FX level 2 Final
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Transcript of FX level 2 Final
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FX level 2
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Agenda• Who and what drives the FX market?• How to trade using orders intelligently• When to trade• Why trade• Good trading habits
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Who and what drives the FX market?
• Central banks• Hedge funds• News• Politics
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Using orders intelligently• Order types
– Market– Limit– Stop if Bid– Stop if Offered– Trailing Stop if Bid– Trailing Stop if Offered
• Orders can be placed in the– Trade modules– Order module– Account Summary
Entry order
s
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Entry
Take profit
Stop-loss
Take profit order
Entry/Buy
Stop-loss order
A 3-way order
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Trailing stops• Distance to Market• Step size• Slippage
• EUR is bought at 1.2145• A trailing stop order placed at 1.2115.• Distance to Market is defined as 45 pips• Step is set at 5 pips. • A traditional, non-trailing, stop order would
have been executed when the market price of EUR reaches the original order level of 1.2115, at a 30 pip loss (entry at 1.2145, exit at 1.2115).
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When to trade FX• There are two means of deciding when to trade FX
– Fundamental analysis– Technical analysis
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Fundamental: News
• Non-Farm payrolls– Here you can see the
movement after the employment figures were announced in the US
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Fundamental:Politics
Here you can see the USD decreases in value when Bush declares war on Iraq in March 2003
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Fundamental:Central Banks
Here you can see the USD lose value as the Fed decide to cut interest rates by 0.5% to help the economy
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Technical Analysis (TA) - A simple definition:• The systematic study of charts of a security’s past price action in an effort to determine future price action.• Also – used to find ”levels of significance”
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Technical analysis:
Simple moving average
Buying at the support level
Sell signal
Buy
si
gnal
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Technical:There are many technical analysis tools available through Saxo’s award winning platform
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Why trade FX?• Speculation
– Taking advantage of volatility for profit– Interest rate arbitrage - Swap/Carry trading
• Hedging– Covering exposure of foreign stock trading– Reducing corporate, foreign trade liabilities– Portfolio diversification - A fundamental element of risk
management
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Speculation• Speculation for profit is now a multi trillion dollar business
Profit
Buy
Sell
Sell
Buy
Profit
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SpeculationInterest rate arbitrage: • This is done by ‘buying’ a high yielding currency and
‘selling’ a low yielding one, thus profiting from the interest rate differential
– Example: TRY (Turkish Lira) interest rates are currently 17% vs. JPY (Japanese Yen) at 0.5%
– But you should be aware of the volatility, which is usually higher on high-yielding currencies such as the TRY
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Example of hedging• Companies that trade internationally
– Without hedging:• Business A buys 1 million USD worth of goods, which are to be paid for in 3 months • The Dollar is at that time worth 5.20 DKK, so business A earmarks 5.2 million DKK for
buying the goods 3 months later• 3 months later the Dollar is worth 5.40 DKK • So business A now have an extra expenses of 200,000 DKK
– With hedging:• Business B buys 1 million USD worth of goods, which are to be paid for in 3 months – but
chooses to hedge the FX risk • The Dollar is at that time worth 5.20 DKK, so business A earmarks 5.2 million DKK for
buying the goods 3 months later• The USD-interest is at 5 %, while the DKK-interest is at 4.5%• The difference is 0.5% in your favour.• Your gain on interests = 6500
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Hedging:
•People trading the international stock markets, will always have a foreign exchange risk
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Good trading habits• Discipline!• Set long-term goals• Don’t overextend your finances and manage your margins• Diversify, portfolio management• Trade with your head, not with your heart• Trade your plan: If you fail to plan, you plan to fail. Stick to your
strategy. Plan the trade, trade the plan.• Manage your positions and orders diligently
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Thank you