The document provides an overview of the foreign exchange (forex) market. It discusses what forex is, its key characteristics like its large trading volume and 24/5 hours of operation. It also outlines the major financial instruments traded in forex like spots, forwards, futures contracts. The largest participants are banks, central banks, companies and retail forex brokers. On average, $5.3 trillion is traded daily making it the largest financial market globally. Technical analysis and fundamental analysis are two major approaches for analyzing currency movements and determining trading opportunities.

1. FX 101
Marshall Chang

2. What is Forex?
 The foreign exchange market (forex, FX, or currency market)
 Assists international trade and investments
 History: 1970s Bretton Woods system => floating exchange rates

3. Characteristics
 huge trading volume world leading high liquidity
 no physical location (OTC)
 continuous operation 24 hours a day except weekends
 low margins of relative profit
 leverage
 Variety of factors  perfect competition?

4. Financial Instruments (game rules)
 Spot traded immediately using the current market price
 Forward contract on an exchange rate for any date in the future
 Swap an agreement between two parties to exchange sequences of cash flows for a
set period of time
 Futures contract specifying a standard volume of a particular currency to be
exchanged on a specific settlement date
 Options the right but not the obligation to exchange

5. Who are the players?
 Banks, commercial companies, central banks, investment management firms,
hedge funds, and retail forex brokers and investors
 The largest financial market in the world
The Super Banks Large
Commercial
Companies
Governm
ents and
Central
Bank
The Speculators

6. Just how big the market is
 Averaged $5.3 trillion per day
(NYSE is about $22.4 billion per day)

7.  200 times BIGGER!
 Retail traders (that’s us)
trade the spot market and
that’s about $1.49 trillion

8. Market Stucture
• stock market
tends to be very
monopolistic
• “Specialist”
• no single price
• quotes from
dealers vary
• competition
• efficiency

9. What is traded in FX market?
 Money
 “buying a share in a particular country”
CHF
(Confoederatio Helvetica franc)
Symbol Country Currency Nickname
USD
United St
ates
Dollar Buck
EUR
Euro zone
members
Euro Fiber
JPY Japan Yen Yen
GBP
Great
Britain
Pound Cable
CHF
Switzerla
nd
Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD
New
Zealand
Dollar Kiwi

10. The Dollar is King in the Forex Market

11. How does it work?
 Buying and Selling (Long and Short)
 E.g Buy EUR/USD equals Sell USD/EUR
Major Currency Pairs
EUR/USD “euro dollar”
USD/JPY “dollar yen”
GBP/USD “pound dollar”
USD/CHF “dollar swissy”
USD/CAD “dollar loonie”
AUD/USD “aussie dollar”
NZD/USD “kiwi dollar”

12. FX vs. Stocks
Advantages Forex Stocks
24-Hour Trading YES No
Minimal or no Commission YES No
Instant Execution of
YES No
Market Orders
Short-selling without an
Uptick
YES No
No Middlemen YES No
No Market Manipulation YES No

13. Forex cs. Futures
Advantages Forex Futures
24-Hour Trading YES No
Minimal or no Commission YES No
Up to 500:1 Leverage YES No
Price Certainty YES No
Guaranteed Limited Risk YES No
Mr. Forex looks UNBEATABLE!

14. The truth is…
 About 95% of traders join FX market today will leave FX market in a year..
 Only 5% of traders make money

15. Next Lesson!
 How to trade
 Golden rules (if you want to survive)
 Open an account

16. Next Step: Trade FX!
 What do you need first?

17. A Broker to open an account!
 Advance of internet in the 90s
 The big brother: Commodities Futures Trade Commission (CFTC)
 protect market users and the public from fraud
 Brokers
Dealing Desk=> Market Makers
No Dealing Desk=> ECN + STP
(Electronic Communication Network +
Straight Through Processing)

18.  Dealing desk/Market Makers: Make money from spread
Also are liquidity provider to you
 They are on the other side of your trade, fraud? Conflict of interest?
 Not really, they execute large amount of buy and sell orders
 What they do: Match your order to other clients/Provide liquidity to you
directly
 They spread that you hate is their bread and butter

19.  No dealing desk(NDD): ECN+STP or ECN
 A structure to connect you and others
 The NDD STP system: Dealer routes clients order directly to liquidity provider
 Variable Spread, Interbank Market
 The NDD ECN system: Participants trade with each other, ideal
 “Depth of market”
 Commision

20. Who to chose?
 Dealer desk or NDD?
 Tighter spread but commission => Day traders
 Wider spread but no commission => Longterm traders
Dealing Desk (Market
Maker)
No Dealing Desk (STP) No Dealing Desk (STP+ECN)
Fixed Spreads Most have variable spreads Variable spreads or
commission fees
Take the opposite side of
your trade
Simply a bridge between
client and liquidity
provider
A bridge between client
and liquidity provider and
other participants
Artificial quotes Prices come from liquidity
providers
Prices come from liquidity
providers and other ECN
particpants
Orders are filled by broker
on a discretionary basis
Automatic execution, no
re-quotes
Automatic, no re-quotes
Displays the Depth of
Market (DOM) or liquidity
information

21. Bucket Shop
 Worst thing for you
 Jesse Lauriston Livermore, Great Bear of Wall Street

22. Open an Account
 Account type
 Registration
 Activation
 http://www.fastbrokers.com/
 DEMO!!!
 “Trading live is a different beast altogether. It’s like the difference between
sparring against your kid brother (or sister) and fighting Manny Pacquiao.”

23. FX Market Analysis
 Green Pill or Red Pill?

24.  Technical
 Fundamental
 Sentimental
 three-legged stool

25. Technical Analysis
 Def: framework in which forex traders study price movement.
 Theory: look at historical price movements and determine the current trading
conditions and potential price movement.
 Evidence: all current market information is reflected in price. If price reflects
all the information that is out there, then price action is all one would really
need to make a trade.
 “History tends to repeat itself“?

26. Show me the Chart!
 with all the traders who rely on technical analysis out there, these price
patterns and indicator signals tend to become self-fulfilling.

27.  Don’t Panic!

28. Fundamental Analysis
 analyzing economic, social, and political forces that may affect the supply
and demand of an asset
 all of the factors that affect supply and demand
 Economy goodStrengthen
 High Interst rateStrengthen

29. In a nutshell…
 potential moves of a currency through the strength or weakness of that
country’s economic outlook

30. Sentiment Analysis
 “The market is just like Facebook – it’s a complex network made up of
individuals who want to spam our news feeds.”
 The market represents the opinion of all participants
 You as retail trader, can’t move the market your way, unless you are George
Soros or Goldman Sachs.
 SentimentWhether market is bullish or bearish based on your analysis

31. Recap
 TechnicalStudy of currency price movement on charts
 Fundamental  Study of how the economy is doing
 Sentimental Determine whether bull or bear
 Fundamental factors shape sentiment
 Technical analysis visualize that sentiment and apply a framework to create
our trade plans.

32. Technical: Read Chart

33. Trend

45. Fibonacci
 Fibonacci Retracement Levels
 0.236, 0.382, 0.500, 0.618, 0.764
 Fibonacci Extension Levels
 0, 0.382, 0.618, 1.000, 1.382, 1.618