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Essay Available:
Pages:
6 pages/≈1650 words
Sources:
8 Sources
Level:
Harvard
Topic:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
Document:
MS Word
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$ 31.59
Topic:

How It Works Before Investing: Foreign Exchange Currency Speculation (Case Study Sample)

Instructions:

The sample is about Foreign Exchange Currency Speculation. The student gave the details of the transactions he had done on a demo account and wanted the data to be translated over the 15 days that he transacted.

source..
Content:


FOREIGN EXCHANGE CURRENCY SPECULATION
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Foreign Exchange Currency Speculation
Table of Contents
Cover Page……………………………………………………………………………………….1
Table of Contents………………………………………………………………………..……….2
Executive Summary………………………………………………………………………...…….3
Introduction……………………………………………………………………………..………..3
The Trading Strategy……………………………………………………………………………..4
The Trade and Risk Management Tools…………………………………………………………..6
Forward Trading………………………………………………………………..………..………..7
Conclusion………………………………………………………………………..……..………..7
Reference List…………………………………………………………………………..………..9
Executive Summary
Investors need to take the time to study the foreign exchange market in order to understand how it works before investing. Because it is tricky to understand the movement of the various currencies, it is essential to use the Demo trading account especially when the investor is entering the market for the first time in order to learn the market fully. Traders should also research well about the forex market by reading articles from the numerous websites and eBooks. The major currencies that a trader can invest in order to make profits include the U.S Dollar, Swiss Franc, European Euro, Great Britain Pound, New Zealand Dollar, Australian Dollar, and Japanese Yen. A trader can use the strategy of allocating much of his or her money on either buying or selling the currencies and buy a few commodities when the probability of the commodities to yield good returns seems minimal after studying the market closely. An investor can also engage in forward trading for the purposes of hedging or speculating. Hedging helps to protect an investor's position from the hostile currency pair movements.
Introduction
There are numerous traders in the forex market all over the globe because the market allows trading in the currencies of several nations. Investors all over the world sell and buy the currencies over the internet and individuals trade in the comfort of their homes. According to Katusiime, Shamsuddin, and Agbola (2015), the turnover at the forex market is about US$6 trillion each day. The foreign exchange market comprises the commercial corporations, banks, hedge funds, and brokers. The participants can either sell or buy through speculating on the currencies. The foreign exchange market is open Monday to Friday for 24 hours each day and closes on weekends making it 5 days of trading for every week. Chaboud, Chiquoine, Hjalmarsson, and Vega (2014) assert that the huge volumes of trading that happen in the forex market attracts many investors, hence, the market is highly liquid as there is always enough cash.
A good investor who trades in the foreign exchange ought to understand the concepts of both hedging and speculation. Evans (2018) defines hedging as the buying or selling at the same time in two different markets while speculation involves the trading in transactions, which are too risky and can lead to the loss of the investor's capital while expecting large profits. This reason made me to use hedging instead of speculation in order to protect my position from the hostile currency pair movements. It is dangerous for an investor to trade in the forex market if he or she does not have the market's information.
The Trading Strategy
I took much of my time to study the foreign exchange market and comprehend how to trade in a risk-free manner on the easy markets.com. Since, it is tricky to understand the movement of the various currencies, I took about 3 weeks looking at the figures on the easy markets.com. I realized that the profitable currencies do up and down within minutes and even seconds. This unpredictable movement made it even trickier for me to comprehend and decide on which currencies to invest. When I finally decided to trade, I traded in 9 transactions, 2 of which were forward deals and 2 commodities (copper and cotton) both in U.S dollars. I traded 7 currencies which are the U.S Dollar, Swiss Franc, European Euro, Great Britain Pound, New Zealand Dollar, Australian Dollar, and Japanese Yen. My strategy included the allocation of much of my money on either buying or selling the currencies but bought a few commodities because their probability of yielding returns was minimal according to my study over the same period.
Since, the New Zealand Dollar seemed to perform better than the rest, I invested the highest amount of my money in it by buying 120,000 NZD using the U.S Dollars. Even the probability of the commodities yielding returns was minimal, I invested in copper and cotton both in U.S dollars because they were a bit profitable than the rest of the commodities. Most of the other commodities' prices could change within seconds. I traded severally, setting my take profit (TP) levels too close to the buy or sell price and stop loss (SL) levels far from the buy or sell prices in order to play safe. Some of the currencies that seeme...

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