager has a series 7. Is registration still required?
Hannah: A Series 7 is of no particular value to either an RIA or a CPO. If someone has a current Series 7 (they’ve been registered within the past two years with a broker/dealer), they can choose to take the Series 66 instead of the Series 65. The Series 7 plus the Series 66 is always (in all states) equivalent to the Series 65. After two years of not being with a broker/dealer, all prior registrations (such as a Series 7) expire and are no longer valid. Similarly, if someone previously passed the Series 65 but has not had it registered with either a broker/dealer or an investment advisory firm, the exam has expired and will need to be taken again. Some states will not consider someone for investment advisory status unless they were previously registered as a Series 7 with a broker/dealer.
Dave: Ok, now that we have the basics out of the way. What’s the first step someone should take before launching a fund?
Dave: Is there a minimum capital amount that you feel is needed before launch?
Hannah: No.
Dave: What about someone who does not have any investors yet, who just wants to set up the fund structure for the future? Set up an incubator fund? I know your firm runs some type of “hedge fund incubator” Can you explain what this is?
Hannah: It’s a start up process for a prospective fund manager to develop and document a track record that could be legally marketed to prospective investors when he or she is ready to open the fund to outside investors.
Hannah: They are created individually for each client.
Dave: Does this paperwork need to be filed with the SEC or anyone?
Hannah: Form D is filed with the SEC and other forms may be required to be filed with each state where investors are located.
Dave: What is the definition of “accredited investor”?
Hannah: The safe harbor protection most often relied upon by hedge funds under Rule 506 exempts offerings that are made exclusively to “accredited investors.” Issuers are permitted under these provisions to sell securities to an unlimited number of “accredited investors.” In addition, if the offering is made only to accredited investors, no specific information is required to be provided to prospective investors. The term “accredited investors” is defined to include: Individuals who have a net worth, or joint worth with their spouse, above $1,000,000, or have income above $200,000 in the last two years (or joint income with their spouse above $300,000) and a reasonable expectation of reaching the same income level in the year of investment; or are directors, officers or general partners of the hedge fund or its general partner; and Certain institutional investors, including: banks; savings and loan associations; registered brokers, dealers and investment companies; licensed small business investment companies; corporations, partnerships, limited liability companies and business trusts with more than $5,000,000 in assets; and many, if not most, employee benefit plans and trusts with more than $5,000,000 in assets.
Dave: Does everyone who invests in a hedge fund need to be an “accredited investor” or high net worth individual?
Hannah: No.
Dave: I have several friends who would love to invest in a hedge fund, but don’t meet the above criteria. Is there anyway around the regulation?
Hannah: Yes, non accredited investors can invest in a hedge fund. It depends on the fund manager’s discretion.
Dave: Does the manager need to have a Series 7 or other licenses?
Hannah: No, a Series 7 is not relevant to this discussion.
Dave: How about registration? Does the manager need to register with the SEC?
Hannah: Yes, in certain cases, given recent law changes.
Dave: Does the manager need to register in the state the fund is domiciled in?
Hannah: Form D needs to filed with the SEC.
Dave: What about the funds trader (s). Do they need to register with anyone?
Hannah: Yes, in certain cases. This requires a state-by-state determination. A fund manager must sign up with their state as the investment adviser if they have less than $25 million under management. Between $25 million and under $30 million under management, the fund manager may choose the regulator—either the state or the SEC. If the fund manager has more than $30 million under management, the fund manager would need to register with the SEC as an investment adviser.
Dave: What if the investors are from different states? Does the manager need to register in every state an investor is from?
Hannah: Yes, usually a notice filing is required as long as they are registered in another state or with the SEC.
Dave: Is this in all cases? What about very small start up funds?
Hannah: It depends on the state and the structure the fund manager opts to use.
Dave: Is there anyway to legally avoid registration?
Hannah: You either have to register or you fall within an exemption.
Dave: If the manager is a CTA does he still need to register as a fund manager?
Hannah: The difference between a CPO and a CTA is that a CTA manages individual accounts, while a CPO manages only the hedge fund, or Pool. Few of our clients remain interested in the CTA option once they realize the administrative hassle associated with managing the separate accounts. No sponsor is needed to take the Series 3 exam. The Series 3 exam is given under the auspices of the NASD’s testing program. Two different testing services provide their services to the NASD.
Unlike a traditional hedge fund (where the SEC may end up being a regulator if enough money is under management), the government regulator that may associated with CPOs is the CFTC—the Commodity Futures Trading Commission.
The CFTC has allowed the National Futures Association (NFA) to become the primary regulator of futures and commodity products (as a Self-Regulatory Organization, similar to the NASD’s status with the SEC). It is my opinion that the NFA is a very effective and competent regulator.
Dave: How about if the manager has a series 7. Is registration still required?
Hannah: A Series 7 is of no particular value to either an RIA or a CPO. If someone has a current Series 7 (they’ve been registered within the past two years with a broker/dealer), they can choose to take the Series 66 instead of the Series 65. The Series 7 plus the Series 66 is always (in all states) equivalent to the Series 65. After two years of not being with a broker/dealer, all prior registrations (such as a Series 7) expire and are no longer valid. Similarly, if someone previously passed the Series 65 but has not had it registered with either a broker/dealer or an investment advisory firm, the exam has expired and will need to be taken again. Some states will not consider someone for investment advisory status unless they were previously registered as a Series 7 with a broker/dealer.
Dave: Ok, now that we have the basics out of the way. What’s the first step someone should take before launching a fund?
Dave: Is there a minimum capital amount that you feel is needed before launch?
Hannah: No.
Dave: What about someone who does not have any investors yet, who just wants to set up the fund structure for the future? Set up an incubator fund? I know your firm runs some type of “hedge fund incubator” Can you explain what this is?
Hannah: It’s a start up process for a prospective fund manager to develop and document a track record that could be legally marketed to prospective investors when he or she is ready to open the fund to outside investors.
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