4. Margin Broking Systems
Going Long and going Short
The software allows us to place orders in the market which
will be watched and executed automatically by the game when
the market price reaches the set level. We can place orders
that will expire at the
end of the day,
or continue to be watched until we change them –
good until cancelled
orders. We can then leave the game to monitor our position
while we do something else, or even log out completely. We
can place three types of specific order in the order
management window;-
Stop Loss orders
– an order that limits the amount of money you are willing
to lose on any position, and that will cut you out of the
market automatically when the bid or offer rate touches the
level that you have set.
Limit orders
– an order that will close your existing position profitably
automatically when the bid or offer rate touches the level
that you have set. Limit orders can also be used to open new
positions when we are square, at rates we set in the order
which have not yet been reached in the market.
One Cancels The Other orders – OCO
– in this instance the software will prompt you for a limit
order and a stop loss order as above, but will automatically
cancel the opposing order if one or other is executed.
Once we have entered an order, we can cancel it in seconds
by highlighting and confirming cancellation. The
professional trader will always work with a stop loss order
to limit his risk, and will remember to cancel it if he
closes his position himself.
Deciding on position size – trailing stop losses
One of the most elementary mistakes is taking too large a
position for your risk appetite, I.e the amount you are
comfortable to lose on a trade that is wrong and causes a
loss. Be cautious to begin with , and perhaps trade with one
lot until you are making regular profits.
Larger profits are the aim, but to trade in a larger amount
gives a bigger leverage to a good or bad trade.
Always use a stop loss that will take you out of the market
if a sudden movement or news item causes the market to move
against you. You can move this stop loss up behind your
position as it moves into profit, until it is beyond your
entry point. This is called a
trailing stop loss.
5. What causes the markets to move?
Market participants
Banks -
The interbank market caters for both
the majority of commercial turnover
as well as enormous amounts of
speculative trading every day. It is
not uncommon for a large bank to
trade billions of dollars on a daily
basis. Some of this trading activity
is undertaken on behalf of
customers, but a large amount of
trading is also conducted by
proprietary desks, where dealers
trade to make the bank profits.The
interbank market has become
increasingly competitive in the last
couple of years and the god-like
status of top foreign exchange
traders has suffered.
Central Banks - The
national central banks play an
important role in the foreign
exchange markets. Ultimately, the
central banks seek to control money
supply and often have official or
unofficial target rates for their
currencies. As many central banks
have very substantial foreign
exchange reserves, the intervention
power is significant. Among the most
important responsibilities of a
central bank is the restoration of
an orderly market in times of
excessive exchange rate volatility
and the control of the inflationary
impact of a weakening currency.
Frequently, the mere expectation of
central bank intervention is
sufficient to stabilise a currency,
but in the event of aggressive
intervention the actual impact on
the short term supply/demand balance
can lead to the desired moves in
exchange rates. Central banks do not
always achieve their objectives,
however. If the market participants
really want to take on a central
bank, the combined resources of the
market can easily overwhelm any
central bank. Several scenarios of
this nature were seen in the 1992-93
ERM collapse, and in more recent
times in South East Asia.
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