CMC FX EXAMPLE TRADE WALKTHROUGH

 

Tutorial: CMC FX Trade Example Prerequisites: Installation of Stator Professional DEMO Version Specific: Yes (Professional) Help File Reference: Managing your Portfolio/Entering a Trade/Examples/

This tutorial will step through a simple FX trade based upon a statement provided by CMC Markets.

 

 

Although the picture above is not the clearest scan of a CMC statement, the details for the USDJPY trade are as follows:

Date: 15 March 2006
Quantity/Volume: 19,000
Entry Price: 118.89
Leverage: 0.5%
Margin Currency: AUD
Value per Contract: 1*

* The Value per Contract field allows you to specify the face value per contract if applicable. For example, you can gain a foreign exchange exposure by purchasing a mini contract with a face value per contract of $10,000. Your broker will be able to provide exact specifications for each trading instrument they have available.

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Entering the Trade

Stator allows you to enter the trade through either the position sizer or the position explorer, for the purposes of this short tutorial we will use the position sizer.

From the position sizing screen we enter the details as shown below and click on the "Calculate" button:

 

 

Point 1: Enter the quantity and entry price for the FX trade in the spaces provided.

Point 2: Select the currency pair and enter the face value for each contract, in this example each quantity is worth 1.

Point 3: Stator also provides a provision to enter the exchange rate between the trade currency (in this example JPY) and the default currency (in this example AUD). Stator uses the value in this field to calculate the appropriate trade risk or target amount in the default currency as well as in the trades currency. This field can be omitted if desired.

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COMPLETING THE TRADE ENTRY

After you click on the "Submit Trade" button, Stator will open the first confirmation screen. This is shown in the picture below:

 

 

Select the System and enter the date for the trade in the fields provided (indicated by point 1). Because this is a foreign exchange trade, some of the fields are locked and do not require amendment, the code/symbol, exchange and trade currency are fixed (indicated by point 2).

Stator also provides the ability to link the trade entry to an account, the linked account will have an account transaction created which will debit the account for the margin required.

The margin requirement for this trade is in JPY and Stator will only allow you to fund this trade from a JPY domiciled account. If no JPY accounts are available the trade can be funded from the "Pending Account" for reconciliation at a later date.

Stator help file topic:
Accounts/Pending Account/[Entire Topic]

Stator also provides the ability to enter an "Entry Exchange Rate" which is used when Stator needs to convert the entry costs (brokerage) etc into the default currency.

We are able to work out the JPYAUD exchange rate at the time the trade was entered using the information provided in the CMC statement.

We know:
1. The exposure for the trade in JPY is 2,258,910.
2. The margin is 0.5%.
3. The margin outlay for this trade in JPY is 2,258,910 x 0.5% = 11,294.55
4. The margin paid in AUD for the trade is $129.01

With this information known from the statement, we can determine that the entry exchange rate between the trade currency and the default currency is:

129.01 / 11,924.55 = 0.011422

Click on the "Submit" button to view the final confirmation screen. Once you are happy with the details of the trade, click on the "Submit" button a final time to enter the trade into the Stator database.

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RECONCILING THE TRANSACTION

Stator will create a debit transaction in the Pending account to reflect the cost to enter the trade. The Pending account is a holding account for all trades which cannot be assigned to an existing account due to the currency being different.

All account transactions in the Pending account require an exchange rate in order to be reconciled to an existing account.

If you double-click on the Pending account transaction, the transaction screen will display as shown below:

 

 

 

We are going to reconcile this JPY transaction to an AUD account. The first step is to select the account (Point 1). The transaction details are shown (Point 2) and we can see the currency for the transaction plus the amount.

Point 3 is where we provide the exchange rate in order to convert the JPY transaction into AUD. Remember that the trade was funded by AUD, so it's correct to have the funds for the trade debited from an AUD account.

When you have finished entering the exchange rate, click on the "Apply Change" button and the transaction will now be ready for reconciliation.

 

 

To complete the reconciliation of the transaction to the AUD account please follow the instructions as provided in the Stator help file topic:

Accounts/Pending Account/Reconciling Transactions

After the reconciliation, the transaction will appear in the AUD account which reflects the true funding arrangement for this trade.

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USEFUL HELP FILE TOPICS

The following topics are very useful for additional information regarding FX trading and account reconciliation:

Managing your Portfolio/Entering a Trade/Examples/Entering a FX Trade

Accounts/Pending Account/[Entire Topic]
Provides information on why the Pending account exists and how you can reconcile transactions from the Pending account into any other account. mainly used for multiple-currency transactions.

Appendix/Notes on Multiple-Currency
Provides information regarding the calculation of P/L for foreign currency transactions.

Advanced Concepts/Multiple-Currency FAQ/[Entire Topic]
Advanced Concepts/Multiple-Currency FAQ/Other Exchange Rates
Provides additional information on how Stator works with multiple-currency trades.

Advanced Concepts/Instruments FAQ/Info for FX trades