TRADING SIMULATION

FX MARKET

BAFI 3182
Financial Markets
For next week – Market View
• Work with your group to prepare your Market
View
• Analyse one or two currency pairs out of 5
currencies AUD, USD, JPY, EUR, and GBP
• Research economic factors influencing currencies
values (see FX topic notes)
• Use your market view to formulate your
speculation strategy before coming to trading
session!
 FX TRADING

 Overview

 Scenario objectives/tasks – market makers and price takers

 FX market quotations

 Portfolio summaries - tracking portfolio changes

 Profit / loss calculation – expected vs. realized profit / loss

 Market terminologies (long/short, spread, pips etc)

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DEALING ROOM

• FX Market

– This is an “over the counter” market

– All deals must be negotiated over the telephone.

• Desks
– Teams 1 to 5 are banks

– Teams 6 to 10 are corporations.

– FX Dealing Simulation (next week): Groups to return to same desks.

• Team structure
– 3-4 people per desk: 2-3 trading and 1 recording the deals. We encourage
you to change roles from time to time.

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TRADING RULES

BANKS (Price Maker) CORPORATION (Price Taker)

The bank must provide a  Can refuse to trade with

2-way quote if asked to do banks; can give quotes to
so. other corporations.

 Corp. to corp.: The caller is

 Bank to bank: the caller is
price taker.
price taker.
Bank to corp: Corp is the
price taker
If the quote is accepted, you must go head with the transaction

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CURRENCY QUOTES
The Price maker sets the bid and offer

 The bid : The price at which trader (price maker)

is prepared to buy the commodity currency.
 The offer or ask: The price at which a trader
(price maker) is prepared to sell the commodity
currency.
 Opposite is true for price taker

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SPOT FOREIGN EXCHANGE

AUD/USD = 0.7994 1 AUD = 0.7994 USD

AUD commodity currency / USD terms currency
This gives the price of the AUD ‘in terms of’ the USD.

Example: Spot AUD/USD = 0.7994 / 0.7998

– The price maker will buy 1 “Aussie” in exchange for 0.7994 USD.
(will sell 1 AUD for 0.7998 USD)

– The price taker can sell 1 “Aussie” for 0.7994 USD

(or buy 1 AUD for 0.7998 USD).

Remember there are two sides to every FX transaction

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 Spot AUD/USD = 0.9461 /63

As the PRICE MAKER I will As the PRICE TAKER I will

BUY AUD at my BID rate of SELL AUD at the price maker’s
0.9461 BID rate of 0.9461

Quoting

Calling
Price Maker Price Taker

As the PRICE MAKER I will As the PRICE TAKER I will BUY

SELL AUD at my ASK rate of AUD at the price maker’s ASK rate
0.9463 of 0.9463

Quoting

Price Maker Calling Price Taker

RMIT TRADING PLATFORM

• 2 components:
– Eikon Market Information Screen
Real time financial data and news

– Trading Screen via excel spreadsheet

Transactions recording and position keeping

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 DEALING SCENARIOS
Read your scenarios carefully to understand the
roles/Objectives of:

Banks:
• Liquidity provision
• Profit making and Exchange rates risk management

Corporations:
• Financing capital expenditures, investments, etc.
• Speculation
 SECONDARY TASK
• Secondary task will require you to trade based on your market view. You
must attempt the secondary task in this dealing session.

– If you have predicted that the AUD will depreciate against the USD, how
would you implement a trading strategy based on that? How do you profit
to take advantage of such an exchange rate movement.

– You can (and should) use any relevant news releases or conduct over
the trading period if you believe it supports or goes against your market
view. Ask your instructor about this.

• Banks: instructor will speak to you about your secondary task at the start of
the session. Can be started at any time.
• Corporations: do not start until primary task is complete. Please inform
your instructor once primary task has been completed.
 Trading Rules
• DO NOT ADD RATES – THEY ARE NOT CORRECTLY CALCULATED. Severe penalties apply.
Any kind of FX transaction can be made with the default rates available to you.

• Price makers must provide two way quotes upon inquiry by the price taker. e.g. GBP/USD:
1.5704 -1.5706

• Buy / Sell decision should follow ONLY after the quotes are received / given.

• Price makers (banks) CANNOT REFUSE to trade any currency. Corporations as price makers
can only refuse to trade currencies if they don’t have the requested currency available

• Block trading is NOT allowed. Penalty of -1 mark applies for any obvious block trading.

• Not picking up phones or refusing to trade and will result in penalty.

• Remember to initiate your calls by identifying yourselves and asking for a two-way quote on your
desired currency pair.

• All communication must be done via phones. BOTH GROUPS WILL BE PENALISED -1 MARK
EVERYTIME IF COMMUNICATION IS NOT OVER THE PHONE AND IN ENGLISH. Please
download “Zalo’’ on your mobile phones before you come for the trading session in
Week-6 .Failure to comply with rules of the trading game would result in suspension

Be careful! – You may receive an unsuspecting call from the Central Bank.
 TRADING REQUIREMENTS
• Both price maker and price taker should keep a log of
calls/communication during the dealing session

• Save Transaction log, FX position summary at the end of the trading

session

• Corporation must also save the reports at the completion of primary task

• News, graphs other information relevant to the trading

strategy/speculation should be saved and include in the report.
 REPORTS: FX Deals Transaction Log Report

FX TRADING TRANSACTION LOG/FX DEALS LIST

M=Price AMOUNT IN AMOUNT IN

TRADE COUNTER COMMODITY TERM
maker QUOTE FINAl RATE BUY/SELL COMODITY TERM
NUMBER PARTY CURRENCY CURRENCY
T-Price taker CURRENCY CURRENCY

1 M 2 0.6912-13 0.6913 AUD S 1,000,000 USD 691,300

2 M 3 0.6912-13 0.6913 AUD S 1,000,000 USD 691,300

3 M 3 0.6912-13 0.6913 AUD S 1,000,000 USD 691,300

4 M 5 0.6912-13 0.6913 AUD S 1,000,000 USD 691,300

5 M 1 0.6912-13 0.6913 AUD S 1,000,000 USD 691,300

6 M 2 0.5478-83 0.5483 AUD S 1,000,000 GBP 548,300

M
7 5 0.5478-83 0.5483 AUD S 1,000,000 GBP 548,300

8 M 1 0.5478-83 0.5483 AUD S 1,000,000 GBP 548,300

9 M 2 0.5478-83 0.5483 AUD S 1,000,000 GBP 548,300

10 M 1. Portfolio
5 Summary
0.5478-83 0.5483Report
AUD S 1,000,000 GBP 548,300

11 M 2 137.30-31 137.3 GBP B 1,000,000 JPY 137,300,000

12 M 3 137.30-31 137.3 GBP B 1,000,000 JPY 137,300,000

 POSITION SUMMARY

FOREIGN EXCHANGE POSITION SUMMARY

AUD/USD AUD/EUR AUD/GBP AUD/JPY

OPENING RATE 0.6911 1.0000 0.5482 75.26

CLOSING RATE 0.6915 1.0000 0.5486 75.47

OPENING OPENING POSITION CURRENT POSITION IN

CURRENCY NET TRADES CURRENT POSITION CHANGE
POSITION IN AUD AUD

AUD 10,000,000 10,000,000 (10,000,000) - - (10,000,000.00)

USD 10,000,000 14,469,686 3,456,500 13,456,500 19,459,869.85 4,990,183.84

EUR - - -

GBP - - 7,741,500 7,741,500 14,111,374.41 14,111,374.41

JPY - - (686,500,000) (686,500,000) (9,096,329.67) (9,096,329.67)

TOTAL OPENING TOTAL CURRENT POSITION
POSITION IN AUD 24,469,686 IN AUD 24,474,914.59 5,228.58

TOTAL PROFIT/LOSS 5,228.58

cross check 5,228.58

 TRANSACTION LIMITS
Japanese Yen (JPY):
• Maximum amount PT for JPY is 2 Billion.
• Minimum amount PT for JPY is 100 million

Other Currencies (AUD, USD, GBP, EUR):

• Maximum amount PT for all other currencies is 20 Million.
• Minimum amount PT for all other currencies is 1 Million.
• Read the scenarios carefully and try to meet the primary and secondary
objectives.
• If you need help…ASK YOUR INSTRUCTOR!

TODAY you should have formed a view on the market and trade
accordingly.