8 - Understanding the FX Markets

8/7/2019 8 - Understanding the FX Markets

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The Trading Pitt 2010 1

FOREx:

Lesson OneUnderstanding the FX Markets


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Currency Pair Currency (USD, EURO) can only be bought by buying

one pair and selling an equivalent amount of the second currency. Ex: Buying 1 Lot (10,000 units) of EUR/USD at 1.30: 10,000

euros costs $13,000 Foreign Exchange Another name for the currency exchange

markets that are over the counter and trade 24 Hours/ 5.5 days aweek

Spot Market Buying something in the spot market means that youin most cases take delivery in 2 days .

Margin Amount required by the clearing house in order to trade aleveraged product

Leverage The ability to borrow or use financial products to increaseyour exposure to a certain instrument. Which can increase ordecrease portfolio returns.

Pip The smallest increment that a currency pair can move, nowwith fractional pips is equivalent to $.00001 (Yen pairs are quotedin .001)

Carry Trade Buying high yielding assets by financing purchaseswith borrowed low interest rate assets Rollover Spread Difference between the bid and ask; the immediate Stop Hunting Market movements in thin conditions to trigger levels

where stop orders exist

Terms to Know:


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Hours: 6:00 PM EST Sunday to 5 PM Friday

Participants :

Corporations Commercial Hedgers

Banks Process payments, prop desks, andinternal hedging

Hedge Funds and Speculators Purespeculation, and in some cases arbitragewhen it rarely exists

Sessions

New York: 8 AM 5 PM

London: 3 AM 12 PM Australasian : 5 PM 4 AM

Best Times to Trade London/New York overlap isthe most overall liquid, but really depends on thepair your trading

Intro to

Understanding the

Forex Markets


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Leverage 100:1

Practicing trading with real money is important whenyou get the basics

Understanding how the fee structures work

Commission Free Trading is just payingthrough a wider spread

FX is a rigged game, your going to have to work hard ifyou want to succeed in it

Undercapitalized?

If you cant trade at a level where a 1% profit at

first is a good amount keep working on thedemo till you have enough money

Dangers of Overtrading

Leverage is dangerous because it is so easy andaccessible and although the thoughts it onlytakes one trade to double your money. Morethan likely you will blow your account.

Getting

Started

Trading


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The Major Currencies

Major Pairs

US Dollar Greenback

Great Britain Pound Cable

Swiss Franc Swissie

European Monetary Union Euro Euro/Fiber

Australian Dollar Aussie

Japanese Yen Yen

Canadian Dollar Loonie

New Zealand Dollar Kiwi

The major are the all the foreign currencies traded againstthe US Dollar


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Simulation 1

May 20th, 2010

Practice Trading and GettingUsed to the Volatility in FXFundamentals vs Risk

Regimes


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Key Points

from

Simulation 1

The Australian economy atthis time was perceived to bethe best but got dragged down

with poor risk appetite


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The importance of not trading when you do not havean edge.

TRADE To Make Money, never trade to just TRADE

The importance of a playbook you eventually makethat over time tells you what you want to do next.

Quote for Yra Harris from Inside the House of Money.

The worst thing you can do in a trade is try to getback to even. I call that the prayer trade. I canspot guys on the floor who have it on because theyshake back and forth, basically in prayer,mumbling , Oh, please God, just let it come back

to me. Let me break even. What is that? Break even? Thats a loser. Im

not in this business to break even. Theres alwaysopportunity in the markets, so forget breaking even.If breaking even is your goal, youre not tradinganymore.

Traders Psych


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Second

Simulation

may 20th, 2010

Same day but now look howcurrency crosses are affectedby the majors and vice versa


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Key Points

Simulation 2

EUR/JPY underperforms lateday as the USD/JPY stays weak


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Week

Simulation:

Follow EUR/USD all week andpractice trading that. It tendsto move more cleanly.


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Open Practice Accounts

MB, FXCM

Contact info

Questions?

Analysis,

Comments,

Questions?


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What to Look

out for this

week:

Documents

8 - Understanding the FX Markets