FOREIGN EXCHANGE

Introduction

The foreign exchange market is the largest market in the world, with a daily turnover of approximately $2.5 trillion, more than any other market.

The main market participants are large financial institutions, but liquidity is also provided by multinational corporations, Central Banks, and qualified investors.

With each foreign exchange transaction, you are buying one currency and selling another.  So if you were looking for a currency to outperform, you would buy that against one that is underperforming.

Exchange rates fluctuate due to monetary flows caused by changes in macroeconomic conditions, such as interest rates, inflation and growth.  All major news is released publicly and is therefore transparent.

The advantages of trading foreign exchange are low dealing costs, high leverage, ample market liquidity, and 24 hour trading.

Currency Pairs

There are a vast number of currency pairs which are freely tradable in the FX market, giving the speculator many investment opportunities. These range from the Majors currency pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD), to the Cross Rates (any currency pair not including the USD such as EUR/GBP), to the Emerging Market currencies (such as the ZAR, MXN, and TRY).

Margin Trading

As foreign exchange is a leveraged product, you will only be required to place a 3% margin deposit for overnight positions, or 1% intraday.  A good risk management strategy is therefore essential, as potential profits or losses can be large.

Money Management

There are significant opportunities and risks in foreign exchange markets.  An efficient risk management system must therefore be adhered to with the use of protective stop-loss orders.  As the market is open 24 hours a day, there will always be an opportunity to react to a price movement, with a low risk of not being able to exit a trade close to your stop-loss level.  The only risk to this scenario would be a weekend event such as an election result, or a G7 meeting, but we would be aware of such events beforehand.

Foreign Exchange Trading Example

An investor has a margin deposit with WorldSpreads Ltd. of ?100,000.

We expect the UK Pound to rise against the USD and therefore BUY ?1,000,000 - 1% of our maximum possible exposure at a 3% margin.

The market quote is 1.9700-05.

We BUY ?1,000,000, @ 1.9705, and therefore SELL $1,970,500.

Later that day, the UK Pound rises to 1.9805-10 and we decide to take profit.

So we SELL ?1,000,000 @ 1.9805, and therefore BUY $1,980,500.

As the GBP side of the transaction involves a credit and a debit of ?1,000,000, the GBP account will show no change. The USD account will show a debit of $1,970,500 and a credit of $1,980,500.

This results in a profit of $10,000 = approx. ?5,000 = 5% profit on the deposit of  ?100,000.

FUTURES AND OPTIONS

WorldSpreads has access to all the worlds major future and option exchanges via its unique relationship with some of the most notable names in the industry.  As well as quoting both futures & options on indices and currencies we can quote on the following commodities :

Agriculturals

• Grains, including Soya, Wheat, Corn, Oats & Barley.
• Meats, including Pork Bellies, Live Cattle & Lean Hogs.
• Softs, including Coffee, Cocoa, Sugar, O.J, Cotton & Lumber.

Precious & Base Metals

• Gold, Silver, Platinum & Palladium, Aluminium, Tin, Copper, Lead, Nickel & Zinc

Energy

• Crude Oil
• Heating Oil
• Gas Oil
• Unleaded Gasoline