Gen Info Flashcards
Which financial instruments cater to institutional traders?
FX swaps and forwards
What are currency futures?
Futures are contracts to buy or sell a certain asset at a specified price on a future date.
What are currency options?
An “option” is a financial instrument that gives the buyer the right or the option, but not the obligation, to buy or sell an asset at a specified price on the option’s expiration date.
What are Currency ETF’s?
A currency ETF offers exposure to a single currency or basket of currencies.
Notes on Currency ETF’s?
ETFs are created and managed by financial institutions that buy and hold currencies in a fund. They then offer shares of the fund to the public on an exchange allowing you to buy and trade these shares just like stocks.
Like currency options, the limitation in trading currency ETFs is that the market isn’t open 24 hours. Also, ETFs are subject to trading commissions and other transaction costs. Currency ETFs can be used to speculate on forex, diversify a portfolio, or hedge against currency risks.
What is the Spot FX financial instrument?
The spot FX market is an “off-exchange” market, also known as an over-the-counter (“OTC”) market.
The off-exchange forex market is a large, growing, and liquid financial market that operates 24 hours a day.
It is not a market in the traditional sense because there is no central trading location or “exchange”.
https://www.babypips.com/learn/forex/buying-selling-currency-pairs
https://www.babypips.com/learn/forex/buying-selling-currency-pairs
What are base currencies?
The base currency is the reference element for the exchange rate of the currency pair. It always has a value of one.
What are counter currencies?
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency.
I.e: You have to pay 1.21228 U.S. dollars to buy 1 British pound.
What the selling process of base/quote currencies?
When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency.
I.e: you will receive 1.21228 U.S. dollars when you sell 1 British pound.
The base currency represents how much of the quote currency is needed for you to get one unit of the base currency
What
When should you sell a pair?
When you believe the base currency will depreciate in value relative to the quote currency.
When should you buy a Currency pair?
When you think the base currency will gain in value relative to the counter/quote currency.
