All About Forex

EUR/USD Q1 2013 Forecast

noreply@blogger.com (sskcorp) — Mon, 17 Dec 2012 04:52:00 +0000

The first quarter of 2013 should be a fairly active one for the EUR/USD pair. Currently, the United States is dealing with “fiscal cliff.” This is a set of tax increases & spending cuts at the end of the year if Congress cannot come up with some type of spending compromise. The next three months will see nothing short of an emotional roller coaster for this currency pair. Essentially, we could have a sudden drop in EUR/USD pair. Also, we should not forget the European debt crisis that will continue. After all, nothing's constructively been done other than the European Central Bank accepting that it is willing to buy peripheral that if the countries ask for it. I do not see this currency pair be able to break above the 1.35 level anytime soon, and do not see the likelihood of a break down below 1.25 either. If EUR/USD does manage to break above the 1.35 level however, I believe that this pair will actually skyrocket. There we will see extreme choppiness with a slightly upward bias. Read Full article

Shocking Video- Reveals 2011 Stock Market Forecast

noreply@blogger.com (sskcorp) — Fri, 31 Dec 2010 08:45:00 +0000

We have published a new Video that reveals a shocking 2011 Stock Market Forecast forecast.

Click the Link below to see the Video

Shocking Video-2011 Stock Market Forecast

Online Forex Trading Strategy - How to Make Currency Trading Systems Work For You

noreply@blogger.com (sskcorp) — Fri, 03 Sep 2010 17:04:00 +0000

It is our continuous effort to bring best of forex education to our readers. Currency trading is a very lucrative now a days & many people are getting attracted to Forex trading. Many of us don't even think twice before starting forex trading.

We have always insisted that you should get a good understanding of the forex trading mechanism before you start any trading in forex.

We have reproduced below a good article by Matthew Bonseas on Forex Trading Strategies.

Online Forex Trading Strategy - How to Make Currency Trading Systems Work For You

By Matthew Bonseas

Now that there are hundreds of Forex margin brokers, millions of free Forex trading tips webistes and literally hundreds of thousands of Forex day trading strategy "home based business" Forex traders, we can say that virtually anyone with an internet connection can trade Forex with the pros.

In any power trading strategy, a proven trading method will mean that through Forex strategy testing and by using trading risk management, no more than one or two per cent of a total account value is put at risk in a single trade. This is key in the path to big Forex profits. Any trader beginning out will look at the trading methodologies available to them and decide to create trading rules for their Forex trading strategy.

Forex trading (currency trading) initiates should be aware therefore not only of technical and fundamental analysis and predicting Forex prices, but also of how to be a trading strategy tester and to have strong Forex trading rules that help them to make the big Forex profits they are seeking. The alternative is to have more experienced Forex trading systems used by more experienced traders end up causing you to lose all your money in your Forex business - the harshest possible outcome.

Having the following in place could assist you in getting started right away in Forex trading (currency trading): a Forex trading software platform; a free Forex trading strategy (or a paid for one for that matter); an understanding of fundamental and technical analysis and a trading risk management system. From these elements (and also the support of a daily Forex strategy briefing from a margin broker or some other site) you can start Forex trading in the fx market with your own Forex trading strategy rules.

Learning currency trading online needs to begin with sound trading risk management and how to manage your trading account balance by making intelligent risk decisions with your trading account. The risks can be higher with Forex because the moves in a week can be equivalent to a month in stock moves. Volatility is to be expected.

Currency trading strategy rules for a Forex business can be developed by amalgamating Forex trading systems of others or simply garnering a Forex education to include: fundamental and technical analysis; trading money management (risk management); a daily Forex strategy briefing from a "third party" and a way of creating Forex forecase signals (in other words a means of predicting future Forex prices from perhaps a technical setup on a currency pair or simply from Forex strategy testing that has been carried out.

Forex strategy testing can either be done through using a practice account through your broker or by paper trading your strategy. A third option is to use software such as Forex strategy tester which can run a simulation of what could happen if you trade by your rules with some limitations on accuracy.

Free Forex trading strategy tips are available from Forex ebooks webistes all over the web. The truth is that the Forex trading fx market needs to be treated as a business that runs like a Forex trading machine as much as possible. This is key if you are to make big Forex profits in live trading. Lack of regulation means that anyone can sell a "scalping trading strategy" or so-called "foolproof trading method" and make themselves out to be an expert or even say they are a long term bank trader when they are not. There is a need for caution therefore when deciding on where to get your Forex education because not any Forex trading guide is actually going to help in your predicting Forex prices in the near, medium or long terms.

It behooves you to go out and look at what is on offer from Forex trading websites and learn more about the global currency markets after you have read this article. Some sites are listed in the resource box at the end to start you off. Trading Forex online then presents challenges. The rest of this article will address those challenges. In order to trade effectively, a Forex trading guide is needed for the initiate in to the Forex markets to be able to learn online currency trading, understand trading risk management and how to manage money, discover technical and fundamental analysis, how these types of analysis of the market differ and how to apply them in creating a Forex trading machine.

This means that after all the cogs are set in place you will have a Forex trading machine that enables you to its like a professional and make decisions based in the moment and on the facts that are presented to you, rather than guess or gambling work - although there is invariably an element of risk, your job is to eliminate the risk as much as possible in applying your trading strategy.

To make this happen, you will start to think about what you may need in order to implement your trading strategy. For example, will you be needing a daily Forex strategy briefing from either a paid service or a free provider of its strategy briefings - such as perhaps your broker or a third party service. In your technical analysis will you be utilising traditional indicators such as those involved in a bands trading strategy (Bollinger Bands), will you rely on charts created by a its platform or other currency price forecast type service or will you be professional analyst charts to make your decisions?

A proven trading method is hard to come by. There are educators who have been trading Forex for banks and other institutions for many years. However they are still going to find it incredibly difficult to pass on their years of knowledge, at least not in the time most people want to go from knowing nothing about Forex trading (currency trading) to being an expert and making money with its as a business.

In sum, it is multidimensional. There are several aspects of absolute importance. These include strategy, both in terms of trading and money management, education - both initial and ongoing and focusing in on mastering a specific area whether that be a particular currency pair or aspect within the field - such as global economics of a particular country.

This article is continued as a series of forex trading tips at http://www.forexilla.com

Link: http://www.fasttrackforex.com For all levels of traders - Learn how to trade currency online.

Remember - you can both win & lose a lot of money trading Forex. Be wise. Get an education.

Article Source: http://EzineArticles.com/?expert=Matthew_Bonseas

http://EzineArticles.com/?Online-Forex-Trading-Strategy---How-to-Make-Currency-Trading-Systems-Work-For-You&id=3331460

Euro Gains Due to Positive Global Data

noreply@blogger.com (sskcorp) — Fri, 03 Sep 2010 15:03:00 +0000

The Euro gained against most of its major counterpart currencies due to encouraging global economic conditions.

EUR/USD
The EUR/USD pair went up by over 100 pips reaching at 1.274 levels during early trading hours. The pair closed at around the 1.268 level.
The Euro soared by about 100 pips against the Great British pound and it gained about 50 pips against the Japanese yen.

The Euro strengthened yesterday as economic indicators published from the U.S. and the Euro-Zone have put down to rest the concerns about the global economic slowdown.

Home Prices in United States

Report showed that the U.S. home prices in 20 cities increased more than expected in June as compared with the same period in last year.
U.S Consumer Confidence Survey
The U.S Consumer Confidence survey rose for the first time in three months.
Euro-Zone
The data published by the Euro-Zone was also positive. The European Consumer Price Index Estimate reflected that inflation in the Euro-Zone has gone up by 1.6%, according to expectations.
The increase in the rate of inflation in Euro-Zone is an indication that the European economies are recovering, although at a slow pace.

The positive global economic data has affected the risk-aversion by the investors in the market, and now the investors are looking for the more risky assets like Euro. As per analysts the further economic recovery may further strengthen the European currency.

US Dollar Dropped Due to Increased Risk

noreply@blogger.com (sskcorp) — Fri, 27 Aug 2010 18:40:00 +0000

The US dollar slides against most of its major counterparts, as gains in stocks and commodities prompted investors out of riskier currency trades. The USD stumbled down against the Swiss Frank, pushing the exchange rate to 1.024. The dollar dropped against EUR and closed at 1.272.

A fall in new US home sales and fragile orders for durable goods has again unearthed prevailing weakness in the US economy. As per analysts such data has failed to fuel demand for the dollar. US dollar is losing its value as safe heaven investment.

US unemployment claims although improved as compared to last week could not make much difference as the investors are still waiting for more important data to be released today that is Prelim GDP .

Traders are closely monitoring the announcement as a stronger than expected result may boost the USD in the short-term. Traders are also advised to follow Fed Chairman Bernanke's speech at 14:00 GMT. This speech is very likely to impact dollar volatility. Traders are advised to watch closely, as this is likely to set the pace of the dollar going into next week's trading.

Advance Retail Sales - United States

noreply@blogger.com (sskcorp) — Tue, 24 Aug 2010 03:30:00 +0000

Advance Retail Sales US calculates the monthly retail sales nominal value of the retail purchases by the consumers in the United States.
The total retail sales are calculated by gathering all the sales receipts from selected retailers on a monthly basis. The sales nominal values are adjusted for the taxes, sales return etc.
The Advance Retail Sales facilitates the determination of consumer demand on a monthly basis as against the GDP figures which are calculated only annually.
The Advance Retail Sales measure provides the information about the consumer activity on a timely basis which makes the timely decision making possible.

Introduction to Bollinger Bands

noreply@blogger.com (sskcorp) — Tue, 24 Aug 2010 03:27:00 +0000

The name Bollinger Bands has its origin in the name of the person who has created it. John Bollinger has created this technical trading tool in early 1980s. The Bollinger Bands are basically lines of a chart which shows the movement of Prices for a particular stock.

The Bollinger Bands consist of three lines first is the central line the second one is High line (the line above the central line on the chart) & third the Low line (the line below the central line on the chart).

The Central line is plotted on the basis of simple moving averages of the price data available. This central line provides the base for calculating the other two lines namely high & low.

The high line & Low line are determined by the interval between them & the central line which in turn is determined by the Volatility which is the standard deviation of the price data available on the basis of which the central line is plotted.

The main reason for analyzing the Bollinger Bands is to understand the trading pattern witnessed by the particular stock.

The analysis of the Bollinger Bands would help the trader to determine the High & Low values of the stock prices & it would assist to find out the direction or trend of the trading pattern for any particular stock.

The use of moving averages in the Bollinger Bands successfully removes the effect of price actions implied in the trading activity in the market & identify the long term trend.

U.S. Non Farm Employment Data – The Hope for US Dollar

noreply@blogger.com (sskcorp) — Fri, 02 Jul 2010 17:59:00 +0000

After the Economic Data released in US the analysts are awaiting the Non Farm Employment Data to be released 12:30 GMT today. This is going to be the biggest news in the United States as the current economic & unemployment data released is not impressive.

This week turned out to be very bad for US dollar & the analysts are not expecting any positive recovery in next week for the US dollar. The unemployment in US rose by 13000 people this week. The US Non Farm Employment data is expected to be negative too as the overall economic indicators in United States are not encouraging & signaling that the economic recovery in United States is stagnating.

The USD has depreciated against all its counterparts but Japanese Yen has most benefited by the economic uncertainty in the United States. The US Dollar was considered as safe heaven by the investors but given the slowing economic recovery in United States, the US Dollar is swiftly losing its privilege & the investors are shifting their focus JPY as it is considered as a safe investment.

US Economic Data Released- USD Falls

noreply@blogger.com (sskcorp) — Fri, 02 Jul 2010 17:52:00 +0000

The USD depreciated against all its counterparts after the release of economic data as it was disappointing in the sense that it shows that the economic recovery has been slowed in the United States.
Today the US economic data was released & was not very good for investors. The data shows negative points raising concerns over the economic recovery in United States. As the data suggests the economic recovery is slowing in United States. The manufacturing growth in US has also been slowed as can be seen from the manufacturing index as published by The Institute for Supply Management. The manufacturing index dropped to 56.2 in the month of June from 59.7 in the month of May 2010. The home sales in US tumbled by almost 30 percent in the month of May.

The concerns over rising unemployment rate in US have put further pressure on the US dollar as 13000 additional people filed for unemployment benefit. The stagnation in job market & poor economic conditions in US are dragging the US dollar down & dollar is losing its preference in the minds of the investors. The currency which gained most against the US dollar was Japanese Yen. The dollar dropped by 0.10 percent against JPY & was quoted at 87.59 Yen/USD.

Japanese Yen Appreciates against US Dollar as Economic Recovery in US becomes Uncertain

noreply@blogger.com (sskcorp) — Fri, 25 Jun 2010 03:36:00 +0000

Today Japanese Yen appreciates against USD after the Federal Reserve announces in its policy meeting that the economic conditions are not much supportive for economic recovery. This has increased the demand for Japanese Yen as it seems to be safer.

The Japanese Yen gained to 89.62 per dollar from 89.84 per dollar.

In the month of May the household property sector recorded the lowest sells recorded yet.

Yen gained against almost all its major counterpart currencies but it appreciated most against New Zealand Dollar as most of the European markets fell. The announcement by the Federal Reserve is an indication that still the economic problems in United States are not over & the economic conditions are still not conducive for the investors. In US the home sells dropped down by almost 33 percent in the month of May 2010.

United States Politicizing Yuan Revaluation – China Says

noreply@blogger.com (sskcorp) — Fri, 25 Jun 2010 03:34:00 +0000

The Chinese Foreign Ministry Spoke person Qin Gang said that politicizing the issue of Yuan revaluation would not help to solve US economic distress.

The statement came as there is continuous pressure being put on President Barack Obama by the Law Makers in US to keep pressurizing China to revalue its currency. As per US Law makers the Chinese currency is undervalued & is giving undue benefit to Chinese Producers due to weak currency & there should be additional tarrif levied on imports to even out this advantage.

Downtrend in Euro Against USD Continued due to Concerns over Europe Spending Cuts

noreply@blogger.com (sskcorp) — Tue, 01 Jun 2010 17:48:00 +0000

The downtrend in Euro against US Dollar continued today due to projected cuts in spending & high amount of write downs by the European banks. The Euro fell to $1.2240 from $1.2306 against Dollar. It is feared that due to increasing losses will obstruct the economic recovery of European region. According to analyst in long run EUR may be very valuable but the short term market sentiment is very negative. Rising unemployment rate in Italy is the major contributor to the negative sentiment towards Euro. Italy is one of the biggest economies in Europe. The debt crisis in Europe has kept the underlying sentiment bearish.

The European Central Bank has warned that the losses suffered by the banks may increase.

In the month of May the Euro dropped about 7.5 percent against US Dollar.

Reduction in Spending

European countries like Greece & Spain are facing great difficulties to control the credit crisis. Greece has announced deficit reduction measures to be implemented in three stages & may involve wage cuts & reduction in pensions. Spain has lost its AAA credit rating as the Fitch Rating Inc., an International ratings agency that provides issuer and bond ratings downgrade its credit rating.

Bank Write downs

As per the European Central Bank (ECB), banks may need to write down their assets in the form of loans & securities by around 90 billion Euros in current year. It is feared that next year this amount may increase to even more than 105 billion Euros due to increased Government risk.

What is Carry Trading?

noreply@blogger.com (sskcorp) — Thu, 29 Apr 2010 14:50:00 +0000

The term Carry trading unless otherwise specified denotes currency carry trading. Carry trading is one of the Currency trading strategies which is the most popular strategy currently being used by professional currency traders as well as less seasoned traders. The main reason why carry trading is gaining a pace is the interest rates differences existing in different countries.

Unlike other currency trading strategies which are focused towards trading different pairs of currencies with a motive to earn a profit resulting from the changes in exchange rates in carry trading the main focus is to take advantage of different interest rates prevailing in different markets across the globe. The most attractive avenue for carry trading are the currency pairs having minimal changes in exchange rates & having substantial interest rate disparity prevailing in respective countries.

A currency carry trade is a trade in which the investor borrows the currency of country which is having low interest rate & invests in the currency of the country having comparatively high interest rates.

In recent past the Japanese Yen was mostly used in carry trades due to very low interest rates in Japanese markets.

Example of A Currency Carry Trade:

Suppose an investor borrows Japanese Yen 1,000,000 with an interest rate of say 1 percent. Now the investor would convert (sell) the JPY to USD say $10,600. This $10,600 he would use to invest in a U.S. Bond that pays 4 percent as interest. The investment in bonds would earn an interest income of $424 & the interest on JPY 1,000,000 that he needs to pay would be JPY 10,000 or $106. This trade would earn the investor a net profit of $318 ($424-$106) which is 3 percent on investment. This profit is earned without any movement in USD/JPY exchange rate. As compared with normal currency trading involving currency pairs the carry trading offers more reliable returns.

The above example is a simplified version of actual carry trades happening in markets for the ease of understanding of readers. In practice usually the investor would use leverage ratio to buy higher amounts of JPY with the same amount of USD & the profits would be huge.

A word of Caution

The carry trade essentially differs from an arbitrage in the sense that in arbitrage the returns are guaranteed which is not the case in carry trade. The returns in Carry trade are not guaranteed because returns are dependent upon the exchange rate fluctuations. In our example above if Japanese Yen would have appreciated the investor may suffer losses or in fact he may lose his money. So before doing any carry trading you should collect all the relevant data & should use your discretion while investing. Also carry trading is a long term strategy & it is not for intra day speculations.

What makes a Carry trade Successful?

Exchange rate stability:

The success of carry trade would highly depend upon the exchange rate stability of the currency pairs involved. Higher the stability higher would be the possibility of making a profit & vice a versa.

Economic Conditions:

Before entering into any carry trades you should study the underlying economic conditions of the economy you would be investing in. Higher interest rate doesn’t always guarantee a good profit but in many cases like of hyper inflation caused not due underlying economic activity in fact may endanger safety of your capital.

High Interest Rate disparity:

Higher the interest rate difference between the countries higher would be the profitability of carry trading vice a versa.

Euro Improved Slightly as ECB, IMF Meets

noreply@blogger.com (sskcorp) — Thu, 29 Apr 2010 14:42:00 +0000

Yesterday Euro recovered slightly against USD after the highest ever fall.

Markets are expecting some positive news from Jean-Claude Trichet, the President, European Central Bank & Dominique Strauss-Kahn the Managing Director of International Monetary Fund as they would address German Parliament today.

However, the investors are still in favor of USD & Yen due to prevailing uncertainty hanging over the aid. As per unconfirmed news the International Monetary Fund is considering to raise the amount of aid to EUR 15 billion from the previously declared amount of EUR 10 billion.

Greek Government bonds were downgraded in terms of credit ratings in S & P putting a downward pressure on DOW because of upsurge of selling signals having regard to rising risk concerns. The deteriorating political conditions & increasing economic problems is the main reason why the credit rating was reduced. It is expected that there is a possibility of further downgrade in S & P due to rising doubts about Greece Government’s ability to implement the economic reforms.

Nikkei dropped by 2.5%, S&P dropped by around 2.3% while DOW was down by 1.9%

South Korean Won drops on Reports that Finance Ministry to Intervene

noreply@blogger.com (sskcorp) — Tue, 27 Apr 2010 14:41:00 +0000

South Korean won went down from a 19- month high against the dollar after the Government sources said that the gains were disproportionate and indicated that it may intervene.

It is not clear whether the Bank of Korea would resort to buying or selling currencies on behalf of the Government as a part of intervention.

The move from Government came as the currency gained around 20 percent over the year & the concerns were raised that this would decrease the exporters’ profit. The rise of won is a result of over optimism placed by the trades on won & the Government is considering to intervene to stabilize the currency.

The won weakened 0.6 percent to 1,110.15 per dollar, after going low as much as 1 percent to 1,114.45, the weakest level for the month of April. The currency appreciated yesterday to 1,102.85, the strongest since September. It is anticipated that the currency may advance to 1,050 by the end of this quarter.

As per stock market data the net buying in South Korean markets by global investors was around $9 billion this year& Kospi index rose by around 30 percent over last year.

Samsung Life Insurance Co. is proposing the biggest IPO for selling stocks in South Korea (4.89 trillion won or $4.4 billion). This has resulted in higher demand for Korean Won as investors seek the currency to invest in IPO.

Greek Debt Crisis, New Zealand, Australian Dollars Fall

noreply@blogger.com (sskcorp) — Tue, 27 Apr 2010 14:38:00 +0000

The New Zealand and Australian dollars plunged against the Japanese Yen due to concerns over European Union aid package for Greece.

The New Zealand Dollar dropped against all major counterpart currencies post the reported news of German Chancellor Angela Merkel saying that she won’t release Greek rescue funds until the country shows protractible & convincing plan to cut its deficit. The Australian dollar also moved back from an 18-month high against the yen as majority of Asian stocks dropped. As per sources decision on aid for Greece would not be finalized till the time the International Monetary Fund works out a plan of cuts with the Government in Athens.

New Zealand’s dollar fell to 67.68 against yen from 67.97 yesterday, when it touched 68.31, the highest since January. The New Zealand dollar decrease 0.3 percent to 72.12 U.S. cents after reaching 72.56 yesterday, the highest since January.

Australian dollar dropped down to 92.58 U.S. cents from 92.69. The currency slid 0.3 percent to 86.87 yen after touching 87.77 yesterday, the strongest since Sept. 2008.

In a regional election rally in the western Germany Merkel said that the purpose of the aid is to ensure that Euro currency stabilize & they can not sit idle when their currency is under major threat.

Great Britain Pound Rises Against U.S. Dollar: An Effect of Rising Home Prices in U.K.

noreply@blogger.com (sskcorp) — Mon, 26 Apr 2010 15:30:00 +0000

The pound appreciated against the U.S. dollar today due to continuous increase in U.K. home prices for consecutive ninth month, reinforcing the signs the economic recovery.

GBP advanced versus almost all of its most-traded counterpart currencies after Home track Ltd. said the average cost of a home has been increased from March.

The pound gained 0.5 percent to $1.5448 as of 10:50 a.m. in London. It appreciated 1.1 percent to 86.15 pence per Euro, after earlier reaching 86.07 pence. It is estimated that Pound may climb to $1.56 in the near future.

As per experts it is expected that The Bank of England may raise its interest rate to restrict the inflation.

The inflation rate in U.K. soared to 3.4 percent in March, exceeding the 3 percent limit. Higher energy costs and the weakness of the pound have added fuel to the rising price levels. Bank of England officials vowed to keep a track of price expectations closely because the inflation stance is a concern to some of them, according to the minutes of their April 8 meeting.

South Korean Won Rises to 19-Month High

noreply@blogger.com (sskcorp) — Mon, 26 Apr 2010 15:26:00 +0000

South Korea’s won surges to a 19-month high as a result of funds poured in by global investors into the nation’s shares to profit from speeding economic growth and increasing exports.

The Gross Domestic Product increased at a faster pace in the first quarter and exports increased for a consecutive sixth month in April. The Kospi index gained 1 percent, due to net buying by global investors of Korean shares.

The won rose 0.4 percent to 1,103.80 per dollar. It’s appreciated 5.4 percent this year and earlier touched 1,103.05, the strongest level since Sept. 2008.

Exports jumped by 32 percent in April, & the economy grew at almost 7.5 %.

Most of the South Korean exports are to China.

US Dollar Strengthen due to Reduction in Carry Trades

noreply@blogger.com (sskcorp) — Mon, 26 Apr 2010 03:33:00 +0000

The profits from carry trades have been reducing as the interest rate differences among Central Banks are disappearing. Falling demand for swing trades would help the dollar which is a favorite for funding the trades due to record low U.S. rates to continue the rally that resulted into 12 percent up than Euro in recent past.

There is no easy money left in carry trades. Most of the high yield currencies are over valued & low yield currencies undervalued. The profits from interest rates difference can be only around 2-3 percent.
As per sources the investors witnessed annual returns of around 14-16 percent due to interest rate differentials during year 2000 to 2005.
The global streamlining of yields has made the carry trades less attractive due to reducing profits.

The US dollar crossed its two weeks high against Japanese Yen (JPY) due to increase in orders for durable goods & improved demand for homes in the US market.

Japanese Yen (JPY) Depreciates Aganist USD

noreply@blogger.com (sskcorp) — Sat, 24 Apr 2010 19:01:00 +0000

Today the US dollar appreciated against JPY due to signs of global economic recovery.The gush in U. S. housing market is also one of the reasons for the rise.

The JPY depreciated against most of the currencies as central banks indicate that they will increase interest rates to control rising inflation. In recent past most of the global currencies were not able to attract the attention due to unfavorable economic conditions & that was acting as a stimuli for JPY as comparatively it was an attractive currency. But as the U.S. & global economies are showing signs of recovery the JPY is bound to fall.

An Introduction to FX Options

noreply@blogger.com (sskcorp) — Thu, 22 Apr 2010 02:08:00 +0000

FX or Currency Option is a financial derivative instrument under which the owner of the instrument gets the right but not the obligation to exchange one currency against another at a particular point of time in future at a predetermined exchange rate.

This predetermined rate is called as strike price or exercise price.

The market for FX Options is the largest & most liquid option market in the world. Most of the trading in FX Option happens in OTC (Over the Counter) markets & less regulated. A portion of the FX Option trading also happens on regulated exchanges like Philadelphia Stock Exchange, Chicago Mercantile Exchange and International Securities Exchange.

Example of FX Option:

Suppose in a EURUSD FX Option the terms of contract may specify that the owner of the instrument will have a right but not the obligation to sell EUR 1,000,000 on a particular date & buy 1,334,000 USD. The exchange rate implied in this contract is 1.334. This rate is the predetermined or strike price for per unit of EUR against USD. This rate can be arrived at by simply dividing the Notional values of the currencies involved. A close look of the above contract would reveal that this is both Call & Put option in the same contract. This is a Call Option for USD & Put Option for EUR. The owner has Option to buy or call USD & sell or put EUR on specified date.

Now suppose the actual exchange rate on specified date for EUR/USD is 1.255 the owner can exercise the Option to sell EUR 1,000,000 at 1.338 under the option contract & buy it back in Spot market at 1.255. This would result in a profit to the owner. (1.334-1.255) x 1,000,000 = 79000 USD in profit.

Let me explain this a little more.

Selling EUR 1,000,000 @1.334 would get 1,334,000 USD.

Now selling this 1,334,000 USD @1.255 would get 1,062,948 EUR

The net excess in EUR would be 62948. When we convert this to USD @1.255 it would come to 79000 USD in Profit.

FX Options in Hedging:

FX Options can be used as a Hedging tool to mitigate the risk involved in exchange rate fluctuations.

Example of Hedging Transaction with FX Option:

Suppose an exporter based in Europe is expecting to receive an order for a value of 1,000,000 USD & if the order is received the sell proceeds are expected from a buyer in US after say 1 Month. The exporter would need to convert the USD into EUR upon receipt of the funds. If the current exchange rate between EUR/USD is 1.334 (from above example) & in that case he is expecting 7,49,625 EUR after 1 month. Now suppose at the end of 1 month the actual exchange rate between EUR/USD increases to 1.500. What will be the effect on his cash flows in EUR? Let us see it below.

Expected Cash Flow in EUR = 749,625 (1,000,000/1.334)

Actual Cash Flow in EUR = 666,666 (1,000,000/1.500)

As can be seen above the exporter would receive less EUR due to appreciation in EUR against USD.

To avoid this loss the exporter can buy an FX Option to Sell USD 1,000,000& Buy EUR after one month with a pre decided rate or strike price of 1.334. This contract would enable the exporter to sell USD at 1.334 after one month ever though the actual exchange rate prevailing at that point of time would be 1.500.

This is a Hedge transaction to plan & mitigate the risk involved in exchange rate fluctuations.

Using options in currency trading is becoming popular over the recent past as a great way to make money with currency trading as well as to hedge the risk, and it has become a favorite technique of thousands of currency traders across the world.

Hedging Strategy with FX Options:

As a rule one should keep in mind that if the Cash flows are certain one should use FX Forwards & if the Cash flows are uncertain one should go for FX Option. Now you may ask why this is so? Let me explain this.

In case of a FX Option the buyer has an Option to buy or sell the currencies involved & no obligation to do so. But in case of forwards one has to buy or sell the stated currencies at the expiry of the stipulated period of time.

If the expected cash flow is not received at the time of expiry of the contract in case of a Currency Option, the buyer of contract may decide not to exercise his right to buy or sell the currencies & the only loss would be the Option premium which he has paid to buy the Option. But if the cash flow is not received in case of a FX Forward, the buyer is obliged to buy or sell the currency at the expiry of the forward contract. In this case the possible losses can be unlimited.

In the above case of an exporter we have seen that the exporter is expecting an order but the order is not yet confirmed & the Cash flow is not certain. Hence the exporter would go for FX Option & not the Forward. Now I hope this has clarified your doubt.

In summary we can say that FX Option is a very popular instrument for speculating as well as Hedging. I have a word of caution here for you. You should not assume that the currency options would always earn you money. There may be huge losses & it may hamper your finances badly. With highly volatile FX markets you should not speculate in Currency Options without a proper understanding of the FX market & detailed study is required on the subject.

Japanese Yen (JPY) Rises due to Speculation about Goldman Sachs Case

noreply@blogger.com (sskcorp) — Mon, 19 Apr 2010 15:36:00 +0000

The Yen rose against Euro for a second day due to the speculating investors buying move to protect against possible outcomes of the Goldman Sachs investigations. If the results of investigations go against Goldman Sachs this may cut off the Greece state aid package to Goldman Sachs.

Teams from German & United Kingdom Regulatory bodies are being sent to investigate Goldman Sach Group case. This development came yesterday when UK Prime Minister Gordon Brown asked for an investigation of Goldman Sach Group. The Securities & Exchange Commission, US has been asked by

German authorities to share the details of the case filed against Goldman Sachs.

These news have created a massive buy sentiment for Japanese Yen & it has appreciated against majority of other currencies.

As per US Securities & Exchange Commission report the Goldman Sach had created & sold a collateralized debt linked to sub prime mortgage & it did not disclose that Paulson & Co , a Hedge Fund has funded the underlying securities & put a bet on the Abacus 2007-AC 1, the vehicle. This if proved could be charged as Insider Trading & would result into reputation loss for Goldman Sachs.

Swiss Franc Strengthens to Parity With Dollar on Recovery Signs

noreply@blogger.com (sskcorp) — Fri, 27 Nov 2009 17:20:00 +0000

The Swiss franc strengthened to parity with the dollar for the first time in 19 months on
speculation the economic recovery is gathering pace.

The franc also rose to the highest level in a week against the euro after Swiss National Bank President Jean-Pierre Roth said yesterday that central banks may “soon” start withdrawing unconventional measures as the global economy gains strength.
A report in two days will probably show the nation’s leading economic indicators climbed this month to the most since December 2007, according to the median forecast of 12 economists in a Bloomberg survey.

"The domestic economy has weathered the storm relatively well and if you add the fact that people see the franc as a
haven, these are powerful forces,” said Peter Rosenstreich,chief market analyst in Geneva at ACM Advanced Currency Markets, which handles about $150 billion of foreign-exchange trades a month. “The trend is clearly set for dollar weakness.”

The franc appreciated as much as 0.9 percent against the U.S. currency to 99.94 centimes, the strongest level since April 17, 2008, and was at 1.0011 per dollar as of 2:04 p.m. in Zurich. It was little changed at 1.5092 against the euro, after strengthening to 1.5083.

Russia to Buy Canadian Dollars, Considers Other Currencies

noreply@blogger.com (sskcorp) — Fri, 27 Nov 2009 17:07:00 +0000

Russia’s central bank plans to add Canadian dollars to its reserves and may include other
currencies as it seeks to lessen its dependence on the greenback.

“Technical preparations for transactions in Canadian dollars are underway,” a Bank Rossii
official said by phone in Moscow, declining to be identified in line with the regulator’s
policy. “Then there may be
one, two other currencies and that’s it,” he said, confirming
remarks to parliament today by Sergei Shvetsov, the central bank’s financial operations
chief.

Russia’s reserves, the world’s third largest, are currently made up of 47 percent U.S.
dollars, 41 percent euros, 10 percent pounds and 2 percent yen.

Russia keeps about 35 percent of its international reserves in U.S. Treasury debt.

Australian Dollar, Metals Rise on Growth Outlook; Stocks Gain

noreply@blogger.com (sskcorp) — Thu, 26 Nov 2009 14:40:00 +0000

The Australian dollar rose and commodities gained on evidence economies are rebounding from the first global recession since World War II. Stocks and U.S. index futures advanced, while returns on emerging-market bonds climbed to the highest level in at least 16 years.

Australia’s currency strengthened 1 percent against the dollar at 8:50 a.m. in New York and the Dollar Index fell 0.8 percent. The MSCI World Index of 23 developed markets added 0.8percent. Standard & Poor’s 500 Index futures rose 0.6 percent.Gold rallied 1.2 percent to a record $1,182.95 an ounce in
London, and lead paced gains in industrial metals.

A report today showed consumer spending in America increased more than economists estimated, a day after the Federal Reserve raised its forecast for 2010 U.S. growth to arange of 2.5 percent to 3.5 percent, from 2.1 percent to 3.3 percent. Australian central bank Deputy Governor Ric Battellino said the economy has entered a “new upswing,” while the U.K. reported that gross domestic product shrank 0.3 percent in the
third quarter, better than the initial 0.4 percent estimate.

"The macro setting is clearly improving,” said Franz Wenzel, deputy director of investment strategy at Axa Investment Managers in Paris, in a Bloomberg Television interview. Axa oversees about $600 billion. “GDP is going to continue to expand and central banks will remain fairly accommodative.”

Pound Climbs

The Australian dollar led gains by so-called commodity currencies, climbing against 15 of its 16 of most-traded counterparts. The pound rose 0.7 percent compared with the dollar and 0.1 percent versus the euro, snapping a five-day decline against the single European currency. The yen advanced 1 percent against the dollar after a government report showed Japan’s exports fell at the slowest pace in a year last month.

The Swiss franc strengthened past parity with the dollar for the first time since April 2008. The currency appreciated as much as 0.9 percent to 0.9994.

The falling dollar sent gold to record highs in New York, London and Shanghai, helped by a report in the Financial Chronicle newspaper that India may purchase more bullion for its central bank reserves. Three-month lead gained 2 percent to $2,380 a metric ton on the London Metal Exchange, and copper
advanced 1.1 percent to $6,945 a ton.

Soybeans for January delivery climbed for a second day in Chicago, rising 0.8 percent to $10.54 a bushel, on speculation demand will increase in China, the world’s biggest oilseed importer. Wheat for March delivery climbed 10.75 cents, or 1.9 percent, to $5.6425 a bushel, rebounding from a five-day, 7.2 percent retreat.

European Stocks

The Dow Jones Stoxx 600 Index of European shares added 0.7 percent as raw-material producers climbed with metals. BHP Billiton Ltd., the world’s largest mining company, advanced 2.8 percent in London.

France Telecom SA gained 1.9 percent in Paris. Europe’s third-biggest phone company will merge its Orange Switzerland unit with TDC A/S’s Sunrise Communications SA division to expand in Switzerland and pay 1.5 billion euros ($2.25 billion) for a majority stake.

The MSCI Asia Pacific Index added 1.3 percent. Fuji Heavy Industries Ltd., the maker of Subaru cars, rose 5.3 percent in Tokyo after the exports data.

U.S. stock-index futures climbed as reports on consumer spending and initial-jobless claims suggested the recovery from the deepest recession since World War II may be gaining momentum. Trading may be slower than usual as investors leave early for the Thanksgiving holiday tomorrow.

Consumer Spending

A Commerce Department report showed consumer spending increased 0.7 percent last month, beating the median estimate of 0.5 percent from economists surveyed by Bloomberg News. Separate data from the Labor Department indicted that the number of Americans filing claims for unemployment benefits fell to
466,000 last week, the lowest level since September 2008.

Orders for goods meant to last several years unexpectedly fell 0.6 percent in October, a separate U.S. report showed.Emerging-market bond yields fell 4 basis points relative to U.S. Treasury notes, pushing JPMorgan Chase & Co.’s benchmark Emerging Markets Bond EMBI+ Index of total returns to a record
high of 496. The index measures the average return on emerging-market international bonds since December 1993. The MSCI Emerging-Markets Index of equities gained 0.7 percent. South Africa’s rand climbed 1.3 percent against the dollar, leading gains in developing-nation currencies.

Vietnam, Federal Reserve

Vietnam’s central bank devalued its currency and raised interest rates to rein in inflation and a widening trade deficit that’s eroding confidence in the dong. The State Bank of Vietnam lowered the reference rate 5.2 percent to 17,961 against the dollar, after the gap between spot and black-market rates widened to the most in a decade. Policy makers narrowed the dong’s daily trading band to 3 percent, from 5 percent, effective tomorrow.

Fed officials are concerned that record-low interest rates might fuel “excessive” speculation in financial markets and possibly dislodge expectations for low inflation, according to minutes of their Nov. 3-4 meeting published yesterday. The European Central Bank is debating whether to modify the loans it makes available as it starts to scale back support for the region’s banks.

Treasuries fell, with the yield on the 10-year note rising 2 basis points to 3.32 percent, according to BGCantor Market Data. The U.S. is scheduled to auction a record $32 billion of seven- year notes today, the third sale of securities this week.

(Currency News by Bloomberg)