Welcome to module five, the course in this module we will be discussing market fundamentals. As always, you're welcome to send any questions to info at exporting mit.com. It's thought up by looking at exchanges. So every trading instrument, whether it be commodities, or companies, futures, indexes or currencies need to be listed somewhere. And it's basically a market where buyers and sellers come together to exchange products, and this is called the exchange or the market. So most companies will be found on a singular or a particular exchange or vote is possible for certain companies to be delisted on multiple exchanges.
Currencies are listed on a decentralized global OTC exchange that is an over the counter exchange, which is called the Forex of foreign exchange market. exchanges are usually abbreviated for ease of reference. For instance, the New York Stock Exchange will be abbreviate ny EC The London Stock Exchange Elysee all for local traders the Johannesburg Stock Exchange would be the J s E. Also each country would have a different Stock Exchange, which I haven't listed earlier at this stage. Looking at chickens, so when you are searching for a share on your trading or charting platform, you would usually do so by using the shaker word along with the exchange where it's listed. The shaker is unique and typically resembles some mashup of the company or index name. So let's look at a few examples.
Facebook is listed on the NASDAQ exchange and abbreviate FB Tesla also listed on the NASDAQ and abbreviated tsla. A General Electric abbreviate GE listed on the New York Stock Exchange nysc is also some other examples which you can have a look at. Okay, looking at market hours, so just like shops and most of trading hours Does the stock market but because the stock market is global, there are many different trading sessions around the world. And these sessions will usually overlap and it is during these sessions that you will have the highest reading volumes. This is especially true for forex, where the bulk of the trading tivity will be horicon highly correlated to the local topic the countries represented. Looking at an example of the European trading sessions from the GMT plus one session that is for the euro and the pound.
And you can see that the London session starts at eight local time to four o'clock in the evening. Whereas you will have an overlap for overlap with the American or us session between one and four. So it's during these times that you will have the highest trading volumes for instance to bound us or the Euro, US dollar currency base. So here's an example of some of the other trading sessions as well on this example. Your market hours are typically between monday and friday around nine o'clock to five local time of the country, the stock indices are listed. Some insert indices can be traded 24 seven, which is oftentimes referred to as often our striding, but this usually comes with some trade offs such as lack of liquidity And fourthly increased spreads.
Looking at spreads in basic terms, the spread or the difference between the buying also referred to as the bid price and the selling price which is referred to as the asking price. In other words, if you want to buy a stock, you need to pay bid the price that the seller is willing to accept which was asked. So if for example, you were to buy a stock and immediately sell it, your loss would be equal to that of the spread. So in order to maintain a proper age, always be mindful of the spread. We buying or selling. looking looking at an example here is an example from the Euro USD from my broker.
As you can see yours the selling price as well as the buying price. The difference is 0.6, which would be the spread. And here's an another example of the Dow you can see there's a difference of 2.4 which will be displayed for the Dow at this point. Now because brokers act as market makers, in other words they will buy from and sell to deadlines, they will usually determine the spread and consider if their commission for transactions. Although for some instruments, especially for Shea's demo still asked a normal transaction fee based on a percentage of value on top of the spread. But this you can also confirm from the web page of your broker looking at margin and gearing, so when you're trading through a broker, you usually have access to caring and what this means is that you feel rich To buy, say $100,000 worth of space, which would be your exposure, while only needing $1,000 worth of funds in your account.
That is, if the margin requirement is 1%, this effectively would give you a gearing ratio of 100. In other words, you require $10 of margin for every $1,000 of exposure. So, what this means is that you have the same risk and profit potential as if you actually bought 100,000 sheets. Although that would also mean that even as a small 1% movement in price in this example, will either double your $1,000 or wipe it completely. So, for this reason, it's very important to carefully work out your exposure as not to take excessive risk. So, it would not be considered wise to take out trades with exposure way in excess of what your risk profile would be.
Margin calls. So, as explained in the previous slide margin is the minimum funds that is needed in your account to take a certain amount of exposure. So, when a trader opens a position a certain amount of funds is automatically allocated as margin. So, example of that 1000 in order to say $100,000 trade, you would automatically have 1000 set aside as margin. If it would turn out that your position moves against you and into a loss and the loss of purchase or exceed exceeds the account balance minus that initial margin, you would see what is called a margin call. When a margin call is received, which would be other via telephone or email the broker would asked that additional funds be deposited or the position face risk of being closed.
And they do that as do not exceed your available funds. If funding is not made, or the position is the other positions not close by you, the broker may close the position for you or keep liable should the loss exceed available funds going long or short so trading terms getting long means you are taking a position by buying in the hopes of the price going up. Or it is increasing in value with you're taking a positive view on the stock. Conversely, going short mean you are selling your position in the hopes of it going down or decreasing in value. When going long or short, using an instrument like a CFD, that is your contract for difference you are in reality into into a contract or agreement to buy back their position at a different price level. And either receiving differences profit, if the price went up and you were alone, or the price goes down and you are short, or you would pay the difference as a loss if the price went down and you will learn well, the price went up and you were short.
So here's two examples. You go long at $100 then sell at $110 meaning The difference is $10. And since you were long you would be by the profit of 10. The $10 difference, if you were short at $100 and the price went down to 90 when you sold and that is also $10 difference and you will also receive a $10 profit, if the opposite is true and he will say short at $100 and the price went up to one and then you would do sell a day that is also does a 10 difference $10 difference and that would mean that you actually have to pay $10 loss of like a $10 loss. Looking at some of the different order types. So when entering into position, you do need to place either buy or sell order and the different order types that we will discuss in this slide.
The first one is a market orders so this means that you are entering into your position at the current price. price for short positions and the current asked price for long positions. What this means is that you are immediately entering into the position. So as soon as you take a market order, you would have your position in a stop order. And with a stop order, you can specify the price at which you wish to enter into the position, allowing you to enter at a better price level should that they will be reached. This means you're not immediately entering into position.
Looking at an example, if you were to if the price were to trade at $100 and you wish to interact $95 you would place a stop order at $95. If the price were to drop and reach 95, you would enter in that order. The last one is called a limit order. So when you use a limit order you again specify the price at which you want to infer your position or voted difference compared to the stock or the is that the specific price that was usually above The current one for long positions and below the one the current price for short positions. For example, if the current price is $100, but you only want to enter into a long position at $105. In other words, if the price moves up to $105, you are willing to take a long position, then you will place a limit order at $105.
Looking at like profit, so, there are three ways in which you can exit rate. You can either manually close a trade or you can set what is called a take profit, which is also called a limit or you can set a stop loss which is usually a full automatic thousand upgrades. These can be set out during opening a trade or anytime after trade has been opened by editing or modifying your open trade. When you're setting as a type profit. You are specifying the price level or distance in other points, steps or percentage That would be a certain distance away, where you would like to try to close in order to take profit. If the stables reached the try to automatically be closed and the profit will be banked your account balance.
So let's look at an example, if you enter a position at $100 and you set your take profit at $110, meaning if the price moves up from 100 to 100 thing, the position will be closed and you will bank your $10 profit movements the stop loss there are 32 different stop loss methods that can be used the first one is normal stop loss. So this stop stop simply closes the position at a specified price or level to avoid further draw drive or loss and they can place an event a trader stand against you. It can be considered a safety net. However, if volatility volatility is very high, and the market moves very rapidly against you, it is For some slippage to occur, what that means is that you might exit at a price lower than your specified stop loss. Some brokers do offer what is called a guaranteed stop to prevent slippage and in variable volatile markets.
However, if you use that it is possible for them to charge a small premium in terms of spread. Looking at a trailing stop, a trailing stop, also say the certain distance away from your entry price. Although the difference from a standard stop is that it dynamically tightens every time the price moves a certain amount as specified as specified in that increment. So, to provide you with an example, if your entry price is $100, your trailing stop is set at $90. You specify increments of $1 that would mean that you If the price moves to 100 to one dollars, in other words, it moves up by $1. From your entry position, the stop automatically changed in $91.
If the price were to move back to $100, the stop would remain at $91. If the price were to move even further down to $91, your trade would be closed out for a $9 loss. Using the same example, let's say you enter your entry price is $100. And your trailing stop is $90. You also set the increment of $1. But in this instance, the price moves up to $110.
That would mean that your trailing stop will also move up $10 to $100. So if the price were to come back in reach $100 you have tried to be exited at a breakeven price. So as you can see with trailing stop your stop automatically tighten as the price moves in your favor. That concludes Module five. Thank you very much for listening. And if you have any questions, feel free to mail them to me at info at exporter mid.com