TRADING CURRENCIES. OhMyGeorge! Gamers Make The Best Traders!

Transcription

1 TRADING CURRENCIES 101 OhMyGeorge! Gamers Make The Best Traders! 1

2 CONTENT PART 1 What is currencies trading? p.3 PART 2 Reading a currency quote p.6 PART 3 How to get started? p.10 PART 4 Forex trading tips and vocab p.14 2

3 Chapter 1 What is currency trading? How big is the market compared to stocks and volume traded per day How to make money Most famous currencies pairs (Currency Symbols, Major Traded Currency Pairs) 3

4 Chapter 1 - What is currency trading? What is the foreign exchange market? The foreign exchange market has many different names and nicknames. So if you see people referring to the currency exchange market, FX or Forex, they are all referring to the same thing. So what is it? The foreign exchange is where corporation, financial institutions and individuals trade their currencies. Currency trading is one of the most important aspects of modern society because they are at the origin of all trades. Currencies need to be exchanged in order to conduct foreign trade and business. You must have already encountered currency trading in your life. For example, if you are living in the USA and you want to buy wine from France, you will need to pay the French vineyard in its local currency, the Euro (EUR). This means you need to exchange U.S dollars (USD) into the equivalent value of euros before being able to sip some good wine. If you have travelled outside of the Eurozone, you ve probably also encountered foreign exchange. For example if you are a French tourist traveling to China, you won t be able to spend your Euros (EUR) to walk on The Great Wall of China because it s not the locally accepted currency. So you will need to exchange your euros for the local currency, in this case the Chinese Yuan (CNY). So how big of a market are we talking about? The foreign exchange market is a global, decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world. Financial centres around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock. «it is by far the largest market in the world» Tweet The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, 4

5 Chapter 1 - What is currency trading? Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across every time zone. This means that when the trading day in the U.S. ends, the trading begins in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly. The foreign exchange market does not determine the relative values of different currencies, but sets the current market price of the value of one currency as demanded against another. Trading in foreign exchange markets averaged $5.3 trillion per day in April For comparison the NY Stock Exchange, the largest stock market in the world, trades a measly $50 billion per day That s 1% of the size of currency markets! How to make money on the foreign exchange? So now that you have the big picture and that you understand what is the foreign exchange market, you should now be asking yourself how to start making some profit out of this. The best way to explain how it works is by giving you an example. Like I told you in the introduction, if you ve travelled to a foreign country, chances are that you ve had to exchange your currency for the local currency. So imagine you are a French tourist traveling to China and you want to walk on The Great Wall of China. Before you leave France, you took out 1000 euros from your savings which you exchange for Chinese Yuan (CNY). Let s say at the time of the exchange you could get 8 Yuan for every 1 euro. So in total you ve bought 8000 Yuan from your 1000 euros. Now that you ve gone on vacation in China, walked on the great wall of China, but you were lucky, grandma Susan came with you on the trip and she paid for all of your expenses! You didn t even spend 1 Yuan! So you return to France with 8000 Yuan still in your wallet, but during your stay in China, the exchange rate has changed and the value of 1 euro is now 7 yuan. So you go back to your bank to change your money back and you now get 1143 euros. That s 143 euros more than your initial purchase. So this is it, you just made money by exchanging currencies. Buying one currency, holding it and selling it at another value for profit. 5

6 Chapter 2 Reading a currency quote You just made money by exchange money while traveling to a foreign country! That s awesome. But now it s time to show you how currencies pairs are traded in the foreign exchange market. So each currency gets traded in pairs. The value of each currency is always based on the exchange rate between its pairing partner. That s why currencies are always quoted in pairs, for example : GDP/EUR, EUR/USD, USD/JP.. In order to trade, you need to know how to read a currency pair. 6

7 Chapter 2 - Reading a currency quote First, you need to know your currency symbols. Currencies are always written using 3 letters. The first two letters refer to the country where the currency comes from. The third letter refers to the name of the currency. For example : USD stands for United States Dollar. GBP is for Great Britain Pound. AUD is for Australian Dollars, etc. Here is a table of the most commonly traded currencies and their acronyms: Symbol AUD CAD CHF EUR GBP JPY NOK NZD SEK USD Currency Australian Dollar Canadian Dollar Swiss Franc European Euro Great Britain Pound Japanese Yen Norwegian Krona New Zealand Dollar Swedish Krona United States Dollar 7

8 Chapter 2 - Reading a currency quote Pairs Currency pairs always contains two currencies: the Base Currency and the Quote Currency. The base currency refers to the first currency shown in a currency pair, and the quote currency refers to the second. Let s look at an example: in the EUR/USD pair, the first currency (EUR) is the base currency. The second currency (USD) is the quote currency. In this example, the exchange rate would represent how much of the quote currency is required to buy 1 unit of the base currency. Trade currency Pairs Although all countries must trade currencies, only a handful of currencies pairs are significantly traded. These pairs are called the Major Currency Pairs and include: Pair Currency Trader term AUD/USD Australia / USA «Aussie Dollar» EUR/USD Euro Zone / USA «Euro Dollar» GBP/USD United Kingdom / USA «Pound Dollar» NZD/USD New Zealand / USA «Kiwi Dollar» USD/CAD USA / Canada «Dollar Loonie» USD/CHF USA / Switzerland «Dollar Swissy» USD/JPY USA / Japan «Dollar Yen» Due to the size and strength of the United States economy, the American dollar is the world s most actively traded currency and is paired with every major currency. The U.S. dollar is the unofficial global reserve currency nearly every central bank and institutional investment entity holds it. The euro is the second most traded currency and so is second largest reserve currency. It serves most Eurozone nations. The Japanese yen is the most traded Asian currency, and it measures the overall health of the Pan-Pacific region. 8

9 Chapter 2 - Reading a currency quote At this point you should start to understand a bit more about the logic behind currency trading and how to read quotes based on the foreign exchange market! Are you getting excited yet!? 9

10 Chapter 3 How to get started Bid/ask, conducting Research and where should you start. 10

11 Chapter 3 - How to get started Buy/Sell = Long/Short = Rise/Fall You will see these different terms while reading about forex trading. But they all mean the same thing. When you open a position on the foreign exchange market, you will need to take a decision that every trader has to do and that is to predict whether it will RISE or FALL. If you want to buy the base currency and sell the quoted currency, this means that you are expecting the base currency to rise so as to sell it back at a higher price. You can also call these positions Long positions. In the other hand, if you want to sell the base currency to buy a quote currency, this means that you want the base currency to fall in price so as to buy it at a lower price. You can also call those positions Short positions. So, remember BUY= Rise and SELL = Fall. increases, so does the price of buying that currency. When you predict that an exchange rate is going to rise, you buy, or go long on the said currency. If the exchange rate goes up as you predicted, when you are ready to end the trade, you sell that currency and make a profit. However, if the exchange rate falls, you will lose money. Rise The exchange rate rises when there is more demand for the particular currency. As demand 11

12 Chapter 3 - How to get started Say you want to trade the EUR/USD pair and you decide to invest $100 in the trade with an exchange rate of For various reasons, you believe that the exchange rate is going to go up so you buy Euros using USD. The trade is now open, and you are holding Euros. After some time, the exchange rate actually begins to fall, rather than rise. You decide to cut your losses short and end the trade before you lose too much money so you sell your Euros back to USD at a rate of 1.08 (based on the screenshots from omg). Because the exchange rate fell, you lost $2, therefore you now have a new balance of $98. To sum up, when you believe that an exchange rate is going to rise, you buy the currency in question and hold onto it. If the exchange rate rises, you make a profit when you sell back to the base currency. If it falls, you incur a loss. ( USD = (100.00/1.10) EUR = EUR > EUR = (90.91 x 1.08) USD = USD) Fall When you think that the exchange rate is going to fall, the exact opposite happens. IIn that situation you re not buying the currency, you are actually selling it or shorting it. Sometimes, you are selling something that you don t actually own, because it s like if you re going to buy it back at a different price. So if the exchange rate falls, you will make a profit. If it rises, you will lose money. Here is an example. You decide to make a trade of $100 at a EUR/USD rate of If you are trading on OhMyGeorge application the currency of your trading account is in USD. Because you believe that the exchange rate is going to fall, you sell EUR to hold USD. Don t worry if you don t actually own any USDollars, because we will lend them to you. You made the right decision, and the exchange rate does fall. You decide to close the trade at a rate of 1.15, return the USD back to the broker, who then pays you a tidy profit of $26.5. Understood? OhMyGeorge I made money! Dealing with emotions One important aspect of forex trading is the ability to deal with your emotions. The key to succeed in the currency exchange market is to avoid making decisions based on emotions. You 12

13 Chapter 3 - How to get started need to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut will not work in the long run and it s not the way to go in the foreign exchange market. And It could even cost you money! Forex trading is a highly volatile market where emotions tend to run high! (An example is trading during the Brexit events). Emotions can influence your trading decisions so if you make decisions based on strategy planned in advance, you need to stick to it no matter what you think you re seeing at the moment. That s the key to success in the Foreign exchange market. Make up your own strategy based on a system, analysis and perseverance. «Confidence - half the battle» Tweet Don t let your emotions rule your decisions! This could hurt your trading decisions in a number of ways. The strategy should tell you when to buy, what to buy and when to trade. By sticking to your strategy you will be able to maximize your profits. Most experienced traders tell novice traders that they need to develop a system - and stick to it no matter what. Doing the Research and where should you start Tweet «Knowledge is of no value unless you put it into practice.» You will be able to find a lot of information on internet on how to get started on forex trading, (look, you managed to find this e-book) So there is an endless list of websites where you will be able to find some interesting information about the foreign exchange market:

14 Chapter 3 - How to get started How to start experiencing forex trading? Before going full onboard with real money, it s important to experience the markets with a demo or practice account. Those type of accounts are free to play and are plugged to real time data so you will be experiencing the real deal, without any risk. We are actually building an mobile application that does just that. We are building OhMyGeorge! A forex trading simulation game. Experience Fast paced trade on real time data without any risk. 14

15 Chapter 4 Forex trading tips and vocab You will be able to talk like a real trader with all those trading tips and vocab! Hope you will use them often. 15

16 Chapter 4 - Forex trading tips and vocab Forex Forex is the short term for Foreign Exchange, which is the market where currencies are traded. Forex, Fx, Fx market are all the same thing. Currency Pairs Two currencies that are traded together in the foreign exchange markets. The value of a currency is determined by another currency. For example EUR/USD represents the cost of buying Euros using US Dollars. Currency pairs are read as such: the first currency listed is the base currency. The second currency listed is the quote currency. This mean that to buy 1 unit of the base currency, you have to spend X units of the quote currency. Exchange Rate the value of one currency against another. So if the exchange rate of the EUR/USD currency pair is 1.50, this means that the value of 1 Euro in US Dollars is $1.50. «You d better manage your risks» Long vs Short Positions Going long, or holding a long position, is the buying of a currency with the expectation that the asset will rise in value. On the ohmygeorge app, this is the «RISE» button. In contrast, going short, or holding a short position, is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. On the ohmygeorge app, this is the «FALL» button. Volatility Tweet Volatility refers to the amount of risk involved in a currency exchange rate. When volatility is high it means that the price of the currency can change dramatically over a short time period in either direction. But if volatility is low, it means that the exchange rate does not fluctuate often, and that the changes in value are steady. The higher the volatility, the riskier the tra- 16

17 Chapter 4 - Forex trading tips and vocab ding of the currency pair is. Stop-Loss This is a trading tool used by all the traders! This tool will allow you to define the maximum loss amount on a trade. So if your trade value meets this previously defined amount, the trade will automatically be closed. This is useful to limit your losses. Base currency The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. Forex Broker Firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker is also known as a retail forex broker, or just forex broke 17

18 OhMyGeorge Experience financial trading 18

19 OhMyGeorge Credits Author : Olivier Alcouffe Design : Thaddé Méneur 19