FOREIGN

EXCHANGE AND
ITS
SIGNIFICANCE

WHAT IS FOREIGN
EXCHANGE (FOREX)?

THE TRADE OF ONE CURRENCY FOR ANOTHER IS KNOWN AS FOREIGN

EXCHANGE
(FOREX OR FX). ONE CAN, FOR EXAMPLE, EXCHANGE THE US DOLLAR FOR THE
EURO. THE FOREIGN EXCHANGE MARKET, OFTEN KNOWN AS THE FOREX
MARKET, IS WHERE FOREIGN EXCHANGE TRANSACTIONS MAY BE MADE. WITH
BILLIONS OF DOLLARS CHANGING HANDS EVERY DAY, THE FX MARKET IS THE
WORLD'S LARGEST AND MOST LIQUID MARKET. THERE IS NO ONE POINT OF
CONTACT. THE FX MARKET, ON THE OTHER HAND, IS A GLOBAL ELECTRONIC
NETWORK OF BANKS, BROKERS, INSTITUTIONS, AND INDIVIDUAL TRADERS
(MOSTLY TRADING THROUGH BROKERS OR BANKS).

THE FOREIGN EXCHANGE MARKET, SOMETIMES KNOWN AS THE 'FOREX

MARKET,' IS A SYSTEM THAT CREATES A WORLDWIDE NETWORK THAT ALLOWS
BUYERS AND SELLERS TO TRADE OR EXCHANGE CURRENCIES FROM OTHER
NATIONS. A FOREX MARKET IS ONE OF THE MOST LIQUID FINANCIAL MARKETS
IN THE WORLD, ALLOWING FOR 'OVER-THE-COUNTER' CURRENCY TRADING.

CONTENT: FOREIGN
EXCHANGE MARKET

PARTICIPANTS

CHARACTERISTICS

TRANSACTIONS

FUNCTIONS

ADVANTAGES

DISADVANTAGES

WHO ARE THE PARTICIPANTS

IN FOREIGN EXCHANGE
MARKET?

THE PERSONS ENGAGING IN THE EXCHANGE OR TRADE OF FOREIGN MONEY

ARE REFERRED TO AS PARTICIPANTS. BUYERS, SELLERS, AND MIDDLEMEN ARE
EXAMPLES OF THESE PEOPLE.

THE FIVE PARTIES LISTED BELOW ARE PARTICIPANTS IN A CURRENCY MARKET:

CENTRAL BANK:

COMMERCIAL BANKS:

TRADITIONAL USERS:

TRADERS AND SPECULATORS:

BROKERS:

CENTRAL BANKS

THE CENTRAL BANK CONTROLS THE MONEY SUPPLY IN THE MARKET BY

REGULATING THE EXCHANGE RATES OF EACH RESPECTIVE COUNTRY'S
CURRENCY
TO MAINTAIN VARIATIONS WITHIN THE DESIRED RANGE.

COMMERCIAL BANKS

COMMERCIAL BANKS SERVE AS THE CONDUIT FOR FOREIGN CURRENCY

TRANSACTIONS, SUPPORTING INTERNATIONAL COMMERCE AND EXCHANGE AS
WELL AS OTHER FX ACTIVITIES SUCH AS FOREIGN INVESTMENT.

TRADITIONAL USERS

FOREIGN VISITORS, FIRMS CONDUCTING GLOBAL COMMERCIAL ACTIVITIES,

PATIENTS RECEIVING TREATMENT IN HOSPITALS IN OTHER COUNTRIES, AND
STUDENTS STUDYING ABROAD ARE AMONG THE TYPICAL USERS.

TRADERS AND SPECULATORS

TRADERS AND SPECULATORS ARE PROFIT-ORIENTED INDIVIDUALS WHO

SEARCH
FOR OPPORTUNITIES TO PROFIT BY TRADING ON SHORT-TERM MARKET
MOVEMENTS.

BROKERS

THEY ARE REGARDED AS FINANCIAL PROFESSIONALS WHO FUNCTION AS A

LINK
BETWEEN DEALERS AND INVESTORS BY DELIVERING THE MOST COMPETITIVE
QUOTES.
CHARACTERISTICS OF
FOREIGN MARKETS

TO COMPREHEND WHAT A CURRENCY MARKET IS, WE MUST FIRST EXAMINE ITS

FUNDAMENTAL
CHARACTERISTICS. THE FOLLOWING ARE SOME OF THE CHARACTERISTICS OF
THE FOREIGN EXCHANGE
MARKET THAT SET IT APART FROM OTHER FINANCIAL MARKETS:

MARKET TRANSPARENCY

DOLLAR IS EXTENSIVELY TRADED CURRENCY

MOST DYNAMIC MARKET

INTERNATIONAL NETWORK OF DEALERS

“OVER-THE-COUNTER” MARKET

HIGH LIQUIDITY

TWENTY-FOUR HOUR MARKET

MARKET TRANSPARENCY

WITHOUT THE PARTICIPATION OF BROKERS, IT IS SIMPLE TO WATCH THE

SWINGS IN THE VALUE OF DIFFERENT NATIONS' CURRENCIES IN THE FOREX
MARKET USING ACCOUNT TRACKING AND REAL-TIME PORTFOLIOS.

DOLLAR IS EXTENSIVELY
TRADED CURRENCY

THE MOST EXTENSIVELY TRADED CURRENCY IN THE WORLD IS THE US DOLLAR,

WHICH IS MATCHED WITH PRACTICALLY EVERY COUNTRY'S CURRENCY AND
LISTED ON THE FOREX MARKET.

MOST DYNAMIC MARKET

THE VALUE OF CURRENCIES IN THE FOREX MARKET FLUCTUATES EVERY

SECOND
AND OPERATES TWENTY-FOUR HOURS A DAY. AS A RESULT, IT IS ONE OF THE
MOST ACTIVE MARKETPLACES ON THE PLANET.

INTERNATIONAL NETWORK
OF DEALERS
THE FOREIGN EXCHANGE MARKET SERVES AS A CONDUIT FOR
COMMUNICATION BETWEEN DEALERS AND CLIENTS. DEALER'S INSTITUTIONS
ARE PLACED ALL OVER THE WORLD TO CONDUCT EXCHANGE AND TRADING
ACTIVITY.

“OVER-THE-COUNTER”
MARKET

THE FOREX MARKET IS A HIGHLY UNREGULATED INDUSTRY IN WHICH BANKS

INITIATE OVER-THE-COUNTER TRANSACTIONS BY TELEX AND TELEPHONE IN
SEVERAL NATIONS.

HIGH LIQUIDITY

BECAUSE THE CURRENCY IS THE MOST EXTENSIVELY TRADED FINANCIAL ITEM

ON THE PLANET, THE FOREX MARKET IS EXTREMELY LIQUID.

TWENTY-FOUR HOUR
MARKET

THE FOREIGN EXCHANGE MARKET IS OPEN TWENTY-FOUR HOURS A DAY,

ALLOWING FOR ACTIVE TRADING AND CURRENCY EXCHANGE AT ANY TIME.

TRANSACTIONS IN FOREIGN
EXCHANGE

SPOT MARKET TRANSACTIONS

FUTURES MARKET TRANSACTIONS

FORWARD MARKET TRANSACTIONS

SPOT MARKET
TRANSACTIONS

SPOT TRANSACTIONS ARE CURRENCY TRANSACTIONS THAT ARE COMPLETED

INSTANTLY, OR GENERALLY WITHIN TWO DAYS. A SPOT MARKET IS REFERRED
TO
AS A FOREX MARKET, AND THE RATE OF EXCHANGE IS REFERRED TO AS A SPOT
RATE.

FUTURES MARKET
TRANSACTIONS

A FUTURES FX MARKET IS ONE IN WHICH THE EXCHANGE OF CURRENCIES

INVOLVES A FUTURE DELIVERY AND PAYMENT AND THE RATE OF EXCHANGE
FOR
THE SAME IS PREDETERMINED. A FUTURE RATE IS A TYPE OF EXCHANGE RATE.
IT PROTECTS THE BUYER FROM THE DANGER OF THE CURRENCY'S VALUE
RISING.

FORWARD MARKET
TRANSACTIONS

A FORWARD FOREX MARKET, ON THE OTHER HAND, IS VERY SIMILAR TO A

FUTURES MARKET, EXCEPT THAT THE CONTRACT CONDITIONS ARE
CHANGEABLE
AND CAN BE CHANGED AT ANY TIME BY ANY OF THE PARTIES INVOLVED.

OPTIONS

FUTURES

SWAP

ARBITRAGE

OPTIONS

THE HOLDER OF AN OPTIONS CONTRACT IS NOT OBLIGATED TO PURCHASE OR

SELL
THE STATED ASSET AMOUNT AT A PREDETERMINED PRICE ON A GIVEN FUTURE,
BUT THEY DO HAVE THE RIGHT TO DO SO.

FUTURES

A FUTURE CONTRACT SPECIFIES THE QUANTITY OF AN ASSET, THE DATE OF

EXECUTION, AND THE CONTRACT PRICE.

SWAP

IF A COMMERCIAL BANK DOES FORWARD EXCHANGE TRANSACTIONS, IT IS

COMMON FOR THEM TO USE SWAP CONTRACTS. IN THIS CASE, THEY SELL A
CERTAIN CURRENCY IN THE SPOT MARKET AND PURCHASE IT IN THE FORWARD
MARKET.

ARBITRAGE

ARBITRAGE IS THE SYSTEMATIC BUYING AND SELLING OF DIFFERENT

CURRENCIES IN THE FOREX MARKET IN ORDER TO PROFIT FROM SUCH
TRANSACTIONS.
FUNCTIONS OF FOREIGN
EXCHANGE MARKETS

THE FOREIGN EXCHANGE MARKET IS THE WORLD'S LARGEST FINANCIAL

MARKET, AND IT SERVES A VARIETY OF
IMPORTANT TASKS. THE FOLLOWING ARE THE THREE BASIC PURPOSES OF A
FOREX MARKET:

HEDGING FUNCTION

TRANSFER FUNCTION

CREDIT FUNCTION

HEDGING FUNCTION

GLOBALLY TRADING BUSINESS ORGANIZATIONS CAN USE TOOLS LIKE A LETTER

OF
CREDIT OR A FORWARD CONTRACT TO MITIGATE THE RISK OF CURRENCY
SWINGS.
THE PRODUCTS ARE TO BE SUPPLIED AT A MUTUALLY AGREED PRICE AND ON A
CERTAIN FUTURE DATE.

TRANSFER FUNCTION

THE FOREX MARKET PRIMARILY SERVES TO CONVERT ONE COUNTRY'S

CURRENCY
INTO ANOTHER'S IN ORDER TO ENABLE INTERNATIONAL TRADE.

CREDIT FUNCTION

ANOTHER IMPORTANT ROLE OF THE FOREX MARKET IS TO PROVIDE CREDIT AT

THE TIME OF MAKING OVERSEAS PAYMENTS THROUGH FOREIGN BILLS OF
EXCHANGE UNTIL THEY MATURE OR ARE EXECUTED.

ADVANTAGES OF FOREIGN
EXCHANGE

FOR TRADING IN THE FOREX MARKET, A FOREX INVESTOR CAN USE LEVERAGE
OR
TAKE OUT A LOAN OF UP TO 20 OR 30 TIMES HIS OR HER CAPACITY.

INTERNATIONAL COMMERCE: EVERY COUNTRY HAS ITS OWN CURRENCY, THUS

THE FOREX MARKET IS CRUCIAL FOR FACILITATING TRADE BETWEEN
COUNTRIES.
TRADING OPTION: FOR SPECULATORS OR TRADERS, THE FOREIGN EXCHANGE
MARKET IS SIMILAR TO OTHER FINANCIAL MARKETS IN THAT THEY MAY PROFIT
FROM SHORT-TERM CURRENCY CHANGES.

FLEXIBILITY: WE ALL KNOW THAT THE FOREX MARKET IS OPEN 24 HOURS A

DAY, 7 DAYS A WEEK, AND THERE IS NO MINIMUM OR MAXIMUM
EXCHANGE AMOUNT. IT GIVES TRADERS THE OPTION OF INVESTING OR
EXCHANGING MONEY.

HEDGING RISK: WHEN CONDUCTING WORLDWIDE COMPANY OPERATIONS

AND TRADING IN FOREIGN CURRENCY, THE FOREX MARKET ALLOWS YOU TO
HEDGE YOUR RISK OF LOSING MONEY DUE TO CURRENCY CHANGES.

LOW TRANSACTION COSTS: BECAUSE BROKERS AREN'T AS WELCOME IN THE

FOREX MARKET AS THEY ARE IN OTHER FINANCIAL MARKETS, THE
TRANSACTION
COST (ALSO KNOWN AS THE 'SPREAD') LEVIED BY DEALERS IS QUITE LOW.

REGULATE INFLATION : THE CENTRAL BANK MAINTAINS A CURRENCY

RESERVE,
WHICH COMPRISES OF CURRENCIES FROM MANY NATIONS ACROSS THE WORLD,
IN ORDER TO ENSURE ECONOMIC STABILITY IN THE COUNTRY AND CONTROL
PROBLEMS SUCH AS INFLATION.

IT ALSO EMPLOYS OTHER STRATEGIES, SUCH AS LOWERING BANK LENDING

RATES
AND EXCHANGING DOMESTIC MONEY FOR FOREIGN CURRENCY.

DISADVANTAGES OF
FOREIGN EXCHANGE

RISKS OF LEVERAGE: IN OTHER WORDS, LEVERAGE REFERS TO A DEBT. THE

FOREX MARKET
USES LEVERAGE OF UP TO 20 TO 30 TIMES THE TRADERS' OR SPECULATORS'
INVESTMENT
CAPACITY, WHICH CAN RESULT IN THE INVESTOR LOSING ALL OF THEIR MONEY.

COUNTERPARTY RISKS: THE FOREX MARKET IS EXTREMELY UNREGULATED,

WITH NO
CENTRAL AUTHORITY IN CHARGE OF CURRENCY EXCHANGE OR RISK
MANAGEMENT. AS A
RESULT, IT MAY FACE THE DANGER OF ANY OF THE PARTIES INVOLVED IN SUCH
A
TRANSACTION FAILING TO FULFILL THEIR RESPONSIBILITIES.
OPERATIONAL RISKS: BECAUSE FOREX IS A 24-HOUR MARKET, IT IS DIFFICULT
FOR PEOPLE
TO MONITOR ITS OPERATIONS. AS A RESULT, TRADERS AND MNCS ALIKE RELY
ON
ALGORITHMS AND TRADING DESK SPREADS TO PROTECT THEIR INVESTMENTS
WHILE THEY ARE
AWAY.

UNDERSTANDING FOREIGN
EXCHANGE

THE BULK OF CURRENCIES' VALUE, ALSO KNOWN AS AN EXCHANGE RATE, IS

DETERMINED BY THE MARKET. CHANGING ONE CURRENCY FOR ANOTHER AT A
LOCAL BANK IS A SIMPLE KIND OF FOREIGN EXCHANGE. IT MAY ALSO ENTAIL
CURRENCY TRADING ON THE FOREIGN EXCHANGE MARKET. A TRADER IS
WAGERING, FOR EXAMPLE, THAT A CENTRAL BANK WILL LOOSEN OR TIGHTEN
MONETARY POLICY, AND THAT ONE CURRENCY WILL STRENGTHEN AGAINST
THE
OTHER.

CURRENCY PAIRINGS, SUCH AS USD/CAD, EUR/USD, AND USD/JPY, ARE USED TO

TRADE CURRENCIES.
THE US DOLLAR (USD) IS COMPARED TO THE CANADIAN DOLLAR (CAD), THE
EURO (EUR) IS COMPARED
TO THE USD, AND THE USD IS COMPARED TO THE JAPANESE YEN (JPY).EACH
PAIR WILL ALSO HAVE A
PRICE ATTACHED TO IT, FOR AS 1.2569. IF THIS PRICE IS LINKED TO THE USD/CAD
PAIR, IT SIGNIFIES THAT
BUYING ONE USD COSTS 1.2569 CAD. IF THE PRICE RISES TO 1.3336, ONE USD WILL
COST 1.3336
CAD TO PURCHASE. BECAUSE IT NOW TAKES MORE CAD TO ACQUIRE ONE USD,
THE USD HAS GAINED IN
VALUE (AND THE CAD HAS DECREASED).

CURRENCY PAIRS ARE TRADED IN MICRO, MINI, AND REGULAR LOTS IN THE
FOREX MARKET. A MICRO LOT IS
WORTH $1,000, A MINI LOT IS WORTH 10,000, AND A REGULAR LOT IS WORTH
100,000. THIS IS NOT THE
SAME AS GOING TO THE BANK AND EXCHANGING $450 FOR YOUR VACATION.
TRADES IN THE COMPUTERIZED
FOREX MARKET ARE MADE IN FIXED CURRENCY BLOCKS, ALTHOUGH YOU CAN
TRADE AS MANY BLOCKS AS YOU
LIKE. YOU CAN EXCHANGE SEVEN MICRO LOTS ($7,000), THREE MINI LOTS
($30,000), OR 75 ORDINARY LOTS
($75) FOR EXAMPLE (7,500,000).
THE FOREIGN EXCHANGE MARKET IS DISTINCTIVE FOR A VARIETY OF REASONS,
THE MOST NOTABLE OF WHICH BEING ITS SCALE. IN GENERAL, THE CURRENCY
MARKET HAS A HUGE TRADING VOLUME. ACCORDING TO THE BANK FOR
INTERNATIONAL SETTLEMENTS, WHICH IS CONTROLLED BY 63 CENTRAL BANKS
AND WORKS IN MONETARY AND FINANCIAL ACCOUNTABILITY, TRADE IN
FOREIGN
CURRENCY MARKETS AVERAGED $6.6 TRILLION PER DAY IN APRIL
2019.LONDON, NEW YORK, SINGAPORE, HONG KONG, AND TOKYO ARE
THE WORLD'S MAJOR TRADE CENTERS.

TRADING IN THE FOREIGN

EXCHANGE

THE MARKET IS OPEN FIVE DAYS A WEEK, 24 HOURS A DAY, IN MAJOR

FINANCIAL HUBS ACROSS THE WORLD.
THIS MEANS YOU MAY PURCHASE AND SELL CURRENCIES AT ANY HOUR OF THE
DAY.

THE FOREIGN EXCHANGE MARKET ISN'T A ONE-STOP SHOP BY ANY MEANS. IN

ORDER TO CONDUCT FOREX
TRANSACTIONS, AN INVESTOR CAN CHOOSE FROM A NUMBER OF VARIOUS
OPTIONS. YOU CAN GO VIA A
VARIETY OF DEALERS OR FINANCIAL CENTERS THAT EMPLOY A VARIETY OF
TECHNOLOGICAL NETWORKS.

FOREIGN EXCHANGE WAS FORMERLY A CONCEPT RESERVED FOR

GOVERNMENTS, MAJOR CORPORATIONS, AND
HEDGE FUNDS, ACCORDING TO HISTORY. HOWEVER, TRADING CURRENCIES IN
TODAY'S WORLD IS AS SIMPLE AS
CLICKING A MOUSE—ACCESSIBILITY IS NOT AN ISSUE, THEREFORE EVERYONE
CAN DO IT. MANY FINANCIAL
INSTITUTIONS ALLOW INDIVIDUALS TO CREATE ACCOUNTS AND EXCHANGE
CURRENCIES ANYTIME AND
WHEREVER THEY CHOOSE.

WHEN YOU TRADE IN THE FOREX MARKET, YOU'RE ESSENTIALLY BUYING OR

SELLING A
CERTAIN COUNTRY'S CURRENCY. HOWEVER, THERE IS NO ACTUAL TRANSFER
OF FUNDS FROM
ONE HAND TO THE OTHER. THAT'S NOT WHAT OCCURS AT A FOREIGN
EXCHANGE
KIOSK—IMAGINE A TRAVELER FROM JAPAN VISITING TIMES SQUARE IN NEW
YORK CITY.
THEY MAY BE CHANGING THEIR (PHYSICAL) YEN TO GENUINE US DOLLAR
CURRENCY (FOR
WHICH THEY MAY BE PAID A COMMISSION FEE) SO THAT THEY MAY SPEND IT
WHILE
ABROAD.

HOWEVER, IN THE REALM OF ELECTRONIC MARKETS, TRADERS OFTEN TAKE A

POSITION IN A
CERTAIN CURRENCY IN THE HOPES OF PROFITING FROM UPWARD MOVEMENT
AND STRENGTH
(OR WEAKNESS IF THEY'RE SELLING) IN THE CURRENCY THEY'RE PURCHASING.

DIFFERENCES IN THE FOREX

MARKETS

FOREIGN CURRENCY AND OTHER MARKETS HAVE SOME KEY DISTINCTIONS. TO

BEGIN WITH, THERE ARE FEWER
LAWS, WHICH MEANS THAT INVESTORS ARE NOT SUBJECTED TO THE SAME
STRINGENT STANDARDS OR
REGULATIONS AS THOSE IN THE STOCK, FUTURES, OR OPTIONS MARKETS. THAT
IMPLIES THE FX MARKET IS NOT
REGULATED BY CLEARING HOUSES OR CENTRAL ORGANIZATIONS.

SECOND, BECAUSE TRANSACTIONS ARE NOT CONDUCTED ON A TYPICAL

EXCHANGE, YOU WILL NOT BE CHARGED
THE SAME COSTS OR CHARGES AS YOU WOULD ON A DIFFERENT MARKET.
FURTHERMORE, THERE IS NO TIME
LIMIT ON WHEN YOU MAY AND CANNOT TRADE. YOU MAY TRADE AT ANY TIME
OF DAY BECAUSE THE MARKET
IS OPEN 24 HOURS A DAY. FINALLY, BECAUSE IT'S SUCH A LIQUID MARKET, YOU
MAY COME AND GO AS YOU
CHOOSE AND BUY AS MUCH MONEY AS YOU CAN AFFORD.

THE SPOT MARKET

MOST CURRENCIES SETTLE IN TWO BUSINESS DAYS, WITH THE EXCEPTION OF

THE US DOLLAR
VS THE CANADIAN DOLLAR, WHICH SETTLES THE NEXT BUSINESS DAY. THE
REMAINING
PAIRINGS WILL BE SETTLED IN TWO BUSINESS DAYS. SPOT TRANSACTIONS
MIGHT TAKE UP TO
SIX DAYS TO SETTLE DURING SEASONS WITH SEVERAL HOLIDAYS, SUCH AS
EASTER OR
CHRISTMAS. ON THE TRADE DAY, THE PRICE IS SET, BUT MONEY IS EXCHANGED
ON THE
VALUE DATE.
THE MOST ACTIVELY TRADED CURRENCY IS THE US DOLLAR. THE US DOLLAR IS
MOST
COMMONLY TRADED AGAINST THE EURO, JAPANESE YEN, BRITISH POUND, AND
AUSTRALIAN
DOLLAR. CROSSES ARE TRADING PAIRINGS THAT DO NOT INCLUDE THE U.S.
DOLLAR. THE
EURO VERSUS THE POUND AND THE YEN ARE THE TWO MOST POPULAR
CROSSES.

THE SPOT MARKET HAS THE POTENTIAL TO BE EXTREMELY TURBULENT.

TECHNICAL TRADING,
WHICH FOCUSES ON DIRECTION AND SPEED OF MOVEMENT, DOMINATES SHORT-
TERM
MOVEMENT. CHARTISTS ARE THOSE WHO SPECIALIZE IN TECHNICAL ANALYSIS.
FUNDAMENTAL VARIABLES SUCH AS RELATIVE INTEREST RATES AND
ECONOMIC GROWTH
DETERMINE LONG-TERM CURRENCY MOVEMENTS.

THE FORWARD MARKET

ANY DEAL THAT SETTLES FURTHER IN THE FUTURE THAN SPOT IS REFERRED TO
AS A FORWARD TRADE. THE
FORWARD PRICE IS MADE UP OF THE SPOT RATE PLUS OR MINUS FORWARD
POINTS, WHICH INDICATE THE
DIFFERENCE IN INTEREST RATES BETWEEN THE TWO CURRENCIES. THE
MAJORITY WILL MATURE IN LESS THAN A
YEAR, ALTHOUGH IT IS FEASIBLE TO WAIT LONGER. THE PRICE IS DETERMINED
ON THE TRANSACTION DAY, JUST
AS WITH A SPOT, BUT MONEY IS EXCHANGED ON THE MATURITY DATE.

A FORWARD CONTRACT IS TAILORED TO THE NEEDS OF THE PARTIES INVOLVED.

THEY CAN BE FOR ANY SUM,
AND THEY CAN TAKE PLACE ON ANY DATE THAT IS NEITHER A WEEKEND OR A
NATIONAL HOLIDAY IN ONE OF THE
COUNTRIES.

THE FUTURES MARKET

A FUTURES TRANSACTION IS SIMILAR TO A FORWARD IN THAT IT SETTLES

LATER THAN A SPOT TRANSACTION, BUT IT
IS FOR A STANDARD AMOUNT AND SETTLEMENT DATE, AND IT IS TRADED ON A
COMMODITIES EXCHANGE. THE
COUNTERPARTY IS THE EXCHANGE.

IN ORDER TO MAKE MONEY ON THE FOREX MARKET YOU HAVE TO BUY LOW
AND SELL HIGH, QUITE SIMPLE. LET’S HAVE A LOOK AT THE EXAMPLE:
HOW MUCH MONEY CAN YOU THEORETICALLY MAKE BY TRADING
CURRENCIES?
LET’S ASSUME THAT YOU HAVE 1,000 US DOLLARS ON YOUR TRADING
ACCOUNT.
THE CURRENT EXCHANGE RATE OF EURO VERSUS THE US DOLLAR
IS 1.25. IN OTHER WORDS, FOR 1 EURO
YOU GET ONE DOLLAR AND 25 CENTS. YOU FORECAST
THAT DURING THE DAY EURO WOULD RISE VERSUS THE US DOLLAR.
BASED ON THIS FORECAST YOU BUY 800 EUROS
FOR YOUR 1,000 DOLLARS. YOUR FORECAST IS CORRECT!
EURO RISES FROM 1.25 TO 1.26 DOLLARS.
BEING IN PROFIT YOU DECIDE TO CLOSE THE TRADE AND EXCHANGE
800 EUROS BACK TO 1,008 DOLLARS. IN EFFECT,
YOUR PROFIT FROM THIS TRADE IS 8 DOLLARS. NOT THAT MUCH, RIGHT?
YOU RAISE A FAIR QUESTION: WOULD IT BE POSSIBLE TO INCREASE PROFITS
IN ORDER TO MAXIMIZE YOUR PROFIT POTENTIAL YOU CAN USE LEVERAGE.
LEVERAGE IS A LOAN TICKMILL PROVIDES YOU
TO TRADE FOREX. THE SIZE OF THE LOAN CAN DIFFER BUT TICKMILL PROVIDES
YOU WITH UP TO
500 TIMES MORE FUNDS THAN YOUR INITIAL CAPITAL,
WHICH ALSO INCREASES YOUR PROFIT POTENTIAL 500 TIMES.
GREAT, RIGHT?, STILL, PLEASE REMEMBER...
INCREASED LEVERAGE MEANS NOT ONLY MORE PROFIT POTENTIAL
BUT ALSO MORE RISKS! MANAGING YOUR RISKS IS VERY IMPORTANT!
LET’S HAVE A LOOK AT AN EXAMPLE HOW TO USE LEVERAGE OF
ONE TO FIVE HUNDRED (1:500). YOU HAVE THE SAME 1,000 DOLLARS ON YOUR
ACCOUNT
AND YOU ESTIMATE THAT EURO WILL RISE VERSUS THE US DOLLAR
THEREFORE YOU DECIDE TO TAKE THE BIGGEST POSSIBLE LOAN FROM YOUR
BROKER 499,000 DOLLARS.
NOW, WITH THE EXCHANGE RATE OF 1.25
YOU EXCHANGE ALL YOUR 500,000 DOLLARS TO 400,000 EUROS.
AT THE MOMENT WHEN EXCHANGE RATE RISES TO 1.26
YOU EXCHANGE THE 400,000 EUROS BACK TO 504,000 DOLLARS.
AS A RESULT, YOU NOW HAVE 5,000 DOLLARS ON YOUR ACCOUNT
AFTER RETURNING THE LOAN TO YOUR BROKER. SO YOUR NET PROFIT IS 4 000
DOLLARS.
AN INCREDIBLE RESULT AFTER JUST ONE DAY OF TRADING!
IN THIS EXAMPLE WE HAVE LOOKED AT THE SCENARIO WHEN YOUR FORECAST
TURNS OUT TO BE CORRECT. BUT WHAT WOULD HAVE HAPPENED IF INSTEAD OF
RISING
EURO HAD FALLEN AGAINST THE US DOLLAR? IN THIS CASE
YOUR TRADE WOULD BE OPEN UNTIL YOUR LOSSES EQUAL YOUR INITIAL
DEPOSIT,
WHICH IS 1,000 DOLLARS. AT THIS POINT YOUR TRADE WILL BE
AUTOMATICALLY CLOSED AND THE BROKER TAKES BACK THE LOAN.
CONSEQUENTLY,
A CASE WHEN YOU CAN LOSE BROKER’S LOAN IS ALMOST IMPOSSIBLE.
TAKING EVERYTHING INTO ACCOUNT, YOU NOW HAVE SEEN HOW LEVERAGE
CAN INCREASE YOUR PROFITS,
IF YOU MAKE RIGHT DECISIONS. AT THE SAME TIME, LEVERAGE CAN ALSO
WORK AGAINST YOU
IF YOU MAKE WRONG ESTIMATIONS AND DON’T LIMIT YOUR LOSSES.
LET ME TELL YOU, WHY I TRUST TICKMILL: TICKMILL LIKES TO SEE THE
CLIENTS SUCCEED IN TRADING
YOUR FUNDS ARE SAFE AND SEGREGATED
TICKMILL’S LOW FOREX SPREADS (OR THE DIFFERENCE BETWEEN BUY AND
SELL PRICE) INCREASE YOUR PROFITABILITY
YOU CAN TEST YOUR TRADING SKILLS ON GLOBAL MARKETS WITH A SMALL
INITIAL DEPOSIT OF $100
YOU CAN USE LEVERAGE OF UP TO 1:500 (ONE TO FIVE HUNDRED)
TICKMILL ALLOWS ALL TRADING STRATEGIES INCLUDING SCALPING,
NEWS TRADING, ARBITRAGE AND EXECUTES TRADES IN EXTREMELY SHORT
TIME.
THIS IS WHY TICKMILL IS HIGHLY RESPECTED IN FOREX COMMUNITY

A THREE-DOLLAR BOX OF CORN CEREAL

STAYS AT ROUGHLY THE SAME PRICE
DAY-TO-DAY AND WEEK-TO-WEEK.
BUT CORN PRICES CAN CHANGE DAILY.
SOMETIMES BY A FEW CENTS,
SOMETIMES BY A LOT MORE.
WHY DOES THE COST OF PROCESSED FOOD
GENERALLY STAY QUITE STABLE,
EVEN THOUGH THE CROPS THAT GO INTO THEM
HAVE PRICES THAT FLUCTUATE?
IT'S PARTLY THANKS TO THE FUTURES MARKET.
THE FUTURES MARKET ALLOWS THE PEOPLE WHO SELL AND BUY
LARGE QUANTITIES OF CORN
TO INSULATE YOU, A CONSUMER,
FROM THOSE CHANGES
WITHOUT GOING OUT OF BUSINESS THEMSELF.
LET'S MEET OUR CORN PRODUCER,
THIS FARMER.
OF COURSE, SHE IS ALWAYS LOOKING TO SELL HER CORN
AT A HIGH PRICE.
AND ON THE OTHER SIDE,
OUR CORN USER, THIS CEREAL COMPANY,
IS ALWAYS LOOKING TO BUY CORN AT A LOW PRICE.
NOW, THE FARMER HAS A LITTLE BIT OF A PROBLEM,
BECAUSE HER WHOLE CROP GETS HARVESTED AT ONCE.
LOTS AND LOTS OF FARMERS
WILL BE HARVESTING AT THE SAME TIME,
AND THE HUGE SUPPLY CAN SEND THE PRICE FALLING.
AND EVEN THOUGH THAT PRICE MIGHT BE APPEALING
TO THE COMPANY THAT MAKES CEREAL FROM CORN,
IT DOESN'T WANT TO PURCHASE ALL OF ITS CORN AT ONCE,
BECAUSE, AMONG OTHER REASONS,
IT WOULD HAVE TO PAY TO STORE IT.
(CASH REGISTER RINGS)
BUT IT'S FORTUNATE THAT CORN CAN BE STORED,
BECAUSE THAT MEANS IT CAN BE SOLD AND BOUGHT
THROUGHOUT THE YEAR.
AND THIS IS WHERE THE FUTURES MARKET FITS IN.
BUYERS AND SELLERS MOVE BUSHELS
AROUND IN THE MARKET,
THOUGH ACTUAL CORN RARELY CHANGES HANDS.
INSTEAD OF BUYING AND SELLING CORN,
THE FARMER AND CEREAL MAKER BUY AND SELL CONTRACTS.
NOW WE ARE GETTING CLOSER TO PEACE OF MIND FOR BOTH SIDES,
BECAUSE A FUTURES CONTRACT PROVIDES A HEDGE
AGAINST A CHANGE IN THE PRICE.
THIS WAY, NEITHER SIDE IS STUCK
WITH ONLY WHATEVER THE MARKET PRICE IS
WHEN THEY WANT TO BUY OR SELL.
THESE CONTRACTS CAN BE MADE AT ANY TIME,
EVEN BEFORE THE FARMER PLANTS THE CORN.
SHE'LL USE THE FUTURES MARKET
TO SELL SOME OF HER ANTICIPATED CROP
ON A CERTAIN DAY IN THE FUTURE.
OF COURSE, SHE'S NOT GOING TO SELL
ALL OF HER CORN ON THAT CONTRACT.
JUST ENOUGH CORN TO REASSURE HER
THAT A LOW PRICE AT HARVEST
WON'T RUIN HER BUSINESS.
THE CONTRACT PROVIDES THAT SECURITY.
THE CEREAL COMPANY USES THE SAME MARKET
TO BUY BUSHELS.
THEIR CONTRACT PROTECTS AGAINST A HIGH PRICE LATER.
CONTRACTS WILL GAIN OR LOSE MONEY IN THE FUTURES MARKET.
IF THE PRICE GOES HIGH,
THE FARMER LOSES MONEY ON THAT FUTURES CONTRACT.
BECAUSE SHE'S STUCK WITH IT.
BUT THAT'S OKAY,
BECAUSE NOW SHE CAN SELL THE REST OF HER CORN,
WHAT WASN'T IN THAT CONTRACT,
AT THE HIGHER PRICE
THAT OFFSETS HER LOSS IN THE FUTURES MARKET.
IF, AT HARVEST TIME, THE PRICE OF CORN IS LOW,
WELL, THAT'S EXACTLY WHY SHE ENTERED THE FUTURES MARKET.
THE LOW PRICE MEANS HER CONTRACT MAKES MONEY.
SO THAT PROFIT SHIELDS HER
FROM THE STING OF THE LOW PRICE SHE'LL GET
FOR THE BUSHELS SHE SELLS NOW.
A CORN CEREAL COMPANY DOESN'T LIKE THOSE HIGHER PRICES,
AND THAT'S WHY THEY HAVE A FUTURES CONTRACT.
THEY MAKE MONEY ON IT
AND CAN USE THAT PROFIT
TO COVER THE HIGHER PRICE OF THE CORN
THEY NOW NEED TO BUY.
THE FUTURES MARKET SERVES AS A RISK MANAGEMENT TOOL.
IT DOESN'T MAXIMIZE PROFIT,
INSTEAD, IT FOCUSES ON BALANCE,
AND IN THIS WAY IT KEEPS YOUR CEREAL
FROM BREAKING YOUR WEEKLY SHOPPING BUDGET.

IN ORDER TO UNDERSTAND WHAT OPTIONS ARE, LET’S START WITH AN

EXAMPLE.
MEET ZOEY.
ZOEY HAS A CAR.
THIS IS BILL.
BILL REQUESTS FROM ZOEY TO GIVE HIM THE RIGHT TO BUY THE CAR FROM
HER AT 15K IN CASH ANYTIME
DURING THE NEXT MONTH.
ZOE MIGHT AGREE ON THE CONDITION THAT BILL PAYS HER 2% OF THE VALUE
OF THE CAR, WHICH
IS 300 DOLLARS, FOR WAITING OUT THE MONTH WITHOUT A TRANSACTION.
ZOE CANNOT SELL HER CAR TO ANYONE ELSE DURING THIS WAITING PERIOD.
BILL DOES NOT HAVE TO BUY THE CAR IN THIS TIME FRAME, BUT HE DOES
HAVE THE RIGHT TO
DO SO.
LET’S LOOK AT THE DEFINITION: AN OPTION IS A CONTRACT ALLOWING THE
RECIPIENT
THE RIGHT, BUT NOT THE OBLIGATION TO TRANSACT A KNOWN TRANSACTION
(BUY OR SELL) OF A KNOWN
ASSET AT A KNOWN PRICE IN A KNOWN PRE-DEFINED TIME FRAME.
A CONTRACT - THE OPTION AGREEMENT BETWEEN TWO PARTIES.
A RECIPIENT (OF THE OPTION RIGHT) - IN OUR CASE IT’S BILL - ALSO CALLED
“OPTION BUYER”
OR “THE OPTION HOLDER.”
A KNOWN ASSET - THE CORE OF THE OPTION - IN OUR CASE, IT’S BILL’S
OPPORTUNITY TO BUY
A CAR FROM ZOE.
THE PERSON GIVING THE RIGHT AND TAKING UPON HIMSELF THE OBLIGATION
(IN OUR CASE ZOE) IS
SOMETIMES CALLED THE “ORIGINATOR” OR “OPTION WRITER” OR “OPTION
SELLER.”
AT A KNOWN PRICE - $15,000, ALSO CALLED “STRIKE,” AND $300, WHICH IS THE
PRICE OF THE OPTION.
IN A KNOWN PRE-DEFINED TIME FRAME - IN OUR CASE - ONE MONTH, AFTER
THAT TIME, THE OPTION
HAS NO VALUE.
THIS PRE-DEFINED TIME FRAME IN WHICH THE OPTION WILL BE EXERCISABLE IS
CALLED THE OPTION’S
TERM OR DURATION.
OPTIONS THAT CAN BE EXERCISABLE AT ANY TIME DURING THE TIME PERIOD
ARE CALLED AMERICAN
OPTIONS.
OPTIONS THAT CAN BE EXERCISED ONLY AT THE END OF THE PERIOD ARE
CALLED EUROPEAN.
THE TECHNICAL NAME OF AN OPTION THAT INVOLVES THE RIGHT TO BUY AN
ASSET AT A PRICE IS A
CALL OPTION.
IN OUR CASE, ZOE SOLD A CALL OPTION TO BILL.
OPTIONS ARE VERY USEFUL TOOLS IN BUSINESS AND ARE INDEED USED TO
HELP EXECUTE ALL SORTS
OF TRANSACTIONS AND HELP REACH ALL SORTS OF BUSINESS GOALS.
HERE ARE FEW EXAMPLES:
A.
SARA IS A REAL ESTATE ENTREPRENEUR.
SHE MEETS PHILLIP, THE OWNER OF SOME LAND CLOSE TO THE BEACH, WHO
WANTS TO SELL HIS
PROPERTY.
SARA KNOWS OF SOME FRIENDS WHO WOULD LOVE TO BUY LUXURY
APARTMENTS IN THIS LOCATION,
WHICH IS A HIGH DEMAND ZONE AND CHARACTERIZED BY LIMITED SUPPLY.
SARA APPROACHES PHILLIP AND PROPOSES A DEAL: THE OWNER WILL AWARD
SARA WITH THE RIGHT,
BUT NOT THE OBLIGATION, TO BUY THE LAND FOR THREE MILLION DOLLARS
ANY TIME WITHIN A 24-MONTH
PERIOD.
WITHIN THIS TIME, PHILLIP’S PROPERTY IS OFF THE MARKET, AND SARA WILL
HAVE TIME TO
PROCEED.
SARA HAS HIGH CONVICTION IN THE PROJECT AND PAYS PHILLIP $50,000 FOR
THE OPTION ON THE
LAND.
SARA THEN PREPARES THE PLANS AND FINDS OUT SHE CAN BUILD 30
CONDOMINIUMS.
SHE APPROACHES TEN FRIENDS AND OFFERS THEM TO BUY A CONDOMINIUM
FROM HER AT $750,000.
EIGHT AGREE TO THE TRANSACTION AND ARE WILLING TO COMMIT HALF THE
PROCEEDS UP FRONT TO SECURE
THE PROPERTY.
SARA HAS SUFFICIENT CAPITAL TO SECURE THE DEAL AND NOW EXERCISES THE
OPTION TO BUY THE
LAND.
IN THIS CASE, PHILLIP SOLD A CALL OPTION TO SARA.
B.
MARGARET OWNS A COFFEE SHOP CHAIN.
ONE DAY, A COMPETITOR APPROACHES HER WITH A PROPOSAL TO PURCHASE
50% OF HER BUSINESS.
MARGARET IS HAPPY TO ACCEPT THE CASH OFFER AND NEGOTIATES A TWO
MILLION DOLLAR COMPANY
VALUATION.
FOR SOME REASON, THE BUYER DOESN'T WANT TO BUY THE WHOLE COMPANY,
AND MARGARET WORRIES
THAT DIFFERENCES IN BUSINESS APPROACHES AND MANAGEMENT STYLES
MIGHT POSE A PROBLEM.
JEFF, MARGARET’S FRIEND, COMES UP WITH AN IDEA:
THE BUYER WILL PURCHASE HALF THE BUSINESS FOR 1,000,000 DOLLARS BUT
WILL ALSO GRANT
MARGARET THE RIGHT BUT NOT THE OBLIGATION TO SELL HER FULL
REMAINING STAKE IN THE BUSINESS
FOR 1,000,000 DOLLARS (BASED ON THE EXISTING VALUATION TIMES 50%
REMAINING STAKE) FOR A
TERM OF FIVE YEARS.
MARGARET HAD THE OPTION TO SELL HER SHARE AT A PRICE THEY AGREED TO
BEFORE; THIS OPTION’S
TECHNICAL NAME IS A PUT OPTION.
THINK OF THE OPTION RECIPIENT (MARGARET IN OUR CASE) PUTTING THE NOW
WORTHLESS REMAINING
SHARES IN HER PARTNER’S HANDS AND TAKING THE MONEY FROM HIS POCKET.
IF MARGARET EXECUTES THE OPTION, THE BUYER MUST COMPLY.
THE BUYER AWARDS MARGARET THE OPTION AND THE DEAL IS EXECUTED.
THE COMPETITOR BUYS 50% FROM MOONBUCKS COFFEE SHOP.
MARGARET IS 1,000,000 DOLLARS RICHER.
THE NEW PARTNER DEMANDS TO IMPROVE PROFITABILITY AND TAKES DRASTIC
MEASURES SUCH AS FIRING
TWO CRITICAL HIGH-COST EMPLOYEES.
PROFITS PROMPTLY PLUMMET RESULTING IN AN OPERATIONAL LOSS.
MARGARET IS DEVASTATED, BUT JEFF REMINDS HER OF HER OPTION TO SELL
THE REMAINING STAKE
IN THE COMPANY SO MARGARET PROMPTLY EXERCISES THE OPTION TO SELL.
THE PARTNER COMPETITOR FINDS TO HIS DISMAY THAT NOW HE CAN’T BACK
OUT FROM THE DEAL,
AND MUST SHELL OUT AN ADDITIONAL 1,000,000 DOLLARS TO BUY A NOW
WORTHLESS, LOSS-GENERATING
BUSINESS.
NOW MARGARET CAN TAKE HER DREAM VACATION AND SIP MARGARITAS WITH
JEFF.

WHAT IS AN ARBITRAGE ARBITRAGE IS THE

PROCESS OF SIMULTANEOUSLY BUYING AND
SELLING AN ASSET TO PROFIT FROM THE
DIFFERENCES IN THE PRICE OF THE ASSET
LET'S TAKE A LOOK AT HOW ARBITRAGE WORKS
IN A SIMPLIFIED EXAMPLE IMAGINE WE ARE
LIVING IN CITY A CITY A HAS TWO MARKETS
MARKET A AND B IN MARKET A THE SHOPS ARE
SELLING BERRIES AT THIRTY DOLLARS PER
KILOGRAM AND JUST DOWN THE STREET AND
MARKET B THE SHOPS ARE SELLING BERRIES
AT FORTY DOLLARS PER KILOGRAM HOWEVER
MOST PEOPLE BUYING BERRIES IN MARKET B
DON'T KNOW THAT THEY COULD BUY BERRIES
AT A MUCH CHEAPER PRICE AT MARKET A AND
IF THEY KNEW THEY WILL PROBABLY WALK TO
MARKET A TO BUY THE CHEAPER BERRIES THE
DIFFERENCE IN PRICES IS BECAUSE OF
IMPERFECT INFORMATION AS A SMART
BUSINESSMAN YOU DECIDE TO TAKE ADVANTAGE
OF THIS SO EVERY MORNING YOU GO TO
MARKET A TO BUY THE BERRIES AT A CHEAPER
PRICE AND GO TO MARKET B TO SELL THE
BERRIES AT A HIGHER PRICE FOR EVERY
KILOGRAM OF BERRIES YOU SELL YOU EARN A
RISK-FREE PROFIT OF TEN DOLLARS FROM THE
PRICE DIFFERENCE IN THE MARKETS IN FACT
IN THE NEXT FEW MONTHS YOU BECAME SO
SUCCESSFUL THAT YOU START BUYING LARGE
QUANTITIES OF BERRIES IN MARKET A AND
SELLING THEM IN MARKET B THIS AFFECTS
THE DEMAND AND SUPPLY OF BERRIES IN
MARKET A AND B RESPECTIVELY
THE DEMAND OF BERRIES IN MARKET A
INCREASES SO THEIR PRICE INCREASES IN
MARKET A AND THE SUPPLY OF BERRIES IN
MARKET B INCREASE SO THEIR PRICE
DECREASES IN MARKET B EVENTUALLY THE
PRICE OF THE BERRIES IN THE TWO MARKETS
WILL BECOME SO CLOSE TOGETHER THAT YOU
CAN'T MAKE A PROFIT FROM THEIR PRICE
DIFFERENCES SOMETHING SIMILAR HAPPENS IN
THE FINANCIAL MARKETPLACE AS WELL A
COMPANY STOCK COULD BE TRADING ON THE
NEW YORK STOCK EXCHANGE FOR $1 PER SHARE
AND TRADING ON THE LONDON STOCK EXCHANGE
FOR A DOLLAR AND FIVE CENTS PER SHARE AN
ARBITRAGE OR COULD POCKET THE DIFFERENCE
OF FIVE CENTS PER SHARE BY BUYING THE
STOCK FOR $1 ON THE
NEW YORK STOCK EXCHANGE AND SELLING IT
ON THE LONDON STOCK EXCHANGE SUCH
ARBITRAGE OPPORTUNITIES ARISE USUALLY
BECAUSE OF IMPERFECT INFORMATION
ARBITRAGE IS OFTEN CALLED RISKLESS
PROFIT BECAUSE IT'S THEORETICALLY A
RISKLESS ACTIVITY TRADERS ARE BUYING AND
SELLING THE SAME ASSET SIMULTANEOUSLY
AND POCKETING THE PRICE DIFFERENCE AS
PROFIT HOWEVER THE MODERN TECHNOLOGY HAS
SIGNIFICANTLY REDUCED ARBITRAGE
OPPORTUNITIES THE ADVANCEMENT OF
TECHNOLOGY HAS LED TO THE ADVENT OF
AUTOMATED TRADING SYSTEMS PROGRAMS TO
MONITOR FLUCTUATIONS OR PRICE
DIFFERENCES IN SIMILAR FINANCIAL
INSTRUMENTS THESE SYSTEMS ARE ABLE TO
DETECT AND ACT ON THE INEFFICIENT
PRICING SETUPS SO RAPIDLY THAT THE PRICE
DIFFERENCE OF SIMILAR FINANCIAL
INSTRUMENTS AND ARBITRAGE OPPORTUNITY IS
QUICKLY ELIMINATED THERE IS ALSO ANOTHER
TYPE OF ARBITRAGE RISK ARBITRAGE RISK
ARBITRAGE IS AREN'T ARBITRAGE IN THE
TRUEST SENSE BECAUSE IT'S NOT RISK FREE
AND SPECULATIVE IN NATURE A RISK
ARBITRAGE IS USUALLY CREATED BY
SPECULATION OF MERGER AND ACQUISITION
HERE'S HOW IT MAY WORK TOM HEARS NEWS
THAT COMPANY X MAY BE ACQUIRED BY
COMPANY Y TOM THINKS THAT THE TRADING
PRICE OF COMPANY X WILL INCREASE AFTER
THE ACQUISITION SO HE PURCHASES THE
SHARES OF COMPANY X IN THE HOPE THAT HE
CAN GENERATE A PROFIT FROM THE PRICE
DIFFERENCE BETWEEN THE CURRENT TRADING
PRICE AND THE TRADING PRICE OF COMPANY X
AFTER THE TAKEOVER DEAL HOWEVER SUCH A
STRATEGY IS NOT RISK-FREE BECAUSE THE
TAKEOVER DEAL COULD ALWAYS BREAK IF THIS
WAS THE CASE TOM MIGHT MAKE A LOSS AS
THE TRADING PRICE OF COMPANY X WILL
LIKELY FALL AFTER THE BAD NEWS WE HOPE
YOU LEARN MORE ABOUT ARBITRAGE FROM THIS
VIDEO IF YOU LIKED THIS VIDEO GIVE US A
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WELCOME TO THE INVESTORS TRADING ACADEMY TALKING GLOSSARY OF

FINANCIAL TERMS AND EVENTS.
OUR WORD OF THE DAY IS “CURRENCY HEDGING” IN SIMPLE TERMS, CURRENCY
HEDGING IS THE ACT
OF ENTERING INTO A FINANCIAL CONTRACT IN ORDER TO PROTECT AGAINST
UNEXPECTED, EXPECTED OR
ANTICIPATED CHANGES IN CURRENCY EXCHANGE RATES.
HEDGING CAN BE LIKENED TO AN INSURANCE POLICY THAT LIMITS THE IMPACT
OF FOREIGN EXCHANGE
RISK.
HEDGING IS OFTEN ACHIEVED THROUGH THE USE OF DERIVATIVES SUCH AS
OPTIONS OR FUTURES.
HEDGING IS A WAY FOR A COMPANY TO MINIMIZE OR ELIMINATE FOREIGN
EXCHANGE RISK.
TWO COMMON HEDGES ARE FORWARD CONTRACTS AND OPTIONS.
A FORWARD CONTRACT WILL LOCK IN AN EXCHANGE RATE TODAY AT WHICH
THE CURRENCY TRANSACTION
WILL OCCUR AT THE FUTURE DATE.
ESSENTIALLY, THERE ARE TWO OPTIONS AVAILABLE TO AN INVESTOR: 1) BE
EXPOSED TO CURRENCY
FLUCTUATIONS ; OR 2) BE CURRENCY HEDGED.
THE OBJECTIVE OF CURRENCY HEDGING IS TO REDUCE OR ELIMINATE THE
EFFECTS OF FOREIGN EXCHANGE
MOVEMENTS OVER THE LIFE OF THE INVESTMENT, SUCH THAT A CANADIAN
INVESTOR RECEIVES A RETURN
SOLELY BASED ON THE CHANGE IN VALUE OF THE UNDERLYING ASSETS,
WITHOUT THE EFFECT OF CHANGES
IN CURRENCY VALUES.

IF YOU HAVE EVER TRAVELED TO A FOREIGN

COUNTRY YOU MAY HAVE NEEDED TO EXCHANGE
YOUR MONEY IF SO YOU HAVE ALREADY
PARTICIPATED IN FOREX TRADING
FOREX IS THE SHORT FORM OF FOREIGN
EXCHANGE
WELL FOREX IS A BIT MORE THAN THAT
FOR EXAMPLE
COMPANIES BUY GOODS FROM OTHER COUNTRIES
IN ORDER TO BUY THEM THEY NEED TO OBTAIN
THE LOCAL CURRENCY FIRST JUST LIKE US
WHEN GOING ON HOLIDAY
THE DIFFERENCE IS THEY WILL EXCHANGE
HUGE AMOUNTS
WHEN THESE COMPANIES EXCHANGE THESE HUGE
AMOUNTS THEY WILL ACTUALLY MOVE THE
PRICE BECAUSE THE DEMAND FOR THE
CURRENCY THAT THEY NEED INCREASES
WHEN THE DEMAND INCREASES
THE PRICE INCREASES WITH ALL THIS
EXCHANGING GOING ON AROUND THE WORLD THE
EXCHANGE RATES CONSTANTLY MOVE
THIS IS HOW IT WORKS
WHEN CURRENCIES ARE EXCHANGED THEY HAVE
A CERTAIN PRICE THE EXCHANGE RATE
AS IN ANY MARKET THE PRICE OF A CURRENCY
IS DETERMINED BY THE LAW OF SUPPLY AND
DEMAND
IF THERE ARE MANY PEOPLE OR COMPANIES
THAT WANT TO CHANGE EUROS INTO DOLLARS
THE PRICE OF THE DOLLAR WILL RISE
AGAINST THE EURO AND SO THE EXCHANGE
RATE WILL CHANGE
LET'S USE AN EVERYDAY EXAMPLE TO EXPLAIN
HOW YOU CAN ACTUALLY PROFIT FROM THIS
SAY YOU LIVE IN EUROPE AND WENT ON
HOLIDAY TO THE UNITED STATES
LET'S SAY THAT YOU CHANGED YOUR 500
EUROS INTO US DOLLARS AT THE RATE OF 1.4
DOLLARS FOR EVERY EURO
YOU GOT 700 US DOLLARS BUT YOU DO NOT
SPEND ANY MONEY AT ALL
SO YOU STILL HAVE 700 AFTER YOU COME
BACK
AFTER THE EXCHANGE RATE MOVED FROM 1.4
TO 1.3 INSTEAD OF GETTING JUST 500 EUROS
BACK YOU ACTUALLY GET 538 AND A HALF
EUROS
YOU HAVE GAINED 38.5 EUROS SIMPLY FROM
HOLDING YOUR MONEY IN DOLLARS WHILE THE
EXCHANGE RATE CHANGED
THIS IS ESSENTIALLY HOW WE TRADE IN THE
FOREX MARKET
WE BUY A CERTAIN AMOUNT OF A CURRENCY
HOLD ON TO IT WHILST THE EXCHANGE RATE
MOVES THEN CHANGE IT BACK
MAKING MONEY ALONG THE WAY
HOW TO DECIDE WHEN THE RIGHT TIME TO BUY
AND SELL IS EXACTLY WHAT WE TEACH YOU
THROUGHOUT THE REST OF OUR LEARNING
LESSONS
AS YOU CAN IMAGINE TRAVELING A LOT AND
SAVING A BIT OF MONEY ON YOUR HOLIDAY
BUDGET AND THEN EXCHANGING IT IT'S NOT
REALLY A PRACTICAL APPROACH TO TRADING
CURRENCIES
FORTUNATELY THERE IS AN EASIER WAY TO DO
THIS YOU CAN TRADE CURRENCY THROUGH
ONLINE EXCHANGE OFFICES CALLED BROKERS
WHAT THIS MEANS IS THAT YOU CAN EXCHANGE
CURRENCIES ONLINE THROUGHOUT THE DAY AND
TAKE ADVANTAGE OF THE CONSTANTLY
FLUCTUATING EXCHANGE RATES
JUST AS IN THE EXAMPLE OF WHEN YOU WENT
ON HOLIDAY YOU CAN BUY DIFFERENT
CURRENCIES AND MAKE A PROFIT AS THE
EXCHANGE RATES CHANGE
THIS IS TRADING THE FOREX MARKET
TRADING FOREX ONLINE WITH A BROKER HAS
MANY BENEFITS
YOU CAN TRADE FOREX FROM YOUR HOME OR
ANYWHERE THAT YOU HAVE AN INTERNET
CONNECTION
THE FOREX MARKET NEVER SLEEPS IT IS OPEN
24 HOURS A DAY FIVE DAYS A WEEK AND SO
CAN SUIT YOUR DAILY ROUTINE
YOU DO NOT NEED A HUGE BUDGET TO GET
STARTED AS LITTLE AS 150 DOLLARS IS
ENOUGH TO BEGIN TRADING AND BUILDING
YOUR ACCOUNT OVER TIME
OF COURSE IT WILL REQUIRE SOME LEARNING
UNTIL YOU GET THERE BUT THIS IS EXACTLY
WHAT TRADEMO IS HERE FOR
TO HELP YOU LEARN HOW TO TRADE IN A WAY
THAT CAN SUIT YOUR INDIVIDUAL LIFESTYLE
AND TO HELP YOU NAVIGATE YOUR WAY
THROUGH THE FOREX MARKET

WHAT IS THE SPOTS MARKET THE SPOTS

MARKET IS A PUBLIC FINANCIAL MARKET IN
WHICH COMMODITIES OR FINANCIAL
INSTRUMENTS ARE BOUGHT AND SOLD FOR
IMMEDIATE DELIVERY OR WITHIN A COUPLE OF
DAYS DEPENDING ON LOCAL REGULATIONS IT
IS ALSO KNOWN AS THE CASH MARKET OR
PHYSICAL MARKETS THE PRICE QUOTED FOR A
PURCHASE OR SALE ON THE SPOT MARKET IS
CALLED THE SPOT PRICE THE SPOTS MARKET
CONTRAST WITH THE FUTURES MARKET IN
WHICH DELIVERY TAKES PLACE AT A LATER
DATE IN A FUTURES MARKET TRADERS
PURCHASE AND SELL FUTURES CONTRACTS THEY
ALSO BUY AND SELL COMMODITIES THE
FUTURES CONTRACTS ARE FOR PAYMENTS AND
DELIVERY ON A SPECIFIC FUTURE DATE SPOTS
MARKET TRADING OCCURS IN MANY PLACES THE
SPOTS MARKETS MAY BE AN ORGANIZED MARKET
AN EXCHANGE OR OVER-THE-COUNTER WHEREVER
THERE IS AN INFRASTRUCTURE WHERE THE
TRANSACTION CAN BE CONDUCTED SPORTS
MARKETS WILL OPERATE THANK YOU FOR
WATCHING THIS BRIEF MARKET BUSINESS NEWS
VIDEO ON THE SPOTS MARKET

FUTURES CONTRACTS AND FORWARD CONTRACTS

ARE AGREEMENTS TO BUY OR SELL AN
UNDERLYING ASSET AT A SPECIFIC PRICE ON
A SPECIFIC DATE IN THE FUTURE THESE
AGREEMENTS ALLOW BUYERS AND SELLERS TO
LOCK IN PRICES FOR PHYSICAL TRANSACTIONS
TO MITIGATE THE RISK OF PRICE MOVEMENT
FOR THE UNDERLYING ASSET THROUGH THE
DATE OF DELIVERY HISTORICALLY INDIVIDUAL
BUYERS AND SELLERS OF FORWARD CONTRACTS
SET THE TERMS OF DELIVERY AND PAYMENT
FOR SEASONAL AGRICULTURAL COMMODITIES
THE AGRICULTURAL FUTURES MARKET CAME
INTO PROMINENCE IN THE MID 19TH CENTURY
AS INCREASINGLY SOPHISTICATED MODES OF
PRODUCTION COMMUNICATION AND COMMERCE
NECESSITATED A HIGHLY EFFICIENT RISK
MANAGEMENT MECHANISM FOR TRADERS AND
OTHER MARKET PARTICIPANTS THE EXCHANGE
SERVED THIS FUNCTION PROVIDING A
CENTRALIZED VENUE FOR HEDGERS AND
SPECULATORS TO BUY AND SELL FUTURES
CONTRACTS AND MOST IMPORTANTLY TO HAVE
THESE TRANSACTIONS CLEARED
UNLIKE FORWARDS WHICH CONTINUE TO BE
NEGOTIATED BETWEEN TWO INDIVIDUALS
FUTURES ARE TRADED ON AN OPEN MARKET
ANONYMOUSLY WITH EQUAL PRICE
TRANSPARENCY FOR ALL PARTICIPANTS IN
MODERN TIMES FUTURES HAVE EXPANDED TO
ENCOMPASS ASSET CLASSES SUCH AS EQUITIES
ENERGY FOREIGN EXCHANGE
METALS INTEREST RATES HOUSING AND EVEN
WEATHER TODAY TRADERS CAN USE FUTURES
CONTRACTS TO DIRECTLY PARTICIPATE IN A
MARKET MOVE WITHOUT HAVING ANY NEED FOR
THE PHYSICAL COMMODITY ITSELF TRADERS
CAN HOLD THEIR POSITIONS FOR VARIOUS
LENGTHS OF TIME RANGING FROM LESS THAN A
DAY TO WEEKS TO MONTHS OR EVEN LONGER
CONSIDER THE FOLLOWING DIFFERENCES
BETWEEN FUTURES CONTRACTS AND FORWARD
CONTRACTS TO SEE THE ADVANTAGES THAT
FUTURES CONTRACTS PROVIDE TRADERS AND
OTHER MARKET PARTICIPANTS A FORWARD
CONTRACT IS PRIVATELY NEGOTIATED
NON-TRANSFERABLE HAS CUSTOMISED TERMS
CARRIES CREDIT DEFAULT RISK SINCE IT IS
PRIVATELY NEGOTIATED IS FULLY DEPENDENT
ON THE COUNTERPARTY FOR PAYMENT AND IS
NOT REGULATED A FUTURES CONTRACT HOWEVER
IS NEGOTIATED IN THE PUBLIC MARKET ON AN
EXCHANGE IS ACTIVELY TRADED IS
STANDARDIZED HAVING AN EXCHANGE
SPECIFIED CONTRACT UNIT EXPIRATION TICK
SIZE AND NOTIONAL VALUE IS REGULATED AND
HAS NO COUNTERPARTY RISK SINCE PAYMENT
IS GUARANTEED BY THE EXCHANGE CLEARING
HOUSE WHAT ONCE WAS AN AGRICULTURAL
EXCHANGE HAS GROWN ALLOWING TRADERS
ACCESS TO MANY UNIQUE MARKETS LIKE
INTEREST RATE
FUTURES SECTOR-SPECIFIC CONTRACTS
FOREIGN CURRENCY CONTRACTS AND MORE
THESE TRADING OPPORTUNITIES ARE ONLY
OFFERED THROUGH THE FUTURES EXCHANGE AND
NOW WITH THE ADDITION OF TRADES USING
OPTIONS ON FUTURES TO EXPIRE EASE PER
WEEK EVEN MORE STRATEGIES AND PRODUCTS
ARE NOW AVAILABLE LEADING TO CONTINUED
POPULARITY FOR INDIVIDUAL AND
INSTITUTIONAL TRADERS ALIKE
YOU

HI IT'S PATTIE HIRSCH AT MARKETPLACE SO

TO INTRODUCE YOU TO THE BASICS OF HI
SWAPS WORK I WANT TO TELL YOU A LITTLE
STORY
SO MY TWO LITTLE BOYS THEY'VE GOT TWO
LITTLE TOYS STOP ME IF YOU HEARD THIS
ONE BEFORE BUT EACH OF THEM HAS A WOODEN
HORSE EXCEPT THESE HORSES ARE VERY
DIFFERENT
BRUCE'S HORSE HAS GOT A ROCKER ON IT
WHEREAS JIM'S HORSE HAS GOT THESE WHIZZY
WHEELS WHICH MUSICAN GOES ZOOMING UP AND
DOWN HILLS UNFORTUNATELY JIM DOESN'T
LIKE ZOOMING UP AND DOWN HOUSE IN FACT
HE DOESN'T LIKE RISK AT ALL HE'D MUCH
RATHER JUST SIT THERE ON HIS HORSE AND
DO NOTHING THIS DRIVES BRUCE CRAZY
BECAUSE HE REALLY WANTS TO TAKE THE
RISKS THAT COME WITH HAVING A HORSE FOR
THE WHEELS ON IT SO HE SAYS LET'S DO A
SWAP AND YOU CAN SEE WHAT'S HAPPENED
HERE IN THIS SWAP HE'S TAKEN ON THE RISK
AND JIM HERE HAS SWAPPED RISK FOR
PREDICTABILITY THE RISK OF THIS WIZZY
RIDE FOR THE PREDICTABILITY OF THE RIDE
ON THE ROCKING HORSE AND IT'S THIS
EXCHANGE OF RISK FOR PREDICTABILITY THAT
IS AT THE HEART OF ALL SWAPS IN THE
FINANCIAL SYSTEM SO HOW DOES THAT WORK
IN THE BUSINESS WORLD LET'S SKIP FORWARD
20 YEARS IF WE FIND THAT JIM NOW OWNS
THE LOCAL STORE AND BRUCE HAS BECOME AN
INVESTMENT BANKER NOW JIM TAKES OUT A
LOAN AT LIBOR PLUS 3% WHICH IS FINE
EXCEPT FOR THE FACT THAT LIBOR IS A
FLOATING RATE RIGHT IT GOES UP AND DOWN
WHICH MEANS THAT YOU NEVER REALLY KNOW
HOW MUCH INTEREST YOU'RE GOING TO BE
PAYING EVERY MONTH RIGHT ONE MONTH IT
MIGHT BE $2,400 NEXT MONTH IT MIGHT BE
$1,900 NEXT MONTH IT'S $2,000 AND THIS
DRIVES JIM CRAZY FIRSTLY BECAUSE HE
HATES RISK AND HE HAS NO IDEA HOW HIGH
THIS INTEREST RATE COULD GO BUT SECONDLY
BECAUSE HE LOVES PREDICTABILITY HE WANTS
TO BE ABLE TO BUDGET PROPERLY SO HE GOES
TO HIS FRIEND AND HE SAYS BRUCE CAN YOU
HELP ME WITH THIS LOAN AND BRUCE TEARS I
TELL YOU WHAT WHY DON'T WE DO LIKE WHAT
WE DID WHEN WE WERE KIDS AND SWAP THIS
IS LIKE SWAP WHAT ARE YOU TALKING ABOUT
SO BRUCE SAYS WHAT WE'RE GOING TO DO IS
WE'RE GOING TO SWAP YOUR FLOATING
VARIABLE RATE FOR A FIXED RATE OF $2,000
YOU JIM ARE GONNA PAY ME $2,000 SO
THERE'S THE SWAP
NOW WE'VE GOT NO RISK HERE AND
PREDICTABILITY HERE AND BRUCE SAYS HE'S
NOT GONNA TAKE ON THE RISK OF PAYING
THIS LIBOR PLUS 3% LOAN WHICH COULD BE
WHO KNOWS WHAT EVERY MONTH AND IT'S THIS
EXCHANGE OF RISK FOR PREDICTABILITY
THAT'S THE HEART OF INSURANCE IS AT THE
HEART OF CREDIT DEFAULT SWAPS ALL SORTS
OF AREAS OF BUSINESS THAT USE A SWAP
TRANSACTION AND YOU CAN SEE HOW IT CAN
REALLY WORK
FOR BRUCE BECAUSE HE'S GETTING $2,000 A
MONTH FROM JIM BUT IF THE INTEREST RATE
THAT HE HAS TO PAY THE BANK IS LESS THAN
$2,000 HE GETS TO POCKET THE DIFFERENCE
YOU DO THAT OFTEN ENOUGH YOU'RE MAKING
SOME SERIOUS MONEY BUT OF COURSE IT
COULD WORK THE OTHER WAY IT COULD GO THE
YOU KNOW HE'S TAKING ON A BIG RISK HERE
THE WAY THAT HE TOOK ON A BIG RISK WHEN
HE SWAPPED WITH JIM BACK IN THE DAY WHEN
HE TOOK HIS HORSE RIGHT THE FACT IS THAT
THIS INTEREST RATE COULD BE MUCH MORE
THAN $2,000 A MONTH IN WHICH CASE BRUCE
THEN HAS TO MAKE UP THE DIFFERENCE AND
PAY THE BANK IF HE DOES THAT OFTEN
ENOUGH HE'S GONNA BE LOSING SERIOUS
MONEY THAT'S GONNA LEAVE HIM VERY BADLY
NEEDING A DRINK

A FUTURES CONTRACT IS AN AGREEMENT TO BUY OR SELL A SPECIFIC AMOUNT

OF A COMMODITY OR
FINANCIAL INSTRUMENT AT A SPECIFIC PRICE ON A SPECIFIC DATE IN THE
FUTURE.
TO HELP YOU UNDERSTAND WHY BUSINESSES AND INDIVIDUALS TRADE
FUTURES, LET'S EXAMINE
HOW FUTURES CONTRACTS CAN BE USED, THE KEY COMPONENTS THAT MAKE
UP A CONTRACT, AND HOW
MUCH IT COSTS TO TRADE A FUTURES CONTRACT.
ONE USE OF A FUTURES CONTRACT IS TO ALLOW A BUSINESS OR INDIVIDUAL TO
NAVIGATE RISK
AND UNCERTAINTY.
PRICES ARE ALWAYS CHANGING, BUT WITH A FUTURES CONTRACT, PEOPLE CAN
LOCK IN A FIXED PRICE
TO BUY OR SELL AT A FUTURE DATE.
LOCKING IN A PRICE LESSENS THE RISK OF BEING NEGATIVELY IMPACTED BY
PRICE CHANGE.
LET'S LOOK AT HOW THIS MIGHT WORK FOR BUSINESSES USING THE COFFEE
INDUSTRY AS AN EXAMPLE.
IF THE PRICE OF COFFEE BEANS GOES DOWN, IT'S GOOD NEWS FOR COFFEE
SHOPS BUT BAD NEWS FOR
COFFEE FARMERS.
HOWEVER, IF THE PRICE OF COFFEE BEANS GOES UP, THE TABLES TURN.
WITH COFFEE BEAN FUTURES, BOTH COFFEE PRODUCERS AND COFFEE USERS
ARE ABLE TO LOCK IN PRICES
AHEAD OF TIME.
NOW LET'S LOOK AT HOW THIS MIGHT WORK FOR INDIVIDUALS.
SAY YOU'RE LOOKING TO BUY A NEW HOME IN A YEAR, AND YOU'RE AFRAID
INTEREST RATES
MIGHT RISE AND INCREASE YOUR MORTGAGE PAYMENT.
YOU COULD OFFSET A POTENTIAL INTEREST RATE INCREASE BY TRADING
INTEREST RATE FUTURES
SUCH AS THE 30-YEAR U.S. TREASURY BOND, OR 10-YEAR TREASURY NOTE,
DEPENDING ON YOUR TIME
HORIZON.
A SECOND USE OF FUTURES CONTRACTS IS TO ALLOW TRADERS TO SPECULATE
ON THE PRICE MOVEMENT
OF COMMODITIES, CURRENCIES, STOCK MARKET INDICES, AND OTHER ASSETS.
FOR EXAMPLE, CONSIDER THE FLUCTUATIONS IN THE PRICE OF A COMMODITY
LIKE GOLD.
A FUTURES TRADER CAN POTENTIALLY PROFIT BY CORRECTLY GUESSING THE
DIRECTION THAT THE
PRICE OF GOLD WILL MOVE.
BUT IF THE FUTURES TRADER GUESSES WRONG, HE CAN LOSE HIS ENTIRE
INVESTMENT AND MORE.
NOW THAT YOU KNOW HOW A FUTURES CONTRACT IS USED, LET'S LOOK AT
FIVE KEY COMPONENTS
OF A CONTRACT.
THESE ARE ALSO KNOWN AS STANDARD CONTRACT SPECIFICATIONS.
FIRST, THERE'S TRADING HOURS.
FUTURES MARKETS ARE OPEN VIRTUALLY 24 HOURS PER DAY, 6 DAYS PER
WEEK; HOWEVER, EACH PRODUCT
HAS ITS OWN UNIQUE TRADING HOURS.
NEXT, EACH CONTRACT SPECIFIES THE TICK SIZE.
TICK SIZE IS THE MINIMUM PRICE INCREMENT A PARTICULAR CONTRACT CAN
FLUCTUATE.
TICK SIZES AND VALUES VARY FROM CONTRACT TO CONTRACT.
A THIRD STANDARD COMPONENT IS CONTRACT SIZE.
EACH COMMODITY OR FINANCIAL INSTRUMENT HAS A STANDARDIZED
CONTRACT SIZE THAT DOESN'T
CHANGE.
FOR EXAMPLE, ONE CONTRACT OF CRUDE OIL ALWAYS REPRESENTS 1,000
BARRELS.
ONE CONTRACT OF GOLD FUTURES REPRESENTS 100 TROY OUNCES.
AND ONE CONTRACT OF E-MINI S&P 500 FUTURES REPRESENTS $50 TIMES THE
PRICE OF THE S&P
500® INDEX.
ANOTHER COMPONENT IS CONTRACT VALUE, WHICH IS ALSO KNOWN AS
NOTIONAL VALUE.
THIS IS THE CURRENT MARKET VALUE OF THE COMMODITY REPRESENTED IN A
FUTURES CONTRACT.
TO CALCULATE THIS, MULTIPLY THE SIZE OF THE CONTRACT BY THE CURRENT
PRICE.
AS YOU JUST LEARNED, THE E-MINI S&P 500 CONTRACT IS $50 TIMES THE PRICE
OF THE INDEX.
IF THE INDEX IS QUOTED AT 2,250, THE VALUE OF ONE E-MINI CONTRACT
WOULD BE $112,500.
FINALLY, THERE'S DELIVERY.
CONTRACTS ARE EITHER FINANCIALLY SETTLED OR PHYSICALLY SETTLED.
FINANCIALLY SETTLED FUTURES CONTRACTS EXPIRE DIRECTLY INTO CASH AT
EXPIRATION.
THIS INCLUDES PRODUCTS LIKE THE E-MINI S&P 500 INDEX FUTURE.
PHYSICALLY SETTLED FUTURES CONTRACTS EXPIRE DIRECTLY INTO THE
PHYSICAL COMMODITY.
THIS INCLUDES PRODUCTS LIKE CRUDE OIL.
FOR EXAMPLE, ANYONE LONG A CONTRACT IN CRUDE OIL AT EXPIRATION WILL
RECEIVE 1,000 BARRELS
OF CRUDE OIL.
HOWEVER, DON'T BE WORRIED ABOUT 1,000 BARRELS SHOWING UP AT YOUR
FRONT DOOR.
TD AMERITRADE FUTURES & FOREX LLC DOES NOT ALLOW CLIENTS TO TAKE
PHYSICAL DELIVERY, YOU
ARE REQUIRED TO CLOSE THE POSITION BEFORE THE DELIVERY DATE, AND IF
YOU DON'T, IT'LL
BE CLOSED FOR YOU.
YOU CAN FIND MORE INFORMATION ABOUT CONTRACT SPECIFICATIONS ON THE
TD AMERITRADE WEBSITE.
NOW, TO UNDERSTAND HOW MUCH IT COSTS TO TRADE A FUTURES CONTRACT,
LET'S LOOK AT AN EXAMPLE.
SUPPOSE A CRUDE OIL FUTURES CONTRACT IS TRADING AT $50.
AT THIS PRICE, 1,000 BARRELS OF CRUDE OIL WOULD COST $50,000.
BUT, A TRADER DOESN'T ACTUALLY HAVE TO COME UP WITH THIS AMOUNT.
WITH A FUTURES CONTRACT, A TRADER COULD CONTROL THE $50,000 WORTH
OF CRUDE OIL WITH JUST A
SMALL DEPOSIT.
THIS DEPOSIT IS CALLED THE INITIAL MARGIN REQUIREMENT, AND IT REFERS
TO THE MINIMUM
AMOUNT OF FUNDS A TRADER NEEDS TO ENTER INTO A FUTURES CONTRACT.
THE INITIAL MARGIN REQUIREMENT IS SET BY THE EXCHANGE AND SUBJECT TO
CHANGE, BUT IN OUR
EXAMPLE WE'LL SAY THAT TO PURCHASE ONE CRUDE
OIL FUTURES CONTRACT, THE TRADER HAD TO PUT UP $3,000 FOR MARGIN TO
CONTROL NEARLY $50,000
IN OIL.
AS YOU CAN SEE, FUTURES CAN ALLOW YOU TO LEVERAGE A RELATIVELY
SMALL AMOUNT OF CAPITAL TO CONTROL
A LARGER UNDERLYING ASSET.
BECAUSE OF THIS LEVERAGE, SMALL CHANGES IN THE PRICE OF THE
UNDERLYING ASSET HAVE A MUCH
LARGER IMPACT ON THE FUTURES CONTRACT.
KEEP IN MIND THAT ALTHOUGH LEVERAGE ALLOWS FOR STRONG POTENTIAL
RETURNS, IT CAN ALSO
RESULT IN SIGNIFICANT LOSSES.
AND IF LOSSES ARE SUBSTANTIAL, YOU WILL HAVE TO ADD MORE MONEY TO
COVER LOSSES.
NOW YOU KNOW HOW FUTURES CONTRACTS CAN BE USED, WHAT THE
CONTRACT SPECIFICATIONS ARE,
AND HOW MUCH A FUTURES CONTRACT COSTS.
IF YOU'RE INTERESTED IN LEARNING MORE ABOUT FUTURES, IT'S IMPORTANT
THAT YOU EXPAND
YOUR INVESTING EDUCATION BEFORE YOU MAKE INVESTMENTS.
BUT WE'RE HERE TO HELP.

HEDGING AN INVESTMENT IS A WAY OF

ATTEMPTING TO INSURE AGAINST A NEGATIVE
EVENT HAPPENING INDIVIDUALS HEDGE
ANYTIME THEY PURCHASE INSURANCE IF AN
INDIVIDUAL PURCHASES CAR INSURANCE THAT
DOES NOT PREVENT THEM FROM EVER BEING IN
AN ACCIDENT IT SIMPLY REDUCES THE
NEGATIVE IMPACT OF AN ACCIDENT LET'S
WALK THROUGH AN EXAMPLE OF WHAT THAT
MEANS LET'S SAY YOU OWN A B C FUND IN
YOUR PORTFOLIO YOU WANT AND EXPECT A B C
FUND TO GO UP BUT IN ORDER TO HEDGE
AGAINST THE POTENTIAL OF A B C FUND
GOING DOWN YOU INVEST IN XYZ FUND WHICH
IS NEGATIVELY CORRELATED WITH A B C THAT
MEANS WHEN A B C GOES UP XYZ GOES DOWN
IF YOU OWN A STOCK AND YOU BELIEVE THE
COMPANY HAS GREAT LONG-TERM POTENTIAL
BUT YOU'RE CONCERNED ABOUT SHORT TERM
POTENTIAL LOSSES YOU CAN BUY A PUT
OPTION WHICH ALLOWS YOU AS THE BUYER THE
ABILITY TO SELL THE STOCK AT A SET PRICE
IN THE FUTURE LET'S WALK THROUGH AN
EXAMPLE WHERE THE USE OF FUTURES AS A
HEDGE WOULD BE USED LET'S ASSUME YOU OWN
A FAMOUSLY SUCCESSFUL CUPCAKE MAKING
COMPANY YOU'RE VERY CONCERNED ABOUT THE
RISING PRICE OF WHEAT WHICH YOU GRIND TO
MAKE YOUR FLOWER THAT YOU USE IN YOUR
AMAZING CUPCAKES YOU CAN PROTECT OR
HEDGE AGAINST THIS UNCERTAINTY BY
ENTERING INTO A FUTURES CONTRACT WHICH
ALLOWS YOU TO BUY THE WHEAT AT A
SPECIFIC PRICE ON A FUTURE SET DATE IF
WEED PRICES JUMP THE HEDGE OF THE
FUTURES CONTRACT WILL PAY OFF BECAUSE
YOU CAN BUY THE WHEAT AT A LOWER PRICE
THAN THE MARKET WHAT HAPPENS IF THE
PRICE GOES DOWN ILLUSTRATES ONE OF THE
DRAWBACKS TO HEDGING IF THE PRICE OF
WHEAT DROPS YOU ARE OBLIGATED TO PAY THE
PRICE IN THE CONTRACT AND YOU WOULD HAVE
BEEN BETTER OFF NOT HEDGING AT ALL
TRADE SECRETS

WHAT IS A TRADE SECRET?

A TRADE SECRET IS A FORMULATION, PROCEDURE, PROCESS,

DESIGN, TOOL, MODEL, BUSINESS SYSTEM, OR COLLECTION OF
KNOWLEDGE THAT IS NOT COMMONLY ACCEPTED OR EASILY
VERIFIABLE BY OTHERS AND BY WHICH AN ORGANIZATION CAN
ACHIEVE AN ECONOMIC ADVANTAGE OVER RIVALS OR CONSUMERS.
THERE IS PRACTICALLY NO RESTRICTION ON THE SCOPE OF TRADE
SECRETS.

A TRADE SECRET IS THEREFORE DEFINED AS

ANY INFORMATION THAT IS:

NOT WIDELY EXPOSED TO THE APPROPRIATE SPHERES OF

INDUSTRY OR TO THE PRESS. OFTEN, THE DETAILS NEED NOT BE
READILY AVAILABLE.

IT CONFERS ON ITS HOLDERS ANY FORM OF ECONOMIC PROFIT.

THIS ADVANTAGE MUST BE EXTRACTED DIRECTLY FROM THE FACT
THAT IT IS NOT WIDELY UNDERSTOOD, AND NOT JUST FROM THE
IMPORTANCE OF THE DATA ITSELF. AS IT IS A SECRET, IT MUST
HAVE MARKET SIGNIFICANCE. COMMERCIAL APPEAL INCLUDES
BOTH FUTURE AND PRACTICAL VALUE.

THE LAWFUL OWNERS OF THE KNOWLEDGE MUST HAVE TAKEN

FAIR MEASURES TO KEEP IT CONFIDENTIAL. BASED ON THE
INDIVIDUAL SITUATION, WHAT IS FAIR MAY DIFFER.

FOR AS LONG AS THE INFORMATION IS KEPT AS A TRADE SECRET, A

TRADE SECRET REMAINS. HOWEVER, IF IT BECOMES READILY
AVAILABLE, IS NO LONGER SUFFICIENTLY SECURED OR HAS NO
ECONOMIC SIGNIFICANCE, KNOWLEDGE CAN NO LONGER BE
DEEMED TO BE A TRADE SECRET.

TRADE SECRETS MAY BE ONE OF THE MOST VALUABLE PROPERTIES

IN AN ORGANIZATION'S INTELLECTUAL PROPERTY PORTFOLIO. TRADE
SECRETS ARE SIMILAR TO OTHER TYPES OF INTELLECTUAL PROPERTY,
SUCH AS PATENTS AND TRADEMARKS, AT LEAST. SOME WOULD
CLAIM THAT TRADE SECRETS ARE THE CROWN JEWELS OF EVERY
COLLECTION OF INTELLECTUAL PROPERTY.

TRADE SECRET VERSUS CONFIDENTIAL

INFORMATION
BROADLY SPEAKING, ANY PROPRIETARY MARKET DATA THAT GIVES A
CORPORATION A STRATEGIC ADVANTAGE MAY BE CALLED A TRADE SECRET.
HOWEVER, WITHIN A COMPANY, NOT ALL CONFIDENTIAL INFORMATION
COUNTS
AS A TRADE SECRET.

THERE CAN BE SEVERAL LAYERS OF SENSITIVE INFORMATION WITHIN AN

ORGANIZATION, WITH TRADE SECRETS AT THE HIGHEST LEVEL OF
CONFIDENTIAL
INFORMATION. A DISTINCTION SHOULD BE DRAWN BETWEEN CLASSIFIED
KNOWLEDGE THAT IS EASILY AVAILABLE (INTERNAL) AND TRADE SECRETS
THAT
REQUIRE SPECIAL GOVERNANCE.

ALTHOUGH THE TERMS CLASSIFIED INFORMATION AND TRADE SECRETS ARE

FREQUENTLY USED INTERCHANGEABLY, AS WELL AS SENSITIVE INFORMATION
AND EVEN KNOW-HOW, THESE TERMS ARE UNDERSTOOD DIFFERENTLY AND
THE
SOLUTIONS FOR UNLAWFUL EXPOSURE OF SUCH INFORMATION CAN ALSO
VARRY.
WHILE TRADE SECRETS AND SENSITIVE INFORMATION OVERLAP
SIGNIFICANTLY,
THEY ARE ACTUALLY SEPARATE ITEMS.

TRADE SECRET POLICY

THE TRADE SECRET ACT FORBIDS SENSITIVE OR SECRET

INFORMATION FROM BEING TAKEN WRONGFULLY. INDEPENDENT
PRODUCTION BY ANOTHER GROUP AND REVERSE ENGINEERING ARE
PROTECTIONS AGAINST TRADE SECRET CHARGES. THE SECURITY OF
TRADE SECRETS IS A MUST FOR PRACTICALLY ANY COMPANY. IT IS
MOST LIKELY NOT DISCUSSED UNTIL AN INDIVIDUAL OR RIVAL
RECEIVES AND USES HIS PRECIOUS CONFIDENTIAL KNOWLEDGE
AGAINST A CORPORATION.

PROTECTION OF TRADE SECRETS

UNDER TWO SETS OF CONDITIONS, THE ECONOMIC ESPIONAGE

ACT OF 1996 CRIMINALIZES TRADE THEFT. ECONOMIC SPYING
REFERS TO THE THEFT OF A TRADE SECRET, "INTENDING OR KNOWING
THAT ANY FOREIGN GOVERNMENT, FOREIGN INSTRUMENTALITY, OR
FOREIGN AGENT WILL BENEFIT FROM THE OFFENSE.“

THE SECOND OFFENSE, THE THEFT OF TRADE SECRETS, DEALS WITH

THEFT "RELATED TO A PRODUCT OR SERVICE USED IN OR INTENDED
FOR USE IN INTERSTATE OR FOREIGN TRADE, FOR THE ECONOMIC
BENEFIT OF ANYONE OTHER THAN ITS OWNER, AND INTENDING OR
KNOWING THAT THE OFFENSE WILL HARM ANY OWNER OF THAT TRADE
SECRET." THE DEPARTMENT OF JUSTICE PROSECUTES THESE
CRIMES AND PUNISHES THEM WITH PENALTY SUCH AS FINES OR
IMPRISONMENT.

IN ORDER TO CREATE A PRIVATE CIVIL RIGHT OF ACTION FOR THE

MISAPPROPRIATION OF A COMMERCIAL SECRET, THE PROTECT
TRADE SECRETS ACT OF 2016 (DTSA) AMENDED THE INDUSTRIAL
ESPIONAGE ACT. THIS CAUSE OF ACTION OFFERS A UNIFORM,
SECURE, AND PREDICTABLE MEANS FOR COMMERCIAL SECRET
OWNERS TO PROTECT THEIR VALUABLE TRADE SECRETS ANYWHERE IN
THE WORLD. THE DTSA WOULD NOT PREEMPT CURRENT STATE
TRADE SECRET LEGISLATION, THEREBY OFFERING THE CHOICE OF
STATE OR FEDERAL VENUES TO TRADE SECRET OWNERS.

THE COURTS MAY SECURE A TRADE SECRET

BY

(A) ORDERING THE CESSATION OF MISAPPROPRIATION,

(B) PROTECTING THE SECRET FROM PUBLIC DISCLOSURE,

(C) ORDERING THE CONFISCATION OF THE MISAPPROPRIATED

TRADE SECRET UNDER EXCEPTIONAL CIRCUMSTANCES.

COURTS CAN SEEK RESTITUTION, LEGAL COSTS, FAIR ATTORNEY'S FEES

AND A PERMANENT INJUNCTION AT THE CLOSE OF A TRADE SECRET
LAWSUIT, IF WARRANTED.

TRADE SECRETS VERSUS PATENTS

A SUPPLEMENT TO COPYRIGHT RIGHTS IS TRADE SECRET PROTECTION. IN

RETURN FOR THE RIGHT TO PREVENT OTHERS FROM PRACTICING THE
INVENTION FOR A FINITE PERIOD OF TIME, PATENTS ENABLE THE INVENTOR
TO INCLUDE DETAILED AND PERMISSIBLE DISCLOSURE OF THE INVENTION.
PATENTS DIE, AND THE MATERIAL STORED INSIDE IS NO LONGER SAFE AS
IT HAPPENS. HOWEVER, PATENTS CAN SAFEGUARD AGAINST
INDEPENDENT DISCOVERY, UNLIKE TRADE SECRETS. THE DESIRE TO
PRESERVE CONFIDENTIALITY IS THEREFORE REDUCED BY PATENT RIGHTS.

WHILE UNDER TRADE SECRET LAW, THE CONCEPT OF PROTECTABLE

"INFORMATION" IS VERY BROAD, THERE ARE FURTHER LIMITS ON WHAT CAN
BE COVERED BY A PATENT. IF ANY PATENT OR TRADE SECRET PROTECTION
IS ELIGIBLE FOR AN INVENTION, THEN THE DECISION ON HOW TO DEFEND
THE INVENTION RELIES ON MARKET CONCERNS AND THE RELATIVE
ADVANTAGES OF EACH FORM OF INTELLECTUAL PROPERTY PROTECTION.

AS SOMEONE WHO WORKS IN THE INTELLECTUAL PROPERTY FIELD,

YOU UNDERSTAND BETTER THAN MOST THE IMPORTANT ROLE
THAT INTELLECTUAL PROPERTY PLAYS FOR BUSINESSES
AND THE ECONOMY AS A WHOLE.
MANY ARE FAMILIAR WITH PATENTS, TRADEMARKS, AND COPYRIGHTS,
BUT WHAT ABOUT TRADE SECRETS?
A TRADE SECRET CAN BE ANYTHING FROM A SPECIAL RECIPE
TO A MANUFACTURING PROCESS TO A PARTICULAR TECHNOLOGY.
TRADE SECRETS CAN PLAY A BIG ROLE
IN A BUSINESS' FINANCIAL HEALTH AND COMPETITIVENESS.
TRADE SECRETS FOSTER INNOVATION
AND PROVIDE COMPETITIVE ADVANTAGES,
BUT WHAT EXACTLY IS A TRADE SECRET?
TRADE SECRET LAW IS GOVERNED BY NATIONAL LEGAL SYSTEMS,
BUT THE DEFINITIONS FOR TRADE SECRET GENERALLY
SHARE THESE THREE COMMON ELEMENTS.
FIRST, A TRADE SECRET IS INFORMATION THAT HAS VALUE
BY VIRTUE OF NOT BEING GENERALLY KNOWN.
LIKE A RECIPE FOR THE BEST CHOCOLATE CHIP COOKIE EVER MADE.
SECOND, THE INFORMATION HAS VALUE TO OTHERS
WHO CANNOT LEGITIMATELY OBTAIN THE INFORMATION,
LIKE A BUSINESS'S COMPETITORS WANTING THE EXACT INGREDIENTS
AND THEIR MEASURES IN THAT COOKIE MIX.
THIRD, THE INFORMATION IS SUBJECT TO REASONABLE EFFORTS
TO MAINTAIN ITS SECRECY.
THE OWNER OF THE RECIPE PUTS SECURITY MEASURES IN PLACE
TO MAKE SURE NOT JUST ANYONE CAN GET THEIR HANDS ON IT.
A TRADE SECRET CAN BE ALMOST ANYTHING,
CHEMICAL FORMULAS OR FOOD RECIPES, PRODUCT DESIGNS,
CUSTOMER AND CONTACT LISTS, PRICING SCHEDULES,
MANUFACTURING TECHNIQUES, AND MARKETING STRATEGIES,
JUST FOR STARTERS.
AND WHILE IT'S EASY TO UNDERSTAND THE IMPORTANCE
OF A TRADE SECRET, UNDERLYING BIG NAME BRAND PRODUCTS
OR SERVICES, TRADE SECRETS COME IN ALL SIZES
AND ARE IMPORTANT TO COMPANIES OF ALL SIZES.
THE FAILURE TO IDENTIFY AND PROTECT TRADE SECRETS
CAN RESULT IN A LOSS OF COMPETITIVE ADVANTAGE,
LOSS OF CORE BUSINESS TECHNOLOGIES,
AND REDUCED PROFITABILITY.
IN MANY COUNTRIES, THE IMPORTANCE OF TRADE SECRETS
IS REFLECTED IN LAWS AND REGULATIONS THAT PROTECT
AGAINST TRADE SECRET THEFT BECAUSE OF THE IMPACT IT CAN HAVE
ON THE ECONOMIC VITALITY OF BUSINESSES.
PATENTS PROTECT THINGS LIKE NEW INVENTIONS
OR INNOVATIVE METHODS.
TRADEMARKS PROTECT THINGS LIKE LOGOS AND BRANDING.
TRADE SECRET LAWS PROTECT MUCH OF THE INFORMATION
THAT MAKES A BUSINESS OR SERVICE TRULY UNIQUE.
BUT IN ORDER TO GAIN THIS PROTECTION,
IT IS THE BUSINESS' RESPONSIBILITY
TO IDENTIFY AND SECURE THEIR OWN TRADE SECRETS.
THERE'S A LOT MORE TO LEARN ABOUT TRADE SECRETS,
SUCH AS GOVERNING LAW,
WHAT IT MEANS TO MISAPPROPRIATE ANOTHER'S TRADE SECRET,
AND WHAT TO DO WHEN A TRADE SECRET IS STOLEN.
IF YOU WOULD LIKE TO KNOW MORE ABOUT TRADE SECRETS,
THE USPTO'S OFFICE OF POLICY AND INTERNATIONAL AFFAIRS
OFFERS IN-PERSON TRAINING PROGRAMS ON VARIOUS TOPICS
RELATED TO TRADE SECRETS.
THE GLOBAL INTELLECTUAL PROPERTY ACADEMY
WILL BE RELEASING A SERIES OF DISTANCE LEARNING MODULES
DEVOTED TO IN-DEPTH TRAINING ON TRADE SECRETS.
THESE DISTANCE LEARNING MODULES WILL BE ACCESSIBLE
TO YOU AND YOUR STAFF SO THAT YOU CAN BETTER UNDERSTAND
AND USE TRADE SECRET LAW
IN YOUR INTELLECTUAL PROPERTY ADMINISTRATION.

SOMETIMES AN INVENTOR OR BUSINESS

DECIDES THAT THE BEST WAY TO PROTECT
THEIR IP IS TO JUST KEEP IT A SECRET
FROM EVERYONE ELSE THESE ARE CALLED
TRADE SECRETS AND THEY INCLUDE THINGS
LIKE FORMULAS PROCESSES DESIGNS METHODS
OF MANUFACTURING PRODUCTS AND
COMPILATIONS OF INFORMATION SOME FAMOUS
EXAMPLES OF TRADE SECRETS INCLUDE THE
RECIPE FOR COCA-COLA THE ELEVEN SPICE
AND EARTH BLEND USED BY KENTUCKY FRIED
CHICKEN AND GOOGLE'S SEARCH ALGORITHM
IT'S IMPORTANT FOR COMPANIES TO KEEP
THEIR INFORMATION SAFE SO OTHER PEOPLE
AND COMPANIES CAN'T USE IT TO CREATE A
SIMILAR PRODUCT AND SELL IT THEMSELVES
PROTECTING TRADE SECRETS IS A
DO-IT-YOURSELF PROCESS ONE DOESN'T FILE
FOR FORMAL PROTECTION FOR TRADE SECRETS
LIKE THEY WOULD FOR PATENTS OR
COPYRIGHTS OWNERS OF TRADE SECRETS
SIMPLY KEEP THE INFORMATION SECRET THERE
ARE LEGAL PROTECTIONS FOR TRADE SECRETS
SUCH AS A NONDISCLOSURE AGREEMENT FOR
ANYONE WITH KNOWLEDGE OF THE INFORMATION
USUALLY ONLY A FEW PEOPLE KNOW ALL THE
INFORMATION THAT MAKES UP A TRADE SECRET
AND EVEN THOUGH TRADE SECRETS AREN'T
LEGALLY REGISTERED AS INTELLECTUAL
PROPERTY STEALING OR PUBLISHING THEM IS
STILL ILLEGAL FEDERAL LABS CAN HAVE
TRADE SECRETS ON INVENTIONS AND
PROCESSES THEY'VE DEVELOPED THE
GOVERNMENT EQUIVALENT IS CLASSIFIED
INFORMATION BUT WHEN LABS PARTNER WITH
BUSINESSES AND INDIVIDUALS THEY MAY NEED
TO LEARN ABOUT THOSE PARTNERS IP TO HELP
T2 LAWS HAVE BEEN PUT IN PLACE THAT
ALLOW FEDERAL LABS TO KEEP QUIET ABOUT
PARTNERS TRADE SECRETS SO THEY CAN WORK
TOGETHER AND COMPANIES CAN BE SURE THEIR
INFORMATION IS SAFE THROUGHOUT THE
PARTNERING PROCESS

WHAT IS TRADE SECRET PROTECTION AND WHY IS IT IMPORTANT?

TRADE SECRET PROTECTION IS AN ALTERNATIVE TO PATENT OR TRADEMARK
LAW THAT ALLOWS FOR
INTELLECTUAL PROPERTY TO REMAIN UNDISCLOSED.
THE SUBJECT MATTER OF A TRADE SECRET MAY BE VIRTUALLY ANY
INFORMATION THAT IS VALUABLE
BECAUSE IT IS NOT GENERALLY KNOWN.
TRADE SECRETS HAVE ENORMOUS ECONOMIC VALUE.
A STUDY RELEASED IN MARCH OF 2014 ESTIMATED THAT TRADE SECRET
MISAPPROPRIATION COSTS THE
WORLD’S TOP 40 ECONOMIES 1 TO 3 PERCENT OF THEIR GROSS DOMESTIC
PRODUCT EACH YEAR.
INFORMATION PROTECTED BY TRADE SECRETS IS OFTEN VALUABLE BECAUSE
IT IS UNKNOWN AND NOT
READILY ASCERTAINABLE.
WHAT ADVANTAGES AND DISADVANTAGES COME WITH TRADE SECRET
PROTECTION?
TRADE SECRET PROTECTION CARRIES BOTH ADVANTAGES AND
DISADVANTAGES.
THE DECISION TO USE TRADE SECRET LAW INSTEAD OF OTHER KINDS OF
PROTECTION DEPENDS ON THE
NATURE OF THE INTELLECTUAL PROPERTY TO BE PROTECTED.
UNLIKE THE 20-YEAR TIME LIMIT FOR THE PROTECTION OF PATENTS, THERE IS
NO DEFINITE TIME LIMIT
PLACED ON TRADE SECRET PROTECTION.
THIS INDEFINITE FUTURE PROTECTION IS APPEALING, IF THE INTELLECTUAL
PROPERTY TO BE PROTECTED
IS LIKELY TO REMAIN GENERALLY UNKNOWN WELL INTO THE FUTURE.
ALTHOUGH THERE IS NO DEFINITE EXPIRATION OF TRADE SECRET PROTECTION,
THE PROTECTION HAS
ITS LIMITS; IT ONLY PROHIBITS THE DISCLOSURE OR USE OF THE TRADE SECRET
BY ONE TO WHOM
THE SECRET WAS DISCLOSED IN CONFIDENCE.
UNLIKE PATENT LAW, TRADE SECRET LAW DOES NOT OFFER ANY AFFIRMATIVE
PROTECTION AGAINST THE
USE OF THE INTELLECTUAL PROPERTY IF IT IS INDEPENDENTLY DERIVED OR
REVERSE ENGINEERED
BY A COMPETITOR.
CONSEQUENTLY, IF THE INTELLECTUAL PROPERTY TO BE PROTECTED IS A NEW
METHOD OF MANUFACTURING
A PRODUCT, AND IF THAT METHOD OF MANUFACTURE IS ASCERTAINABLE FROM
AN EXAMINATION OF THE
PRODUCT, THEN THE BEST FORM OF PROTECTION FOR THE INTELLECTUAL
PROPERTY IS MOST LIKELY
PATENT PROTECTION.
AS THE U.S. SUPREME COURT NOTED IN BONITO BOATS V. THUNDER CRAFT
BOATS, STATE TRADE
SECRET LAW HAS NEVER GIVEN THE HOLDER OF A TRADE SECRET PROTECTION
AGAINST REVERSE ENGINEERING
BY THE PUBLIC OR A COMPETITOR.
THE SUPREME COURT COMMENTED THAT IN ORDER TO RECEIVE PROTECTION
FROM REVERSE ENGINEERING,
THE HOLDER OF THE INTELLECTUAL PROPERTY MUST SEEK THE PROTECTION
OF FEDERAL PATENT LAW.
IN SUMMARY, SOME PROS AND CONS OF TRADE SECRET PROTECTION ARE…
PROS
TRADE SECRET LAW PROVIDES INDEFINITE FUTURE PROTECTION, SO LONG AS
THE TRADE SECRET STAYS
A SECRET.
TRADE SECRET PROTECTION PREVENTS THE DISCLOSURE OR USE OF THE TRADE
SECRET BY ONE TO WHOM
THE SECRET WAS DISCLOSED IN CONFIDENCE.
CONS
IF SOMEONE COMES UP WITH THE SAME IDEA ON THEIR OWN, THE TRADE
SECRET IS NO LONGER PROTECTED
BY LAW.
TRADE SECRET LAW DOES NOT GIVE THE HOLDER OF A TRADE SECRET
PROTECTION FROM ANY REVERSE
ENGINEERING.
HOW IS TRADE SECRET LAW DIFFERENT FROM COPYRIGHT, PATENT OR
TRADEMARK LAW?
UNLIKE COPYRIGHT AND PATENT LAW, NOVELTY AND TANGIBILITY
REQUIREMENTS DO NOT APPLY TO TRADE
SECRET PROTECTIONS.
ADDITIONALLY, PATENT AND TRADEMARK LAW INVOLVE AN AFFIRMATIVE
ASSERTION OF AN INTELLECTUAL
PROPERTY RIGHT, WHILE TRADE SECRET LAW ONLY ACTIVELY OPERATES
AFTER A MISAPPROPRIATION
OR THREATENED MISAPPROPRIATION OF THE TRADE SECRET HAS OCCURRED.
UNLIKE PATENTS AND COPYRIGHTS THAT FALL UNDER FEDERAL LAW, TRADE
SECRET PROTECTION UNTIL
VERY RECENTLY EMANATED FROM STATE LAW.
WHAT IS THE LEGAL HISTORY OF TRADE SECRET LAW IN THE U.S.?
THE CONCEPT OF TRADE SECRETS FIRST APPEARED IN THE AMERICAN LEGAL
SYSTEM IN THE CASE OF
VICKERY V. WELCH IN 1837.
THE MASSACHUSETTS SUPREME COURT FIRST EXPLAINED TRADE SECRET LAW
IN MODERN TERMS IN PEABODY
V. NORFOLK IN 1868.
SINCE THE PEABODY DECISION, THE COURTS HAVE ADDRESSED TRADE SECRET
ISSUES MANY TIMES.
HOWEVER, BECAUSE EACH STATE MAY REGULATE TRADE SECRET LAW
INDEPENDENTLY, EACH STATE HAS DEVELOPED
ITS OWN LEGAL REGIME TO REGULATE AND PROTECT TRADE SECRETS.
TO HARMONIZE AND STANDARDIZE TRADE SECRET LAW IN THE UNITED STATES,
THE UNIFORM LAW
COMMISSION PUBLISHED THE UNIFORM TRADE SECRETS ACT, OR UTSA, IN 1979.
THE UTSA SOUGHT TO CREATE A UNIFORM TRADE SECRET LAW REGIME FROM
STATE TO STATE.
HOWEVER, THE UTSA ITSELF WAS NOT BINDING UPON STATES.
FOR THE UTSA TO BE SUCCESSFUL, THE STATES NEEDED TO ADOPT AND ENACT
THE MODEL UTSA STATUTE,
WITH ANY MODIFICATIONS OR CUSTOMIZATIONS EACH STATE LEGISLATURE
DESIRED TO MAKE.
THUS, EACH OF THE 48 STATES THAT ADOPTED THE UTSA MAY HAVE HAD A
SLIGHTLY DIFFERENT ADAPTATION.
BUT ON MAY 11, 2016, THE FEDERAL DEFEND TRADE SECRETS ACT (DTSA) WAS
SIGNED INTO LAW, THEREBY
CREATING A FEDERAL CAUSE OF ACTION FOR TRADE SECRET
MISAPPROPRIATION THAT LARGELY MIRRORED
THE LAW FORMED UNDER THE UNIFORM TRADE SECRETS ACT (UTSA).

HI I'M SAM AND I WANT TO TELL YOU ALL

ABOUT TRADE FINANCE AND ALONG THE
JOURNEY THIS MIGHT EVEN HELP YOUR
CLIENTS TRADE FINANCE CAN BE FOR ANYONE
WHO HAS A FINANCE GAP BETWEEN PROVIDING
GOODS OR SERVICES AND ACTUALLY RECEIVING
THE FINAL PAYMENT AROUND 80 TO 90
PERCENT OF GLOBAL TRADE IS RELIANT ON
TRADE AND SUPPLY CHAIN FINANCE WHICH IS
ESTIMATED TO BE AROUND 10 TRILLION US
DOLLARS A YEAR WE WANT TO HELP EXPLAIN
SOME OF THE CONCEPTS BEHIND TRADE
FINANCE SOMETIMES BANKS MIGHT NOT BE THE
BEST FUNDING OPTION WE'VE SEEN INCREASED
REGULATION REDUCED STANDARD LENDING AND
SMES FINDING IT DIFFICULT TO ACCESS
FINANCE FROM TRADITIONAL MEANS DOES THIS
HAVE TO LIMIT YOU ABSOLUTELY NOT AT
TRADE FINANCE GLOBAL WE HELP COMPANIES
FIND DEBT FUNDING WE'RE IMPARTIAL
FLEXIBLE AND WORK WITH MOST FUNDERS ON
THE MARKET TO ENSURE ASSAMESE REALLY DO
GET THE MOST APPROPRIATE SOURCE OF
FUNDING TO HELP THEM GROW SO WHAT DO WE
OFFER IN A NUTSHELL WE OFFER BUSINESS
FINANCE SOLUTIONS THROUGH OUR NETWORK OF
LENDERS TO COMPANIES SO HOW DOES IT WORK
A TRADE FINANCIAL TRANSACTION REQUIRES A
SELLER OF GOODS OR SERVICES AS WELL AS A
BUYER A LENDER WOULD COME IN AND FUND
THIS TRADE TRADE FINANCE IS RELEVANT
WHERE A SELLER REQUIRES THE BUYER TO
PREPAY FOR GOODFELLA SHIPPED SO WHAT'S
NEEDED AS AN EXAMPLE THE BUYER WANTS TO
REDUCE THEIR RISK BY ASKING THE SELLER
TO DOCUMENT THAT THE GIVES HAVE BEEN
SHIPPED I'M GOING TO SHOW YOU ONE
EXAMPLE OF HOW TRADE FINANCE DEAL COULD
WORK ALTHOUGH THERE ARE MANY DIFFERENT
FORMS OF TRADE FINANCE FIRSTLY THE BUYER
APPROACHES THE FUNDER BECAUSE THEY WANT
TO PURCHASE TOYS TO SELL ON TO CUSTOMERS
ONCE THE FUNDER ASSESSES THIS AND
APPROVES THEY ISSUE A FORM OF
UNDERTAKING TO THE SELLER THE SUPPLIER
THEN SHIPS THE TOYS INVOICING THE FUNDER
THE FUNDER INVOICES THE BUYER HE THEN
SELLS THE TOYS TO HIS CUSTOMERS THE
BUYERS CUSTOMERS WHO COULD BE A RETAILER
THEN MAKE PAYMENT THE BUYER HAS
FULFILLED THEIR PART OF THE TRANSACTION
AS THE FUNDER HAS RECEIVED THEIR FUNDS
AND PROFIT
KEPT BY THE BUYER TRADE FINANCE IS THE
TYPE OF FINANCE USED BY BUYERS AND
SELLERS TO ASSIST WITH THE TRADE CYCLE
FUNDING GAP SO IF YOU'RE A UK BUYER
PURCHASING FOOD FROM ABROAD YOU MIGHT
USE A TRADE FINANCE FACILITY TO MITIGATE
AND REDUCE RISK LENDERS WHO ASSIST WITH
BRIDGING THIS FINANCE GAP TAKE ON
RESPONSIBILITIES TO ENSURE TRADES IS
SAFE EFFECTIVE AND SECURE THESE INCLUDE
CONTROLLING SOME OF THE FINANCIAL
ELEMENTS OF A TRADE KEEPING A CLOSE EYE
ON THE TRADE CYCLE THROUGHOUT THE
TRANSACTION AND ENSURING THE SECURITY OF
GOODS AND DEBT WHICH IS ALSO KNOWN AS
RECEIVABLE WHAT ARE THE RISKS OF TRADE
FINANCE WHEN TRADING GOODS EITHER THE
BUYER OR THE SELLER WILL HAVE TO TAKE ON
SOME FORM OF RISK A SELLER WHO IS
PRODUCING THE GOODS ONCE PAYMENT UPFRONT
WHILST A BUYER WANTS TO PAY AS LATE AS
POSSIBLE SO THAT THEY CAN SELL THEIR
PRODUCTS ONTO CUSTOMERS AND MAY WANT TO
RECEIVE SOME FORM OF CREDIT TERM AT
TRADE FINANCE GLOBAL WE KNOW THAT
STANDARD FORMS OF DEBT DON'T WORK
SOMETIMES AND MOST BUSINESSES ARE NOT
KEEN TO PUT UP STANDARD SECURITIES SUCH
AS THEIR HOUSE INSTEAD WITH TRADE
FINANCE SECURITY CAN BE A PURCHASE ORDER
FUTURE PAYMENTS INVOICES ALL THE GOODS
THEMSELVES SO WHAT ARE THE BENEFITS OF
TRADE FINANCE USING TRADE FINANCE CAN
ENABLE A BUSINESS TO TAKE ON MORE ORDERS
AND GROW FASTER FOR BUSINESSES IT CAN
ENABLE THEM TO TAKE ON MULTIPLE WORK
STREAMS EMPLOY MORE PEOPLE AND GROW
QUICKLY PAYMENT CAN BE MADE IN MULTIPLE
CURRENCIES DIRECTLY TO SUPPLIERS
DEPENDING
THEIR NEEDS SO WHY WOULD A COMPANY NEED
TO USE TRADE FINANCE GLOBAL TO GET TRADE
VIOLENCE FOR USING TRADE FINANCE ALLOWS
A COMPANY TO PRODUCE MORE WORKING
CAPITAL AND IMPROVE THE MANAGEMENT OF
CASHFLOW COMPANIES ARE ABLE TO FULFILL
LARGE ORDERS THAT WOULD USUALLY NOT BE
POSSIBLE THEY CAN ACHIEVE HIGHER PROFIT
MARGINS BECAUSE A FACILITY ALLOWS BULK
BUYING OF PRODUCTS AND ADVANCE PAYMENT
WHICH CAN BE GREAT FOR ECONOMIES OF
SCALE RELATIONSHIPS BETWEEN BUYERS AND
SELLERS ARE STRENGTHENED PROFIT MARGINS
AND EBIT DA MAY BE IMPROVED THERE IS
GREATER ROOM FOR EFFICIENCY AS WELL AS
BEING MORE COMPETITIVE IN THE MARKET
ALSO BUSINESS OWNERS CAN DIVERSIFY THE
SUPPLIERS THEY WORK WITH AND EXPAND
THEIR NETWORK THERE ARE FEWER BAD DEBTS
LATE PAYMENTS FROM DEBTORS EXCESS STOCK
AND THIS COULD ALL BRING DOWN THE
PROBLEMS ASSOCIATED WITH DEMANDING
CREDITORS SO WHAT WILL FUNDERS ASKABLE
WE GENERALLY FIND THAT BY HAVING
PREPARED THE FOLLOWING FUNDERS CAN MAKE
A VERY QUICK ASSESSMENT AND HELP YOUR
BUSINESSES GET TRADE FINANCE HERE'S WHAT
YOU SHOULD BE ABLE TO PROVIDE AUDITED
FINANCIAL STATEMENTS FULL BUSINESS PLANS
FINANCIAL FORECASTS CREDIT REPORTS
DETAILS AND REFERENCES OF THE DIRECTORS
AND INFORMATION ON ASSETS AND
LIABILITIES THANKS FOR LISTENING TO THIS
TALK ON TRADE FINANCE BY TRADE FINANCE
GLOBAL BE SURE TO CHECK OUT OUR OTHER
TRAINING VIDEOS WHICH WILL BE SENT TO
YOU SEE PLEASE DO NOT HESITATE TO GET IN
TOUCH WITH TRADE FINANCE GLOBAL IF YOU
HAVE ANY QUESTIONS THANKS

DID YOU KNOW THAT COFFEE IS THE MOST

SOUGHT COMMODITY AFTER CRUDE OIL EACH
YEAR APPROXIMATELY 500 BILLION CUPS OR
50,000 SWIMMING POOLS FILLED WITH BREWED
COFFEE ARE CONSUMED EVER WONDERED HOW
YOUR COFFEE ENDS UP IN YOUR CUP
PRODUCTION BEGINS ON COFFEE FARMS IN THE
TROPICS THE COFFEE CHERRIES ARE
HARVESTED AND DEED HUSKED SO THE GREEN
COFFEE BEANS CAN BE WASHED AND DRIED
THEY ARE THEN TRANSPORTED TO AN EXPORT
CONDITIONING AND GRADING FACILITY TO BE
STANDARDIZED BEFORE SHIPMENT ONCE THE
GREEN COFFEE BEANS REACH THEIR
DESTINATION THEY'LL BE ROASTED GRINDED
AND PACKAGED TO BE SOLD THIS CHAIN IS
CALLED VALUE CHAIN EACH STEP IN THE
VALUE CHAIN INCREASES THE MARKETABILITY
OF THE COFFEE BEAN AND THEREFORE ITS
VALUE ALSO EACH STEP IN THE VALUE CHAIN
COSTS MONEY SUCH AS LABOUR
TRANSPORTATION AND PROCESSING COMMODITY
TRADE FINANCE LOOKS TO THE FLOW AND
ORIGINS OF THE GOODS THE REPAYMENT IS
SECURED THROUGH THE EXPORT AND SALE OF
THE COFFEE BEANS LENDERS USUALLY
EVALUATE THE CAPACITY OF THE COMPANY TO
PRODUCE AND DELIVER THE COFFEE WHICH WE
CALL THE OPERATIONAL RISK THERE'S ALSO A
THOROUGH ASSESSMENT OF THE VARIOUS RISKS
INVOLVED AT EACH STAGE OF THE VALUE
CHAIN IN ORDER TO UNDERSTAND WHICH RISKS
NEED TO BE SOLD OR TRANSFERRED TO THIRD
PARTIES OR CARRIED WHY IS COMMODITY
FINANCE CONSIDERED LOW RISK COMMODITY
TRADE FINANCE SOLUTIONS PROVIDE MAXIMUM
SECURITY TO ALL PARTIES INVOLVED IN THE
TRANSACTION THE BENEFICIARIES CREDIT
RISK IN SOVEREIGN RISK IS CONVERTED INTO
PERFORMANCE RISK THAT'S CAREFULLY
ASSESSED AND MITIGATED BY APPROPRIATE
RISK MITIGATION AND CONTROL TOOLS THE
NUMBERS PROVE IT THE INTERNATIONAL
CHAMBERS OF COMMERCE DATA ON TRADE
FINANCE DEFAULT AND LOSS SHOWS THAT 0.02
PERCENT CUSTOMER DEFAULTS WERE OBSERVED
IN OVER ELEVEN POINT FOUR MILLION
TRANSACTIONS THIS DATA POSITIONS TRADE
FINANCE AS AN ASSET CLASS IN AN
EQUIVALENT CATEGORY TO AN A TO DOUBLE A
RATED CREDIT

HI I'M SAM AND I WANT TO TELL YOU ALL

ABOUT INVOICE FINANCE OF BATTERY AND
ALONG THE JOURNEY THIS MIGHT EVEN HELP
YOUR CLIENTS DID YOU KNOW THAT SMES
ACCOUNT FOR 99% OF THE UK BUSINESSES AND
46% OF THEM EXPERIENCED SOME FORM OF
CASH FLOW PROBLEMS LATE PAYMENT DEBT
STANDS AT AROUND THIRTY POINT TWO
BILLION POUNDS A YEAR THE EIGHTY TO ONE
HUNDRED AND FIFTY DAY INVOICES SHOULD
REALLY BE A THING OF THE PAST BUT IT IS
ESTIMATED THAT 1 MILLION OF THE 5
MILLION UK BUSINESSES DON'T KNOW ABOUT
INVOICE FINANCE OR WHAT IT CAN DO TO
HELP BUSINESSES THEREFORE HAVING A SOLID
GRASP ON THE INVOICE FINANCE MARKET IS A
MUST WE WANT TO HELP EXPLAIN SOME OF THE
CONCEPTS BEHIND INVOICE FINANCE AND
FACTORING SHOULD IT EVER BE HELPFUL OR
USEFUL FOR YOU TO EXPLAIN TO YOUR
CLIENTS IT IS IMPORTANT TO HELP CLIENTS
YOU MAY HAVE CUSTOMERS THAT HAVE
EXTENSIVE PAYMENT TERMS SOMETIMES THE
EASIEST OPTION MAY NOT BE A BANK LOAN OR
AN OVERDRAFT INVOICE DISCOUNTING
RECEIVABLES PURCHASING FACTORING AND
OTHER SIMILAR TERMS ARE USED
INTERCHANGEABLY IN THE MARKET IT IS
IMPORTANT TO HAVE A PROPER UNDERSTANDING
OF WHAT IS NEEDED AND WHERE TO GO TO AT
TRADE FINANCE GLOBAL WE WORK WITH
PROFESSIONALS AND HEALTH COMPANIES FIND
DEBT FUNDING WHERE IMPARTIAL FLEXIBLE
AND WORK WITH MOST FUNDERS ON THE MARKET
TO ENSURE ASSAMESE REALLY DO GET THE
MOST APPROPRIATE SOURCE OF FUNDING TO
HELP THEM GROW THIS SESSION FOCUSES ON
PURCHASES OR DISCOUNTING OF INVOICES OR
RECEIVABLES FROM THE CLIENT OF A COMPANY
SO WHAT DO WE OFFER IN A NUTSHELL WE
OFFER BUSINESS FINANCE SOLUTIONS THROUGH
OUR NETWORK OF LENDERS TO COMPANIES
THIS VIDEO COVERS RECEIVABLES FINANCE
WHICH IS ONE TYPE OF DEBT FINANCE SO
WHAT'S HAPPENING AND HOW DO INVOICE
FACTORING AND DISCOUNTING DIFFER FIRSTLY
WE'LL COVER FACTORING FACTORING IS
PRESENT WHEN A BUSINESS ASSIGNS THEIR
INVOICES TO A THIRD PARTY AND THE
FACTORING COMPANY HAS FULL VISIBILITY OF
THE SALES LEDGER AND WILL COLLECT THE
DEBTS WHEN GEE THE CUSTOMER HAS
KNOWLEDGE THAT THE INVOICES HAVE BEEN
FACTORED THIS IS THE TYPICAL ROUTE AND
LOTS OF FUNDERS OFFER HOWEVER SOME CAN
OFFER CONFIDENTIAL FACTORING
FACTORING GIVES BUSINESSES UP TO 90%
PREPAYMENT AGAINST SUBMITTED INVOICES
THIS ENABLES IMPROVED CASH FLOW AND
REDUCES THE NEED TO WAIT FOR PAYMENT THE
COMPANY MAY RECEIVE THEIR INVOICES UP TO
TWO DAYS AFTER INVOICES ARE SENT OUT
MANY FACTORING COMPANIES WERE OFFERED TO
SEND MONEY THE SAME DAY OR BUY BACKS
WHICH IS FREE A BUSINESS CAN CHOOSE A
SELECTIVE FACTORING OR INVOICE
DISCOUNTING FACILITY DEPENDENT ON THE
THUNDERER TYPICALLY WITH INVOICE
DISCOUNTING THE CUSTOMER WON'T KNOW THAT
AN INVOICE FINANCIER IS INVOLVED AGAIN
LIKE FACTORING THERE IS THE OPTION TO DO
THIS ON A COMPLETELY CONFIDENTIAL BASIS
INVOICE DISCOUNTING IS AN ALTERNATIVE
WAY OF DRAWING MONEY AGAINST THE
INVOICES OF A BUSINESS THE BUSINESSES
RETAIN CONTROL OVER THE ADMINISTRATION
AND THEIR SALES LEDGER INVOICE
DISCOUNTING USUALLY INVOLVES A COMPANY
RECONCILING WITH THEIR INVOICE FINANCIER
MONTHLY THE MAIN DIFFERENCE BETWEEN
FACTORING AND INVOICE DISCOUNTING IS
THAT WITH FACTORING A FUNDER WILL HAVE
FULL VISIBILITY OF YOUR SALES LEDGER AND
MAINTAIN THIS BY CHASING DEBTS ON YOUR
BEHALF
INVOICE DISCOUNTING ON THE OTHER HAND
ALLOWS YOU TO KEEP YOUR CREDIT CONTROL
IN-HOUSE BUT AS WE ALREADY SPOKE ABOUT
IT WOULD REQUIRE MONTHLY RECONCILIATION
WITH THE INVOICE FINANCIER NATURALLY
MANAGEMENT FEES FOR INVOICE DISCOUNTING
USUALLY A LOT LOWER HOWEVER A COMPANY
MUST DEMONSTRATE THAT THEY HAVE THE
CORRECT PROCEDURES IN PLACE TO SUPPORT
AN INVOICE DISCOUNTING FACILITY WHY USE
IT AND ONE OF THE ADVANTAGES OF INVOICE
FINANCE THE FUNDER CAN ASSIST IN
MANAGING YOUR SALES LEDGER AND CREDIT
CONTROL PROCESSES ONLY THE VALUE OF THE
CUSTOMER'S OUTSTANDING INVOICES ARE USED
TO IMPROVE THE CASH FLOW OF A BUSINESS
AS THE BUSINESS CONTINUES TO GROW
WORKING CAPITAL MIGHT BE NEEDED TO
SUPPORT THIS GROWTH WHICH CAN BE
REALIZED FROM INVOICES WORKING CAPITAL
GROWS IN LINE WITH SALES AND IMPROVES
THE FLEXIBILITY OF A BUSINESS POSSIBLY
ALLOWING IT TO ACCELERATE GROWTH INVOICE
FINANCE IS INCREDIBLY DIVERSE AND CAN BE
USED IN MANY DIFFERENT INDUSTRIES AND
SEXES NOW LET'S TALK ABOUT THE
TECHNICALS
INVOICE FINANCE HERE I'LL COVER INTEREST
RATES WHAT HAPPENS IF THERE ARE EXISTING
FINANCE ARRANGEMENTS IN PLACE AND I'LL
EXPLAIN WHAT SECURITY MIGHT BE NEEDED SO
WHAT IS INTEREST RATE AND HOW MUCH IS
ADVANCED RATHER THAN WAITING 30 TO 90
DAYS AN INVOICE FINANCIER CAN PAY MOST
OF THE INVOICE AMOUNT UPFRONT AND THE
INTEREST RATE IS THE AMOUNT CHARGED FOR
THE SERVICE INTEREST RATES ARE OFTEN
LINKS TO BASE RATES THE BANK WILL PAY
FOR BORROWING MONEY SUCH AS LIBEL AS
WELL AS A MANAGEMENT FEE AT FIRST
INSTANCE THE INVOICE CAN ADVANCE AROUND
90 PERCENT OF THE INVOICE AMOUNT UP
FRONT WHETHER THAT BE THROUGH INVOICE
DISCOUNTING OR FACTORING ONCE THE
INVOICES ARE PAID BY THE END CUSTOMER
THE REST IS PAID EXCLUDING INTEREST
RATES AND MANAGEMENT FEES WHAT IF THE
COMPANY HAS A BANK LOAN EVEN IF THE
COMPANY HAS EXISTING FINANCE
ARRANGEMENTS SUCH AS AN EXISTING BANK
LOAN OR OVERDRAFT INVOICE DISCOUNTING OR
FACTORING MAY STILL BE OKAY FOR A
BUSINESS TO USE NORMALLY A LENDER WILL
ANALYZE THE BUSINESS PRIOR TO
IMPLEMENTING A FACTORING OR INVOICE
FINANCE FACILITY THEY MAY ORDER THE
FINANCIAL RECORDS OF THE BUSINESS UNLESS
THE APPROVED CUSTOMERS THE DECISION IS
DOWN TO LEGAL AND CONTRACTUAL
IMPLICATIONS SUCH AS SECURITY AND BANK
MANDATES WHAT ABOUT SECURITY
THERE ARE OFTEN GUARANTEES THAT MIGHT
REQUIRE WHEN A COMPANY GETS INVOICE
FINANCE PERSONAL GUARANTEES FROM THE
DIRECTORS ARE USUALLY REQUIRED AS
STANDARD MOST INVOICE FINANCES WILL
INSIST ON AN ALL ASSETS DEBENTURE OVER
THE COMPANY ADDITIONAL SECURITY MAY BE
REQUIRED BASED ON THE FINANCIALS OF THE
BUSINESS WHAT ARE THE MOST IMPORTANT
CHARGES WITH INVOICE FINANCE IT IS
IMPORTANT TO UNDERSTAND THE VARIOUS
CHARGES THAT COULD ARISE I'M GOING TO
COVER THE MAIN FOUR FIRSTLY THERE ARE
DISCOUNT CHARGES THEY WORK LIKE BANK
INTEREST AND ARE USUALLY AROUND 1.5 TO
4% OVER THE BASE RATE THE CHARGE IS
USUALLY APPLIED ON A DAILY BASIS AND
APPLIED MONTHLY THERE ARE OFTEN CREDIT
MANAGEMENT FEES THESE COVER
ADMINISTRATION COSTS FOR THE MANAGEMENT
OF CREDIT THE VALUE WILL BE RELATIVE TO
TURNOVER
THE VOLUME OF INVOICES AND THE NUMBER OF
CUSTOMERS OUR BUSINESS MAY HAVE IT'S
USUALLY NOT 0.75 PERCENT TO TWO AND A
HALF PERCENT OF TURNOVER INVOICE
DISCOUNTING PLEASE COVER THE FEES TO RUN
THE FACILITY AND ARE USUALLY LOWER THAN
FACTORING RANGING FROM NAUGHT POINT TWO
PERCENT TO NAUGHT POINT FIVE PERCENT OF
TURNOVER THEN THERE ARE CREDIT
PROTECTION CHARGES CHARGES ARE IN LINE
WITH THE LEVEL OF RISK THIS DEPENDS ON
WHETHER THE FACT IT TAKES ON THE RISK OF
BAD DEBT BUT WE'LL COVER THIS NEXT IT
CAN RANGE FROM NOIR POINT FIVE PERCENT
OF TURNOVER TO TWO PERCENT OF TURNOVER
WITHIN FACTORING THERE ARE TWO TYPES
RECOURSE AND NON RECOURSE RECOURSE
FACTORING MEANS THAT THE FACTOR OR
LENDER GENERALLY DOES NOT TAKE ON THE
RISK OF BAD DEBTS IN NON-RECOURSE
FACTORING THEY DO TAKE ON THE RISK OF
BAD DEBT MEANING IT'S MORE EXPENSIVE AS
THE LENDER TAKES ON THE BATHS DEBT RISK
SPECIFIED RISKS AROUND THE DEBTORS
FAILURE TO PAY ARE ACCEPTED BUT THERE IS
NO INSURANCE AGAINST UNPAID DEBTS DUE TO
GENUINE DISPUTES SO WHAT'S NEEDED FOR
INVOICE FINANCE THERE ARE THREE PARTIES
INVOLVED DIRECTLY IN INVOICE FINANCE THE
FUNDER WHO PURCHASES THE INVOICE A
RECEIVABLE THE BUSINESS OR CUSTOMER WHO
SELLS THE INVOICE OUR RECEIVABLE AND THE
DEBTOR WHO IS REQUIRED TO PAY FOR THE
INVOICE A PERCENTAGE OF FUNDS ARE THEN
ADVANCED AGAINST THE VALUE OF THAT
INVOICE WHAT'S THE USUAL CRITERION FOR
MY FINANCE INVOICES SHOULD BE SENT TO A
BUSINESS RAISED ON CREDIT TERMS AFTER
THE GOODS AND SERVICES ARE DELIVERED AND
AGREED IS PAYABLE AS AN EXAMPLE A
WHOLESALER SELLS TWENTY-FIVE THOUSAND
POUNDS OF EQUIPMENT TO A HIGH STREET
CHAIN EVERY MONTH THEY ARE RAPIDLY
GROWING AND THEY WANT TO BUY AND MORE
STOCK AND EMPLOY MORE STAFF IN ORDER TO
CONTINUE GROWING AT A FAST RATE THE
COMPANY WAITS TO BE PAID BY EACH
CUSTOMER ON EITHER 60 OR 90 DAY PAYMENT
TERMS BY USING AN INVOICE DISCOUNTING
FACILITY THEY CAN RECEIVE AROUND 90
PERCENT OF THE INVOICE VALUE
SOON AFTER SUBMITTING AND CAN CONTINUE
TO GROW THEIR BUSINESS
THANKS FOR LISTENING TO THIS TALK ON EM
VOICE FINANCED BY TRADE FINANCE GLOBAL
BE SURE TO CHECK OUT OUR OTHER TRAINING
VIDEOS WHICH WILL BE SENT TO YOU SOON
PLEASE DO NOT HESITATE TO GET IN TOUCH
WITH THE TRADE FINANCE GLOBAL TEAM ON
INFO AT TRADE FINANCE GLOBAL COMM IF YOU
OR YOUR CLIENTS HAVE ANY QUESTIONS

HI I'M SAM AND I WANT TO TELL YOU ALL

ABOUT LETTERS OF CREDIT AND ALONG THE
JOURNEY THIS MIGHT EVEN HELP YOUR
CLIENTS
DID YOU KNOW SMES ACCOUNT FOR 99 PERCENT
OF UK BUSINESSES AND 46 PERCENT OF THEM
EXPERIENCED SOME FORM OF CATHOLIC
PROBLEMS MOST OF THE TRADE IN THE WORLD
IS DONE INTERNATIONALLY IN ORDER TO
FACILITATE THIS A BUSINESS NEEDS TO HAVE
TRADE AGREEMENTS WITH THEIR PARTNERS AND
COUNTERPARTS TRUST IS INCREDIBLY
IMPORTANT WHEN AGREEING PAYMENT AT
PUTTING THIS ON THE SCALE AT THE RISKIER
END TRADE CAN BE DONE ON AVEN ACCOUNT
TAP WHERE THE RISK OF THE SELLER BEARS
THE RISK OF NOT BEING PAID A LETTER OF
CREDIT OR LC IS LESS RISKY AND IN THIS
VIDEO WE'LL EXPLAIN WHY PARROT TRADE
FINANCE GLOBAL WE HELP COMPANIES FIND
DEBT FUNDING IN THE MARKET WITH VARIOUS
FINANCING STRUCTURES TO MEET THE
BUSINESSES NEEDS WE WANT TO HELP YOU
EXPLAIN DEPTH M TO YOUR CLIENTS AND HELP
GROW YOUR CLIENTS OR HELP RECOGNIZE
FUTURE CASH FLOW CHALLENGES A LETTER OF
CREDIT IS RELEVANT WHERE THERE IS AN
EXPORTER AND AN IMPORTER AND THERE NEEDS
TO BE PREPAYMENT OR CONFIRMATION OF
PAYMENT IN ORDER FOR GOODS TO BE SHIPPED
A LETTER OF CREDIT IS AN INSTRUMENT FROM
A BANK WHICH GUARANTEES A BUYERS PAYMENT
TO A SELLER IF CERTAIN CRITERIA ARE MET
IF THE BUYER CAN'T PAY DUE TO THE AGREED
CONTRACT THROUGH THE LETTER OF CREDIT
THE BANK WILL COVER THE REMAINING PRICE
LETTERS OF CREDIT OF FUNDAMENTAL
COMPONENTS OF INTERNATIONAL TRADE
THEY'RE GOVERNED UNIVERSALLY BY A SET OF
GUIDELINES CALLED THE UCP 600 WHICH ARE
ISSUED BY THE INTERNATIONAL CHAMBER OF
COMMERCE SO WHAT IS A LETTER OF CREDIT
AN LC IS A PROMISE WRITTEN ON A LEGAL
DOCUMENT THAT COMES FROM A BANK WITH A
PROMISE TO PAY THE HOLDER IF THE HOLDER
FULFILL CERTAIN OBLIGATIONS OBLIGATIONS
INCLUDE PAYMENT WHEN THE GOODS ARE
SHIPPED IF CERTAIN CRITERIA ARE MET A
LETTER OF CREDIT IS USUALLY USED WHEN
THE BUYER AND SELLER DO NOT KNOW EACH
OTHER VERY WELL AND THIS IS WHY IT IS
YOU SO FREQUENTLY
IN INTERNATIONAL TRADE LETTERS OF CREDIT
ARE INCREDIBLY SPECIFIC AND THE CLOSE
ATTENTION TO DETAIL IS REQUIRED IF THERE
IS A MISSPELLING IN THE CONTRACT FOR
EXAMPLE THE NAME OF THE GOODS IS
INCORRECTLY SPELLED THERE MAY BE A
NON-PAYMENT UNTIL A NEW CORRECTED LC IS
ISSUED AND ACCEPTED SO WHAT ARE THE
ADVANTAGES OF LCS
FOR THE BUYER THEY ARE CERTAIN TO
RECEIVE THE GOODS ARE STIPULATED IN THE
LETTER OF CREDIT AND THEY DO NOT NEED TO
PAY FOR THE GOODS UPFRONT FOR THE SELLER
THEY'RE SOMEWHAT PROTECTED AGAINST
NON-PAYMENT FROM THE BUYER THERE ARE
LOTS OF DIFFERENT TYPES OF LCS AND
THEY'LL COVER MOST OF THEM TODAY OFTEN
PEOPLE GET CONFUSED BETWEEN COMMERCIAL
LETTERS OF CREDIT WHICH ACT AS A PRIMARY
MECHANISM FOR A TRANSACTION AND THE
STANDBY LETTER OF CREDIT
THE SECONDARY PAYMENT MECHANISM A
FAIL-SAFE GUARANTEE DEPENDING ON THE
PERSPECTIVE OF THE BUYER OR THE SELLER
THERE ARE ALSO IMPORT LETTERS OF CREDIT
SET UP BY THE IMPORTER OR FIRE OF GOODS
OR SERVICES AND EXPORTER LETTERS OF
CREDIT WHICH IS SET UP BY THE EXPORTER
OR THE SELLER SO HOW DOES THE LETTER OF
CREDIT WORK ON BEHALF OF THE BUYER THE
ISSUING BANK PROMISES PAYMENT TO A
SELLER OR BENEFICIARY AN ADVISING BANK
MAY ACT ON BEHALF OF THE SELLER THE
ADVISING BANK WILL RECEIVE PAYMENT
NORMALLY WHEN THEY HAVE BEEN PRESENTED
OF SPECIFIED DOCUMENTS REPRESENTING THE
SUPPLY OF GOODS SO WIRE LETTERS OF
CREDIT USED THEIR SAFE LETTERS OF CREDIT
ARE USUALLY LEGALLY BINDING AND SO ALL
PARTIES NEED TO AGREE TO CANCEL THEM
THEY OFFER CLARITY THE GIVES DEFINED IN
AN LC ARE SPECIFIC AND WELL-DEFINED SO
THE DETAILS OF A TRANSACTION ARE
GENERALLY VERY TRANSPARENT THEY OFFER
RISK PRODUCTION THE EXPORTER OR PAYMENT
TO THE SELLER IS GUARANTEED PAYMENT
PROVIDING THE TERMS OF THE LCA MET THEY
ALLOW FOR SAFE TRADING LETTERS OF CREDIT
ARE A FOCUS OF INTERNATIONAL TRADE AND
ALLOW COMPANIES TO
SAFELY IN UNFAMILIAR MARKET WITH
UNFAMILIAR SUPPLIERS THEIR EFFICIENT
LETTERS OF CREDIT CAN BE RAISED
ELECTRONICALLY USING AN ONLINE TRADE
BANKING SERVICE THERE ARE SEVERAL
DIFFERENT TYPES OF LETTER CREDIT I'M
GOING TO COVER A FEW OF THEM THE
IRREVOCABLE LETTER OF CREDIT ALLOWS
CANCELLATION OR AMENDS TO THE LETTER OF
CREDIT BY THE BUYER BUT THE BUYERS BANK
SELLER AND/OR SELLERS BANK AGREE A
CONFIRMED LETTER OF CREDIT IS A SECOND
GUARANTEE BY THE SELLERS BANK IT ADDS
ADDITIONAL SECURITY FOR THE SELLER IT
MEANS THAT IF THE ISSUING BANK FROM THE
BUYER FAILS TO MAKE A PAYMENT
THE SELLERS BANK AGREES TO GUARANTEE
PAYMENT A TRANSFERABLE LETTER CREDIT CAN
BE PASSED FROM ONE BENEFICIARY TO OTHERS
THEY'RE COMMONLY USED WHEN
INTERMEDIARIES ARE INVOLVED IN A
TRANSACTION AND OTHERS ARE SUPPLYING THE
SELLER IN THE TRANSACTION A LETTER OF
CREDIT AT SITE THESE ARE PAYABLE AS SOON
AS THE AGREED DOCUMENTATION HAS BEEN
PRESENTED AND VERIFIED THE THIRD OR USE
ONS LETTERS OF CREDIT MEANS THAT THE
PAYMENT TO THE SELLER IS DELAYED UNTIL
AN AGREED PERIOD OF TIME HAS PASSED A
RED CLAUSE LETTER OF CREDIT PERMITS THE
SELLER TO RECEIVE PARTIAL PAYMENT FROM
THE ISSUING BANK PRIOR TO SHIPPING
PRODUCTS OR PERFORMING THE SERVICES SO
HOW IS PAYMENT COLLECTED ON LETTERS OF
CREDIT TO RECEIVE PAYMENT THE
BENEFICIARY MUST PRESENT DOCUMENTATION
OF COMPLETION OF THEIR PART IN THE
TRANSACTION TO THE ISSUING BANK AND MUST
PRESENT DOCUMENTS SUCH AS INVOICES BILLS
OF EXCHANGE OR GOVERNMENT DOCUMENTS
THANKS FOR LISTENING TO THIS TALK ON
LETTERS OF CREDIT BY TRADE FINANCE
GLOBAL BE SURE TO CHECK OUT OUR OTHER
TRAINING VIDEOS AND DON'T HESITATE TO BE
IN TOUCH WITH TRADE FINANCE GLOBAL
SHOULD YOU HAVE ANY QUESTIONS

INVOICE FINANCE OR INVOICE DISCOUNTING

IS A FORM OF SHORT-TERM BORROWING OFTEN
USED TO IMPROVE A COMPANY'S CASH FLOW A
BUSINESS WILL ENTER INTO AN AGREEMENT
WITH A FINANCE COMPANY THIS WILL ALLOW
THE BUSINESS TO BORROW A PERCENTAGE OF
THE OUTSTANDING SALES INVOICES THEY HAVE
FOR EXAMPLE IF A BUSINESS HAS 1 MILLION
AN OUTSTANDING INVOICES AND THE FINANCE
COMPANY WILL LEND THEM 80 PERCENT OF
THIS THEY CAN BORROW EIGHT HUNDRED
THOUSAND POUNDS THE INVOICE IS ACT AS A
SECURITY FOR THE FINANCE COMPANY WHEN
THE BUSINESS RAISES NEW INVOICES AND
CUSTOMERS PAY THEIR INVOICES THE AMOUNT
THAT CAN BE BORROWED WILL CHANGE TO MAKE
SURE THE MAXIMUM IS ALWAYS 80 PERCENT OF
THE OUTSTANDING INVOICE BALANCE OR
WHATEVER HAS BEEN AGREED WITH THE
FINANCE COMPANY THE FINANCE COMPANY WILL
OFTEN CHARGE A FEE FOR ITS SERVICE ALONG
WITH INTEREST ON THE AMOUNT THE BUSINESS
BORROWS THIS IS USUALLY AN EXPENSIVE WAY
TO BORROW MONEY
THE FINANCE COMPANY MAY ALSO REFUSE TO
LEND AGAINST SOME INVOICES THEY SEE AS
BEING A BAD CREDIT RISK FOR THE BUSINESS
IT MEANS THEY HAVE INSTANT ACCESS TO
FUNDS TO HELP THEIR CASH FLOW THEY'LL
ONLY PAY INTEREST ON THE AMOUNT THEY
BORROW AND THEIR SUPPLIERS DO NOT NEED
TO BE AWARE OF THE AGREEMENT GET A
REBRANDED VERSION OF THIS VIDEO ALONG
WITH MANY OTHERS TODAY AT KLINK VIDCOM

THE SUPPLY CHAIN FINANCE ECOSYSTEM

INVOLVES BUYERS SUPPLIERS AND FUNDERS
HERE'S HOW THE THREE COME TOGETHER TO
FREE UP CASH FLOW FIRST A BUYER EXTENDS
SUPPLIERS PAYMENT TERMS IN ORDER TO
OPTIMIZE WORKING CAPITAL HOWEVER THAT
EXTENSION CAN STRAIN BOTH THE
RELATIONSHIPS AND THE SUPPLIERS OWN CASH
FLOW TO OFFSET THAT RISK A BUYER CAN
INVITE THE SUPPLIER TO PARTICIPATE IN A
SUPPLY CHAIN FINANCE PROGRAM THIS
ENABLES THE SUPPLIER TO RECEIVE PAYMENT
AS SOON AS THE INVOICE IS APPROVED AND
TAKE ADVANTAGE OF THE BUYERS HIGHER
CREDIT RATING TO OBTAIN FINANCING AT
LOWER RATES ONCE THE SUPPLIER AGREES TO
PARTICIPATE THEY SUBMIT THEIR INVOICES
TO THE BUYER JUST AS BEFORE THE BUYER
APPROVES THE INVOICES AND THEY'RE
AUTOMATICALLY UPLOADED TO A CLOUD
ENABLED SUPPLY CHAIN FINANCE PLATFORM
WITHIN THAT PLATFORM THE SUPPLIER HAS
100% VISIBILITY INTO ALL ACCOUNTS
RECEIVABLE WITH THEIR BUYERS THEY CAN
SELECT AS MANY OR AS FEW INVOICES AS
NECESSARY FOR WHICH TO RECEIVE EARLY
PAYMENT AND NONE ARE CONSIDERED DEBT OR
ALONE ONCE THE INVOICES ARE SELECTED THE
FUNDER PROCESSES THOSE REQUESTS AND
DELIVERS EARLY PAYMENT TO THE SUPPLIER
AS SOON AS TODAY AFTER APPROVAL THE FULL
AMOUNT OF THE INVOICE - A SMALL FEE IS
TRANSFERRED ELECTRONICALLY THE SUPPLIERS
BANK ACCOUNTS WHEN THE INVOICES HAVE
MATURED AT THE EXTENDED TERM THE BUYER
STILL PAYS THE INVOICE TO WHOMEVER IT'S
DUE FOR BUYERS AND SUPPLIERS A STRATEGIC
WELL CONSTRUCTED SUPPLY CHAIN FINANCE
PROGRAM IS MUTUALLY BENEFICIAL HELPING
BUYERS FREE UP CASH AND ALLOWING
SUPPLIERS TO GET PAID EARLIER THE
RELATIONSHIP IS STRENGTHENED AND
TOGETHER BOTH BUYERS AND THEIR SUPPLIERS
CAN FUEL GROWTH STABILITY AND INNOVATION
FOR THE FUTURE

HI EVERYONE THANKS FOR CHECKING THIS VIDEO  OUT TODAY WE WILL BE

TALKING ABOUT E-COMMERCE  
FOR DUMMIES THIS IS GOING TO BE AN EXTREMELY  DIALED DOWN DISCUSSION
ON THE ABSOLUTE BASICS  
OF E-COMMERCE LET'S GET STARTED ECOMMERCE STANDS  FOR ELECTRONIC
COMMERCE ALL IT IS IS SELLING  
A PRODUCT OR A SERVICE ONLINE E-COMMERCE HAS  EXPANDED
EXPONENTIALLY IN RECENT YEARS AND WILL  
ONLY CONTINUE TO DO SO AND THE MORE IT CONTINUES  THE MORE IT WILL
CONTINUE SMALL AND MEDIUM-SIZED  
BUSINESSES ALL THE WAY THROUGH TO LARGE  CORPORATIONS AND EVEN
INDEPENDENT FREELANCERS  
HAVE BENEFITED FROM E-COMMERCE THEIR PRODUCTS AND  SERVICES ARE
NOW SO EASY TO DISCOVER AND PURCHASE  
AT ANY HOUR OF ANY DAY FROM ALMOST ANYWHERE IN  THE WORLD THE
POSSIBILITY TO SCALE IN THIS DAY  
AND AGE IS LIKE NO OTHER ECOMMERCE IS THE FASTEST  GROWING RETAIL
MARKET SO WHY WOULDN'T YOU WANT TO  
BE A PART OF THAT THERE ARE LOADS OF BENEFITS TO  HOPPING ON E-
COMMERCE BANDWAGON WITH E-COMMERCE  
BEING ELECTRONIC YOU HAVE A GLOBAL MARKET THIS  MULTIPLIES YOUR
TARGET AUDIENCE EXPONENTIALLY  
YOU'LL ALSO CHOOSE WHO YOUR CUSTOMERS ARE AND  DEFINE HOW TO
TARGET THEM WITH YOUR STORE BEING  
ONLINE YOU'RE ESSENTIALLY OPEN 24/7 365 DAYS  A YEAR THERE'S NO NEED TO
FLIP THAT SIGN ON  
YOUR FRONT DOOR THAT STATES OPEN ON ONE SIDE AND  CLOSED ON THE
OTHER CUSTOMERS CAN PURCHASE YOUR  
GOODS ALL DAY ANY DAY YOU ALSO HAVE THE ABILITY  TO WORK FROM
ANYWHERE IN THE WORLD PROVIDED THAT  
YOU HAVE AN INTERNET CONNECTION YOU'RE ALSO GOING  TO REQUIRE A
LOWER INVESTMENT AND ENCOURAGE OOST  
COSTS COMPARED TO A PHYSICAL STORE SO WHO CAN OPEN  AN ECOMMERCE
STORE ANYONE REALLY PROVIDED THAT  
THEY HAVE THE FEW ESSENTIALS TO GET STARTED THESE  ESSENTIALS
INCLUDE A PRODUCT OR SERVICE TO SELL A  
PLACE TO SELL THEM A MEANS TO PROCESS PAYMENTS  AND A MARKETING
STRATEGY TO ATTRACT CUSTOMERS  
LET'S DISCUSS EACH OF THESE A LITTLE FURTHER SO  RIGHT OFF THE BAT
YOU'RE GOING TO NEED A PRODUCT  
OR SERVICE TO SELL YOU CAN EITHER MAKE SOMETHING  YOURSELF OR YOU
CAN SOURCE IT FROM SOMEWHERE ELSE  
SOME THINGS YOU WANT TO KEEP IN MIND YOUR ARE WHO  YOU WANT TO
SELL YOUR PRODUCT OR SERVICE TO IS  
THIS OTHER CONSUMERS OR IS THIS OTHER BUSINESSES  YOU ALSO WANT
SOMETHING UNIQUE YOU DON'T WANT  
TO SELL SOMETHING THAT EVERY OTHER TOM DICK AND  HARRY IS SELLING
WHAT'S THE POINT THIS MEANS MORE  
COMPETITION AND LESS CHANCES OF SALES ALSO TRY  AND THINK OF A
PRODUCT OR A SERVICE THAT SOLVES  
SOMEONE'S PROBLEM NO ONE LIKES HAVING PROBLEMS  SO IF YOU HAVE
SOMETHING THAT CAN SOLVE ENOUGH  
PEOPLE'S PROBLEMS YOU'RE A WINNER FINALLY THE  COST OF YOUR GOODS
AND YOUR SELLING PRICE YOU  
WANT TO PRICE YOUR PRODUCTS AT A LOW ENOUGH  RATE THAT YOU REMAIN
COMPETITIVE TO SIMILAR  
PRODUCTS ON THE MARKET HOWEVER YOU DON'T WANT  TO PRICE YOURSELF
TOO LOW THAT YOU DON'T MAKE A  
SUFFICIENT PROFIT TO KEEP OPERATING ON THE OTHER  HAND YOU DON'T
WANT TO PRICE YOURSELF TOO HIGH  
OTHERWISE NO ONE WILL PURCHASE YOUR PRODUCTS AND  WE DON'T WANT
THAT NEXT YOU'LL NEED TO FIGURE OUT  
WHERE YOU WILL BE SELLING YOUR GOODS THE NATURE OF  E-COMMERCE IS
SELLING ONLINE SO YOU'RE NOT GOING  
TO BE LOOKING FOR A BRICK-AND-MORTAR LOCATION OR  PHYSICAL
STOREFRONT YOU'LL NEED A WEBSITE OR AN  
ECOMMERCE PLATFORM TO SELL YOUR PRODUCTS FROM  YOU CAN EITHER
BUILD YOUR OWN WEBSITE OR USE A  
CMS CONTENT MANAGEMENT SYSTEM A CMS PROVIDES THE  BASIC
FRAMEWORK FOR YOUR WEBSITE AND ALLOWS YOU  
TO ADD AND EDIT YOUR PRODUCTS ACCEPT PAYMENTS AND  MANAGE YOUR
ONLINE STORE SOME EXAMPLES OF THESE  
INCLUDE SHOPIFY MAGENTO AND BIG COMMERCE JUST TO  NAME A FEW
BEGINNERS GENERALLY START HERE VERSUS  
BUILDING THEIR OWN WEBSITE FACTORS TO KEEP IN  MIND WHEN CHOOSING
YOUR CMS PLATFORM ARE PRICING  
SCALABILITY FLEXIBILITY AND EASE OF USE KEEP IN  MIND THAT YOUR
WEBSITE OR CMS PLATFORM IS ACTING  
AS YOUR PHYSICAL SHOP THIS IS WHERE PEOPLE COME TO  INTERACT WITH
YOU AND PURCHASE YOUR GOODS THIS IS  
WHERE YOU INFLUENCE THEM THIS IS WHERE YOU IMPACT  HOW LIKELY THEY
ARE TO CONVERT FROM A VISITOR TO A  
SALE AND HOPEFULLY A REPEAT SALE SO THE DECISION  OF WHERE YOU WILL
BE SELLING YOUR GOODS IS ONE  
OF THE MOST IMPORTANT ONES THAT YOU WILL MAKE  CHOOSE WISELY THE
NEXT THING TO THINK ABOUT IS  
HOW YOU'LL BE TRANSACTING WITH CUSTOMERS THIS IS A  REALLY
IMPORTANT DECISION YOUR PAYMENT PROVIDER IS  
SOMEONE THAT NEEDS TO BE CREDIBLE AND TRUSTWORTHY  BECAUSE AFTER
ALL THERE ARE THE ONES HANDLING YOUR  
INCOME IMPORTANT POINTS TO KEEP IN MIND HERE  ARE COMPATIBILITY WITH
YOUR ECOMMERCE PLATFORM  
AVAILABILITY IN THE COUNTRIES THAT YOUR BUSINESS  IS TARGETING THE
ABILITY TO ACCEPT PAYMENTS IN  
DIFFERENT CURRENCIES THE FEES CHARGED RELIABILITY  AND REPORTING
AND USABILITY AND CUSTOMER SUPPORT  
SOME PAYMENT PROCESSES THAT WE HIGHLY RECOMMEND  ARE STRIPE AND
PAYPAL LASTLY YOU'LL NEED A GOOD  
MARKETING STRATEGY TO ATTRACT YOUR CUSTOMERS  LET'S FACE IT IF YOU
DON'T ATTRACT CUSTOMERS TO  
YOUR ONLINE STORE YOU AREN'T GOING TO MAKE SALES  IT'S NOT LIKE
HAVING A PHYSICAL STOREFRONT WHERE  
PEOPLE MAY JUST STUMBLE UPON YOU YOU HAVE TO BRING  YOUR
CUSTOMERS TO YOUR ONLINE STORE THIS AREA WILL  
NEED A GOOD AMOUNT OF WORK IF YOU'RE GOING TO BE  SUCCESSFUL IT'S
ALSO AN AREA THAT CONSTANTLY NEEDS  
TO BE REVISITED REVIEWED AND ADJUSTED BASED  ON WHAT'S BRINGING
YOUR TRAFFIC AND WHAT IS  
NOT THERE ARE A FEW AREAS OF FOCUS FOR THIS ONE  SOCIAL MEDIA SOCIAL
MEDIA HAS BECOME A CHANNEL  
OF DIGITAL INFLUENCE AND IS A BRILLIANT TOOL FOR  BUILDING BRAND
AWARENESS IT'S ALMOST IMPOSSIBLE  
FOR NEW BRANDS TO BE SUCCESSFUL ONLINE WITHOUT  SOME SORT OF SOCIAL
MEDIA PRESENCE FACEBOOK  
TWITTER PINTEREST INSTAGRAM AND OTHER NETWORKS  CAN BE USED FOR
ALMOST EVERYTHING FROM SPECIFIC  
TARGETING AND REAL-TIME ENGAGEMENT TO CUSTOMER  SERVICE AND
DIRECT SALES IT'S A NO-BRAINER TO  
STAY HEAVILY ACTIVE ON THESE PLATFORMS AND THE  BEST PART OF THESE
ARE THEY'RE FREE NUMBER TWO  
SEO WHICH STANDS FOR SEARCH ENGINE OPTIMIZATION  THIS REFERS TO
TECHNIQUES THAT HELP YOUR BUSINESS  
RANK HIGHER IN SEARCH ENGINE RESULTS PAGES THIS  MAKES YOUR WEBSITE
MORE VISIBLE TO PEOPLE WHO ARE  
LOOKING FOR SOLUTIONS THAT YOUR PRODUCT OR SERVICE  CAN PROVIDE
THINK ABOUT HOW OFTEN YOU CLICK ONTO  
PAGE TWO OR THREE OF A GOOGLE SEARCH TO FIND WHAT  YOU'RE LOOKING
FOR HARDLY EVER SO WE DON'T WANT  
OUR WEBSITES TO BE RANKED THERE BECAUSE NO ONE  WILL EVER FIND US
THE FIRST PAGE IS WHERE YOU  
WANT TO BE OR AT LEAST AND TO BE NUMBER THREE  EMAIL MARKETING
DON'T UNDERESTIMATE THE POWER  
OF EMAILS IT IS A HIGHLY SUCCESSFUL TOOL TO KEEP  YOUR AUDIENCE
ENGAGED YOU WILL HOWEVER NEED TO  
FIND A BALANCE BETWEEN KEEPING YOUR AUDIENCE  EDUCATED AND
INFORMED VERSUS OVERWHELMING THEM  
WITH TOO MANY EMAILS START WORKING ON BUILDING  YOUR EMAIL LIST
RIGHT FROM THE BEGINNING THERE  
ARE SOME GREAT AFFORDABLE TOOLS OUT THERE THAT  CAN HELP YOU THEY
HELP YOU MANAGE THE LIST OF  
YOUR EMAIL CONTACTS SEGMENT YOUR EMAIL LIST THEY  ALLOW YOU TO
CUSTOMIZE EMAILS CREATE SAVE EDIT  
AND MANAGE MULTIPLE EMAIL TEMPLATES AS WELL AS  GET DETAILED
REPORTS ON THE EFFECTIVENESS OF  
EACH CAMPAIGN SOME RECOMMENDATIONS THAT WE  HAVE FOR EMAIL
MARKETING ARE MAILCHIMP AND  
CLAY VIEW ECOMMERCE IS A BIG PLAYGROUND OF ITS  OWN BUT IT'S A
PLAYGROUND THAT ANYONE CAN PLAY  
ON YES THERE WILL ALWAYS BE BIGGER OLDER KIDS  PLAYING THERE TOO BUT
WHEN DID THAT STOP THE  
SMALLER YOUNGER KIDS FROM PLAYING DON'T BE TOO  INTIMIDATED SMALL
KIDS GROW INTO BIG KIDS THEY  
GROW AND LEARN ALONG THE WAY IF YOU WANT TO PLAY  ON THE
PLAYGROUND GO FOR IT WE HOPE YOU'VE SHARED  
ENOUGH INSIGHTS TO LEAD YOU IN THE RIGHT DIRECTION  LET US KNOW IF WE
DID LIKE AND SHARE THIS COMMENT  
BELOW AND SUBSCRIBE TO OUR CHANNEL FOR MORE  ECOMMERCE VIDEOS
COMING YOUR WAY UNTIL NEXT TIME

MEET SARAH SHE OWNS A BAKERY AND SPENDS

MOST OF HER TIME IN THE KITCHEN AND WITH
CUSTOMERS
SARAH JUST GOT A HUGE ORDER BUT DOESN'T
HAVE THE WORKING CAPITAL TO PURCHASE
SUPPLIES WITHOUT THE WORKING CAPITAL TO
BUY SUPPLIES UP FRONT SHE COULD LOSE THE
ACCOUNT AND POTENTIAL REPEAT BUSINESS
MEET CHRIS HE OWNS A CONTRACTING COMPANY
AND WANTS TO EXPAND HIS BUSINESS CHRIS
NEEDS NEW EQUIPMENT TO TACKLE BIGGER
JOBS BUT HIS LARGEST ACCOUNT PAYS
INVOICES REALLY SLOW WHICH STRETCHES HIS
CASH FLOW HE CAN'T AFFORD TO LOSE THEM
SO HE DOESN'T REALLY PRESS THE ISSUE
MEET JASON AFTER YEARS OF HAULING
FREIGHT FOR OTHERS
JASON'S NOW IN THE DRIVER'S SEAT OF HIS
OWN TRUCKING COMPANY JASON NEEDS HELP
MAKING SURE HE CAN PAY HIS BILLS ON TIME
AND PICKING THE BEST LOADS WITH THE
HIGHEST PAY ONE MORNING ON THE WAY TO
HER BAKERY SENTRA STOPPED AT HER
FAVORITE LOCAL COFFEE SHOP AND RAN INTO
HER FRIEND DOUG HI DOUG HOW'S BUSINESS
GOING REALLY GREAT AT LEAST SINCE I
FOUND AN ACCOUNTS RECEIVABLE MANAGEMENT
COMPANY THEY GAVE ME THE CASH YOU NEEDED
TO TAKE ON MORE CUSTOMERS WHAT'S AN
ACCOUNTS RECEIVABLE MANAGEMENT COMPANY
IT'S THE SELLING OF INVOICES TO A
FACTORING COMPANY FOR IMMEDIATE CASH
HERE'S HOW IT WORKS
YOU SELL YOUR PRODUCT TO YOUR CUSTOMER
YOU SEND YOUR INVOICE TO COMMONWEALTH
CAPITAL COMMONWEALTH ADVANCES THE CASH
TO YOU YOUR CUSTOMER PAYS THE INVOICE
COMMONWEALTH COMPLETES THE TRANSACTION
BUT WE NEEDED MORE THAN THEM WE NEEDED
HELP COLLECTING ON OVERDUE INVOICES
ADVICE ON HOW TO NEGOTIATE BETTER
SUPPLIER DISCOUNTS AND A REAL PERSON WHO
WOULD MANAGE OUR ACCOUNT WE DID OUR
RESEARCH AND FOUND COMMONWEALTH KAPLAN
DOES COMMONWEALTH CAPITAL HEALTH
BAKERIES THEY HELPED LOTS OF BUSINESSES
AND THEIR CUSTOMER SERVICE IS
OUTSTANDING THEY CAN HELP YOU STAY ON
THE RIGHT TRACK SO YOU CAN AVOID A
FINANCIAL EMERGENCY BEFORE IT HAPPENS
HERE'S THEIR CARD GIVE HIM A CALL WOW
DOUG THANKS FOR THE REFERRAL
SARA CALLED COMMONWEALTH CAPITAL AND
SIGNED UP SHE WAS SO EXCITED TO REACH
OUT TO SOME FRIENDS WHO ALSO NEEDED HELP
WITH THEIR CASH FLOW NOW WORKING WITH
COMMONWEALTH CAPITAL SARA WAS ABLE TO
BUY SUPPLIES FOR THE BIG BAKERY ORDER
WITH COMMONWEALTH CAPITALS HELP SHE WAS
ALSO ABLE TO NEGOTIATE BETTER TERMS WITH
THEIR SUPPLIERS CHRIS WAS ABLE TO GET
SOME NEW EQUIPMENT AND NOW IT'S HELPED
KEEPING HIS BUSINESS FINANCIALLY ON
TRACK JASON FOUND A FREIGHT FACTORING
COMPANY HE LOVED AND GOT ACCESS TO
COMMONWEALTH'S FREIGHT BROKER DIRECTORY
DON'T WAIT FOR A FINANCIAL EMERGENCY
CALL COMMONWEALTH CAPITAL TODAY NINE
FIVE TWO FOUR SIX NINE FOUR FOUR SIX
ZERO VISIT COMMONWEALTH MN CALM SIMPLE
STRAIGHTFORWARD ACCOUNTS RECEIVABLE
FUNDING
IMAGINE THIS YOU RECEIVE A LARGE
PURCHASE ORDER FROM A CUSTOMER BUT
THERE'S A PROBLEM YOU WANT TO FULFILL
THE ORDER BUT YOU DON'T HAVE THE GOODS
IN STOCK YOU DON'T HAVE THE FUNDS TO
MANUFACTURE OR PURCHASE PRODUCT IF YOU
DON'T TAKE ON THE ORDER YOUR CUSTOMER
WILL FIND A NEW VENDOR AND YOU WILL MISS
OUT ON A BUSINESS OPPORTUNITIES FOREVER
WHAT DO YOU DO PURCHASE ORDER FINANCING
[MUSIC]
FIRST YOUR CUSTOMER PLACES A LARGE ORDER
THEN PROVIDE YOU WITH A PURCHASE ORDER
[MUSIC]
NEXT TEAM TRADE CAPITAL VERIFIES THE
ORDERS AND PROVIDES THE FINANCE SOLUTION
FOR UP TO A HUNDRED PERCENT OF YOUR
INVENTORY JOHN KING TRADE CAPITAL ISSUES
YOU ARE OVERSEAS OR DOMESTIC SUPPLIER A
LETTER OF CREDIT OR MAKES CASH PAYMENTS
TO THE SUPPLIERS ON YOUR BEHALF THE
SUPPLIER SHIPS THE GOODS THAT YOU'RE
SELLING WHICH ARE THEN DELIVERED TO THE
CUSTOMER TO COMPLETE THE SALE THE
CUSTOMER REMIT PAYMENT BETWEEN TRADE
CAPITAL KING TRADE CAPITAL VINCE AND
VIEW THE PROFIT ON A SMALL FINANCING
CONGRATULATIONS YOU HAVE FULFILLED THE
ORDER AND HAVE EARNED A PROFIT INSTEAD
OF HAVING TO TURN DOWN BUSINESS
WHY CHOOSE PURCHASE ORDER FINANCING YOU
CAN BUY INVENTORY WITHOUT GOING INTO
DEBT OR GIVING UP EQUITY YOU CAN GROW
SALES WITHOUT BEING LIMITED BY EXISTING
CAPITAL AND WITH FAST FLEXIBLE FUNDING
YOU CAN MAKE LARGER PROFITS BY
FULFILLING LARGER ORDERS FOR MORE
INFORMATION OR TO REQUEST FUNDING EMAIL
US AT INFO ENTERED CAPITAL COMM OR VISIT
US ON THE WEB AT CAN TRADE CAPITAL COM
YOU

TRADE FINANCE

WHAT IS TRADE FINANCE?

THE FINANCIAL TOOLS AND GOODS USED BY
BUSINESSES TO SUPPORT INTERNATIONAL TRADE
AND COMMERCE ARE REFERRED TO AS TRADE
FINANCE. IMPORTERS AND EXPORTERS CAN MORE
EASILY DO BUSINESS THROUGH TRADE THANKS TO
TRADE FINANCING. A BROAD PHRASE, "TRADE
FINANCE" REFERS TO A VARIETY OF FINANCIAL
INSTRUMENTS USED BY BUSINESSES AND BANKS
TO FACILITATE TRADE TRANSACTIONS.

KEY NOTES

THE FINANCIAL TOOLS AND GOODS USED BY BUSINESSES TO SUPPORT

INTERNATIONAL TRADE AND
COMMERCE ARE REFERRED TO AS TRADE FINANCE.

IMPORTERS AND EXPORTERS CAN MORE EASILY DO BUSINESS THROUGH TRADE

THANKS TO TRADE FINANCING.

BY BALANCING THE CONTRASTING REQUIREMENTS OF AN EXPORTER AND AN

IMPORTER, TRADE FINANCE MAY
ASSIST LOWER THE RISK INVOLVED WITH INTERNATIONAL COMMERCE.

HOW TRADE FINANCE

WORKS?

THE GOAL OF TRADE FINANCE IS TO REMOVE SUPPLY AND PAYMENT RISKS

FROM DEALS BY BRINGING IN A
THIRD PARTY. WHILE THE IMPORTER MAY BE GIVEN CREDIT TO COMPLETE THE
TRADE ORDER, TRADE FINANCE
PROVIDES THE EXPORTER WITH RECEIVABLES OR PAYMENT IN ACCORDANCE
WITH THE ARRANGEMENT.

THERE ARE SEVERAL STAKEHOLDERS ENGAGED IN TRADE FINANCING, WHICH

MAY INCLUDE:

BANKS

TRADE FINANCE COMPANIES

IMPORTERS AND EXPORTERS

INSURERS

EXPORT CREDIT AGENCIES AND SERVICE PROVIDERS

CONTRARY TO TRADITIONAL FINANCE OR CREDIT ISSUANCE, TRADE FINANCING
IS UNIQUE. TRADE FINANCE MAY
NOT ALWAYS BE A SIGN THAT A BUYER IS SHORT ON CASH OR LIQUID,
WHEREAS GENERAL FINANCING IS USED TO
MAINTAIN SOLVENCY OR LIQUIDITY. INSTEAD, TRADE FINANCE MAY BE USED
TO GUARD AGAINST THE SPECIAL
RISKS THAT COME WITH INTERNATIONAL COMMERCE, SUCH AS EXCHANGE
RATE CHANGES, POLITICAL
UNPREDICTABILITY, PROBLEMS WITH NON-PAYMENT, OR THE
CREDITWORTHINESS OF ONE OF THE PARTIES.

BELOW ARE A FEW OF THE FINANCIAL

INSTRUMENTS USED IN TRADE FINANCE:

BANKS CAN PROVIDE LENDING LINES OF CREDIT TO ASSIST IMPORTERS AND

EXPORTERS ALIKE.

SINCE THE BUYER'S BANK GUARANTEES PAYMENT TO THE SELLER FOR THE
ITEMS TRANSPORTED, LETTERS OF
CREDIT LOWER THE RISK INVOLVED IN INTERNATIONAL TRADING. PAYMENT
WILL NOT BE MADE, NEVERTHELESS,
UNTIL THE CONDITIONS OF THE LC ARE SATISFIED BY THE SELLER, SO THE
BUYER IS ALSO PROTECTED. TO
COMPLETE THE DEAL, BOTH SIDES MUST UPHOLD THEIR END OF THE BARGAIN.

WHEN A COMPANY FACTORS, THEY ARE COMPENSATED AS A PERCENTAGE OF

THEIR ACCOUNTS RECEIVABLE.

EXPORTERS MAY BE GIVEN WORKING CAPITAL OR EXPORT CREDIT.

INSURANCE CAN BE UTILIZED FOR SHIPPING AND DELIVERY OF THE PRODUCTS

AS WELL AS TO SAFEGUARD THE
EXPORTER FROM THE BUYER'S NONPAYMENT.

DESPITE THE FACT THAT THERE HAS BEEN INTERNATIONAL TRADE FOR AGES,
TRADE FINANCE HELPS IT DEVELOP.
THE WIDESPREAD USE OF TRADE FINANCE HAS CONTRIBUTED TO
INTERNATIONAL TRADE GROWTH.

AROUND 80% TO 90% OF GLOBAL COMMERCE IS FINANCED BY TRADE,

ACCORDING TO THE WORLD TRADE
ORGANIZATION (WTO)

HOW TRADE FINANCING

REDUCES RISKS
BY BALANCING AN EXPORTER'S AND AN IMPORTER'S DIFFERENT NEEDS, TRADE
FINANCE CAN HELP LOWER THE
RISK INVOLVED IN INTERNATIONAL TRADE. AN EXPORTER WOULD PREFER IT IF
THE IMPORTER PAID IN ADVANCE
FOR AN EXPORT SHIPMENT IN ORDER TO REDUCE THE RISK THAT THE IMPORTER
WOULD ACCEPT THE SHIPMENT
BUT DECLINE TO PAY FOR THE GOODS. NEVERTHELESS, IF THE IMPORTER
MAKES THE UPFRONT PAYMENT, THE
EXPORTER MIGHT ACCEPT THE MONEY BUT DECLINE TO SHIP THE GOODS.

A LETTER OF CREDIT FROM THE IMPORTER'S BANK TO THE EXPORTER'S BANK,

WHICH AUTHORIZES PAYMENT
ONCE THE EXPORTER SUBMITS PROOF OF SHIPPING, SUCH AS A BILL OF LADING,
IS A TYPICAL SOLUTION TO THIS
ISSUE. THE LETTER OF CREDIT PROMISES THAT THE EXPORTER WILL RECEIVE
PAYMENT WHENEVER THE ISSUING
BANK GETS CONFIRMATION THAT THE ITEMS WERE DISPATCHED BY THE
EXPORTER AND THAT ALL OTHER
CONDITIONS OF THE CONTRACT HAVE BEEN SATISFIED.

THE BUYER'S BANK TAKES ON THE DUTY OF PAYING THE SELLER WITH THE
LETTER OF CREDIT. THE BUYER'S
BANK WOULD NEED TO CONFIRM THAT THE BUYER WAS ABLE TO FULFILL THE
DEAL FINANCIALLY. TRADE IS
FACILITATED BY TRADE FINANCE, WHICH HELPS IMPORTERS AND EXPORTERS
DEVELOP MUTUAL TRUST.

IMPORTANT: BOTH IMPORTERS AND EXPORTERS HAVE ACCESS TO A VARIETY

OF FINANCIAL SOLUTIONS
THROUGH TRADE FINANCE, AND FREQUENTLY, MANY PRODUCTS CAN BE
UTILIZED IN TANDEM OR STACKED TO
ASSIST GUARANTEE THE TRANSACTION IS SUCCESSFUL.

OTHER BENEFITS OF TRADE

FINANCE

IN ADDITION TO LOWERING THE RISK OF NONPAYMENT AND NON-RECEIPT OF

PRODUCTS, TRADE FINANCE HAS
EMERGED AS A CRUCIAL INSTRUMENT FOR BUSINESSES TO INCREASE
PRODUCTIVITY AND INCOME.

IMPROVES CASH FLOW AND EFFICIENCY OF OPERATIONS

INCREASED REVENUE AND EARNINGS

REDUCE THE RISK OF FINANCIAL HARDSHIP

IMPROVES CASH FLOW AND
EFFICIENCY OF OPERATIONS

TRADE FINANCE ASSISTS BUSINESSES IN OBTAINING FUNDING TO SUPPORT

THEIR OPERATIONS, BUT IT ALSO
FREQUENTLY FUNCTIONS AS A CREDIT EXTENSION. IN THE EVENT OF
FACTORING, TRADE FINANCE ENABLES
BUSINESSES TO OBTAIN A CASH PAYMENT BASED ON ACCOUNTS RECEIVABLE.
THE RISK OF NONPAYMENT OR
NON-RECEIPT OF PRODUCTS MAY BE REDUCED IF THE IMPORTER AND
EXPORTER CONDUCT A COMMERCIAL
TRANSACTION WITH THE USE OF A LETTER OF CREDIT. BECAUSE THE BUYER'S
BANK GUARANTEES PAYMENT AND
THE IMPORTER IS AWARE THAT THE ITEMS WILL BE SUPPLIED, CASH FLOW IS
THEREFORE ENHANCED.

TO PUT IT ANOTHER WAY, TRADE FINANCE GUARANTEES FEWER DELAYS IN

PAYMENTS AND SHIPMENTS,
ENABLING BOTH IMPORTERS AND EXPORTERS TO MANAGE THEIR BUSINESSES
AND PLAN THEIR CASH FLOW
MORE EFFECTIVELY. CONSIDER TRADE FINANCE AS USING THE
TRANSPORTATION OR EXCHANGE OF GOODS AS
COLLATERAL TO FINANCE A COMPANY'S EXPANSION.

INCREASED REVENUE AND

EARNINGS

BUSINESSES MAY EXPAND THEIR CUSTOMER BASE AND REVENUE THROUGH

TRADE WITH THE HELP OF TRADE
FINANCING. FOR INSTANCE, A U.S. CORPORATION THAT SUCCESSFULLY CLOSES
A DEAL WITH A COMPANY
ABROAD MIGHT NOT BE ABLE TO FULFILL THE ORDER'S REQUIREMENTS FOR
THE ITEMS.

HOWEVER, THE EXPORTER CAN EXECUTE THE ORDER WITH ASSISTANCE FROM
COMMERCIAL OR PUBLIC TRADE
FINANCE ORGANIZATIONS OR THROUGH EXPORT FINANCING. BECAUSE OF THE
INNOVATIVE FINANCIAL
SOLUTIONS THAT TRADE FINANCE OFFERS, THE U.S. CORPORATION IS ABLE TO
ACQUIRE NEW CLIENTS THAT IT
MAY NOT HAVE OTHERWISE.

REDUCE THE RISK OF FINANCIAL

HARDSHIP
WITHOUT TRADE FINANCING, A BUSINESS MIGHT MISS PAYMENTS, LOSE A
SIGNIFICANT CLIENT OR SUPPLIER,
AND SUFFER LONG-TERM CONSEQUENCES. COMPANIES CAN BENEFIT FROM
HAVING CHOICES LIKE REVOLVING
CREDIT FACILITIES AND ACCOUNTS RECEIVABLE FACTORING NOT JUST FOR
INTERNATIONAL TRADE BUT ALSO FOR
WHEN THEY FACE FINANCIAL CHALLENGES.

WHY DO COMPANIES NEED

TRADE FINANCE?

SELLING WITH PAYMENT CONDITIONS IS A COMMON PRACTICE IN BOTH LOCAL

AND INTERNATIONAL TRADE.
CONSEQUENTLY, THE BUYER (THE DEBTOR) IS PERMITTED TO PUT OFF PAYING
THE INVOICE. CONSEQUENTLY,
MAKING MONEY BEFORE PAYING THE SUPPLIER'S INVOICE. ACCESS TO TRADE
CREDIT REDUCES CASH FLOW
IMBALANCES.

FOR INSTANCE, IT CAN TAKE WEEKS FOR PRODUCTS TO BE SENT AND ARRIVE
AT THE BUYER'S WAREHOUSE.
THEREFORE, NOW IS THE IDEAL TIME TO REQUEST A PAYMENT POSTPONEMENT.
CONSIDER ORDERING A
COUPLE OF CONTAINERS OF SHOES FROM CHINA AND HAVING THEM SENT TO
EUROPE. THE DELIVERY OF THE
GOODS WOULD TAKE ABOUT 45 DAYS.

WOULDN'T IT BENEFIT YOUR CASH FLOW IF YOU AND YOUR SUPPLIER COULD
COME TO AN AGREEMENT TO PAY
ON THE 60TH DAY? "YES" IS UNQUESTIONABLY THE ANSWER.

SIMILAR TO THIS, IN A LONG-STANDING COMMERCIAL PARTNERSHIP, THE

BUYER MAY WANT LENGTHIER
INSTALLMENTS.

IN GENERAL, WAITING DOES NOT POSE A PROBLEM FOR BIG SUPPLIERS. THEY
HAVE OPTIMIZED CASH FLOW
AND RECEIVE MONEY FROM SEVERAL SOURCES. HOWEVER, THE MAJORITY OF
BUSINESSES INVOLVED IN
INTERNATIONAL COMMERCE ATTEMPT TO ACCESS TRADE FINANCING OPTIONS,
REGARDLESS OF THE SIZE OF THE
FIRM.

SMALLER SUPPLIERS, HOWEVER, FIND IT DIFFICULT TO SUSTAIN THE PAYMENT

TERMS. THEY HAVE A BRIEF
MONETARY LIFETIME. MONEY ENTERS AND EXITS THE SYSTEM SWIFTLY.
THEREFORE, HAVING ACCESS TO LOAN
CONDITIONS WOULD AID IN STABILIZING THE CASH FLOW.

MORE AND MORE SMALL BUSINESSES HAVE ACCESS TO TRADE FINANCE IN

RECENT YEARS. SMALL AND
MEDIUM-SIZED BUSINESSES NOW HAVE ACCESS TO TRADE FINANCE THANKS TO
THE RELATIVELY NEW
ECOSYSTEM OF FINTECH COMPANIES LIKE VELOTRADE.

TRADE FINANCE SOLUTIONS

AND PRODUCTS

PRODUCTS RELATED TO TRADE FINANCE MAKE CONDUCTING BUSINESS

INTERNATIONALLY SAFER FOR BOTH
IMPORTERS AND EXPORTERS. THESE GOODS ARE DISTRIBUTED BY THE
FINANCIAL SECTOR TO PROMOTE
INTERNATIONAL TRADE AND BUSINESS.

E – COMMERCE FINANCE

PURCHASE ORDER FINANCING

SUPPLY CHAIN FINANCE

INVOICE DISCOUNTING

RECEIVABLES FINANCING

LETTER OF CREDIT

E – COMMERCE FINANCING

THE MOST RECENT ADDITION TO THE LIST OF TRADE FINANCE PRODUCTS IS

ECOMMERCE FINANCING.

ALTERNATIVE FINANCIERS DEVELOPED THE E-COMMERCE FINANCE SOLUTION

IN RESPONSE TO THE RISE IN
POPULARITY OF ONLINE MARKETPLACES LIKE LAZADA, EBAY, AND AMAZON.
THE CHINESE COMPANIES
ALIBABA AND J.D. THE NUMBER OF USERS BUYING ON TAOBAO'S ECOMMERCE
SITE HAS INCREASED

E-COMMERCE SHOPS MAY RECEIVE FINANCING WITH ONLY A FEW CLICKS

THANKS TO E-COMMERCE
FINANCE. THE APPLICANT IS THE PROPRIETOR OF AN ONLINE STORE THAT
CONDUCTS BUSINESS ON AN ONLINE
MARKETPLACE. REVOLVING LOANS ARE OFTEN ISSUED (AND RENEWED) BY THE
LENDING FIRM. THE
ALLOWANCE IS BASED ON THE SUPPLIER'S ANTICIPATED REVENUES. NEW
CREDIT IS GRANTED FOLLOWING THE
SUPPLIER'S REPAYMENT OF THE FIRST INVESTMENT.

IN CONCLUSION, DIGITALIZATION AND TECHNOLOGY WERE KEY FACTORS IN

THE DEVELOPMENT OF
ECOMMERCE FINANCE. TO ENABLE THE FULL EXPANSION OF ONLINE E-
COMMERCE OPERATIONS, AN ENTIRELY
NEW ECOSYSTEM HAS EMERGED.

PURCHASE ORDER
FINANCING

THE TRADE FINANCE PRE-SHIPMENT OPTIONS INCLUDE PO FINANCING.

TYPICALLY, THE FINANCIAL INSTITUTION ADVANCES BETWEEN 30% AND 70%

OF THE PURCHASE ORDER'S
NOMINAL VALUE. THE SUPPLIER IS PAID DIRECTLY OUT OF THE ADVANCE
FUNDS.

SMALL AND MEDIUM-SIZED BUSINESSES CAN USE PURCHASE ORDERS TO

ACCESS WORKING CAPITAL.

SUPPLY CHAIN FINANCE

THE MOST COMMON FORM OF FINANCING USED IN GLOBAL TRADE IS

UNDOUBTEDLY SUPPLY CHAIN
FINANCING (S.C.F.). IT INCREASES THE EFFECTIVENESS OF THE PARTIES' IMPORT
AND EXPORT OPERATIONS.

MOST SIGNIFICANTLY, SUPPLY CHAIN FINANCE ASSISTS IN RELEASING MONEY

CONSTRAINED TO CERTAIN
SUPPLY CHAIN LAYERS. FORWARDING, INTERMEDIATES, AND OTHER
COMPANIES ENGAGED ARE INCLUDED IN
THE TIERS.

INVOICE DISCOUNTING

THE SELLER GIVES THE FINANCE FIRM OWNERSHIP OF THE INVOICE THROUGH
INVOICE DISCOUNTING. AS A
RESULT, THE FINANCE FIRM OWNS THE DEBTOR INSTEAD OF THE SELLER.
DISCOUNT FINANCING IS GAINING ACCEPTANCE AS A MEANS FOR COMPANIES
TO ACQUIRE CAPITAL. IN THE
UK, INVOICE DISCOUNTING IS ALREADY WIDELY USED. ESPECIALLY IN THE
UNITED STATES, WHERE MAJOR
FINANCIAL INSTITUTIONS INCLUDING BARCLAYS, CITI BANK, AND CHASE OFFER
INVOICE DISCOUNTING
SERVICES.

BUT IN RECENT YEARS, MANY SMALL ASIAN RETAILERS HAVE TURNED TO

INVOICE DISCOUNTING AS A
SUBSTITUTE FOR CAPITAL. NOT JUST BANKS LIKE HSBC, OCBC, HANG SENG, AND
NAB OFFER CHEAP
INVOICING SERVICES THESE DAYS. IN ASIA, SEVERAL INVOICE DISCOUNTING
FACILITIES REALLY AID IN THE
EXPANSION OF LOCAL COMPANIES.

THIS EXAMPLE PROVIDES A CLEAR EXPLANATION OF THE FINANCING

PROCEDURE AND THE MEANING OF
INVOICE DISCOUNTING. THE DISCOUNTED CHARGES AS WELL AS THE BENEFITS
AND DRAWBACKS OF UTILIZING
THE SERVICE ARE LISTED IN THE DOCUMENTATION.

RECEIVABLES FINANCING

PAYMENT CLAIMS ARE ACCOUNTS RECEIVABLE. THE ORGANIZATION THAT

SOLD THE PRODUCTS IS IN
POSSESSION OF SUCH LEGALLY BINDING RECORDS (THE INVOICES). HOWEVER,
DESPITE RECEIVING THE
PRODUCTS, THE CLIENT (THE DEBTOR) HAS NOT YET MADE PAYMENT.

WE HAVE TWO GROUPS FROM AN ACCOUNTING STANDPOINT, AND THE

DIFFERENCES DEPEND ON WHO IS
OWED MONEY:

ACCOUNT PAYABLE: THE SUPPLIER IS OWED MONEY BY THE BUSINESS (THE

CUSTOMER).

THE AMOUNT OWING TO THE COMPANY IS KNOWN AS THE ACCOUNT

RECEIVABLE.

LETTER OF CREDIT

A BANK ISSUING THE LETTER OF CREDIT ISSUING THE PAPERWORK. A WELL-

KNOWN AND POPULAR TRADE
FINANCE TOOL IS THE LETTER OF CREDIT. IT STRENGTHENS THE PROTECTION
PROVIDED BY INTERNATIONAL TRADE.
SEVERAL LETTERS OF CREDIT ARE AVAILABLE, DEPENDING ON WHETHER THEY
ARE NEEDED FOR PRIVATE OR
PROFESSIONAL REASONS.

THE TRADE FINANCE

MECHANISM AND THE PLAYERS
INVOLVED

THERE IS A MARKET WHEN THERE IS BOTH SUPPLY AND DEMAND FOR THE
GOODS OR SERVICES. THE RULE OF
SUPPLY AND DEMAND DETERMINES THE PRICE IN A MARKET, WHICH IS DEFINED
BY INVESTOPEDIA AS "A
SPACE WHERE TWO PARTIES CAN CONGREGATE TO PROMOTE THE EXCHANGE
OF PRODUCTS AND SERVICES.“

TRADE FINANCE UTILIZES THE SAME IDEA. IN ORDER TO MEET THEIR

EXPECTATIONS, THE BUYER AND VENDOR
COME TOGETHER IN THE MARKETPLACE. TO FINANCE BUSINESS OPERATIONS,
ONE IS LOOKING FOR FUNDING.
THE OTHER HAS AN EXCESSIVE AMOUNT OF LIQUIDITY AND WANTS TO INVEST
FOR A YIELD.

THE TRADE FINANCE

MECHANISM AND THE
PLAYERS INVOLVED

FINANCIAL INSTITUTIONS

THE DEBTOR OR THE BUYER

THE SELLER

INVESTORS

FINANCIAL INTERMEDIARIES

FINANCIAL INSTITUTIONS

COMPANIES THAT DEAL ONLY WITH FINANCIAL PRODUCTS ARE KNOWN AS

FINANCIAL INSTITUTIONS. THESE
OPTIONS RANGE FROM DEPOSITS TO LOANS TO INVESTMENTS AND MORE.
FINANCIAL PROFESSIONALS THAT
SPECIALIZE IN TRADE FINANCE LEND MONEY TO BUSINESSES THAT REQUIRE
FUNDING. THEY MUST POSSESS
THE NECESSARY OPERATING PERMITS IN ORDER TO DO SO.
WHILE CERTAIN STANDARDS ARE COUNTRY-SPECIFIC, OTHERS ARE NECESSARY
WORLDWIDE. INSTITUTIONS CAN
MANAGE MONEY THANKS TO PERMITS FOR THINGS LIKE LENDING MONEY AND
FIGHTING MONEY LAUNDERING.
EVERY LENDER WHO ENGAGES IN TRADE FINANCING ACTIVITIES IS REQUIRED
TO HOLD THE APPROPRIATE
LICENSES.

THE DEBTOR OR THE BUYER

THE ENTITY THAT BUYS PRODUCTS FROM THE PROVIDER IS THE BUYER.
THEREFORE, HE IS THE SUPPLIER'S
DEBTOR BY DEFINITION. THEREFORE, HE IS REQUIRED BY LAW TO REPAY THE
COUNTERPART FOR THE LOAN. THE
CREDITOR IS THE NAME OF THE COUNTERPARTY.

IN TRADE FINANCE, THE DEBTOR IS IN CHARGE OF RETURNING THE MONEY TO

THE LENDER.

THE SELLER

THE BUSINESS MAKING THE ITEMS IS THE SELLER OR SUPPLIER. A FACTORY OR

MANUFACTURING FIRM THAT
TRADES ITEMS FOR CASH ARE ONE EXAMPLE. MOST OF THE TIME, THE VENDOR
IS ENGAGED IN INTERNATIONAL
COMMERCE OPERATIONS SELLING HIS ITEMS OVERSEAS.

THE DEBTOR WILL PAY THE VENDOR WHAT HE IS OWED IN FULL WHEN THE
INVOICE IS PAID. THE SELLER IS
THE FOUNDATION OF THE ORIGINATION STAGE IN TRADE FINANCE. WHERE THE
INVOICES, RECEIVABLES, AND
OTHER CREDIT RIGHTS "ORIGINATED" IS KNOWN AS ORIGINATION.

INVESTORS

COMPANIES OR OTHER ENTITIES HAVING EXTRA LIQUIDITY ARE INVESTORS.

HEDGE FUNDS, WEALTHY PEOPLE,
OR EVEN BANKS SEARCHING FOR NEW SOURCES OF RETURN MAY BE AMONG
THEM. THEY MAY NOT YET BE
ACTIVE IN TRADE FINANCE, DESPITE THE FACT THAT THEY MAY ALREADY BE
TRADING CONVENTIONAL ASSETS
LIKE FX, BONDS, OR EQUITY. IN REALITY, MORE AND MORE TRADE FINANCING
FUNDS ARE BEING ESTABLISHED
IN RECENT YEARS.
HOW MAY INVESTORS BUY
ASSETS BACKED BY TRADE
FINANCE?

SHORT-TERM AND LOW-CORRELATION ASSETS INCREASE RETURNS FOR TRADE

FINANCE ASSET INVESTORS. FOR
INSTANCE, A FAMILY OFFICE WANTS TO NEGOTIATE A DEAL FOR A REAL
ESTATE AGREEMENT. THEY ARE AWARE
THAT THE PROJECT WON'T BE FINISHED FOR ANOTHER SIX TO TWELVE MONTHS.
AS A RESULT, THEY FEEL
CONFIDENT INVESTING MONEY IN LONG-TERM PROJECTS.

WHAT OTHER OPTIONS DO

INVESTORS HAVE?

INSTEAD, ASSET INVESTORS MIGHT EMPLOY TRADE FINANCING INSTRUMENTS

WITH 30-, 60-, OR 90-DAY
EXPIRATIONS. THEY MIGHT INCREASE THEIR YIELD BY HOLDING THE MONEY IN
A CURRENT ACCOUNT BY
ROLLING THE INVESTMENT A FEW TIMES.

FINANCIAL INTERMEDIARIES

IN TRADE FINANCE, THERE ARE SEVERAL AGENTS (BROKERS) AND PARTIES

(DEBTORS/BUYERS AND SELLERS).
THEY ARE SUPPOSED TO COOPERATE WITH FINANCIAL CORPORATIONS.
BROKERS RECEIVE COMMISSIONS BY
FACILITATING COMMUNICATION AND NEGOTIATION BETWEEN THE PARTIES.
EITHER A PERCENTAGE OF THE
NOTIONAL OR A SET RATE MAY BE USED AS THE COMMISSION (BROKERAGE
CHARGE).

BROKERS IN INSURANCE. ASSIST CUSTOMERS IN FINDING INSURANCE

COMPANIES. ADDITIONALLY, THEY
SUPPORT THE PARTIES' CONTRACT'S UNDERWRITING. FOR INSTANCE, PRICEY
MICROCHIPS REQUIRE INSURANCE
PROTECTION AGAINST UNANTICIPATED CIRCUMSTANCES WHILE IN TRANSIT.
THEREFORE, BOTH THE BUYER AND
THE SELLER ARE INTERESTED IN UNDERWRITING INSURANCE.

CORPORATE INTRODUCTION SERVICES. LINK FINANCIAL INSTITUTIONS WITH

SMALL AND MEDIUM-SIZED
BUSINESSES. AGENTS FACILITATE ACCESS TO FINANCIAL CHOICES FOR
BUSINESSES (FACTORIES AND
MANUFACTURERS). THEIR ABILITY TO NETWORK IS WHAT GIVES THEM
STRENGTH.
INVESTOR INTRODUCTION SERVICES. COMPRISE DIFFERENT INVESTING
STRATEGIES. THEIR JOB IS TO INTRODUCE
CONSUMERS WHO HAVE EXTRA CASH TO FINANCIAL INSTITUTIONS. THEY LACK
THE QUALIFICATIONS AND
AUTHORIZATION TO ACT AS LOAN AGENTS. THEY, THEREFORE, RELY ON THEIR
LARGE CLIENTELE OF AFFLUENT
PEOPLE, HEDGE FUNDS, AND FAMILY OFFICES TO EARN INCOME.

FREIGHT BROKERS AND SHIPBROKERS. PLAY A CRUCIAL ROLE IN THE INITIAL

SUPPLY CHAIN STAGES. THEY
TRANSPORT PRODUCTS AND RAW MATERIALS BETWEEN CONTINENTS. AS A
RESULT, OPERATIONS RELATED TO
IMPORT AND EXPORT TRADE FINANCING ARE MADE EASIER. FOR INSTANCE, IN
ORDER TO OBTAIN CARGO FOR
THEIR LOAD, COMMODITIES DEALERS (OF IRON ORE, COAL, SOYBEANS, AND
SUGAR) COLLABORATE WITH
SHIPBROKERS. SIMILAR TO THIS, CONTAINERSHIP BROKERS PAIR CONTAINERS
(COMMODITIES) WITH SHIPS
(FORWARDERS) TO SHIP GOODS AROUND THE WORLD.