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What is Forex

What is Forex

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Published by: pj eugenio on Jan 29, 2010
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05/24/2012

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WHAT IS FOREX TRADING

EURO/USD Buying Rate
1.4920
• FOREX trading is buying and selling of one currency against another. • Individuals speculators trade currencies directly in order to benefit from the movement in the foreign exchange rate. For example: • If the Japanese Yen is strengthening, one may want to buy the Japanese Yen against the US Dollar, expecting the Japanese Yen to appreciate in value. • Similarly, if the Japanese Yen is weakening, one may sell the Japanese Yen against the US Dollar.

Selling Rate
1.4928

USD/YEN Buying Rate
93.10

Selling Rate
93.18

WHO ARE THE FOREX MARKET PLAYERS
• The largest traded market in the world. • Daily traded volume estimated USD 3.2 trillion a day • Operates 24 hours a day from Monday to Friday

ADVANTAGES OF FOREX VS STOCK TRADING

FOREX
Two way market, can profit from upward or a downward market movement Low capital outlay of 1% of 100,000 contract value

STOCK
One way market, can profit from an upward market movement only High capital outlay of 100% of full contract value

No takers required at anytime during the 24 hours trading High liquidity with great efficiency with huge international trading volume of USD3.2 trillion a day

Takers required at all times during the short trading hours More vulnerable to liquidity risks, due to small domestic trading volume

THE TRADING REQUIREMENTS
Currency Pair EUR/USD GBP/USD Contract Value EURO 100,000 GBP 100,000 Margin Requirement USD1000 Per lot USD1000 Per lot USD1000 Per lot USD1000 Per lot USD1000 Per lot Trading Hours 24 hours 24 hours Min. Price Movement (value per pip) 0.0001 Fixed at USD 10/pip 0.0001 Fixed at USD 10/pip 0.0001 Fixed at USD 10/pip 0.01 Varies USD9-USD11/pip 0.0001 Varies USD8-USD10/pip Brokerage Fee USD 60/lot settlement USD 60/lot settlement USD 60/lot settlement USD 60/lot settlement USD 60/lot settlement

AUD/USD USD/JPY

AUD 100,000 USD 100,000

24 hours 24 hours

USD/CHF

USD 100,000

24 hours

• •

The margin requirement to trade a currency pair is USD1000 per lot Each pip movement carries a value of USD8 to USD11 depending our what currency pair

For example: EUR/USD 1.4900 to 1.4901, movement of 0.0001 x 100,000 = USD10/pip

POTENTIAL RETURN AGAINST CAPITAL OUTLAY

• Movement from 1.2574 to 1.3741 is 0.1167 (1167 pips) x US10 /pip = US$11,670 • Trade taken: Bought 1 lot of EUR/USD at entry level 1.2574 and take profit at exit level 1.3741 • Number of pips make for profit is 1167 x US$10/pip • calculated at:

Profit Return Capital Outlay

US$ 11,670/lot US$ 1,000/lot

Ratio of Return

US$1 : US$11.67
116.7% in 8 trading days

POTENTIAL RETURN AGAINST CALCULATED RISK

• • •

Buy EUR/USD at entry level 1.2425, projecting profit level at 1.2715 = 290 pts x USD 10/pip Calculated risk projected at cut loss level 1.2333 = 92 pips x USD 10/pip Profit against Losses :

Risk Ratio US$ 1.00 : US$ 3.15 (Losses) (Profit)

Potential Profit Return USD 2,900 Projected Cut Loss USD 920

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