Introduction for beginners

 The aim of trading in any market is to buy some goods cheaper and to sell them for a higher price. The international exchange FOREX market is not an exception. Only the goods in this market are not things or food, but currency rates of different countries. Just like any other goods, currencies have their value. 

The present section of the web site will help new traders quickly learn the main moments, connected with working in the FOREX market. 

Currency symbols. 

At first reading currency quotes may seem a bit complicated. However, it's not that difficult, if you remember two things: 

currency that is written first is the basic one, the meaning of the basic currency always equals 1.The US dollar is the major currency in the FOREX market, and usually it is considered the basic currency in the quotes. Among the main currencies the following pairs are singled out: USD/JPY, USD/CHF, USD/CAD. For these and for many other currencies the quotes show how many units of the second currency, i.e. the quoted currency, there is in one US dollar. For example, the quote USD/JPY 112.05 means that for one US dollar you have to pay 112.05 Japanese yens. 

When the US dollar is the major currency, and the quote rises, it means that the dollar rises, and other currency weakens. If the mentioned quote USD/JPY grows up to 125.05, the dollar becomes stronger, because it's possible to buy more yens for one dollar. In its turn, when the quote increases, the value of the yen becomes lower, and when the quote falls, its value grows. Such quotes are called reverse quotes. 

However, there are such quotes as GBP/USD, EUR/USD, AUD/USD and, for example, GBP/USD 1.3977 means that 1 British pound equals 1.3977 US dollars. Such quotes are called straight quotes. Accordingly, growing of the quote will show that the pound is rising, and the dollar is falling, and if the quote is falling, the pound is becoming cheaper, and the dollar is growing. In other words, if the quote increases, the value of the basic currency increases, too. 

Rather often in mass media the US dollar is omitted in a currency pair, and then the pair EUR/USD looks like EUR, and USD/CHF like CHF. 

The rate of one currency to some other currency, where the US dollar is missing, is called the cross rate, but the method of reading currency quotes is the same. For example, the quote EUR/JPY 129.37 means that one euro cists 129.35 yens. 

Trading in the FOREX market, the quote usually consists of two prices, bid and ask. Bid is the price at which you can sell the basic currency and, at the same time, to buy the quoted currency. Ask is the price at which you can buy the major currency (or sell the quoted currency). The difference between bid and ask is called spread. 

Currencies, as a rule, are quoted as exactly as up to 0.0001 (except for yen), and the last number (after the comma) is called the point or pips. The value of each point is different for each currency; it depends on the current quote. See the calculation of one point here. 

For example, the quote GBP/USD 1.5910/15 means that you can buy British pounds at the price of 1.5915 dollars for 1 pound, or you can sell pounds at 1.591 dollars for 1 pound. In this case, the spread is 5 points. 

Conducting transactions. 

To conduct a transaction it's necessary to make an inquiry about the quote. Usually a pair of currencies and the sum of the transaction is given. When the quote is received, it's necessary to make a quick decision, whether to buy, sell or cancel. The reason of haste is explained by continuous changes of prices, and the quote you have offered can become old and unfit for any operations. When the broker confirms the transaction, it will be impossible to cancel it. 

When the trader buys currency, the operation is called a long position. When he sells currency, it is called a short position. When carrying out one of these operations, the trader opens a position, it means that the fluctuations of currency rates can bring some profit or some losses, i.e. they actually influence the trader's account. The trader can hedge the position, conducting a transaction, which is contrary to the one on which the position was opened. For example, initially the transaction was Buy 100,000. Now, to hedge the position, it's necessary to make the reverse transaction, Sell 100,000 EUR. 

The principle of margin trading in currency trading allows increasing your purchasing power. Let's suppose that your security deposit is $3,000. Then with the leverage 1:100 you can buy $300,000, i.e. in reality there must be only 1 per cent from the transaction sum on your account. 

What are the benefits of margin trading? With a bigger purchasing power you can increase your profit from the investment by spending less money initially. However, don't forget that by using the principle of margin trading you can increase not only your profits, but also your expenses. 

For example, let's take a look at the calculation of the profit and losses when using leverage. Let's suppose that you have $3,000 on your account and, npticing, that the US dollar (USD) is underestimated in relation to the Swiss franc (CHF), you decide to buy dollars (and sell francs at the same time). The current bid/ask price for USD/CHF is 1.6220/1 (which means that you can buy 1 USD for 1.6225 francs or sell one dollar for 1.6220 francs). Your leverage is 1:100 or 1 per cent. You carry out a transaction, buying one lot, i.e. you buy $100,000 and sell 162,250 francs. At the leverage 1:100 your deposit, or margin for this operation will be $1,000. As you expected, the bid/ask price for USD/CHF rose up to 1.6330 francs. As you initially sold 162,250 francs, your profit was 1,000 francs. To calculate your profit in dollars, divide the profit 1,000 francs by the current rate USD/CHF, 1.6325, i.e. the profit was $ 612,56, which makes 61,16 per cent of profit from the initial investment. 

If you haven't closed the position yet, it will be interesting to calculate the profit/loss at a certain moment of time. In this case the profit or loss are called unrealized. You will get some profit or be at a loss only if you close the position at the same moment and at the same rate. 

When you conduct a transaction in the FOREX market, then, beside inquiring the quote and making a decision about the buy, sell or cancel commands, there are opportunities to make orders, which means an order to buy or sell currency at the rate that was chosen beforehand. For that there are buy stop, sell stop, buy limit, sell limit. 

If you want to sell currency at a lower rate, or buy it at a higher rate, than it is in the market at the moment, then you should use sell stop or buy stop. 

If you want to buy currency at a lower rate or sell it at a higher rate, than it is in the market at the moment, then you should use buy limit or sell limit. 

To fix the received profit, take profit is used, and if you're afraid of some unfavorable change of the rate, you should use stop loss to diminish your losses. 

Fulfilling of orders takes place at the moment, when the market price reaches the aim you have set, i.e. the transaction is carried out without your direct participation at the price, which was declared beforehand. It's very seldom, only during the so-called storm in the market, that some difference between the order price and the actual fulfillment price is allowed. 

Peculiarities of trading in the FOREX market. 

In the FOREX market every transaction has a date of currency supply - value date. As is well known, in the FOREX market spots prevail, i.e. currency supply takes place on the second working day after the transaction was conducted. 

An artificial closing out of the current (open) position on a concrete value date and opening of the similar position at the same moment, but on the next value date at the currency rate, containing various interest rates, is called a postponement of the position on SWAP points, or rollover. 

Postponing the position, you can get some profit or be at a loss, depending on the currency you're buying. Conducting a transaction, the trader gets some credit in the currency he's selling, and he has to pay interest for that. At the same time he put the bought currency in his deposit, and he has to get interest on this deposit. Interest rates are different for currencies, that is why there occurs a difference, which is take into account at postponing the position. If the client sold currency with a high interest rate, he will pay for postponing the position. If he bought currency at a high interest rate, the broker will pay him for postponing the position. 

See the current SWAP meanings in the table. 

Because of frequent fluctuations of rates in the exchange market, when the position is opened, your sum on the account (deposit and current profit/loss) can also change. Your brokers and the bank constantly monitor the changing sum. This monitoring is carried out in order to prevent your losses. You will be informed about the losses if they exceed the initial deposit (otherwise the broker will have to compensate the difference). There's such a notion as margin, which is a part of the deposit, necessary for opening and supporting the position. The broker closes out the position at the current rate in a compulsory way (margin call), if equity falls lower than the minimum level to the margin. 

To avoid the margin call, it's recommended: 

to close unprofitable positions in time, not allowing your losses growing; 

to put stop loss orders; 

to open positions proportionally to the deposit size; 

to increase deposit.

Buffett fans set for 'capitalist Woodstock'

   Warren Buffett's Berkshire Hathaway had its worst year ever in 2008. But for the throng gathering in Omaha for Saturday's annual shareholder meeting, that's ancient history. 

Berkshire fans are far more interested in learning how Buffett sizes up the investing opportunities arising out of the global economic slowdown, and how the downgrade earlier this month of Berkshire's credit rating might affect the firm. 

Mostly, they expect to hear how Berkshire (BRKA, Fortune 500) will get back on track following a year in which its net worth dropped by $11.5 billion and its shares gave back five years of gains. 

"There are lots of opportunities out there right now," said Mohnish Pabrai, the managing partner at Berkshire shareholder Pabrai Investment funds in Irvine, Calif. "I'd love to see Warren give us some color on things like where they have been active in the debt markets." 

There should be ample time for color this year, even with attendance at the meeting expected to reach a record 35,000. One key is a shift in the format for the question-and-answer session with Buffett and Berkshire Vice Chairman Charlie Munger. 
0:00 /4:58Buffett's annus horribilis

The Berkshire meeting has long been a bit of a free-for-all, with Buffett and Munger fielding questions from anyone who took the microphones on the floor. In 1997, a year in which annual meeting attendance was estimated at 7,000, he dubbed the event "our capitalist's version of Woodstock" -- a label that has stuck. 

But this year's event should be a bit more orderly. The early morning rush to line up at the microphones has been replaced by a lottery, and Buffett and Munger will answer some questions that were submitted online and filtered by three journalists - including Carol Loomis of Fortune. 

The idea, Buffett has said, is to cut down on the non-Berkshire-related questions that had grown more prevalent as Buffett's profile rose. 

Last year he fielded one question on whether he believes in Christ ("I am agnostic") and three on environmental issues tied to the dams that Berkshire's Pacificorp unit operates on the Klamath River in Oregon. Buffett said regulators would have the final say there. 

"In recent years, we have received only a handful of questions directly related to Berkshire and its operations. Last year there were practically none," Buffett said in the guide to this year's annual meeting. "So we need to steer the discussion back to Berkshire's businesses." 
'Tailwinds' in insurance

The story there, Berkshire shareholders say, is largely upbeat, despite the downgrades earlier this month that stripped Berkshire of its triple-A credit rating. One of the downgrades came from Moody's (MCO) - the New York-based bond rater of which Berkshire owns 20%. 

Many investors brushed off the downgrades, coming as they did from ratings agencies that failed to warn investors of the credit meltdown. Still, some will be paying attention to any comments Buffett might make on the subject.

"I'd be interested to hear how the ratings actions could affect the business," said Glenn Tongue, managing partner at Berkshire shareholder T2 Partners. 

Meanwhile, there's little doubt that the third of Berkshire's industrial portfolio that focuses on economically sensitive businesses like retail and homebuilding will be hit hard by the recession. 

But as Buffett pointed out in February's release of his 2008 letter to shareholders, two-thirds of the company's businesses are in utilities and insurance -- which are less apt to suffer in an economic downturn. 

Berkshire holders such as Pabrai say the insurance business, which has been strong in recent years, could be in for even bigger gains as capital-impaired rivals raise prices to restore their financial health. 

"There could be some real tailwinds in some of the insurance lines," said Pabrai. 

Others note the regular income Berkshire shareholders stand to reap from the flurry of investments Buffett has made in blue-chip companies such as Goldman Sachs (GS, Fortune 500), General Electric (GE, Fortune 500) and Tiffany (TIF). 

They also see room for a substantial rise in Berkshire shares. At a recent $94,000 each, the class A shares have jumped more than 30% since the financial sector hit a recent low in early March -- but remain 38% below their all-time high from December 2007.

The company's less-expensive Class B shares, which have far fewer voting rights, have also bounced back lately. But at about $3,100 a share, they are also well below their peak from December 2007.

At last month's low, Tongue says investors in the A shares were essentially paying for the value of Berkshire's investment portfolio and getting the company's operating businesses -- such as insurer Geico and ice cream chain Dairy Queen -- for free. 

"Would you pay $70,000 for an envelope that contained $70,000 in cash and $50,000 worth of businesses?" he asked. "I think you would." 

This weekend in Omaha, it may be difficult to find anyone who wouldn't.