Individual Task

Name: Ong Ghee Siang

Student ID: 19WBR11802

Discuss how a speculation work in foreign exchange market with appropriate

illustration.

Introduction

The foreign exchange market, commonly known as FOREX or the currency market, is
a global over-the-counter (OTC) market that determines the exchange rates of
currencies all over the globe. These markets allow participants to purchase, sell,
exchange, and bet on the relative exchange values of various currency pairings. With
a daily volume of $6.6trillion, it is the world's largest financial and most liquid
market. A broker is a financial services firm that allows retail traders to trade on
currency pairings or buy and sell foreign currency. A broker must be regulated by a
financial regulator or regulator, such as the Australian Securities and Investment
Commission (ASIC) in Australia, the Financial Services Authority of the United
Kingdom (FSA UK) in the United Kingdom, the Financial Services Agency of Japan
(FSA Japan) in Japan, and the Securities Commission Malaysia (SC) in Malaysia.
Governments or other organisations create financial regulatory bodies to oversee the
functioning and fairness of financial markets and firms involved in financial activity.
Financial regulation's duties include preventing and investigating fraud, keeping the
market efficient and transparent, and ensuring that customers are treated fairly and
honestly. It is a type of regulation or supervision that allows financial organisations to
adhere to specific standards, limits, and norms. A broker may be subject to a variety of
regulations from various countries.

When using a margin account, you can use leverage to trade or establish a position
that is larger than the amount of money in your trading account. Leverage is measured
in terms of ratios such as 1:100, 1:200, and so on. Leverage is the ratio of the amount
you have to the amount you can trade. In other words, if the leverage ratio is 1:200
and the margin requirement is 1USD, you can initiate a trade with 1USD for every

This study source was downloaded by 100000829214075 from CourseHero.com on 04-04-2023 05:20:04 GMT -05:00

https://www.coursehero.com/file/131867461/Forex-individual-Marcusdocx/
 position margin of 200USD. The margin requirement is the amount required to open
the position.

The number of units of a financial instrument that can be traded in a lot. The lot size
determines the number of units. For example, in the stock market, one standard lot
equals 100 shares, whereas one standard lot equals 100,000 units in the currency
market.

How to Speculate/Trade the Instrument

For example, I have a margin or trading account based in USD with FBS broker, with
the leverage ratio of 1:500. Assume that the Bid/Ask price for GBPUSD is
1.38640/1.38600, and with my technical analysis, I predict that the rate for GBPUSD
will start to drop until 1.37600 support level. So, I will action the trade as below

Tm

Margin Requirement= 100,000units x 1.38600 / 500

= 277.20USD

Pips earn= 1.38600 – 1.37600

= 0.01000

= 100pips

Profit= (1.38600 – 1.376000) x 100,000units or 100pips x 10USD

= 1000USD

Therefore, when market drop to 1.37600, I will get 1000USD profit for this position.

Risk and Return

Based on the speculation above, if the GBPUSD rate rises, I will incur losses for this
position because I hypothesised a short position in which I anticipate the rate for this
currency pair would fall. The leverage will impact the risk and return; with more
leverage, you will be able to receive a high return if the market moves in your favour,
but you will also face a high risk if the market moves against your position, which

This study source was downloaded by 100000829214075 from CourseHero.com on 04-04-2023 05:20:04 GMT -05:00

https://www.coursehero.com/file/131867461/Forex-individual-Marcusdocx/
 will result in a margin call if adequate risk management is not implemented. This is
due to the fact that with more leverage, you may trade the position with a larger lot
size since the margin requirement is smaller. However, if the leverage ratio is 1:1, the
risk and return will be reduced since you will be unable to trade with larger lot sizes
due to the higher margin need.

21 Apr EUR/USD Long 1.20190 1.20544 Profit (1% x 1RRR = +1%)

26 Apr USD/CAD Short 1.24891 1.23847 Profit (1% x 4RRR = +4%)

6 May USD/CAD Short 1.22635 1.21390 Profit (1% x 4RRR = +4%)

13 EUR/USD Short 1.20861 1.21121 Loss -1%

May

15 USD/CAD Long 1.21431 1.22430 Profit (1% x 4RRR = +4%)

May

17 EUR/USD Long 1.21334 1.21934 Profit (1% x 4RRR = +4%)

May

26 EUR/USD Long 1.22397 1.22197 Loss -1%

May

26 EUR/USD Short 1.22173 1.21702 Profit (1% x 1.5RRR = +1.5%)

May

3 Jun EUR/USD Short 1.21866 1.21050 Profit (1% x 4RRR = +4%)

16 Jun EUR/USD Short 1.21180 1.20424 Profit (1% x 4RRR = +4%)

23 Jun EUR/USD Long 1.19269 1.19039 Loss -1%

30 Jun EUR/USD Short 1.18945 1.17983 Profit (1% x 4RRR = +4%)

7 Jul USD/CAD Long 1.24487 1.25772 Profit (1% x 4RRR = +4%)

11 Aug USD/CAD Short 1.25269 1.25549 Loss -1%

18 Aug USD/CAD Long 1.26201 1.27205 Profit (1% x 4RRR = +4%)

This study source was downloaded by 100000829214075 from CourseHero.com on 04-04-2023 05:20:04 GMT -05:00

https://www.coursehero.com/file/131867461/Forex-individual-Marcusdocx/
Powered by TCPDF (www.tcpdf.org)