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The Forex Market

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Banks: The Sharks ' I think Salomon's a bit like a shark, in a way. ... 1992: Raid on the British Pound. 1997: Asian currency crisis. Central Banks: Poseidon ... – PowerPoint PPT presentation

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Title: The Forex Market


1
The Forex Market
  • Diving Into the Deep Blue Sea

2
Agenda
  • Intro
  • The Forex market structure
  • Why Forex?
  • What influences the markets?
  • How do I participate?

3
Major Currencies
  • The Majors
  • Dollar (USD)
  • Euro (EUR)
  • Yen (JPY)
  • Pound (GBP)
  • Australian Dollar
  • Canadian Dollar (CAD)
  • Swiss Franc (CHF)
  • New Zealand Dollar (NZD)

4
How to Read a FX Quote
  • Bid
  • Ask
  • The Spread
  • Example
  • USD/CAD 1.2389/1.2394
  • GBP/USD 1.9185/1.9190
  • NZD/USD 0.7235/0.7217

5
The Interbank Market
6
Banks The Sharks
  • I think Salomons a bit like a shark, in a way.
    You know, sharks have to eat, they have to keep
    swimming, keep moving all the time, or else they
    die.
  • -Tom
    Klaffky

7
Sharks Have to Eat
  • The first 100 million is always the banks
  • In some markets its called front running, and
    its illegal. In the interbank market, its not.
  • - Bill
    Lipschutz -

8
Hedge Funds
  • Smaller
  • Faster
  • Speculative
  • 1992 Raid on the British Pound
  • 1997 Asian currency crisis

9
Central Banks Poseidon
  • Guardians of the sea
  • True movers of the market
  • Political motifs
  • The Battle Marne River
  • Raymond Poincare government
  • 501 to 251

10
Market Makers The Sea Turtles
  • Provides access into the interbank market
  • Bid/Ask spread

11
Why the FX Market?
  • The Rise of the FX Market

12
But I am an INVESTOR!!!
  • Through the spring of 2002, I had lived nearly
    72 years without purchasing a foreign currency.
    Since then Berkshire has made significant
    investments in-and today holds-several
    currencies. I won't give you particulars in
    fact, it is largely irrelevant which currencies
    they are. What does matter is the underlying
    point To hold other currencies is to believe
    that the dollar will decline.
  • - Warren Buffet, October 6,
    2003 -

13
Biggest Market in the World
  • NYSE 25 to 50 Billion
  • Global Equities 191 Billion
  • Global Derivatives 437 Billion
  • Larger than the total reserves of all central
    banks in the world.

14
The Market Never Sleeps
15
Level Playing Field
  • Transparency of Information
  • Insiders have less power

16
Low Transaction Costs
  • No commissions
  • Pay the spread
  • And carrying cost

17
Hedging
  • Foreign currency denominated stocks
  • International businesses

18
Ease of Going Short
  • Short anytime
  • No up-tick rule

19
Diversification
  • Low correlation to specific stocks

20
What Moves the FX Market?
  • Currents and Under Currents

21
Geo-Political Events
  • Safe Haven
  • Instability

22
Government Intervention
  • Through the central bank
  • Political pressure
  • The Plaza Accord (1985)

23
Macroeconomics
  • Strength of the economy
  • Often causes the biggest jumps
  • Intermarket Cycles

24
How Do I Enter the FX Market???
  • 90 of All 1st time participants lose all their
    money in the first 3 months

25
To Swim in the Sea
  • Do take your losses
  • Do look for clear and fixed spreads
  • Do look for No slippage
  • Do be aware of correlation b/w your positions
  • Do paper trade

26
To Survive in the Sea
  • Dont ignore counter party risk
  • Dont over leverage
  • Dont be short term
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