geniusjaggu's analysis: XL Fx

Forex market or currency market (or simply FX) is the place where currency trading takes place. It primarily facilitates the exchange (buy / sell) of currencies from one to another and is the backbone of international trade and investment between countries – major banks being the main parties involved.

Forex trading happens on a continuous basis round the clock to help with global trades and hence make a mammoth US $7 trillion daily turnover which is bigger than any stock market turnover.

Basically, when you buy a particular currency (e.g. US Dollar), it is exchanged against another (e.g. Indian Rupees) and hence the entity that is traded is known as a pair.

For example USDINR is a pair whereby you are trading US Dollars against INR and you buy (or sell) that pair at something like Rs.57 per dollar(as 22 june 2012).

Just like the stock market, you buy or sell – not shares but pairs.

Difference between Forex and Share trading:

In the stock market, there are too many (thousands) companies and their stocks that you need to track. But in the currency market, you mainly deal with those leading currencies in the world.

They include US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), New Zealand Dollar (NZD) and Swiss Franc (CHD).

The stock market is active only for a certain number of hours per day and you transact in a particular stock market (e.g. NYSE) at a given time. But currency trading is done 24 hours a day, so previous closing rate and new opening rate is same.

Because of the margin trading, even a small amount such as Rs.3000 per pair (per Lot) can get you exposure to buying 1000s of units of a particular pair.

Even a small change like 0.0001 in the price can result in a significant return on your investment due to leveraging.

Volume is so high that buy and sell is very easy. Due to the huge volume nature and global span, currency market cannot be manipulated by traders where as stocks, can be easily manipulated.

Forex trading is legal in India in Indian Rupees with pairs like USDINR, GBPINR, EURINR, and JPYINR, others like cross countries USDEURO,USDJPY, etc.. are illegal, And foreign currency transactions are allowed via banks, Reliance money etc.Any resident Indian can hold foreign currency notes up to USD $2000. There is no restriction on holding of foreign coins. However, I do not know about the legal and tax implications of forex trading accounts. It’s up to the individuals to deal with any taxing or other legal implications.

Coming to forex trade as per MCX-SX exchange, for USD INR here are the details:

Symbol USDINR

Instrument Type FUTCUR

Unit of trading 1 (1 unit denotes 1000 USD)

Underlying USD

Quotation/Price Quote Rs. per USD

Tick size 0.25 paise or INR 0.0025

Minimum initial margin: 1.75% on first day & 1% thereafter. So for total 3% (ie. With Rs.3000) as margin you can take futures positions worth of Rs.1,00,000 of USDINR.

Mode of settlement: Cash settled in Indian Rupees

Some Guru Gyaan:

Exchange Rate: The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.

Currency Pair: The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.in India only USDINR, EUROINR, GBPINR and JPYINR are legal.

Base currency: The primary currency that you are trading or interested in. e.g. in a USDINR currency pair, US Dollar (USD) is the base currency and INR is called the quote currency, Base currency is first currency in the pair. Also the currency your account is denominated in.

Counter Currency/Quote currency : The second currency in the pair. Also known as the terms currency, in India its INR (Indian Rupees).

Leverage: Leverage is the loan from your broker that allows you to trade 100 or 200 times of your capital. E.g. it is possible for you to buy 1000 USDINR (worth 1000 USD x Rs. 50 = Rs. 50,000 .. 16 times your capital) with Rs.3000 by applying the right leverage size. This can potentially increase your gains multifold but has the risk of loosing as well.

Leverage is the ability to open your trade account into a position greater than your total account margin.

For example, if a trader has Rs.1,000 of margin in his account and he opens a Rs.100,000 position, he leverages his account by 100 times, or 100:1. If he opens a Rs.200,000 position with Rs.1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.

To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account.

For example, if you have Rs.10,000 of margin in your account and you open one standard lot of USD/INR (100,000 units of the base currency) for Rs.100,000, your leverage ratio is 10:1 (Rs.100,000 / Rs.10,000).

For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade a Position worth Rs.100,000, but you only have Rs.5,000 in your account. No problem as your broker would set aside Rs.1,000 as down payment, or the "margin," and let you "borrow" the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account.

The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every Rs.100,000 traded, the broker wants Rs.1,000 as a deposit on the position.

Margin:The deposit required to open or maintain a position is called Margin, it can be either "free" or "used". Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions.

With a Rs.1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional Rs.100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader's account falls below the minimum amount required to maintain an open position, he will receive a "margin call" requiring him to either add more money into his or her account or to close the open position.

Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade .

Lot: Lot is the standard unit of trading. Typically, the standard lots are 100,000 units,

mini-lots are 10,000 units and micro-lots 1000 units.

In the past, spot forex was traded in specific amounts called lots. The standard size for a lot is 100,000 units. There is also a mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively.

Lot Number of Units

Standard 100,000

Mini 10,000

Micro 1,000

Nano 100

Currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments, you need to trade large amounts of a particular currency in order to see any significant profit or loss.

Spread:The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.

Pip:The smallest price increment a currency can make. Also known as points. For example, 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY., for USD/INR its 0.0025!

Pip Value:The value of a pip. Pip value can be either fixed or variable depending on the currency pair. e.g. The pip value for EUR/USD is always $10 for standard lots, $1 for mini-lots and $0.10 for micro lots.

Calculating direct Rate Pip Value:Pip stands for "price interest point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. Pip value for direct rates are calculated according to the following formula:

Formula: Pip = lot size x tick size

Let's assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.

DIRECT RATES

Currency pairs where the USD is the quote currency are referred to as direct rates. This holds true for such currencies as the EUR,GBP, NZD and the AUD.

USDJPY at an exchange rate of 119.80 (.01 / 119.80) x 100,000 = $8.34 per pip

INDIRECT RATES

Most currencies are traded indirectly against the U.S. Dollar (USD), and these pairs are referred to as indirect rates. The USD is the "base currency," the INR is the "quote currency" and the rate quote is expressed as units per USD.

USDINR at an exchange rate of 56.00 (.0025 / 56)x 1,000 =$0.4464 per pip

Formula: pip = lot size x tick size / current rate

Example for 1,000 USD/INR contract currently trading at 56:

1 pip = 1,000 (lot size) x .0025 (tick size) / 56 (current rate) = USD $0.4464

Calculating Indirect Rate P/L (Profit/Loss) is as follows:

Formula Selling price - Purchase price = P/L

Example for 1,000 USD/INR contract initially bought at 50.00 then sold (closed) at 50.20:

50.20 (selling price) - 50.00 (purchase price) = +0.20 pip difference = 20 pip profit

1 pip = 1,000 (lot size) x .0025 (tick size) / 50.20 (current rate) = USD $0.0498

Therefore: USD $0.0498 (pip value) x 20 (pip diference) = USD $0.996 profit

Example for Loss:

1,000 USD/INR contract initially bought at 50.00 then sold (closed) at 49.80:

49.80 (selling price) - 50.00 (purchase price) = -.20 negative pip difference = 20 pip loss

1 pip = 1,000 (lot size) x .0025 (tick size) / 50.20 (current rate) = USD $0.0498

Therefore: USD $0.0498 (pip value) x 20 (pip difference) = USD $0.996 loss

Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote. When you buy a currency, you will use the offer or ask price and when you sell the currency, you will use the bid price.

If one expects depreciation of Indian rupee against US dollar, then he can hold on long (buy) position in the USD/INR contract for returns, else one can sell the contract if he sees appreciation of the Indian rupee. Similar, long or short positions can be taken in EURINR, GBPINR and JPYINR.

Introducing ALL New XL FX (forex) Trading System:

Made for India MCX-SX exchange, here there is No "Open" rate column, Since Forex markets work round the clock.

Data Input (manually) same as XL trading system:

Coming to XL Fx: XL Fx Performance for USD upto 22 June 2012: