starting to trade forex. risk warning high risk investment trading foreign exchange on margin...
Post on 19-Dec-2015
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Starting to Trade FOREX
Risk Warning
• High Risk Investment• Trading foreign exchange on margin carries a high level of risk,
and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
How It Works
• Retail: Swaps (leveraged) • Large banks: Flows
1. Identify rates/risk
2. Contract written with
buyer (BB)
EURUSD 1.5000 Sell 10k EURUSD
3. Close contract, repay liquidity
provider
Re-buy 10k EURUSD at 1.4000Profit 10k*50c = USD5k
1. Need to buy US T-bills for
safety
2. Sell Euros to buy Dollars
3. Buy US bonds
EURUSD 1.5000 Sell 10k EURUSD
Wait for next selling opportunity, get some interest
FOREX and Equities
Advantages• Able to long and short
market• Large number of
correlations• Extremely liquid, good for
scalping/algos• RollS/RollB• 5, 6 pairs• Much easier to analyze
Disadvantages• Much higher risk• Almost always wrong• Easy to buy into losses
Important
1. Manage risk2. Identify macroeconomic patterns3. Check opportunities of each pair4. Know your stops and limits
What Affects Exchange Rates?
• Risk• Rate expectations• Repatriation
RISK ON/RISK OFF
Risk currencies
Safety Currencies• USD • JPY• (CHF)
• Risk CurrenciesCommodities Bloc– AUD, NZD, CAD
Anti-dollar– EUR, GBP
Greece, the Euro and the S&P500
Risk Correlation
Risk Correlation
Liquidity Flows
RATES AND RATE EXPECTATIONS
USDJPY and Yields
Risk-driven Interest and Exchange Rates
Rate Expectations
During Rate Decisions
REPATRIATION
Post-Sendai USDJPY
What to Remember
• Short term: Risk appetite• Medium term: Rates outlook• Long term: Structural changes/risk
LOOKING AT CHARTS