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Starting to Trade FOREX. Risk Warning. High Risk Investment
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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. Need to buy US T-bills for safety 2. Sell Euros to buy Dollars 1. Identify rates/risk 2. Contract written with buyer (BB) 3. Buy US bonds 3. Close contract, repay liquidity provider EURUSD 1.5000 Sell 10k EURUSD EURUSD 1.5000 Sell 10k EURUSD Re-buy 10k EURUSD at 1.4000 Profit 10k*50c = USD5k Wait for next selling opportunity, get some interest
FOREX and Equities Advantages Disadvantages Much higher risk Almost always wrong Easy to buy into losses • 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
Important • Manage risk • Identify macroeconomic patterns • Check opportunities of each pair • Know your stops and limits
What Affects Exchange Rates? • Risk • Rate expectations • Repatriation
Risk currencies Safety Currencies • USD • JPY • (CHF) • Risk Currencies Commodities Bloc • AUD, NZD, CAD Anti-dollar • EUR, GBP
What to Remember • Short term: Risk appetite • Medium term: Rates outlook • Long term: Structural changes/risk