Phillip Futures: Products: Forex: For Beginners

Terminologies

Currency Pair	To trade in Foreign Exchange, you need to compare one currency against another. Currency pair simply means the trading of one currency against another.
Base Currency	The first currency quoted in a currency pair on foreign exchange. E.g. EUR/JPY, EUR is the base currency.
Reference Currency	The second currency quoted in a currency pair on foreign exchange. E.g. EUR/JPY, JPY is the reference currency.
Short	Sell a currency pair. By doing a short trade, you're selling the base currency. E.g. Short USD/SGD, you are actually selling USD, and buying SGD. The rates you'll selling at, will be the Bid (left side of the BID/OFFER Quote). For easy reference, Bid will always be lower than the Ask. Even if you do not have a particular position of currency pairs, an order to sell USD/SGD would result in a Short position in USD/SGD. In this case, to close your position, you'll need to do an opposite trade to liquidate your position. i.e., do a buy USD/SGD trade.
Long	Buy a currency pair. By doing a Long trade, you're buying the base currency. E.g. Long USD/SGD, you are actually Buying USD, and Selling SGD. The rates you'll buying at, will be the Offer (right side of the BID/OFFER Quote). For easy reference, Bid will always be lower than the Ask. Even if you do not have a particular position of currency pairs, an order to buy USD/SGD would result in a Long position in USD/SGD. In this case, to close your position, you'll need to do an opposite trade to liquidate your position. i.e., do a sell USD/SGD trade.
Positions	When you enter into a trade, you're having a open position, no matter whether its a long or short position. An open position would imply that you stand to gain or lose from fluctuation in the currency pair. To close the position, you'll need to do an opposite trade with the same number of contracts which you initially entered into. When your position is closed, you'll no longer be affected by the currency fluctuations.
Lakh	Lakh (pronounced as Lack) is the quantity that you specify when you trade. 1 Lakh is equivalent to $100, 000 of the base currency. E.g. Buy 1 lakh USD/SGD at 1.5800 means you buy USD $100,000, by selling SGD$158,000.
SWAP Points	The interest rate differential between 2 currency pairs that is either being gained or lost by holding the respective positions. E.g. you long USD/JPY, you gain swap points (interest) as USD currently offers 5% interest, while JPY is at zero interest rates. See disclaimer.
Margin Trading	In Forex, you do not need the minimum contract size (100,000) to trade. Through leveraged margin trading, you simply need a small percentage of the contract size in your account to trade. See our forex margin for more details.

How to Take/Close Out Positions

The best way to illustrate this is probably through an example.

Taking a Position

You take the view that USD will appreciate against JPY in the weeks to come. In order to benefit from USD appreciating, you decide to buy 100,000 USD/JPY through our POEMS online trading platform. You have taken a long position in USD/JPY.

So your total open position currently is Long 1 lakh USD/JPY.

Closing a Position

1 month later, USD indeed appreciates against JPY, and you decide to realize your profits. You’ll need to do a liquidating trade, i.e., short 1 lakh USD/JPY. By doing so, you have closed out your USD/JPY position.

Order Types

Limit Order	A limit order allows you to buy lower than existing market level or sell higher than existing market level E.g. GBP/USD current market bid rate is 1.8600. A limit order to sell GBP/USD at 1.8650 is possible. This limit order will be done when the market reaches the 1.8650 level.
Stop Order	A stop order allows you to buy higher than existing market level or sell lower than existing market level .It is often recommended to have in mind how much money an individual can afford to lose in the volatile Forex market. By setting a stop order, you limit the loss you're prepared to take on an existing open position. E.g. you sell 1 lakh USD/SGD at 1.6000, hoping USD to depreciate to a 1.5700, which he will then buy 1 lakh to square his position and gain $3,000. But uncertain of market forces, after he had initiated his short position, he enters a stop loss order at 1.6100, implying the maximum loss he is prepared for is SGD$1,000.
GTC Order	A Good Till Cancelled (GTC) order enables the trader to set an order, and wait till the market price level to hit the specified price level. If the market does not hit that rate, no trade will be done. As the name suggest, the order will exist until trade is done when market hit the specified level or until the trader cancels it himself.
OCO Order	An OCO Order typically consists of both a Stop Order, as well as a Limit Order. When either of the order is triggered, The other will be cancelled. If you have an existing open long position in EUR/JPY, due to the volatile market conditions, you have no idea on how the price level will move. You can enter a One Cancel Other (OCO) order, i.e. to sell (Limit) at a higher level which you have bought, (in the event market moves in your favor), or alternatively, to sell (stop) at a lower level , (in the event market moves against your favor.) Whichever direction EUR/JPY moves, when market reaches your Stop or Limit order, your order is triggered and the other other will be cancelled.

Phone Trading

Clients may trade over the telephone with our forex dealing desk 24 hours a day, 5 days a week. The advantage of trading through telephone is that, you can carry out trades even if you’re on the move, our dealers will provide you with a competitive price level.

Phone Dealing

Scenario 1: Checking for current level of a currency pair, not accepting the current level.

Client: “Hi, what’s the current level for Dollar, Yen (USD/JPY)?
Forex Dealer: “USD/JPY currently off the screen is 32/37”
Client: “Can I have a firm quote for 3 lakh USD/JPY?”
Forex Dealer: “33/35”
Client: “Nothing done.”

Scenario analysis

During the initial part of conversation, USD/JPY indicative quote is at 113.32/113.37. Notice that the dealer does not give the full quote. Instead, it’s simply 32/37. The dealer expects you to know a general level of the currency you’re trading in. As it is only an indicative quote, you will not be able to trade at the indicative price.
When client indicated the volume he intends to trade and asks for a firm quote, the dealer quotes you a price level which if you agree, you will be done at that level.
If you’re not interested in the current level, and do not want to trade, simply say “Nothing done”.

Scenario 2: Accepting the quote.

Client: “Hi, what’s the current level for Dollar, Yen (USD/JPY)?
Forex Dealer: “Indicative price for USD/JPY is currently, 35/40”
Client: “Can I have a firm quote to buy 3 lakh USD/JPY?”
Forex Dealer: “USD/JPY now at 36/38”
Client: “Ok, buy 3 lakh USD/JPY.”
Forex Dealer: “Done. You bought 3 lakh of USD/JPY at 113.38. What’s your account no. please?
Client: “My account is xxxxxxxxx”

Scenario analysis

Note that the dealer says “Done”, to indicate your trade has been accepted. He will further confirm your trade after you have accepted the price quote. At this point in time, dealer will give the full quote which is 113.38.
You will need to provide us your account number for us to register this trade.

Scenario 3: Hesitating

Client: “Hi, what’s the current level for Dollar, Yen (USD/JPY)?
Forex Dealer: “USD/JPY currently off the screen is 32/37”
Client: “Can I have a firm quote for 3 lakh USD/JPY?”
Forex Dealer: “33/35”

(Market moves immediately after dealer quotes)

Forex Dealer: “Out. Let me get you a fresh quote. Currently 30/32”
Client: (hesitates for some time) Hmmmmm……….
Forex Dealer: “Your risk.”
Client: Nothing.

Scenario analysis

Notice that when the market moves away from the existing price level of 33/35, the dealer says “out”, it means market has moved and previous level is no longer available for trading. He offers you a new price quote.
During the moment of hesitation, the market may move, and the dealer is not able to guarantee you the previous rate quoted. In such situations, our dealer will say “Your risk”, to indicate the previous price may no longer hold, and if you finally decide to trade at the quoted level, it depends on whether the market level is still there. Therefore, it is your risk.

Scenario 4: Not accepting the current market level, and Buying or selling using limit orders

Client: “Can I have a firm quote for 3 lakh USD/JPY?”
Forex Dealer: “33/35”
Client (not interested in the current level): “I’d like to buy 3 lots of USD/JPY at the 116.15”
Forex Dealer: “Ok, I’ll work the order for you, and inform you once the order is filled.”

Online Trades

Clients may choose to trade with us via our internet trading platform - POEMS, which you can place in your order anytime from 7am till 4am the next working day. Online trading enables you the ease of trades especially if you’re more of an internet person.

Through online trading, you will be able to place your own Limit, Stop, OCO, Day or GTC orders, amend price, and even withdraw your order. With POEMS linked to different asset class, you can trade different products under the same platform.