Fundamentals and Proprietary Trading Strategies for the Six Most Popular FX Markets. Prepared and Presented By Daniel Gramza

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1 Fundamentals and Proprietary Trading Strategies for the Six Most Popular FX Markets Prepared and Presented By Daniel Gramza

2 Disclaimer The information provided herein is taken from sources believed to be reliable. However, it is intended for purposes of information and education only and is not guaranteed by CME Group, Inc. or any of its subsidiaries as to accuracy, completeness, nor any trading result and does not constitute trading advice or constitute a solicitation of the purchase or sale of any futures or options. The Rulebook of the applicable exchange should be consulted as the authoritative source on all current contract specifications. E-mini S&P, Gold, Oil, Currency and Index futures are listed with, and subject to the rules and regulations of, Chicago Mercantile Exchange Inc. CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange, E-mini and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. All other trademarks are the property of their respective owners. Futures trading is not suitable for all investors, and involves the risk of loss. The information in these workshops is taken from sources believed to be reliable. It is intended for information and education only and is not guaranteed by CME Group as to accuracy, completeness, nor any trading results. The views and opinions offered by individuals or their associated firms in presentations are solely those of the authors, and do not necessarily represent the views of CME Group. Copyright 2011 CME Group. All rights reserved. 2

3 Disclaimer Materials in this presentation are covered under current United States and international copyright laws. NO PORTION OF THIS PRESENTATION MAY BE REPRODUCED WITHOUT THE WRITTEN PERMISSION OF THE AUTHOR. The content in this presentation is for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. For Free Daily 21 Futures Markets Commentary visit: dangramza.com 3

4 About Dan Gramza Over 25 years experience trading futures, options on futures, stocks, stock options and cash markets around the world Started on the exchange floors, trades upstairs Has experience with scalping, day trading, swing trading and position trading Has worked with traders from over 36 exchanges, 450 institutions, and 35 countries

5 Today s Agenda FX Definitions Fundamental Considerations Intermarket Relationships Advantages And Disadvantages Between Exchange Trading Funds (ETF s), FX Cash And FX Futures Trading Alternatives Japanese Candle Construction Review of the current live FX markets

6 TRADING CME FX FUTURES Foreign Exchange = forex = FX = Currency Market = the Value of one country s currency in terms of another countries currency Currencies are traded in pairs, such as U.S. dollar/japanese yen (USD/JPY) or Euro/U.S. dollar (EUR/USD) EUR/USD = Value of 1 Euro expressed in US Dollar terms EUR/USD = = 1 Euro = US$1.3300

7 SELL Trading at a premium to Par SELL BUY BUY Trading at a discount to Par

8 Factors that affect the FX prices Interest Rates Economics Politics Geo-political events Federal Reserve, European Central Bank, Bank of China, BoJ Supply and Demand

9 FX Intermarket Relationships Euro

10 FX Intermarket Relationships Euro, S&P 500

11 FX Intermarket Relationships Euro, S&P 500, Crude

12 FX Intermarket Relationships Euro, S&P 500, Crude, Gold

13 FX Intermarket Relationships AUD, Gold

14 FX Intermarket Relationships CAD, Crude

15 Trading FX: What Are Your Options? Regulated 24-Hour Trading Tax Benefits Leverage Currency ETF YES NO NO YES Cash FX NO YES NO YES FX Futures YES YES YES YES 15

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20 EURO ETF COMPARED TO EURO FUTURES VALUE OF INVESTMENT $179,175 (Euro Futures contract = 125,000Euro Euro Futures value = $ Value of 1 Euro Futures contract = 125,000Euro X = $179,175) ETF Euro Futures Current Level $ per share per contract Quantity $179,175/$ per share = 1, or 1,253 shares 1 contract Min. Tick Size $0.01 per share $.0001 per contract Tick Value 1,253 Shares X.01= $12.53 $12.50 per contract

21 How are Euro FX Futures profits and losses calculated? $ $1,250 +$ $ $12.50 Long

22 EURO ETF COMPARED TO EURO FUTURES (Cont'd) COST TO ACQUIRE $179,175 EURO INVESTMENT ETF Euro Futures Margin $ = 50% $2, Initial Requirement = 1.40% Margin Interest YES NO If Short (Short Interest) YES NO Fund Expenses YES NO 24 Hours NO YES

23 ETF to FUTURES Ratios S&P :1 Nasdaq :1 Euro FX 1250:1 JPY 1250:1 Corn 500:1 Soybeans 500:1 Gold 1000:1 Silver 500:1 Crude Oil 1000:1 Nat Gas 1000:1

24 FX Cash vs FX Futures Security segregated accounts Clearinghouse Regulatory Oversight regulatory oversight dispute settlement process Pricing transparency one exchange not multiple dealers Globex no order preference Speed 24

25 Japanese Candle Construction Selling Shadow Close High Open Buying Body Selling Body Open Low Buying Shadow Close

26 Gramza Capital Management, Inc.

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28 EUROPE ASIA US ASIA Gramza Capital Management, Inc.

29 Why Trade CME FX Futures? Easy access Virtually 24-hour trading One central marketplace Highly liquid Tight bid/ask spreads Leverage Tax Advantages Portfolio diversification. Open and transparent pricing Largest regulated FX market in the world Segregated accounts

30 Thank You for Attending Questions & Answers Session Free daily video of 21 Markets Visit: dangramza.com 30

31 CME FX Futures and Options Overview

32 CME FX Product Suite Coverage 60 FX Futures contracts 31 FX Options contracts 21 currencies - including the full BRIC suite CHF/USD, 4.1% NZD/USD, 2.0% MXN/USD, 5.4% Other, 1.5% AUD/USD, 13.6% The contracts Physically delivered (Majors) Cash Settled (Emerging markets) Settling on IMM dates Aside from standard futures we offer JPY/USD, 17.0% GBP/USD, 13.7% CAD/USD, 9.8% E-Mini FX ½ the size of standard contracts E-Micro FX 1/10 th the size of standard contracts Options on Futures Quarterly, serial and weekly options as well as both American and European Styles EUR/USD, 32.9% FX Futures by Currency (6m Average) 2013 CME Group. All rights reserved 32

33 Total FX Volume and OI 1,400,000 Volume and Open Interest CME FX Total Volume - CME Group Open Interest 2,500,000 1,200,000 2,000,000 1,000, ,000 1,500, ,000 1,000, , , , Jan2009 Apr2009 Jul2009 Oct2009 Jan2010 Apr2010 Jul2010 Oct2010 Jan2011 Apr2011 Jul2011 Oct2011 Jan2012 Apr2012 Jul2012 Oct2012 Jan CME Group. All rights reserved 33

34 CME FX Highlights and Milestones Low volatility created by market conditions throughout 2012 put a damper on FX and FX option trading volumes. Even so, CME outperformed the broader OTC FX market. In 2012, for the first time in history, CME beat EBS monthly volumes and did it not once, but twice. This coupled with our continued increase in open interest shows the consistent move to the CME for FX liquidity. Coupled with the large open interest holder report from the CFTC it shows we have consistently increasing paper participants and not just HFT clients. 120% CME ADV as a % of EBS October Present 115% 112% CME Foreign Exchange Futures Aggregate Number of Large Open Interest Holders* Source: CFTC 110% 100% 90% 96% 87% 83% 94% 96%87% 89%93% 91% 97% 95% 1, % 70% 72% 73% % % CME Group. All rights reserved 34

35 CME FX Options Highlights CME FX options have started out 2013 with a bang as a result of statements by various central monetary authorities (BOJ, BOE, ECB, Fed, etc), which have brought implied volatility back to certain currency pairs (JPY, EUR, GBP). CME FX Options outperformed the broader OTC FX options market last year. Showing a 6% increase in total volume vs. an estimated 18% decline in OTC options. Electronic trading of options reached 78% in Weekly options are our largest success story, with a 181% increase in ADV over 2012 vs and 93% traded electronically. Many large OTC FX option participants have re-engaged with the CME and have started making markets in our options products. We expect that OI and ADV will continue to grow going forward CME Group. All rights reserved 35

36 Options ADV and OI 90,000 80,000 Options ADV & OI Options ADV Options OI 77, , ,000 70, ,000 60, ,000 50, ,000 40, ,000 30, ,000 20, ,000 10, , Jan2009 Apr2009 Jul2009 Oct2009 Jan2010 Apr2010 Jul2010 Oct2010 Jan2011 Apr2011 Jul2011 Oct2011 Jan2012 Apr2012 Jul2012 Oct2012 Jan CME Group. All rights reserved 36

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