Starting to Trade FOREX Risk Warning High Risk

Starting to Trade FOREX

Risk Warning • High Risk Investment • Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

How It Works • Retail: Swaps (leveraged) 1. Identify rates/risk 2. Contract written with buyer (BB) 3. Close contract, repay liquidity provider EURUSD 1. 5000 Sell 10 k EURUSD Re-buy 10 k EURUSD at 1. 4000 Profit 10 k*50 c = USD 5 k • Large banks: Flows 1. Need to buy US T-bills for safety 2. Sell Euros to buy Dollars 3. Buy US bonds EURUSD 1. 5000 Sell 10 k EURUSD Wait for next selling opportunity, get some interest

FOREX and Equities Advantages Disadvantages • Able to long and short market • Large number of correlations • Extremely liquid, good for scalping/algos • Roll. S/Roll. B • 5, 6 pairs • Much easier to analyze • Much higher risk • Almost always wrong • Easy to buy into losses

Important 1. 2. 3. 4. Manage risk Identify macroeconomic patterns Check opportunities of each pair Know your stops and limits

What Affects Exchange Rates? • Risk • Rate expectations • Repatriation

RISK ON/RISK OFF

Risk currencies Safety Currencies • USD • JPY • (CHF) • Risk Currencies Commodities Bloc – AUD, NZD, CAD Anti-dollar – EUR, GBP

Greece, the Euro and the S&P 500

Risk Correlation

Risk Correlation

Liquidity Flows

RATES AND RATE EXPECTATIONS

USDJPY and Yields

Risk-driven Interest and Exchange Rates

Rate Expectations

During Rate Decisions

REPATRIATION

Post-Sendai USDJPY

What to Remember • Short term: Risk appetite • Medium term: Rates outlook • Long term: Structural changes/risk

LOOKING AT CHARTS