Currency investors Group Forex Intro PPT

67 %
33 %
Information about Currency investors Group Forex Intro PPT
Product-Training-Manuals

Published on May 9, 2009

Author: cigmarketing

Source: authorstream.com

Foreign Currency Trading : Foreign Currency Trading Forex Introduction Presentation By Currency Investors Group Currency Investors Group Slide 2: Let’s start with a definition of foreign currency exchange rates. Simply put, foreign currency exchange rates are what it costs to exchange one country’s currency for another country’s currency. On your next trip to England, you’ll stop at the first ATM for cash for cabs, snacks, tips, etc. Your ATM transaction will be a foreign exchange transaction. You’ll take money out of your US account in dollars and receive it in pounds. Let’s look at an example. At the preparation of this presentation, each dollar you take out of your account will deliver .67 GPD. This would be considered the spot market conversion rate for converting dollars to pounds. Currency Investors Group What are foreign currency exchange rates? Slide 3: After spending a few days in England you find you need more ready cash to spend on the trip. You visit another ATM and discover that your dollar now converts to .65 GPD. This means that the dollar is worth less than the pound or “weaker” against the pound than it was just days earlier. When you arrive back home, you will need to convert your remaining pounds to dollars for use in the US. This process will serve as another spot market transaction and your dollar’s value will be determined by the market’s conversion rate on that day. The intermediary associated with your transaction, i.e. the bank, keeps a fee associated with the exchange. Currency Investors Group What are foreign currency exchange rates? Slide 4: You can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. Example: The exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536. In other words, one divided by .56011 equals 1.78536. Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (or one divided by 1.78536 equals .56011). This is how newspapers and your trading platform will often report currency exchange rates. **Know however, that this will not be exactly what you pay or receive in the exchange. Currency Investors Group This is how we do the math Slide 5: You should know, however, that you will not receive the price quoted in the newspaper if you trade forex. That’s because Futures Commission Merchants or FCM’s where you will open your live account, and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. This difference is called a spread and we’ll talk more about spreads later in this program. As you see, currency exchange rates fluctuate. Retail customers who trade in the forex market hope to profit from those fluctuations. Our goal is to teach you how to profit consistently with satisfactory risk management. Currency Investors Group How do dealers and traders make money? Slide 6: You should know, however, that you will not receive the price quoted in the newspaper if you trade forex. That’s because Futures Commission Merchants or FCM’s where you will open your live account, and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. This difference is called a spread and we’ll talk more about spreads later in this program. As you see, currency exchange rates fluctuate. Retail customers who trade in the forex market hope to profit from those fluctuations. Your goal is to profit consistently with satisfactory risk management. Currency Investors Group How do dealers and traders make money? Slide 7: Now let’s take a look at how foreign currencies are quoted and priced. Currencies are designated by three-letter symbols. The standard symbols for some of the most commonly traded currencies are shown below. EUR   Euro    USD   United States dollar    CAD   Canadian dollar    GBP   British pound    JPY   Japanese yen   AUD   Australian dollar    CHF   Swiss franc Currency Investors Group How foreign currencies quoted and priced Slide 8: Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price). The second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. This spread could also be quoted as 1.2170/78. Currency Investors Group How foreign currencies quoted and priced Slide 9: At first glance, the bid and ask prices may seem backwards to you. That is because they are listed from the dealer’s point of view, not from your point of view. The first part of the spread, or the bid, is what the dealer is willing to pay to buy the base currency. So this is the price you will get if you SELL the base currency. In the same way, the second part of the spread, or the ask, is what the dealer is willing to sell the base currency at, so this is the price you will get if you BUY the base currency. Currency Investors Group How foreign currencies quoted and priced Slide 10: As we look at another example, make a note of this important point. **The forex market has no central market place as does the equities market. There is no NASDAQ or NYSE for the forex market. Example: If the USD/CHF spread is listed as 1.2440/1.2443, you can sell one US dollar for 1.2440 Swiss francs and buy one US dollar for 1.2443 Swiss francs. The forex dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price. **The Base currency in the first currency listed in a currency pair. Currency Investors Group How foreign currencies quoted and priced Slide 11: Using this USD/JPY spread (110.45/55), how many Japanese yen would it take to buy one US dollar? Remember, the first part of the quote is the sell quote so the dealer will the USD for 110.45. The second part of the quote is the dealer buy quote so you can buy one USD for 110.55 Japanese yen. Who determines the execution price—the trader, the dealer or the exchange? The correct answer is the dealer. ** Remember that the forex markets we are discussing have no central exchange on which the contracts are traded, and you as the trader, have no control over the execution price. Currency Investors Group How foreign currencies quoted and priced Slide 12: Before trading forex, you will have to open a trading account with a forex dealer. There are no rules about how a dealer charges a customer for the services the dealer provides or that limit how much the dealer can charge. Some firms charge a per trade commission, while other firms make their money on the spread between the bid and ask prices they give their customers. In the earlier example, the amount of the Euro spread is .0008 (the 1.2178 ask price minus the 1.2170 bid price). This means that if you bought (or sold) the Euro and immediately turned around and sold (or bought) it before the prices changed, you would have a $.0008 loss on each Euro, or an $80 loss on a 100,000 Euro transaction. The wider the spread, the more the price has to move before you break even. While some forex firms advertise “commission free” trading, they are still making money from your trades through the bid/ask spread. Currency Investors Group The price you pay to trade foreign currency Slide 13: Retail forex transactions are normally closed out by entering into an equal but opposite transaction with the dealer. For example, if you bought Euros with US dollars, you would close out the trade by selling Euros for US dollars. This also is called an offsetting or liquidating transaction. Many retail forex transactions have a settlement date when the currencies are due to be delivered. If you want to keep your position open beyond the settlement date, you must roll the position over to the next settlement date. Most forex dealers in the Spot Forex market roll open positions over automatically. Currency Investors Group The price you pay to trade foreign currency Slide 14: Now that you know how forex is traded, it’s time to learn how to calculate your profits and losses. When you close out a trade, take the price (exchange rate) when selling the base currency and subtract the price when buying the base currency, then multiply the difference by the transaction size. That will give you your profit or loss. The Equation: Price (exchange rate) when selling the base currency – price when buying the base currency X transaction size = profit or loss Let’s look at an example. Currency Investors Group Calculating Profits and Losses Slide 15: Assume you buy Euros at $1.2178 per Euro and sell Euros at $1.2188 per Euro. The transaction size is 100,000 Euros. The Equation: To calculate your profit or loss, you take the selling price of $1.2188, subtract the buying price of $1.2178 and multiply the difference by the transaction size of 100,000. ($1.2188 – 1.2178) X 100,000 = $100 In this example, you would have a $100 profit from this transaction. Currency Investors Group Calculating Profits and Losses Slide 16: Let’s try it again using a different currency. Assume you buy British pounds at $1.8384 and sell them at $1.8389. The transaction size is 10,000. By following the formula we discussed earlier, you should be able to determine that you would see a $5.00 gain from this transaction. ($1.8389 – $1.8384) X 10,000 = $5.00 Currency Investors Group Calculating Profits and Losses Slide 17: Now you try it. If you sell 100,000 Euros at $1.2170 per Euro and buy 100,000 Euros at 1.2180 per Euro, would you have a profit or loss on the transaction and how much would it be? Remember The Equation: Price (exchange rate) when selling the base currency – price when buying the base currency X transaction size = profit or loss 1.2170 – 1.2180 = .- 001 1.2170 – 1.2180 x 100,000 = -100 for a $100 loss Currency Investors Group Calculating Profits and Losses Slide 18: You can also calculate your unrealized profits and losses on open positions. Just substitute the current bid or ask rate for the action you will take when closing out the position. For example, if you bought 100,000 Euros at 1.2178 and the current bid rate is 1.2173, you have an unrealized loss of $50. ($1.2173 – $1.2178) X 100,000 = –$50 Similarly, if you sold 100,000 Euros at 1.2170 and the current ask rate is 1.2165, you have an unrealized profit of $50. ($1.2170 – $1.2165) X 100,000 = $50 Currency Investors Group Calculating Profits and Losses Slide 19: If the quote currency is not in US dollars, you will have to convert the profit or loss to US dollars at the dealer’s rate. Let’s look at an example using a USD/JPY spread. If you lost 50,000 Japanese yen on the transaction and the dealer’s rate is $.0091 for each yen, what is your loss in dollars? By multiplying the transaction size (50,000) by the dealer's rate ($.0091), you will find that your loss is $455. 50,000 X $.0091 = $455 Remember that you must also subtract any dealer commissions or other fees from your profits or add them to your losses to determine your true profits and losses. Also, remember that the dealer makes money from the spread. If you immediately liquidate your position using the same spread, you will automatically lose money. Currency Investors Group Calculating Profits and Losses Slide 20: As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation. Let’s proceed on the assumption that you have risk capital you would like to use in trading forex. The next question is how much you need to open an account. This will vary according to the forex dealer with some requiring balances of $5000.00 and others opening accounts for specific marketing campaigns for as low as $25.00. Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 21: Most dealers will also require you to have a certain amount of money in your account for each transaction. This security deposit, sometimes called margin, is a percentage of the transaction value and may be different for different currencies. Keep in mind that a security deposit acts as a performance bond and is not a down payment or partial payment for the transaction. Let’s use an example of a dealer requiring a 1% security deposit. The formula for calculating the security deposit is: The current price of the base currency X transaction size X security deposit % = security deposit requirement given in quote currency Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 22: Looking at the Euro example we used earlier, multiply the current price of the base currency ($1.2178) times the transaction size of 100,000 times 1%. Your security deposit would be $1,217.80. $1.2178 X 100,000 X .01 = $1,217.80 Security deposits allow customers to control transactions with a value many times larger than the funds in their accounts. In the previous example, $1,217.80 would control $121,780 worth of Euros. This ability to control a large amount of one currency using a very small percentage of its value is called leverage. In our example, the leverage is 100:1 because the security deposit controls Euros worth 100 times the amount of the deposit. Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 23: Since leverage allows you to control large amounts of currency for a very small amount, it magnifies the percentage amount of your profits and losses. A profit or loss of $1,217.80 on the euro transaction is 1% of the full price but is 100% of the 1% security deposit. The higher the leverage, the more likely you are to lose your entire investment if exchange rates go down when you expect them to go up or go up when you expect them to go down. You should check your Account Agreement with the dealer to see if the Agreement limits your losses. Some dealers guarantee that you will not lose more than you invest, which includes both the initial deposit and any subsequent deposits to keep the position open. Other dealers may charge you for losses that are greater than your investment. Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 24: Margin Based Leverage = Total Value of Transaction Margin Required For example: If you are required to deposit 1% of the total transaction value as margin and you intend to trade one standard lot of USD/CHF which is equivalent to US$100,000, the margin required would be US$1,000. Thus, your margin-based leverage will be 100:1 (100,000/1,000). Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up - and control - a huge amount of money. Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 25: An Example from Grace Cheng at http://gracecheng.com Both Trader A and Trader B have a trading capital of US$10,000, and they trade with a broker that requires a 1% margin deposit. After doing some analysis, both of them agree that USD/JPY is hitting a top and should fall in value. Therefore, both of them short the USD/JPY at 120. Trader A chooses to apply 50 times real leverage on this trade by shorting US$500,000 worth of USD/JPY (50 x $10,000) based on his $10,000 trading capital. Because USD/JPY stands at 120, one pip of USD/JPY for one standard lot is worth approximately US$8.30, so one pip of USD/JPY for five standard lots is worth approximately US$41.50. If USD/JPY rises to 121, Trader A will lose 100 pips on this trade, which is equivalent to a loss of US$4,150. This single loss will represent a whopping 41.5% of his total trading capital.Trader B is a more careful trader and decides to apply five times real leverage on this trade by shorting US$50,000 worth of USD/JPY (5 x $10,000) based on his $10,000 trading capital. That $50,000 worth of USD/JPY equals to just one-half of 1 standard lot. If USD/JPY rises to 121, Trader B will lose 100 pips on this trade, which is equivalent to a loss of $415. This single loss represents 4.15% of his total trading capital. Currency Investors Group How Leverage Impacts Foreign Currency Trading Slide 26:  Currency Investors Group How Leverage Impacts Foreign Currency Trading Refer to the chart below to see how the trading accounts of these two traders compare after the 100-pip loss. An Example from Grace Cheng at http://gracecheng.com continued. Slide 27:  Currency Investors Group Some final points as we wrap this introduction What is a pip? Pip stands for "percentage in point" and is the smallest increment of trade in Forex. In the forex market, prices are quoted to the fourth decimal point. For example, if a bar of soap in the drugstore was priced at $1.20, in the FX market the same bar of soap would be quoted at 1.2000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100th of 1%. Among the major currencies, the only exception to that rule is the Japanese yen. Because the Japanese yen has never been revalued since the Second World War, 1 yen is now worth approximately US$0.08; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i.e. to 1/100th of yen, as opposed to 1/1000th with other major currencies). Slide 28:  Currency Investors Group Some final points as we wrap this introduction What are you really selling or buying in the currency market? The short answer is "nothing". The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader's account. Slide 29:  Currency Investors Group Some final points as we wrap this introduction What are you really selling or buying in the currency market? The short answer is "nothing". The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader's account. Slide 30:  Currency Investors Group Is there a next step for you? Forex or currency trading is not for everyone. Currency Investors Group and its training arm “YouCanTradeCurrency.com” deliver numerous overviews, trainings, and demos for use by prospective traders. We would like you to become a part of those sessions if you wish. Visit http://currencyinvestorsgroup.com for information regarding additional training opportunities, training packages, pre-approved mechanical trading systems, and preferred forex dealer relationships. If you are interested in a career in forex you will also find our site extremely helpful in determining your next move. Thank you for being with us today. Glossary of Terms : Glossary of Terms Vocabulary in notes area

Add a comment

Related presentations

Related pages

FREE 1-on-1 LIVE training - Forex Trading | easy-forex

... institutional investors, ... Forex trading is always done in currency pairs. For example, ... group of major currencies.
Read more

Investing 101: Introduction | Investopedia

Trade the Forex market risk free using our ... Investing 101: A Tutorial For Beginner Investors. By Investopedia Staff. Investing 101 ... Investing 101 ...
Read more

F O R E I G N E X C H A N G E B A S I C S

... such as the CME Group. The spot/cash/OTC/off-exchange forex ... Trading forex is buying one currency while at the ... Investors and traders can ...
Read more

Forex Tutorial: What is Forex Trading? | Investopedia

... Introduction to Currency Trading; Forex ... for traders because it was available to individual investors for a longer ... Investopedia, LLC. All Rights ...
Read more

Introduction to Investing | Investor.gov

Protecting investors is an important part of our mission. Learn More About The Role of the SEC. Retirement and Retirement Plans . For most Americans, ...
Read more

eToro - The Social Trading & Investment Network

Join eToro's social trading investment ... The best returns occur when investors are plugged into diverse social groups that enable them to collide with ...
Read more

Introductory Guide

Introductory Guide Gregory Connor and ... vehicle that is open to only a limited group of investors and whose ... currency futures.
Read more

#1 - Надежные форекс банки

Если прогноз верный, то вы получите прибыль ... Минимальная инвестиция $1; Вы сами ...
Read more