FX market
1.1 What is FX and FX market 1.2 Uniqueness of FX market 1.3 Why FX market exists? 1.4 Understand the FX quotes 1.5 Major currencies 1.6 Analysing the FX market
1.1 The FX market
• Foreign exchange market: the market currencies are exchanged for each other
• Foreign + Exchange FOREX
1.2 The Uniqueness of FX market
o Largest financial market o Most liquid financial market o Most flexible financial market o 24/7 financial market o OTC market
1.2 The Uniqueness of FX market
• King of the financial market! • Bank for International Settlement (BIS):
Market FX Global stocks
April 2007 3 Trillion 0.9 Trillion
August 2010 4.3 Trillion 1.1 Trillion
1.2 The Uniqueness of FX market
High volume – high liquidity Advantage of high liquidity: Fast execution Place trade at nearly all prices No “gaps”
BHP 1H chart
AUD/USD 1H Chart
1.2 The Uniqueness of FX market
• Highly flexible market: Long or Short Long AND short Full range of trading tools: Spot FX, FX
forward, FX option, FX swap and FX Margin trading
1.2 The Uniqueness of FX market
Asian session:NZD, AUD, JPY HKD, SGD GMT 19:00 – 7:00
European session:EUR, GBP, CHF, JPY,XAU GMT 6:00 – 17:00
American session:USD,EUR, GBP, CAD, JPY, XAU, OIL GMT: 13:00 – 21:00
1.2 The Uniqueness of FX market
• IBS: UK US Switzerland Japan
• Best FX time zone? EU and US
1.2 The Uniqueness of FX market
• FX market is OTC market – Over the counter • No central exchange • London metal exchange, Chicago Board
Options Exchange
• Advantages: Low or no transaction cost Highly flexible products
1.3 Why FX market exists?
• International trade and currency exchange • Risk management • Investment and Speculation
1.3 Why FX market exists?
• Investment risk – purchase Google stocks GOOG 3rd June 2009
28th Nov 2011
Profit
Price 262 USD 445 USD
Shares 500 500
USD value 131,000 USD 222,500 USD 91,500 USD
Exchange rate 0.63 0.8235
AUD value 207,936 AUD 270,188 AUD 62,252 AUD
Losses due to FX risk
36,560 AUD
1.3 Why FX market exists?
• Banks, hedge funds, investment firms and individuals invest and speculate on FX market for profits
• IMF data: 90% daily FX transactions are for investment
or speculation purposes
AUD/USD Weekly chart
1st June 2010:0.8457
1st June 2011:1.0708
Appreciation:26.62%
100:1 leverage:2620.62%
Interest rate:4%
1.4 FX quotes
• Currencies trade in pairs: EUR/USD USD/JPY GBP/CHF
• Commodity currency or Base Currency • Quote Currency or Term currency
1.4 FX quotes
EUR/USD 1.32
1 EUR equals to 1.32 USD In TERMS of USD, EUR equals to 1.32
EUR – Commodity currency USD – Quote currency
EUR/USD 1.33
EUR/USD 1.31
EUR appreciates in value against USD
EUR depreciates in value against USD
1.4 FX quotes
• American quotes: AUD/USD, EUR/USD, XAU/USD, OIL/USD
• European quotes: USD/CHF, USD/JPY, USD/CAD
1.4 FX quotes
Bid : the price to sell Commodity currency
Offer: the price to buy Commodity currency
Spread: the difference between bid and offer rate
1.4 FX quotes
• EUR – commodity currency • Buy EUR/USD at 1.3203 • Sell EUR/USD at 1.3201 • Spread: 1.3203 – 1.3201 = 0.0002 • 0.0002 is know as 2 points, or 2 pips • Tip: buy high and sell low
Bid Offer EUR/USD 1.3201 1.3203
1.4 FX quotes
1.5 Major currencies
• IMF report: USD 44.5% EUR 21% GBP11% JPY 7% AUD 3% CHF 2.8% CAD 2.5% NZD 1.9%
1.5 Major currencies
• Most traded currency pairs: EUR/USD GBP/USD USD/JPY AUD/USD USD/CHF
1.6 Analysing the FX market
• Fundamental analysis • Technical analysis • Behavioral analysis
1.6 Analysing the FX market
• Fundamental analysis – analysing the economic conditions of different countries, invest into the currency which has stronger economic fundamentals in predicating the appreciation of value.
• Better economic condition – more demand for investment
1.6 Analysing the FX market
• Better economic condition and higher interest rate in Australia will result in more demand of AUD
• AUD/JPY appreciates in value
Australia Japan Interest rate 3.75% 0.1% GDP 2.5% 0.8%
1.6 Analysing the FX market
• Technical analysis – analysing the currency movement by using charting and statistically indicators
• Trend and momentum
1.6 Analysing the FX market
• Behavioral analysis – analysing the repeating behaviours of investors, to invest on behavioural or psychological patterns
1.6 Analysing the FX market
• It took 6 years (2002 – 2008) for AUD/USD to increase from 0.6 to 0.98, but only 4 months to give the profit back – the Panic effect
• Monday has a statistically low return comparing to the other weekdays – the Monday effect
FX market
1.1 What is FX and FX market 1.2 Uniqueness of FX market 1.3 Why FX market exists? 1.4 Understand the FX quotes 1.5 Major currencies 1.6 Analysing the FX market
easy-forex® endorses responsible and moderate trading. Forex trading (OTC Trading) involves substantial risk of
loss, and may not be suitable for everyone and we would like to recommend you not to risk any money that you cannot afford to lose. Please note that the information
and content provided in our workshops and/or seminars is made available for informative and educational
purposes only and can under no circumstances be considered as a recommendation to you by easy-forex®
or any easy-forex® personnel to engage in any trade. Hence, neither easy-forex® nor any of its personnel can
under any circumstances be held responsible for any outcome of trading decisions or trades in regard to any of
these workshops and/or seminars EF Worldwide Ltd is registered in Guernsey.
Easy Forex Pty Limited is regulated by the Australian Securities and Investment Commission (ASIC) - Australian Financial Services (AFS) License 246566