0:16
Learning outcomes.
After watching the video, you will under what bid prices, offer prices, and
spreads mean.
You will understand the currency codes.
You will be able to differentiate between the big figure and the dealing price.
We will now look at how currency prices are displayed.
And what they mean for trade and order execution.
0:41
So, while I'll be discussing about a particular way of quotation,
please do keep in mind that different brokers use
different formats to display prices on their training platform.
So, it may differ from what you might,
what I might discuss in this particular lecture.
1:07
Retail traders, people investors like you and
me are typically faced with a fairly large transaction cost,
which is basically defined by bid and offer spread, and
the bid and offer spread can be anywhere between two to five pips.
So let's understand what do we mean by bids and offers.
1:30
So let's say you have a trading account with your broker,
and you're in front of your screen and looking at a broker streaming platform.
You'll basically see two prices for each currency pair.
The price on the left hand side is called the bid and
the price on the right hand side is called as the offer.
Some also call this the ask price.
The bid is a price at which you can sell the base currency and
the offer is a price at which you can buy the base currency.
2:03
Please note that some brokers display their prices above and below each other.
With the bid on the bottom and the offer on the top.
That's easy to remember.
Bid on the bottom, okay?
The easy way to tell the difference and one of the easy way of telling
the difference is that the bid price is always lower than the offer price.
2:25
The price quotation of each built in offer.
You'll see you have two competence, what is called a big figure, and
the dealing price.
The big figure refers to the first three digits of the overall currency rate, and
is usually shown in a smaller foreign size, or sometimes, even in shadow.
2:44
The dealing price refers to the last two digits of the overall currency price and
is normally brightly displayed in a pretty large font size.
For example, in the picture in your screens, the full Euro USD price
quotation is 1.349395 or 1995, as is called.
The 1.34 is normally and 1.34 is the big figure, and
is there to show you the full price level, and that is what we call a big figure.
It's there to show you the full price level the market is currently trading at.
The 9395 portion of the price is the bid offer dealing price.
The spread is the difference between the bid price and the offer price.
3:32
Most Forex brokers utilize spread base training platforms for
the retail traders, individual traders like you and me.
You can think of the spread as the compensation the broker receives for
being the market maker and executing our trades.
Spreads vary from broker to broker and by currency pair at each broker.
And so, brokers basically charge different bid offer spreads.
Generally, the more liquid the currency pairs, the narrow the spread.
The less liquid the currency pair, the wider the spread.
This is especially the case for some of the less traded crosses.
So that's essentially bid offer spreads.
And essentially how you can think of transaction costs and broker charges.
4:23
Bid is basically the lower price and offer is the higher price.
When you want to buy, you basically hit the offer side of the broker.
When you want to sell you hit the bid side of the broker.
And that bid offer spread is the margin that your broker is making as profits for
essentially doing the market-making for you.
Okay, now having understood the bid offers,
let's also understand a little bit about trading styles.
So how do you choose your trading style,
if you've had to actively trade in the fullest market.
4:57
Before we actually actively trade the market, it perhaps help
to take a step back and think about how you would want to approach the market.
There's more to currency trading than meets the eye.
And the trading style that we
choose is one of the most important determinants of overall training success.
So you know what I call as different strokes for different folks.
There are as many trading styles and
market approaches in FX as there are in in the Indian market.
But most trading styles can be grouped into some buckets that
boil down to varying degrees of exposure to market risk.
The two main elements of market risk are time and elective price movements.
The longer we hold a position the more risk we are exposed to.
The more of a price change that we are anticipating the more risk
we are exposed to.
My aim here at this lecture is not to advocate or I won't be advocating
a certain particular training style because styles frequently over lap.
And you can adapt different styles for
different trade opportunities as a lot of professional traders do.
Or they also change trading styles based on market conditions.
My goal here in this lecture is to give you an idea of the various approaches used
for ex-market professionals so that you can understand the basis of each style.
What I'll be doing in the next two lectures is essentially
look at short term high frequency trading strategies, and
contrast that with, in the next lecture, with medium term directional trading.
So we'll basically look at short term trading in the next lecture and
in the lecture after that, we will basically look at medium term trading.
Which would predominantly would be directional trading.
[MUSIC]
Vaidya NathanLecturer
