Polymers and Paper Materials Ltd Liability Corporation FINANCIAL MARKETS Tihomir N. Tsanov Polymers and Paper Materials Ltd Liability Corporation October, 2017

II. FOREX (CURRENCY) MARKETS I. MONEY MARKETS Main participants of these markets are banks; financial institutions; hedge, money, pension and other funds; companies and individuals. FEATURES, OPPORTUNITIES AND ADVANTAGES  certificate of deposits, saving accounts, funds and other bank products;  relatively low both risk and returns of the investments;  banks’ interest rates and central banks’ policy;  professional management. II. FOREX (CURRENCY) MARKETS

FOREX is the largest financial market since 1971, due to not fixed (free) currencies ratios. Ratio of the money traded on currencies and stocks’ markets is ca. 20 : 1. At important news the FOREX tests important levels in the opposite directions first and then move to the main trends. This market has good volatility and amazing liquidity. Its main participants are banks, financial and brokerage houses, international and trade companies, individual investors. It is an OTC market with easy assess, spot (65 %) and forward (35 %) deals. Major traded pairs are EUR USD; GBP USD; EUR CHF; USD JPY; USD CHF; USD CAD. Other important and mostly used currencies are AUD, CHN, NZD, INR, etc. The market offers easy and fast deals; clear price trends, facilitated analysis; good opportunities for lower risk (by diversification using different currency pairs). The main macroeconomic data affecting the FOREX’ trends are trades balances of the countries (regions); their GDP, both inflation and interests rates; levels of unemployment. Largest volatility occurs after unexpected phenomena as negative and changed banks’ interest rates; presidential or other elections in the countries, wars, etc. Moreover, the expectations of important decisions often affect the FOREX trade more than the acts themselves, although they are usually preliminary evaluated (“calculated”) by the markets’ price changes. Less influence of the central banks as compared to last periods. Important levels of support and resistance are rarely overcome at their first tests. Features of the FOREX’ trade are possibilities for leverage, usage of stop orders and on-line trade.

III. STOCK EXCHANGE Purchases and sales of corporative/governmental bonds and common stocks. The companies can get financial assets by issue of different stocks and shares. Actually, the equities are part of the company’s capital. Shareholders expect profits of the company’s activity in order to share part of its gains. The investments in stocks usually have larger returns than these in bonds and deposits. Sure, they are also riskier. Moreover, the prices of stocks, issued by profitable companies are generally higher. Opportunities for capital’s (at sales), money’s, commodity’s and others gains. The SE market offers good opportunities for investing in the companies’ capital and money funds. There are periods of growth, i. e. upward and down trends. Main financial assets are stocks, exchange traded funds (ETF) and bonds. The SE indexes are most sensitive and important parameters for the economic state of each country or region. The largest world capital markets are NYSE, FSE, LSE and TSE. Among the most important indices are DJIA, S&P500, FTSE 100, DAX, Nikkei, etc. Main indices of BSE-Sofia are SOFIX, BG40 and BGTR30.

IV. FUTURES’ MARKETS Futures are contracts for determination of the terms for upcoming supply of assets (financial means) as stocks, currencies, bonds and commodities. Actually, this is a trade of valid, signed by the two sides, contracts for future deals. The buyers pay to the sellers parts of the overall assets’ prices. These markets offer deals with the futures’ contracts to third sides (individuals, institutional investors or companies). There are commodities’, currencies and other financial futures. Commodity futures are usually for wheat, corn, soy beans, coffee, cocoa, sugar; precious as gold, silver, other metals (Pt, Cu, Al) and industrial raw materials such as crude oils (Brent, WTI), cotton, etc. Futures’ contracts differ of the common SEM by determined time periods for validation, i. e. the assets’ based futures have fixed prices to future dates. The buyers of futures open the so called long and the sellers short positions. Main advantages: hedge means against no favorable price changes of the major assets (currencies, commodities, stocks, bonds, etc.). It offers possibilities for gains due to price changes (have trading with this class of assets instead of the real ones). The contracts for difference (CFD) are commonly used on these markets.

Over the time, the assets’ prices have been change, as compared to these at positions’ opening (i. e. contracts’ dates). It causes gains and losses for the deals’ participants. Futures contracts have often been close before their end dates by opposite contracts. In such cases there are not real purchasing and selling deals of the main assets. The prices of commodities’ futures depend on the goods’ prices on the spot market, seasonal, climate and weather features. Financial futures on currencies, bonds, equities, treasure securities, etc. depend mostly on central banks’ decisions, main economic data and politic events. There are two types participants on these markets - hedgers and speculators. Futures’ prices include the current price state of the markets and the expectations for upcoming effects of the major factors as well. V. HEDHING

VI. ADVANCES OF FUTURES’ MARKETS The hedging is an useful tool against losses at no favorable price changes. Hedgers are usually producers and traders of commodities on the real spot markets. Short and long hedging. For example, when an owner of commodity wants to avoid its future decreased price, hi/she purchases future’s contract for sale at its fixed price. At a short hedging, the losses on the real (spot) markets have been compensated by profits on the futures’ ones. On the contrary, when there are expectations for higher prices, you should buy futures. Thus, the profits will compensate the bigger outflows (costs) of purchase of the commodity during forthcoming periods. Other important participants in hedge fund’s industry are speculators, firms, independent brokers and investors. VI. ADVANCES OF FUTURES’ MARKETS If the future’s contract at short or long hedging is on the right side of the market’s trend, the gains can be sufficiently large. It’s hard to trade with domestic information at futures, since their prices are market determined.

Lower costs as compared to other assets, although a part of them must be paid at the beginning of the contract. The good liquidity of most futures’ have been decrease the risk of no favorable price changes at validation of the contracts (orders). Usage of mainly fundamental analysis for the most commodities’ futures. They are usually affected by demand and supply, information of different sources as governments, trade associations, private researches and media. However, most funds use also technical analyst. Speculators make the markets more liquid by increased money’s supply. They are usually on the opposite positions of the hedgers, i. e. if a bank or financial institution buys futures, the hedger sells them. Thus, they decrease the risk for companies, who manufacture and trade with real assets and commodities. Spreads are useful means for futures’ markets. They combined contracts (deals), simultaneously opening a short and a long positions in different contracts or in the same contract, but with various periods (months) of supply. Thus can be achieve gains at seasonal phenomena at lower risk. VII. OPTIONS

Option is an investing mean, that gives the right without obligation, to buy or sell an asset at determined price at any time before the contract’s date. Call and put options; to buy or sell assets before their maturity at the contracts’ prices. Validation price is the price at which option’s owner has right to buy or sell the asset. Major assets are futures contracts on stocks, currencies and commodities, which the option give right of purchase or sale for. Buyers are investors, who pay premium (overprice) to get the right to buy (at call) or to sell (at put options) the main assets. Sellers (issuer) are investors who must sell (at call) or buy (at put) the assets, if the options’ holders decide to validate them. Premium (overprice) is the price that the buyer pays to the seller. It’s result of the competition between the market participants according to the rules of stock exchange or other markets. Maturity is the last date at which the option should be validate or closed by opposite deal. After then, the right concerning the option has been lose and it can not be validate. Quotes. Overprices of the traded options have been publish in both stock exchange markets’ sites and big daily newspapers. Since the options’ liquidity is smaller, their not actual quotes are possible. Market orders are not preferable for futures. Validation. Options can be validate only by their buyers (holders, owners) at any time before the maturities. At call option, the buyer will get long position on the asset at its validation’s price, and the seller short one. At validation of put options, the buyers will have short asset’s positions at their prices of validation, and the seller long.

Liquidation. Each position in options can be liquidated by an opposite contract (offset deal). Thus accumulated contract’s gains or a decrease of the losses can be achieved. An option is “in money” when its validation is profitable or the goal is to reduce the losses. At such call option the price of validation is below, and at put one above the current quote price of the basic asset. “Outside money” is when option’s validation has no matter. At call option the price of validation is over and at put option below the current price quote of the asset. Price. Options’ prices vary over the time. They consist of inherent and time’s values. Inherent value is the difference between current market asset’s price and option’s validation price (at market liquidation of the asset). Inherent value of option “outside money” is 0, and its premium is only the time’s value. The last is the price that buyer is agree to pay over the inherent value in order to have option’s right. By time’s value the market evaluates qualitative the possibility the option to be “in money” before its maturity. Purchases and sales (trading) of options. The costs, including taxes about options’ trades must be determined and known. They are usually paid to broker firm for opening and closing of options’ positions. Features of the costs  All the money outflows must be for the whole deal;  there are substantial differences at the various firms; the costs are strongly determined at some brokers and present share of the premium at others,

At which price you will get gain (profit)? as they usually have some minimal values;  the main questions at such trade deals should be: Does the market’s price include the taxes paid?; Are there any additional monthly costs for management of the account / asset?; What are the real time quotes?, etc.  it’s preferable to compare the terms of few brokers before to make an optimal and right trade choice. Leverage effect The premium that has been pay at purchase of option is a part of the whole asset’s price. Thus even a little change of its market price will cause bigger effect (profit or loss) on the option’s position. Before to buy or sell concrete asset, it is important to determine at which price you will get gain (profit). From this point of view, the following values should be known:  price of option’s validation (POV);  price and premium of the option (PPO);  costs of the deal (CD). At which price you will get gain (profit)? There are different equations for determination of the gains (or losses) for the various options’ deals. Call options PMA = POV + PPO – CD Put options PMA = POV + PPO – CD At long or short position of call option for example, if the market price is above PMA at option’s validation, you will get gain (profit) at purchased options, i. e. if you are in “long position” on call options. If the price is below PMA, you will have profit (gain) at sold (“shorted”) options.

Is this a trade or speculation? If there are expectations for upcoming lower price of the main asset (currency, commodity, etc.), you should sell call option and purchase put one and vice versa. Is this a trade or speculation? Despite of the expectations for price changes of the basic assets, there are three main factors affecting the choice of desire option:  remaining time to its maturity; as longer is the option, as larger probabilities of right expectations of the commodities, FOREX and financial experts are. Moreover, as larger duration of options, as higher their prices are;  price of validation; it considerably depends of the ratio between the prices of option’s validation and the asset itself. Call option with lower validation’s price will be more expensive (would have a higher value) than option of higher validation’s price. For example, the right to purchase 1 EUR for 1,15 USD will cost more than that for 1,3. There is an reverse dependence at put options. These of higher validation’s prices have larger values than those of lower prices of validation; and  inherent volatility of the option. Choice of type option for trading, call or put, mainly depends on market trends’ expectations, and the determination of suitable price of validation is more complicated. A simple rule is that validation’s price affects option’s price itself. There is also an relation between the changes of both option’s and basic asset’s prices. The prices of options “outside money” have been change smaller at price’s change of the main assets, than these “in money”. Even if an option is “deep outside money”, it is possible to have not any market reaction and price changes.

Inherent volatility is a “measure for nervous” of options’ traders (brokers). The expectations for big changes of the assets’ prices usually increase the options’ values in order to compensate their bigger risk. Hence, you should purchase options of lower inherent volatilities and to sell those of higher, due to their ability to return to average prices. At usage of combined options, you have to sell options with higher inherent volatility than those that you purchase. At opened positions on options, the following opportunities are possible:  closing by opposite (offset) deals;  to hold and  to validate the options. Closing of positions. It’s most commonly used manner for trading with options. Since they are usually use for speculations, the positions should be closed before their maturities by orders of opposite deals. At secondary trade with such orders (offers for positions in options), must be announce if they are for closing of call or put options. Example for purchase of December’s put option on EUR USD deposits with strike 9,700 and price 30. Their future’s price decreases up to 9,850 and according to most analysts, it is a strong level of support. At this change, the price of the option has been increase from 30 to 180, i. e. its gain is 150 USD. At option’s sale, you will close the position. If the market expectations are for further price decrease, you can continue to hold it, since option’s price will increase additionally. If the future’s price is lower than 9700 and the option “come in money”, you should validate it and will have short futures position of EUR USD. In such a case, you would have a margin for opened deal concerning the long option’s position.

financial, FOREX and capital markets! In conclusion, lots long and short positions on call and put options are possible. Limitations for their usage are only investors’ imagination and capital available. Usual common strategies and different combinations as well, can be used depending on both risk’s affinity of the investors and market trends’ expectations. The main factors that affect the options are their prices, maturities and volatilities. At expected big volatility without any clear price trend, a  strategy can be useful for your investing financial success. If the future market trends are known and the volatility’s changes have not matter, a suitable choice for trade can be neutral strategy. Sure, all your positions must have reasonable ratios between risk and gains, and low (minimum) costs (money outflows). Thanks for your attention! Have successful investments and deals on the world financial, FOREX and capital markets!