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Sunday, April 16, 2017
FOREX RATES Pakistan Open Market Forex Rates Updated at : 16/4/2017 1:50 AM (PST)
Sunday, March 14, 2010
Thursday, March 11, 2010
Introduction to Foreign Exchange Markets
Being the main force driving the global economic market, currency is no doubt an essential element for a country. However, in order for all the countries with different currencies to trade with one another, a system of exchange rate between their currencies is needed; this system, is formally known as foreign exchange or currency exchange.
In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.
For floating exchange rate, its value is determined by the supply and demand of the global market where the supply and demand is bound by all these factors such as foreign investment, inflation and ratios of import and export. Normally, this system is adopted by most of the advance countries like for example UK, US and Canada. All of these countries have a similarity where their market is well developed and stable in economic terms. These countries choose to practice this system due to the reason where floating exchange rate is proven to be much more efficient compared to the pegged exchange rate. The reason behind this is because for floating exchange rate, the market itself will re-adjust the exchange rate real-time in order to portray the actual inflation and other economic forces. However, every system has its own flaw and so does the floating exchange rate system. For instance, if a country suffers from economic instability due to various reasons such as political issues, a floating exchange rate system will certainly discourage investment due to the high risk of suffering from inflationary disaster or sudden slump in exchange rate.
Another form of exchange rate is known as pegged exchange rate. This is a system where the value of the exchange rate is fixed by the government of a country and not the supply and demand of the market. This system is called pegged exchange rate because the value of a country’s currency is fixed to another country’s currency. As a result, the value of the pegged currency will not fluctuate unlike the floating currency. The working principle behind this system is slightly complicated where the government of a country will fixed the exchange rate of their currency and when there is a demand for a certain currency resulting a rise in the exchange rate, the government will have to release enough of that currency into the market in order to meet that demand. However, there is a fatal flaw in this system where if the pegged exchange rate is not controlled properly, panics may arise within the country and as a result of that, people will be rushing to exchange their money into a more stable currency. When that happens, the sudden overflow of that country’s currency into the market will decrease the value of their exchange rate and in the end, their currency will be worthless. Due to this reason, only those under-developed or developing countries will practice this method as a form to control the inflation rate.
However, the truth is, most of the countries do not fully practice the floating exchange rate or the pegged exchange rate method in reality. Instead, they use a hybrid system known as floating peg. Floating peg is the combination of the two main systems where one country will normally fixed their exchange rate to the US Dollars and after that, they will constantly review their peg rate in order to stay in line with the actual market value.
The Foreign exchange market, or commonly known as FOREX, is the largest and most prolific financial market because each day, more than 1 trillion worth of currency exchange takes place between investors, speculators and countries. From this, we can deduce that the actual mechanism behind the world of foreign exchange is far more complicated than what we may already know, and that, the information mentioned earlier is just the tip of an iceberg.Forex Basics
The following is an introduction to some of the basic terms and concepts used in forex trading.
Foreign Exchange : The simultaneous buying of one currency and selling of another.
Foreign Exchange Market : An informal network of trading relationships between the world's major banks and other market participants, sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.
Spot Market : Market for buying and selling currencies for settlement within two business days (the value date). USD/CAD = 1 day. Most dealers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time.
Rollover : The process whereby the settlement of a transaction is rolled forward to the next value date. The cost of this process is based on the interest rate differential between two currencies.
Exchange Rate : The value of one currency expressed in terms of another. For example, if the exchange rate for 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.
Base Currency : The first currency in the pair.
Counter Currency : The second currency in the pair. Also known as the terms currency.
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
Currency Pair Terminology
EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada" (CAD referred to as the "Loonie")
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"
The following pairs might also be referred to by the following nicknames:
EUR/USD = "Fiber"
USD/JPY = "Gopher"
EUR/GBP = "Chunnel"
GBP/CHF = "Geppy"
Market Maker :A market maker makes a market for a particular financial instrument, providing liquidity and a two-way price quote. A market maker takes the opposite side of your trade.
Broker : A firm that matches buyers and sellers for a fee or a commission.
Counterparty : One of the participants in a transaction.
Sell Quote : The quote on the left is the price at which you can sell currency. (Also known as the bid price). e.g. For EUR/USD 1.3200/03, you can sell 1 Euro for US$1.3200.
Buy Quote : The quote on the right is the price at which you can buy currency. (Also known as the ask or offer price). e.g. For EUR/USD 1.3200/03, you can buy 1 Euro for US$1.3203.
Spread : The difference between the sell quote and the buy quote. If the quote for EUR/USD reads 1.3200/03, the spread is 3 pips. In order to break even, the currency must shift in your direction by an amount equal to the spread.
Pip : Price Interest Point. The smallest price increment a currency can make. Also known as points. e.g. 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.
Pip Value : The value of a pip. 1 pip = $10 for EUR/USD, GBP/USD, AUD/USD & NZD/USD with 100k lots, or $1 per pip with 10k lots. To calculate the pip value of other currency pairs, use a pip value calculator .
Tick : Minimum change in price
Lot : The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, or 10,000 units for a mini.
Standard Account : Trading with standard lot sizes
Mini Account : Trading with mini lot sizes
Margin : The deposit required to open a position. A 1% margin requirement allows you to open a $100,000 position with a $1,000 deposit.
Leverage : The amount of times the value of your transaction exceeds your margin. e.g. 100:1 leverage implies a 1% margin.
Long Position : A position whereby the trader profits from an increase in price. (Buy low, sell high)
Short Position : A position whereby the trader profits from a decrease in price. (Sell high, buy low)
Market Order : An order at the current market price
Entry Order : An order that is executed when the price touches a pre-specified level
Limit Entry Order : An order to buy below the market or sell above the market at a pre-specified level, believing that the price will reverse direction from that point.
Stop-Entry Order : An order to buy above the market or sell below the market at a pre-specified level, believing that the price will continue in the same direction from that point.
Limit Order :An order to take profits at a pre-specified level
Stop-Loss Order : An order to limit losses at a pre-specified level
OCO Order : One Cancels Other. Two orders whereby if one is executed, the other is cancelled.
Manual Execution : The order is executed with human intervention.
Automatic Execution : The order is executed automatically by computer without human intervention or involvement.
Slippage : The difference in pips between the order price and the price the order is filled at.
Example Transaction : Assume you have a trading account of $20,000 and you have chosen to use 100:1 leverage on your account. The current quote for EUR/USD is 1.3225/28. You place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to strengthen against the dollar. At the same time you place a stop-loss order at 1.3203, and a limit order at 1.3328.
The value of this trade is $132,280 (100,000 * 1.3228) but because you are using 100:1 leverage, you only need to deposit 1% of the total, which is $1322.80 ($132,280 * 0.01).
The Euro strengthens against the dollar as expected, rising to 1.3328 where your limit order is reached. Your position is closed. You have made 100 pips.
Your total profit for this trade is $1,000 (100,000 * (1.3328 - 1.3228)), and the return on your investment is 75.6% ($1000/$1322.80).
Trade Summary :
| Opening Balance: | $20,000 |
| Leverage: | 100:1 |
| Buy: | 1 std lot EUR/USD @ 1.3228 = $132,280 |
| Margin Requirement: | $1322.80 |
| Position Size: | 6.6% of the account ($1322.80/$20,000) |
| Pip Value: | 1 pip = $10 |
| Stop-Loss: | 25 pips (representing 1.25% of the account) |
| Limit: | 100 pips |
| Risk/Reward Ratio: | 4:1 |
| Sell: | 1 std lot EUR/USD @ 1.3328 = $133,280 |
| Profit: | $1,000 |
| Return: | 75.6% ($1,000/$1322.80) |
| Closing Balance: | $21,000 (+5% gain) |
FOREX RATES
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Market Indices
KSE 100:
- Most recognized index of the KSE
- Representation from all sectors of the KSE and includes the largest companies on the basis of their market capitalization
- Represents over 85% of the market capitalization of the Exchange.
Download KSE - 100 Index Brochure
KSE 30:
- Introduced in 2006
- Based on the “Free Float Methodology”
- Includes only the top 30 most liquid companies listed on the KSE.
Download KSE - 30 Index Brochure
All Shares:
Consists of all the companies listed on the KSE.
KMI-30
Introduced in September 2008
- KMI comprises of 30 Companies that qualify the KMI Shariah screening criteria and are weighted by float adjusted market capitalization.
- 12% cap on weights of individual securities.
- Rebalancing of the Index will be done bi-annually.
- Shariah Supervisory Board of Meezan Bank chaired by eminent Shariah scholar Justice (Retd.) Mufti Muhammad Taqi Usmani.
- A total return Index based on free float methodology
Download KMI - 30 Index Brochure
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