Fx 101 lecture by Marshall Chang
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The document provides an overview of the foreign exchange (forex) market. It discusses what forex is, its key characteristics like its large trading volume and 24/5 hours of operation. It also outlines the major financial instruments traded in forex like spots, forwards, futures contracts. The largest participants are banks, central banks, companies and retail forex brokers. On average, $5.3 trillion is traded daily making it the largest financial market globally. Technical analysis and fundamental analysis are two major approaches for analyzing currency movements and determining trading opportunities.
Fx 101 lecture by Marshall Chang
- 1. FX 101 Marshall Chang
- 2. What is Forex? The foreign exchange market (forex, FX, or currency market) Assists international trade and investments History: 1970s Bretton Woods system => floating exchange rates
- 3. Characteristics huge trading volume world leading high liquidity no physical location (OTC) continuous operation 24 hours a day except weekends low margins of relative profit leverage Variety of factors perfect competition?
- 4. Financial Instruments (game rules) Spot traded immediately using the current market price Forward contract on an exchange rate for any date in the future Swap an agreement between two parties to exchange sequences of cash flows for a set period of time Futures contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date Options the right but not the obligation to exchange
- 5. Who are the players? Banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors The largest financial market in the world The Super Banks Large Commercial Companies Governm ents and Central Bank The Speculators
- 6. Just how big the market is Averaged $5.3 trillion per day (NYSE is about $22.4 billion per day)
- 7. 200 times BIGGER! Retail traders (that’s us) trade the spot market and that’s about $1.49 trillion
- 8. Market Stucture • stock market tends to be very monopolistic • “Specialist” • no single price • quotes from dealers vary • competition • efficiency
- 9. What is traded in FX market? Money “buying a share in a particular country” CHF (Confoederatio Helvetica franc) Symbol Country Currency Nickname USD United St ates Dollar Buck EUR Euro zone members Euro Fiber JPY Japan Yen Yen GBP Great Britain Pound Cable CHF Switzerla nd Franc Swissy CAD Canada Dollar Loonie AUD Australia Dollar Aussie NZD New Zealand Dollar Kiwi
- 10. The Dollar is King in the Forex Market
- 11. How does it work? Buying and Selling (Long and Short) E.g Buy EUR/USD equals Sell USD/EUR Major Currency Pairs EUR/USD “euro dollar” USD/JPY “dollar yen” GBP/USD “pound dollar” USD/CHF “dollar swissy” USD/CAD “dollar loonie” AUD/USD “aussie dollar” NZD/USD “kiwi dollar”
- 12. FX vs. Stocks Advantages Forex Stocks 24-Hour Trading YES No Minimal or no Commission YES No Instant Execution of YES No Market Orders Short-selling without an Uptick YES No No Middlemen YES No No Market Manipulation YES No
- 13. Forex cs. Futures Advantages Forex Futures 24-Hour Trading YES No Minimal or no Commission YES No Up to 500:1 Leverage YES No Price Certainty YES No Guaranteed Limited Risk YES No Mr. Forex looks UNBEATABLE!
- 14. The truth is… About 95% of traders join FX market today will leave FX market in a year.. Only 5% of traders make money
- 15. Next Lesson! How to trade Golden rules (if you want to survive) Open an account
- 16. Next Step: Trade FX! What do you need first?
- 17. A Broker to open an account! Advance of internet in the 90s The big brother: Commodities Futures Trade Commission (CFTC) protect market users and the public from fraud Brokers Dealing Desk=> Market Makers No Dealing Desk=> ECN + STP (Electronic Communication Network + Straight Through Processing)
- 18. Dealing desk/Market Makers: Make money from spread Also are liquidity provider to you They are on the other side of your trade, fraud? Conflict of interest? Not really, they execute large amount of buy and sell orders What they do: Match your order to other clients/Provide liquidity to you directly They spread that you hate is their bread and butter
- 19. No dealing desk(NDD): ECN+STP or ECN A structure to connect you and others The NDD STP system: Dealer routes clients order directly to liquidity provider Variable Spread, Interbank Market The NDD ECN system: Participants trade with each other, ideal “Depth of market” Commision
- 20. Who to chose? Dealer desk or NDD? Tighter spread but commission => Day traders Wider spread but no commission => Longterm traders Dealing Desk (Market Maker) No Dealing Desk (STP) No Dealing Desk (STP+ECN) Fixed Spreads Most have variable spreads Variable spreads or commission fees Take the opposite side of your trade Simply a bridge between client and liquidity provider A bridge between client and liquidity provider and other participants Artificial quotes Prices come from liquidity providers Prices come from liquidity providers and other ECN particpants Orders are filled by broker on a discretionary basis Automatic execution, no re-quotes Automatic, no re-quotes Displays the Depth of Market (DOM) or liquidity information
- 21. Bucket Shop Worst thing for you Jesse Lauriston Livermore, Great Bear of Wall Street
- 22. Open an Account Account type Registration Activation http://www.fastbrokers.com/ DEMO!!! “Trading live is a different beast altogether. It’s like the difference between sparring against your kid brother (or sister) and fighting Manny Pacquiao.”
- 23. FX Market Analysis Green Pill or Red Pill?
- 24. Technical Fundamental Sentimental three-legged stool
- 25. Technical Analysis Def: framework in which forex traders study price movement. Theory: look at historical price movements and determine the current trading conditions and potential price movement. Evidence: all current market information is reflected in price. If price reflects all the information that is out there, then price action is all one would really need to make a trade. “History tends to repeat itself“?
- 26. Show me the Chart! with all the traders who rely on technical analysis out there, these price patterns and indicator signals tend to become self-fulfilling.
- 27. Don’t Panic!
- 28. Fundamental Analysis analyzing economic, social, and political forces that may affect the supply and demand of an asset all of the factors that affect supply and demand Economy goodStrengthen High Interst rateStrengthen
- 29. In a nutshell… potential moves of a currency through the strength or weakness of that country’s economic outlook
- 30. Sentiment Analysis “The market is just like Facebook – it’s a complex network made up of individuals who want to spam our news feeds.” The market represents the opinion of all participants You as retail trader, can’t move the market your way, unless you are George Soros or Goldman Sachs. SentimentWhether market is bullish or bearish based on your analysis
- 31. Recap TechnicalStudy of currency price movement on charts Fundamental Study of how the economy is doing Sentimental Determine whether bull or bear Fundamental factors shape sentiment Technical analysis visualize that sentiment and apply a framework to create our trade plans.
- 33. Trend
- 45. Fibonacci Fibonacci Retracement Levels 0.236, 0.382, 0.500, 0.618, 0.764 Fibonacci Extension Levels 0, 0.382, 0.618, 1.000, 1.382, 1.618