WHY TRADE FX WITH SAXO?

FX PRODUCT GUIDE

OPEN ACCOUNT TODAY > TRY FREE DEMO FIRST > WHY TRADE FX WITH SAXO? FULLY LICENSED BANK Saxo Bank is a global online investment bank regulated in the EU, headquartered in Copenhagen and operating in financial centres around the world including London, Singapore, Paris, Zurich, Dubai and Tokyo. CLIENT PROTECTION Saxo Bank is a fully accredited European Bank and is a member of The Guarantee Fund for Depositors and Investors (www.gii.dk); an institution established by the Danish parliament which is supervised by the Ministry of Finance and Business in Denmark. In the unlikely event that Saxo Bank is declared bankrupt, The Guarantee Fund covers cash deposits up to EUR 100,000. Securities, for example stocks, held in an individual custody account will be returned to the owner, irrespective of a winding-up order. In the unlikely event that Saxo Bank is unable to return the securities held in safe-custody, administered or managed, The Guarantee Fund as a rule covers losses of up to EUR 20,000 per investor. For more information you can visit the Danish Financial Supervisory Authority at www.finanstilsynet.dk. MULTI-ASSET CLASS PRODUCT RANGE Saxo enables private and institutional investors to trade more than 36,000 instruments, including FX (Spot, Forwards, Options), CFDs (Contracts for Difference in Stocks, Indices, Commodities), Stocks (Single Stocks, ETFs, Options), Futures, Indices, Fixed Income (Bonds) and Managed Portfolios and Strategies Saxo Select. STRONG LIQUIDITY OFFERING Saxo provides full electronic access to a broad range liquidity sourced from the largest financial institutions in the world. ORDER DRIVEN EXECUTION For FX Spot and FX Forwards, order driven execution provides increased liquidity, transparency and control, with the potential for benefitting from price improvement. FX OPTIONS Full electronic access to trade Vanilla and Binary Touch options with maturities from 1 day to 12 months, providing maximum flexibility to implement trading strategies and market views. EXECUTION Available on Saxo s next generation trading platforms SaxoTrader and SaxoTraderGO, with Global Sales Trading or via API across 3rd party platforms. RESPONSIBLE LEVERAGE Saxo offers tiered margin methodology as a mechanism to manage political and economic events that may lead to the market becoming volatile and changing rapidly. 2

CONTENTS: 1.0 THE FX MARKET... 4 2.0 FX PRODUCTS... 4 2.1 FX SPOT... 4 2.2 FX FORWARDS... 4 2.3 FX OPTIONS... 4 3.0 MAJOR CURRENCY PAIRS... 4 4.0 WHAT IS A CURRENCY PAIR?... 4 5.0 SPREAD AND PIPS... 5 5.1 EXAMPLE OF A TRADE IN EURUSD... 5 6.0 LEVERAGE AND MARGIN REQUIREMENTS... 5 6.1 MARGIN CALL... 5 7.0 CHARGES... 6 7.1 MINIMUM TICKET FEES... 6 7.2 FINANCING ADJUSTMENTS... 6 7.3 INTEREST ON UNREALISED PROFITS AND LOSSES... 6 8.0 ORDER TYPES... 6 8.1 MARKET ORDER... 6 8.2 IMMEDIATE OR CANCEL (IOC) MARKET ORDER... 6 8.3 IMMEDIATE OR CANCEL (IOC) LIMIT ORDER... 6 8.4 LIMIT ORDER... 6 8.5 STOP ORDER... 7 8.6 STOP LIMIT ORDER... 7 3

1.0 THE FX MARKET The Foreign Exchange (FX) market is the largest and most liquid financial market in the world with an average daily turnover of 5.1 trillion U.S. Dollars (USD). It is open 24 hours a day, 6 days a week, and trades across almost every time zone, opening on a Monday morning in Australia (05.00 Local Sydney Time) and closing on a Friday evening (17.00 Eastern Standard Time). 2.0 FX PRODUCTS Clients can trade the following FX products with Saxo: FX Spot (including precious metals) FX Forwards FX Options (Vanilla, Binary Touch and Barrier) 2.1 FX SPOT The FX spot market is used for immediate currency trades. The term spot refers to the standard settlement convention of two business days after the trade date (known as T+2). At Saxo, FX spot trades do not settle. Instead, open positions held at the end of a trading day are rolled forward to the next available business day. 2.2 FX FORWARDS Whereas the FX spot market is for immediate currency trades, the FX forward market is the market for trading currencies for delivery at some point in the future. It enables a trader to agree a price today (the FX forward price) at which two currencies will be exchanged on a predetermined date in the future. 2.3 FX OPTIONS FX options give the buyer the right, but not the obligation, to trade currencies at a specified price on a specified date in the future. FX options can be used to express a view on the underlying market; this may be a directional play on a currency pair moving higher or lower, or to take a view on future market volatility. 3.0 MAJOR CURRENCY PAIRS One of the major differences between the FX market and equity market is the number of instruments that a trader is able to trade; the FX market has very few compared to the thousands of company stocks that are found in the equity markets. There are around 140 different currency pairs that FX traders can generally choose to trade, however the majority of market participants focus their efforts on trading just 8 different currency pairs; these are known as the Majors. The major currency pairs (or Majors) include: EURUSD (Euro/U.S. Dollar) USDJPY (U.S. Dollar/Japanese Yen) GBPUSD (G.B. Pound/U.S. Dollar) AUDUSD (Australian Dollar/U.S. Dollar) USDCAD (U.S. Dollar/Canadian Dollar) USDCHF (U.S. Dollar/Swiss Franc) EURJPY (Euro/Japanese Yen) EURGBP (Euro/G.B. Pound) 4.0 WHAT IS A CURRENCY PAIR? A currency pair refers to the value of a foreign (variable) currency in terms of the home (base) currency e.g. EURUSD. Here the currency on the left is the base currency (EUR) whilst the currency on the right is the variable currency (USD). EURUSD = 1.06405 1 EUR = 1.06405 USD Whichever currency is quoted first (the base currency) is always the one in which the trade is being conducted i.e. a trader is either buying or selling the base currency. The variable currency is always the currency in which a profit or loss is expressed. If the base currency (EUR) is strengthening against the variable currency (USD), the currency pair will be moving higher. If the variable currency (USD) is strengthening against the base currency (EUR), the currency pair will be moving lower. 4

OPEN ACCOUNT TODAY > TRY FREE DEMO FIRST > 5.0 SPREAD AND PIPS A currency pair is quoted as two different prices. The price on the left hand side (bid price) refers to the price that a client can sell one unit of the base currency for. The price on the right hand side (offer price) refers to the prices that a client can buy one unit of base currency for. The difference between the bid price and the offer price is called the spread. The width of the spread is dependent on many different factors, including but not limited to, the underlying liquidity and volatility of the currency pair, time of day and notional trade size. Most currency pairs are quoted out to 5 decimal places e.g. 1.06405, with the exception of currency pairs such as the Japanese Yen (JPY) which is quoted out to 3 decimal places e.g. 114.945. In quoting out to 5 decimal places, the first and second figures are referred to as the big figures (i.e. 06 in a 1.06405 quote) and the third and fourth figures as the price interest point, or pips, as they are more commonly known as (i.e. 40 in a 1.06405 quote). The fifth figure (i.e. 5 in a 1.06405 quote) represents one tenth of one pip, and this is the smallest amount that a price can move. In the case of EURUSD, one tenth of one pip equals 0.00001 USD. However, in terms of the Japanese Yen one tenth of one pip would equal 0.001 JPY because this currency is quoted to three decimal places (i.e. 110.712). 5.1 EXAMPLE OF A TRADE IN EURUSD Let s assume that a trader believes that the Euro (EUR) is going to strengthen against the U.S. Dollar (USD) and wants to take advantage of this move higher. He therefore buys EURUSD. EURUSD price: Bid: 1.06399 Offer: 1.06405 Notional amount: EUR 100,000 Positon value: EUR 100,000 x 1.06405 = USD 106,405 Let s assume that the trader is correct and the price of EUR moves higher by 10 pips. He now decides to close his position. 6.0 LEVERAGE AND MARGIN REQUIREMENTS FX is a leveraged product, meaning that it provides a trader with the ability to control large amounts of capital using very little money; the higher the leverage, the higher the level of risk. Margin requirements differ by currency pair and may be subject to change according to the underlying liquidity and volatility of the currency pair. For this reason the most liquid currency pairs (the majors) in most cases require a lower margin requirement. A complete list of margin requirements are displayed on the Saxo website as well as in the SaxoTrader platforms. 6.1 MARGIN CALL If at any time whilst an FX position is open, the margin required to maintain that position exceeds the funds available on account, the client is at risk of a stop-out. Clients will be notified when a margin call occurs, and are required to reduce the size of open positions and/or deposit more funds (margin collateral) into the account. In the event that no action is taken Saxo may close some or all of the open positions in order to reduce exposure to an acceptable level. EURUSD price: Bid: 1.06505 Offer: 1.06511 Positon value: EUR 100,000 x 1.06505 = USD 106,505 Profit/Loss: USD 106,505 USD 106,405 = USD 100 profit Another way of calculating the profit in this example is to multiply the change in the price with the notional amount of the position (1.06505 1.06405) = 0.00100 (10 pips) x 100,000 = USD 100 profit (Close price Open price) x Notional amount = Total profit or loss (expressed in the variable currency). 5

7.0 CHARGES 7.1 MINIMUM TICKET FEES Small trade sizes incur a minimum ticket fee of 10 USD. A small trade is any trade below the commission thresholds which are displayed on the Saxo website (www.home.saxo) as well as in the SaxoTrader platforms. 7.2 FINANCING ADJUSTMENTS Open positions held at the end of a trading day are rolled forward to the next available business day. Saxo will make a cash adjustment to reflect the financing implications of the position based on the interest rates of the currencies in question. Generally, if the client is long the currency with the lower interest rate, this adjustment will be a cost to the client. If the client is long the currency with the higher interest rate, it may be in the clients favour. In order to provide full transparency to clients, Saxo publishes the swap points used for the tom/next rollover once a day on the Saxo website (www.home.saxo). 7.3 INTEREST ON UNREALISED PROFITS AND LOSSES Any unrealised profits or losses on FX positions rolled over from one day to the next are subject to an interest credit or debit. These are added to the swap points to calculate the rollover credit or debit. Unrealised profit/loss is calculated as the difference between the opening price of a position and the spot price at the time that the rollover is performed between 07.00 and 09.00 GMT. 8.0 ORDER TYPES 8.1 MARKET ORDER A Market order is a traditional at best instruction to trade as much of the order as possible on the best available terms in the market. A Market order will be treated as good for the day. If Saxo believes it is able to execute a Market order immediately from its own liquidity then it will do so. Otherwise it will route the order to a third party to attempt execution. If the order cannot be filled in full immediately, Saxo will continue to work the order until the official close of the relevant market. 8.2 IMMEDIATE OR CANCEL (IOC) MARKET ORDER An Immediate or Cancel (IOC) Market order is similar to a standard Market order (described above). It is an instruction to trade immediately on the best available terms, however Saxo will not continue to work the order if it is unable to fill it immediately. If Saxo believes it is able to execute a Market IOC order immediately from its own liquidity then it will do so, otherwise it will route the order to a third party to attempt execution. Where an order has not been filled immediately it will be cancelled. 8.3 IMMEDIATE OR CANCEL (IOC) LIMIT ORDER An Immediate or Cancel (IOC) Limit order is an order to trade at the price that the client sees on his screen if it is still available subject to a defined tolerance. Tolerance enables the client to control price range by defining the minimum price differential (when selling) or the maximum price differential (when buying) that he is comfortable accepting. Tolerance can be specified either as a fixed price increment or as a percentage of the current market price. Saxo may fill the order at a worse price than the client had seen on the screen, provided the price difference does not exceed the specified tolerance. If a better price is available, Saxo will give the client the full benefit of the available improvement by filling the order at the better price. As with a Market IOC order, if Saxo is unable to supply sufficient liquidity from its own book, then it may route the order externally. 8.4 LIMIT ORDER A Limit order is an order to trade at a specified price or better if it is possible to do so within a specified time. The following order durations are available: Day Order (DO): Valid until the official close of trading on the day the order is placed (or on the subsequent business day for orders accepted during the weekend). Good Till Date (GTD): Valid until the official close of trading on a date of the client s choice. Good Till Cancelled (GTC): Valid indefinitely unless or until specifically cancelled by the client. A Limit order will be triggered when the market price reaches the limit price. If Saxo Bank believes it is able to execute a Limit order immediately from its own liquidity then it will do so. Otherwise it will route the order to a third party to attempt execution. At any time when there is not enough liquidity available from Saxo Bank s own book or externally, to fill the order in full at the specified price or better, the remaining order will revert to a resting order. 6

OPEN ACCOUNT TODAY > TRY FREE DEMO FIRST > 8.5 STOP ORDER A Stop order is usually used to close a position when the market is going against it with a view to prevent further losses. It may also be used to open a position when the market moves through a chosen level. A Stop order may have a duration similar to a Limit order (see above). A Stop order placed to buy is treated as a Stop if Bid. A Stop order placed to sell is treated as a Stop if Offer. A Stop order to sell will be triggered when the offer price at which the client could undertake a transaction of equivalent size reaches the specified price level. Once triggered, the order will be treated as a Market order. A Stop order to buy will be triggered when the bid price at which the client could undertake a transaction of equivalent size reaches the specified price level. Once triggered, the order will be treated as a Market order. The trigger level for a Stop order can be specified to trail the market. In this case, when the market moves in the client s favour, the trigger level for the order moves the same way. The trigger level for a trailing stop moves in steps which are defined when the order is placed. 8.6 STOP LIMIT ORDER A Stop Limit order rests in the same way as a Stop order. However, once triggered, rather than execute at the next available price it converts to a Limit order at a pre-agreed Limit price. From that point on, the order is treated as a Limit order. This type of order gives the client some protection from a bad fill in a gapping or illiquid market. Trailing Stop Limit orders are not available. This arrangement is designed to protect clients from the risk that their Stop order is executed as a result of spreads widening without the market actually moving. This can happen around the release of economic statistics or at times of reduced liquidity such as during a value date roll or during the close and opening of the market. Clients should note that this means a stop order will never be executed at their specified level but always at the spread away from the stop level. Where an order is attached to an open position, it will automatically be cancelled if the position is closed. RISK WARNING: None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy. This material is produced for marketing and/or informational purposes only and Saxo Bank A/S and its owners, subsidiaries and affiliates whether acting directly or through branch offices ( Saxo Bank ) make no representation or warranty, and assume no liability, for the accuracy or completeness of the information provided herein. In providing this material Saxo Bank has not taken into account any particular recipient s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses. In particular investments in leveraged products, such as but not limited to foreign exchange, derivates and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisor(s) in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure or risks nor a comprehensive description such risks. Any expression of opinion may be personal to the author and may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent). This disclaimer is subject to Saxo Bank s Full Disclaimer available at www.home.saxo/legal/disclaimer/saxo-disclaimer.