FOREX Markets & Trading Currencies

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1 FOREX Markets & Trading Currencies

2 Updates Tonight: FOREX & Demonstra1on of thinkorswim pla9orm Next Week: Stock & Op*ons Trading 101 on March 3 rd Execu1ve Board Applica1ons out now Apply for COO & CMO due by March 14th AIer event, pick up your T- shirt & Manual if you haven t yet

3 FOREX Markets The FOREX market is the largest and most liquid market in the world. More than $25 Trillion in contracts and op1ons are traded daily. This is larger than any other equity or bond market in the world. FOREX markets trade 24 hours per day, six days per week. It is open to small investors trading a few thousand dollars as well as large investors trading millions of dollars at a 1me. FOREX accounts allow significant leveraging through use of margin.

4 What Is a Currency Pair? Trading FOREX involves trading currencies in pairs. A currency pair includes the two currencies involved in an exchange rate, each with a specific role. Example: EUR/USD = $ (Base/Quote) The first currency, EUR, is known as the base currency. The second currency, USD, is known as the quote currency. If EUR/USD=$1.2700, this means that it takes $1.27 to buy 1. The order of the currencies have no bearing on performance.

5 Most Popular Currency Pairs Base/Quote The Majors EUR/USD Euro vs. U.S. Dollar (Euro) USD/JPY U.S. Dollar vs. Japanese Yen (Yen) GBP/USD Bri1sh Pound vs. U.S. Dollar (Sterling) USD/CHF U.S. Dollar vs. Swiss Franc (Swissie) The Minors AUD/USD Australian Dollar vs. U.S. Dollar (Aussie) USD/CAD U.S. Dollar vs. Canadian Dollar (Loonie) NZD/USD New Zealand Dollar vs. U.S. Dollar (Kiwi) AUD/JPY Australian Dollar vs. Japanese Yen EUR/JPY Euro vs. Japanese Yen GBP/JPY Bri1sh Pound vs. Japanese Yen GBP/CHF Bri1sh Pound vs. Swiss Franc EUR/CHF Euro vs. Swiss Franc EUR/GBP Euro vs. Bri1sh Pound The Majors are the most liquid and make up the majority of the FOREX market.

6 How a Currency Pair is Priced In FOREX trading, currency pairs are quoted in hundredths of a penny. Example: EUR/USD=$ $ = One pip Each movement up or down by one- hundredth of a penny is called a pip. For example, if the exchange rate moved from $ to $1.2765, you would say market increased by 16 pips. Each pip in currency pairs quoted in USD is worth $10. Others that are not quoted in USD are close to $10, but may not be exactly $10. In this example, if you bought the pair at $ and sold at $1.2765, your profit would be $160.

7 FOREX Commissions Market Makers, those that provide liquidity and pricing, are known as Futures Commission Merchants (FCM s) in the FOREX markets. FCMs receive revenue through the bid- ask spread. Trading through an FCM offers the tremendous advantage of never paying a commission. When you open a posi1on in a currency pair, you do not actually spend the money at this 1me. However, you must put up margin to enter into the trade. Only when you close the posi1on will the gain or loss be reflected via cash in your account.

8 Long Trade Example You are bullish on the Euro rela1ve to the U.S. Dollar You enter into a long posi1on in EUR/USD at $ AIer three weeks, your projec1ons were correct and you sell the pair at $ Gain: $ or 417 pips Profit: 417 pips * $10 = $4,170

9 Currency Lots Currencies are traded in lots. One lot or one contract equals 100,000 units of currency. If the average move in EUR/USD is one penny per day (100 pips), your account increases or decreases $1,000 on average per day per 1 lot. You can trade down to 1/10 th of a lot. When you buy 1/10 th of a lot of EUR/USD, you are buying 10,000 with U.S. Dollars.

10 Margin When you enter into a currency pair posi1on, you broker requires a margin deposit. Margin is a good faith deposit in your account so your broker knows that if your posi1ons lose value, you can cover the losses. Currency margin requirement is 2%, which allows for 50:1 leverage for the Major Pairs and 20:1 leverage for the Minor Pairs. This means that for every lot you trade, you need at least 2% of the Base currency. (i.e. USD/JPY - > $2,000 ini1al margin to buy 100,000 units of USD with Japanese Yen) For every $50 traded, you have to post $1 margin. Margin calls are usually not issued in FOREX. Brokers will typically just liquidate your posi1on without warning.

11 Let s