FRM Part I: Foreign Exchange Risk Part I(of 2)

http://www.youtube.com/v/Y3psn7n2k5k?fs=1

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This series of video covers the following key areas:

o A financial institution’s overall foreign exchange exposure

o How a financial institution could alter its net position exposure to reduce foreign exchange risk

o A financial institution’s potential dollar gain or loss exposure to a particular currency

o The different types of foreign exchange trading activities

o The sources of foreign exchange trading gains and losses

o The Potential gain or loss from a foreign currency denominated investment.

o Balance-sheet hedging with forwards

o How a non-arbitrage assumption in the foreign exchange markets leads to the interest rate parity theorem, and use this theorem to calculate forward foreign exchange rates

o Why diversification in multicurrency asset-liability positions could reduce portfolio risk

o The relationship between nominal and real interest rates

We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with!

This Video lecture was recorded by our popular trainer for CFA, Mr. Utkarsh Jain, during one of his live FRM Classes in Pune (India).

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How to Make Money Trading Forex   The Basic of Foreign Currency Exchange

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81. The Role of the Retail Forex Broker

http://www.youtube.com/v/szs8cBa1LzA?fs=1

Practice trading with a free demo trading account: http://bit.ly/IT-forex-demo3

View full lesson: http://www.informedtrades.com/21008-how-forex-broker-provides-access-individual-traders.html

The platform featured in the video is the FX Trading Station. Click here to try a register for a free practice account on the FX Trading Station: http://bit.ly/register-fxcm-demo

Before the internet, very few individuals traded foreign exchange as they could not get access to a level of pricing that would allow them a reasonable chance to profit after transaction costs. Shortly after the internet became mainstream however several firms built online trading platforms which gave the individual trader a much higher level access to the market. The internet introduced two main features into the equation which were not present before:

1. Streaming Quotes: The Internet allowed these firms to stream quotes directly to traders and then have them execute on those quotes from their computer instead of having to deal over the phone. This automated trade processing, and therefore made it easier for firms to offer the ability to trade fx to the individuals and still be profitable.

2. Automatic Margin Calls: What is not so obvious but what was perhaps even more key is that the internet allowed an automated margin call feature to be built into the platform. This allowed firms to accept cash deposits from clients instead of having to put them through the process of signing up to trade via a credit line. As we discussed in our last lesson it is very difficult to get a credit line to trade FX and for those who do it is a lot of paperwork and hoops to jump through before they can begin trading. This would have made it impossible to offer FX trading to smaller individual traders as the cost involved in getting them set up to trade would not be worth it.

As the electronic platform allowed clients to deposit funds and then automatically cut them out of positions if they got to low on funds, this negated the need for credit lines and made the work to get an individual account open well worth it to the forex broker from a profit standpoint.

If you don’t understand all the ins and outs of margin at this point don’t worry as this is something that we are going to go into much more detail on in a later lesson.

For now it is simply important to understand that what these firms did was take all the traders who were not big enough by themselves to get access to good pricing and routed their order flow through one entity that was. This allowed these firms access to much tighter pricing than would otherwise have been possible which was then passed along plus a little for the brokers to the end client.

So now you can see why although the forex market has been around for a relatively long period of time, individuals have only started to trade the market over the last few years.

Anther key thing that it is important to understand here is that the larger a firm gets in terms of trading volume, the greater access that firm has to tighter prices and liquidity and the more likely that firm is to be able to pass on better pricing and execution to their clients.

This is another reason that many traders will evaluate the size of a firm as one of the key factors in deciding who to trade with.

http://www.youtube.com/v/skvsu2vGK10?fs=1

Find out where the retail FX investor fits into the largest financial market in the world.