The Currency Market

Know all the details you need to know about Currency Market

Table: Currencies Indicative Pip Value

Currencies Indicative Pip Value
Instrument	Contract Size	Margin (1:100)	Pip	Pip Value	Spot
EURUSD	EUR 100,000	EUR 1,000	0.0001	$10	1.4405
GBPUSD	GBP 100,000	GBP 1,000	0.0001	$10	1.5980
USDJPY	USD 100,000	USD 1,000	0.01	$10.92	91.50
USDCHF	USD 100,000	USD 1,000	0.0001	$9.67	1.0335
USDCAD	USD 100,000	USD 1,000	0.0001	$9.56	1.0460
AUDUSD	AUD 100,000	AUD 1,000	0.0001	$10	0.8880
NZDUSD	NZD 100,000	NZD 1,000	0.0001	$10	0.7095
EURAUD	EUR 100,000	EUR 1,000	0.0001	$8.90	1.6215
EURCAD	EUR 100,000	EUR 1,000	0.0001	$9.56	1.5065
EURCHF	EUR 100,000	EUR 1,000	0.0001	$9.67	1.4885
EURGBP	EUR 100,000	EUR 1,000	0.0001	$15.85	0.9011
EURGPY	EUR 100,000	EUR 1,000	0.01	$10.93	131.80
GBPAUD	GBP 100,000	GBP 1,000	0.0001	$8.90	1.7990
GBPCAD	GBP 100,000	GBP 1,000	0.0001	$9.56	1.6715
GBPCFH	GBP 100,000	GBP 1,000	0.0001	$9.67	1.6510
GBPGPY	GBP 100,000	GBP 1,000	0.01	$10.93	146.20
AUDCAD	AUD 100,000	AUD 1,000	0.0001	$9.56	0.9280
CHFJPY	CHF 100,000	CHF 1,000	0.01	$10.92	88.55
AUDCHF	AUD 100,000	AUD 1,000	0.0001	$9.67	0.9170

Know what is margin trading and its types

What is Margin/Leverage?

All products offered by Amana Capital are traded on (leverage) margin. Leverage effectively allows clients to trade a notional amount that is much bigger that their initial cash deposit. This permits clients to exploit investment opportunities without having to deposit the full amount of capital as they would have done in the cash market to take an equal size position.

Clearly, leverage and margin are the two sides of the same coin. A forex position at 1% margin means in fact that the investor needs to deposit only 1% of the total purchase cost of that deal to open that position.

Initial Margin

Initial Margin is the initial deposit required to open a position on an instrument with us once you have opened your account. The minimum account opening Margin depends on the type of account - Minimum Account Size.

Variation Margin

Variation Margin is the difference in margin requirement once the investor has opened a position, and provides for trading profits and losses.

Margin Requirements

The default margin requirement offered by Amana Capital across all products is 1:500.

Margin Calls and Liquidation

If the market moves against the investors position and the Equity Balance falls below the Initial Margin requirement the client has the option to:

Close one or more of the open position(s), in order to reduce the Initial Margin requirement to the required level;
Place a "stop loss" order with us to try and avoid a deficit balance on your account; and/or,
Remit further funds to the account as deposit in order to maintain the Initial Margin requirements.

Investors must maintain the margins listed in an account at all times. If the funds in the account fall below this margin, investors will be subject to a margin call to either deposit more funds to cover positions or close positions. 

Investors have to monitor their account since if the funds fall below the margin the system will automatically close/liquidate the position.

Equity Balances

The equity (or balance) on your account will fluctuate according to the money the investor has deposited in the account. 

During the trading day the investors account balance(s), including all open positions, are valued against the prevailing market bid or offer rate (depending if the position is long or short). Therefore the equity balance is calculated in real time and in-line with market movements. 

This equity balance is used to assess the investors available margin against current positions, and potential new positions the investor may wish to take. The balance is used to establish if there is a requirement for additional margin deposits on the account. 

Once a position is opened both Initial Margin and Variation Margin requirements must always be maintained for the open position(s). It is the responsibility of the investor to ensure that the account is sufficiently margined at all times, especially during volatile trading periods.

Opening Positions

How to Open a Position
A position is opened by either buying (placing a long trade) or selling (placing a short trade) on Forex, Spot Gold and Silver, Futures Oil and Gas and Futures Indices offered by Amana Capital.
The diagram below shows the "Buy" (long) and "Sell" (short) buttons that initiate a long or short position in the Meta Trader 4 platform.

Important: The investor, prior to hitting the Buy or Sell button, must remember to select the correct symbol he wants to trade e.g. in this example "USDJPY" and the "Volume" he wants to trade e.g. 0.3 lot, 1.0 lot 5.0 lot.

Note that the investor can place a stop loss or take profit at the same time to manage his risk - for more details on stop loss and take profit see below.



Buying / placing a long trade
The investor can open a trade by buying or placing a long trade on any of the instruments offered by Amana Capital. To make a profit the price of that instrument needs to increase.

Selling / Placing a Short trade
The investor can open a trade by selling or placing a Short trade on any of the instruments offered by Amana Capital. To make a profit, the price of that instrument needs to fall.

Minimum Trade Size
The minimum trade size depends on the type of account.

Order Types

• Buy Order
• Sell order
• Close Order

Pending Order

• Stop Order
• Buy Stop
• Sell Stop
• Limit Order
• Buy Limit
• Sell Limit

Modify Order
All pending orders, as long as they have not been executed in the market, can be cancelled or modified by the investor. The investor may want to do this because for example his/her fundamental or technical analysis or simply the latest news in the market may alter his views on the direction of the market.Pending orders
Buy Stop
Buy Stop orders are useful when the investor believes e.g. with the help of technical or fundamental analysis that if the market reaches a certain level price which is above the current levels then it will go up.
With this type of order the investor places a stop buy on EURUSD at 1.3680 (currently say trading at 1.3610). Once the market hits 1.3680 the order is activated and the investor goes long EURUSD.
The investor will profit if the market price for EURUSD continues to go up.

Example:
Suppose you are looking to buy 1 Lot of EURUSD if the price shows that it wants to go up. Assume EURUSD is currently trading at 1.3780 and you believe that if the price rises to 1.3800 or higher there will be continued upward momentum. You place a Stop Buy Order @ 1.3800 on EURUSD.

Suppose EURUSD then proceeds to trade up to 1.3800. At that time, your order would become a Market Order to buy and your order would be filled at the market.



Sell Stop
Sell Stop orders are useful when the investor believes e.g. with the help of technical or fundamental analysis that if the market reaches a certain level price which is below the current levels then it will go down.
With this type of order the investor places a Sell Stop on EURUSD at 1.3580 (currently say trading at 1.3610). Once the market hits 1.3580 the order is activated and the investor goes short EURUSD.
The investor will profit if the market price for EURUSD continues to go down.
Example:
Suppose you want to sell 1 Lot of EURUSD and you are worried that if the price falls a few more dollars that it will trigger the beginning of a much larger decline. Assume EURUSD is currently trading at 1.3780.
You place a Sell Stop Order @ 1.3750 on EURUSD. Suppose EURUSD then proceeds to trade down to 1.3750. At that time, your order would become a Market Order to sell and your order would be filled at the market price.



Buy Limit
Buy Limit orders are useful when the investor believes e.g. with the help of technical or fundamental analysis that if the market reaches a certain level price which is below the current levels then it will go up.
With this type of order the investor places a Buy Limit on EURUSD at 1.3580 (currently say trading at 1.3610). Once the market hits 1.3580 the order is activated and the investor goes long EURUSD.
The investor will profit if the market price for EURUSD goes back up again.
Example: Suppose you want to Buy 1 Lot of EURUSD, and it is currently trading at 1.3780. You would like to buy the EURUSD if the price drops to 1.3750 or less, as you feel the EURUSD current price of 1.380 is slightly overvalued.
You place a Buy Limit Order @ 1.3750 on 1 Lot of EURUSD. Now suppose the price trades down to 1.3750 then your order would then be bought at the market price.



Sell Limit
Sell Limit orders are useful when the investor believes e.g. with the help of technical or fundamental analysis that if the market reaches a certain level price which is above the current levels then it will go down.
With this type of order the investor places a Sell Limit on EURUSD at 1.3680 (currently say trading at 1.3610). Once the market hits 1.3680 the order is activated and the investor goes short EURUSD.
The investor will profit if the market price for EURUSD goes back down again.
Example:
Suppose you want to sell 1 Lot of EURUSD, and it is currently trading at 1.3780. You would like to sell the EURUSD and take your profits if the EURUSD price reaches 1.3800, as you feel the EURUSD price is not going to go much higher than 1.3800.
You place a Sell Limit Order @ 1.3800 on EURUSD. Now suppose the price trades up to 1.3800 then your order would then be sold at the market price.



Stop Loss (SL)
Stop Loss is used for minimizing losses if the price of the underlying instrument has started to move in an unprofitable direction. If the security price reaches this level, the position will be closed automatically. Stop Loss orders can only be executed for an open position but not for pending orders.
Take Profit (TP)
Take Profit order is intended for gaining the profit when the security price has reached a certain level. Execution of this order results in closing of the position. Take Profit orders can only be executed for an open position but not for pending orders.

Trailing Stop Orders
Trailing stop orders are another type of Stop Loss pending order. Stop Loss is intended for reducing of losses where the symbol price moves in an unprofitable direction. If the position becomes profitable it pays for the client to shift (or keep shifting) the Stop Loss to a break-even level. This process can be automated in the MT4 - this automation is knows as Trailing Stop. This tool is especially useful when price changes strongly in the same direction or when it is impossible to watch the market continuously for some reason.
To set the trailing stop, one has to execute the open position. The client has to select the desirable value of distance between the Stop Loss level and the current price in the list opened. Only one trailing stop can be set for each open position.
After the above actions have been performed, at incoming of new quotes, the system automatically checks whether the open position is profitable. As soon as profit in points becomes equal to or higher than the specified level, command to place the Stop Loss order will be given automatically. The order level is set at the specified distance from the current price. Further, if the price changes in the more profitable direction, trailing stop will make the Stop Loss level follow the price automatically, but if profitability of the position falls, the order will not be modified anymore. Thus, the profit of the trade position is fixed automatically.

Trading Strategies

Speculation

Trade your own view and benefit from rising and falling markets.

Arbitrage

Trade on pricing differences between two or more instruments to make a risk free profit.

Hedging

- Reduce the risk exposure of your share portfolio by taking a short CFD position> - Flexibility combined with the ability to trade as little as a single share provides an accurate and cost effective way to hedge an existing stock portfolio - Losses in your physical portfolio can be offset against CFDs profits for tax purposes and vice versa.

Sector Trading

-Allows you to take an overall view on a group of stocks without having to trade each stock individually. E.g. Finance sector, Energy sector or Telecoms sector.
- Strip out the exposure of various sectors when trading indices. E.g. Long UK100, short UK Banks
- Hedge a group of existing stock positions with one easy trade. E.g. Long Vodafone, MM02 and Cable & Wireless, short UK Telecoms.

Technical versus Fundamentals?

• Fundamental data is subjective, lagging indicators which are subject to revision
• Prices lead known fundamentals by gradually discounting/factoring in economic data. Buy the rumor, sell the fact
• Strong trends will often override economic data
• Market positioning
• Sentiment as a contrary indicator
• How measure marker extremes of greed and fear
• A mixed or hybrid approach

Basic Types of Charts

Bar Chart


Candlestick Chart


Line Chart
Reading the Markets

Define UPTREND and DOWNTREND

UPTREND is a succession of higher highs and higher pullback lows. The rising base (higher lows) is the important side to follow in an uptrend.

DOWNTREND is a succession of new lower lows and lower highs. The lower tops (descending res) are the important side to follow in a downtrend.

Trends are easier to spot and have longer time duration than most corrections. Therefore, the risk/reward and probability ratios favor buying dips in up trends and selling rallies in downtrends.

Trends, Trend lines & Corrections

Trend lines are formed when at least 3 peaks or troughs can be joined, representing a uniform rate of decline/rise over time.

A trend line break does not denote in itself, a change in trend.

The significance of a trend line break depends on the duration of the trend, number of touching points, pitch of trend and the prevailing chart pattern.

A channel is formed when the peaks and troughs both form a uniform rate of decline rise.

Support and Resistance

How do we determine support and resistance?

• Peaks and troughs in uptrends/downtrends
• Clusters of previous price activity
• Major Tops and Bottoms
• Trend lines and Channels
• Psychological levels
• Fibonacci levels

Other Types of Charts

SMA (simple moving average)

A simple moving average is calculated by adding the Securities prices for the most recent "n" time periods and then dividing by "n." To illustrate, adding the closing prices of a security for most recent 15 days and then dividing by 15 would result in a 15-day moving average. On a chart, this calculation is done for each period in the chart.

EMA (exponential moving average)

An exponential moving average differs slightly from a simple moving average in that it gives extra weight to more recent price data. This allows investors to track and respond much more quickly to recent price trends that might take more time to appear on an SMA. The formula for an EMA is: EMA = price today * K + EMA yest * (1-K) where K = 2 / (N+1).

Bollinger Bands

Bollinger Bands are a type of envelope plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting -- widening during volatile markets and contracting during calmer periods.

Momentum

It may also be useful in identifying overbought and oversold conditions when the Momentum becomes extremely strong or weak.

MACD (moving average convergence / divergence)

MACD is a trend-following momentum indicator that shows the relationship between two moving averages of prices. MACD is represented as the difference between two exponential moving averages. A second EMA, referred to as the "signal" (or "trigger") line, is plotted on top of the MACD to indicate buy/sell opportunities.

RSI (relative strength indicator)

RSI can also help identify turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in RSI may indicate a false breakout. RSI is also used to identify overbought and oversold conditions when the RSI value reaches extreme highs or lows. This indicator automatically changes the color of the RSI plot when it exceeds either of the levels specified in the inputs BuyZone and SellZone. Horizontal reference lines are also plotted at these levels as visual aids.

Fast Stochastic

Stochastic can help identify turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in Stochastic may indicate a false breakout. Stochastic are also used to identify overbought and oversold conditions when the Stochastic reach extreme highs or lows.

Slow Stochastic

The Fast Stochastic will provide more signals than the Slow Stochastic, although some analysts prefer the Slow Stochastic, believing it is less prone to whipsaws.