currency trading at forex...
A Project report On Currency trading at FOREX In Partial Fulfillment of the Requirements of the degree of Bachelor of Business Administration
S.S.Agrawal College of Arts Commerce and Management 2011-12 SUBMITTED BY Mehul.v.malaviya (13)
PROJECT GUIDE Miss. jaya Dakhwani 1
I, the undersigned, Mr. Mehul.v.malaviya here by, declare that this project work titled currency trading (Forex) at YOU TRADE FX, Has been prepared by me during the academic year 2011-12 under the guidance of Miss. Jaya Dakhwani Professor, S.S.Agrawal Collage Of Arts, Commerce And Management, NAVSARI.
The empirical findings in this report are based on the data collected and have not been taken from any other reports. This dissertation does not form any basis for other degree or diploma.
Roll No: 13
The satisfaction and euphoria that accompany the successful completion of any task would be incomplete without the mention of the Leaders, whose constant guidance and encouragement crown all the efforts with success. I am highly obliged to the South Gujarat University for arranging the programmed of practical training in Bachelor of Business Administration
such a manner. It is my privilege to express my dee p sense of gratitude to Prof Miss.jaya dakhavani for her efforts, guidance, valuable comments and suggestions for making this project report. She helped me to complete my report on the practical study and gave contribution to improve and expand my practical knowledge. I would like to extend my gratitude to all the staff and especially to Mr. Mr.Dharmesh Vora, Mr. Chirag Vaghani, Mr. Praful Patel of O’fern Investment, who provided me useful information and data regarding the subject with their cent percent participation and supported in making this project report a successful task. It was a memorable experience to work with them and complete my winter training. Finally, I express my intense gratitude to my parents whose blessings and helped me to translate my efforts into fruitful achievement.
INDEX SR NO.
CERTIFICATE-I (From Organization)
CONCLUSION & RECOMMANDATION
INDUSTRY PROFILE Foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global, worldwidedecentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The foreign exchange market assists international trade and investment, by enabling currency conversion. For example, it permits a business in the United States to import goods from the United Kingdom and pay pound sterling, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of
its huge trading volume representing the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion. The $3.98 trillion break-down is as follows:
$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products
The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives. Trading in the United Kingdom accounted for 36.7% of the total, making it by far the most important center for foreign exchange trading. Trading in the United States accounted for 17.9%, and Japan accounted for 6.2%. Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.
Currency distribution of reported FX market turnover
Market participants Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the interbank market, which is made up of the largest commercial banks and securities dealers. Within the interbank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. From there, smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”. Central banks also participate in the foreign exchange market to align currencies to their economic needs.
Banks The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. Many large banks may trade billions of dollars, daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, which are trading desks for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for large fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
Commercial companies An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
Central banks National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies.
They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
Foreign exchange fixing Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a trend indicator. The mere expectation or rumor of a central bank foreign exchange intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Southeast Asia.
Hedge funds as speculators About 70% to 90% of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may 12
Overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.
Investment management firms Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management), and hence can generate large trades.
Retail foreign exchange traders Individual Retail speculative traders constitute a growing segment of this market with the advent of retail foreign exchange platforms, both in Size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the Commodity Futures Trading Commission and National Futures Association have in the past been subjected to periodic Foreign exchange fraud. To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller and perhaps questionable brokers are now gone or have moved to countries outside the US. A number of the foreign 13
exchange brokers operate from the UK under Financial Services Authority regulations where foreign exchange trading using margin is part of the wider Over-the-counter derivatives trading industry that includes Contract for differences and financial spread betting. There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal it.
Non-bank foreign exchange companies Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but rather currency exchange with payments (i.e., there is usually a physical delivery of currency to a bank account).It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.
Money transfer/remittance companies and bureaux de change Money transfer companies/remittance companies perform high-volume lowvalue transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally followed by UAE Exchange Bureaux de change or currency transfer companies provide low value foreign exchange services for travelers. These are typically located at airports and stations or at tourist locations and allow physical notes to be exchanged from one currency to another. They access the foreign exchange markets via banks or non bank foreign exchange companies. The currency market is over 53 times BIGGER! It is HUGE! But hold your horses, there's a catch! That huge $4 trillion number covers the entire global foreign exchange market, BUT retail traders (that's us) trade the spot market and that's about $1.49 trillion. So you see, the forex market is definitely huge, but not as huge as the media would like you to believe.
Do you feel like you already know what the forex market is all about? We're just getting started! In the next section we'll reveal WHAT exactly is traded in the forex market. One of the questions we get asked all the time is “What is forex trading?” When did it start? How big is it? Who are the major players? What makes currency rates change?
Company Profile YoutradeFX has made online Forex trading hassle-free with the most advanced trading technology and services. As a Forex trader, we can enjoy thier trading conditions which are the best in the industry. Each Forex strategy devised by their team of experts focuses on your profit goals. Additionally, they ensure optimal information technology security for their clients. Both new and experienced traders can make use of our Forex forum to discuss various Forex trading issues openly.
YoutradeFX is an internet brokerage and investment firm. Through our company’s website and trading platform, traders can invest in CFD’s (certificates for difference) on stock, commodities, indices and the foreign exchange market. We are dedicated to building long-term relationships with our clients based on trust, performance and our corporate values: delivering the most optimal trading environment, unparalleled in quality and function, and supplying every client with the highest levels of service at all times.
Services YoutradeFX caters to a growing client base of private and institutional traders, 24 hours a day, 6 days a week, providing specialized trading services in over 10 languages. We are committed to providing our clients and partners with the most comprehensive and competitive trading solutions in the industry, delivering tighter spreads, excellent liquidity, the highest level of customer service and 17
YoutradeFX offers the latest range of trading technology, featuring the Powerful, MetaTrader 4 trading platform for individual traders and multiaccount platforms for asset managers. We also offer our cutting Edge web trading application and will soon introduce a mobile PDA and smart phone solution for trading on the move. Through our in-house R&D department we inspire our clients to become better informed traders, offering premium, daily technical analysis, macroeconomic reports developed by a team of professional experts with extensive Forex industry experience so that our clients will be as successful as possible.
YoutradeFX has developed automated trading tools (expert advisors, custom indicators and scripts) that require minimal intervention and allow traders to automate their trading strategy, improve discipline, remove emotion, and capture opportunities. Traders can choose from over 20 predefined trading strategies to create custom portfolios and automatically execute trades according to their specifications. To further our commitment to education, their website features video tutorials to help beginner traders. The tutorials range from basic trading techniques, technical analysis, fundamental analysis, to the types of risk and money management needed to become a successful trader. You can easily apply the lessons to the real time Forex market and trade like a professional in no-time.
YoutradeFX also offers world-class business partnership solutions for financial institutions, brokers and private investors through our White Label, Asset Manager and Introducing Broker programs. Partnership solutions can be 18
customized according to the partner’s business strategy, with flexible income sharing plans and other value-added support features.
Trading Technology Our team of experts ensures that our clients operate in optimal conditions at all times. Accessibility, security, reliability, innovation and userfriendliness are YouTradeFX's cornerstones in providing the industry’s most advanced trading conditions.
Information Technology Security Our electronic trading infrastructure uses the most advanced technology to give you the best possible edge for online trading. This high-performance design offers optimal security against connectivity and latency issues thanks to a strategic arrangement of internet providers and data centers set up to accommodate clients across the globe. Our infrastructure is secured for business continuity with safeguards against data loss and downtime via a core disaster recovery plan as well as internal and external backup solutions.
Trading Technology Solutions YoutradeFX offers the most comprehensive and advanced trading technology solutions, keeping business partners and clients ahead of the competition with the market’s most versatile, cutting-edge, secure, and userfriendly trading tools.
Corporate Philosophy Maintaining sound business practices that respect ethical values is a key part of our philosophy. We base our service concept on four core principles: 1.Offering the most competitive, straightforward and simple execution to our customers. 2. Operating in full transparency in everything we do, from the way we present our company to potential customers to our method of execution. 3. Keeping tight profit margins per trade, hence increasing trade volume and decreasing costs for individual traders.
4. Only calling customers that ask to be called. By using skillful marketing techniques we know how to approach prospective customers while respecting their rights to privacy.
Mission Statement 20
The main objective of youtradeFX is to provide exceptional customer service for its traders as well as strong trading and education instruments that allow clients to make prudent, yet profitable, forex trading decisions.
Our mission is to: •Continually expand our global presence •Offer traders the most advanced investment products •constantly introduce new benefits and services to our valued clients •Create high value to introducing brokers and white label partners •Provide excellent customer service and support to all of our stakeholders
Our Advantages Spreads: Competitive and low spreads from just 1 pip, fixed 24 hours a day.
Leverage: Greater buying power with leverage up to 1:500.
Fees: Commission free for all trading instruments.
Margin: There are no margin requirements for accounts under $100,000. We feature guaranteed Stop-Loss which means that traders cannot lose more than their original investment.
Mini Trading: Traders may deposit as little as $100, and open a position with as little as $10,000 or 0.01 Lots. 21
Account Classes: Traders can choose between four different account types: Mini for under $2,000, Standard $2000 -$10,000, Classic $10,000 - $100,000 and Premium Account for $100,000 and over.
Trading Tools Trading Tools: Especially designed and developed for traders, these include a currency converter, market news, quotes, charts, an economic calendar as well as daily market analysis and trade recommendations written by our chief analyst.
Technology: Our trading platform is the award winning MT4 trading platform from the comfort of your desktop computer, laptop and now also from your mobile phone (iPhone).
Awards FX Empire BROKER AWARDS 2011 youtradeFX is proud to be awarded this exclusive prize amongst more than 500 Forex broker candidates of this prize.
Regulation and License As a financial investment company, YouTradeFX has a Category 1 Global Business License issued by the Financial Services Commission (FSC) of the Republic of Mauritius under the name of International Youtrade Investments MA Ltd. Company No.: 097392 C1/GBL; Category 1 Global Business, License № C110008678.
Securities Act 2005
Securities (Licensing) Rules 2007
Financial Services Rules 2008
What is forex? Forex is the international market for the free trade of currencies. Traders place orders to buy one currency with another currency. For example, a trader may want to buy Euros with US dollars, and will use the forex market to do this. The forex market is the world's largest financial market. Over $4 trillion dollars worth of currency are traded each day. The amount of money traded in a week is bigger than the entire annual GDP of the United States! 25
The main currency used for forex trading is the US dollar.
When did forex start? As the world continued to tear itself apart in the Second World War, there was an urgent need for financial stability. International negotiators from 29 countries met in Bretton Woods and agreed to a new economic system where, amongst other things, exchange rates would be fixed.
The International Monetary Fund (IMF) was established under the Bretton Woods agreement, and started to operate in 1949. All exchange rates changes above 1% had to be approved by the IMF, which had the effect of freezing these rates. By the late 1960's the fixed exchange rate system started to break down, due to a number of international political and economic factors. Finally, in 1971, President Nixon stopped the US dollar being converted directly to gold, as part of a set of measures designed to stem the collapse of the US economy. This was known as the Nixon shock, and lead to floating rate currency markets being
established in early 1973. By 1976, all major currencies had floating exchange rates. With floating rates, currencies could be traded freely, and the price changed based on market forces. The modern forex market was born.
Who trades on the forex market? There are many different players in the forex market. Some trade to make profits, others trade to hedge their risks and Others simply need foreign currency to pay for goods and services. The participants include the following: 26
Government central banks
Brokers and dealers
When is the forex market open? Unlike stock exchanges, which have limited opening hours, the forex market is open 24 hours a day, five days a week. Banks need to buy and sell currency around the clock and the forex market has to be open for them to do this.
What factors influence currency exchange rates? 27
As with any market, the forex market is driven by supply and demand: If buyers exceed sellers, prices go up If sellers outnumber buyers, prices go down
The following factors can influence exchange rates:
National economic performance
Central bank policy
Trade balances – imports and exports
Political factors – such as elections and policy changes
Market sentiment – expectations and rumours
Unforeseen events – terrorism and natural disasters
Despite all these factors, the global forex market is more stable than stock markets; exchange rates change slowly and by small amounts.
What are the advantages of the forex market? There are many benefits and advantages of trading forex. Here are just a few reasons why so many people are choosing this market:
No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail brokers are compensated for their services through something called the "bid-ask spread".
Spot currency trading eliminates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
No fixed lot size
In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5,000 ounces. In spot forex, you determine your own lot, or Position size. This allows traders to participate with accounts as small as $25 (although we'll explain later why a $25 account is a bad idea).
Low transaction costs
The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be as low as 0.07%. Of course this depends on your leverage and all will be explained later.
There is no waiting for the opening bell. From the Monday morning opening in Australia to the afternoon close in New York, the forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.
No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period of time.
In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, a forex broker may offer 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on. While this is all gravy, let's remember that leverage is a doubleedged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
Because the forex market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).
Low Barriers to Entry
You would think that getting started as a currency trader would cost a ton of money. The fact is, when compared to trading stocks, options or futures, it doesn't. Online forex brokers offer "mini" and "micro" trading accounts, some with a minimum account deposit of $25. We're not saying you should open an account with the scare minimum, but it does make forex trading much more accessible to the average individual who doesn't have a lot of start-up trading capital.
Free Stuff Everywhere
Most online forex brokers offer "demo" accounts to practice trading and build your skills, along with real-time forex news and charting services. And guess what?! They're all free! Demo accounts are very valuable resources for those who are "financially hampered" and would like to hone their trading skills with "play money" before opening a live trading account and risking real money. Now that you know the advantages of the forex market, see how it compares with the stock market!
Determinants of exchange rates: The following theories explain the fluctuations in exchange rates in a floating exchange rate regime (In a fixed exchange rate regime, rates are decided by its government):
1. International parity conditions:
Relative Purchasing Power Parity,
interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the 31
fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
2. Balance of payments model (see exchange rate):
however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit. 3.
Asset market model (see exchange rate):
views currencies as an
important asset class for constructing investment portfolios. Assets prices are influenced mostly by people's willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
None of the models developed so far succeed to explain exchange rates and volatility in the longer time frames. For shorter time frames (less than a few days) algorithms can be devised to predict prices. It is understood from the above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. 32
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.
Economic factors These include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators.
(budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trade flow between
illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends:
Typically a currency will lose value if there
is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's 34
economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy:
Increasing productivity in an economy
should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector.
Political conditions Internal, regional, and international political conditions and events can have a profound effect on currency markets. All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative interest in a neighboring country and, in the process, affect its currency.
Market psychology Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
Flights to quality:
Unsettling international events can lead to a "flight to
quality", a type of capital flight whereby investors move their assets to a perceived "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The U.S. dollar, Swiss franc and gold have been traditional safe havens during times of political or economic uncertainty.
Currency markets often move in visible long-term
trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.
"Buy the rumor, sell the fact":
This market truism can apply to many
currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
While economic numbers can certainly reflect
economic policy, some reports and numbers take on a talisman-like effect:
The number it becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time.
Risks Involved With Trading in Forex The forex market is not a place for amateur investors. Investing here with any chance of success requires a good understanding of the processes and techniques involved. The investor will also need a good grasp of various factors affecting the markets and how he must react in order to turn any circumstances to his advantage. The greatest advantages of the forex markets, its size, liquidity, adaptability and opportunities can also become the pit falls if an investor begins trading without understanding the risks.
Amplification of Losses Leverage is considered the most attractive aspect of forex trading. An investor can make massive gains with just a small investment because of a high leverage in the forex market. The high liquidity in the market and the constant fluctuations in price help a smart investor make quick substantial gains by putting up just 1% of the total investment amount from his own funds. The rest can be borrowed from the dealer. In a forex trade, the price fluctuation is not the only basis for profit. It is the leverage which causes gains to multiply. The actual price fluctuation in the value of currency is very small.
However, leverage works both ways. With a high leverage, huge losses are also just as possible as huge gains. When you increase the potential for gains, you automatically increase your risk too. A small fluctuation in the price of currency on the higher side lets the investor multiply his investment. But the same
movement downwards can wipe out his funds completely and leave him liable to pay the broker.
Constant Fluctuations The forex market is open and active 24 hours a day. When trading ends in the US, other markets may just be opening for the day. Several traders across the world operate in the forex market and a combination of trades by many different traders can influence prices to a large extent. Traders who are actively trading at any point of time react immediately to factors that can impact currency values. Unless you are trading at that moment, you cannot take advantage of the situation. This may leave you with an unsustainable currency pair position whose profitability has eroded overnight. This is one disadvantage of the 24 hours trading in the forex market. There is no guarantee that the prices will remain at the same levels that you left them at when your trading day starts because trading is constantly going on elsewhere around the globe.
Lack of Information What affects the US economy may not have a significant impact on another economy. A decision taken on the basis of incomplete knowledge of a country’s economic situation can lead to disastrous results in forex. A thorough understanding of the political, geographic and economic factors of the country whose currency you are interested in is critical to success in forex. Without this, forex trading is an extremely risky affair.
A forex trade requires high maintenance. The investor needs to be updated on price, trends and changes at all times in order to take action to prevent losses.
The market is purely speculative and time is money in forex trading. The investor cannot sit back for years or even months with a forex investment like he would after investing in the equity of a blue chip company. The Forex transaction requires hands on, constant tracking and high maintenance to remain lucrative.
Absence of Regulations The absence of regulation makes it difficult for an investor to get arbitration when disputes arise. There is no intermediary to help in settlement processes and issues. The trades are entered into by the two parties directly and the terms are negotiated by them. Although a formal contract is created, there is no structured channel for disputed deals to be managed or settled. The deals are based largely on trust and it is the responsibility of the investor to ensure that he deals with an ethical and trustworthy party. Investors can opt for NFA registered brokers to make sure they have some recourse if the broker fails to fulfill obligations.
Frauds The possibility of huge gains and the lack of regulation make the forex market a fertile ground for frauds of all sorts. Although the CFTC registration is a means of checking the credentials of a broker, it is up to the investor to make sure of these aspects and to keep a close eye on his forex trading account to ensure the safety of his funds.
Price Uncertainty 39
The absence of an exchange brings uncertainty in the price of a currency. Different brokers may offer different bid and ask prices in the same market. A lot of effort and time needs to be invested in determining the right price in order to maximize gains. The uncertainty in price also makes predictions more complex and difficult.
Problem statement “Currency trading at forex”
Objective of study How to trade in currency with forex! With company’s software learning trading different types of currency pair. To know Most traded currency pair by value in different country.
Significance of study To provide basic knowledge about currency market! It will help trader to understand how to trade in currency pair. To know that which currency most traded by value in different economy!
Scope of study Introduction to currency trading at forex! Trading in EUR v/s USD and GBP v/s USD!
Data collection 1) Primary data collection:The methodology used is to study currency trading and its usage and utility, hedging and arbitrage in currency trading. To study about factors deciding currency fluctuation. What are the instruments to project losses from currency fluctuation? How currency trading is done. Currency trading in India! What are the initiatives taken by Indian government for currency trading? Who are major participants in currency trading? 2) Secondary data sources:To keep with pace with the existing market I seek to consult various existing data also in the related company products so that a comparative study is formulated. The sources to be used includes internet, friends working in other companies, faculty members, books.
In this project analysis done through secondary data The analysis was purely based on the secondary data. So, any error in the secondary data might also affect the study undertaken.
Tools of techniques
Chart Capture from software mete trader
Limitation of project
Study is limited to currency trading and its usage and utility.
Study is limited to currency exchange and factor deciding currency fluctuations.
Study is limited to forex exchange and how forex trading is done.
Study is limited to forex brokers.
Owing to the dynamic nature of the global economy in particular, the finding of the report will not be applicable after appoint of time.
No practical access to global market exchanges. Time constraint.
Most traded currency by value
United states dollar
South Korean won
Region wise most traded currency pair In London: London remains by far the highest volume trading center for foreign exchange. It therefore won’t come as much surprise that the global pair ranking is very similar to the one for this specific center. Based on the most recent data, here are the most traded currency pairs in for the London market. 1.
As was the case with the global figures, EUR/USD does about 50% more volume itself than the next two pairs combined.
In New York: The second largest of the trading centers is the U.S., with New York still the main focal point. Here are the most traded currency pairs in for this region. 1.
The top non-majors currency pair in this region is USD/MXN, with USD/BRL only doing about a third of that volume 45
In Tokyo: Here are the most traded currency pairs in for the Japanese market. As indicated above, the Japanese report does not have very much depth in terms of specifically parsing out the most traded currency pairs, so the list isn’t as long as for other regions. 1. 2. 3. 4. 5.
USD/JPY EUR/USD EUR/JPY AUD/USD GBP/USD
There is a big drop off from USD/JPY to the EUR pairs, with the former doing batten three and four times as much volume.
In Australia: Australia (primarily Sydney) has become a very significant market in global foreign exchange on a total volume basis. It’s not a broad market, hoitver, in that trading in the Aussie dollar dominates (not surprisingly). Here are the most traded currency pairs. 1. 2. 3. 4. 5. 6. 7. 8.
AUD/USD EUR/USD USD/JPY GBP/USD USD/CAD EUR/JPY EUR/GBP USD/CHF
Among the pairs trading in Australia, AUD/USD does about four times as much volume as EUR/USD, and it drops rapidly off even further after that. 46
In Singapore: Singapore can’t compare to London or New York for sheer trading volume, but it is a broad-based market where most of the major Asian regional currencies trade. Here are the most traded forex pairs. 1.
In India: In India, during my one month study I realized that Indian people is most traded no currency as are follow 1. EUR/USD 2. GBP/USD 3. AUD/USD Because only reason is that here people don’t want to take risk to trade in different currency which are they not very much aware about it to creating more loss.
How to make purchase in forex
Choose your currency pair
Decide on your deal volume
Set your profit goals
Set your loss limits
Check again and place your order
Close your position
1. Choose your currency pair Analyze the market and select a currency pair that you want to trade. Decide which currency you think will go up, and which one will go down.
Currency pair and indicator value
2. Decide on your deal volume
Choose the amount of currency you want to trade. The more volume you trade, the more you can earn or lose. If you're a beginner, it recommends that you have to make small trades.
3. Set your profit goals
When you make a trade, you should set a profit target. When this target is reached, your position will be closed automatically, and your profit and original stake will be transferred to your account. 52
4. Set your loss limits
Similarly, you need to decide how much you're willing to lose. Set this and once again your position will be closed automatically once the price reaches this limit. Your remaining stake will be transferred to your account. Remember not to risk all your money.
5. Check again and place your order
Look at the parameters you've just selected. Make any changes that are needed. Confirm that the price you wanted is still available; the price is only available for a short time and may have changed. If it has changed, decide if you still want to trade. If you do place your orders.
6. Get confirmation
soon as you enter your order, the data is sent to our servers. It checks the details and executes your order right away. Once the deal is made, it sends you a confirmation, and your open position appears on your trading terminal. Click “OK” to confirm an order
7. Close your position
Once the price reaches a point where you want to sell, close you position and it will transfer the money to your account. Note that your account balance does not reflect your profit or loss until you do this. Your position will be closed automatically if the price reaches the profit or loss limits you set. Click on the yellow button to close the position.
Conclusion During this project work I have tried my best touch each and every aspect which would affect the business process of the company.
The parameters that decide the price of currency in differentex changes are:
Volume of currency being traded.
Demand and supply forces.
Worldwide demand and supply of a given currency.
The area of facilitating currency is perhaps the area where there is greatest scope for exchanges to learn from each other's experience. These are the main aspects which could be concluded from the responses. On the basis of these observations some recommendations could be provided to the companies about which I will be discussing in the next part. During my training period the work which I have done, has helped me a lot. I understood to reach any heights you have to start from the scratch. I understand that if you want to be besting any organization then you have to do your work with full dedication and sincerity.
Recommendations to the Company After such observations and some conclusions made on the basis of that I would like to recommend some important points, upon which company should focus and try to grow its business by tapping the market through making new customers. In this recommendation part of this project work I am suggesting these points. First thing which I would like to suggest is the company should focus on its promotional forces, so that it would be able to convey the product features to the common people. Once the features will be exposed then only it can make new customers. Through the survey responses we knew that advertisements are the most affective medium of creating awareness. So to differentiate our product and to expose our exclusive benefits we need to take it out in front of the people. To create awareness about the product we can take several steps such as:
Arranging various kinds of activities at public gathering.
Placing the customer facilitating desks at various places.
Approach to the various offices to get new leads or customer contacts.
BIBILIOGRAPHY AND REFERENCES 1.
Primary Sources of Data (Interview conducted with the following personnel from the Company): Mr.Dharmesh.J.Vora(Partnership broker at YoutradeFX)
Mr.Chirag Vaghani (portfolio manager at YoutradeFX)
Secondary Sources of Data (A).The Internet www.forex.com www.babypips.com www.youtradefx.com www.investopedia.com
(B).Print Media Project report on forex exposure management 2000-2001 (Narsi Monji Institute of Management
(C).Book Referred for Study International Financial Management-P.G.APTE The Management of Foreign Exchange Risk- Ian H. Giddy & Gunter Dufay Currency Trading For Dummies By Mark Galant and Brian Dolan NCFM Currency Future Model 59