New York - The dollar experienced one of the major one day drops against the Japanese yen in a span of three weeks, yesterday. The fall in the USD is said to be backed by a report showing a sudden outflow of resources from the U.S. in the month of August.
USD, at 116.58, was 0.7 percent weaker vs. the Japanese yen in late morning trading in New York, recording one of the biggest one day falls since mid September. Alongside this entire market scenario, the Euro traded lesser by 0.3 percent at $1.4162.
It all started with more selling in the USD against the Yen in Asian trading market, but it picked up pace soon after the United States Treasury announced that the nation had revealed a highest net 163 billion USD outflow in the month of August.
This triggered the foreign investors to run away from the dollar-designated funds during that month. This was a result of the compression in the U.S. sub-prime credit and finance market which prompted this universal credit crisis.This disorder further provoked a half-percentage-point slice by the Federal Reserve in the standard interest rates, in the month of September.
Mark Meadows, currency strategist at Tempus Consulting in Washington was of the opinion that it was likely that the traders were moving their money outside of the U.S., which looked like a strategy for a further decline in the value of the U.S. dollar. This was because the traders seemed to believe that the cost of holding U.S. dollars was much more than what they would be receiving in return for it.
While dealing in carry trades, traders tend to make use of low-yielding currencies like the Japanese Yen, only to invest further in high-yielding currencies like the Euro and USD.
Nevertheless, risk aversion has ascended which dropped the assets globally on Tuesday and provoked the traders to slow down on their carry trade, which in turn resulted in shoving the low-yielding Japanese Yen to a good rise.
Other than the USD, the Australian dollar also dropped bout 1.5 percent to a price of 0.8853 against the U.S. dollar and the New Zealand dollar feel even more by a good 2 percent to trade at 0.7434.The Japanese Yen also fell by 1 percent and was last traded at 165.18 against the Euro.
Tuesday, October 23, 2007
Rupee strengthens against US Dollar by 11 paise
Mumbai – In late morning deals on Friday, rupee was strengthened by 11 paise against US dollar, sustained by an industry movement in equity market and flaws in dollar abroad.
The local currency resumed industry at 41.09/11 from sudden close at 41.09/11 and afterwards flowed to 41.0450/0550 per dollar in late morning deals in the active trade at the interbank foreign exchange market.
The benchmark Sensex flowed further by about 67.40 points during morning trade to touch 15,189.41, increasing more than 1,000 points from past August 24.
The weak dollar abroad market also assists the rupee opinion.
Due to decrease in the demand of dollar rupee gained. Oil refiners were steady buyers in the greenback in the last few days to meet their month-end expenses.
The main factors operating in favour of rupee according to Forex dealers are equity markets and weak dollar abroad.
Dollar’s weakness in international markets was recognized to indications of a possible interest rate cut.
The local currency resumed industry at 41.09/11 from sudden close at 41.09/11 and afterwards flowed to 41.0450/0550 per dollar in late morning deals in the active trade at the interbank foreign exchange market.
The benchmark Sensex flowed further by about 67.40 points during morning trade to touch 15,189.41, increasing more than 1,000 points from past August 24.
The weak dollar abroad market also assists the rupee opinion.
Due to decrease in the demand of dollar rupee gained. Oil refiners were steady buyers in the greenback in the last few days to meet their month-end expenses.
The main factors operating in favour of rupee according to Forex dealers are equity markets and weak dollar abroad.
Dollar’s weakness in international markets was recognized to indications of a possible interest rate cut.
Euro Jumps to Three-Week High; Trading Above $1.37
New York – Last week on Friday, euro switched to a three week high against the US dollar. It had passed through a technical level approximately $1.3680 that generated more buying and it was pushed above $1.3700.
Paul Bednarczky who is a currency strategist at 4cast consultancy in London said, “Now it’s the month end and U.S. has a long weekend ahead so it basically looks like some bank in New York came in early and they had bought some euros”.
Some traders are away because of the holiday this week which is making the market more susceptible to many areas he added.
The single currency has reached as high as $1.3719 early Friday, its highest level since Aug. 9 when it touched $1.3817.
Euros had been experiencing changing odds during late night sessions for quite long following the reports that on Friday president George W. Bush might announce a relief package for the U.S housing sector.
As reported by EBS, Friday witnessed an increase in Euros from $1.3624 to $1.3718 while dollar was at Y116.23 from Y115.79. Late Thursday saw Euro at $1.3718 from $1.3624 while U.K pound went from $2.0121 to $2.0227. Also, the dollar was estimated at CHF1.1994 from CHF1.2039.
Paul Bednarczky who is a currency strategist at 4cast consultancy in London said, “Now it’s the month end and U.S. has a long weekend ahead so it basically looks like some bank in New York came in early and they had bought some euros”.
Some traders are away because of the holiday this week which is making the market more susceptible to many areas he added.
The single currency has reached as high as $1.3719 early Friday, its highest level since Aug. 9 when it touched $1.3817.
Euros had been experiencing changing odds during late night sessions for quite long following the reports that on Friday president George W. Bush might announce a relief package for the U.S housing sector.
As reported by EBS, Friday witnessed an increase in Euros from $1.3624 to $1.3718 while dollar was at Y116.23 from Y115.79. Late Thursday saw Euro at $1.3718 from $1.3624 while U.K pound went from $2.0121 to $2.0227. Also, the dollar was estimated at CHF1.1994 from CHF1.2039.
Global Stock meeting results in progress of Asian Currencies - Rupiah and Peso
Bloomberg, August 22, 2007 – The currencies that offer highest yields amongst the other currencies in Asia are the Indonesian Rupiah and Philippine Peso. These currencies rose as gains in global stocks encouraging investors to buy market resources that are rising.
The day before, the Jakarta Composite Index bought more shares than they sold after the overseas funds surged 3 percent because of this the value of Rupiah raised. The central bank will meet to decide on interest rates tomorrow, before which, the value of peso has already risen by 1 percent mostly in Asia. Comparing the costs of U.S. dollars with Philippines and Indonesia, US cost is 5.25 percent and Philippines borrowing cost is 6 percent and Indonesia’s is 8.25 percent.
An economist at forecast Singapore, Vishnu Varathan said “People are trying to go back to higher yielding currencies, but in a precise way”.
According to the information collected, Rupiah gained 0.5 percent to 9395 against the dollar at 3:44 pm in Jakarta. This currency is not a good performer this year as it lost 4.3 percent. The peso rose to 46.455 per dollar.
Marcelo Ayes, senior treasury vice president at Rizal Commercial Banking Corp. in Manila said that the peso rose on thought that the central bank is selling dollars to stop the currency from reaching the 47 level.
“The central bank is trying to smoothen the currency movement, given the recent instability in the market,'’ said Ayes.
When related to losses in sub prime mortgages, spread nine of ten Asia’s most trades currencies have fallen this month. South Korea’s won fell 0.1 percent to 944.10.
Instability in the market
Japan and South Korea’s finance ministers said today that financial market disorders needs to be closely watched to make sure that risks to the global economic expansion do not become too much.
According to the statement the ministers said “accepted the need for constant observing of the instability in international financial markets”.
U.S. Treasury Secretary Henry Paulson said in an interview the day before, that instability in credit markets will “take time” to fall down.
The Thai baht fell 0.2 percent onshore to 34.46. Prime Minister Surayud Chulanont said Dec. 23 is the “most appropriate'’ date for a general election, and that will be discussed with the Election Commission. His comments came after the majority of eligible voters approved the junta’s draft for a constitution on Aug. 19.
The day before, the Jakarta Composite Index bought more shares than they sold after the overseas funds surged 3 percent because of this the value of Rupiah raised. The central bank will meet to decide on interest rates tomorrow, before which, the value of peso has already risen by 1 percent mostly in Asia. Comparing the costs of U.S. dollars with Philippines and Indonesia, US cost is 5.25 percent and Philippines borrowing cost is 6 percent and Indonesia’s is 8.25 percent.
An economist at forecast Singapore, Vishnu Varathan said “People are trying to go back to higher yielding currencies, but in a precise way”.
According to the information collected, Rupiah gained 0.5 percent to 9395 against the dollar at 3:44 pm in Jakarta. This currency is not a good performer this year as it lost 4.3 percent. The peso rose to 46.455 per dollar.
Marcelo Ayes, senior treasury vice president at Rizal Commercial Banking Corp. in Manila said that the peso rose on thought that the central bank is selling dollars to stop the currency from reaching the 47 level.
“The central bank is trying to smoothen the currency movement, given the recent instability in the market,'’ said Ayes.
When related to losses in sub prime mortgages, spread nine of ten Asia’s most trades currencies have fallen this month. South Korea’s won fell 0.1 percent to 944.10.
Instability in the market
Japan and South Korea’s finance ministers said today that financial market disorders needs to be closely watched to make sure that risks to the global economic expansion do not become too much.
According to the statement the ministers said “accepted the need for constant observing of the instability in international financial markets”.
U.S. Treasury Secretary Henry Paulson said in an interview the day before, that instability in credit markets will “take time” to fall down.
The Thai baht fell 0.2 percent onshore to 34.46. Prime Minister Surayud Chulanont said Dec. 23 is the “most appropriate'’ date for a general election, and that will be discussed with the Election Commission. His comments came after the majority of eligible voters approved the junta’s draft for a constitution on Aug. 19.
As Instability Raises, Australian and New Zealand Dollars fades
Bloomberg, Aug 22, 2007 — The Australian and New Zealand dollars fall as increasing instability prevented traders from unsafe investments like buying assets in countries with advanced give ups financed by borrowing in Japan.
The decrease today widens the two currencies loss in the past month to at least 15 percent as compared to yen. This is the biggest decrease amongst the 16 liveliest currencies. The extending outcome of losses linked to the U.S. housing market almost doubled the currency instability, revealing carry-trade bets to greater risk.
Peter Pontikis, treasury strategist at Suncorp - Metway Ltd. in Brisbane, Australia said, “Instability has made people gun-shy of the carry trade'’. Referring the currencies by their nicknames he said, “With the supporting matters, neighboring banks and the lack of liquidity, people will be hesitant to help the Aussie and kiwi'’.
The value of Australian dollar was 80.33 late in Asia the last day, where it fell down to 79.98 in Sydney today. The currency dropped to 91.41 yen from 91.97.
New Zealand’s dollar bought 69.12 U.S. cents from 69.81 cents yesterday. It fell to 79.01 yen from 79.91 in Asia the last day.
New Zealand’s equivalent measure was at 21 percent, from the average 10.3 percent for the last 12 months. Higher instability implies an increase in exchange-rate fluctuation risk.
The New Zealand Dollar still remains the top performer. Even after a 19 percent fall in the last month New Zealand dollar gained 6.7 percent and is still the top performer when compared to yen in the past 12 months. Australian currency has lost 15 percent in a month, dipping one-year gains to 3.1 percent.
Japan’s 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand’s central bank raised borrowing costs four times. It has increased to 8.25 percent this year and the Reserve Bank of Australia increased rates on august 8 to 6.5 percent, making their currencies more likable to carry trades.
Jens Nordvig, senior currency strategist at Goldman Sachs & Co. in New York said, “we have seen a great point in instability and that’s made it very hard to re-enter carry trades'’.
Both the currencies fell down the day before after U.S. Treasury Secretary Henry Paulson said instability will “take time” to fall down. After then they had a meeting with Federal Reserve Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd.
Raising of Bonds
The newspaper reported, the lack of liquidity in the bank-bill market may prompt the Reserve Bank to step in. The central bank was an onlooker at a meeting this week of association members who were called to discuss the issue, the Post said.
The day before, the government’s Debt Management Office increased the size of this week’s bond auction and presenting a bond of two more years, because of market demand for government securities.
Australian government bonds increased, with the yield on the level 10-year note declining 1 basis point to 5.85 percent. According to data collected by Bloomberg, New Zealand’s government debt fell, with the yield on the 10-year bond gaining 4 basis points to 6.23 percent.
The decrease today widens the two currencies loss in the past month to at least 15 percent as compared to yen. This is the biggest decrease amongst the 16 liveliest currencies. The extending outcome of losses linked to the U.S. housing market almost doubled the currency instability, revealing carry-trade bets to greater risk.
Peter Pontikis, treasury strategist at Suncorp - Metway Ltd. in Brisbane, Australia said, “Instability has made people gun-shy of the carry trade'’. Referring the currencies by their nicknames he said, “With the supporting matters, neighboring banks and the lack of liquidity, people will be hesitant to help the Aussie and kiwi'’.
The value of Australian dollar was 80.33 late in Asia the last day, where it fell down to 79.98 in Sydney today. The currency dropped to 91.41 yen from 91.97.
New Zealand’s dollar bought 69.12 U.S. cents from 69.81 cents yesterday. It fell to 79.01 yen from 79.91 in Asia the last day.
New Zealand’s equivalent measure was at 21 percent, from the average 10.3 percent for the last 12 months. Higher instability implies an increase in exchange-rate fluctuation risk.
The New Zealand Dollar still remains the top performer. Even after a 19 percent fall in the last month New Zealand dollar gained 6.7 percent and is still the top performer when compared to yen in the past 12 months. Australian currency has lost 15 percent in a month, dipping one-year gains to 3.1 percent.
Japan’s 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand’s central bank raised borrowing costs four times. It has increased to 8.25 percent this year and the Reserve Bank of Australia increased rates on august 8 to 6.5 percent, making their currencies more likable to carry trades.
Jens Nordvig, senior currency strategist at Goldman Sachs & Co. in New York said, “we have seen a great point in instability and that’s made it very hard to re-enter carry trades'’.
Both the currencies fell down the day before after U.S. Treasury Secretary Henry Paulson said instability will “take time” to fall down. After then they had a meeting with Federal Reserve Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd.
Raising of Bonds
The newspaper reported, the lack of liquidity in the bank-bill market may prompt the Reserve Bank to step in. The central bank was an onlooker at a meeting this week of association members who were called to discuss the issue, the Post said.
The day before, the government’s Debt Management Office increased the size of this week’s bond auction and presenting a bond of two more years, because of market demand for government securities.
Australian government bonds increased, with the yield on the level 10-year note declining 1 basis point to 5.85 percent. According to data collected by Bloomberg, New Zealand’s government debt fell, with the yield on the 10-year bond gaining 4 basis points to 6.23 percent.
US Dollar falls due to rate cut in Federal Funds
Singapore – Against major competitors, US dollar had changed on Wednesday when the dealers considered the probability of Federal Reserve cutting its funds rate in the coming term in a continued effort to reinstate calm in credit markets.
According to Senator Chris Dodd, chairman of the senate banking committee, Fed chairman Ben Bernanke had said on Tuesday that to address the credit crisis in the US financial system he was completely ready to use all the tools at his removal. After a closed-door meeting with Bernanke and Treasury Secretary Henry Paulson, Dodd stated Bernanke’s comments to the press.
The senator, who is looking for the Democratic Party’s selection for the 2008 presidential promotion, criticized the Fed for acting too gradually in tightening system for lenders, but commended the central bank’s decision on Friday to insert more liquidity into the market by lowering the discount rate by 50 basis points.
The remarks primarily fueled hope that the fed will follow its discount rate cut by minimizing quickly fed funds rate at its next meeting. But the hopes faded after Jeffrey Lacker, head of Richmond Federal Reserve, said that financial market instability was not the sufficient reason by itself for the Fed to cut rates.
Jeffrey Lacker said in his speech, that “Interest rate policy needs to be directed by the viewpoint for real expenditure and increase. Federal funds rate adjustments in response to changes in the outlook for inflation and growth should continue to endeavor to stabilize inflation expectations”.
Thomas Lam, Treasury economist at United Overseas Bank was not essentially trying to shut the door to the idea of a rate cut.
If the current disorder in the credit markets begins to blow the outlook for growth or rise, the Fed would have to move, said Lam, but “they don’t want to give the impression that they are bonding anyone out — that would support even more risk-taking.”Lam is expecting the Fed to convey at least 25 basis points to cut either at its September meeting or even in an inter-meeting move.
“The risks haven’t really worsened and there is still a chance they could embark on an emergency cut,” he said. If not, “they might cut by at least 50 basis points at the next meeting.”
Dollars last trading was at 114.59 yen compared with 114.36 yen in the early trade.
According to the Thursday’s interest rate decision by the Bank of Japan yen is expected to remain in a tight range ahead.
“No one expects it to be anything but a ‘no change’ statement,” said Ian Copsey, senior financial analyst at Global Forex Trading. “However, this is the first rate decision following the turmoil and what the market is now focusing on how the central banks are going to react.”
The euro was last trading at 1.3490 US dollars, up from 1.3457 early in the session. The European currency came under pressure after a key indicator of business confidence in Germany came in well short of market expectations on Tuesday. Adding to the downdraft, the head of one of Germany’s largest state-owned banks warned that foreign lenders were cutting off credit lines to banks in Germany, Europe’s biggest economy.The UK Times reported on Wednesday that the credit crisis was inching closer to the “heart of the British financial system”.
According to Senator Chris Dodd, chairman of the senate banking committee, Fed chairman Ben Bernanke had said on Tuesday that to address the credit crisis in the US financial system he was completely ready to use all the tools at his removal. After a closed-door meeting with Bernanke and Treasury Secretary Henry Paulson, Dodd stated Bernanke’s comments to the press.
The senator, who is looking for the Democratic Party’s selection for the 2008 presidential promotion, criticized the Fed for acting too gradually in tightening system for lenders, but commended the central bank’s decision on Friday to insert more liquidity into the market by lowering the discount rate by 50 basis points.
The remarks primarily fueled hope that the fed will follow its discount rate cut by minimizing quickly fed funds rate at its next meeting. But the hopes faded after Jeffrey Lacker, head of Richmond Federal Reserve, said that financial market instability was not the sufficient reason by itself for the Fed to cut rates.
Jeffrey Lacker said in his speech, that “Interest rate policy needs to be directed by the viewpoint for real expenditure and increase. Federal funds rate adjustments in response to changes in the outlook for inflation and growth should continue to endeavor to stabilize inflation expectations”.
Thomas Lam, Treasury economist at United Overseas Bank was not essentially trying to shut the door to the idea of a rate cut.
If the current disorder in the credit markets begins to blow the outlook for growth or rise, the Fed would have to move, said Lam, but “they don’t want to give the impression that they are bonding anyone out — that would support even more risk-taking.”Lam is expecting the Fed to convey at least 25 basis points to cut either at its September meeting or even in an inter-meeting move.
“The risks haven’t really worsened and there is still a chance they could embark on an emergency cut,” he said. If not, “they might cut by at least 50 basis points at the next meeting.”
Dollars last trading was at 114.59 yen compared with 114.36 yen in the early trade.
According to the Thursday’s interest rate decision by the Bank of Japan yen is expected to remain in a tight range ahead.
“No one expects it to be anything but a ‘no change’ statement,” said Ian Copsey, senior financial analyst at Global Forex Trading. “However, this is the first rate decision following the turmoil and what the market is now focusing on how the central banks are going to react.”
The euro was last trading at 1.3490 US dollars, up from 1.3457 early in the session. The European currency came under pressure after a key indicator of business confidence in Germany came in well short of market expectations on Tuesday. Adding to the downdraft, the head of one of Germany’s largest state-owned banks warned that foreign lenders were cutting off credit lines to banks in Germany, Europe’s biggest economy.The UK Times reported on Wednesday that the credit crisis was inching closer to the “heart of the British financial system”.
Market stability return falls heavy on Yen
slight fall in global trade scenario. The return of market stability is a result of the assurance given yesterday by Ben Bernanke, Chairman Us Federal Reserve.
The words of chairman Bernanke also targeted the assurance process for nervous investors. His comments calmed both the investors and market condition with Asian market closing stable and US equities closing up.
It is reported that a private meeting session was held among higher officials, chairman Bernanke, treasury secretary Henry Paulson and Senator Chris Dodd, to talk on the current market situation.
Chairman of senate banking committee, Senator Chris Dodd, informed press about the meeting, also he said that Chairman bernanake is confident as he plans to use all the necessary tools and means to tackle credit emergency in US market.
Comments of chairman Bernanke has burdened yen to fall which also saw investors trading off
Though, doubts and questions are being raised on the duration of this sudden relief from instability of financial market. Trade analysts blame the looming cut rates in Fed Funds darted by Richmond Federal Reserve head, Jeffery Lacker.
Lacker said the instability in market itself is not an enough reason for rate cuts by Fed.
Currency economist at bank of Tokyo-Mitsubishi, Derek Halpenny, quoted “it is doubtful to say how adequate a further response to ongoing crisis would be”. He also said “current situation predicts more chaos in market”
Yen is now focused on the press conference of Bank of Japan to be held later in the day. While, it is anticipated that bank of Japan is going to respond by putting rates on hold for sometime, experts are hoping to get some words on the slow down of carry trade.
The logic behind recent build up of yen is said to be the strategy of investors of avoiding risk by purchasing low yielding currencies to trade with high yielding ones.
An analysts, BNP Paribas, said “Japanese household balance sheets and consumer budget is likely to be affected unenthusiastically, by the build up of yen currency”
In the meantime, to the fore of June industrial order statistics for the 13-nation single currency zone, Euro has been found to be steady as compared to the dollar. As compared to the last month1.7 percent the statistics are likely to rise to 2.1 percent in coming months.
Day before, pound suffered a drop following the scare of credit crisis shifting towards UK, as bank of England reported purchase of 314mln stg by a lender Barclays (named by daily mail).
Following the amalgamation of British industry, Pound found stability ahead of monthly industrial trends survey.
The words of chairman Bernanke also targeted the assurance process for nervous investors. His comments calmed both the investors and market condition with Asian market closing stable and US equities closing up.
It is reported that a private meeting session was held among higher officials, chairman Bernanke, treasury secretary Henry Paulson and Senator Chris Dodd, to talk on the current market situation.
Chairman of senate banking committee, Senator Chris Dodd, informed press about the meeting, also he said that Chairman bernanake is confident as he plans to use all the necessary tools and means to tackle credit emergency in US market.
Comments of chairman Bernanke has burdened yen to fall which also saw investors trading off
Though, doubts and questions are being raised on the duration of this sudden relief from instability of financial market. Trade analysts blame the looming cut rates in Fed Funds darted by Richmond Federal Reserve head, Jeffery Lacker.
Lacker said the instability in market itself is not an enough reason for rate cuts by Fed.
Currency economist at bank of Tokyo-Mitsubishi, Derek Halpenny, quoted “it is doubtful to say how adequate a further response to ongoing crisis would be”. He also said “current situation predicts more chaos in market”
Yen is now focused on the press conference of Bank of Japan to be held later in the day. While, it is anticipated that bank of Japan is going to respond by putting rates on hold for sometime, experts are hoping to get some words on the slow down of carry trade.
The logic behind recent build up of yen is said to be the strategy of investors of avoiding risk by purchasing low yielding currencies to trade with high yielding ones.
An analysts, BNP Paribas, said “Japanese household balance sheets and consumer budget is likely to be affected unenthusiastically, by the build up of yen currency”
In the meantime, to the fore of June industrial order statistics for the 13-nation single currency zone, Euro has been found to be steady as compared to the dollar. As compared to the last month1.7 percent the statistics are likely to rise to 2.1 percent in coming months.
Day before, pound suffered a drop following the scare of credit crisis shifting towards UK, as bank of England reported purchase of 314mln stg by a lender Barclays (named by daily mail).
Following the amalgamation of British industry, Pound found stability ahead of monthly industrial trends survey.
Euro strengthens as ECB suggests increase in September rates
Euro strengthens as European central bank suggested its plan to increase the borrowing costs in September rates. The raise is announced in spite of the current instability in financial market.
ECB proved its intention by stating that its monetary policy position has not changed since the beginning of this month. Earlier this month, Jean Claude Trichet, chief of Europen Central Bank, reinforced prospects of a further increase to 4.25 percent.
The beginning of the rate increase is seen to be result of his quoted words ‘strong vigilance’. The uncertainty towards the further increase in the rates is also due to the fall in global financial markets.
Capital economic analyst, Jennifer Mckeown, quoted “The strong words of Mr. Claude has been observed in many rate increase phase, thus we believe September is going to see good rate increase by ECB”. She also said that another increase in December (up to 4.50 percent) is expected, if the future sees the increase rebounding”
The determination of European central bank to increase the rates is accompanied by the rate cut in US Federal reserve.
Chairman of senate banking committee, Chris Dodd, said that a private meeting was held between the higher financial officers. He then added that federal chairman Ben Bernanke is determined to utilize every possible means to handle the credit crisis in the US market.
The session held to discuss the US market situation included federal bank chairman, Ben Bernanke, Chairman of State Senate Chris Dodd and treasury secretary, Henry Paulson.
Pound was found floating strongly. UK manufacturing sector’s survey was not expecting such stronger drift by pound.
Previous news of fall in annual CPI increase from 2.4 percent to 1.9 percent in June has cleared any expectation of any further rate increase by bank of England.
Balance of +9 percent as revealed by Alliance of British industry informed that august saw the highest level of books order in 12 years, which was more than normal.
Analyst at bank of America, Matthew sharratt, expects an increase up to 6.00 percent by bank of England by the end of the year.
Matthew Sharratt also said “Coming months can see a stable market accompanied by stepping up of increase in CPI in Q4”. According to Matthew the reason behind the stability and acceleration in CPI inflation can be the huge fall in oil prices last year.
ECB proved its intention by stating that its monetary policy position has not changed since the beginning of this month. Earlier this month, Jean Claude Trichet, chief of Europen Central Bank, reinforced prospects of a further increase to 4.25 percent.
The beginning of the rate increase is seen to be result of his quoted words ‘strong vigilance’. The uncertainty towards the further increase in the rates is also due to the fall in global financial markets.
Capital economic analyst, Jennifer Mckeown, quoted “The strong words of Mr. Claude has been observed in many rate increase phase, thus we believe September is going to see good rate increase by ECB”. She also said that another increase in December (up to 4.50 percent) is expected, if the future sees the increase rebounding”
The determination of European central bank to increase the rates is accompanied by the rate cut in US Federal reserve.
Chairman of senate banking committee, Chris Dodd, said that a private meeting was held between the higher financial officers. He then added that federal chairman Ben Bernanke is determined to utilize every possible means to handle the credit crisis in the US market.
The session held to discuss the US market situation included federal bank chairman, Ben Bernanke, Chairman of State Senate Chris Dodd and treasury secretary, Henry Paulson.
Pound was found floating strongly. UK manufacturing sector’s survey was not expecting such stronger drift by pound.
Previous news of fall in annual CPI increase from 2.4 percent to 1.9 percent in June has cleared any expectation of any further rate increase by bank of England.
Balance of +9 percent as revealed by Alliance of British industry informed that august saw the highest level of books order in 12 years, which was more than normal.
Analyst at bank of America, Matthew sharratt, expects an increase up to 6.00 percent by bank of England by the end of the year.
Matthew Sharratt also said “Coming months can see a stable market accompanied by stepping up of increase in CPI in Q4”. According to Matthew the reason behind the stability and acceleration in CPI inflation can be the huge fall in oil prices last year.
Nervous market weakens dollar at noon
Following the nervousness in the currency market, dollar was weak at noon and it sustained the fall amid the jumpy status of currency market.
At noon, Australian dollar observed a down fall at $US0.7979/82, which is less than last close of $US0.8018/23. The morning trade opening was noted amid a high of $US0.8022 and a low of 0.7972, hardly altering from where it closed yesterday.
Joshua Williamson, senior currency strategist of TD securities, blamed the Australian dollar for lacking direction which kept market partakers waiting for situation of global credit markets, as he quoted “There seems to be nervousness in currency market”.
He also, quoted “There is no particular reason for lagging of Australian dollar below $US0.8000”.
Mr. Williams added that there was definitely a lack of direction in the market today, thus chances of Australian dollar trade in afternoon is firmed to stay between $US0.7980 and 0.8020.
Reports are that last night there was a meeting between Chris Dodd, chairman of US Senate Banking Committee, Ben Bernanke, chairman US Federal Reserve and Henry Paulson, treasury secretary. The meeting resulted in the discussion of current nervousness and turbulence of currency in financial market, amid repercussion on US economy.
The meeting among the higher officials held last night had not much of an effect on the afternoon fall of currency.
Senator Dodd quoted “My stand was on the use of effective ideas and devices available, as I requested Mr. Chairman to imply necessary means to support the flow in the market. And Mr. Chairman has been positive in his assurance”
Even the sudden rise in the prices of US treasury following the increasing prospects of US rate cut, could not stop the falling of Australian dollar market in the afternoon from $0.8020 to $US0.7980.
Experts believe that the abrupt nervousness and lack of direction in the market liquidity is connected to talks going on the rate cut by Federal Reserve (Fed).
Following the current scenario of currency market and the dip in dollar this afternoon, more meetings are likely to commence between the higher officials.
Afternoon also witnessed rise in Commonwealth Government February 2017 bond from 5.855 percent to 5.835 percent, where it was closed yesterday. Also no change was observed in the August bond yield as it was found to be stable at 6.110 percent.
While September 10-year bond futures contract suffered a downfall from yesterday’s closing, as it was noted 94.135 less than 94.160 where it closed yesterday. And the September 3 year contract was found to follow the dip from 93.915 to 93.890.
Reserve bank of Australia noted index (TWI) with a fall this afternoon. The index (TWI) closed yesterday at 65.0 and sustained a downfall to 64.6, at 12pm.
At noon, Australian dollar observed a down fall at $US0.7979/82, which is less than last close of $US0.8018/23. The morning trade opening was noted amid a high of $US0.8022 and a low of 0.7972, hardly altering from where it closed yesterday.
Joshua Williamson, senior currency strategist of TD securities, blamed the Australian dollar for lacking direction which kept market partakers waiting for situation of global credit markets, as he quoted “There seems to be nervousness in currency market”.
He also, quoted “There is no particular reason for lagging of Australian dollar below $US0.8000”.
Mr. Williams added that there was definitely a lack of direction in the market today, thus chances of Australian dollar trade in afternoon is firmed to stay between $US0.7980 and 0.8020.
Reports are that last night there was a meeting between Chris Dodd, chairman of US Senate Banking Committee, Ben Bernanke, chairman US Federal Reserve and Henry Paulson, treasury secretary. The meeting resulted in the discussion of current nervousness and turbulence of currency in financial market, amid repercussion on US economy.
The meeting among the higher officials held last night had not much of an effect on the afternoon fall of currency.
Senator Dodd quoted “My stand was on the use of effective ideas and devices available, as I requested Mr. Chairman to imply necessary means to support the flow in the market. And Mr. Chairman has been positive in his assurance”
Even the sudden rise in the prices of US treasury following the increasing prospects of US rate cut, could not stop the falling of Australian dollar market in the afternoon from $0.8020 to $US0.7980.
Experts believe that the abrupt nervousness and lack of direction in the market liquidity is connected to talks going on the rate cut by Federal Reserve (Fed).
Following the current scenario of currency market and the dip in dollar this afternoon, more meetings are likely to commence between the higher officials.
Afternoon also witnessed rise in Commonwealth Government February 2017 bond from 5.855 percent to 5.835 percent, where it was closed yesterday. Also no change was observed in the August bond yield as it was found to be stable at 6.110 percent.
While September 10-year bond futures contract suffered a downfall from yesterday’s closing, as it was noted 94.135 less than 94.160 where it closed yesterday. And the September 3 year contract was found to follow the dip from 93.915 to 93.890.
Reserve bank of Australia noted index (TWI) with a fall this afternoon. The index (TWI) closed yesterday at 65.0 and sustained a downfall to 64.6, at 12pm.
EUR/USD Technical View
Euro is now trading very close to a crowded area, full of support and resistance lines; a continuation of the south move will get the pair very close to the next support area around 1.3600/15..
Thursday, August 30, 2007
Crazy Candlestick Pattern
I just thought I'd point out this rather rare candlestick pattern from last week's EUR/USD daily charts. This unusual creature emerged on May 29, undoubtedly in response to some piece of news I wasn't paying attention to at the time:What you're seeing here is a 100 pip range, and a closing price just 1 pip above the open. In candlestick parlance it looks like a Doji Star to me, or possibly a very narrow Spinning Top. This is just about the clearest illustration of market ambivalence and uncertainty you'll ever see: the price aggressively testing both short and long directions and then settling back within 1 pip of where it all started. The upper shadow is also substantially longer than the lower one, and you can see how the next day the price headed lower in response to such a dramatic failure to make any progress upwards.This is also the perfect illustration of an intraday whipsaw or range-based trading opportunity. If you had your stop-loss set at a safe distance and your limit order at a modest, realistic exit point, you could've made money on either a short or long trade. But I wouldn't plan on one of these showing up on a regular basis.
Beware of Sloppiness
Yesterday I made a trade I shouldn't have, and I made it because I was rushing through my trading routine and not paying enough attention to important little details. In short, I was sloppy. And the result was I lost 21 pips I should never have even risked in the first place. That's the great thing about forex - you can usually put an exact cost on your mistakes. In retrospect it's pretty clear to me why I was being so sloppy. I really wanted to make a trade, partly to make up for all my lost trades last week. I started updating all my price data with too little time to spare before my 5:00 pm trading window, so I was in a rush as well. Rushed data analysis + irrational need to trade = trouble. So when my system generated what looked like a valid signal, I placed a trade instantly without double-checking the key variables that went into the signal. It's always a good idea to double-check your data - especially if you're in a hurry.The error I overlooked in my rush to trade was that I'd entered the date wrong. This isn't the first time I've gotten into trouble with dates, but in the past I took the time to double-check them. Not this time around. It's just about the simplest mistake I could make...and surprise, surprise, it's the simple mistakes that always seem to cost me the most. The good thing is they're also the easiest mistakes to catch. So I guess the lesson here is, look before you leap.
Back on Track with FXCM
Yesterday I made an overdue switch of trading platforms from FX Engines to FXCM's TradeStation II. If you've been following the last couple posts you already know the reasons: FX Engines has been down for several days (still is, in fact). As a result I missed three winning trades in a row, and would've missed another winner last night if I hadn't made the switch to TradeStation. Fortunately this turned out to be very easy since FXCM was already my forex broker and handled all of FX Engines' trade execution. So it was just a matter of faxing some power-of-attorney paperwork and downloading the latest version of TradeStation, which I'd used before so there weren't any big surprises there. Last night I made my first TradeStation trade by successfully shorting the EUR/USD, a promising start on the new platform. Overall I've found TradeStation II to be a fine piece of software. The only small differences I've noticed with other trading platforms is that it doesn't come with default charts pre-loaded, so you need to set them up yourself. Which is no big deal. You also can't trade directly off the charts by pointing and clicking at your desired entry point. Again, not a big deal for me.One trading option offered by FXCM that I'm very interested in is "No Dealing Desk" trades, which apparently have narrower spreads and currency rates that come directly from the large interbank players rather than from FXCM's in-house dealing desk. My only concern is that no dealing desk spreads could vary wildly at moments of high volatility in the market, and since that's when most of my trades tend to close I don't want to wake up to any nasty surprises. So there's definitely a trade-off between the greater certainty of the higher dealing desk spreads, and the lower yet more uncertain no-dealing desk spreads. I'll have to do some more research before I decide it's worth that added spread uncertainty.To be fair, the reason FX Engines has been down so long isn't really their fault. The problem is apparently on FXCM's end, since they made a change to their trade fulfillment system that broke the API (Application Programming Interface) that allowed FX Engines to trade through FXCM. Which obviously really sucks for FX Engines and their clients, like me. So I hope FXCM gets their API working again soon.
Labels: Brokers and Market Makers, FX Engines, FXCM (Forex Capital Markets), Spreads
Labels: Brokers and Market Makers, FX Engines, FXCM (Forex Capital Markets), Spreads
The good news: a seven trade winning streak. The bad news: the last two don't count.
As if to prove that nothing can ever go completely right in forex, I woke up today to find that my trading system made its seventh winning trade in a row - definitely a new record for real trade predictions, not just theoretical ones in my historical backtests. The problem was, I couldn't make this trade, just as I couldn't make the sixth winning trade last Friday (as I mentioned in my previous rant). The reason being my trading platform FX Engines was still down, and still is last I checked. While I've had a lot of good things to say about FX Engines in the past, this is approaching an unacceptable level of downtime during live trading hours. I can certainly sympathize when a server goes down, which they inevitably do - in fact, I've worked at a dotcom start-up where screwy servers gave me a couple extra weeks paid vacation. But can you imagine what would happen if a big player like Charles Schwab or E-Trade (or Oanda, or GFT, or you name it) went down for two trading days, three if you count the Asian trading session on Sunday? Even if you're a small player, you're going to need the uptime and reliability of a big player if you want to compete.Anyway, I just had to vent a little because it's kind of a bummer to see a nice run of trades killed off because of technical difficulties, which of course never seem to crop up during a losing streak. That's the last I'll say about it, I promise. Well, unless it happens again. Happy glitch-free trading!
Missed a winning trade. But I'm not upset. Really. OK, maybe a little.
If you've been following the blog much lately you'll know that I currently get a lot fewer trading signals because of some strict filters I've set up. So when a trading signal does come along, it's a big deal. And yesterday I got one to go short the EUR/USD for 22 pips, and in the ranging price action that followed it turns out it would have been a winning trade. Which would make it the 6th winning trade in a row, possibly setting a new record if I kept track of these things. But I couldn't make it, for a couple of reasons.First, I was out hiking with some friends and then out having a beer at a favorite venue in San Francisco. So I missed the ideal entry point for my trade, which was at 5:00 pm, just as I was wandering around the forests south of here. When I got back, 10 pips profit had already been shaved off the trade, so it would've been only a 12 pip trade. All of which is entirely my fault and if the trade had been enough of a priority I clearly would've been sitting right here glued to my laptop. And I wasn't, and while I'm a little annoyed with myself I still had a fun afternoon. And fun has a cost, which in this case can be measured in pips. The second reason is that FX Engines, my trading platform, had a server go down and wasn't working at all. This is the first time they've gone down during trading hours and it came as a bit of a nasty surprise. Who knows, maybe if I'd showed up on time the site still would've been up and I could've made the trade, but there's not much point in wondering about it now. Anyway, the upshot of all this was: no 22 pips, and a break in a nice winning streak. The larger lesson, and one I think I'll revisit in a more comprehensive post on the subject, is that there are a lot of unforeseen logistical risks to your trading lurking out there and you'd better be ready to fix the ones you can (like being on time for a trade, if that's important to you) and accept the ones you can't (like your broker's server going down). And if the same problems keep cropping up, it might be time to make some changes to your trading setup. But more about all that in a future post...
Current Trading Strategy: Slow and Steady
There's a lot less daily drama and a lot more sitting on the sidelines in my forex trading these days, and so far it's a strategy that seems to be working. Because of the filters and meta-signals I've added to my trading system, it generates a lot fewer signals than it used to, since it's switched off during periods when it's likely to underperform. So in an average week I'll now make 2 trades or so, a lot fewer than the daily trades I used to make (and that ended up leading to some really nasty drawdowns late last year). I'm looking for smaller profits with each trade too, with my limit orders set at levels targeted for both trending and ranging price behavior. This slow and steady strategy looks for a few high-probability trades and in the process filters out a lot of potential winners but also lots of losers, and seeks out modest profits across many different market conditions, with a focus on playing the likely daily range rather than hoping exclusively for profitable trends (which can be few and far between). And with the signal flipper I've added, there's a built-in ability to recognize when the core indicators aren't working and basically start fading my own signals. Overall it's a slower, more patient, more boring and thus far, more successful approach to trading. So far this month I've placed three trades using this system and they were all winners, bringing in 31 pips in total profit. Again, not huge profits, but I'll take them over a drawdown anyday. The system also got the two trades before those right as well, making this a 5 trade winning streak. I'm under no illusion it'll last much longer, but I'm sure enjoying it while it does.
Labels: Signals, Trade Filtering, Trading Systems
Labels: Signals, Trade Filtering, Trading Systems
Global Forex Trading Launches DealBook Web
The first forex trading platform I ever used was Global Forex Trading's DealBook FX software, which I liked for its many charting options and indicators and fast trading performance. But I always felt a little limited by the fact that it wasn't a web-based application, which meant I always had to access it from the same computer unless I went through the install process on every PC I planned to trade with. Despite all those nifty trading tools, I eventually ended up switching to an entirely web-based trading platform, and while I missed some of GFT's features, I felt the ability to do all my trading through a website was worth the switch.So I was very pleased to see that GFT has finally gotten around to releasing a web-based trading platform, called DealBook Web. Though it did take them long enough, and in their introduction they explain why they waited to offer an online trading application: "You might be surprised that we waited so long to develop a web-based trading platform. But, the forex market moves fast, and we knew that web-based trading platforms couldn't keep up - until now." And it is true I've heard some horror stories about trading lags on web-based platforms at key moments of high volatility - won't name any names, but you've probably heard of them. It sounds like GFT had these breakdowns in mind when they put together DealBook Web, which I hope means it'll perform more robustly when the market's running wild.Here are some of the trading tools and features of DealBook Web:
All the trading features of DealBook 360 (GFT's current desktop platform) in a web environment
Access from your computer or any computer
Requires only an internet connection and browser
Multiple, full-screen charting capabilities
Track and trade 60+ currenciesAnd they list lots more on the DealBook Web site. So if you're scouting around for a new web-based broker and trading platform it's probably worth a look - though as with any trading tool I'd take it for a thorough road-test in demo mode before committing any real funds. If you try it out and have any opinions on its performance and functionality you'd like to share, please feel free to post them in the comments below.
All the trading features of DealBook 360 (GFT's current desktop platform) in a web environment
Access from your computer or any computer
Requires only an internet connection and browser
Multiple, full-screen charting capabilities
Track and trade 60+ currenciesAnd they list lots more on the DealBook Web site. So if you're scouting around for a new web-based broker and trading platform it's probably worth a look - though as with any trading tool I'd take it for a thorough road-test in demo mode before committing any real funds. If you try it out and have any opinions on its performance and functionality you'd like to share, please feel free to post them in the comments below.
Hoping for Whipsaws
Strange as it sounds, my current trading system has me looking forward to days with extreme price swings, or whipsaws, which I used to anticipate with dread. The key to this change in perspective was shifting my strategy from primarily trend-based trading to a system that looks for profits in ranging behavior as well. The result is that a whipsaw no longer looks like one of the nastiest patterns on the chart, but instead is a potential opportunity to grab some easy pips as the market swings within a semi-predictable range.One essential part of my whipsaw-friendly strategy is a take-profit target of just 33% of the previous day's trading range in whatever direction I place the trade. Using a fairly modest limit order like this dramatically increases the chances that a wildly ranging day will also be a profitable one. By combining this take-profit strategy with a significantly wider stop-loss, my trades also allow for swings in the wrong direction that reverse and come back around to hit the take-profit a lot more often than they're taken out by the stop-loss.Whether this strategy will work over the long-term is still an unanswered question (just like it is for any trading system) but results in both backtesting and live trading so far look good. I'll provide a periodic update on how the system's working (or not working) after it's logged some more live trades. Now bring on the whipsaws!
Tuesday, June 26, 2007
stock Exchange
Currency stock exchanges function in a number of the countries with transitive economy. The functions of currency stock exchanges include realization of a currency exchange for legal persons and formation of a Forex exchange rate. The state usually actively adjusts a level of the exchange Forex rate, using compactness of the exchange market
Forex broker firms
Their function includes meeting of the buyer and the seller of a foreign currency and realization between them conversion or credit-depositary operation. For the intermediary broker firms raise the broker commission in the form of percent from the sum of the transaction.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Interbank Brokers
Until recently, foreign exchange brokers were doing large amounts of business, facilitating interbank trading and matching anonymous counterparts for comparatively small fees. Today, however, a lot of this business is moving onto more efficient electronic systems which function as a closed circuit for banks only. Still, the broker box providing the opportunity to listen in on the ongoing interbank trading is seen in most trading rooms, but turnover is noticeably smaller than just a year or two ago.
Customer Brokers
For many commercial and private clients, there is a need to receive specialised foreign exchange services. There is a fair number of non-banks offering dealing services, analysis and strategic advice to such clients. Many banks do not undertake trading for private clients at all, and do not have the necessary resources or inclination to support medium sized commercial clients adequately. The services of such brokers are more similar in nature to other investment brokers and typically provide a service-oriented approach to their clients. Saxo Bank belongs to this group of companies.
Private Persons
Physical persons spend a wide spectrum of uncommercial operations regarding foreign tourism, translations of wages, pensions, fees, purchases and sales of cash currency. In 1986 with introduction of margin Forex market trading physical persons had an opportunity to invest free money resources in Forex market with the purpose of profit reception.
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