Buying / Investing in Currency
Discussion
We import in USD and export in GBP, our internal product costings are based on £1 = $1.75, so with the strong pound we have been doing well lately, typically saving about £3000 per month. As the pound is so strong at the moment I have 'bought forward' to lock in our exchange rate, I have bought USD500,000 at £1 = $1.92 on a 12 month contract. The company I used was Travelex, I don't know what you would have to do to get an account with them, it was easy for me because they phoned me.
I don't really care what the latest forecasts are, nobody knows what will happen to the £/$, and I am very happy with £1 = $1.92.
I don't really care what the latest forecasts are, nobody knows what will happen to the £/$, and I am very happy with £1 = $1.92.
Edited by david_s on Friday 1st December 11:09
The key is the spread.
Currently in the Money Market the spread is 19681 - 19684.
You can see that there is a 3 point spread.
When you deal in physical delivery then the broker will widen that spread. Expect it to go out to about 25 points, which is a good rate.
If you go and check with a bank you will see that their spread is in the magnitude of 100s which is pure daylight robbery.
If you are only speculating or hedging then physical delivery is not a requirement so you'd be a fool to pay this huge charge.
For speculation it is essential to trade the OTC (over the counter) market and recieve proper market rates.
As an individual you would be foolish to do this in any way other than a spread bet, which is tax free.
Your average rolling FX will be just 3 points, better than anywhere else that you can go for Cable (£/$).
You could trade the futures but these are immensley less liquid and so charges are wider. Plus, it restricts you to a specific delivery date which you may not want.
The other key fact is that by trading OTC you can place a stop loss which will protect you from a wild negative swing.
Margins for the trade will be 2%, meaning that for a $100K position you only lay down $2000. Add a bit to cover margin movements and stick a stop in and it's a very simple trade.
To do it any other way is 100% mental.
Currently in the Money Market the spread is 19681 - 19684.
You can see that there is a 3 point spread.
When you deal in physical delivery then the broker will widen that spread. Expect it to go out to about 25 points, which is a good rate.
If you go and check with a bank you will see that their spread is in the magnitude of 100s which is pure daylight robbery.
If you are only speculating or hedging then physical delivery is not a requirement so you'd be a fool to pay this huge charge.
For speculation it is essential to trade the OTC (over the counter) market and recieve proper market rates.
As an individual you would be foolish to do this in any way other than a spread bet, which is tax free.
Your average rolling FX will be just 3 points, better than anywhere else that you can go for Cable (£/$).
You could trade the futures but these are immensley less liquid and so charges are wider. Plus, it restricts you to a specific delivery date which you may not want.
The other key fact is that by trading OTC you can place a stop loss which will protect you from a wild negative swing.
Margins for the trade will be 2%, meaning that for a $100K position you only lay down $2000. Add a bit to cover margin movements and stick a stop in and it's a very simple trade.
To do it any other way is 100% mental.
Horse_Apple said:
stuff
2 months ago I wouldn't have had a clue what you were talking about, but I've been contracted with an ISV producing a software product for Options and Futures traders (specifically spreads) so have picked up some background knowledge.
However, I suspect that many readers of your post will be at the point I was 2 months ago.
I am just beginning to grasp share stuff and you're right...horseapple's post is a bit jibberish to me! I do understand about spread betting, but I got the impression you can only hold the spread bet for a few days? Or am I wrong? As a few days would not be sufficient to 'guarantee' that the rate will reverse by then...
Seany88 said:
I am just beginning to grasp share stuff and you're right...horseapple's post is a bit jibberish to me! I do understand about spread betting, but I got the impression you can only hold the spread bet for a few days? Or am I wrong? As a few days would not be sufficient to 'guarantee' that the rate will reverse by then...
Hi, Sorry.
Been in the derivatives industry all my working life. Tried to make it easy.
Basically, a Spread Bet is simply a tax wrapper of an underlying financial instrument, the same way that an ISA or a Pension is. It is just more flexible and mostly cheaper.
There are 3 ways to trade FX:
Physical: actually physically converting the currency you have into another, either paper of electronic trnasfers between bank accounts. You would only ever do this if you actually needed the physical currency as it is very expensive.
Spot or Rolling FX: This is the rate that you will see published in the papers. It is the buy and sell price (spread) quoted in the capital markets at that exact slpit second in time. When you trade this, you trade on margin. In other words you place a small deposit (1-2% of the value of the trade) with the broker. As you will be borrowing the value of the trade from the market you will be charged funding (the difference between the UK lending rate and the US, in this instance) on an annual basis, calculated and billed daily to your position. This is ideal for shorter term trades.
FX Futures: If you know the period of time that you wish to hold the position for then you would trade the futures. These are quarterly contracts based on the current market price but have 3 months market interest already factored in to the quote, so no daily charge. You can Roll them over into new positions at the end of each quarter but no-one really trades this market and it is very illiquid compared to Spot.
Of all the financial markets FX is probably the oddest one to get your head around as you are dealing with two financial instruments packaged up together but it is worth understanding as the FX brokers make an absolute killing of everyone's ignorance. Many brokers are not regulated!!!
Very happy to help on anything to so with the markets.
Probably failed again to explain properly but happy to keep going.
Seany88 said:
I got the impression you can only hold the spread bet for a few days?
The word "spread" is a little overloaded. It can mean "spread bet" which is what the average punter understands it to be, but can also mean "anomaly trading", "credit spread option" (which I think is the same thing, but I could be wrong), "calender spreads", and other types of spreads with names like bull, butterfly, diagonal, etc.
I toyed with forex trading at www.oanda.com
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
johnfm said:
I toyed with forex trading at www.oanda.com
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
It's a great market to trade.
Bit of advice though, the FX markets per se are firstly not centralised, in other words there is no central Exchange like there are for say UK stocks with the London Stock Exchange. This means that each house quotes their own spread (bid and offer, not to be confused with Spread Betting or 'Spread Trades which are a type of options strategy as mentioned above).
You would be much better off trading through an FSA Regulated broker who will be quoting you a price compiled from several large liquidity providers (CitiBank, Deutsche, Barclays etc) than signing up to some off shore unregulated broker.
About 90% of retail FX brokers are actually book makers and for them to make profit you must lose. The joy of FX is that without any central exchange you can quote your client whatever price you like. The norm is to give an exceptionally bad fill on the closing of the trade.
It is a rapists market and in terms of ethics is right up their with cold calling boiler rooms peddling penny shares.
Watch your back and don't put any moeny into an account which is not properly regulated, where your funds are ring fenced as client money, not forming part of the firms balance sheet!!!!
I stopped fx trading a while back - and never really dablled with much money. It was very tempting though - as times you could make small gains with well timed intra day trades (ie when the AUD market opened etc), but I think most of my successful trades may have been better luck than analysis. Still, if I could day trade a hundred quid a day, its good petrol money!
225 said:
On a much more basic level I was just considering getting a few hundred pounds changed up commission free as I plan to go to the states next year at some point.
I would also like to know that, I am heading out there end of March 07 - so wondered whether to hold out for a possible 2+ - or just not bother. The amount I require would probably mean that potential loss/gain is small anyway.
Horse_Apple said:
johnfm said:
I toyed with forex trading at www.oanda.com
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
has a really good interface, you can open a 'play' money account to learn how to trade and then start playing with your own money.
Very addictive, but a tempting way to make pocket money (or lose pocket money if you're no good!!)
It's a great market to trade.
Bit of advice though, the FX markets per se are firstly not centralised, in other words there is no central Exchange like there are for say UK stocks with the London Stock Exchange. This means that each house quotes their own spread (bid and offer, not to be confused with Spread Betting or 'Spread Trades which are a type of options strategy as mentioned above).
You would be much better off trading through an FSA Regulated broker who will be quoting you a price compiled from several large liquidity providers (CitiBank, Deutsche, Barclays etc) than signing up to some off shore unregulated broker.
About 90% of retail FX brokers are actually book makers and for them to make profit you must lose. The joy of FX is that without any central exchange you can quote your client whatever price you like. The norm is to give an exceptionally bad fill on the closing of the trade.
It is a rapists market and in terms of ethics is right up their with cold calling boiler rooms peddling penny shares.
Watch your back and don't put any moeny into an account which is not properly regulated, where your funds are ring fenced as client money, not forming part of the firms balance sheet!!!!
So basically unless you know what you're doing, (which I clearly don't!) don't bother! What's the simplest/lowest maintenance way of making money out of shares then? Share ISAs, or handing over to a broker to 'manage'?
My job means I can't be sat at the computer all day waiting for the price to rise/drop.
You don't need to watch the prices all day. You can set an upper or lower price to trigger a buy or sell trade. For eaxample, if you think the £/$ is going to hit 2.00 and then strengthen (ie dolalr strengthen), you may set a trade to sell dollars at 2.00.
You can then set a stoploss or takeprofit level too. So, for example I'd set a trade to sell a 2.00. Stoploss at, say, 2.05 and take profit at a lower 'support level', say 1.9
Then my trade is automatic - I don't need to sit and watch the numbers all day. I'm not very experienced at this, but I expect the real good guys are very adept at analysing and spotting support levels and ceilings (ie values which a currency pair won't go below or above). Then if you hit the cycles right, you can pick off a few pips each way between the the two.
Its an interesting diversion to check into in your lunch break or before work. Its also the type of 'career' you can do from anywhere with an internet connect!! If I was any good, I'd have a chalet in Chamonix, set my trades in the morning, go boarding for a few hours and generally have a cracking lifestyle!
You can then set a stoploss or takeprofit level too. So, for example I'd set a trade to sell a 2.00. Stoploss at, say, 2.05 and take profit at a lower 'support level', say 1.9
Then my trade is automatic - I don't need to sit and watch the numbers all day. I'm not very experienced at this, but I expect the real good guys are very adept at analysing and spotting support levels and ceilings (ie values which a currency pair won't go below or above). Then if you hit the cycles right, you can pick off a few pips each way between the the two.
Its an interesting diversion to check into in your lunch break or before work. Its also the type of 'career' you can do from anywhere with an internet connect!! If I was any good, I'd have a chalet in Chamonix, set my trades in the morning, go boarding for a few hours and generally have a cracking lifestyle!
johnfm said:
You don't need to watch the prices all day. You can set an upper or lower price to trigger a buy or sell trade. For eaxample, if you think the £/$ is going to hit 2.00 and then strengthen (ie dolalr strengthen), you may set a trade to sell dollars at 2.00.
You can then set a stoploss or takeprofit level too. So, for example I'd set a trade to sell a 2.00. Stoploss at, say, 2.05 and take profit at a lower 'support level', say 1.9
Then my trade is automatic - I don't need to sit and watch the numbers all day. I'm not very experienced at this, but I expect the real good guys are very adept at analysing and spotting support levels and ceilings (ie values which a currency pair won't go below or above). Then if you hit the cycles right, you can pick off a few pips each way between the the two.
Its an interesting diversion to check into in your lunch break or before work. Its also the type of 'career' you can do from anywhere with an internet connect!! If I was any good, I'd have a chalet in Chamonix, set my trades in the morning, go boarding for a few hours and generally have a cracking lifestyle!
You can then set a stoploss or takeprofit level too. So, for example I'd set a trade to sell a 2.00. Stoploss at, say, 2.05 and take profit at a lower 'support level', say 1.9
Then my trade is automatic - I don't need to sit and watch the numbers all day. I'm not very experienced at this, but I expect the real good guys are very adept at analysing and spotting support levels and ceilings (ie values which a currency pair won't go below or above). Then if you hit the cycles right, you can pick off a few pips each way between the the two.
Its an interesting diversion to check into in your lunch break or before work. Its also the type of 'career' you can do from anywhere with an internet connect!! If I was any good, I'd have a chalet in Chamonix, set my trades in the morning, go boarding for a few hours and generally have a cracking lifestyle!
I was just thinking about buying my holidays spends for 2007 now.
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