Products you can spread bet on

Transcription

1 Spread betting 1 MODULE 4 Products you can spread bet on

2 2 How to use this module Navigation There are two navigation systems in this PDF. You can move forwards and backwards using the arrows at the top of the page. You can also navigate back to the contents page using the button in the header. Printing To print this document you ll need to exit the full screen mode by pressing Esc on your keyboard. This will then give you the menu bars at the top of the screen. Then proceed to print as you normally would. To return to the full interactive screen PDF press Ctrl L on your keyboard.

3 3 Contents Global companies Indices The commodities market Global companies 5 Indices 7 The commodities market 9 Example of a spread bet on a US company 6 Types of indices 8 What typically affects the commodity markets? 10 An example 12 Introduction to foreign exchange (FX) Range of FX markets Review Foreign exchange 13 Currencies can be divided into groups 17 Summary 25 What is foreign exchange? 14 FX nicknames 18 Test your knowledge 25 The benefits of currency trading 15 An example of a foreign exchange trade hour market 15 Further examples of currency trades 21 Liquidity 16 Further examples of currency trades 22 The importance of economic data releases on the currency markets 23 Range of FX markets 24 Spread betting is a leveraged product and carries a high level of risk to your capital as prices may move rapidly against you. It is possible to lose more than your initial investment and you may be required to make further payments. These products may not be suitable for all customers therefore ensure you understand the risks and seek independent advice.

4 4 The financial markets that you can spread bet on This module will teach you about the different markets you can spread bet on and it will explain the basics on companies (shares), indices, commodities and foreign exchange.

5 5 Global companies Remember that you can spread bet on the price movement of shares from all over the world. Companies such as Pfizer, Google, Puma, BMW and Toyota can be found via the product library on CMC Markets Spread Bet platform, even though they trade on exchanges outside the UK. The currency in which the company s price is quoted depends on the country in which the company shares trade. If you are dealing in a US company such as Pfizer, then the price will be quoted in US dollars (US$). This could just as easily be pounds sterling, Canadian or Australian dollars, or Euros, depending on where the company is traded. Conveniently, you don t need to have these different currencies in your spread betting account in order to place a bet on companies outside the UK. When spread betting, you are trading in pounds per point movement, so there is no currency risk and your exposure, margin, profit and loss will always be expressed in pounds. TIQ TIP The point movement is determined by the last large digit on the right (notice the enlarged digits). Fraction of a penny. Price in UK pence. Numbers after decimal point represent fractions of pence. Price in US dollars. Numbers after decimal point represent US cents. Price in euros. Numbers after decimal point represent cents. Price in Swiss francs. Number after decimal point represents cents.

6 6 Global companies Example of a spread bet on a US company Suppose you want to trade Microsoft (MSFT), which is priced at US $ / $ and you decide to buy (go long) 1 per point. These prices are in US dollars. Your total exposure is 2,377 (23.77 x 100). If the margin requirement for Microsoft is 5%, the amount you would be required to put forward would be: (2,377 x 5%) = In this example, for every cent/ point movement in Microsoft, you make or lose 1. If Microsoft s share price moved from $ to $ then it has moved 87 cents/points making you a profit of

7 7 Indices A stock market index is made up of a basket of shares generally listed on a particular stock exchange. Often they will be representative of the largest companies on the exchange, though this is not always the case. Many traders and investors prefer to spread bet indices rather than individual companies, as they give a broader view of the economy. Index trading allows investors to gain a broad exposure to individual markets as easily as they would trade on a single company. The most heavily traded market indices are: As CMC Markets is a market maker, all of our index bets are derived and track the underlying indices in the market. At CMC Markets, we call the indices by different names to those referenced in the actual market. As a rule we usually call our indices by the country of origin and the number of shares that constitute that index, for example: The Dow Jones is in the US and is made up of 30 companies so we call it the US 30. Here are some more examples: US exchanges UK exchange German exchange Japanese exchanges Index name CMC name FTSE 100 UK 100 Dow Jones Industrial Average US 30 CAC 40 France 40 DAX 30 Germany 30 S&P 500 US SPX 500 NASDAQ 100 US NDAQ 100 S&P/ASX 200 Australian 200 Nikkei 225 Japan 225

8 8 Indices Types of indices A price-weighted index With a price-weighted index, the stocks included in the index each make up a fraction of the index proportional to their price. So, for example, a stock trading at US$100 will make up: 10 times more of the total index than a stock trading at US$10 Check out the factsheets on your CMC Markets spread betting platform to find more information on each index. 20 times more than a stock trading at US$5 50 times more than a stock trading at US$2 A price-weighted index such as the US 30 (similar to the Dow Jones Industrial Average) does not accurately reflect the market values of the stocks in the index. This is because a $100 stock might be that of a small company and a $10 stock could be that of a large company. A price-weighted index will be affected more by a change in the small company s share price (because it has a larger share of the index) than a change in a large company s share price. This is a useful consideration when trading this type of index. A market capitalisation weighted index In contrast, a market capitalisation weighted index, such as the UK 100 (similar to the FTSE 100), is based on the market values of the top 100 companies that make up the index. The market capitalisation of the company is equal to the number of shares issued, multiplied by the share price. A small shift in the price of a large company has a large effect on the index. In the UK 100 index, companies like HSBC, Royal Dutch Shell (RDSA) and Vodafone (VOD) make up a large percentage of the value. Those three alone make up almost 15% of the total value of the index.* *Correct at the time of writing.

9 9 The commodities market Commodities represent many of our vital resources in terms of food and industry. This includes crude oil, copper, as well as wheat, sugar and coffee, just to name a few. Commodity prices are influenced by a range of factors specific to each commodity class - from supply and demand conditions, weather and political risks, to pure speculation in some of the smaller markets. Traditionally, commodities have at times performed well when other popular financial products, such as shares and bonds have not, and commodities have historically performed with considerable volatility. Supply and demand are the main drivers that affect the prices of commodities. The doubling of the world s population in the past half-century to almost 7 billion people has largely driven demand. There are more mouths to feed, more infrastructure to build and more cars to fuel. The emergence of resource-hungry economies, like China and India, with a combined population in excess of 3 billion people, accounts for much of these fluctuations in commodity prices. CMC Markets offers a wide range of commodities for you to spread bet on, including agricultural, precious metals, industrial metals and energy.

10 10 The commodities market What typically affects the commodity markets? Production There are many factors that affect the movements of the commodities prices, including weather conditions, acres planted, production strikes, crop diseases, technological developments and international trade unions. Commodities are capital-intensive products to produce, they have considerable lead times and, in many cases, they are politically controlled, through subsidies, taxes or trade restrictions. All of these factors are important and have considerable influence on the cost of production, export potential and therefore prices. Inventories and infrastructure constraints Commodity price movements are also closely tied to inventory and storage capacity. Inventories serve as a bridge between the physical supply of a commodity and the current global market demand. Inventories in themselves are heavily constrained by storage capabilities. Metals and agricultural products do not run into storage capacity constraints as quickly as oil or gas does. An inability to manage inventories effectively through supply and demand shocks (drought and production strikes, for example) can force prices to react quickly and aggressively. There are large, expensive infrastructure constraints when it comes to the storage of commodities. In fact, if there was an infinite ability to store excess supply, there would be very little fluctuation in the price of many commodities over the short term. The easier a commodity is to store, the less volatile the price is likely to be. Agricultural commodities can have the additional constraint of being perishable. This adds a further time constraint to how long they can be stored for. When a commodity has low inventories consumers are more likely to pay a premium for the commodity, as it is scarcer. Demand and cyclical movements There have been considerable cyclical movements in commodities prices over the last few years. Emerging market demand has attempted to grow during a period of developing market constraints, pushing many commodity prices higher, and bringing supply in line with demand. In essence, the market is now paying for recent lack of investment in underlying production, distribution and storage. When you factor in depleting supplies, environmental pressures, political constraints and continuing uncertainty in the equity markets, it s easy to see why commodities are now a very real and interesting alternative to traditional investment products.

11 11 The commodities market The seasonal factor The supply of a commodity may be greater at different times of the year, depending on where it is produced. Supply may also be severely disrupted by things like weather, politics, natural disasters or human error. Demand changes seasonally. Good examples of this are heating oil and natural gas, which peak during winter and slow during the warmer summer months. Why should I add commodities to my portfolio? Commodities remain one of the most traded financial products in global exchanges. The high volume and value of transactions will give you exposure to a very liquid market (the Chicago Mercantile Exchange processed over 143 million contracts during the first half of 2011). Another attraction of the commodities market is the relatively low cost of entry and the fact that some of these markets trade almost 24 hours a day. As you trade on margin when you spread bet on commodities, you can increase your exposure to a certain product or market at a relatively low initial cost. Below are some of the trading times for some of our most popular commodities. Trading Hours* (GMT) To help you understand commodities trading better, let s look at an example of spread betting on Crude Oil Brent. Gold Crude Oil West Texas Natural Gas Wheat From 23:00 on Sunday to 21:00 on Friday (1 hour break from 22:00-23:00 Mon - Fri) *Trading hours are subject to change From 22:00 on Sunday to 21:00 on Friday (45 min break from 21:15-22:00 Mon - Thurs) From 22:00 on Sunday to 21:00 on Friday (45 min break from 21:15-22:00 Mon - Fri) From 23:00 on Sunday to 19:15 on Friday (2 1/4 hour break from 12:15-14:30 & 4 3/4 hour break from 18:15-23:00 on Mon - Thurs, 2 1/4 hour break on 13:15-15:30 Fri)

12 12 The commodities market Crude oil example Suppose you decide that Crude Oil Brent will continue to go up in value as it has recently reached an all-time high and some commentators are expecting further gains. You decide to buy (go long) 2 per point at $ And the margin requirement for Crude Oil Brent on our platform is 1%. You can calculate the total trade value (exposure) like so: Total trade value 2 x 100 x = 20, And you can calculate your margin amount like so: Margin = total trade value x margin requirement Margin = 20, x 1% = to open trade Good news! The price rises by US$5 a barrel to That s an increase of 500 points. Remember the markets can also move against you. For 2 per point, you have just made: Profit = stake x points moved = 2 x 500 = 1,000 Remember, your stake is in pounds per point movement, so it doesn t matter that the price is in US$. All your profits and losses are in s. To learn more about commodities trading please refer to the Commodities section within the CMC Markets website.

13 13 Introduction to foreign exchange (FX) This section will give you the basic information you need to understand the FX market. It will introduce you to: > The major products available for trading > The big players in the FX market > Other market characteristics and conventions, such as trading hours and terminology TIQ TIP Transactions in foreign exchange are now worth more than US$4 trillion a day. Background Foreign exchange markets were originally developed to cater for the supply and demand for different currencies by governments, companies and individuals, including currency speculators. They exist to service international trade and the international movement of money and capital. Today however, an enormous proportion of FX market activity is being driven by speculation, arbitrage (simultaneous buying and selling) and professional dealing, in which currencies are traded like any other commodity. Importers and exporters, international portfolio managers, corporations, speculators, day traders, long-term holders and hedge funds all use the FX market to: > Pay for goods and services > Deal in financial assets > Reduce the risk of currency movements by hedging their exposure in other markets

14 14 Introduction to foreign exchange (FX) What is foreign exchange? Foreign exchange (also known as FX, Forex or currency trading) is the simultaneous buying of one currency and selling of another. Investors and traders can speculate on changes in the relative prices between dozens of currency pairs. When one currency in a pair increases in value, the other decreases in value. This market is highly impacted by central bank and government policy. It s unique because it offers the highest trading volumes, high liquidity, and continuous operation. Unlike other financial markets, the FX market has no physical location and no central exchange. It operates through a global network of banks, corporations and individuals, trading one currency for another. Currencies can be traded on the CMC Markets platform 24 hours a day from Sunday evening at 21:00 until Friday evening at 21:00. So the FX markets are potentially less prone to gapping than the equity markets, however, during times of unexpected news or events, even the FX markets can make sharp moves which can lead to gapping. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for the markets to open. So trading FX is potentially less prone to gapping than trading the stock market, where you are often exposed to price gapping between the time the markets close and re-open. Gapping can occur when the price of a stock makes a sharp move up or down while markets are closed. So when the markets re-open the price is significantly higher or lower than it was when they closed. Access to modern news services, charting services, 24-hour dealing desks and sophisticated online electronic trading platforms for retail investors has seen speculation in the FX market explode since the mid-1990s, particularly for the small to mediumscale investor. The currency markets are not new they ve been around for as long as banks have been doing business. What is new is the accessibility of these markets to traders like you. Key foreign exchange facts > The FX market has no physical location and no central exchange. > The FX market is the world s largest financial market, trading 24 hours a day. > Respond to economic, political and social events at the time they occur, without having to wait for the markets to open. The last big figure on an exchange rate quote is referred to as a point or pip. The size of the spread between the bid and offer price on a currency pair is related to the liquidity of the underlying market. On some of the major currency pairs CMC Markets spread is lower than 1 pip, making it a very cost effective market to spread bet.

15 15 Introduction to foreign exchange (FX) The benefits of currency trading The foreign exchange cash market is the largest and most liquid of the world s financial markets, potentially making it an ideal part of a trader s portfolio. Despite the market s relative size and liquidity, FX trading remains a challenge to many private traders, perhaps because they perceive FX trading to be available only to large institutional players. This is not the case. Currency trading has become increasingly accessible to, and popular with, individual traders with the widespread availability of online trading platforms. The benefits of currency trading are numerous, here are a few of the main benefits: Leverage Forex can be traded on margin, from as low as 0.25%, often referred to as 400:1 leverage. You should be aware of the risks involved in using extremely low margin in volatile markets. Trading on margin can be a more efficient use of your capital because you only have to allocate a very small proportion of the value of your position to secure a trade, while maintaining full exposure to the market. In effect, you are increasing your profit potential. For example, with 100 as initial margin, you could open up a 40,000 currency position. Remember that where the markets move against you, your losses can exceed your initial deposit (margin) as your exposure is for the total value of the transaction and not just the margin amount. 24-hour market Forex is an over-the-counter (OTC) market, which means trades do not take place through a centralised exchange, therefore currency trading takes place around the world, 24 hours a day. It begins in New Zealand, followed up by Sydney then Tokyo, before moving to Europe, London and then New York. Unlike any other financial markets, investors can respond to currency fluctuations caused by economic, political and social events as they occur, without having to wait for markets to open. The currency markets offer price volatility 24 hours a day so, no matter what type of trader you are, from intraday, end-of-day or end-of-work-day, you have numerous trading opportunities.

16 16 Introduction to foreign exchange (FX) Liquidity The currency market is the most heavily traded financial market in the world, with a daily average turnover of well over US$4 trillion. With so many market participants trading over 24 hours, the currency markets are more liquid than any other financial market. So, if you trade a particular currency pair, whether it is for a 100 spread bet or a 10,000 spread bet, you will typically receive the same quoted price, which may not be the case in less liquid markets, such as the share market. No one is in control The currency markets are so large that they are beyond the financial control of any individual participant. Even central banks, who may intervene heavily and may influence the short-term direction of a currency for a little while, cannot control the underlying trend in their own currency.

17 17 Range of FX markets We offer low dealing spreads across all of our currency pairs. From developed to emerging markets, we offer over 300 different currency pairs to trade. CMC Markets customers are offered competitive prices on the world s major currency pairs with bid-ask spreads that are usually only accessible to the interbank market. Currencies can be divided into groups Defensive currencies European currencies Resource currencies Defensive currencies are those that tend to attract capital in times of fear, and include the US dollar (USD), the Japanese yen (JPY) and the Swiss franc (CHF), along with precious metals such as silver and gold (quoted against the US dollar). These also tend to be countries with low interest rates, where people borrow money to invest in more active markets. > Some of the most active pairs in this group include USD/JPY and USD/CHF. European currencies, such as the British pound (GBP) and the euro (EUR) also represent a group that is sensitive to the European economy. In recent years, these currencies have been at the centre of the sovereign debt crisis, with bailouts and government austerity programs having a major impact on sentiment. > Key pairs in this group include EUR/USD and GBP/USD. Currencies of resource exporters are particularly sensitive to swings in commodity prices. The Canadian dollar (CAD) and Norwegian krone (NOK) tend to be more sensitive to crude oil, with the Australian (AUD) and New Zealand (NZD) dollars more sensitive to metal and grain prices and the South African Rand (ZAR) influenced by precious metal price trends. > Popular pairs in this group include USD/ CAD, AUD/USD, NZD/USD, USD/NOK and USD/ZAR. > Resource currencies can also give exposure to certain trends. For example, Australia is a big exporter of metals and grains and its largest customer is China. Canada is a big exporter of crude oil, metals and grains, to a lesser extent, and its main customer is the US. As such, AUD/CAD not only can be seen as a play between metals and energy but also as a play on China and the US.

18 18 Range of FX markets Cross pairs Currency pairs that do not involve the US dollar are known as cross pairs. The reason for this is that the value of the cross pair is set by the relation of each currency to the US dollar; otherwise arbitrage opportunities would present themselves. Some of the more popular cross pairs tend to occur in regions outside of North America, such as EUR/GBP, EUR/CHF, AUD/NZD, EUR/JPY and GBP/JPY. FX nicknames Many of the main FX pairs have nicknames that traders use when discussing quotes. Some of the better known ones are: EUR/USD GBP/USD USD/JPY USD/CHF USD/CAD AUD/USD NZD/USD Euro Cable (from the transatlantic cables that linked traders in the US and UK) Yen Swissie Loonie (from the nickname for the Canadian $1.00 coin) Aussie Kiwi

19 19 Range of FX markets Here are some of the short names and trading hours for some of our most popular FX pairs: Currency name Currencies involved Trading hours* GBP/USD Pound sterling vs. US dollar From Sunday 21:00 to Friday 21:00 EUR/USD Euro vs. US dollar From Sunday 21:00 to Friday 21:00 USD/JPY US dollar vs. Japanese yen From Sunday 21:00 to Friday 21:00 USD/CHF US dollar vs. Swiss franc From Sunday 21:00 to Friday 21:00 AUD/USD Australian dollar vs. US dollar From Sunday 21:00 to Friday 21:00 USD/CAD US dollar vs. Canadian dollar From Sunday 21:00 to Friday 21:00 *Trading hours are subject to change

20 20 Range of FX markets An example of a foreign exchange spread bet To help you understand trading FX better, we will look at an example of trading GBP/USD (also known as Cable) in the FX market. Suppose you decide that GBP/USD is going to go higher in value as it is reaching a resistance level you don t expect to hold. You decide to go long (buy) 1 per point worth of GBP/USD at If the margin required for a spread bet on GBP/USD is 0.25%, then: Margin = Total trade value x margin requirement Margin = 15,000 x 0.25% = to open the trade The last big digit dictates the point (pip) movement. If GBP/USD goes up by 50 points (to ) and you want to take your profit, you will then close the trade by selling it. To do this, click the Account icon and select the Positions tab. Here you will find details of your live trade, simply click the red x on the far right to close out the position. A confirmation box will appear, just click Confirm to close the position and take your profit. So, on this trade you would have made 50 because the price went up 50 points and you had spread bet a stake of 1 per point. If the price had dropped 50 points to , you would have lost 50. If your stake had been 2 per point you would have made or lost 100. If your stake had been 10/pt, you would have made or lost 500.

21 21 Range of FX markets Further examples of currency trades: Buy example Scenario: GBP/AUD The Bank of England is meeting in a few days and you feel they may increase their interest rates due to current inflationary pressure. As such, you think the pound will strengthen on the back of this as it becomes more attractive due to its higher interest potential. Enter trade: In the quote panel below the price of 1 British pound (GBP) is equivalent to Australian dollars (AUD). You decide to place a BUY spread bet with a stake of 1 per point. Deposit: Because the margin requirement is 0.25% you will only need to deposit ( 15, x 0.25% = 38.89) to take out this position. Please be aware that using margin means you can lose more than your initial deposit. Holding cost: If you hold the position open overnight, your account will be debited or credited at the prevailing rate. If you have bought a higher yielding currency you will generally receive interest, if you have bought a lower yielding currency you will generally be charged interest. When spread betting on currencies, you are effectively buying one currency and selling the other. So you will pay interest on the sold currency and receive interest on the bought currency. Every country has a base rate which is set by that country s central bank. Some countries have higher base rates than others. The applicable interest paid or received is calculated based on the differential between the base interest rates of the individual currencies. Close out trade: The Bank of England do indeed raise interest rates and GBP strengthens against the AUD to and you decide to sell to take your profit. Simply click the close-out X icon in the accounts menu and then click confirm and this will automatically close out the trade and secure your profit. Profit: The price has risen by points, meaning you have made a profit of To make it even easier, when your trade is live, the Positions tab will always show your profit, and on close-out it will settle in your local currency. Loss scenario: If the pound had decreased in value due to there being no interest rate rise, for example, and the value of the GBP/AUD fell to , by closing the position you would lose as the price has dropped points and you had spread bet with a stake of 1 per point.

22 22 Range of FX markets Further examples of currency trades: SELL example Scenario: USD /JPY Unemployment figures in the US (Non-Farm Payrolls) are being released soon and you think the news is not going to be positive. You therefore feel that the value of the US dollar is going to decline against a stronger Japanese economy and you would like to profit from this move. Enter trade: In the quote panel below the price of 1 US dollar (USD) is equivalent to Japanese yen (JPY). You decide to place a SELL spread bet with a stake of 1 per point Deposit: Because the margin requirement is 0.25% you will only need to deposit ( 8, x 0.25% = 20.05) to take out this position. Please be aware that using margin means you can lose more than your initial deposit. Holding cost: If you hold the position overnight your account will be debited or credited at the prevailing rate. If you have bought a higher yielding currency you will generally receive interest, if you have bought a lower yielding currency you will generally be charged interest. Close out trade: The unemployment figures do disappoint, as you predicted, and the US dollar against the yen weakens to and you decide to buy to take your profit. Simply click the closeout X icon within the Account menu and then click confirm and this will automatically close out the trade and secure your profit. Profit: The price has fallen by 220 points, meaning you have made a profit of To make it even easier when your trade is live, the Positions tab will always show your profit and will settle on close-out in your local currency. The positions tab will always show your profit or loss. Loss scenario: If the US dollar had instead increased in value due to positive employment figures, for example, and the value of the USD/JPY rises to , by closing the position you would lose as the price has risen 530 points and you had spread bet with a stake of 1 per point..

23 23 Range of FX markets The importance of economic data releases on the currency markets Throughout the calendar month, economic figures are regularly released. These figures can have a major effect on the FX markets and even on the commodities and stock markets across the globe. As in other markets, the value of a currency is based on supply and demand. Some of the key factors that impact FX prices include: Economic growth Countries with stable, growing economies tend to be viewed more favourably and therefore they tend to attract capital. There are a number of regular economic data releases that can impact attitudes toward economic growth and in turn, the outlook for monetary policy. These include: Gross Domestic Product (GDP), purchasing managers indices (PMI), employment, retail sales, industrial production, consumer confidence and other data. Trade balance Importers need to buy other currencies in order to pay for the goods or services that they want. Countries with consistent trade surpluses (they export more than they import) tend to find their currency in higher demand compared to countries that run trade deficits. Inflation Inflation erodes the value of a currency. Countries with high inflation rates tend to be less attractive and see their currency values fall. Key measures of inflation include consumer price indices and producer price indices. Core inflation rates tend to be used by central banks when setting policy as they exclude more volatile prices such as energy and food. The problem is that consumers still have to budget for the purchase of food and fuel which can impact economic activity. Rising inflation pressures tend to accompany strong economies (too much money chasing too few goods and services) and tend to put pressure on central banks to tighten monetary supply through increasing the price of money (interest rates) or reducing the supply of money. Financial risk Investors tend to prefer stable, well managed economies. Countries running big deficits, with high national debt levels, or carrying other problems such as corruption, tend to be viewed less favourably and tend to see their currencies depressed to compensate for higher risks. One widely used measure of financial risk is national credit ratings from the three main agencies, Standard and Poors, Moody s and Fitch Ratings. The specific ratings themselves tend not to be as important, but actual upgrades and downgrades and indications of changes in outlook can have an impact on FX trading. Continued on following page

24 24 Range of FX markets Political risk For currency markets, political risk tends to reflect the potential that political change could impact fiscal or monetary policy. In many major countries the risks tend to revolve around elections and the potential that a new party could make big changes. In other countries, a change in government could lead to nationalizations or foreign policy changes that could impact economic activity and trade. Attitudes toward risk Over the long haul, some countries tend to be more cyclical than others. During times of uncertainty and fear, traders may flock to defensive positions such as government bonds in countries considered to be defensive, such as the US, Japan, Switzerland and precious metals. During times when confidence improves and sentiment turns positive, the street may move into more cyclical, resource or emerging markets. Interest rates Generally speaking, investors tend to borrow in countries with low interest rates and invest in countries with high interest rates. Investors may also demand higher interest rates to compensate for some of the risks outlined above, such as high inflation, instability or trade deficits. Anticipation of changing interest rate trends can influence FX pricing. There can be considerable speculation in currency markets around central bank decisions. The Bank of England and European Currency Board tend to decide around midday European time on the first or second Thursday of each month. The US Federal Reserve Board meets every six weeks and usually makes its announcement at 2:15pm ET on a Tuesday or Wednesday. The Bank of Canada meets about every six weeks and usually announces policy at 9:00 am ET on a Tuesday. One exception is the People s Bank of China which does not schedule interest rate decisions. Instead it makes announcements whenever it decides to do something, which can occur on weekends and major holidays. The release of minutes from meetings also tends to be widely read by traders looking for hints of changes in policy or voting trends. Here is a list of some of the more important economic announcements (you can find more information on them in Module 6) : > Current Account Balance > Trade Balance > CPI > PPI > Non-Farm Payrolls Employment > Unemployment Claims > GDP > Retail Sales > Industrial Production > PMI

25 25 Summary Now you should be able to: > Place your first spread bet on companies, indices, commodities or foreign exchange > Understand the commodities markets better and understand how to spread bet on CMC Markets cash commodities products > See the benefits of spread betting on FX and the importance of US economic figures > Place your first index spread bet. What is the sell/buy spread on silver? Go onto the platform and check. What is your minimum margin requirement for buying (going long) 1 per point in Walt Disney on the US market at $31.590/31.700? Assume a minimum margin requirement of 5%. How much margin is required to spread bet 10 per point on EUR/USD at if the margin is 0.25%? What are the opening hours for USD/JPY? Name five commodities you can trade? What type of index is the US 30? Click here to reveal answers

26 25 Summary Now you should be able to: > Place your first spread bet on companies, indices, commodities or foreign exchange > Understand the commodities markets better and understand how to spread bet on CMC Markets cash commodities products > See the benefits of spread betting on FX and the importance of US economic figures > Place your first index spread bet. What is the sell/buy spread on silver? Go onto the platform and check. 2.5 points What is your margin requirement for buying (going long) 1 per point in Walt Disney on the US market at $31.590/31.700? Assume a margin requirement of 5% x 100 x 5% = How much margin is required to spread bet 10 per point on EUR/USD at if the margin is 0.25%? The margin for EUR/USD is x 10,000 x 10 x 0.25% = What are the opening hours for USD/JPY? From Sunday 21:00 to Friday 22:00 Name five commodities you can trade? Cocoa bulk bean, coffee robusta, copper, corn, crude oil brent, crude oil west texas, gasoline, gold, heating oil, natural gas, silver, soybean, soybean meal, soybean oil, sugar raw, sugar white, wheat What type of index is the US 30? A price-weighted index Click here to hide answers