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Trade Report

1983 words - 8 pages

Overview


From September 4, 2013 through November 13, 2013 I participated in an OANDA currency simulation game to enhance my knowledge on international currencies through currency trading. As an individual I started out with $100,000 US dollars, and I traded over $75,000 with more than five different foreign currencies. Also, during the simulation I made over 12 round-way transactions. This report is going to explain the currency concepts I learned over this simulation, my major transactions during the game, and information on the international financial market through this time period.

Currency Concepts

Before the currency trading began Professor Tang taught about the foreign ...view middle of the document...

For me to make a profit from buying and selling the currencies in the foreign exchange market, I needed to have a positive relative spread. The relative spread is the difference between the ask rate and bid rate divided by the ask rate.

When I wanted to make a larger profit in which I expected the value of a currency to increase over a certain time period, I purchased a long position. When I expected a currency to depreciate I could sell it in a short position. Short selling exists when a person sells a currency without having that currency by borrowing form dealers, and sell right away in the market. I didn’t trade on a dollar basis, but instead I had a margin account. In the margin account, I only had to deposit partial amount of the fund to serve as collaterals to leverage the total amount of foreign exchange I could trade. Many market orders were purchased during the simulation, in which I opened a position immediately at the current market rate. There is also an option of waiting to purchase a currency until ask price depreciates or appreciates to the price I prefer to purchase or sell it at; this option is called a limit order. By definition limit orders open a position at some point in the future should the exchange rate reaches a specified threshold. Market orders and limit orders allow the purchaser to set a take profit or stop loss amount for each exchange.

Major Transactions

When I began to purchase and sell the currencies, I started with smaller intervals. Over time, I increased my knowledge with quotations, bid/ask spread, long/short positions, and market/limit orders. As my knowledge grew, I purchased and sold larger amounts of major currencies such as USD and EUR. By the end of the simulation, I was able to complete larger transactions with many different currencies such as AUD, CAD, JPY, GBP, and many others. Also, I was able to complete multiple transactions within minutes of one another. There are three major transactions that I made a large profit on, and two major transactions that I experienced a large loss on.

It took me some time to get comfortable with partaking in larger transactions, because I had to learn the margin account basis, and I had to figure out how to predict the currencies trends in deprecation and appreciation. On my first major transaction, I took a gamble and made my first long position with the largest amount thus far of 200,000 units with a bid price of 0.95860 AUD/USD. I made the mistake and didn’t set a stop loss for the purchase, and within five days the ask price dropped down to 0.94538. Since I thought it was getting too risky I stopped my margin account loss at $2,644.

After a month went by, I decided to take the risk and make larger transactions with different currencies. Throughout the time, I decided to study the graphs that showed the bid/ask prices throughout the day. At each transaction, I examined the previous three days of the currency prices, and...

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