Financial Trading Report: Forex Trading and Currency Analysis

This report provides an analysis of financial trading activities, focusing on currency market dynamics and forex trading strategies. It examines various currency pairs, including GBP/JPY, AUD/USD, and EUR/USD, and details the transactions made by a trader, including buy and sell dates, instruments, and profit/loss outcomes. The report delves into the concepts of over-the-counter and exchange trading, highlighting the factors influencing currency fluctuations, such as economic, political, and social influences. It also discusses risk management techniques, including the use of options and stop-loss orders, to mitigate potential losses. Furthermore, the report analyzes the economic conditions of countries like Australia, Japan, the UK, and the US, and how these conditions affect currency values and trading decisions. The analysis considers the impact of events like the COVID-19 pandemic and the role of central banks. The report concludes by summarizing the trader's strategies and the arbitrage opportunities exploited in the currency market.

ASSIGNMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
EXECUTIVE SUMMARY.............................................................................................................1
REPORT..........................................................................................................................................2
REFERENCES................................................................................................................................6

EXECUTIVE SUMMARY
INSTRUMENT
S
TRANSACTION
S
DATE OF
TRANSACTIONS/TIM
E
INVESTMEN
T
RETUR
N
LOSS/
PROFIT
RISK
MANAGEMEN
T
USD/JPY
EASY TRADE
BUY 11-Sep-20 14:19 3000.00
AUD
0 3000.00
AUD
NO
AUD/USD
EASY TRADE
SELL 11-Sep-20 14:22 3000.00
AUD
0 3000.00
AUD
NO
EUR/USD
EASY TRADE
BUY 11-Sep-20 14:22 3000.00
AUD
741.64
AUD
- 2258.36
AUD
CLOSED
GBP/JPY EASY
TRADE
SELL 25-Aug-20 13:29 3,000.00
AUD
4,425.7
0 AUD
+1425.25
AUD
NO
GBP/JPY EASY
TRADE
BUY 09-Sep-20 04:18 2,000.00
AUD
1,382.9
6 AUD
- 617.04
AUD
NO
GBP/JPY EASY
TRADE
BUY 11-Sep-20 14:17 300.00 AUD 0 300 .00
AUD
NO
GBP/JPY EASY
TRADE
BUY 11-Sep-20 14:17 3,000.00
AUD
0 3000 AUD NO
GBP/JPY EASY
TRADE
BUY 11-Sep-20 14:19 3000.00
AUD
1,601.6
2 AUD
-398.38
AUD
NO
GBP/JPY EASY
TRADE
BUY 11-Sep-20 11:42 2000.00
AUD
0 2000 AUD NO
EUR/USD
VANILLA
OPTION
BUY
09-Sep-20 13:32
84.35 AUD 103.64
AUD
19.29 AUD NO
USD/CAD BUY 100000
USD 09-Sep-20
BAUGHT AT
1.30610
OPEN
AT
1.3157
0
OPEN PL
93.76
OPEN
AUD/USD BUY
100,000.00
AUD
09-Sep-20 08:03 BAUGHT AT
0.7245
SOLD
AT
0.7268
316.35 AUD CLOSED BY
ME
IND/USD SELL 0.40 IND 09-Sep-20 06:33 BAUGHT AT
11224.8
SOLD
AT
11449.
4
-1235.15
AUD
STOPLOSS
AUD/USD BUY
100,000.00
AUD
09-Sep-20 06:25 BAUGHT AT
0.7216
SOLD
AT
0.7220
55.38 AUD CLOSED BY
ME
EUR/USD BUY
100,000.00
EUR
09-Sep-20 06:13 BAUGHT AT
1.1774
SOLD
AT
1.1793
261.92 AUD CLOSED BY
ME
1

Financial trading refers to buying & selling of the financial assets. There are two methods
of trading which are: over the counter or via exchange. Exchange is highly organised trading
marketplace where specific instrument could be traded. In over the counter, trade is directly
made between 2 parties. Financial instruments like forex, shares, bonds and derivatives like
futures, options or CFDs are traded. Trade can be done in different financial markets. Trading is
done with the attempt of making profit by buying low & selling high in short term.
Report will reveal about the financial trading carried out by financial trader. It is dealing
in foreign exchange with the motive of earning arbitrage gain by buying at lower prices and
selling at higher prices. The attempt of earning arbitrage gain is successful where the currency
could be bought at lower prices in an exchange and could be sold at higher prices in other
exchange where the buying price was higher. Currency options and forex were used for trading
in different currencies. Total nine transactions have been carried out by the trader in different
currencies with the motive of earning gains. The currencies in which trader has dealt are GBP
and AUD. These two currencies are traded for most as compared with other. Euro is also traded
for once against USD. The reason behind choosing these currencies are GBP is the fourth most
traded currency in world and has stable economic environment as compared with other
currencies (Gurrib, 2018). AUD is home currencies against which other currencies are traded.
The political and economic environment of UK is strong and stable due to which various
investors deal in the currency. Fluctuations may be seen after the housing demand and attempt of
company to lower the increasing housing prices in UK. As significant investments are being
made the returns may not be the same as expected which may result in shift to other causing
economic dis- balance.
Australian dollar after constant decline has shown a rise after the pandemic against the other
currencies. This could also be stated that other currencies after the pandemic has shown decline
in value. The growth in dollar rate is mainly due to iron ore exports in which it holds dominant
position in world.
There has been profit of 14148 AUD from the financial trading as currency was brought
when the currency was low and sold at prices which were higher making gain for the trader. TO
mitigate the risks trader has bought options for downside in GBP. This was to prevent the losses
that might occur due to going long in GBP at large. The other currencies such as Euro and USD
were hedged by setting stop loss and buying futures.
2

REPORT
Currency market is over the counter exchange performing conversions around world
between the different currencies and helps to determine comparative values of currencies.
Exchange facilitates international providing exchanges to invest across the markets valued in the
different currencies. Currency is the most traded asset after shares. There are significant
fluctuations seen in the currencies as like shares due to various factors such as economic,
political and social influences that affects the market. Exchange market is comparatively
complicated, vast and competitive.
The trading strategies are the one which assist the company or the country in fixing the
plan which is designed for attaining the return which will be more profitable for long and short
and return within the market. The main reason underlying the use trading strategies is that this
will assist the company in managing the working efficiency of the company and manage the
money within the company and allocate in optimal and effective manner. This optimal allocation
of finance is very essential as finance is the limited resource and company or country cannot run
without it. So it is very essential to be used in effective and appropriate manner. These strategies
are based and designed on the basis of technical and fundamental analysis.
The current macroeconomic condition of the country Australia is expected to have a
record of contraction in the GDP of the country of approximately 10 % for the first half of 2020.
This was majorly because of the impact of COVID- 19 and the shutdown of the economy for
some period of time. Furthermore, the decline in the Quarter of March was majorly due to the
contraction in the Euro and Chinese activity and the rollout containment measure. With respect
to the economy of Australia the unemployment has increased to a great extent. Again the major
reason underlying this fact is majorly the effects of the pandemic virus that is COVID- 19. In
addition to the unemployment the household consumption of the resident of Australia has also
reduced by around 15%. Along with the consumption the investment options within the economy
has also reduced and profitability of the whole economy has reduced.
The economy of the Japan is also facing issues similar to the Australian economy but
they are witnessing the downfall before the pandemic as well. The GDP of Japan majorly
contracted in the last quarter of 2019 and after that the pandemic arrived. The pandemic majorly
resulted in more of the decline in the economy of the country. The major challenge for Japan was
the making of the policy for meeting with the loss and the degrading factors within the whole
3

economy. This was the major for Japan that they were not able to meet the economic condition in
proper and effective manner. The major reason underlying this fact is that the policymakers of
the economy were not effective and this resulted in the degradation of the economy. Another
major economic condition present is the unemployment and this is the major fall in the economic
condition of country. This unemployment limits the country to grow and develop to good
economy. The major reason underlying this fact is that the when there is unemployment within
the country then the people from the domestic country goes to other foreign country resulting in
brain drain from domestic country. This same took place in the economic condition of Japan as
well. The people from Japan are trying to go in the more developed country in search of job and
earning livelihood and this has a great impact over the working of the economy.
Australian dollar is among the 5 most frequently traded currency in market. It is free float
currency since 1983. Trading currencies in countries are controlled by Central Bank of issuing
country. Australian dollar is controlled by Reserve Bank of Australia
In this it could be seen that the traded has used GBP, JPY, AUD, EUR and USD. These
are the top five currencies traded in the world. They belong to the most advanced and developed
nations that also impact other nations. They are the strong economies of the world. GBP is
chosen as it is traded highly by the investors and traders as the economy is stable and have
various multinationals that increase the GDP rate. The employment rate of UK has gone down
and also the investors are making shift as the returns are not such as expected by the investors
(Australian Dollar, 2020). The pandemic has further affected the economy of UK and is showing
decline in value and it would be beneficial to go long in GBP as it will be soon coming back to
normal after the start-up of factories showing growth in GDP.
JPY is the strongest economy with low inflation. There are constant efforts of
government to increase the inflation but are left with sorry. Trade in GBP is done against JPY as
the GBP will tend to rise after the pandemic and JPY may show decline in growth rate and
economic status after the pandemic (Lyons, 2020). Trader has made transactions in GBP mainly
against JPY as it is likely to go down due to economic slowdown and growth of Chinese
economy.
USD is the most traded currency in world with major economy. Effect of US policies and
actions are significant and have impact over most of the economies due to which it is highly
traded currency. USD is traded against AUD as the US economic is facing serious economic
4

issues after the COVID that may decrease the value of currency. Euro is traded against USD as it
is expected that Euro may rise against the USD. Most of the economies have gone down after the
pandemic of COVID-19 investor has made transactions with the motive of earning from the
currencies of economies that will rise the fastest among other countries (Adams and Jiang, 2016).
The impact of economy of China will be seen in other nations also as most of the electronic
products and components are imported from it. Producing in home country will raise the prices
of products as the labour in China is very low. Economies like USA and India avoiding Chinese
imports may show high inflation making value of currency to fall.
The AUD dollar has been moving upward from March at fluctuating rate with the
ongoing economic crisis. It is also gaining confidence against the other currencies of the world.
Australian dollar has been falling prior to pandemic due to increasing interest rates but then also
stability was maintained due to dominant position in iron ore exports.
The GBP against JPY is gaining at constant rate and is bullish from last few months. Also
it is expecting further rise due to which trader has gone long in GBP against JPY. Also there are
arbitrage opportunities available when the currency buys and sell prices are different at different
stock exchanges (GBP/ JPY, 2020). Buying at lower and selling in exchange at higher rate. The
trading will continue till the arbitrage opportunities are removed and finished.
For example, the going short in AUD against USD as AUD is falling against USD
continuously and buying EURO against USD as it is rising due to the revamp of industries and
companies. The trade negotiations and lose trade barriers are making the economy to raise its
GDP at significant rate. The USD are again bought against JPY as it is rising against this
currency and was falling against Euro. The main motive of going long in GBP against JPY as the
exchange shows trader was making continuous gain in the currency due to improving economic
environment. Also the decline in share market has shifted the traders towards currency market
increasing the demand for GBP and leading to price rise (Currency Market, 2020). The virus has
affected the country and industries at large however the impacts are not significant over the value
of currency as it is yet most trusted currency with stability. It also maintains healthy rate of
inflation that attracts high foreign direct investments.
The transaction in USD was hedged by downside options for mitigating the risk
associated with USD as the deal was of significant amount and USD is highly fluctuating
currency that brings gains and losses at short. Euro is managed by purchasing futures that will
5

reduce the loss if price goes down. Risk management strategies are not adopted for GBP as the
currency movements are going up against JPY (Adams and Jiang, 2017). These risk management
strategies are essential in financial trading to be adopted by the trader for securing the
transactions against the future fluctuations that losses could be reduced to minimum.
Investor from the transactions has gained profit of AUD 14148. The gains or losses in the
currency are converted in AUD each day to measure the profit or loss in home currency.
Financial trading is completely based over market demand and supply. The trader has managed
to have gain from the transactions carried out in different currencies.
6

REFERENCES
Books and Journals
Adams, M. and Jiang, W., 2016. Do outside directors influence the financial performance of risk-
trading firms? Evidence from the United Kingdom (UK) insurance industry. Journal of
Banking & Finance. 64. pp.36-51.
Adams, M. and Jiang, W., 2017. Do chief executives’ traits affect the financial performance of
risk‐trading firms? Evidence from the UK insurance industry. British Journal of
Management. 28(3). pp.481-501.
Gurrib, I., 2018. Can the EUR/USD, AUD/USD and CAD/USD Be Predicted Using Financial
Stress Index?. USD, AUD/USD and CAD/USD Be Predicted Using Financial Stress Index.
Lyons, S., 2020. Social avalanche: crowds, cities and financial markets: by Christian Borch,
Cambridge, UK, Cambridge University Press, 2020, 290 pp., AUD $45.95, ISBN
9781108733632.
Online
GBP/ JPY. 2020. [Online]. Available through: <https://www.actionforex.com/category/technical-
outlook/gbpjpy-outlook/>.
Currency Market. 2020. [Online]. Available through :
<https://www.moneymorning.com.au/financial-system/currency-market>.
Australian Dollar. 2020. [Online]. Available through :<https://www.dailyfx.com/aud>
()
7