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MARNOR INVESTMENT PARTNERSHIP LLP
LET YOUR MONEY EARN YOU THE PROFIT YOU DESERVE
MARNOR INVESTMENT PARTNERSHIP
FOREX TRADING
INTRODUCTION TO FOREX TRADING
WHAT IS FOREX
To begin with FOREX is the acronym for the Foreign Exchange, where one country’s currency is exchanged for that of another through a floating exchange rate system. The forex market is the world's largest financial market, with an estimated daily average turnover of more than $1.5 trillion!, out trade the major global markets such as the FTSE, NASDAQ, S&P 500, CAC40 etc.
FOREX trading is not monopolized to any one trading floor, and is not a market in the traditional sense, but is done electronically, between a network of banks and other large financial institutions, continuously over a 24-hour period from Sunday afternoon to Friday afternoon. This makes it really enticing for traders.
MAJOR FOREX PARTICIPANTS
Major foreign exchange participants include commercial and investment banks and central banks. Other participants include corporations, hedge funds and millions of traders worldwide. The main banks which provide liquidity in this market include: Bank of America, Credit Suisse, First Boston, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Dean Whiter, and UBS Warburg. Historically, smaller-scale, individual investors have had limited access to the FX market. Major banks, multinational corporations and other participants, trading in large transaction sizes and volumes, have dominated this market for decades. Technology however, has lowered the barriers of entry and opened up this attractive marketplace to a new breed of investors and speculators.
THE MAJOR TRADED CURRENCY PAIRS
Currencies are traded in pairs: for example, U.S. Dollar/ Japanese Yen (US/JPY) or U.S. Dollar/Swiss Franc (US/CHF). Every position involves the buying of one currency and simultaneously selling of the other in the pair. Therefore if we buy (US/JPY), we buy the dollar and at the same time sell the yen. While there are many currency pairs to choose from, the following currency pairs due to their volume and liquidity in the market, they are called the Major’s:
(Each currency is listed by its name, symbol, and how it is paired with the dollar.)
Australian Dollar (AUD/USD)
British Pound (GBP/USD)
Canadian Dollar (USD/CAD)
Swiss Franc (USD /CHF)
Euro Dollar (EUR/USD)
Japanese Yen (USD/JPY)
*CHF = Confederation Helvetia Franc
A TWO WAY MARKET
In FOREX market you may buy or sell currencies. The objective is to earn a profit from your position. You could make profits when the market is going up if you bought the market. You also could make profits when the market was going down if you sold the market. This is called going long or short respectively.
MARGIN TRADING
The margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. This is decided by the brokerage firm.
BENEFITS IN TRADING FOREX
There are many benefits in trading the FOREX. A few of them are:
It has continuous liquidity.
It has very low dealing costs; 3-5 pip spreads.
It has 100:1 leverage for margin trading.
It has a very volatile, trending market, MAKE PROFIT QUICKLY
It has a two-way market: traders participate in bull or bear markets.
It is open 24 hours, from Sunday afternoon to Friday afternoon.
We can also applied our technical analysis to this market
Our loss can be calculated.
Risks
As we often say great reward is not without great risk. The FOREX market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is a very high degree of leverage. Many brokerage firms allow positions to be leveraged up to 100:1. This makes it very risky because potential loss is magnified.
Forex Trading - An example
(adopted from CMC our main broker)
The Spread: Imagine the USD/JPY rate is quoted at ‘117.00/03’. This quote represents the bid/offer spread for USD vs JPY.
The Offer: The offer rate of 117.03 is the rate at which we can exchange JPY for USD or, in other words, purchase USD with JPY, or BUY USD and SELL JPY.
The Bid: The bid rate of 117.00 is the rate at which we can Sell USD to buy JPY.
Going Long: If we believe that the US Dollar will strengthen against the Japanese Yen, and decide to BUY or ‘go long’ USD500,000 @ 117.03 (the offer price)
Opening Buy: Customer (we) BUYS USD500,000 @ 117.03
Quote (bid/offer) 117.00/03
Buy Price 117.03
Volume USD500,000
Initial outlay (using 1% margin) USD5,000
Later:
Our prediction is correct and the US Dollar appreciates against the Japanese Yen. The quote on USD/JPY is now 117.65/68. To close our position, we decide to SELL USD500,000 @ 117.65 (the bid price)
Closing Sell: Customer (we) SELLS USD500,000 @ 117.65
Quote (bid/offer) 117.65/68
Sell price 117.65
Volume USD500,000
Profit/loss JPY310,000 profit
Profit/loss Calculation:
Size of trade x (sell price - buy price) = profit & loss JPY
500,000 x (117.65 - 117.03) = JPY310,000 profit
Or, converting the JPY310,000 back to USD at a rate of 117.65
(Profit/loss ÷ USD rate) = profit & loss USD
(310,000 ÷ 117.65) = USD2,634.93 profit
By closing our position to realise a gross profit of USD2,634.93
Had we misread the market direction and sold USD/JPY at 117.00 and later bought USD/JPY at
117.68 a loss of USD2,889.19 would have resulted
This type of trade is typical of the trade we have done in the past. Because we use the news, technical and fundamental analysis to aid in our decision, just as normal trading, we will not present any chart at this point.
We have shown a substantial amount of charts and the patterns they form under the section called TECHNICAL ANALYSIS.
