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Reasons for Trading

University: ITCM College London

  • Unit No: 4
  • Level: Undergraduate/College
  • Pages 10 / Words 2000
  • Paper Type: Assignment
  • Course Code: R/508/0541
  • Downloads: 0
Answer :

INTRODUCTION

Currency trading refers to buying and selling of different currencies of the world. Since, the market is quite unstable and bracket of risk is quite wide. There are various asset management organizations in Australia that are functioning in to manage currency investment. The main motive of investing in a particular currency is to ensure that minimum risk is attained by the investor in such a manner that maximum amount can be generated in the end.

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Easy market is one such platform which helps the trader by providing access to wide range of portfolio of various financial instruments, options, commodities and indices. It helps in giving an overview to the stock market and how purchase and sales tend to take place at a particular platform. The currency trade took place between currency pairs of USD / JPY, AUD / USD, EUR / JPY and EUR / USD.

In the present scenario Easy market has been used for trading which has helped in ascertaining the profit and loss in particular currency with the help of various graphs and charts. The learner has been able to gather data regarding purchase and sales of currency that took place between 6th April 2018 to 9th May 2018.

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STRATEGIES

There are certain strategies that can be used by the trader to ascertain that investment that he is going to make in the stockwill prove to be profitable or not. These strategies are:

  • Currency Speculation
  • Fundamental analysis
  • Technical analysis

Currency Speculation

As the name suggest, it refers to speculating in the currency. The process involved buying, selling and holding of the currency so that profits can be generated from favourable fluctuations in the exchange rates belonging to different countries. An exchange rate is a rate at which currency is actually exchanged from one another and is always quoted in pairs, such as, AUD / GBP. In such cases, the exchange must have taken place between Australian Dollars and Great Britain Pound. Currency Speculation is always a high-risk area as it is quite difficult to assess the value of currency which is going to be on the next date (Arthur, 2018). For example, if the trader has speculated that Euro will be strengthen in comparison to Pound. In this case, then trader will indulge in buying Euro from the available Pound with him.

In the present scenario of Easy Market, I have got involved in currency speculationswhere, I opted for buying currencies belonging to different countries based upon their speculation of being strengthen. Easy market is a platform that helps in building the experience that can be gathered by a novice trader, who may not carry adequate amount of knowledge regarding stock market.

Fundamental Analysis

Fundamental analysis refers to the method of assessing intrinsic value of the stock so that long term investment opportunities can be ascertained. It helps in assessing that whether investing in a particular stock will prove to be beneficial for the organization or not. the examination is conducted based on financial, economic and other qualitative and quantitative factors. It helps in understanding the overall financial condition of the stock and ascertain that whether its investment will prove to be fruitful for the trader or not (Bauwens and Giot, 2013).

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Impacts of Crises and Risks

I tried to analyse the investment aspects in currency. Hence, fundamental analysis helped in understanding that whether the investment will prove to be profitable for me or not. Since, is a constant change in demand and supply aspect of the country, the value of currency tendsto fluctuate accordingly. Understanding this changed has helped me in taking effective decisionswith respect to trading (Bekaert and Hoerova, 2014). I used various websites so as to assess the economic condition of the countrybefore applying for tradingin currency so that effective and profitable decisions can be made from my side. Suggestions from various experts were also assessed so that I can make out that whether trading in particular currency will prove to be profitable for me or not.

Technical Analysis

Trading analysis is yet another trading tool that is used by the investors in identifying the opportunities linked to it. The opportunities can effectively be analysed through statistics such as movement in prices and volume. Security’s intrinsic value is also assessed so that appropriate investment decision can be prepared by the trader. As per the technical analysis concept, it is believed that the transaction will take place in the same manner. In such cases, a high amount of dependence is made on the past activities and decisions are made based upon it in the near future as well. It helps in understating the trading movement aspects related to the currency as well as the commodities (Curme and et.al., 2014).

The same approach has been used by me as well so as to assess that whether I must invest in the particular currency or not. I have used line graph so as to assess the trend of each and every currency I invested in. It helps inunderstanding the pattern that whether moving average of buying and selling currency is profitable enough for investment or not. I also used Fibonacci retracement in understanding the resistance of currency pair and thereby it helpedin preparing the graph of pairs currency and analyse the day to day fluctuation aspects in it.

CURRENCY TRADE: REASONS FOR TRADING

The trading aspect was purely done on Easy market so as to understand the core aspects that are related to trading. It helped me in developing adequate knowledge regarding stock market that can beusedby me while making actual investment in the stock market (Wen, Wei and Huang, 2012). I have taken into consideration fundamental and technical analysis toascertain the fluctuation and assess that whether the investment will prove to be profitable for me or not.

USD / JPY

The graph shows trading between USD and JPY where initial pricing from the easy market. A constant fluctuation in the prices of currency can be assessed with constant drop in the prices. Therefore, decision regarding sellingand buying was appropriately beingmade by me so as to stop any type of loss that could have been occurred during this trading. Due to overall increase in the prices of the currency, it was expected that it will be able to come up with adequate amount of profitability.The currency market is presently bearish in exchange of USD and JPY. It is due to the reason I took the decision of buying the same. The overall economy of Japanese Yen is improving and hence positive economic growth is expected out of the same (Farmer, 2012). Therefore, initiating towards profits in the currency investment, I decided to buy the investment and gather the amount at whatever minimum price it is available. If you want to receive an original document according to your university guidelines, then take our programming assignment help with chat support!

EUR / JPY

The currency exchange of EUR and JPY can be assessed which helps in analysing that the currency prices are fluctuating to the maximum. It helps in assessing that the overall prices of the currencyare going upindicating that adequate amount of profits will be generated by the trader if he tends to invest in the same. Hence, to ensure that I am able to gather adequate profits out of it I tried to make the purchasesof the currency when the prices were actuallylow. It helped me in getting the best deal. I planned to sell it in the duration when the prices are higher than the amount I actually made purchases from. It is due to the increasing trend of currency due to constant growth in the overall economical market of Japan(Bunde, Kropp and Schellnhuber, 2012). It was then expected at the time of purchases that the prices of Japanese currency will go up and adequate profits will be attained by me through the same. The margin to financial risk is quite high in this case which indicates that there are higher chances that I may not be able to generate adequate profits out of it. However, due to constantgrowth in the Japanese economy decision of purchasing Chinese currency has been made by me.

AUD / USD

The currency pair used for investment purposes is AUD and USD. A constant decrease in the overall prices can be noticed while addressing the comparison being made in the above graph. Hence, sale of USD currency has been initiatedfrom my side with the hope that the prices of the currency will further improve. It will help in analysing that constant change in trading activities has initiated these purchaseswith the hope of constant increase in prices and then sales of that currency will be initiated at the time when theoverall prices will be the maximum possible limit. The sales of the same was then made when the prices of currency were at higher side. Although the margin to risk has been quite higher in the given case.

(Orlitzky, 2013). However, it is expected that the overall economy of the country will boom to the maximum in the upcoming years, which is why decision of investment has been made by me with the aim and hope of maximum returns. However, I then experience other fall in the prices, then I decided to sell them at maximumpossible prices so as to recover the loss.

EUR / USD

A currency exchange between EUR and USD took place where, selling of the currency was initiated which was purchased earlier by me. It is due to the state that the prices of USD currency being constantly falling down. Moreover, the decision of selling was made by me to ensure that maximum possible profitability has been initiated so as to stop the loss that has been incurring due to constant falling prices of the currency.

FORWARD DEALS

Forward deals are the forward contracts which are generally non-standardized. In this case, two parties come into a contract with buying and selling of the asset, currency or commodity at an agreed future time at the price on which one has been agreed today. Hence, it can be stated that it is a type of derivative instrument.

I indulged in the forward deal of EUR / USD currency pairs for selling the investment being made in USD. Forward rate decided for the same is 1.20, where the closer rate reached to 1.19. In this manner I was able to generate adequate amount of profits from the same. The deal was initiated with the aim of stopping loss so as to ensure that minimum amount of loss is experience by me through the deals. The same goes with the case of AUD / USD as well. Forward deals helped me in generating adequate amount of profits (What makes the Australian dollar move?, 2018). When I thought I am not incurring adequate amount of profits, I chose to close the deal. In few days, I price of the currency rose up ultimately leading to gather positive results out of it.

RISK MANAGEMENT

As per the amount of knowledge I was able to gather through easy market trading, the most important technique that can be initiated by the trader is to analyse and interpret the trends of increasing and decreasing buying and selling prices of stock and currency. The rate at which prices of the currency falls helps in analysing that whether a trader will be able to derive adequate amount of benefits out of it or not (What makes the Australian dollar move?, 2018).

Trading must be done as per news and researches of the experts of the traded commodities and currencies. It is quite essential for the foreign exchange trader to ensure that high margin risk position is not opted and decision of investment must be made appropriately.

REFERENCES

  • Arthur, W.B., 2018. Asset pricing under endogenous expectations in an artificial stock market. InThe economy as an evolving complex system II(pp. 31-60). CRC Press.
  • Bauwens, L. and Giot, P., 2013.Econometric modelling of stock market intraday activity(Vol. 38). Springer Science & Business Media.
  • Bekaert, G. and Hoerova, M., 2014. The VIX, the variance premium and stock market volatility.Journal of Econometrics.183(2). pp.181-192.
  • Curme, C., and et.al., 2014. Quantifying the semantics of search behavior before stock market moves.Proceedings of the National Academy of Sciences.111(32). pp.11600-11605.
  • Wen, X., Wei, Y. and Huang, D., 2012. Measuring contagion between energy market and stock market during financial crisis: A copula approach.Energy Economics.34(5). pp.1435-1446.
  • Farmer, R.E., 2012. The stock market crash of 2008 caused the Great Recession: Theory and evidence.Journal of Economic Dynamics and Control.36(5).. pp.693-707.
  • Bunde, A., Kropp, J. and Schellnhuber, H.J. eds., 2012.The science of disasters: climate disruptions, heart attacks, and market crashes. Springer Science & Business Media.
  • Orlitzky, M., 2013. Corporate social responsibility, noise, and stock market volatility.The Academy of Management Perspectives.27(3). pp.238-254.
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