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Thread: Forex

  1. #51
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    Trade, politics and changing rates views send Canadian dollar sliding

    The Canadian dollar slumped to nearly six-week lows on Tuesday, hit by a combination of trade troubles, resignations from Prime Minister Justin Trudeau's cabinet and expectations the central bank could be on the cusp of changing its policy direction.

    Global forex markets were overshadowed by the continued decline in volatility, lending a boost to higher-yielding currencies such as the U.S. dollar and emerging markets.

    Focus has turned to meetings at the European Central Bank and the Bank of Canada, with both institutions facing the need to address stuttering economic growth and a slowdown in world trade.


    The Canadian currency fell 0.3 percent to C$1.3350, extending Monday's losses on expectations that the central bank was approaching a policy turning-point.


    The BoC is expected to hold rates this week at 1.75 percent but many reckon it is edging towards a cut later in 2019. A month ago it was seen raising rates twice in 2019.


    Charles St Arnaud, senior investment strategist at Lombard Odier, said the impact of rate rises on consumer spending had been underestimated. Question marks over oil exports and the trade slowdown were also concerns.


    "The Bank of Canada are probably at the place where they are starting to feel concerned...I can see the Canadian dollar weakening a bit more as I think underperformance of the Canadian economy is not at an end," St Arnaud said.


    Latest data showed Canadian growth slowed sharply to 0.4 percent on an annualised basis in the fourth quarter of 2018, versus the 1.2 percent forecast. There were other concerns too, not least two cabinet minister resignations over the government's handling of a corruption scandal. That is roiling Trudeau's tenure months before an October election. Ties with China are also under strain over trade and technology issues. Elsewhere, the euro held near one-week lows versus the dollar at $1.1318 on expectations the ECB's Thursday meeting would hint at delaying hiking rates until next year and soon re-launch long-term bank loans to tackle economic slowdown.


    "The ECB's new projections on Thursday might paint a more subdued picture than before," Commerzbank analyst Antje Praefcke said, adding the euro appeared to be "aiming for the $1.13 mark".


    The U.S. dollar stood close to a two-week high against key peers at 96.726 , supported by higher U.S. Treasury yields. It had rallied on Monday to 96.816, its strongest since Feb. 19.


    Investors are seeking out higher-yielding currencies as price volatility in the world's most-traded currencies has plummeted following a dovish shift by major central banks. Implied one-month vol on the euro is close to the lowest since 2014 while Deutsche Bank's Currency Volatility Index is near record lows of 6.66 hit in January, 2018.

  2. #52
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    Pound slips as Brexit jitters return; German data dump eyed

    Forex today saw a major selling in the Pound at the start of the new week in Monday’s Asian training, as Brexit jitters returned to the markets amid increased odds of the UK PM May’s Brexit deal rejection by the UK lawmakers ahead of Tuesday’s meaningful vote. The Cable broke below the 1.3000 level and reached three-week lows near 1.2970 region. The EUR/USD pair also traded on the back foot, tracking the losses in the sterling while dwindling Eurozone growth concerns also dragged the common currency lower.
    Meanwhile, the Yen traded a shade firmer amid softer risk tones, keeping USD/JPY near 111 handle. The Antipodeans, on the other hand, returned to the red zone amid China deflation scare and broad USD comeback while the downside remained cushioned amid higher oil prices and gold-price recovery.
    Mixed trading was witnessed on the Asian equities, as the Chinese stocks attempted a tepid bounce after Friday’s heavy sell-off, in response to the disappointing Chinese trade report.

  3. #53
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    Forex trading – what are the best currencies to trade?


    In the world of currency trading, an essential fact is frequently overlooked, which is that foreign exchange rates are reference numbers, not expressions of immutable values. Put more simply, one currency is priced against one or more other currencies, and those prices change all the time.

    Because of this, currency trading is what is known as a zero-sum game, in which a rise for one currency must mean a fall for another. Yet even seasoned observers of the foreign exchanges – traders, commentators, even economists – talk in terms of “dollar strength”, “euro weakness”, or the other way around.
    There areoccasions when traders should explore the reasons why, for example, sterling is falling against the yen, but they ought never to forget that, in such a case, sterling “weakness” is another way of talking about yen “strength”.


    The middle currency

    Following on from this, it is impossible in almost all cases for all currencies to rise or fall at the same time. There is one exception to this, and we’ll examine it in a moment.

    A cross-rate is a direct quote of the value of one denomination against another. By contrast, the world’s lesser currencies, such as those of many developing countries, do not have cross rates. They are quoted in US dollars only.

    So, currency pairs are created by cross-rates, giving rise to the question of which pair is right for the novice currency trader. Which is the best currency pair to trade?
    There is no “correct” answer to the question of the best forex pair to trade, and the decision as to which pair to trade will depend largely on the temperament of the trader in question.
    It began the period at €0.8167 and is currently about €0.8810, a movement of just over six euro-cents. During the year it saw a low of €0.8033 on 26 March 2018 and a high of €0.8915 on 12 November, a trading range of nearly nine euro-cents, or about 11% of the rate at which the period began.


    An “exorbitant privilege”

    Whether you find that range somewhat daunting or rather dull is, again, a matter of temperament. But there are matters of fact that can inform the trader’s thinking on this particular currency pair.

    Another is that the sheer size of the US and euro-zone economies steadies the exchange rate and makes less likely that they will experience big swings against each other.
    A third is that this economic heft means both currencies are likely to enjoy a bedrock of demand simply because consumers round the world will want to buy the goods and services priced in these currencies.
    And a fourth is that the dollar enjoys an advantage over the euro in that it is the world’s premier reserve currency, almost an auxillary global denomination. This greatly bolsters demand which, in turn, leads to what former French President Giscard d’Estaing once called the “exorbitant privilege” of America being able to run huge trade deficits.


    Similarities - and differences

    Someone seeking a rather less predictable forex pair to trade may trade a more obscure currency pair, such as sterling and the Turkish Lira. During the last 12 months, the rate has oscillated from 5.51 lira on 20 March last year, a 12-monthly low, to a high of 8.87 on 13 August, a trough to peak range of more than 60%.
    To mention just three differences, there are 65 million people living in the UK against 81.3 million in Turkey, Britain is ranked 39thin the world for economic output per head, while Turkey stands at 77th, and Britain’s is one of the most stable democracies in the world while Turkey’s leaders are accused of authoritarianism and the country suffered a coup attempt in 2016.


  4. #54
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    Why Using Leverage is Popular in Forex Trading


    Trading the forex markets is attractive for several reasons and one of the most important features is leverage. Investors love the idea that they can borrow capital to enhance their returns, at levels that are not available in other capital markets.

    While the word leverage is commonly used, few investors know the definition of leverage and how it is incorporated into their profits and losses.
    Leverage is a double-edged sword and while it can help you generate enhanced gains, it can also accelerate your losses. If you plan on using leverage while you are trading the forex markets you need to have a complete understanding of the benefits of investing with borrowed capital.
    What is Leverage?

    You probably have used leverage before in your life without realizing it. If you have purchased a house or car or even used a credit card you are using leverage. When you purchase a house, you generally take out a mortgage which is a loan that is collateralized using the house. The term collateral refers to the asset that the lender will take if you are unable to pay off the loan. In many cases, you will only put up 20% of the purchase price while a bank will lend you 80% of the value of your new house. By using borrowed capital you are able to purchase a home for a cost that is likely more than you could afford if you did not borrow from the bank.
    When you trade in the forex market, you can borrow capital to place a trade. Your broker will lend you capital and your collateral is the value of the currency pair. For example, your broker might require that you post 5% on a EUR/USD trade that has a total notional value of $10,000.
    In this case, you would need to have a minimum of $500 in your account to initiate this transaction. With leverage, instead of placing a trade that has a total value of $500, you can borrow $9,500 from your broker and make a $10,000 trade. In essence, leverage is the ability to control elevated levels of capital by borrowing money from a forex broker.
    What is a Margin Account, and How Do You Use It?

    Before your broker will hand over borrowed capital to allow you to trade the forex markets, you will need to open a margin account. Margin is a term that describes a good faith deposit, which is used by your broker as a portion of the collateral on your trades. Remember, your forex broker is in business to make money by facilitating trades. They will not take losses on your behalf. They will not put themselves in a position where your losses will exceed the amount of money you have in your account.
    When you open a margin account at a forex broker it is in some ways similar to applying for a credit card. Your broker will question about your trading background including your experience. They want to know how long you have been trading, as well as your investing goals. Your broker might also ask about the potential account size, as well as other accounts that you currently have open. All of these questions are used to determine if they should provide you with a margin account and the type of leverage they should offer you.
    Your broker will charge interest on the money that is used in your margin account. So, if you make a EUR/USD trade that has a notional value of $10,000, and borrow $9,500, your broker will charge you a margin interest rate on that balance for as long as you have a trade open. Once you close the trade, the interest charge ceases. The interest rates that are charged on margin are generally market rates.
    Prior to trading using margin you should find out the rate that your broker charges. If it is out of line with other market rates you might consider using a different broker. A 5% difference on $9,500 for an entire year would come out to be $475. Remember, you are only charged for margin when your trades are active. For example, if you borrow $9,500 for 1-week, at a rate of 5%, you will be charged $9 =(5% * $9,500)/52.
    What is a Margin Call?

    When you open a margin account and use leverage, your broker will require that you maintain your account. The margin that you use to open trade can change as the profits and losses accrue for each transaction. If you place a trade, and the exchange rate moves against you, your broker will require that you have enough capital in your account to meet the new margin requirements.
    If your trade is underwater, your broker will begin to charge you for the borrowed losses you have accrued, on top of the money that you used to initially place a trade. This is referred to as the maintenance margin.
    For example, if you borrow, $9,500 to buy $10,000 of EUR/USD and the value of the trade declines to $9,500, you will have to pay interest on the initially $9,500 as well as interest on the additional $500. So there is a charged on the initial margin and a charge on the maintenance margin.
    If the equity in your account drops below the maintenance margin level, your broker will generate a margin call. This is an alert to you that you have a certain number of days, to deposit additional capital in your account. If you do not meet the margin requirements following a margin call, your broker will have the right to liquidate your position. Prior to making your first leveraged transaction, you should find out exactly what the margin requirements are as it pertains to a margin call.
    Because you have the potential to lose more money in your account that is initially deposited, the requirements to open an account are generally rigorous. Your broker wants to make sure you understand how the process works before you begin to risk capital on forex investments. They also want to understand the broker’s rights and what will happen if you don’t comply with a margin call. If a broker liquidates your position to meet a margin call, they will not try to get out at the best exchange rate. They will sell your position at the market and you will incur any slippage from the liquidation of the trade.
    You broker will post the amount of margin that is currently being used on trades, as well as the total available. You might see a designation called “used margin” as well as “available margin”, in your account balance.



    How Does Leverage Effect Your Trading

    It’s important to understand the pros and cons of using leverage. Here is an example.
    You place a $10,000 EUR/USD trade using 5% margin which is leverage of 20:1. This means that you would post $500 and borrow $9,500. Assume that the margin interest rate is 5%. In this hypothetical trade, you achieve gains of 2%, on the entire notional value of the trade which is $200 ($10,000 * 2%). Your trade only lasted 1-week.
    This would allow you to achieve gains on the capital you risk of nearly 40%. Your gain of $200 is reduced by $9.13 as an interest charge for 1-week of margin on $9,500 ($9,500 * 5%) / 52-weeks in a year. Your net gain is $200 – $9.13 = $190.87. Since you only posted $500, your net return is 38%. Your annualized gain is 1,985% = (38% * 52).
    What is important to understand is that while the gains are robust, leverage is a double-edged sword. A loss of 5% on $10,000 ($500) would wipe out the entire amount of equity you have in this trade. In addition to a margin call, you would be subject to an interest charge on the initial $9,500 as well as the $500 of borrowed capital to handle your unrealized loss as maintenance margin.
    Risks of Trading with Leverage

    The risks stem from the amounts you can lose from small changes in the value of a currency pair:

    • You are exposed to market risks, especially if you are unaware that your position has moved during hours when you are not watching the market.
    • You also are subject to political risks, that can affect the value of your position, and make it impossible for you to exit your position. This is more likely to happen with an emerging currency pair as opposed to a major currency pair.
    • You are exposed to interest rate risks. If interest rates rise, the cost of borrowing capital will also increase.

    Why Is Leverage Offered in Forex Trading

    There are several reasons why brokers offer leverage. Leverage is offered in many instances of capital markets trading, but forex leverage is generally much higher than any other trading vehicle. The leverage that is offered for US equities is approximately 1.5 times the value of the stock. So your margin is at most 50% the notional value of the trade.
    Forex leverage can reach levels up to 500:1. Brokers are comfortable offering this type of leverage for several reasons.

    • Forex markets are very liquid – You can enter and exit with very little slippage. If a broker has to liquidate your position, they can easily exit.
    • Forex markets are less volatile – The average volatility on major currency pairs is close to 10%. This compares to 40% volatility in many equity shares
    • Forex markets are open around the clock – you can trade in and out 24-hours a day, 6-days a week. Many other markets are only open during exchange hours.

    Conclusion

    Trading the forex markets is popular as it can enhance your gains and allow you to generate robust returns with only a portion of your portfolio. Many investors are attracted to forex trading as the margin requirements are low relative to the value of the capital you can control.
    Leverage is a double-edged sword and while it can help you generate enhanced gains, it can also generate large losses. There are several risks involved in trading forex with leverage, but the most obvious risk is market risk. When you trade with borrowed capital, your broker will charge a margin interest fee. Make sure you are aware of all the fees related to leverage before you place your first trade. Lastly, spend time going through examples of how leverage will affect your projected gains and losses and make sure you have allocated enough capital to an account before you begin to trade with a margin account.

  5. #55
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    Euro dips on Italian debt worries and trade tensions

    The euro dipped on Tuesday as investors nervous about trade tensions bought into the safe-haven dollar and fretted that political risks in Europe remain high, even though pro-Europe parties won a majority of European parliamentary seats.

    Italian Deputy Prime Minister Matteo Salvini, whose far-right League triumphed in European elections on Sunday, said the European Commission could fine Italy 3 billion euros for breaking EU debt and deficit rules, a comment which weighed on the single currency. Pro-Europe parties kept a majority of seats in European parliamentary elections, with support growing for eurosceptic and right-wing parties but not as much as investors had feared.

    European leaders now meet in Brussels to begin the process of filling a number of top EU posts, from the head of the European Commission to the European Central Bank.


    Another potential battle between Brussels and Rome over Italy's spending plans is likely to keep the euro under pressure, analysts said, citing the link between rising Italian government bond yields and the single currency's weakness.


    "The League did fairly well. Someone like Salvini will see that as a mandate to continue doing what he is doing," said Neil Mellor, currencies analyst at BNY Mellon. "We need to hear soothing words from the ECB (European Central Bank) for all to be well."


    The euro slipped 0.1% to $1.1179 , but remains above two-year lows of $1.1105 hit last week.


    Broader moves in foreign exchange markets remain small amid uncertainty over how trade tensions between the United States and China are affecting the world's major economies.


    The dollar rose 0.2% against a basket of peers, its index touching 97.787. It remains off a two-year high of 98.371 hit on Thursday.


    The yen rose 0.2% to 109.32 yen as U.S. President Donald Trump visited Japan.


    On trade, Trump said on Monday he expected the two countries to be "announcing some things, probably in August, that will be very good for both countries", although he has also put pressure on Tokyo to cut Japan's large trade surplus with the United States. Dollar traders are now preparing for U.S. consumer confidence numbers for May, due at 1400 GMT.


    "Negotiating from a position of strength remains President Trump's modus operandi and that should be supported today with another strong U.S. consumer confidence release for May. We expect the U.S. to maintain trade pressure on China and are not looking for any immediate resolution," analysts at ING said.


    The Swedish crown rallied 0.4% to 10.673 crowns per euro despite deteriorating consumer and manufacturing sentiment, as inflation was also predicted to increase against earlier expectations. Sterling, hurt on Monday by the poll-topping performance of the Brexit Party at the expense of Britain's governing Conservatives in European parliamentary elections, slipped another 0.2% to $1.2656 .


    Bitcoin, the world's biggest cryptocurrency, stabilised after soaring to new one-year highs.


    The price of Bitcoin stood at $8,704 after hitting $8,939 on Monday. The virtual currency has rocketed more than 130% in 2019.

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