Rolling Forex Daily Contracts

As with all markets, currencies are affected by many different factors from economic to political and back again. Forex markets are open 24 hours a day and a spread betting provider like Capital Spreads will quote them from 23:00 on Sunday to 21:00 on Friday.

A spread betting provider like Capital Spreads will offer quotes for both the spot FX market and quarterly futures. For instance, to quote FX prices, Capital Spreads subscribe to a data feed which shows the best bid and offer price in the market for any given currency pair, from several major banks. The best bid might be from one bank and the best offer might be from another bank. The spread betting provider then takes the best of each: the highest bid and the lowest offer. It then adds them together and divides by two and puts a spread around this mid-point.

Example of a forex trade courtesy of Capital Spreads

Your automatic stop loss would be placed at 80% of the Margin Requirement. With a £2 stake, this would be £400 x 80%=£320, which at £2 per point puts it 160 points away from your opening trade price, i.e. at 1.5544.

If you wished you could move this stop loss closer which would free up additional funds for trading or as you still have £100 of Trading Resources,
you could move it further away. In this case, the furthest you could move it would be another £100 x 80%=£80, which at £2 per point puts it 40 points away, i.e. down to 1.5504.

However, the data released at 09.30 actually showed a lower number than expected causing the GBP/USD exchange rate to fall sharply so you decide to cut your losses quickly:

When trading FX markets, you also need to be aware of:

Do you Buy or Sell?

When buying or selling a currency pair, it is the first currency of the pair that you believe will rise or fall in value.

So, if you sell EUR/CHF, you have actually sold euros and bought Swiss francs meaning you want the euro to weaken against the Swiss franc.

If you buy GBP/USD, you have actually bought pounds and sold US dollars meaning you expect the pound to strengthen against the US dollar.

Tick Sizes

It is important that you know what figure you are trading on when you open a FX position as the tick values vary for some different FX pairs. For example, the tick size for GBP/USD is 0.0001, but for USD/JPY it is 0.01.

In general, for currency markets, the last large digit after the decimal point is the tick value on which you are dealing. FX pairs are usually priced with an extra smaller integer in the price e.g. 1.58505–1.58525, but this last digit is not the tick size.

FX Pricing

There are times when you might see FX prices on one trading platform/charting package that differ from the prices that Capital Spreads is showing on its trading platform and charting package. This is because there is no single exchange on which all FX trades are transacted and cleared, so there is never an absolute single price at which a given currency pair is trading.

Bank ‘A’ might sell GBP/USD to Bank ‘B’ at 1.7750 on on FX platform, while at exactly the same time Bank ‘C’ might sell GBP/USD to Bank ‘D’ at 1.7755 on a different FX platform.

Bank ‘A’ may record its trades to a database to which data vendor ‘X’ has access, whilst Bank ‘C’ might record its trades on a separate database to which data vendor ‘Y’ has access.

For this reason it is highly possible for two different data vendors to be showing two different prices at exactly the same time in the same currency pair. All other markets that Capital Spreads quotes are based on prices from single exchanges so that there is always a consistent high and low from all data/chart providers.

Exposure

Working out the notional value of your trade when FX trading is as simple as the process used for equity dates. You just multiply the stake by the price and divide by the tick size (see table below).

If you were trading Forex via a Forex broker the first currency in each pair would represent the notional size of the trade and the second would be the currency in which the profit or loss is reported. With a spread betting account, your profit or loss is always reported in the currency that your stake is in.

Remember that via your spread betting account you are entering into a contract with the spread betting company and trading on their quotes. This means that at no point will you have to take any delivery of a physical asset.

This entry is filed under academy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.