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Forex financial instruments update

Октябрь 2, 2012

forex financial instruments update

On 15 April , the central bank of Malaysia, Bank Negara Malaysia (BNM), has issued new Foreign Exchange Notices (FX Notices) which take. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs. Where do we find a list of MiFID financial instruments? Is every foreign exchange contract caught by MiFID (article 10 of the MiFID Org Regulation)? 4. SURE BETTING TIPS

Turnover in the Hong Kong dollar more than doubled relative to , and the currency climbed to ninth place in the global ranking up from 13th in The Korean won, Indian rupee and Indonesian rupiah also moved higher in the global rankings. Turning to the currencies of other EME regions, the Mexican peso and the Turkish lira were among the currencies which dropped several places in global rankings.

For additional data by currency and currency pairs, see Table 2 and Table 3 on pages 10 and 11, respectively. See our Statistics Explorer for access to the full set of published data. Turnover by instrument and maturity Turnover in FX spot markets rose in the survey, but declined as a share in global FX activity. By contrast, trading in FX swaps and outright forwards gained in market share.

The bulk of turnover in FX swaps was in short-maturity instruments overnight up to seven days in April , although trading in longer tenors expanded over the past three years Table 4. Within the various instrument categories within outright forwards, NDFs accounted for a significant share of the increase in trading between and , reflecting in particular the strong activity in Korean won, Indian rupee and Brazilian real NDF markets.

The typically long maturity of currency swaps means their average daily turnover is naturally lower than that for other instruments. For additional data by instrument, see Table 1 on page 9. Inter-dealer spot turnover actually declined slightly in absolute terms relative to , whereas inter-dealer turnover in FX swaps, outright forwards and currency swaps expanded noticeably Table 4. Changes in the composition of counterparties went alongside shifts in the mix of traded FX instruments.

The rise in trading with hedge funds and PTFs was mainly attributable to greater activity in outright forwards, but their trading in other instruments also increased. For additional data by counterparty, see Table 4 and Table 5 on pages 12 and 13, respectively. Geographical distribution of turnover FX trading continues to be concentrated in the largest financial centres. While the ranking of these trading hubs remained unchanged from , there were changes in their relative shares in global turnover.

This was mainly driven by relatively slower growth of activity in Singapore and Tokyo. Turnover in Hong Kong SAR grew at a higher rate than the global aggregate, raising its share in global turnover by one percentage point. Several other FX trading centres also gained in prominence.

Mainland China thus climbed several places in the global ranking to become the eighth largest FX trading centre up from 13th place three years previously. In particular, the Triennial Survey collects data based on the location of the sales desk, whereas some regional surveys are based on the location of the trading desk.

The suppliers have issued invoices but payment is not yet due from A. There is no requirement that A should cover every contract for goods to which the exclusion might apply. The supplier has issued an invoice but the sum is not yet due from A. The exclusion is not available where A uses part of the currency it buys for purposes that do not meet the conditions of the exclusion. The contract should not be treated as partly excluded and partly as a C4 currency derivative.

Also see example The supplier has issued an invoice but the sum is not yet due from the importer. The exclusion is not available for the second contract. The first contract should be taken into account when deciding whether A may rely on the exclusion for second contract.

See the answer to Q31N How do the examples in the table in the answer to Q31M apply to an exporter or importer with a large portfolio of contracts? The supplier has issued an invoice but the sum is not yet due A. A decides to meet the payment out of its own resources. The currency contract and the contract generating the payment obligation do not need to be entered into at the same time. The exclusion will not generally be available because the currency contract is not a means of payment facilitating the payment due from A to the supplier.

This is because the payment is due in euro and so the dollar contract is not sufficiently connected to the payment transaction. The issue here is whether the forward exchange contract relates to identifiable goods and services as referred to in the answer to Q31G What is the second exclusion for foreign exchange contracts mentioned in Q31B? The exclusion may not be available. This is because the payment may not be linked to any specific goods or services being sold or bought by the farmer.

However it is possible that the farmer is going to use the payments under the scheme to purchase goods or stock for their farming business. If there is an identifiable payment transaction in accordance with the examples in this table the exclusion will potentially be available. If the exclusion is not available it is unlikely that the farmer will be carrying on MiFID business for the reasons described in the answer to Q7 We provide investment services to our clients. How do we know whether we are an investment firm for the purposes of article 4.

They wish to enter into the forward contract to guarantee the amount of sterling they will receive. The exclusion is still available if some of the grant is to meet living costs and the student has not yet decided what exactly they will need to buy see the answer to Q31Q holiday spending money for more on this.

The fund manager seeks to hedge this risk by purchasing a forward contract to sell euro and buy sterling for three months in the future. The purpose of the trade is to ensure the investors will not be subject to currency volatility affecting the value of their investment. The exclusion is not available because the currency transaction is not linked to any payment for specific goods, services or direct investment. However, the machinery purchase is delayed and A asks to extend the forward contract.

This may involve A paying more money for the euro depending on the exchange rate at the date of the contract extension. The fact that the currency forward is later amended by mutual consent to match the changed payment date for the machinery does not prevent the exclusion from applying as long as the amended version meets the exclusion conditions in the light of the changed circumstances.

If the foreign exchange provider refuses to amend the contract the exclusion is not lost as long as the exclusion conditions were met at the time the foreign exchange contract was entered into. The machinery purchase falls through but A wants to extend the contract length as they have identified replacement machinery with a similar price. The answer to 22 applies. As explained in the answer to 7 , the exclusion may be available for the proposed new machinery contract even though the precise details are not yet known.

However, the machinery purchase is delayed and the specifications are changed. The currency contract therefore no longer facilitates payment under the machinery contract. A decides to close out the existing currency contract. A also enters into a new forward contract with another currency provider that matches the revised machinery contract. The exclusion is potentially available for the close out contract and also for the new currency contract.

If A decides to meet the payment due under the revised machinery contract out of its own resources, the exclusion is still potentially available for the close out contract. The customer wishes to ensure that there is no depreciation in value of the inheritance in sterling terms and enters into a euro-sterling forward. The exclusion is not available because the foreign exchange contract is not linked to any specific goods, services or direct investment.

The exclusion is potentially available as the foreign exchange contract is made to facilitate a direct investment in the subsidiary. The payment is to be made in the currency of the country where the family member lives. The customer buys the foreign currency on a forward basis.

The exclusion is not necessarily available. The exclusion is only available if the family member is going to use the currency for a purpose that comes within the exclusion. A pays them in local currency. A buys forward the currency with which it will pay its employees. The exclusion potentially applies.

How do the examples in the table in the answer to Q31M apply to an exporter or importer with a large portfolio of contracts? In many cases a seller or buyer of goods will have frequent payment transactions for which it needs foreign exchange and it may not wish to meet this need by having a separate currency contract for each import or export contract.

This is because, as the examples in the table in the answer to Q31M illustrate, there is some flexibility in the amount and timing of currency contracts, the ability to estimate currency needs, the ability to close out currency contracts and the use of different currency providers.

I am a payment services provider under the Payment Services Regulations. How do the spot contract and means of payment exclusions referred to in the answers to Q31C and Q31G apply to me? It does not cover, for example, banks that are subject to the conduct of business requirements of those Regulations.

That right does not allow you to provide foreign exchange derivative services that would otherwise require authorisation under MiFID. You therefore need to consider the availability of MiFID exclusions for your foreign exchange business. The foreign exchange part of this transaction is separate from the payment part of the transaction see Q12 in PERG Will this be subject to the PSD regulations?

However in practice it is likely that such foreign exchange transactions will fall outside MiFID because the spot exclusion applies. They are all based on a payment being made in one currency funded from a payment account in another currency.

Can a non-deliverable forward come within the exclusion for spot foreign exchange contracts in the answer to Q31C or the means of payment exclusion in the answer to Q31G? The first currency may be non-convertible for example because of exchange controls or restrictions on currency dealing. On the contracted settlement date, the profit or loss is adjusted between the two counterparties based on the difference between the contracted rate for the non-deliverable currency and the prevailing spot rate.

The price for the convertible currency may be expressed in terms of a second convertible currency. See the answer to Q31R about why settlement for a difference does not come within either exclusion. How is holiday spending money treated under the spot contract and means of payment exclusions referred to in the answers to Q31C and Q31G? This contract is not a MiFID investment either because it does not fall into the category C4 type of derivative in the first place or because the spot contract exclusion described in the answer to Q31C applies.

This type of contract is potentially within the C4 type of derivative. However the means of payment exclusion is potentially available. The holiday can be treated as identifiable goods or services even though the holidaymaker may not know what restaurant they are going to eat at or what tourist attractions they are going to visit.

Such an arrangement may also benefit from the means of payment exclusion. This is because the promise to buy back the currency is so closely connected to the original purchase that it can be seen as being an integral part of the same transaction. The holidaymaker will of course not require authorisation because a holiday-maker buying holiday money is not acting on a professional basis in the way described in the answer to Q7.

How does netting affect the exclusions for foreign exchange contracts in the answers to Q31C and Q31G? The means of payment exclusion described in the answer to Q31G requires there to be physical settlement delivery. Therefore neither exclusion applies to a contract involving this type of netting. An instrument that provides for a single payment like this is more like a swap, which is outside the scope of the exclusions. Similarly, the existence of force majeure provisions dealing with bona fide inability to settle physically does not prevent a contract from benefiting from the exclusions.

The result may be that the parties exchange multiple cash flows during a given day. In order to reduce operational and settlement risks they may agree to net those cash flows into one payment for each currency payment netting. For example the parties may each have to make and receive multiple payments in sterling, euro and US dollars on the same day. The result of payment netting is that there will only be three payments to be made on that day, one in each of the three currencies.

This sort of payment netting is compatible with the exclusions. I enter into my foreign exchange contracts on a trading venue. What exclusions or exemption can I rely on? Although that exemption is usually unavailable to those who have direct electronic access to a trading venue , this is not the case where the contract is for hedging purposes. Which types of commodity derivative fall within MiFID scope?

What is a commodity for the purposes of MiFID? If a good is freely replaceable by another of a similar nature or kind for the purposes of the relevant contract or is normally regarded as such in the market , the two goods will be fungible in nature for these purposes. Gold bars are a classic example of fungible goods. In our view, the concept of commodity does not include services or other items that are not goods, such as currencies or rights in real estate, or that are entirely intangible 4.

Can you tell me more about category C5 commodity derivatives? A derivative that only allows a party to opt for cash in the event of default or termination is not included.

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When trading in the forex market, you're buying or selling the currency of a particular country, relative to another currency. But there's no physical exchange of money from one party to another as at a foreign exchange kiosk. In the world of electronic markets, traders are usually taking a position in a specific currency with the hope that there will be some upward movement and strength in the currency they're buying or weakness if they're selling so that they can make a profit.

A currency is always traded relative to another currency. If you sell a currency, you are buying another, and if you buy a currency you are selling another. The profit is made on the difference between your transaction prices. Spot Transactions A spot market deal is for immediate delivery, which is defined as two business days for most currency pairs.

The business day excludes Saturdays, Sundays, and legal holidays in either currency of the traded pair. During the Christmas and Easter season, some spot trades can take as long as six days to settle. Funds are exchanged on the settlement date , not the transaction date.

The U. The euro is the most actively traded counter currency , followed by the Japanese yen, British pound, and Swiss franc. Market moves are driven by a combination of speculation , economic strength and growth, and interest rate differentials. Forex FX Rollover Retail traders don't typically want to take delivery of the currencies they buy.

They are only interested in profiting on the difference between their transaction prices. Because of this, most retail brokers will automatically " roll over " their currency positions at 5 p. EST each day. The broker basically resets the positions and provides either a credit or debit for the interest rate differential between the two currencies in the pairs being held. The trade carries on and the trader doesn't need to deliver or settle the transaction.

When the trade is closed the trader realizes a profit or loss based on the original transaction price and the price at which the trade was closed. The rollover credits or debits could either add to this gain or detract from it. Since the forex market is closed on Saturday and Sunday, the interest rate credit or debit from these days is applied on Wednesday. Therefore, holding a position at 5 p. Forex Forward Transactions Any forex transaction that settles for a date later than spot is considered a forward.

The price is calculated by adjusting the spot rate to account for the difference in interest rates between the two currencies. The amount of adjustment is called "forward points. They are not a forecast of how the spot market will trade at a date in the future. A forward is a tailor-made contract. It can be for any amount of money and can settle on any date that's not a weekend or holiday.

As in a spot transaction, funds are exchanged on the settlement date. Forex FX Futures A forex or currency futures contract is an agreement between two parties to deliver a set amount of currency at a set date, called the expiry, in the future. Futures contracts are traded on an exchange for set values of currency and with set expiry dates.

Unlike a forward, the terms of a futures contract are non-negotiable. A profit is made on the difference between the prices the contract was bought and sold at. Instead, speculators buy and sell the contracts prior to expiration, realizing their profits or losses on their transactions. How Forex Differs from Other Markets There are some major differences between the way the forex operates and other markets such as the U. Fewer Rules This means investors aren't held to as strict standards or regulations as those in the stock, futures or options markets.

There are no clearinghouses and no central bodies that oversee the entire forex market. You can short-sell at any time because in forex you aren't ever actually shorting; if you sell one currency you are buying another. Fees and Commissions Since the market is unregulated, fees and commissions vary widely among brokers.

Most forex brokers make money by marking up the spread on currency pairs. Others make money by charging a commission, which fluctuates based on the amount of currency traded. Some brokers use both. Full Access There's no cut-off as to when you can and cannot trade.

Because the market is open 24 hours a day, you can trade at any time of day. The exception is weekends, or when no global financial center is open due to a holiday. Leverage The forex market allows for leverage up to in the U. Leverage is a double-edged sword; it magnifies both profits and losses.

Later that day the price has increased to 1. If the price dropped to 1. We test every broker and rank them based on how well they meet the criteria that traders worldwide are looking for in a Forex broker, and we update our reviews regularly to make sure every trader gets the most relevant information before making a decision. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The data contained in this website is not necessarily real-time nor accurate, and analyses are the opinions of the author and do not represent the recommendations of DailyForex or its employees. CFD and Currency trading on margin involves high risk, and is not suitable for all investors. CFDS are leveraged products and losses are able to exceed initial deposits and capital is at risk.

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Futures Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, , British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months.

Futures contracts are usually inclusive of any interest amounts. Swaps The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The data contained in this website is not necessarily real-time nor accurate, and analyses are the opinions of the author and do not represent the recommendations of DailyForex or its employees. CFD and Currency trading on margin involves high risk, and is not suitable for all investors. CFDS are leveraged products and losses are able to exceed initial deposits and capital is at risk.

Before deciding to trade Forex CFDs or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.

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