Forex Market
Foreign Exchange Business
Profiting
from international currency value fluctuations
Section I: The ForEx Market
Section II: The Role of Financial Institutions
Section III: Vs. the Stock Market
Section IV: Risks of Loss
Section V: Preventing Loss
Section VI: Loan Proposal
Section VII: Financial Statements
Section VIII: Risk Management Strategies
Section IX: Terminology
Section X: My Trading Strategy
Section XI: Milestones
Section I: The ForEx Market
The Foreign Exchange Market, abbreviated ForEx, is a
global market on which the currencies of the world are traded. Those involved
in the trade of currency include individual traders, financial institutions
such as banks and mutual funds, as well as corporations, seeking to raise
profit from price fluctuations. Unlike the stock market, the price of currency
cannot be influenced or controlled by certain institutions or funds for very
long, due to the high volume of currency trading that occurs every day- an
estimated two-trillion dollars-worth- seventy-percent more volume than that of
the New York Stock Exchange.
The Foreign Exchange Market operates from 4PM Sunday
to 4PM Friday,
The Foreign Exchange Market is an OTC (Over The
Counter) market and has very few regulations aside from taxes.
Section II: The Role of Financial Institutions
Individual traders make money from trading currencies
in the expectation that the currency they’ve just bought will appreciate in
value, individual traders also incur the most risk. The reason financial
institutions such as banks and mutual funds, and corporations trade on the
Foreign Exchange Market is because they have little risk; they already have the
funds necessary to trade currencies without leverage, and thus do not lose
money, and their trading positions are not liquidated if their holdings are
valued below the margin required on their account, because they do not require
a margin, as they are not using leverage- they are trading ten-thousand, and
one-hundred-thousand of their own monies, without borrowing any from the
broker.
Section III: ForEx Vs. the Stock Market
The Foreign Exchange Market is not the stock market,
it is a global market where world currencies are traded as values fluctuate by
people, institutions and corporations looking for a profit, or institutions and
corporations protecting their finances against inflation.
Section IV: Risks of Loss
There are two ways money could be lost on the Foreign
Exchange Market, the following scenarios will outline briefly these two
situations:
Trade Liquidation: If someone is using leverage, most
likely the individual trader, they expose themselves to great loss by borrowing
money from the broker to make trades, the margin for which is the minimum
account balance or value of holdings which must be maintained by the trader.
Should the value of the trader’s holdings fall below the margin, his trade
positions will automatically be liquidated by the broker to prevent them from
losing money, and money will be taken out of the trader’s account to compensate
for the broker’s losses.
Trading Below Bid Value: When buying and selling,
there are two quotes; one is called the Bid, the other is called the Ask. The
Bid is the amount the trader is willing to pay to buy the currency, the Ask Is
the amount the trader can sell the currency. If you sold a car for less than
you bought it for, you would lose money, the same would be true in this
situation as well.
Section V: Preventing Loss
The reason I’m requesting a loan is to do away with
the risks of using leverage; if you Google leverage and trading online, you
will find that leverage is the worst thing a trader can possibly use, as the
trader is risking his money, but the broker assumes no risk, which is why not
borrowing any money from a broker is the best option and exposes me to little
risk except selling undervalued holdings, which would not be an issue because this
is a for-profit enterprise.
In this enterprise, the money you lend will have little
risk of loss, and can be paid back in
August, however I would prefer being able to wait and pay you back in December.
Section VI: Loan Proposal
I am requesting a loan of ten-thousand dollars
($10,000 USD); my calculations and projections indicate I should be able to
repay you in full in August; however if I could repay you in December, I think
that that would be most advantageous as at that time I would have higher
compound interest, and paying you back would not set be back very far, whereas
paying you back in August would set me back for another few months of Milestone
1 earnings (See Section XI: Milestones for an explanation of this)
Section VII: Financial Statements
A financial report will be made once per month.
Monthly statements will be sent to you regarding the profit I have made, and
the progress I am at with regards to paying back your loan.
Risk Management Strategies
I will be trading on the market from one minute to
thirty minutes at a time. In the end, it comes down to this: I need to find
twenty to thirty instances every weekday in which the market moves up five
pips. To put this in perspective, 99% of the stories you will hear regarding
losing money with currency trading will involve leverage, the other 1% will
involve the Japanese Yen crashing in the 80s, or some similar rare event- which
is where fundamental analysis comes in, and I have the sense to read the news
and make a prediction as to how that will impact the market. But big market
changes are not relevant with the next subject- stop loss orders.
A stop loss order is a point at which the currency has
gone down a certain number of pips from its purchase price, and will be sold to
take the losses before it goes down any further- in the course of one to ten
minutes- unless the United Kingdom is hit by an asteroid, prices will not
fluctuate rapidly unless under extreme circumstances, which the stop loss order
takes into account and acts upon.
Section IX: Terminology
Bid: The price at which a currency can be bought.
Ask: The price at which a currency can be sold.
Base Currency: The currency currently held which is
being traded for another currency.
Quote/Counter Currency: The currency being traded for
with the Base Currency, whose value is represented in the value of the Base
Currency it takes to acquire the same amount of the Quote/Counter Currency.
Stop loss limit: A limit set before a trade whereupon
if the specified number of pips, or price interest points are lost, the
position will automatically be closed to prevent further loss.
Limit: A limit set before a trade whereupon if the
specified number of pips are gained, the position will automatically be closed
and the profits taken.
Pip: Price interest points; the smallest value by
which currencies can fluctuate.
Spread: The difference between the Bid and Ask prices;
commissions paid to the broker upon the closing of a position.
Section X: My Trading Strategy
I’m going to trade twenty to thirty times per day,
getting seven pips- or $5 profit per trade, as $2 will automatically be paid to
the broker due to the spread, which can vary, for which the extra two pips (Or
however many it proportionally takes given the spread variance) to compensate.
I will hold positions from one minute to thirty minutes, with a Stop Loss Limit
to ensure any big change in the market does not create a very big loss.
Below is a chart of my general 2011 trading plan in
numbers.
|
Month |
Daily Revenue |
Monthly Revenue |
Total Holdings |
|
Apr. |
$100-$150 |
$2,000-$3,000 |
$12,000-$13,000 |
|
May. |
$100-$150 |
$2,000-$3,000 |
$14,000-$16,000 |
|
Jun. |
$100-$150 |
$2,000-$3,000 |
$16,000-19,000 |
|
Jul. |
$100-$150 |
$2,000-$3,000 |
$18,000-$22,000 |
|
Aug. |
$200-$300 |
$4,000-6,000 |
$22,000-$28,000 |
|
Sept. |
$200-$300 |
$4,000-6,000 |
$26,000-$34,000 |
|
Oct. |
$300-$450 |
$6.000-$9,-000 |
$32,000-$43,000 |
|
Nov. |
$450-$600 |
$9,000-$12,000 |
$41,000-$52,000 |
|
Dec. |
$500-$750 |
$10,000-$15,000 |
$41,000-$57,000 |
|
2012 |
|
|
|
|
Jan. |
$500-$750 |
$10,000- $15,000 |
$51,000- $72,000 |
|
Feb. |
$750- $1,050 |
$15,000- $21,000 |
$66,000- $93,000 |
|
Mar. |
$900- $1,350 |
$18,000- $27,000 |
$84,000- $110,000 |
|
Apr. |
$1,200- $1,650 |
$24,000- $33,000 |
$108,000- $143,000 |
|
May. |
$1,500- $2,100 |
$30,000- $42,000 |
$138,000- $185,000 |
|
Jun. |
$1,950- $2,700 |
$39,000- $54,000 |
$177,000- $229,000 |
|
Jul. |
$2,550- $3,300 |
$51,000- $66,000 |
$228,000- $295,000 |
|
Aug. |
$3,300- $4,350 |
$66,000- $87,000 |
$294,000- $382,000 |
|
Sept. |
$4,350- $5,700 |
$87,000- $114,000 |
$381,000- $496,000 |
|
Oct. |
$5,700- $7,350 |
$114,000- $147,000 |
$609,000- $643,000 |
|
Nov. |
$9,000- $9,600 |
$180,000- $192,000 |
$789,000- $835,000 |
|
Dec. |
$11,700- $12,450 |
$234,000- $249,000 |
$1,023,000- $1,084,000 |
Section XI: Milestones
With each $10,000 that is made ($10,000-$20,000,
$30,000-$40,000) a Milestone is reached. Since I will be buying currency in
lots of 10,000 units, and one pip equals one dollar, for every $10,000 I make,
the amount I make per pip will increase according to the first place value of
the number. So $10,000 will be the initial loan amount, and getting $10,000
will reach Milestone 1, and get me one dollar per pip. Projected reaching
$22,000 on the minimum and $28,000 on the maximum in August both yield the same
pip-dollar result- since they are both within the $20,000 range, I will make
two dollars per pip in August until September on the maximum, or until October
on the minimum, either of which times I could be making three dollars per pip
according to the value of my total holdings, and so on. See the graph below for
this concept illustrated in numbers (Using the maximum numbers).
|
Initial Investment |
Dollars Per Pip |
Milestone |
|
$10,000 |
$1 |
1 |
|
$13,000 |
$1 |
1 |
|
$16,000 |
$1 |
1 |
|
$19,000 |
$1 |
1 |
|
$22,000 |
$2 |
2 |
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