final darft risk management in forex

HARVEST FUTURES CONSULTANTS.

EXECUTIVE SUMMARY

FOREX, FOREIGN EXCHANGE, foreign exchange market is a cash interbank market

established in 1971. The FOREX is a group of approximately 4500currency trading institutions

including international banks, government central banks and commercial companies. Forex is a

global, worldwide decentralized financial market for trading currencies. It is a called as an over-

the-counter (OTC) market where brokers/dealers negotiate directly with one another; there is no

central exchange or clearing house.

The forex market is the most liquid financial market in the world. It has the largest daily volume,

according to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International

Settlements; average daily turnover of forex market was US$3.98 trillion in May 2011, and if

compared to the largest stock market in the world, New York Stock Exchange has measly $74

billion a day in volume. It is 30 times larger than the combined volume of all us equity market.

FOREX is a true 24hrs market and trading begins each day in Sydney and moves around globe

as the business day begins in each financial centre, first in Tokyo, then in London and then New

York.(Timings New Zealand &Australia 02:30-12:30, Japan and Singapore :06:30 -14:30,

Germany and England :14:30-21:30, America :18:30-02:30). The forex market is larger than all

other financial markets combined. It is two ways market were both buying and selling can be

done. The most traded currencies in forex market are US dollars, Euro, Japanese Yen, Pound

sterling, Australian Dollar, Swiss franc, Canadian Dollar, Hong Kong Dollar, Swedish Koran,

and New Zealand Dollar,, FOREX is the most liquefied market in the world.

Harvest group was founded to provide the best possible, indices and stock trading experience for

online trade. Harvest group is backed by a large financial group of companies with over US $ 16

billion in assets under management. Harvest group was established in 2003. Harvest Group has a

worldwide operation network reaching 8 countries and 40 regions. USA Indonesia ,INDIA,

Hong Kong , china, Vietnam, Brunei, Malaysia, Philippines, Singapore, Taiwan, Laos and

Thailand employing more than 1300 staffs to serve the global demanding market in financial

services.


All trades that take place in the foreign exchange market involve the buying of one currency and

the selling of another currency simultaneously. This is because the value of one currency is

determined by its comparison to another currency. There are four major currency pairs that are

traded most often in the foreign exchange market. These include the EUR/USD, USD/JPY,

GBP/USD, and USD/CHF.

The Forex market is not the safest place to be. Actually, all markets are never safe. There will

always be risks and accompanying consequences for ever action that you will employ in a

specific system. The act of buying is a game of chance itself. Forex trading does this as well.

Precautions are taken and Forex risk management methods are institutionalized to decrease

losses and increase possibilities of getting the best gains offered in the market.

Risk is "The variability of returns from an investment or the chance that an investment's actual

return will be different than expected. This includes the possibility of losing some or all of the

original investment. It is usually measured using the historical returns or average returns for a

specific investment. The greater the variability of an investment (i.e. fluctuation in price or

interest), the greater the risk."

The enhanced daily price movements and the leverage available in the off-exchange retail

foreign currency (or Forex) market compared to other financial instruments like stocks is the

reason the Forex market is categorized as a "high risk investment vehicle". When investing in

currencies, stocks, bonds, commodities, futures or any investment instrument there is a lot more

risk than most investors think. Learn more about the different types of risk that effect your

trading strategy.

Trade pairs, not currencies. Like any relationship, the trade has to know both sides. Successful or

failure in forex trading depends upon being right about the both currencies and how they impact

one another, not just one. Independence if trader is new to market, trader will either decide to

trade his own money or give his money to broker to trade it behalf of him.

No strategy the aim of making money is not a trading. A strategy trader’s map for how he plans

to make money. Trader strategy details the approach he is going to take, which currencies he is


going to trade and how he will manage risk. Without a strategy, he may become one of the 90%

of new traders that lose their money.

Trade defensively The best offense is a good defense. The trader has to be thinking what he

could lose as opposed to what he could gain. Adhere to own trading strategy Every trader needs a

clear personal trading strategy. An important part of trader’s trading plan is to set a limit on what

trader willing to lose. Set stop losses based on that limit. Stick to own trading plan and avoid

impulse trades. If the trader did not understand what the market is doing or if the trader’s

emotional equilibrium is severely disturbed, then he has to close out all his positions and take a

break. Trader should not trade on market rumors or tips, trade based on his strategy.

Fore risk management Risk management is the process of measuring risk and then developing

and implementing strategies to manage that risk. Different tolerances for risk. Tolerance is not

static it will change along with your skills and knowledge. As you become more experienced,

tolerance to risk may increase. Don't let this fool you into not adhering to and thinking about

proper money management practices.


CONTENTS

CPTR NO CHAPTER PAGE NO

1 INTRODUCTION 5 – 7

2 RESEARCH METHODOLOGY

Defining The Problem & Research Objectives Objectives Of Study: Research Design & Methodology: Limitations Of The Study Literature Review

8 -15

3 INDUSTRY PROFILE & COMPANY PROFILE

Background and Inception Nature of business carried Vision And Mission Swot Analysis Of Harvest Futures Consultants Pvt. Ltd

16 – 31

4 A. TRADING OPERATION OF THE FOREX MARKET.

Major Currency Pairs Timing Of Various Markets How Trading Works Margin and Leverage Fundamental & Technical Analysis

32 – 63

B. RISK MANAGEMENT IN CURRENCY TRADING.

Establish context Identify the risks Analyses and evaluation of risks Treatment of risks

64 – 76

6OBSERVATUONS AND FINDINGSRECOMMENDATIONS/ SUGGESTIONS 77 – 81


7CONCLUSIONBIBLIOGRAPHY 82 – 84

CHAPTER.1

INTRODUCTION


CHAPTER 1

INTRODUCTION

1. CURRENCY TRADING IN GLOBAL MARKET

1.1 Introduction to forex

The foreign exchange market, which is usually known as "forex" or "FX," is the largest financial

market in the world. Compared to $74 billion a day volume of the New York Stock Exchange,

the foreign exchange market looks extremely large with its $4 TRILLION a day trade volume,

Forex, unlike other financial markets, is not tied to an actual stock exchange. Forex is an over-

the-counter (OTC) or off-exchange market.

1.2 Purpose:

The foreign exchange market is the mechanism by which currencies are valued relative to one

another, and exchanged. An individual or institution buys one currency and sells another in a

simultaneous transaction. Currency trading always occurs in pairs where one currency is sold for

another and is represented in the following notation: EUR/USD or CHF/YEN. The exchange rate

is determined through the interaction of market forces dealing with supply and demand.

Foreign Exchange Traders generate profits, or losses, by speculating whether a currency will rise

or fall in value in comparison to another currency. A trader would buy the currency which is

anticipated to gain in value, or sell the currency which is anticipated to lose value against another

currency. The value of a currency, in the simplest explanation, is a reflection of the condition of

that country's economy with respect to other major economies. The Forex market does not rely

on any one particular economy. Whether or not an economy is flourishing or falling into a

recession, a trader can earn money by either buying or selling the currency. Reactive trading is

the buying or selling of currencies in response to economic or political events, while speculative

trading is based on a trader anticipating events.


1.3. Background

Historically, Forex has been dominated by inter-world investment and commercial banks, money

portfolio managers, money brokers, large corporations, and very few private traders. Lately this

trend has changed. With the advances in internet technology, plus the industry's unique

leveraging options, more and more individual traders are getting involved in the market for the

purposes of speculation. While other reasons for participating in the market include facilitating

commercial transactions (whether it is an international corporation converting its profits, or

hedging against future price drops), speculation for profit has become the most popular motive

for Forex trading for both big and small participants.


CHAPTER.2

RESEARCH METHODOLOGY

1. Defining The Problem & Research Objectives

2. Objectives Of Study:

3. Research Design & Methodology:

4. Limitations Of The Study

5. Literature Review


CHAPTER.2

RESEARCH METHDOLOGY

Research methodology is a way to systematically solve the research problem. The research

methodology included various methods and techniques for conducting a research. “Marketing

Research is a systematic design, collection, analysis, and reporting of data and finding relevant

solution to a specific marketing situation or problem.” Sciences define research as “ the

manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct or

verify knowledge, whether that knowledge aids in construction of theory or in practice of an art.”

Research is thus, an original contribution to the existing stock of knowledge marketing for its

advancement, the purpose of research is to discover answers to the questions through the

application of scientific procedure.

My research project has a specified framework for collecting the data in an effective manner.

Such framework is called “Research Design”. The research process which was followed by me

consisted following steps.

2.1. DEFINING THE PROBLEM & RESEARCH OBJECTIVES

It is said, “A problem well defined is half solved”. The step is to define the project under study

and deciding the research objective. The definition of problem includes :

Currency trading and Risk management of FOREX MARKET.

The project is about FOREX MARKET AND STARTEGIES TO MINIMISE RISK IN

FOREIGN EXCHANGE


2.2. OBJECTIVES OF STUDY:

1. To gain insight about forex currency market.

2. To study about the usage and utility, hedging and arbitrage in currency trading.

3. To study about the factors deciding currency fluctuation.

4. Management of Different Type Foreign Exchange Risks\ Exposure

5. To study the strategies of Foreign Risk Management

6. To Diversify Risk for minimizing risk

2.3. METHODOLOGY:

Developing the Research Plan

The developing the efficient plan for gathering the needed information. Designing a research

plan calls for decision on the data sources, research approach, research instruments, sampling

plan and contacts methods. The research is exploratory in nature.

The development of Research plan has the following Steps:

Data Sources

The data is primarily Secondary data. Secondary Data: Indirect collection of data from sources

containing past or recent information from web, magazines and journals etc.

2.4. RESEARCH DESIGN:

The methodology adapted pertains to exploratory research design as it mainly depends on

the secondary data. An Exploratory Research focuses on the discovery of ideas and is generally

based on Secondary Data. It is preliminary investigation, which does not have a rigid design .The

present study is designed to examine the efficiency and effectiveness of find out the degree of

risk in forex

2.5. LIMITATIONS OF THE STUDY:

1. Study is limited to currency trading and its usage and utility.


2. Study is limited to currency exchange and factors deciding currency fluctuations.

3. The trader has to learn various things in market to trade currency.

4. The time span for my study was very short.

5. Respondent’s bias was another limiting factor

2.6. LITERATURE REVIEW

Foreign Exchange Market(currency, forex, or FX) trades currencies. It lets banks and other

institutions easily buy and sell currencies. Currency Trading is the world's largest market Not

only is the forex market the largest market in the world, but it is also the most liquid,

differentiating it from the other markets.

The forex came in exist Before 1875, countries commonly used gold and silver as means of

international payment, but soon they realized that using gold and silver for payment had

limitations. The problem was that the value of gold and silver is affected by external supply and

demand Governments needed to have a good amount of gold reserve in order to meet the demand

for currency exchanges, which is the limitation of the gold standard and it eventually broke down

during the beginning of World War I. European countries started printing more money during the

beginning of the World War I in order to back their military projects. The financial burden of

these projects was so substantial that there was not enough gold at the time to exchange for all

the excess currency. This also continued during World War II.

In order to fill the void that was left behind when the gold standard system was abandoned, in

July 1944, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in

Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial

Conference. Bretton Woods System agreed upon the method of fixed exchange rates. It also

replaced the gold and made the U.S. dollar a primary reserve currency. Bretton Wood conference

also agreed upon the creation of three international agencies to oversee economic activity:


o The International Monetary Fund (IMF)

o International Bank for Reconstruction and Development

o The General Agreement on Tariffs and Trade (GATT).

The Bretton Woods System made the U.S. dollar, the only currency that would be backed by

gold which eventually turned out to be the primary reason for the failure of Bretton Woods

System. As the U.S. had to run a series of balance of payment deficits in order to be the world’s

reserved currency thus by the early 1970s, the U.S. treasury did not have enough gold to cover

all the U.S. dollars that foreign central banks had in reserve. Finally, in 1971, the U.S. announced

to the world that it would no longer exchange gold for the U.S. dollars that were held in foreign

reserves. After the Bretton Woods system broke down, most countries finally accepted the use of

floating foreign exchange rates during the Jamaica agreement of 1976.

The forex market is the most liquid financial market in the world. It has the largest daily volume,

according to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International

Settlements; average daily turnover of forex market was US$3.98 trillion in May 2011, and if

compared to the largest stock market in the world, New York Stock Exchange has measly $74

billion a day in volume. Now you can see the amount of money that changes hand in forex

market.

Foreign exchange exposure in emerging markets: A study of Spanish companies in Latin

America Author(s): Gaston Fornes, Guillermo Cardoza

Journal: International Journal of Emerging Markets

Year: 2009 Volume: 4 Issue: 1 Page:6 – 25

Publisher: Emerald Group Publishing Limited

Acknowledgements:

The authors are pleased to acknowledge the contributions from Dr Alan Butt- Philip of the

University of Bath School Management.


Abstract:

Purpose – The purpose of this paper is to look at the impact that unanticipated changes in the

exchange rate, specifically the currency crises that took place in Latin America between 1998

and 2004, had on the value of Spanish companies operating in this region. It also studies the

strategies, decisions, measures and initiatives that these firms made to improve the effectiveness

of their hedging activities. Building upon previous studies in industrialised countries, the study

applies a broader perspective as it takes a cross-functional approach by including finance,

strategic planning, and marketing and operations management in the analysis.

Findings – The research results suggest that foreign companies exposed to exchange risks in

emerging markets gain resilience when they take a cross functional approach for the assessment

and implementation of hedging strategies along with the decentralisation to subsidiaries of the

decisions and implementation of hedging initiatives. This helps companies in: elaborating

scenarios, assessing the possible impact of exchange rate variations, designing pre-emptive

measures and setting alternative strategies to mitigate potential impacts. This cross functional

approach to managing risks in emerging markets seems to offer companies higher flexibility and

new knowledge that can be shared among subsidiaries working in similar economic and political

environments. On the use of value at risk for managing foreign-exchange exposure in large

portfolios

Author(s): Mazin A.M. Al Janabi

Journal: The Journal of Risk Finance

Year: 2007 Volume: 8 Issue: 3 Page: 260 - 287Publisher: Emerald

Group Publishing Limited

Purpose – It is the purpose of this article to empirically test the risk parameters for larger

foreign-exchange portfolios and to suggest real-world policies and procedures for the

management of market risk with the aid of value at risk (VaR)\ methodology. The aim of this

article is to fill a void in the foreign-exchange risk management literature and particularly for


large portfolios that consist of long and short positions of multi-currencies of numerous

developed and emerging economies.

Design/methodology/approach – In this article, a constructive approach for the management of

risk exposure of foreign-exchange securities is demonstrated, which takes into account proper

adjustments for the illiquidity of both long and short trading/investment positions. The approach

is based on the renowned concept of VaR along with the innovation of a software tool utilizing

matrix algebra and other optimization techniques. Real-world examples and reports of foreign-

exchange risk management are presented for a sample of 40 distinctive countries.

Findings – A number of realistic case studies are achieved with the objective of setting-up a

practical framework for market risk measurement, management and control reports, in addition

to the inception of a practical procedure for the calculation of optimum VaR limits structure. The

attainment of the risk management techniques is assessed for both long and short proprietary

trading and/or active investment positions.

Title: Managing Foreign Exchange Risks: Organisational Aspects

Author(s): Ike Mathur

Journal: Managerial Finance

Year: 1985 Volume: 11 Issue: 2 Page: 1 – 6

Publisher: Barmarick Publications

Abstract: A multinational firm in its normal, day to day conduct of business becomes vulnerable

to potential gains and losses due to changes in the values of its assets and liabilities that are

denominated in foreign currencies. Exporting, importing, and investing abroad expose the firm to

foreign exchange risks. Under the 1944 Bretton Woods Agreement, Central Bank interventions

in foreign currency markets were frequent, with relatively minor changes in exchange rates.

Managers then could afford to ignore foreign exchange exposure. However, with the demise of

the Agreement in 1973, exchange rates for major currencies have fluctuated freely, sometimes

wildly. These currency fluctuations constantly change the values of foreign currency assets and


liabilities, thereby creating foreign exchange risks. Managing these foreign exchange risks now

constitutes one of the most difficult and persistent problems for financial managers of

multinational firms. Management of Foreign Exchange Risk: A Review Article Author Info

Laurent L Jacque (The Wharton School) Abstract this paper reviews the literature on Foreign

Exchange Risk Management (FERM) which has burgeoned during the last decade. Scholars' and

practioners' emerging interest in Foreign Exchange Risk Management was spurred by the advent

of fluctuating exchange rates in the early seventies as well as by the pronouncement of the

infamous FASB Statement No. 8 in 1976 which laid down unambiguous guidelines for

consolidating financial statements of multinational corporations. A normative (rather than a

market) view of Foreign Exchange Risk Management is taken and accordingly the author

reviews first the two key informational inputs necessary for any Foreign Exchange Risk

Management program: forecasting exchange rates and measuring exposure to exchange risk.

Available decision models for handling transaction and translation exposures are reviewed next.

A concluding section identifies gaps in the existing literature and suggests directions for future

research.© 1981 JIBS. Journal of International Business Studies (1981) 12, 81–101


CHAPER.3

INDUSTRY PROFILE & COMPANY PROFILE

1. Background and Inception

2. Nature of business carried

3. Vision And Mission

4. Swot Analysis Of Harvest Futures Consultants Pvt. Ltd


CHAPTER.3

Industry profile

Foreign exchange market (Forex, FX, or currency market) is a global, worldwide

decentralized financial market for trading currencies. Financial centers around the world function

as anchors of trading between a wide range of different type of buyers and sellers around the

clock, with the exception of weekends. The foreign exchange market determines the relative

values of different currencies.

The primary purpose of foreign exchange is to assist international trade and investment, by

allowing business to convert one currency to another currency. For example, it permits a US

business to import British goods and pay pound sterling, even though business income is in US

dollars. It also supports direct speculation in the value of currencies, and the carry trade,

speculation on the change in interest rates in two currencies.


In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying

a quantity of another currency. The modern foreign exchange market began forming during the

1970s after the decades of government restrictions on foreign exchange transaction (the Bretton

Wood s system of monetary management established the rules of commercial and financial

relations among the world’s major industrial states after World War II), when countries gradually

switched to floating exchange rates from the previous exchange rate regime, which remained

fixed as per the Bretton Woods system.

3.1. Market participants

3.1.1. Banks:

The interbank market caters for both the majority of commercial turnover and large amounts of

speculative trading every day. Many large banks may trade billions of dollars, daily. Some of this

trading is undertaken on behalf of customers. But much is conducted by propriety desks, which

are the trading desks for bank’s account. Until recently, foreign exchange brokers did large

amount of business, facilitating interbank trading and matching anonymous counterparts for

large fees. Today, however, much of this business moved on to more efficient electronic systems.

The broker squawk box lets traders listen in on ongoing interbank trading and is heard is most

trading rooms, but turnover is noticeably smaller than just a few years ago.

3.1.2. Commercial companies:

An important part of this market comes from the financial activities of companies seeking

foreign exchange to pay goods or services. Commercial companies often trade fairly small

amounts compare to those of banks or speculators, and their trades often have little short term

impact on market rates. Nevertheless, trades flows are an important factor in the long-term

direction of a currency’s exchange rate. Some multinational companies can have an

unpredictable impact when very large positions are uncovered due to exposures that are not

widely known by other market participants.

3.1.3. Central banks:


Forex is fixing is the daily monetary exchange rate fixed by the national bank of each country.

The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their

currency. Fixing exchange rates reflects the real value of equilibrium in the forex market. Banks,

dealers and online foreign exchange traders use fixing rates as a trend indicator.

The mere expectation or rumor of central bank intervention might be enough to stabilize a

currency, but aggressive intervention might be used several times each year in the countries with

a dirty float currency regime. Central banks do not always achieve their objectives. The

combined sources of the market can easily overwhelm any central bank. Several scenarios of this

nature were seen in the 1992-93 ERM collapse, and in more recent times in southeast Asia.

3.1.4.Hedge funds as speculators:

About 70% to 90% of the foreign exchange transactions are speculative. In other words, the

person or institution that bought or sold the currency has no plan to actually take delivery in the

end; rather, they were solely speculating on the movement of that particular currency. Hedge

funds have gained a reputation for aggressive currency speculation since 1996. They control

billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention

by central bank to support almost any currency, if the economic fundamentals are in the hedge

fund’s favor.

3.1.5.Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers

such as pension funds and endowments) use the foreign exchange market to facilitate

transactions in foreign securities. For example an investment manager bearing an international

equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign

securities purchases.

Some investment management firms also have more speculative specialist currency overlay

operations, which manage clients’ currency exposure with the aim of generating profits as well


as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a

large value of assets under management (AUM), and hence can generate large trades.

3.1.6. Retail foreign exchange traders:

Individual retail speculative traders constitute a growing segment of this market with the advent

of retail forex platforms, both in size and importance. Currently, they participate indirectly

through brokers or banks. Retail brokers, while largely controlled and regulated in USA by

CFTC and NFA have in the past been subjected to periodic foreign exchange scams. To deal

with the issue, the NFA and CFTC began (2009) imposing stricter requirements, particularly in

relation to the amount of Net Capitalization required of its members. As a result many of the

smaller and perhaps questionable brokers are now gone or have moved to countries outside the

US. A number of the forex brokers operate from the UK under FSA regulations where forex

trading using margin is part of the wider over-the-counter derivatives trading industry that

includes CFDs and financial spread betting.

There are two main types of retail FX brokers offering the opportunity for speculative currency

trading: brokers and dealers or market makers. Brokers serve s an agent of the customer in the

broader FX market, by seeking the best price in the market for a retail order and dealing on

behalf of the retail customer. They charge a commission or mark-up in addition to the price

obtained in the market. Dealers or market makers, by contrast typically act as principal in the

transaction versus the retail customer, and quote price they are willing to deal at.

3.1.7. Non-bank foreign exchange companies:

Non-bank foreign exchange companies offer currency exchange and international payments to

private individuals and companies. These are also known as foreign exchange brokers but are

distinct in that they do not offer speculative trading but rather currency exchange with payments

( i.e., there is usually a physical delivery of currency to a bank account).

It is estimated that in the UK, 14% of the currency transfers /payments are made via foreign

exchange companies. These companies selling point is usually that they will offer better


exchange rates or cheaper payments than the customer’s bank. These companies differ from

money transfer/remittance Companies in that they generally offer higher-value services.

3.1.8. Money transfer/remittance companies and bureau de changes

Money transfer companies/remittance companies perform high-value low-value transfers

generally by economic migrants back to their home country. In 2007, the Aite Group estimated

that there were $369 billion of remittances (an increase of 8%compared to 2006).the four largest

markets (India, China. Mexico and the Philippines) receive $95 billion.

The largest and best known provider is Western Union with 345,000 agents globally followed by

UAE exchange. Bureau de change or currency transfer companies provide low value foreign

exchange services for travelers. These are typically located at airports and stations or at tourist

locations and allow physical notes to be exchanged from one currency to other. They access the

foreign exchange markets via banks or non bank foreign exchange companies.

3.2. ABOUT FOREX

FOREX, FOREIGN EXCHANGE, foreign exchange market is a cash interbank market

established in1971. The FOREX is a group of approximately 4500currency trading institutions

including international banks, government central banks and commercial companies. FOREX is

a true 24hrs market and trading begins each day in Sydney and moves around globe as the

business day begins in each financial centre, first in Tokyo, then in London and then New York.

(Timings New Zealand &Australia 02:30-12:30, Japan and Singapore :06:30 -14:30, Germany

and England :14:30-21:30, America :18:30-02:30). The forex market is larger than all other

financial markets combined. It is two ways market were both buying and selling can be done.

FOREX market is the largest financial market in the world with a daily average turnover of $4

trillion – it is 30 times larger than the combined volume of all us equity market. The most traded

currencies in forex market are US dollars, Euro, Japanese Yen, Pound sterling, Australian Dollar,

Swiss franc, Canadian Dollar, Hong Kong Dollar, Swedish Koran, and New Zealand Dollar,,

FOREX is the most liquefied market in the world.


Company profile

4.1.Background and Inception:

Harvest group was founded to provide the best possible, indices and stock trading experience for

online trade. Harvest group is backed by a large financial group of companies with over US $ 16

billion in assets under management.

Harvest group is takes pride in its stringent management control as far as its business

infrastructure goes. Utilizing its subsidiary companies or strategic alliances of Harvest

International Consortium Ltd. in Hong Kong and in Indonesia and Harvest Futures Consultants

India Pvt. Ltd, to provide paramount global financial advice network to our clients.


Harvest group was established in 2003. Harvest Group has a worldwide operation network

reaching 8 countries and 40 regions. USA Indonesia ,INDIA, Hong Kong , china, Vietnam,

Brunei, Malaysia, Philippines, Singapore, Taiwan, Laos and Thailand employing more than

1300 staffs to serve the global demanding market in financial services.

Harvest Group has built a strong team in the area of marketing in order to provide our clients

professional services as well as customer support. From senior management, seasonal financial

consultants, state of art trading platform as well as professional customer services team. Harvest

Group is dedicated in providing our clients the fastest, best possible financial service.

Harvest offer the long range of trading technology, featuring the powerful, MT4 (Meta Trading

4) station for individual traders and multi account platforms for asset, and PDA and Smartphone

solutions for trading on the move.

4.2. Nature of business carried:

Harvest is a financial service providing company it operates globally. Harvest group has various

business activities like

1. Information & Training Centre

2. Futures Contract Transactions

3. Foreign Exchange Trading

4. Index Trading

5. Commodity Bullion Trading

4.3. VISION AND MISSION:

Vision:

To become most credible Future broker globally with the widest portfolio of financial

products that serves the clients globally, investing and transacting in Futures Exchange,

especially with major commodity products and Foreign Exchange.

Mission:


To give most credible advice to individual investors, on potential investment

opportunities in Future Exchange, balancing risk and profitability.

To educate the investing public on Futures Exchange and provide the complete

understanding so that they may exploit the maximum benefits.

To engage with all the stakeholders and help create an organized Futures

Exchange that is credible and transparent while promoting healthy and fair

competition.

4.4. Service profile:

The Harvest group is basically a financial service provider. It provides the various services as

follows.

1. Information & Training Centre

2. Futures Contract Transactions

3. Foreign Exchange Trading

4. Index Trading

5. Commodity Bullion Trading

4.5. Area of operation

Harvest group was established in 2003. Harvest Group has a worldwide operation network

reaching 8 countries and 40 regions. USA Indonesia ,INDIA, Hong Kong , china, Vietnam,

Brunei, Malaysia, Philippines, Singapore, Taiwan, Laos and Thailand employing more than

1300 staffs to serve the global demanding market in financial services.

In India harvest group operates mainly in Bangalore, Delhi, and Chennai.

Harvest group has channel partners in India at various places i.e. New Delhi, Mangalore

(Karnataka), Vijayawada (Andhra Pradesh), Chandigarh


4.6. Ownership pattern:

“The Company” shall mean HARVEST FUTURES CONSULTANTS INDIA PVT. LTD

“Board” shall mean the Board of Directors of the Company.

“Board Members” shall mean the Members on the Board of Directors of the Company.

“Executive Directors” shall mean the Board Members who are in whole-time employment of the

company.

4.7. CORPORATE INFORMATION

DATE OF INCORPORATION : 18th November 2009


REGD.OFF : Harvest Futures Consultants India Pvt.Ltd

#17 "Park View", Curve Road, Tasker Town

Bangalore-560051

Karnataka, India

BUSINESS ACTIVITIES : Advisory Consultancy Analysis CFD

EXECUTIVE DIRECTOR : Mr. Richard Tai Swee Keong (Malaysia)

BUSINESS DIRECTOR : Mr.Rajendran Pillai (Singapore)

DIRECTOR : Mr.Naveen Kumar H.M (India)

ADVOCATE : Chambers of Jayashri Mural

303,3rd Floor, Commerce House,

Millers Road, Bangalore-560052

AUDITOR : C.P Ethirajan

#38,1st Floor, Nehru Circle, Sheshadripuram

Bangalore-560020

COMPANY SECRETARY : S.P NagarajanS-818,8th Floor, South Block-Manipal centre

47, Dickenson Road, Bangalore-560042

4.8. Infrastructure facilities.


The branches of the Harvest company are computerized and all transactions of trading

done with ease of operation

Telephone

Intranet and internet

Conference room

Training room

Help line : knowledge about trading and marketing.

Company e-mail

For each and every employee and advisors of the company will get their personal I

D where in they are recognized as the part of the Harvest and update things ,

Like perk, commission account, keep in track of target.

4.9. Achievements and Awards:


Data gatthering

tele calling

fixing appointment

explaining about currency trading

and forex

following interested investors

trading the clients

account


4.9.1. End to end process involves various steps:

Data gathering: This is the first step which involves collection of data pertaining to the

telephones numbers.

Tele calling: Tele calling involves picking the numbers and making the calls with proper

communication skills.

Fixing appointments: Through proper communications, the employee will convince the person

on telephone and convince the people who are interested and fixing the appointment for the

interested people.

Explanation about currency trading and forex. The employee (business consultant) will

communicate with customer and explain about rules and regulation of the trading and also about

the company.

Following interested people: The company will follow the interested people for few days. Try

to open the account as soon as possible.

Opening the open: When the person is ready to invest the money in the forex, the account is

opened in the bank. Trading are carried down.

Trading the account: Once the account has been opened the client or the portfolio manager of

the company will trade the account with proper knowledge about the market. The all transactions

are done through the account. If the client is unable to trade, then behalf of the client the

portfolio manager will trade the account.

4.11. SWOT ANALYSIS OF HARVEST FUTURES CONSULTANTS PVT. LTD.

SWOT analysis is an acronym for the internal strengths and weaknesses of a firm and the external

opportunities and threads facing that firm. SWOT analysis helps managers to have quick

overview of the firm’s strategic situation and assess whether there is a sound ‘fit’ between

internal resources, values and external environment.


STRENGTHS:

1. Good working Environment

2. No competition.

3. Skillful employees.

4. Led by the dedicated and expertise focused professional.

5. Efficient trading with live, executable prices with instant trade confirmation

6. High liquidity.

7. Advanced analysis tools.

8. Real-time account risk management.

9. Metatrader4based platform.

WEAKNESSESS:

1. Lack of expertise in trading

2. Inaccessibility to innovative product or services that can assist you.

3. Emotional instability

OPPORTUNITIES:

1. A developing market such as the Internet.

2. Competitive market full of brokers

3.Moving into new trading strategies that offer increased profits with less cost and time

saver e.g. auto pilots or robots

THREATS:

1. The ever emerging Internet market.

2. Lack of guidance on choice of broker.

3. Accessibility to tested and trusted forex auto trader (robot)


4. Emotional instability.

CHAPTER.4

TRADING AND RISK MANAGENT IN FOREX MARKET

A. TRADING OPERATION OF THE FOREX MARKET.

1. Major Currency Pairs2. Timing Of Various Markets3. How Trading Works4. Margin and Leverage5. Fundamental & Technical Analysis

B. RISK MANAGEMENT IN CURRENCY TRADING.

1. Establish context2. Identify the risks3. Analyse and evaluation of risks4. Treatment of risks


CHAPTER 4

Trading Operation of the forex market:

Whereas there are thousands of securities on the stock market, in the FOREX market most

trading takes place in only a few currencies. These major currencies are most often traded

because they represent countries with esteemed central banks, stable governments, and relatively

low inflation rates.

The 8 most widely traded major currencies are as follows.

Symbol Country Currency Nickname

USD United States Dollar Buck

EUR Euro zone members Euro Fiber

JPY Japan Yen Yen

GBP Great Britain Pound Cable

CHF Switzerland Franc Swissy

CAD Canada Dollar Loonie

AUD Australia Dollar Aussie

NZD New Zealand Dollar Kiwi

Currency symbols always have three letters, where the first two letters identify the name of the

country and the third letter identifies the name of that country's currency.

5. 1. Major Currency Pairs

The currency pairs listed below are considered the "majors". These pairs all contain the U.S.

dollar (USD) on one side and are the most frequently traded. The majors are the most liquid and

widely traded currency pairs in the world.


Pairs Countries FX Geek Speak

EUR/USD Euro zone / United States "euro dollar"

USD/JPY United States / Japan "dollar yen"

GBP/USD United Kingdom / United States "pound dollar"

USD/CHF United States/ Switzerland "dollar swissy"

USD/CAD United States / Canada "dollar loonie"

AUD/USD Australia / United States "aussie dollar"

NZD/USD New Zealand / United States "kiwi dollar"

The chart below shows the ten most actively traded currencies in forex market.

The dollar is the most traded currency, taking up 84.9% of all transactions. The euro's share is

second at 39.1%, while that of the yen is third at 19.0%. Because two currencies are involved in


each transaction, the sum of the percentage shares of individual currencies totals 200% instead of

100%.

5.2. Timing of various markets:

Summer

TIME ZONE EDT GMT

Sydney Open

Sydney Close

6:00 PM

3:00 AM

10:00 PM

7:00 AM

Tokyo Open

Tokyo Close

7:00 PM

4:00 AM

11:00 PM

8:00 AM

London Open

London Close

3:00 AM

12:00 PM

7:00 AM

4:00 PM

New York Open

New York Close

8:00 AM

5:00 PM

12:00 PM

9:00 PM

Winter

Zone T ITIME ZONE EST GMT

Sydney Open

Sydney Close

4:00 PM

1:00 AM

9:00 PM

6:00 AM

Tokyo Open

Tokyo Close

6:00 PM

3:00 AM

11:00 PM

8:00 AM

London Open

London Close

3:00 AM

12:00 PM

8:00 AM

5:00 PM

New York Open

New York Close

8:00 AM

5:00 PM

1:00 PM

10:00 PM

http://www.babypips.com/school/images/pre-school/currency-distribution.png


The foreign exchange market operates 24 hours a day, and, unlike the stock market, have no

official openings or closings. It moves in response to geopolitical events, press releases from key

central banks, and reports on the economy from government statistical bureaus, among many

other factors. When traders are inactive in one part of the world due to nightfall, there are traders

elsewhere who are actively engaging in trades as it is daytime in their locations.

5.3. How Trading Works

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are

quoted in pairs is because in every foreign exchange transaction, this is simultaneously buying

one currency and selling another. Here is an example of a foreign exchange rate for the British

pound versus the U.S. dollar:


The first listed currency to the left of the slash ("/") is known as the base currency (in this

example, the British pound), while the second one on the right is called the counter or quote

currency (in this example, the U.S. dollar).

When buying, the exchange rate tells how much has to pay in units of the quote currency to buy

one unit of the base currency. In the example above 1.51258 U.S. dollars has to pay to buy 1

British pound.

When selling, the exchange rate will tell how many units of the quote currency available for

selling one unit of the base currency. In the example above, to sell 1 British pound, 1.51258 U.S.

dollars are required.

The base currency is the "basis" for the buy or the sell. In the pair EUR/USD buying this pair

means, buying the base currency and simultaneously selling the quote currency i.e. "buy EUR,

sell USD." While buying the pair the trader has believed that EURO will ‘appreciate’ and USD

will ‘depreciate’.


Going Long or Short

A long position is a situation in which one purchases a currency pair at a certain price and hopes to

sell it later at a higher price. This is also referred to as the notion of "buy low, sell high" in other

trading markets. In Forex, when one currency in a pair is rising in value, the other currency is

declining, and vice versa. If a trader thinks a currency pair will fall he will sell it and hope to buy it

back later at a lower price. This is considered a short position, which is the opposite of a long

position.

On every exchange, a trader has a long position on one currency of the pair and a short position

on the other currency. A trader defines his or her position as an expression of the first currency

of the traded pair. The first currency in a pair is known as the base currency. The second

currency in the pair is called the counter currency. When a trader buys the base currency he or

she takes a long position on a pair, if a trader sells the base currency he or she shorts the pair.


5.4. How to Read a Forex Chart

The Trader would select the specific currency pair (example like, the Euro versus the Dollar

and the desired time period or timeframe for each bar of the FX Chart. The example below

shows a snapshot of a real time one day candlestick Chart of the Euro versus the U.S

The Forex Chart shows a strong day move to the upside in the Euro versus the dollar, from a

high of 1.3368 (bar on 23rd February 2012) to 1.3456 on the 24th February 2012). This is a

difference of 0.0088 or 88 pips (in Forex trading, a "pip" is the smallest tick in the price of a

currency, which is similar to a "tick" in Stocks). In dollars, this move is equivalent to an amount

of US$ 880 per lot for a standard lot


5.5. Margin and Leverage

5.5.1. Margin

The real meaning of margin is actually good faith deposit.

a.Initial Margin The amount of money required to open a trading account.

b.Required Margin The amount of money required to trade one particular instrument. For

example, GBPUSD, required margin is US$1000. It means that you need to have more than

US$1000 in your trading account to initiate a trade.

c.Call Margin. If the trader has a losing position with a floating loss, then broker might issue a

call margin on trader account. A call margin is an amount of money required to maintain trader’s

losing position. If the call margin is not fulfilled, the losing position might suffer an automatic

liquidation.

5.5.2.Leverage.

The phenomenon of moving a larger object with lesser effort with the use of fulcrum is known as

leverage. Trading futures allows the use of smaller amount of money to trade a bigger amount by


giving a leverage of 100:1. The actual amount of money per forex contract is US$100,000.00.

But, by using leverage, you need only US1, 000.00 margin to trade 1 forex contract.

5.6. Meaning of a pip.

The unit of measurement to express the change in value between two currencies is called a "Pip".

If EUR/USD moves from 1.2250 to 1.2251, that is ONE PIP. A pip is the last decimal place of a

quotation, given that four decimal places are used for pairs without the Japanese yen. If a pair

does include the Japanese yen, then the currency quote goes out two decimal places

5.7. Bid price, Ask price and the Spread

A bid price is the rate at which the market is prepared to buy a specific currency pair in the

Forex trading market. This is the price that a trader will receive when selling (shorting) a

currency pair. An ask price is the rate at which the market is ready to sell a particular currency

pair. This is the price that a trader will have to pay in order to buy (long) the currency pair. The

bid/ask combination comprises a quotation, which is based on a floating exchange rate. The

disparity between the bid and ask is known as the spread, which reflects the difference between

the rate offered by a market maker such as CMS to sell a currency pair and the rate at which the

market maker will buy the pair. The value of the spread is greater for currencies that are traded

less frequently on the market than for the cluster of the major trading currencies. Contrary to

stock market firms, Forex market makers generally do not charge a commission for every

transaction, and instead obtain their compensation from the spread.


On the EUR/USD quote above, the bid price is 1.3456 and the ask price is 1.3459. If trader wants

to sell EUR, he has to click "Sell" and he will sell EUR at 1.3456. If he wants to buy EUR, he

has to click "Buy" and you will buy euro at 1.3459.

5.8. Aspects of Trading:

Most trades on the forex market are a result of traders speculating on price movements. Although

good instincts and speculatory skills are invaluable to any trader, there are also other, more

scientific indicators that traders use to decide whether they will buy or sell a certain currency.

These are found by fundamental technical and sentimental analysis. A trader may utilize both

technical and fundamental analysis before making any forex trades.

5.9. Market Analysis


5.9.1. FUNDAMENTAL ANALYSIS .

According to this method, the analysis of economic indicators, social factors and government

policy of a business cycle can forecast price movement and trends of the market. The

fundamentals of any country, multinational industry, or trading bloc lie in the combination of

factors like social, political, and economic influences. However, it is rather hard to stay aside

from all these variable factors. Therefore, the sphere of complicated and subtle market

fundamental lets the explorer know and understand more details of a dynamic global market

during the analyzing.

It is possible to predict the conditions of the economy but unlikely the market prices by using the

fundamental analysis. The trader should have a certain plan of action concerning the ways of

using the information as entry and exit spots in a certain strategy of trading. Forex fundamental

analysis is a fundamental strategy of trading widely used by online trader of forex. This strategy


contains some estimation where the different basic criteria, except for the price movement, are

taken into consideration during currency trading. The economic conditions in the currency native

country along with a number of other factors are the obligatory elements of these criteria. Any

fundamental part of the economy is included into the fundamental analysis. A decent forex

fundamental analysis includes a number of macroeconomic factors like economic growth rates,

interest rates, inflation, unemployment level and others. The market supply and demand coming

from political and social powers is the aim of fundamental analysis. The market supply and

demand balance forms the currencies prices. The interest rates and the overall economy strength

are the two key factors that influence the supply-demand balance. The overall health of the

economy can be understood through a number of economic indicators like GDP. The frequent

inability of online forex fundamental analyses to find the entry and exit points is forex

fundamental analysis key problem. Due to this factor, the risk control, especially provided with

the leverage, gets quite complicated. Only a piece of an enormous amount of information coming

every day is considerable. The interest rates and international trade are the factors analyzed the

most carefully. In order to create the forex trading strategy fundamentalist traders create models.

The empirical data is gathered in these models for further forecasting the possible price trends

and market behavior basing on the key economic indicators.

Sometimes it happens that two analysts possessing the same data come to different conclusions

about the market behavior. Still you should research the fundamental data and find out their best

fitting to the style of trading and expectations before getting down to any analysis. Any data

making the country tick is considered as fundamental by forex traders. The fundamentals are the

combination of certain plans, unpredictable behaviors, and unforeseen events found out from the

factors like interest rates and the policy of central bank and even natural disasters. That is why it

is better to be aware of the affective contributors of all these factors than to all the fundamentals

listed.

Fundamental elements of the economy:

1. The Basic Concept


The economy will be affected by the investment performance. The expected returns may change

due to inflation or deflation influence. That is why it is important to take the economy trends into

consideration, while planning the strategies of investment.

A. Business Cycle

The activity of the economy is generally shown by the business cycle. The business cycle

consists of four stages: recovery (also known as expansion), peak, contraction (also called

recession), and trough.

The growth of business activity, the increase of demand and production, as well as the expansion

of employment can be seen. The interest rates generally rise during this phase due to money

borrowing by businesses and consumers for their expansion.

B. Inflation

At the moment of business cycle peak the amount of goods on demand gets higher than the one

offer, which is followed by the price increase and inflation. At the inflationary environment, the

amount of money offered for the goods is too high and it makes the conditions for the prices to

rise. This lowers the customer's ability for purchasing.

The demand declines lowering the economic activity due to the prices increase. The recessionary

phase follows this process.

C. Deflation


During deflation the economical activity lowers making the employers fire the workers and

lowering the demand. This is generally followed by the prices lowering that turn into deflation.

The trough phase comes after that. Deflation is characterized as a process of strong and

prolonged prices reduction. The following demand rise is caused by low prices. It creates the

conditions for the economy to come into the expansion phase.

2. Gross National Product (GNP)

Gross National Product is one of the key indicators of the economic activity. All the services

provided and the goods produced within the US economy form the GNP. There are 4

components included in the GNP. They are consumer spending, government spending,

investments, and net exports.

Gross National Product adjusted for inflation (Real GNP) being in decline during two successive

quarters is a sign of recession.

3. Indicators of the Business Cycle

There are three types of indicators describing the economy movements during its entering into a

certain phase of the business cycle. The ones generally used by the economists are leading,

coincident, and lagging indicators.

4. The business cycle's effect in Forex

Forex market There are three types of indicators describing the economy movements during its

entering into a certain phase of the business cycle. The ones generally used by the economists are

leading, coincident, and lagging indicators.

The US dollar movements in the Forex market are usually trending the opposite direction to the

interest rates. For instance, the increase of incomes caused by the interest rates uptrend declines

the US dollar index accordingly.


5. Monetary Policy

The control of money and credit supply within the economy is the general aim on the monetary

policy. The interest rates are affected by these processes, which cause the economic activity

decline. The monetary policy is mainly interested in the inflation control.

6. The activity of the Federal Reserve System (FRS)

The US monetary policy is directed by the Federal Reserve System. The nation's central bank is

the Federal Reserve System. It was established in 1913 by the Act of Congress and created 12

Federal Reserve districts within the country. The Federal Reserve Board of Governors located in

Washington D.C. is responsible for district banks activity coordination. The seven members of

the board are appointed by the President and the nominees require the confirmation of the Senate

later.

5.9.2. TECHNICAL ANALYSIS:

Traders have a second tool to use in trading. Technical analysis, which has become extremely

popular in the last two decades, consists of using charts, trend lines, support and resistance

levels, technical indicators, and pattern identification to study the market's behavior. Traders use

these technical factors to identify buying and selling opportunities. Over long historical periods,

currency behavior has produced trends and patterns that are identifiable.

Technical analysis is a method used by currency traders to predict price movements and future

market trends by studying what has occurred in the past using charts. Technical analysis is

concerned with what has actually happened in the market, rather than what should happen, and

takes into account the price of instruments and the volume of trading, and creates charts from

that data as a primary tool. One major advantage of technical analysis is that experienced

analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles:


1. Market action discounts everything!

This means that the actual price is a reflection of everything that is known to the market that

could affect it. Some of these factors are: fundamentals (inflation, interest rates, etc.), supply and

demand, political factors and market sentiment. However, the pure technical analyst is only

concerned with price movements, not with the reasons for any changes.

2. Prices move in trends.

Technical analysis is used to identify patterns of market behavior that have long been recognized

as significant. For many given patterns there is a high probability that they will produce the

expected results. There are also recognized patterns that repeat themselves on a consistent basis.

3. History repeats itself.

Forex chart patterns have been recognized and categorized for over 100 years, and the manner in

which many patterns are repeated leads to the conclusion that human psychology changes little

over time. Since patterns have worked well in the past, it is assumed that they will continue to

work well into the future.

Candlesticks Charts

http://www.easy-forex.com.au/learn_fx_trading/forex_glossary.asp#Inflation

http://www.babypips.com/school/images/pre-school/technical-analysis.png


Candlestick charts have been developed in the 18th century by Munehisa Homma, Japanese rice

trader of financial instruments and they were introduced to the Western world by Steve Nison in

his book, "Japanese Candlestick Charting Techniques.

Candlesticks are usually composed of the body (black or white), and an upper and a lower

shadow (wick): the area between the open and the close is called the real body, price excursions

above and below the real body are called shadows. The wick illustrates the highest and lowest

traded prices of a currency during the time interval represented. The body illustrates the opening

and closing trades. If the currency price closed higher than it opened, the body is white or

unfilled (bullish), with the opening price at the bottom of the body and the closing price at the

top. If the currency price closed lower than it opened, the body is black (bearish), with the

opening price at the top and the closing price at the bottom. A candlestick need not have either a

body or a wick.

http://en.wikipedia.org/wiki/Candle_wick

http://en.wikipedia.org/wiki/Munehisa_Homma


Here is an example of a candlestick chart for GBP/USD.

The purpose of candlestick charting is strictly to serve as a visual aid. Candlestick charts have

various advantages like:

Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart

analysis. Candlesticks are easy to use. Candlesticks studying may help trading well. Candlesticks

and candlestick patterns have cool names such as the shooting star, which helps you to remember

what the pattern means. Candlesticks are good at identifying marketing turning points - reversals

from an uptrend to a downtrend or a downtrend to an uptrend.

Technical analysis of candlestick patterns.

Japanese candlesticks cheat sheet.

From the single, dual, and triple candlestick formations the trader can easily identify what kind of pattern candlestick he is looking while whenever you are trading.

Number of Bars Name Bullish or Bearish? What It Looks Like?

Spinning Top Neutral


Single

Doji Neutral

White Marubozu Bullish

Black Marubozu Bearish

Hammer Bullish

Hanging Man Bearish

Inverted Hammer Bullish

Shooting Star Bearish

Number of Bars Name Bullish or Bearish? What it Looks Like?

Double

Bullish Engulfing Bullish

Bearish Engulfing Bearish

Tweezer Tops Bearish

Tweezer Bottoms Bullish


Triple

Morning Star Bullish

Evening Star Bearish

Three White Soldiers Bullish

Three Black Crows Bearish

Three Inside Up Bullish

Three Inside Down Bearish

Support and Resistance

Support and resistance is one of the most widely used concepts in trading. Strangely enough,

everyone seems to have their own idea on measuring of support and resistance.


From the diagram above diagram we can see that, the zigzag pattern is making its way up (bull

market). When the market moves up and then pulls back, the highest point reached before it

pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support.

In this way resistance and support are continually formed as the market oscillates over time. The

reverse is true for the downtrend.

Plotting Support and Resistance

One thing to remember is that support and resistance levels are not exact numbers.

Often time trader can see a support or resistance level that appears broken, but soon after find out

that the market was just testing it. With candlestick charts, these "tests" of support and resistance

are usually represented by the candlestick shadows.

http://www.babypips.com/school/types-of-charts.html


Notice how the shadows of the candles tested the 1.4700 support level. At those times it seemed

like the market was "breaking" support. In hindsight we can see that the market was merely

testing that level.

The various levels of support and resistance:

http://www.babypips.com/school/images/grade1/support-before.png


“Support and resistance are levels where the price will potentially stall and even sometimes

reverse.”

Fibonacci retrenchment

Traders use the Fibonacci retracement levels as potential support and resistance. Since plenty of

traders watch these same levels and place buy and sell orders on them to enter trades or place

stops, the support and resistance levels may become a self-fulfilling prophecy.

http://www.babypips.com/school/images/grade1/support-resistance-examples2.png


They key Fibonacci extension levels are the 23.6, 38.2%, 50.0%, 61.8%, 100%, 138.2% and

161.8%.

Traders use the Fibonacci extension levels as potential support and resistance areas to set profit

targets. Again, since so many traders are watching these levels and placing buy and sell orders to

take profits, this tool tends to work due self-fulfilling expectations.

In order to apply Fibonacci levels to charts, trader needs to identify Swing High and Swing Low

points. A Swing High is a candlestick with at least two lower highs on both the left and right of

itself. A Swing Low is a candlestick with at least two higher lows on both the left and right of

itself. Because many traders use the Fibonacci tool, those levels tend to become self-fulfilling

support and resistance levels or areas of interest.


When using the Fibonacci tool, probability of success could increase when using the Fib tool

with other support and resistance levels, trend lines, and candlestick patterns for spotting entry

and stop loss points.

Moving Averages

A moving average is simply a way to smooth out price action over time. By "moving average", it

is mean of average closing price of a currency pair for the last 'X' number of periods.

The simple moving average of 14 days period can be shown as below.

A moving average indicator is used to help us forecast future prices. By looking at the slope of

the moving average, trader can determine the potential direction of market prices.

Moving averages smooth out price action.


There are different types of moving averages and each of them has their own level of

"smoothness". Generally, the smoother the moving average, the slower it is to react to the price

movement.

Calculation:

Simple Moving Average (SMA)

Simple, in other words, arithmetical moving average is calculated by summing up the prices of

instrument closure over a certain number of single periods (for instance, 12 hours). This value is

then divided by the number of such periods.

SMA = SUM (CLOSE, N)/N

Where:

N — is the number of calculation periods.

Bollinger Bands

Bollinger bands are used to measure a market's volatility.

Basically, this little tool tells us whether the market is quiet or whether the market is LOUD!

When the market is quiet, the bands contract and when the market is LOUD, the bands expand.

Notice on the chart below that when price is quiet, the bands are close together. When price

moves up, the bands spread apart.


The Bollinger Bounce

One thing the trader should know about Bollinger bands is that price tends to return to the middle

of the bands. That is the whole idea behind the Bollinger bounce. By looking at the chart below

we can tell by next period market will fall as upper Bollinger band acting as a resistance.


As per the trader predictions now market price settled back down towards the middle area of the

bands. This shows the Bollinger bands act as resistance. Similarly lower band will act as support.


This is a classic Bollinger bounce. The reason these bounces occur is because Bollinger bands

act like dynamic support and resistance levels.

The longer the time frame you are in, the stronger these bands tend to be. Many traders have

developed systems that thrive on these bounces and this strategy is best used when the market

is ranging and there is no clear trend

Calculation:

Bollinger bands are formed by three lines. The middle line (ML) is a usual Moving Average.


ML = SUM [CLOSE, N]/N

The top line, TL, is the same as the middle line a certain number of standard deviations (D)

higher than the ML.

TL = ML + (D*StdDev)

The bottom line (BL) is the middle line shifted down by the same number of standard deviations.

BL = ML — (D*StdDev)

Where:

N — is the number of periods used in calculation;

SMA — Simple Moving Average;

StdDev — means Standard Deviation.

StdDev = SQRT (SUM [(CLOSE — SMA (CLOSE, N)) ^2, N]/N)

Stochastic Oscillator

The Stochastic Oscillator Technical Indicator compares where a security’s price closed relative

to its price range over a given time period. The Stochastic Oscillator is displayed as two lines.

The main line is called %K. The second line, called %D, is a Moving Average of %K. The %K

line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.

There are several ways to interpret a Stochastic Oscillator. Three popular methods include:

Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and

then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80)

and then falls below that level;

Buy when the %K line rises above the %D line and sell when the %K line falls below the

%D line;

Look for divergences. For instance: where prices are making a series of new highs and

the Stochastic Oscillator is failing to surpass its previous highs.

http://ta.mql4.com/indicators/trends/moving_average

http://ta.mql4.com/indicators/trends/moving_average#simple_moving_average


Calculation:

The Stochastic Oscillator has four variables:

%K periods. This is the number of time periods used in the stochastic calculation;

%K Slowing Periods. This value controls the internal smoothing of %K. A value of 1 is

considered a fast stochastic; a value of 3 is considered a slow stochastic;

%D periods. his is the number of time periods used when calculating a moving average of

%K;

%D method. The method (i.e., Exponential, Simple, Smoothed, or Weighted) that is used

to calculate %D.

The formula for %K is:

%K = (CLOSE-LOW (%K))/(HIGH(%K)-LOW(%K))*100

Where:

CLOSE — is today’s closing price;

LOW(%K) — is the lowest low in %K periods;

HIGH(%K) — is the highest high in %K periods.

The %D moving average is calculated according to the formula:


%D = SMA (%K, N)

Where:

N — is the smoothing period;

SMA — is the Simple Moving Average.

Pivot Points Support and Resistance Lines (PP)

Pivot Points Support and Resistance Lines, PP indicate the average price and potential lines of

support and resistance in a certain time space. We get current values of the indicator from data

received at the previous period.

Very often PP is based on day, week and month periods. The plot period must differ from the

indicator period by one time at least. Otherwise, if they coincide, the indicator line will look like

a dot and will carry no information. For example, if a PP indicator is laid on a day plot, then by

each trade day bar you will see dots instead of lines. And if the indicator period is less than the

plot period, you will not see the values at all.

When you analyze the market situation, it is recommended to use several PP indicators based on

week, month and year periods. If two or more levels coincide, they intensity each other. Before

taking a long or a short position, you should wait until the price crosses all coinciding levels.

Before this, you should not open any positions.

Support and resistance levels, received with the help of the indicator, allow predicting possible

levels of Stop Loss and Take Profit with high precision.

The following rules are also just:

If the PP is next to the opening price of the current bar, the probability of getting profit is

higher;

On a growing market, when a price drops below the central axis, you should not open a

short position immediately as a side trend as possible. Most probably, the price will re-

test the level. If the market will not be able to overcome, the turning point, we may speak

about a market turn. This thesis is right for the "bear" trend.

To hold long-term trade, you must know the location of week, month and year timeframe central

axis. It is obvious that if the price is lower than those turn lines, we may speak about a strong

http://ta.mql4.com/indicators/trends/moving_average#simple_moving_average


descending trend. On the other hand, if the price is higher than the week, month and year central

axes, it is a glaring example of a bullish trend.

Calculation:

PP = (HIGH + LOW + CLOSE) / 3

R1 = 2 * PP - LOW

R2 = PP + HIGH - LOW

R3 = 2 * PP + HIGH - 2 * LOW

S1 = 2 * PP - HIGH

S2 = PP + LOW - HIGH

S3 = 2 * PP + LOW - 2 * HIGH

Where:

PP — the central axis (any price can perform as it);

R1, R2, R3 — the 1st, 2nd and 3rd levels of resistance;

S1, S2, S3 — the 1st, 2nd and 3rd levels of support;

HIGH — the max price in the previous period of the indicator;

LOW — the min price in the previous period of indicator;

CLOSE — the closing price in the previous period of indicator.


RISK MANAGEMENT IN CURRENCY TRADING .

Forex is among the many markets which have opened upon the dawn of technology. As a matter

of fact, it is already one of the largest and most fluid markets in the global marketing arena.

Trillions of dollars are invested within the Forex structure of hundreds and thousands of traders –

experts, novices and frustrated ones, in the system. The thing is, the Forex market is not the

safest place to be. Actually, all markets are never safe. There will always be risks and

accompanying consequences for ever action that you will employ in a specific system. The act of

buying is a game of chance itself. Whether you bought a good shampoo or not you will never

know until you have tried it. So what we do is to get as much information as we can, look into

the contents of the product, compare with other products and be vigilant of what consequences

might occur after usage. This is our way of using our common sense to employ quality control,

thus, decreasing chances of frustration and regret. Similarly, Forex trading does this as well.

Precautions are taken andForex risk management methods are institutionalized to decrease losses

and increase possibilities of getting the best gains offered in the market.

Steps in the risk management:

1. Establish context

2. Identify the risks

3. Analyse and evaluation of risks

4. Treatment of risks

1. Establish context:

Risk management is done in order to minimize the adverse effects of potential losses at least

possible cost. Managing of risk depends upon his needs and perception. Foreign market plays an


important role in economy of any country and risk is managed by different strategies in foreign

market to maximize profit in long run and give a boost to economy.

2. Risks involved in currency trading

Forex Currency trading is quite a lucrative option to gain huge profits but there are risks involved

too, which a trader needs to understand well before jumping into forex trading. While trading in

forex, investors come across various types of risks in foreign exchange trading. The five main

types of risks involved in foreign exchange trading are defined below.

Exchange Rate Risk

Interest Rate Risk

Credit Risk

Country Risk

Operational risk

a.Exchange Rate Risk:

The value at which the currency is traded is the exchange rate. It is always defined in terms of

another currency. The forex trade shows how much one currency is worth in terms of the

other.

The trader has to deal with risk when the price changes suddenly. This commonly happens as

a result of changes in demand for one of the currencies. Changes in demand are often caused

by changes in basic economic events such as taxations, employment rate and other factors.

Political volatility can change the forex rate considerably in a few seconds

A position is a subject of all the price changes as long as it is outstanding. In order to cut

short these exchange rate risks and to have profitable positions, the trading should be done

within manageable limits. The common steps are the position limit and the loss limit. The

limits are a function of the policy of the banks along with the skills of the traders and their

specific areas of expertise. There are two types of position limits daylight and overnight. The

daylight position limit establishes the maximum amount of a certain currency which a trader

is allowed to carry at any single time during. The limit should reflect both the trader's level of


trading skills and the amount at which a trader peaks. Whereas, the overnight position limit

which should be smaller than daylight limits refers to any outstanding position kept overnight

by traders. the position and loss limits can now be implemented more conveniently with the

help of computerized systems which enable the treasurer and the chief trader to have

continuous, instantaneous, and comprehensive access to accurate figures for all the positions

and the profit and loss.

b. Interest Rate Risk:

The interest rate risks in foreign exchange trading are related to the currency swaps, futures,

forward out rights and options in foreign currency exchange trading. The interest rate risks are

those foreign exchange trading risks which refer to the profit and loss generated by both the

fluctuations occurred in the forward spreads and by forward amount mismatches and maturity

gaps among various transactions in the forex book. The mismatch amount is the difference

between the spot and the forward amounts. On a daily basis, traders balance the net payments

and receipts for each currency through a special type of swap, called tomorrow or rollover.

Limits of the total size of mismatches are set up by the management to minimize interest rate

risks in forex trading. However, different banks have different policies to cut back the losses.

However, the most common approach is to separate the mismatches, based on their maturity

dates, into up to six months and past six months. Then all the transactions are put into

computerized systems to calculate the positions for all the delivery dates and the profit and

loss. There is a continuous analysis of the interest rate environment necessary to forecast any

changes that may affect the outstanding gaps.

c. Credit Risk:

Other kinds of risks involved in foreign exchange trading are credit risks. These are associated

with the probability that an outstanding currency position might not be repaid as agreed upon

because of a voluntary or involuntary action by the other party. In such a case, the forex

trading occurs on regulated exchanges, where all trades are settled by the learning house. In

these types of forex exchanges, the investors of all sizes can deal without any credit concern.


The following forms of credit risk are known. There are two types of credit risks in foreign

exchange trading, the Replacement risk and the settlement risk.

d. Country Risk:

The country risks in forex trading are arise in case of there are a party is unable to receive an

expected amount of payment because of the government interference in the matters of

insolvency of an individual bank or institution. The country foreign exchange trading risks are

linked to the interference of government in forex markets. It falls under the joint responsibility

of the treasurer and the credit department. The government control on foreign exchange

activities is still present and implemented actively. For the investors, it is important to know

or how to be able to anticipate any restrictive changes concerning the free flow of currencies

e. The broker risk.

When the financial assets run a downhill climb, then, you might be facing some risks of bankruptcy.

The Forex market doesn't only involve being able to trade using your own means. Some investors hire

brokers and banks directly related to the Forex market to be able to keep and tend to their

investments and gains. When banks and brokers file for bankruptcy or experience financial

downturns, then, you might expect to start counting what you have in your hands because if the

dilemma is not resolved, a fiasco will surely rise.

In this case, we already start employing our Forex risk management strategies. One thing that

you can do prior is to get a good broker or a good bank. Since, there is still no assurance from

the bank. And if any case they will have to file for bankruptcy anytime soon, you have to be

secured of the papers. Before engaging in any possible transaction especially regarding

money, you must have to have certain documents that does not free anyone associated with

you as far as financial assets are concerned. In that way, you are sure you have something

against the bank or the broker.

f. The tech risks .

Apparently, problems with the technicalities present another set of headaches. Although the

web and the use of computers have placed an edge to trading, it has also diminished some of


the timelines when trading. Poor internet connection, power supply issues and hardware plus

software matters have become widely rampant to both online traders and offline traders. Most

especially now that most data are installed within the confines of the computers, getting a

good head start with everything in the computer's database gone is like starting from the

roughest scratch. Internet and computer problems can duly affect Forex in every sense. Forex

itself is an innovation of technology and it basically roots online. Without a computer or a

connection, you are doomed to lose.

The Forex risk management for this case is to always have a set of back-up files with all of the

things that you have done during your stay in the arena. Select off site locations for your back-

up files and reserve another set of software just so the damage is can't be repaired. Always try

to pay the internet on time. Having good credits will most likely mean an okay internet

connection.

g. The market risk.

If there is one risk traders can and will never overlook is the market risk. This is what most

traders see – the risk of losing or winning alone. The market risk is basically how the market

trends fluctuate. To where does the trends seem to be going? Market risks see how changes

and fluctuations affect the whole trading system. The Forex risk management commonly done

in most of these cases is to use a trading system which integrates the risk management

techniques at the base level. Entry and exit portal must be present as well.

h. The economic and the political risks.

Fluctuations in the economic standings or formulation of certain laws and policies concerning

the finances can generally affect positions in the Forex market. What must traders do is to find

for a good strategic plan which is capable of analyzing the current position taken by the trader

and present recommendations as deemed necessary.

i. Operational Risk


This type of risk comes from company’s business functions. It is a wide-ranging type of risk.

It comes from the risk related to people, processes and systems through which the company

works.

There are also other risks involved in forex trading. Here I consider these ones to be the most

important for highlighting.

• Electronic trading with customers – forex trading activity is mainly focused on remote

electronic workstations. It demands more attention regarding specific precautions as for

system access and passwords.

3. Analyzing and evaluating the risks

A . Risk Analysis:

Once it has been determined that a foreign currency hedge is the proper course of action to hedge

foreign currency risk exposure, one must first identify a few basic elements that are the basis for

a foreign currency hedging strategy.

1. Identify Type(s) of Risk Exposure:

Again, the types of foreign currency risk exposure will vary from entity to entity. The following

items should be taken into consideration and analyzed for the purpose of risk exposure

management: (a) both real and projected foreign currency cash flows, (b) both floating and fixed

foreign interest rate receipts and payments, and (c) both real and projected hedging costs 81 (that

may already exist). The aforementioned items should be analyzed for the purpose of identifying

foreign currency risk exposure that may result from one or all of the following: (a) cash inflow

and outflow gaps (different amounts of foreign currencies received and/or paid out over a certain

period of time), (b) interest rate exposure, and (c) foreign currency hedging and interest rate

hedging cash flows.

2. Identify Risk Exposure Implications:

Once the source(s) of foreign currency risk exposure have been identified, the next step is to

identify and quantify the possible impact that changes in the underlying foreign currency market

could have on your balance sheet. In simplest terms, identify "how much" you may be affected

by your projected foreign currency risk exposure.

3. Market Outlook:


Now that the source of foreign currency risk exposure and the possible implications have been

identified, the individual or entity must next analyze the foreign currency market and make a

determination of the projected price direction over the near and/or long-term future. Technical

and/or fundamental analyses of the foreign currency markets are typically utilized to develop a

market outlook for the future.

B . Determine Appropriate Risk Levels:

Appropriate risk levels can vary greatly from one investor to another. Some investors are more

aggressive than others and some prefer to take a more conservative stance.

1 . Risk Tolerance Levels :

Foreign currency risk tolerance levels depend on the investor's attitudes toward risk. The foreign

currency risk tolerance level is often a combination of both the investor's attitude toward risk

(aggressive or conservative) as well as the quantitative level (the actual amount) that is deemed

acceptable by the investor.

2. How Much Risk Exposure to Hedge:

Again, determining a hedging ratio is often determined by the investor's attitude towards risk.

Each investor must decide how much forex risk exposure should be hedged and how much forex

risk should be left exposed as an opportunity to profit. Foreign currency hedging is not an exact

science and each investor must take all risk considerations of his 82 business or trading activity

into account when quantifying how much foreign currency risk exposure to hedge.

4. Forex risk management strategies :

The Forex market behaves differently from other markets! The speed, volatility, and enormous

size of the Forex market are unlike anything else in the financial world. Beware: the Forex

market is uncontrollable - no single event, individual, or factor rules it. Enjoy trading in the

perfect market! Just like any other speculative business, increased risk entails chances for a

higher profit/loss. Currency markets are highly speculative and volatile in nature. Any currency

can become very expensive or very cheap in relation to any or all other currencies in a matter of

days, hours, or sometimes, in minutes. This unpredictable nature of the currencies is what attracts

an investor to trade and invest in the currency market. But ask yourself, "How much am I ready


to lose?" When you terminated, closed or exited your position, had you had understood the risks

and taken steps to avoid them? Let's look at some foreign exchange risk management issues that

may come up in your day-to-day foreign exchange transactions.

Both new and experienced traders make good and bad trades over a long period of time. The

difference between them is that the more experienced trader has a grasp of the importance of risk

management as an integral part of a successful Forex trading strategy. Proper risk management

can maximize the positive and minimize the negative aspects of the regular ups and downs of

trading. In addition to basic limit and stop orders, Forex offers a range of risk management tools

that can give trader an edge over the market.

a. Limit and stop orders

When placing a market order, many experienced traders already know the levels at which they

will want to exit the trade. The 24 hour nature of the Forex market makes it difficult for a trader

to make timely trading decisions. This is even more important since large market moves may

happen while trader is away.

With these risks at hand, there are different options which can be used to decrease chances of

losing just because of improper handling. Most common of which is the placement of stop loss

orders. Basically, stop losses includes placing a specific amount of space wherein when a certain

trade reaches that specific point, you will withdraw from the position gained. Stop losses helps

traders to gain many winning positions and yet incurring one losing position which will certainly

pull off all the profits once brought to the extremes. You can either have the stop loss at a

specific level, usually around 50 pips from the entry and exit levels or you may opt to have

progression in the elimination, subsequently interchanging transaction and stop losses.

Where should I place my stop and limit orders?

As a general rule of thumb, traders should set stop/loss orders closer to the opening price than

limit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be

profitable. For example, a trader that uses a 30 pip stop/loss and 100-pip limit orders, needs only

to be right 1/3 of the time to make a profit. Where the trader places the stop and limit will depend

on how risk-adverse he is. Stop/loss orders should not be so tight that normal market volatility

triggers the order. Similarly, limit orders should reflect a realistic expectation of gains 85 based


on the market's trading activity and the length of time one wants to hold the position. In initially

setting up and establishing the trade, the trader should look to change the stop loss and set it at a

rate in the 'middle ground' where they are not overexposed to the trade, and at the same time, not

too close to the market. Trading foreign currencies is a demanding and potentially profitable

opportunity for trained and experienced investors. However, before deciding to participate in the

Forex market, you should soberly reflect on the desired result of your investment and your level

of experience. Warning! Do not invest money you cannot afford to lose. So, there is significant

risk in any foreign exchange deal. Any transaction involving currencies involves risks including,

but not limited to, the potential for changing political and/or economic conditions, that may

substantially affect the price or liquidity of a currency. Moreover, the leveraged nature of FX

trading means that any market movement will have an equally proportional effect on your

deposited funds. This may work against you as well as for you. The possibility exists that you

could sustain a total loss of your initial margin funds and be required to deposit additional funds

to maintain your position. If you fail to meet any margin call within the time prescribed, your

position will be liquidated and you will be responsible for any resulting losses. 'Stop-loss' or

'limit' order strategies may lower an investor's exposure to risk

b. Trader's Guardian

Trader's Guardian provides a number of tools to help analyze and assess trader’s risk exposure in

the market. The Margin Use Level(s) feature displays your used and usable account margin for

each account on bar graphs. To help prevent trader from falling below trader usable margin, a

Warning Level is displayed at all times. Keep track of trader’s exposure in opened positions as

well as his exposure in different currencies, with the Instruments Exposure and Currency

Portfolio tools.

c. Trailing stop trading system

This feature is an invaluable way to simplify trader’s trading and help protect trader’s positions.

The trailing stop works like a regular stop order that moves up or down if your original position

is moving in a favorable direction, while not moving if your position is moving in an unfavorable


direction. If trader has a long position, for example, and set up a trailing stop, it will move up as

the position's price rises. When the price begins to fall, the trailing stop stays in place until it is

triggered. It is up to you, the trader, to set the number of pips the stop will trail the market price.

The trailing stop trading system helps clients lock in potential profits while controlling for

possible market reversals.

d. Trader's Range

The Trader's Range feature is a handy way to minimize the costs associated with missing an

entry or exit on a position, during an extremely fast moving market. Trader’s Range lets a trader

choose a certain amount of pips in either direction from the current market price that he or she is

willing to accept. Utilizing Trader's Range takes the place of entering an order, getting re-quoted

and then having to manually accept a new price. Proper use of Trader’s Range eliminates the

hassle of approving a re-quote when trying to enter orders and helps trader’s orders get filled

even in volatile markets.

e. Risk to Reward

This is something a new trader may not want to hear, but an important psychological part of

trading Forex is to understand that unless a trader has a big enough account to weather adverse

market moves, the capital in one’s account should be considered risk capital. Forex is not the

same as other investments since traders, depending on one’s leverage options, can and should be

ready to lose all the capital in his or her account. Of course, in reality a trading plan is designed

to do just the opposite, not to lose money. When beginning a trading plan, another step for a

trader is to determine the psychological level of drawdown on the account that one is willing to

tolerate.

An aggressive trader may be willing to take on bigger risk to potentially get a larger reward. For

example, he or she may be ready to face a drawdown level of 50% of the capital in an account in

order to try and achieve certain results. A conservative trader on the other hand may only be

willing to get a smaller reward but will risk, for example, only 10% of the account. These


numbers are not meant to be taken literally, they are just used here to highlight that some traders

may have a bigger appetite for risk while others are more conservative.

Why is the topic of potential drawdown being discussed? It should be understood that if one’s

trading is generating losses, instead of returns, and the account is approaching a trader’s

maximum drawdown level, it means that something is wrong with the trading approach or tools.

It may be time to stop trading and re-evaluate the analysis that the trader is using.

It is perfectly normal to lose on any particular trade, but it is a serious warning when there are

consecutive losses and the losses add up to a large part of a trader’s account. Small losses are

part of the trading plan, as some positions will end as losers and others will be winners; what is

important is to have an average between the two that is positive. This means that the winners are

bigger than the losers and an account is building equity.

f. Per Trade Exposure

A trader’s maximum operational drawdown is linked to the money management technique: per

trade exposure. Per trade exposure is a technique in which there is a certain amount of capital

that a trader is willing to allocate per trade. This means that there is a certain amount of risk per

trade that the trader is willing to assume.

Many new traders think that if they see a potential trade, they can risk a substantial part of their

capital to get a large return. One of the recipes to disaster or failure in trading is when a beginner

trader tries to get rich quick; to make a fortune with one or two trades. One should aim to trade

with consistency, and on average win more than you lose.

Let’s say that a trader, has a $10,000 dollar account and wants to allocate 5% of his account per

trade. This means the trader is willing to risk losing $500 on any one trade. If a position goes

against him by 5% of his account then according to his per trade exposure he should close it.

When a trader has a specific per trade exposure amount it forces him or her to use discipline,

limiting the effect of emotions on trading decisions.

Again, the numbers that are being used here are strictly to build an example and should not be

used literally. If one is unsure what amount to allocate per trade, they should seek the advice and

guidance of a financial advisor.

An Example of Calculating Risk using Exposure per Trade


I n another example, it is Oct. 12th and I am a trend follower. I want to enter on currency

strength when I see a new uptrend forming as price approaches a new high at 1.2575.

Let's assume that from looking at support levels beforehand I made the conclusion to place my

stop somewhere around 1.2480, which is a difference of around 100 pips.

If I have a $20,000 account and my exposure per trade is 5%, I can risk $1000 on a given trade.

If I prefer to open 1 Lot positions, the 100 pip difference from where I want to open my trade to

the stop fits with my 5% requirement. Therefore, the amount from 1.2575 to 1.2480 is now

considered my risk after opening the position.

As long as price stays within the 100 pip risk zone, it will be considered noise. If the pair moves

to 1.2480, my original analysis was wrong and the stop loss order I placed earlier should close

my position.

How to size one's position ties into exposure per trade and will be discussed on the next page,

along with what happens next to the "new uptrend".

8.3 Using Exposure Per Trade in Examples

Our lesson continues with the exposure per trade example from the previous page.

Weathering Noise

After opening the trade on October 13th based on a certain analysis and technical picture, price

breaks in the opposite direction!

Traders that use risk management techniques such as exposure per trade, are less likely to close a

position at the first instance of the market swinging against them.

A trader with a risk management plan is not as easily affected by fear because he has already

determined when he would exit the position if the market continues to move in the wrong

direction. Therefore, the price movement after the position is open (3) is considered noise. With

this trading strategy in place the trader would be able to gain once the market turned back up.

Fortunately for the trader, the market changed direction at an opportune moment as the stop was

very close to being activated. However, if price did not turn around and kept heading downward,

the trader would close the position once his maximum risk level for any particular trade was

reached.

Sizing a Position


In another scenario, a trader wants to enter when the market breaks the (1) high, and also

establishes a stop at 1.2480. The next time that price breaks 1.2575 is on October 19th.

Let's first look at a trader that has a $20,000 account and is willing to risk 5%, or $1,000, as his

exposure per trade. Since the stop is 100 pips away, or $1,000 away on a standard 1 Lot, he

would take out a 1 Lot position. With this size trade, if the market moves against him and the

position gets stopped out, he would have lost only 5% of equity as planned.

If there was a similar trader that chose 5% as her exposure per trade and had the same stop, but

had $10,000 in her account then a 1 Lot position would not work for her. If she was to open a 1

Lot trade, and her stop was reached, she would lose 10% of her account, not 5%. Therefore, the

proper size for her risk threshold would be a position that is 5 mini-lots or .5 standard Lots.

g. Bundled Entry Orders

Bundled entry orders allow a user to set limits and stops for the pending position when creating a

new entry order. This ensures that even if the order is executed while trader is away from the

computer, the order is completely covered by associated limits and stops.

If your position reaches your desired profit target, the limit order will close your trade with a

profit. If the trade goes against, the stop order will close out position at preset level, limiting

losses. Once a bundled Entry order is placed it does not require any direct supervision, as its

execution and the levels at which it will close have already been predefined by the trader.

h. Exit strategy.

Having a market exit strategy is one good Forex risk management. No one will stay within the

Forex arena forever. The Forex market is a dynamic field and staying more than the time

expected and allotted might mean incredible losses. With a good market exit strategy, you, as a

trader, can have an estimate of which point will you be able to have a safe exit without turning

the tables against you. Meaning you get to own a good number of pips without a careless

rundown. This is a safe, pre-determined and pre-defined plan which traders have to employ when

they start to go out of the position.

i. Forex Autopilot

The Forex Autopilot technology helps users design and run automated Forex trading systems.

The Autopilot effectively automates clients’ trading strategies by allowing them to setup Forex


trading systems and automatically generating trades based on these systems. Trading systems can

operate on countless of factors such as market conditions and multiple technical indicators. Forex

Autopilot not only generates signals based on trader’s custom trading systems but can also be set

to automatically create orders and execute trades whenever a buy or sell signal is generated.

Forex Autopilot also allows you to verify the effectiveness of trading strategies by visually back

testing trading systems on historical chart data.

By default VT Trader™ includes a number of automated trading systems. Though fully

functional these systems are provided as samples and are by no means to be considered trading

recommendations. Nevertheless these Forex trading systems can provide buy and sell signals as

well as generate orders. These systems can be used to help guide trader in creating his own

personalized trading system. trader can either adjust the included systems and use them as a basis

for his automated trading systems or easily develop new trading systems from scratch.

Forex Autopilot's intuitive Trading System Builder allows clients to easily create and configure

new systems. Once a trading system is configured, VT Trader™ will automatically open and

close positions at specified parameters. These parameters can include price levels, moving

average crossovers, and even technical indicator levels. When certain conditions are met, as

defined by the user in his or her trading system, orders are triggered.


CHAPTER.5

OBSERVATUONS AND FINDINGS

RECOMMENDATIONS/ SUGGESTIONS

CHAPTER.5

OBSERVATUONS AND FINDINGS

How to avoid typical pitfalls and start making more money in forex trading

1. Trade pairs, not currencies. - Like any relationship, the trade has to know both sides.

Successful or failure in forex trading depends upon being right about the both currencies and

how they impact one another, not just one.

2. Knowledge is power – when starting out trading forex online, it is essential that the trader

understand the basis of this market, if he want to make the most of his money.


3. Independence – if trader is new to market, trader will either decide to trade his own money or

give his money to broker to trade it behalf of him.

4. Tiny margins – Margin trading is one of the biggest advantages in trading forex as it allows

trader to trade amounts for larger than the total of his deposits. However, it can also be

dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders.

The best guideline is to increase leverage in line with experience and success.

5. No strategy – The aim of making money is not a trading strategy. A strategy trader’s map for

how he plans to make money. Trader strategy details the approach he is going to take, which

currencies he is going to trade and how he will manage risk. Without a strategy, he may become

one of the 90% of new traders that lose their money.

6. The only way is up/down - when the market is on its way up, the market is on its way up.

When the market is going down, the market is going down. That’s it. There are many systems

which analyses past trends, but none that can accurately predict the future. But if the trader

acknowledges himself that all that is happening at any time is that market is simply moving.

Trader will be amazed at how hard it is to blame anyone else.

7. Trade on the news – most of the really big market moves occur around news time. Trading

volume is high and moves are significant. This means there is no better time to trade than when

news is released. This is when the big players adjust their positions and prices change resulting

in a serious currency flow.

8. Exiting trades – if the trader places a trade and it is not working for him, he has to get out.

There is no use of staying in trade and hoping for reversal. If the trader is in a winning trade, he

should not talk himself out of his position because he is bored or want to take stress: stress is a

natural part of trading; he gets used to it.

9. Don’t trade too short-term – if you are aiming to make less than 20 points profit, don’t

undertake the trade. The spread, the trader is trading on will make the odds against trader far too

high.


10. Don’t be smart – the most successful traders I know keep their trading simple. They don’t

analyse all day or research historical trends and track web logs and their results are excellent.

11. Ignoring technicals – understanding whether the market is over –extended long or short is a

key indicator of price action. Spikes occur in market when it is moving all one way.

12. Emotional trading – without that all –important strategy, the trader trades essentially are

thoughts only and thoughts are emotions and a very poor foundation for trading. When the

traders are upset and emotional, the trader doesn’t tend to make the wisest decisions. So the

trader should sway away is emotions.

13. Confidence – confidence comes from successful trading. If trader lose money early in stage

of his trading career its very difficult to regain it; the trick is not to go off half cooked; the trader

has to learn the business before he stat trading and he should always remember that ‘knowledge

is power’.

RECOMMENDATIONS/ SUGGESTIONS

1. Trade defensively:

The best offense is a good defense. The trader has to be thinking what he could can lose

as opposed to what he could gain.

2. Adhere to own trading strategy:

Every trader needs a clear personal trading strategy. An important part of trader’s trading

plan is to set a limit on what trader willing to lose. Set stop losses based on that limit.


Stick to own trading plan and avoid impulse trades. If the trader did not understand what

the market is doing or if the trader’s emotional equilibrium is severely disturbed, then he

has to close out all his positions and take a break. Trader should not trade on market

rumors or tips, trade based on his strategy.

3. Controlling emotions:

Recognize that all traders sometimes experience high levels of stress and suffer losses

from time to time. Anxiety, frustration, depression and at times desperation, are all part of

the trading game. Trader has to stay focused on what he is doing. Trading is should be on

the basis of informed, rational, decisions, not emotions and wishful thinking.

4. Isolation of trading from the desired profits:

The trader should not hope for a move so much that his trade is based on HOPE.

Although hope is a great virtue in other area of life, It can be great hindrance to a trader.

5. The trader should not form new opinions during trading hours:

The trader has to decide on a basic course of action, should not let the ups and downs

during the day upset his trading.

6. The trader has to take a trading break:

One successful trader commented. “When I fall to 90% of mental efficiency, I began to

break even. Anything below that I begin to lose.” Trading is hard work and it is often

very smart to quit while trader is ahead and give himself a small vacation. Most traders

don’t do this for themselves and they burn out.

7. Avoiding trading of too many currencies at once:

Once the account grows to a sizable amount, the trader will be able to trade many

currencies at a time and still be sticking to the rules of money management. This is not

always be an best idea.

8. Monitoring a position properly:

Moving the stop losses up to insure profit, and cancelling orders that were not filled even on

one trading position requires much concentration and mental alertness.

9. Stop losses do their job and protect trader:


Don’t ever cancel a stop loss to let incur a loss of more than stop order because the trader

is hoping the market will turn around. Always let stop losses will be the maximum the

trader will lose.

10. Be patient with a position:

Not every signal trader will take will immediately take into profit. It sometimes takes

several hours or more to be in profit on apposition when day trading and sometimes

weeks on a long term trade. When the position is at loss and trader decide to get out, the

should not make a 180 degree turn. The trader has to wait for the next good signal in the

right direction.

11. Learn to comfortably deal with losses.

Traders must learn to accept losses because they are part of business. When trader gain

emotional stability to accept a loss without hurting pride or outlook on his trading, he is

on his way to becoming a successful trader.

12. Let profit run:

Successful traders should never take a profit just for the sake of taking a profit. They

have reason to close out a profitable position. It is good to have an approximate profit

target in mind.

13. Act promptly:

The forex market is not kind to those who procrastinate. Therefore, the rule of thumb is

act promptly. This doesn’t mean that the trader should be impulsive, and get in trades

hastily but if trader see a good signal it is better to place a trade. The key is not to be

hasty and not to hesitate, but to find a balance between the two.


CHAPTER.6

CONCLUSION

BIBLOGRAPHY

CONCLUSION

1. The forex market is flexible; feasible because of it is a 24HR market.


2. It has features like 24 hour liquidity, 100 percent leverage, professional management of

funds, higher risk to earn more, availability of many markets, opportunity to earn profits

in either direction.

3. The trader has to take risk based upon the size of his investment account and his

strategies. Higher the risk, higher is the profits.

4. The trader should study the market carefully and make decisions based on his positions

i.e., buy or sell.

5. The trader (other than investor) has to trade safely thinking it’s his own investment.

6. The trader should not trader during the period of fundamental news.

7. Technicals can judge the market and the trader can catch the trend in a better way.

BIBLIOGRABHY


BOOKS:

1. Author: Gaston Fornes, Guillermo Cardoza Journal:” International Journal of

Emerging Markets” Volume: 4 Issue: 1 Page: 6 – 25 Publisher: Emerald Group

Publishing LTD Year: 2009.

2. Author: Mazin A.M. Al Janabi Journal: The Journal of Risk Finance Volume: 8 Issue:

3 Page: 260 - 287Publisher: Emerald Group Publishing LTD Year: 2007.

3. Author: Ike Mathur Title: Managing Foreign Exchange Risks: Organizational Aspects

Journal: Managerial Finance Volume: 11 Issue: 2 Page: 1 – 6 Publisher: Barmarick

Publications Year: 1985.

4. Author: I M Pandey : FINANCIAL MANAGEMENT 9TH Edition Title Risk

management strategy page no 711, Vikas publishing house Pvt. LTD year 2009.

WEBSITES:

www.hif-india.com

www.forexfactory.com

www.babypips.com

www.forexpros.com

www.hif.co.id

http://www.hif.co.id/

final darft risk management in forex

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