Foreign Currency Trading

Foreign Currency Trading

Introduction

To trade in foreign currencies one has to be conversant with the current exchange rates in the financial market. I chose to trade in Euro (€) as it is relatively available and acceptable in most countries. On July 1 2015, the Euro was trading at 1.135 in the financial markets (Yahoo Business Finance, 2015). The portfolio balance between the Euro and the British pound had marginal differences hence I opted to deal only with the Euro. The total amounts in Euros after conversion amounted to €898,069.20. On July 2, the dollar gained marginally against the Euro and a loss of 0.907% was registered. On 6 July the loss increased to 1.257% and the one million deposited decreased to an equivalent of $987,427.10 dollars. On July 20 the loss continued further and 2.739% was lost, the equivalents of dollars lost were $27,391.06. The amounts invested in dollars were 1000,000 but now according to the exchange rates the equivalent amounts in dollars that was in the bank amounted to $972,608.90. The loss trend continued till early September 2015 when the trends turned slightly better. On September 13, the Euro gained marginally against the dollar. The Euro increased by 0.234%. The amounts invested amounted to an equivalent of $ 1,002,335 when converted at the rates that were prevailing on that day.

On August 25, the Euro was at its best performance against the dollar in the last two months and it gained by 4.023%. The total amounted invested amounted to an equivalent of $1,040,234 hence a gain of $40,234. I decided to sell the Euros for the US dollars as it was the best period to sell the dollar. However the best time to invest in the Euros would have been on July 20 when the dollar was trading at a low of €1.083 for every dollar and sell on August 25 at a high of €1.1583 and it would have resulted in total earnings of 6.95% or $1,069,529.

On August 26, i converted all the earnings to Australian dollars which amounted to AUD 1,463,663. On August 28, I sold all the Australian dollars and obtained a profit of 0.97% on the transactions. After paying the transaction fees amounting of $301.755, i remained with $1,049, 955 which i converted to British pounds on the same day. On August 31, I made my last transaction and sold all the British pounds and earned a profit of 0.023% from the two day’s transaction. The total amount of earnings from the two months transactions amounted to

$1,050,194 after deducting a transaction fee of 0.75%. The total profits were $50,194.00 dollars or 5.02% from the principal amount.

Calculations for the last five days of trading

1040234 – 1000,000 = 40234 * 0.75% = 301.755 (40234-301=39932.25). On August 26 i
Converted the total amount after deducting the transaction cost of 0.75%
to Australian dollars which amounted to AUD 1463663
		Date	AUD/USD	AUD	USD	%Change
		26-Aug	0.7105	1463663	1039932	–
		27-Aug	0.7125	1463663	1042859	0.28
		28-Aug	0.7174	1463663	1050031	0.97
Sold all the AUD and obtained a profit of 0.97% which totaled to 1,049,955 after
Paying the 0.75% transaction fees.
On Aug 28 converted all the earnings to British Pounds and obtained a total of
₤602,937.30. On August 31 I sold all the pounds and obtained a profit of 0.023%
On the earnings. The total amount after deducting the transaction fee amounted
to $1050194.
			GBP/USD	GBP	USD	%
		28-Aug	1.7414	602,937.30	1049955	–
		31-Aug	1.7418	602,937.30	1050196	0.023

Calculations for the month of July and the first twenty-five days of September

	Convert the $1000,000 into Euros on 1 July 1 rates are €1= $1.1135 = € 898069.2
	July	August
Date	EUR/USD	Amt – €	Amt – $	% Change	EUR/USD	Amt – €	Amt – $	% Change
1	1.1135	898069.2	1000000	–	1.0939	898069.2	982397.9	-1.76021
2	1.1034	898069.2	990929.6	-0.907	1.0939	898069.2	982397.9	-1.76021
3	1.1087	898069.2	995689.3	-0.431	1.0969	898069.2	985092.1	-1.49079
4	1.1087	898069.2	995689.3	-0.431	1.0956	898069.2	983924.6	-1.60754
5	1.1087	898069.2	995689.3	-0.431	1.0889	898069.2	977907.6	-2.20924
6	1.0995	898069.2	987427.1	-1.257	1.0903	898069.2	979164.8	-2.08352
7	1.1049	898069.2	992276.7	-0.772	1.0927	898069.2	981320.2	-1.86798
8	1.101	898069.2	988774.2	-1.123	1.0927	898069.2	981320.2	-1.86798
9	1.1071	898069.2	994252.4	-0.575	1.0927	898069.2	981320.2	-1.86798
10	1.1063	898069.2	993534	-0.647	1.0965	898069.2	984732.9	-1.52671
11	1.1063	898069.2	993534	-0.647	1.1017	898069.2	989402.8	-1.05972
12	1.1063	898069.2	993534	-0.647	1.1042	898069.2	991648	-0.8352
13	1.1129	898069.2	999461.2	-0.054	1.1161	898069.2	1002335	0.233503
14	1.099	898069.2	986978.1	-1.302	1.1161	898069.2	1002335	0.233503
15	1.1008	898069.2	988594.6	-1.141	1.1161	898069.2	1002335	0.233503
16	1.0944	898069.2	982846.9	-1.715	1.1161	898069.2	1002335	0.233503
17	1.0886	898069.2	977638.1	-2.236	1.1093	898069.2	996228.2	-0.37718
18	1.0886	898069.2	977638.1	-2.236	1.1078	898069.2	994881.1	-0.51189
19	1.0886	898069.2	977638.1	-2.236	1.1031	898069.2	990660.1	-0.93399
20	1.083	898069.2	972608.9	-2.739	1.1118	898069.2	998473.3	-0.15267
21	1.0835	898069.2	973058	-2.694	1.1237	898069.2	1009160	0.916036
22	1.094	898069.2	982487.7	-1.751	1.1237	898069.2	1009160	0.916036
23	1.0927	898069.2	981320.2	-1.868	1.1237	898069.2	1009160	0.916036
24	1.0989	898069.2	986888.2	-1.311	1.1377	898069.2	1021733	2.173333
25	1.0989	898069.2	986888.2	-1.311	1.1583	898069.2	1040234	4.023355
26	1.0989	898069.2	986888.2	-1.311	1.1551	898069.2	1037360	3.735973
27	1.0972	898069.2	985361.5	-1.464	1.134	898069.2	1018410	1.841047
28	1.109	898069.2	995958.7	-0.404	1.1248	898069.2	1010148	1.014824
29	1.1066	898069.2	993803.4	-0.620	1.1248	898069.2	1010148	1.014824
30	1.0984	898069.2	986439.2	-1.356	1.1248	898069.2	1010148	1.014824
31	1.0939	898069.2	982397.9	-1.760	1.1214	898069.2	1007095	0.70948

N/B The initial investment in July was a bad investment hence the investment was tied till the recovery of the dollar in early September.

Reference

Yahoo Business Finance (2015) Retrieved September 16 from