Tag Archives: Foreign Currency

Demand for storage and foreign currency trading

Demand for storage and foreign currency trading

This from my that futures and options trading course so see video

demand <- attached images

Refer to demand for storage chart image.

The shifts right  to D1 when increase in Xt, decrease in Xt+1, or increase in St+1. If expected production is to go down increase their production this. There’s a fall and expected production next period (next winter] so as we go into the winter months. Demand for storage will shift to the right need to bring more into the winter as production for current period May be affected.

Demand Will shift to the left to D2 if there is a decrease in Xt, increase in Xt+1, or a decrease in St+1

Refer to net marginal cost and supply of storage attached chart. We are mostly interested in that marginal cost of storage. Supply curve contains physical cause, risk aversion and marginal convenience yield.

The physical cost of storage represents marginal cost providing stocks. We are interested in marginal physical cost for O’t. The more physical stock stored increases O’t. The curve will be flat for a while since you have enough inventory for your warehouse storing your commodity. Once you hit a certain capacity your O’t Will rise. You get to rot so this includes a such things as our insurance of the fact that there’s not been to the cost associated with the money that’s invested in the physical inventory on maintaining the the warehouse etc. almost physical cause were part of

You also have the risk aversion factor where merchants carry inventory become risk-averse or r’t. Good morning inventory they store the more risk they carry.these merchants need to be paid for taking on this risk for storage. The marginal risk is low for a little volume of inventory but as the stockpile increases, The cost factor increases.

Marginal convenience yield is the negative cost. A producer will carry a pipeline stock which is enough to keep your plant running for a couple of weeks.they will keep an inventory on hand to keep a plant running so that becomes a yield of convenience.on the stockpile is low the convenient yield becomes hi as well.

The stocks that I keep you running for the first week are more valuable so the marginal convenient shield will decrease over time. As you add stocks to your inventory the marginal convenience yield Will decline.

When you stack all three charts on top of each other, so for small physical cost you’ll have high marginal convenient yield and vice versa.when you add all three charts of physical cost,  risk aversion and marginal convenience yield, it will total that marginal cost of storage. For Net marginal cost of storage, The line is below zero because it includes the high Marshall convenience yield which is negative. At the other end of the same line, you’ll have high physical cost and high risk aversion with low marginal convenience yield. This is why the net marginal cost of storage line is s shaped. You can find a level of supply by looking at at the price spread even if it is negative, some stock will be carried forward. If the price spread becomes negative it is the inverted market or a inverted caring charge. This is unusual. The curing charge  is supposed to be positive as there is a charge for storage. If the net marginal cost of storage line is below zero,  do you have a inverted market. You are at the low-end of the supply curve. If the storage cost is negative you only keep an inventory for the convenience yield.

 

When you look at attached supply and demand storage chart you’ll find a equilibrium that H Working referred to. He said when you look at inter-temporal prices, The price between different future months with the spot price.

For example, spot equals three dollars, July contract of $3.50 there is a price spread of $.50. With a September contract of $3.25 you will have a -$.25 spread. You can explain this by the supply and demand of storage where they intersect. If they move to the right on the supply curve, you’re demand has shifted and your spread will be larger. The supply curve will not change much. But your demand curve can be negative or do you have an inverted market.

 

For a basis convergence: cash delivery market. The basis is the difference between a future price and cash price. If the cash or spot price of the delivery are the same location in the contract, The futures price will be higher than the spot due to cost of storage. As you approach expiry these two prices a future in cash will converge so the basis will narrow. Pieces can be predictable for certain spot markets. As a result the bases can approach zero towards expiry.

In the example of actual basis image,  – Line is l

 

Which affects your currency trading?

 

You can do currency trading in the futures market. The position size are manageable for individuals. You don’t need a big movement for profit. Leverage can be used to increase your profit. Interest rates affect currency markets who pays the highest. Inflation will affect the purchasing power of a particular country. Monetary policy affects by tightening or loosening money supply. Trade balances affect importing or exporting of the country. Economic growth affected based on Business cycle of a country as in recession or recovery. Political stability where there could be a political change.

 

If you hear the cash or spot price and you want the future price, the future price will equal one divided by cash.

 

As part of risk management your order should be decided before the market opens. You also need to have an idea of where the market will go. Do you limit your with risk but let the profits run.

 

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S&P Downgrades Russia Foreign Currency Rating to Junk: Poor Vlad Poor Poor Vlad

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http://www.wsj.com/articles/s-p-downgrades-russia-foreign-currency-rating-to-junk-1422297409

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NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!