What is "Margin Foreign Exchange Trading" ? What is its advantage?
The foreign exchange market is a 24 hours operating global market where investors can trade one currency against another. It is the largest, most dynamic capital market in the world with more than US$3.98 trillion traded daily. Foreign exchange is one of the most liquid investment tools available with constant buying and selling. The international foreign exchange market is monitored by major central banks and financial institutions; the daily major currency exchange rates do not fluctuate too much, usually at its average of 1-2% volatility. Investors can both buy and sell and through this mechanism, you can tailor your risk to an optimal level. No wonder it is one of the favorite for international investors.
What can make an impact on to the currency exchange rate?
There are many reasons that can affect the supply and demand, in general, they are:
- The international balance of payments
- Inflation rate
- Interest rate
- Economic growth rate
- Market expectation
- Monetary authority intervention
Where can I get the above market information?
You can browse at some professional finance information website such as www.kvbfinance.com. You may find the data from the last month & also the prediction for the following month. Such analysis is conducted by the analyst from various major investment banks and economist; in certain they represent the market view at large. If the release is different from the market view, the fluctuation in exchange rate could be huge. Try to stay away from these economic data release if you want to minimize the risk in foreign exchange trading.
What is Precious Metals Margin Trading?
Investors has been trading gold and silver for a long time and still doing it. As the first choice for investor to preserve and wealth accumulation, for thousands of years gold and silver radiate their charming and unique features - non-deteriorate, high liquidity, value-preserving. No matter how history goes, national strength alternate, or the change in currency, yet the value of gold and silver remains unchanged. In today's uncertain economic and political environment, many investors turn to investing in gold and silver. Some coined Gold and Silver as "currency without national boundary" and regard Gold and Silver at any time and under any circumstances the most valuable and value-preserving commodity.
As an internationally recognized commodity and trading tool, Gold and Silver are the most traded precious metal for people from all walks of life. Having a fair and equitable internationally trading standard and quoting prices, gold and silver are easily transferable and traded anywhere in the world. Also they are good investment vehicle to hedge against inflation, easy to pawn.
What is the advantage to trade Gold and Silver on margin?
First, pricing; second, hedging; third, speculative profits. Gold and silver futures trading offer a pricing function for spot trading. Investors can hedge against the uncertain risk taken in the future against the current value in both the futures and margin trading. Since margin trading use only a fraction of the total trading amount as deposit and ease up the physical capital needed, margin trading for gold and silver is one of the most accepted financial vehicles for profit speculation
What can make an impact on to the precious metal price?
There are many reasons that can affect the supply and demand, in general, they are:
- The supply and demand for Gold
- The fluctuation and relation between USD, EUR and Gold, Silver.
- The relation between Gold, Silver and Inflation
- The relation between Gold, Silver and other precious metal
- Oil price, Gold and Silver also have impact on each other
- International policy and policy also have profound impact on Gold, Silver and other precious metals
What is Contract for Difference? What is its advantage?
The Contract for Difference (CFD) is an investment instrument that allows traders to participate in the price movement of securities or indices without the full ownership of the underlying index. Investors can buy, short sell or even hedge with the price fluctuations of the index. Investors can save the transaction, delivery or other tax related expenses; also reduce the complicated procedures and delivery risk. CFD also can be traded on margin; investors can make use of the leverage to maximize their returns on investment. Trading CFD on "ForexStar" Online Trading Platform, you can trade anywhere anytime on a selection of indices such as "Dow Jones Industrial Average index", "S&P 500 Index," "Nikkei 225 Stock Average" and "Hong Kong's Hang Seng Index". As the growth of online transaction continues, CFD is another most traded financial products.
What can make an impact on to the CFD price?
There are many reasons that can affect the supply and demand, in general, they are:
- Macro economic data such as GDP, Industry index, inflation rate etc;
- Macro economic policy such as interest rate, exchange rate policy;
- The constituent stocks of the various business-related information, such as the weight of the constituent stocks of the larger market, issuance, dividends payable, etc;
- The international financial market trends, such as the change in NYSE's Dow Jones index, international crude oil futures market price changes.
What Is The FX Market?
The foreign exchange market is a globalized market where currencies are traded for one another. Currencies are traded electronically by dealers in trading rooms of banks and financial institutions in the major global financial centers. These centers are:
- London
- New York
- Hong Kong
- Singapore
- Tokyo
- Sydney
The existence of all these centers meant that the FX market is a continuous round the clock market starting every week with the first market opening at 5.00am Sydney time on Mondays and ending with the close of the New York market on Friday at 5.00pm local time. The ability to trade continuously makes foreign exchange an excellent instrument for hedging and speculation.
Who Are The Players In This Market?
- Central Banks
- Banks and financial institutions
- Hedge funds
- Corporates
- Private individuals
How Is An FX Price Quoted?
The USD is seen as the global yardstick which all other currencies are measured against. Hence, all of the world's currencies are expressed in terms of the USD. Each currency has its own three-letter ISO code developed by the International Organization of Standardization. For example, the code for US dollar is USD, the Euro EUR, the Swiss franc CHF, the Japanese yen JPY, the British pound GBP , the Australian dollar AUD , the Canadian dollar CAD, and the New Zealand dollar is the NZD. Each FX quote consists of 2 numbers, e.g. the currency pair US dollar/ Japanese Yen is quoted as USD/JPY 117.80/117.85. The number on the left is known as the bid price and it represents the quoting party's willingness to buy USD at that rate. Similarly, the number on the right represents his willingness to sell USD at the quoted rate and is known as the offer (or ask) price.
How Do We Trade In This Market?
All FX transactions are governed by the simple principle of buying and selling. It is the basic law of supply and demand that gives rise to the volatility in FX prices, and it is this volatility that attracts players to participate in this market to generate profits. So if we have the view that the USD will soon be in demand as a result of some favourable news on the US economy, we would benefit by buying USD cheap (low) and selling it expensive (high).
In the professional bank dealers market (also commonly known as the inter-bank market), all deals are transacted on a cash settlement basis and the amounts involved in each transaction are usually above USD 1 million.
For the individual, these prohibitive amounts are made more accessible by way of leveraged trading, also commonly known as margin trading. This is by far the most popular mode of trading for the individual speculators. It involves a credit (leverage) extended by the principal party to the individual in order for him to assume a greater amount of risk with a small security deposit.
Analysis
- Technical Analysis
- Fundamental Analysis
1. Technical Analysis
This relies on the principle that 鈥渉istory always repeats itself" Common indicators that dealers use in their forecasting include the Moving Average (MA), the Moving Average Convergence/Divergence (MACD), the Relative Strength Index (RSI) and the Momentum Index.
2. Fundamental Analysis
This form of analysis relies purely on economic and political issues and pays no attention to past historical movement patterns. Examples of data which this school of thought employs in their analysis are the Unemployment Rate, Inflation, Consumer Price Index (CPI), Producer Price Index (PPI), Trade Balance, Money Supply, Budget Deficits, etc.
Orders
An order is an instruction by the giver to the receiver to execute a specific action in the FX market. Orders are an excellent tool used to manage the risk assumed by players in the FX market. Orders are used every day by professional dealers around the world to help them manage their risk exposure to the volatile movements in the FX market.
Both types of orders will be executed only when the market price reaches the price specified in the orders. The difference between these two types of orders lies in the level of the price specified in the orders with respect to the prevailing market price. For a buy limit order, the price must be placed BELOW the prevailing market price while a buy stop order must have its price ABOVE the prevailing market price. Similarly, a sell limit order must have its price ABOVE the prevailing market price while a sell stop order must have its price BELOW the prevailing market price.
Some Common Terminology In Forex Trading
Ask (Offer) Price - Ask is the market selling price, the price at which KVB or the market is prepared to sell a specified currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right, so in the quotation 1.4527/1.4532, 1.4532 is the Ask Price.
Bid Price - Bid is the market buying price, the price at which KVB or the market is prepared to buy a specified currency in a Foreign Exchange Contract or Cross Currency Contract. It is given on the left of a quotation, so in the example given above, it is 1.4527.
Business Day - Any day on which commercial banks are open for business in the financial centres of the countries where the currencies are settled.
Closed Position - An FX position is considered closed when a deal of equal size but opposite direction has been done to close out the existing FX position. Any resulting balance represents the profit or loss from that deal.
Currency Pair - The two currencies that make up a foreign exchange rate, e.g. EUR/USD, NZD/USD, AUD/USD.
Daily Cut-off - The point in time for each business day selected by KVB to signify the end of the business day. KVB offers 24-hour FX margin trading from 5.00am local Sydney time on Monday to 5.00pm local New York time on Friday.
Eligible Foreign Currencies - Those foreign currencies which KVB, in its sole discretion, may agree from time to time to buy from or sell to its customers.
Filled Trade - A trade that is fully executed on behalf of a customer pursuant to an order. Once filled, a trade cannot be cancelled, amended or annulled by the client.
Floating Profit (Loss) - Unrealized profit (loss) of an open position valued at the mark-to-market price.
Foreign Exchange Contract - A contract for the purchase or sale of a foreign currency.
Foreign Exchange Rate - The price relationship between two currencies that are freely determined by the forces of supply and demand.
Fundamental Analysis - Analysis based on economic and political factors.
Leverage - The ratio of the total allowable open position to the required security deposit (margin). This is usually expressed in percentage terms.
Limit Order - An order to buy or sell a particular currency at a specified rate.
Market Rate/Quote - The current quote of a currency pair.
Mark-to-Market - The process of valuing outstanding FX open positions at prevailing market prices.
Maturity - The date on which payment of a financial obligation is due.
Open Position - Any deal that has not been offset by an equal and opposite deal. This means that the value of the position can still fluctuate.
Overnight Position - An open position that is not closed by the end of a trading day.
Order - An instruction to execute a specific trade.
Over-the-Counter or "OTC" - Not regulated by any established Exchange.
Pip/Point - The smallest unit of price for any currency.
Profit/Loss or "P/L" - The profit or loss resulting from trading activities. It comprises both the realized P/L from closed deals and unrealized or floating P/L from outstanding open positions.
Spot Contract - A contract where settlement is in two business days. Most FX deals in the professional interbank market are done for value spot.
Spot Rate - The rate of exchange between two foreign currencies for spot value.
Rollovers - The process of extending an existing market position through future dates.
Spread - The difference between the bid and ask in a quoted price.
Trade Date - With respect to any contract, the date on which the contract is entered into between KVB and its customer.
Value Date - With respect to any contract, the settlement date specified in the particular contract will be the value date. A value date must fall on a business day in both countries of the traded currencies.
