PipStory

While making a comparison between ETF’s and the mutual fund investment, the first point that goes in favor of ETF’s is that it’s not time bounded. Time bounded in sense you can trade them at any hour of the day. If you see that market is crashing, you can instantly sell them in the market and get out of the possible crunch. On the contrary, in case of mutual funds if you want to sell them at noon, you would only be capable of getting the price of next day.

Instant balancing of your portfolio

Business markets and economies are always subjected to changes. If you feel like making a shuffle in your investment portfolio, it is very easy to do with ETF’s. Unlike mutual funds investment, you can change your investment priorities only by a couple of clicks. On the other hand, had you been stuck in mutual fund investment, you might have to call your managing company and would only be capable of making the desired adjustment after paying a number of extra fees and penalties.

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Fading is one of the most effective strategy used in stock market, but it isn’t limited to stock market. The good news is that it can also be applied to Forex trading.  It is actually trading against the market, i.e trading against the current market trend.

Volatility in Forex trading makes it more risky. The prices can inflate and deflate in matter of seconds. So if you want to trade in Forex, be passionate and have risk tolerance. A trader who who trades less when the prices are falling and traders more when the prices are raising is said to be employing fading.

What is Fading?

Having some introduction of fading, you can’t trade using fading in Forex. First you must be aware of what fading is. Well fading is selling of stocks, when market trends are inflating. Based on the assumption, when the stocks are overbought, those who are the first buyer waiting to extract profits and the buyers don’t buy so that this condition is overcome.

To deal in selling or purchasing money at international level in exchange market called FOREX. The currency traders can earn profits by keeping the differentials which arise by exchanging the currencies. As the FOREX market remains open 24 hours, except weekends, so it is quite easy for the dealers to make money.

Being interested in making large amounts of money, more people are getting into the FOREX currency trading business. Keeping in mind such trend of people, many companies have settled online currency trading operations. Also, people can learn about the FOREX currency trading by finding helpful material on the websites made by the companies which have set the online currency trading business.

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Some important terms being used in FOREX trading are precisely defined below:

Ask Price:

Sometimes also known as Offer Price. It is the market rate for traders to purchase currencies. These are displayed on the extreme right side of a quote like EUR/USD 1.8899/ 78 which means that one euro can be purchased for 1.1965 USD.

Bar Chart:

A variety of chart which is used in Technical analysis. Every time partition on the chart is viewed as a vertical bar which means the following information: – the extreme top bar is the maximum rate, the below bar is the lowest rate, the horizontal bar displays the opening price and horizontal line on the right is the closing rate.

Base Currency:

It is the very first currency in a pair and the quote demonstrates how much of the base currency prices in the quote of other currency. Like in the quote – USD/JPY 122.90 – USD is the base currency worth 1 USD being rated as 122.90 Yen.

Entering and investing in the Forex market is just a blind game. You can never know whether you are investing at the right time or what market trend is currently prevailing. But if you’re a smart investor, you will make every effort to protect your trading float and plan for a stop loss i.e. you will decide and identify beforehand about the moment you will exit the stock. This practice can save you from errors or last minute indecision.

A major share of investing in an entry Forex position can be a reason of your expectation of acquiring profit from the trade. But unlike your expectation, if market turns against, you might feel the need for investing more time to see what happens next? But what if it gets even worst and your share price continue to decrease. You surely need a stop loss. This stop loss can exactly tell you when to disengage yourself from the market and whether to stay or not.

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Mothers can do it but the only part is that how would they get into it? It is not for everybody it is as complicated like a snake’s pit ripe scam that everyone has to be expert and ready for what is going to happen next. And then again it is a platform for people who have a lot of knowledge about everything then knowledge about instruments and action plans to work out their exchange and make up huge profits.

For being a successful trader you must know about following these four things:

· Having expertise knowledge

· Use of Forex pre defined instruments

· Own action plans for trade

· Broker; who is expert to double your profits

Now let us look at these one by one:

Having correct knowledge about what you are going to do. Your mother may not ware of many things used in Forex like she may not know about Forex pip and one of the backup singer of Gladys Knight. So will you teach her in the Forex School for getting all this knowledge? Of course not! There are thousands of training institute who are teaching Forex. Word of mouth cautions may be the best part to follow.

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In finance, the smallest price change that a given exchange rate can make is referred to as percentage in point also known as pip or point. Since most major currency pairs are priced to four decimal places, so the smallest change is the change in the last decimal point, for most of the currency pairs this is the equivalent of 1/100 of one percent, or one basis point.

Some additional information is needed in order to calculate the pip value or to know that how much is one pip, this information includes: trading size, leverage used, and the actual rate of that particular pair for which you want to calculate the value of pip. For instance, in case of US Dollar, having the trading volume of 1 lot (generally it is equal to 100,000 units of the base currency), 10 USD will be the minimum fluctuation point.

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In this article I have discussed the uses of non-deliverable forward.

Synthetic Foreign Currency Loans

A foreign currency loan can be created in a currency which may not be of interest to the lender and this can be done by using NDFs.

Here I explain you with example, there is a borrower who wants dollars but he is willing to make repayments in a second currency. So, a dollar sum will be received by the borrower and still the repayments will be calculated in dollars, but the borrower will make the payment in another currency using the current exchange rate at time of repayment.

The lender is willing to lend dollars and wants to receive repayments in dollars. So, while disbursing the dollar sum to the borrower,simultaneously the lender enters into a non-deliverable forward agreement with a counterparty (for example, on the Chicago market) that matches the cash flows from the foreign currency repayments.

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These options provides an opportunity that they can either be exercised as European style or as American style; they differ from the plain vanilla option only in a way in which the calculation of their pay-off value takes place:

Cross Option Or Composite Option

An option on some underlying in one currency with a strike denominated in another currency is referred to as a cross option (or composite option). For instance, on IBM a standard call option, which is denominated in dollars pays $MAX(S-K,0) (here S is the stock price at maturity and K is the strike). By a composite stock option the trader might be paid JPYMAX(S/Q-K,0), here Q is the prevailing FX rate. In the pricing of such options naturally FX volatility and the correlation between the exchange rate of the two currencies involved and the underlying stock price are taken into account.

Quanto Option

A cross option in which the exchange rate is fixed at the outset of the trade, typically at 1 is referred to as a quanto option. Then the payoff of an IBM quanto call option would be JPYmax(S-K,0).

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A currency future, which is also referred to as FX future or foreign exchange future, is a futures contract. It is used to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Typically, one of the currencies is the US dollar. Then the price of a future is settled down in terms of US dollars per unit of other currency.

This method can be different from the standard way of quoting in the spot foreign exchange markets. A certain amount of other currency is the trade unit of each contract, for instance €125,000. Most contracts posses physical delivery, so for those contracts that are held at the end of the last trading day, actual payments are made in each currency. However, before that most of the contracts are closed out. The contracts can be closed out by the investors at any time prior to the contract’s delivery date.

History

Less than one year after the system of fixed exchange rates was abandoned along with the gold standard, in 1972 Currency futures were first created at the Chicago Mercantile Exchange (CME). In the early 1970s, some commodity traders at the CME did not have access to the inter-bank exchange markets, when they presumed that significant changes were about to take place in the currency market.

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