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Christy Chan

on 9 June 2014

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Transcript of FOREX

(Foreign Exchange Market/Currency Exchange Rate)
What is FOREX?
How it Differs from the Stock Market
Unique Characteristics
Ideal of perfect competition
Trading can be done from anywhere in the world
Huge trading volume, high liquidity
A large variety of factors that affect exchange rates (differences in inflation, debt, interest rate, and political stability)
No inherent market bias, greater opportunities to profit
Christy Chan, Ellen Koag, Pravindi Herath
• Largest financial market in the world
• Trades over $4 trillion dollars a day
• Traded all across the world by hundreds of thousands of individuals and organizations
• Main participants are the larger international banks
• Determines the values of different currencies
How It Works
Buying of one currency and the selling of another currency simultaneously (as a unit)
Base currency is being bought, while counter currency is being sold
Value of one currency is determined by its comparison to another currency
First currency of a currency pair is called the “base currency,” while the second currency is called the counter currency
Currency pair shows how much of the counter currency is needed to purchase one unit of the base currency
Four "major" currency pairs include EUR/USD, USD/JPY, GBP/USD, USD/CHF
Three commodity pairs, USD/CAD, AUD/USD, NZD/USD.
Cross currencies are other combinations
Makes it easier to trade
"Keep up" on the economic and political news
No insider trading
Profit in both rising and declining markets
Very high liquidity
Operates 24 hours a day, 5.5 days a week
Cost of trading is between the buy price and the sell price ONLY (no commission or expensive fees)
Currency Exchange Rate
EUR-USD 1.3634
GBP-USD 1.6766
USD-JPY 101.8400
AUD-USD 0.9308
USD-CAD 1.0843
USD-CHF 0.8952
EUR-GBP 0.8132
EUR-JPY 138.8500
AUD-JPY 94.7920
When you "buy" (or take a long position in) a currency pair, you are betting on the base currency. If you buy 1 EUR for 1.20 USD and the price moves up to 1.22 USD, you sell the 1 EUR for that amount, for a profit of 1.22 - 1.20 = 0.02 USD.
When you "sell" (or take a short position in) a currency pair, you are betting on the quote (foreign) currency. If you buy 1.20 USD for 1 EUR and the price moves down to 1.18 USD, you buy back the 1 EUR for that amount, for a profit of 1.20 - 1.18 = 0.02 USD.
Economic Indicators
Forex in History
Reports released by the government or a private organization that detail economic performance
Gross Domestic Product (GDP)
- represents the total market value of all goods and services produced in a country during a given year
Retail Sales
- total receipts of all retail stores; indicates consumer spending
Consumer Price Index (CPI)

- measures changes in the prices of consumer goods across many categories; tells if country is losing or making money
Industrial Production

- shows the change in the production of factories, mines and utilities
Summer of 1992, England to be rejected from European Monetary Union, which would hurt the English pound.
George Soros, founder and head of one of the largest hedge funds in the world, The Quantum Fund, took advantage of England’s poor fortune, by placing a ten billion short position in the market.
The Bank of England attempted to stabilize the pound’s value by intervening and depleting all of their foreign currency reserves.
September 16, 1992, known around the world as Black Wednesday, the pound plummeted.
England was forced to withdraw from the European Monetary Union and in one day, Soros earned $1 billion.
Known as the man who broke the Bank of England.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market.
allows you to experiment and learn about trading
Major World Currencies
Full transcript