Professional Documents
Culture Documents
Fxtradermagazine 2 Eg
Fxtradermagazine 2 Eg
Fxtradermagazine 2 Eg
Central Banks
disregarding
t h e d o ll a r ?
Broker reviews
brokers
survival
Green Shoots
Recovery
CL S global
Market gate
Majors
guide
Report
Trading Psychology the impact of new US regulations
and the markets and the private traders choice
CENTRAL BANKS
DISREGARDING THE
DOLLAR ?
13
FOREX BROKER SURVIVAL GUIDE:
16
The impact of the new NFA regulations and the traders’ choice from the
Forexds Awards 2009
TRADING
S Y S TEM S :
Why building a
reliable FX historical
database is a real
challenge
28
05 Editor’s note INTERVIEW TECHNICAL ANALYSIS
34 Mike Buzzeo, Sr. Vice President 54 Majors Technical Outlook
MACROECONOMICS Marketing, FXCM, shares his views on EUR/USD – EUR/GBP
07 Green Shoots Recovery: the new US regulations and explains the 57 New Zealand Dollar
fundamental analysis of the first company’s current development
economic recovery signs and their 59 Majors Report
impact on currencies 59 Dollar/Yen, Euro/Dollar,
43 Franz Schmadl, CIO, OSV Partners, Euro/Yen, Euro/GBP
FOREX INDUSTRY explainstheimportanceofriskmanagement
24 CLS : a gate for the global FX coupled with a solid investment and INTERNATIONAL DATA
market independent decision making process 63 FX Spot Monitor
TRADING PSYCHOLOLGY 64 Central Bank Rates
BROKER REVIEWS
48 ODL Securities Limited 40 Why successful trading has very little 65 Economica Data - FX Poll
51 GFT UK to do with the market 66 Markets View
Welcome to the second edition of can now expect a complete new set of protection and service supply but,
FX Trader Magazine. It’s with great of regulatory decisions which will most importantly, in terms of trading
pleasure that we publish this edition, transform the industry in the next execution transparency and price
considering the big success of the years, and inevitably generate further quotations.
previous issue. industry consolidation. We might start to see a change
The magazine has not only been of market sentiment in the various
downloaded by a great number of Europe will very probably follow internet forums regarding issues like
traders but, we also received many the same path as well, as soon as Stop Hunting and other aspects of
compliments and messages of forex will have reached Mass Market trading execution, which are at the
congratulation from disadvantage of forex traders.
the industry, for the And why not expect best
quality of the articles execution to be introduced
and of the editorials. on the retail market as well?
This, of course, is This is possible too. In other
our best reward but, words, a very exciting future
also emphasizes that is ahead of us…
the interest for forex The Interview of Michael
markets is always there Buzzeo, Sr. Vice President
and continues to grow. Marketing of FXCM, also
So, we will try to do allows to understand why
our best to pursue our one the leading international
mission by continuing forex brokers supports those
to provide readers new regulations and explains
with quality editorial how, in his opinion, they
content. could impact the European
In this issue, we’ve markets.
chosen Javier Paz’s Safe Keeping Cage of Thomson and Mckinnon Brokerage Firm To summarize, the forex
article as the main market continues to expand
one, because the author underlines dimensions. This could even happen and get better structured. FX Trader
the progressive regulation process of before we expect it to, considering Magazine will be there to follow
the FX market, currently taking place the strong disparity in terms of costs industry developments and will
in the US. The introduction of rule and regulation procedures, which continue to inform you and analyze
2,43b from the NFA is the first strong currently benefits European brokers, new important market news and
signal that the regulation entities want as Javier points out in his article. If, on events.
to protect the final client. This is, we the one hand, this implies higher costs
believe, a positive thing. From the for brokers in the future, on the other
original “far west” market conditions hand, this invevitable process will
that were ruling FX in its infancy, we benefit the final client, both in terms Emmanuelle Girodet
The macro framework in the last victory for the CAD (+12%). More
three months has evolved into a surprisingly, after facing plenty of
clear direction: the triumph of the obstacles, the Pound has also been
‘green shoots’. In mid-March, the a real outperformer (+18% on the
struggling stock market was just Dollar and +8% on the Euro), the
beginning to recover from violent UK perhaps being the nation where
declines suffered in the first nine more evidence of the ‘green shoots’
weeks of 2009. By mid-June, the of recovery showed up.
message is clear: the market seems Of course the emerging currencies
to have chosen, from the alphabeti have performed well, especially
soup of potential recoveries from those whose value is usually
the darkest of recessions, his letter. measured versus the Dollar, such
The equity market each day that as the ZAR (+19%), the currencies
passes seems to say emphatically: it of Latin America and those of NJA
will be a V recovery (and not a U, (non-Japan Asia). Eastern Europe
a W or, worse yet, an L of Japanese and Turkey, quoted instead against
memories). a Euro in-shape, have shown rather
The FX world, for many months marginal progress (between flat and
deeply bound to the destiny of the 3%).
global economy, could not respond The other side of the coin has been
in a more coherent way. the renewed weakness of the Dollar.
From March 15 th to June 12 th The first week of June has seen the
market close AUD and NZD have greenback mark yearly lows against
definitely been the victorious all major currencies: 1.4337 Eur/
currencies (around 24% gain on the Usd, 1.6363 Gbp/Usd, 1.0592
dollar!). Easily explained given their Usd/Chf, 0.8264 Aud/Usd, 0, 6435
notoriously cyclical nature, linked Nzd/Usd, 1.0785 Usd/Cad. in an intermediate position.
to global growth, especially to Asian The Euro has settled, along with The Yen, without much noise, has
growth (which seems to be a primary the Swiss Franc (for now quite able actually shown a similar weakness
force in this recovery, with the to resist the strong will of weaker to the Dollar, with Usd/Jpy
notable exception of Japan). Partial currency of its own central bank), virtually unchanged in the middle
Pound is back
Chart 1. The correlation between Eur/Usd and 10Y yield differential reverses.
disordered. It will be worth keeping a better economic scenario and Among the major currencies, the
an eye on the statements that will a faster and stronger recovery best performer in recent weeks has
follow the first official summit of than expected. But more recently certainly been the Pound.
the BRIC’s (Brazil, Russia, India, we got overlapping threatening At the end of 2008 it was trading
China) leaders on June 16th in clouds: fears of hyper-inflation and at 0.9800. It seemed that parity
Yekaterinburg (Russia, the Urals). debt (un) sustainability and the between the Euro and Pound were
For a more detailed analysis on
the delicate relationship between
central bankers and the loved/hated
Dollar please refer also to the article
Central Banks disregarding the
Dollar? - Nomura FX Research on
this same number.
Here we just want to point out
another key element of the Dollar
price action in the last few weeks.
The rates of the long part of the curve
climbed relentlessly, consistently
with the improved world growth
prospects (the ‘green shoots’ again).
Treasuries in particular have shown
a horrible price-action: 10 year
yields briefly touched 4%, in a
few weeks. The primary mover has
been the positive news painting Chart 2. Pound is back.
and excessive private sector estimates recently saw the deficit to economies (the banking sector in
borrowing in foreign currency, the reach 12%. It is therefore necessary those countries is mostly owned
GDP contracted -18% in 2008 and for the government to make further by major Swedish banks). Many
an equally dramatic decline is to be budget cuts to bring it back to fluctuations in the Swedish Crown
expected in 2009. about 7%. Unemployment has recently have been generated by
The current account deficit reached already reached 14%. Many people escalation of tensions and following
a record 25% of GDP, the private wonder if this blind determination relaxation in the financial system of
debt with foreign countries increased to defend the currency would turn Latvia and other Baltic countries.
to 130% of GDP and with the out to be a cure worse than the Eastern Europe: the link here is
currency tied to the Euro, there has disease: the economy falling apart not as ‘real’. However HUF and
been a loss of competitiveness made and an unchanged need to devalue PLN have been used as proxy for
even more worrying considering thereafter. Exactly what Argentina playing devaluation (or resisting
recent currency devaluations in was forced into in 2001 (see on this devaluation expectations). The
Eastern Europe. A situation that parallel a recent Roubini article in contagion reasoning goes that in
in some ways recalls the 2008 the FT). Some argue that an early case of breakage of fixed exchange
Iceland experience (unfortunately devaluation (25%-30% suggested in Latvia and shortly afterward in
not marked with a happy ending ). by most economists), accompanied Estonia and Lithuania, the currency
Currently local authorities, by an extraordinary entry path into of Bulgaria (also linked to the Euro)
supported by the EU and the IMF, Euro, could be way better than an would be dragged into the same fate,
say they are fully determined to outright fundamentalist currency. despite economic fundamentals not
defend the currency. An aid package In any case, the situation is fluid, so disastrous (current account deficit
was already established last year fragile and uncertain. It could create actually quite at Baltic levels, 26%
(7.5 billion euros), against a budget an impact in the FX market, either GDP, but an expected contraction
deficit that should not exceed 5% for way. Let’s see where. of the economy for 2009 of ‘only’
2009. But with the current economic Sweden: Swedish banks are -1.6%). Romania would be next
contraction heavier than expected, notoriously vulnerable to Baltic with inevitable tensions, due also
to common exposure of the private
banking sector (German, Austrian,
Italian, Greek), throughout Eastern
Europe.
Such mechanisms of cause and effect
are certainly extreme and unlikely to
be so deterministic even in a ‘Baltic
disaster’ event. It would not be very
likely as well that any generated
downfall would be permanent in
the medium to long term. Still
it is important to monitor the
situation if we are interested in the
FX movements of the European
periphery.
Alessandro Balsotti
Central banks
disregarding the
dollar ?
Last month we recommended confident on our short dollar call holding within its foreign currency
taking profits on many of the for the following reasons. reserves. The percentage of reserves
trades that we had been advocating held in euros rose to 47.5% as of
this year (On the sidelines, 14 May Russia is moving out January 2009, up from 42.4% a year
2009), expecting the market to have of dollars; are others earlier. As the euro’s price fell by
a decent correction from the recent likely to follow ? around 4.5% between the two dates
rally in risk and associated sell-off in we know the change is not a result
the dollar. Specifically, we expected The Russian Central Bank is one of of valuation effects.
EUR/USD to drop to either 1.3450 the most transparent of the global
or 1.3200 and NZD/USD to central banks about the make-up of Over the same period, the dollar’s
correct to around 0.5850. As both its reserves. Its latest annual report share in Russia’s FX reserves fell
of these levels were achieved on reveals that the euro overtook to 41.5% from 47% previously.
18 May we recommended reselling the dollar as its primary currency Given the valuation effects, if the
dollars against both EUR and NZD.
We added these trades to our G10
portfolio (Selling USD vs EUR and
NZD, adding to the printer basket,
18 May 2009). Subsequently a
number of additional factors have
made us more comfortable with
adding dollar shorts and we remain
structurally bearish expecting
EUR/USD to rise to 1.50 by year-
end.
certainly seems to be thinking along area), despite the fact that the The front Eurodollar contract has
these lines. Federal Reserve has been buying rallied by almost 90bp since mid-
Treasuries. March. The fact that three big US
A simple chart of the yield This perhaps suggests that demand banks seem likely to pay back the
differential between the euro area for US fixed income assets is TARP loans soon could be another
and the US (Exhibit 2) reveals that starting to weaken, a factor which is sign that the worst of the financial
so far this year yields on US paper, likely to undermine the dollar and crisis is behind us.
especially those further out the potentially challenge the funding of
yield curve, have underperformed the US current account deficit. So
Europe (i.e. yields in the US have far this process has been slow, but if Global Foreign Exchange Research
risen relative to those in the euro the dollar starts to fall more quickly NOMURA International
Survival guide
for FX Brokers
CURRENT BROKER LANDSCAPE Association (NFA) were to fail, chances are that one
morning clients might receive an e-mail from the
O
ver the course of the past two years, regulatory broker’s CEO informing them that their accounts
oversight in the US and the global financial will be serviced by some big firm within days. In
meltdown have changed the landscape other words, the transition to a new broker would be
of what it takes to be a competitive FX broker. a bit disconcerting, but smooth. But what about if
a firm is regulated elsewhere or not regulated at all?
As you read this a few regulated FX brokers are teetering
on the verge of going out of business, most unregulated This article takes a hard look at how client
brokers are complacently moving on, while a new batch perceptions of brokers may be leaving some firms more
of brokers are entering the market, probably unprepared, vulnerable than others in light of regulatory changes.
driven by the allure of profits or by the zeal of sponsoring
a perceived technological or business improvement. Even if you followed FX brokerage news over the past
18 months, it is very likely that each announcement
The FX broker market is consolidating in regulated was evaluated in isolation. A clearer image of industry
countries like the US, Switzerland and Japan. If a trends emerges as we evaluate these announcements as
FX broker regulated by the U.S. National Futures a whole.
• Jan 08. IFX Markets, founded in 2004, is fined $60,000 • Nov 08. CMC Markets pulls its registration from the
by the NFA for failing to supervise its Introducing Brokers NFA and announces personnel cuts in the US, Australia and
(IBs). Aug 08, IFX parent company City Index merges IFX other parts of the world
Markets into FX Solutions • Jan 09. ODL Securities sells its US accounts to FXCM
• Jan 08. NFA completes closure of two FX brokers: • Jan 09. Hotspot FXr announces the sale of its retail FX
One World Capital Group, FXLQ for insufficient net capital accounts to FXCM
requirement • Jan 09. ACM USA, NFA-registrant since 2007 and
• Jan 08. NFA fines Advanced Markets Inc $150,000 indirectly related to AC Markets, announces suspension of
for inadequate record-keeping and introducing broker operations and the transfer of accounts to AC Markets of
supervision Switzerland
• Jan 08. NFA launches a massive effort to close down • Feb 09. US regulator FINRA announces reduction in
fraudulent commodity pool operators (CPOs), resulting in leverage for Forex traders to 1.5:1, reportedly in response to FX
dozens of high profile scams brokers that wanted to circumvent NFA oversight in the US
• Jun 08. Saxo Bank begins NFA registration process as • Mar 09. Last month for online FX brokers in
Futures Commodities Broker (FCM, i.e. FX broker dealer). Switzerland to register as banking entities, as mandated by The
Swiss Federal Banking Commission and FINMA in 2008.
Oct 08 Saxo Bank pulls out registration petition. Saxo Bank
Bank license applicants: AC Markets, MIG Investments,
announces personnel cuts throughout the world. May 09
Dukascopy, and GFX Group (Forex.ch). Realtime Forex S.A
financial statements show increase in revenues and net profits,
decided to move operations to Malta.
of 61% and 23% year-on-year, respectively. • Apr 09. NFA fines FX broker I-Trade FX $250,000
• Aug 08. The US Congress passes the “CFTC for inadequate anti-money laundering (AML) procedures.
Reauthorization Act of 2008” granting expanded powers to A week later, on May 09 I-Trade FX announces sales of its
the CFTC and its enforcement agency, the NFA. The Act accounts to FXCM.
raises the Net Capital Requirement (NCR) FX dealers would • Apr 09. GFS Forex & Futures, a NFA-regulated firm,
need to keep to $20 million by May 2009. The NCR had been exits the US market to be based in the United Kingdom
$5 million through Sep 08 and only $250,000 through Feb
06. • Apr 09. NFA announces rule “NFA Compliance
• Sep 08. IG Markets buys an 87% stake in Japanese Rule 2-43(b)” prohibiting hedging trades, mandating FIFO
currency broker FXOnline for $207 million. May 09 Financial accounting, and imposing restrictions on pending orders
Times report casts negative light on the acquisition due to
• May 09. Japanese FSA announces intention to curtail
recently announced Japanese regulator’s intention to drastically
leverage to 20:1 or 30:1 by the summer of 2009.
curtail leverage, IG Markets publicly trades prices fall • May 09. Ava FX, a FX broker owned by an Israeli public
• Oct 08. MG Financial, founded in 1992, becomes a firm, reports 1Q09 revenues of $11.8 million, with net income
subsidiary (IB) of Rosenthal Collins Group (RCG), a futures of $5.1 million after marketing and advertising expenses of $3.6
broker million.
These series of events leads us to think that a number by the direct and indirect cost of regulation. There
of major brokers entered the US late, in 2007 and are approximately 15 FX brokers that are regulated in
2008, allured by the fact that the US represents some the US, down from about 22 a year ago. Our estimate
30% of the global market place. Who were these is that we might have only 10-12 firms left a year from
firms? There were brokers with a substantial following now.
in other continents, like Saxo Bank, Alpari, and IG Clearly, the industry appears to have reached a point
Markets. There were US futures brokers that wanted where there are two very different types of FX brokers:
to expand into spot FX, like MF Global, Rosenthal 1) well capitalized, highly regulated, operationally
Collins Group, PFG Best, and Ikon Global Markets. sophisticated brokers, and 2) unregulated/lightly-
And there were also new entrants like I-Trade FX and regulated brokers that have profitable businesses but
Advanced Markets. have questionable operational sophistication and
MG Financial, a broker dating to 1992 but not known marketing.
for keeping up with the times, sold out to Rosenthal There are two regulatory bodies with substantial
Collins Group and became an introducing broker to experience in spot off-exchange currency (Forex)
them. The passage of the markets: the United States
CFTC Reauthorization NFA and the United
Act was a major cause for Kingdom’s Financial
CMC Markets closing its Services Authority (FSA).
US operations to focus on The majority of the
more competitive regions remaining regulators are
like the EU and Australia. either increasing their
This move was also matched regulatory oversight in
by Saxo Bank, which Forex – like Switzerland
abruptly ended its four- and Japan – or maintaining
month dealer registration lower regulatory standards
request with the NFA. – Malta, Cyprus, Belize,
and other off-shore
As the minimum regulatory jurisdictions.
capital increased in the The differences in
US from $5m to $10m to regulatory oversight
$15m to $20m within a and the associated cost
few months, more brokers are dramatic. A broker
continued to either sell out outside of the NFA/FSA
or move out of the United regulation does not have
States. ODL Securities and the incentive to adhere to
Hotspot FXr opted to sell their US retail FX business any of the following major NFA requirements:
to FXCM. ACM USA, a partner with (but separately - Report key statistics on a daily, weekly, monthly
owned than) AC Markets of Switzerland suspended and quarterly basis, under the threat of major fines for
its US venture. Right before the increase to a capital lateness, inaccuracy, or deception
requirement of $20m, I-Trade FX, a newer MT4 - Keep records, transactional data and price data
platform broker was heavily fined by the NFA and for years
sold its entire business to FXCM. - Have emergency contingency plans and data
Some like Alpari US and IG Markets have stayed in the privacy protection plans
US while others have exited the market, driven away - Be able to prove marketing claims and have
FX TRADER MAGAZINE July-September 2009 19
FX MARKET REGULATIONS
S
o as the winds of regulation change and create FOREX.COM (Gain Capital) 90.8
high
opportunities, the broker sentiment of FX traders is GFT 80.7
what ultimately decides winners and losers. The average FXCM 60.5
trader has to choose from a pool of over 100 FX brokers that, FX SOLUTIONS 41.5
to most traders, appears confusingly similar. Information IBFX 36.5 medium
about brokers on the web is highly dispersed, has questionable
CMS FOREX 29.7
credibility, and is arranged in ways that make comparisons
IG MARKETS 22.8
difficult. Most people choose a broker using a trial and error
method, which can be very costly. FOREX CLUB 21.8
At this point, it is appropriate to take a short detour and ALPARI (US) 21.0
explain the origin of the Forexds Awards. My involvement ADVANCED MARKETS 19.8 lower
in foreign exchange began in 2000, working for BankBoston MB TRADING 17.1
as a currency strategist. Then in 2005 I came to know the EASY FOREX US 15.6
needs of retail traders as I launched the institutional sales IKON GLOBAL MARKETS 13.4
department of Interbank FX. By mid 2007, I felt strongly Source: CFTC, Apr 2009, Adjusted Net Capital
to do something about the abundance of low quality broker
data and left IBFX to launch ForexDatasource.com as a The Net Promoter Score is calculated as follows: percentage of
market research firm and information portal. promoters – percentage of detractors = NPS %. A promoter
After a year of preparing the survey methodology, we began rates a broker with a 9 or a 10, while a detractor rated it with
to collect broker data in a systematic way with minimal self- a 1 through 6. Votes of 7 or 8 are considered “neutral” and are
referral bias or double counting. This research was aided not considered in the NPS.
by the fact that my team counted with a background in For the Forexds Awards, Forex Datasource used simple
applied statistics and broker operations. After one year of averages of the evaluations in the Global FX Broker category
data collection, we gathered slightly more than 1000 broker and NPS scores in the ranking of Continent Leaders. We
evaluations from 82 countries. This extensive statistical recognized that ranking all brokers globally had many
sample with a wide geographic representation was the basis shortfalls. Most brokers had a strong presence in one continent
for the Forexds Awards. only. We discovered significant differences in the average
number of promoters and detractors in different con
We asked traders to rate a FX broker from a list of 50 medium
tinents – see table. We also had diversity in the number of
and large brokers. They answered the question: “How likely
votes for a broker as well as diversity in the size of brokers.
are you to refer this broker to others, from 1 to 10 (where
1=low, 10=high)?” They applied this broker evaluation in five NPS by Promoters Detractors Neutral NPS
satisfaction categories: overall, trading platform, customer Continent
service, accounts department, and funding department.
The numeric results allowed us to calculate what is known AFRICA 25% 24 50 1
in statistics as the Net Promoter Score (NPS), a simple ASIA 21 29 50 -8
percentage that reveals whether a firm has more “promoter EUROPE 27 27 46 0
clients” than “detractor clients.” The simplicity and logic of AMERICAS 39 14 46 25
the NPS statistic is powerful, and it is also helpful to know
OCEANIA 29 29 42 0
what firms are more likely to gain market share and remain
in business. Source: Forex Datasource, 2009, Best Overall category
The Global FX Broker category recognized seven brokers Global FX Best Platform Cust Accounts Funding
that were among the top 6 brokers in more than one Broker Overall Svce
continent. This group of peers was then matched against one
another in the five sub-categories: Best overall, platform, IBFX 1 1 1 1 1
customer service, accounts and funding departments. This OANDA 2 7 2 2 2
year’s winner in this category was IBFX, followed closely by Alpari UK 3 4 3 3 3
Oanda and Alpari UK in third place. FXDD 4 3 5 4 4
Some of the 50 brokers in the survey did not sufficient votes FXPRO 5 2 6 5 5
to allow us to consider the results representative of their FXCM 6 6 7 6 6
client base. We applied the criteria of a minimum of 8 votes, SAXO 7 5 4 7 7
resulting in a list of 28 brokers that accounted for 96.3% of
Source: Forex Datasource, 2009
all votes received.
The Continental Leader category allowed all 28 brokers three winners per continent in two sub-categories:
(even Global FX Brokers) to compete on an equal basis, Highest Broker Satisfaction, and Highest Platform
using the Net Promoter Score of each firm to determine Satisfaction.
1 ODL 18.00% ODL 15.40% Interactive 66.70% Alpari 26.00% Oanda 33.30%
Markets Markets Broker UK
2 IBFX -7.80% GFT 9.10% CMS 58.30% FXDD 14.00% IBFX 16.70%
Forex
3 Saxo -10.00% Alpari 8.30% GFT 30.00% FXCM -14.00% FXCM 0.00%
Bank UK
Continent -8.00% 0.00% 25.00% 1.00% 0.00%
NPS
1 IBFX 18.60% IBFX 30.00% IBFX 45.70% FXPRO 50.00% Oanda 33.30%
3 FXDD -8.30% FXCM 21.10% GFT 37.50% FXDD -20.00% FXCM 11.10%
CLS
A gate for the global FX market
Meeting former colleagues and old Italians, Scandinavia was the country managed to receive the elusive Italian
friends is always a pleasure, and each time of Santa Claus, numerous blonde girls balance sheets and after a few minutes
we all tend to say the same thing at least looking forward to enjoying some time of happiness and classic Italian pride
once: “I miss those days when we traded with a wild group of Italian “geezers”, who (consisting of going around the trading
FX together”. Honestly, I don’t. I’d rather love karaoke, wear splendid sunglasses floor to chat with colleagues, casually
trade FX today, it’s much easier. and, moreover, were great lovers. None holding the balance sheets in my
of them ever related their respective hands and displaying them as though
By the end of the 90’s I was in London. countries to finance let alone financial. they were a trophy, showing off as only
It was my first job in the city, I was Food or sex - this is all it was! Italians can do, possibly making a few
enthusiastic and excited. I knew every calls on my two new super hi tech
single spot trader in Italy, so the flows When I first started setting up a credit mobile phones), I then realized that
were guaranteed. My first job was in Den line, this is when I began to realize how the balance sheets were in Italian and
Danske (Danske Bank) and it was then big the problem actually was. To obtain not English. To obtain the English
that I had to face my first problems - to get a credit line I had to get incredibly version was a much bigger issue.
one of the thousand small Italian banks boring balance sheets to my colleagues I remember, in a moment of deep
to trade with a Scandinavian bank and it in the credit department. These depression caused by the hard work
wasn’t easy at all. For Danes, Italy was of balance sheets were finalized with huge that relations with Italians can involve,
course the country of Michelangelo, but delays and published with even longer going to pay a visit to the Royal Marine
that was an old story. Now it was just the delays, which got promptly lost in the Forces representative office to look for
country of pizza, pasta and wines. For Italian mail system. When I had finally a job and telling them I was Albanian,
24 FX TRADER MAGAZINE July-September 2009
FOREX INDUSTRY FX
CLS allows to trade FX with any of its members and 3rd party
participants eliminating the risk of settlement due to time zones
I couldn’t blame them, I had to agree. they usually proceeded without further to easily approach the FX market.
Once I had all the documents in place, questions. Unfortunately, more often This means tighter spreads, big or
it was finally time to proceed with the than not the applications were declined,
small amounts receive the same quality
credit line procedure. Here I had to face although if I insisted, I was offered a
of service and access to international
my worst nightmare - the British sense few thousand lira credit line, equivalent
counterparts. Thanks to CLS, even a
of. The credit analysts, before even to 1 or 2 British pounds - enough for a
small Italian bank could, in theory (but
opening the balance sheets, looked at coffee with tip. Whenever I have the
them, took them in their hands, looked opportunity to meet old friends and probably not, after what I’ve written)
at me, then glanced at the balance sheets colleagues, I always think of those years trade with a small Australian bank -
again, looked at me again. I couldn’t - the fun, the easy life and while I miss provided they both have a trading line
figure out what was going on, until I all of that, from a professional point of with one of the 70 member banks.
This is a “dream come true” for every As I said, there are 70 member Banks means that for 1 trillion $, only 50 billion
FX sales guy and for the small banks and each of them gives access to a large is funded by the CLS Bank. This is the
which have been ignored for years by the number of users, 4688 as of today. There real gate for the FX global market.
bigger local banks. The extraordinary are 17 currencies currently available in Definitely a great development which
thing regarding the CLS system is that the system: US Dollar, Euro, UK Pound, comes from an intensive study of FX
every member bank is responsible for Japanese Yen, Swiss Franc, Canadian market needs. How and when CLS will
all of the transactions of the third party Dollar, Australian Dollar, Swedish be properly appreciated and adopted in
participants they sponsor. Practically, Krona, Danish Krone, Norwegian Italy is not known. Obviously if Italian
if one of the third party participants Krone, Singapore Dollar, Hong Kong banks continue considering only the
fails to make a payment, the sponsor Dollar, New Zealand Dollar, Korean balance sheet figures before granting an
member will be responsible, ergo, even Won, South African Rand, Israeli FX trading line, ignoring completely the
the counterpart risk for aim of CLS and
users is eliminated. its concept, the
Finally the market is gate to a global
truly global. CLS was FX market will
up and running in be kept closed
September 2002 with to potential
only 39 members, 7 Italian market
currencies available users. CLS is
to trade and very not accepted
low flows. In 2008 by Italian
the success is so big traders purely I
that in 24 hours the think because
amounts traded are in they consider
the order of 10 trillion themselves
$. The rhythm of better than
growth is incredible others. This
and CLS has finally outdated
been given the mentality
success it deserves. A precludes several
network which covers every single Shekel and Mexican Peso. The system companies which work hard and require
corner of the globe and involves not is based on a continuous process of that access, the opportunity to approach
only the banking industry, but also those payment instructions. CLS receives the FX markets. If Italian FX traders
corporations which need to have direct the instructions within 38 minutes of would spend more time trading the
and professional access to the FX market, the trade. The instructions are checked market rather than feverishly following
such as Nike and Hewlett Packard to and once matched, the exchange of Prada’s last collection, spending less time
name just two of many. Investment funds currencies proceeds at the same time. In drinking cappuccinos in the morning
and hedge funds are also users, though the event that instructions don’t match, and Apes (trendy word for aperitif ) in
their names are not disclosed since they counterparts are immediately alerted. the evening, I’m sure they would begin to
use CLS banking services. Identities are The status of every single transaction understand that the FX global platform
not published in the list of CLS users. is available to counterparts in real is much wider than the one they view
55% of FX transactions executed by the time around the clock. The funding of through their Gucci sunglasses.
member Banks are done across the CLS transactions is executed on a multilateral
network. basis for about 95% of the cases. This Ruggero Mameli
26 FX TRADER MAGAZINE July-September 2009
FX TRADING SYSTEMS
In the days of voice brokers, part of their order. This meant that one would Therefore the chief dealer and his
the spot traders’ art was to recognise often buy from the first few ‘calls’, number two, the Yen trader, knew that
the brokers voice with the best price, hoping this would prompt the other if the bank was to be seen selling a huge
good in the size he wanted to execute, banks to believe you were a buyer, drive amount of DEMJPY and USDJPY, the
which as a junior dealer, was probably the price up, quoting higher prices, into market may well think that the BoJ was
the hardest skill to master; particularly which you could then sell. Hence it was intervening and would then also start
when the broker at each institution always a game of bluff, counter-bluff selling, to capture the pending move
wouldn’t always be the same person, and spoof. down. One day they stood up and
as they would need to go to lunch, be One anecdote worth recounting, in shouted “Get me calls!”, which in itself
away on holiday, or just step off the desk which the author was involved, is a spot wasn’t unusual, as this happened on
for a few moments. A junior on a desk desk of a first tier bank, making a huge most large orders:
would usually cover several dealers, return in the space of a few minutes, As each of the other traders, and
when they similarly stepped off the desk, solely by a simple, but beautifully assistants, all started getting prices from
so may have had over twenty voices to executed spoof: banks and shouting them out, they
recognise and remember which ‘box’ The bank was known to be one that shouted, “yours!” together with the
they were on. All the deals were also had a good relationship with the Bank hand gesture of pushing an open hand
entered manually, unlike today’s ECNs, of Japan (BoJ) and through which they down and away from the body (for
where the deals automatically go in the had intervened in the market before, to the avoidance of any doubt as to the
trading ‘blotter’. On this occasion it strengthen their currency, occasionally instruction) until they’d sold literally
is probably very fair to say that junior coming into the market and selling a several hundred million US Dollars
traders today really do have it easy by collosal, market-moving amount of and German Deutsche Marks, against
comparison. USDJPY and DEMJPY. This always the Yen.
If an order was too large to execute kept dealers wary of being the other way Nobody knew what was going
with just one counterparty, a ‘call out’ around, lest they got caught the wrong on, but everyone did his or her job
would be made, where the dealer would way on an intervention, and hence kept and got the order executed. The sales
stand up and shout, “Get me calls!” the Yen supported. desk was asking what was happening,
Every other dealer on the desk, would
then either call up several banks on, ‘The
Reuters’ (an inter-bank chat system)
and/or the telephone. Each dealer
would then shout out the prices he was
being made and the dealer initiating the
activity would make hand signals and
shout “yours” or “mine”, to indicate if he
wanted to buy or sell. There was a great
deal of ‘spoofing’ that went on, which
was part of the art of good execution
and mastering the art of spot trading:
For example, if a dealer at one
bank took a ‘call’ from another, and
found they were a seller, he might also
sell, believing a large order was going
through and expecting the price to fall,
as the other bank continued to execute
FX TRADER MAGAZINE July-September 2009 29
FX TRADING SYSTEMS
as customers called up to ask what time, price and volume of every trade.
the reason was for the big move, as However, there is still no central ECN
everybody saw and heard the huge and rather than one becoming the
commotion coming from the spot dominant player, as some expected,
desk and the inevitable rumour spread the market has continued to fragment.
that it was ‘BoJ’ intervention. Nobody This means that at every minute of the
on the desk said a word to confirm or day, each currency pair is trading at
deny the rumour, as nobody else on the different prices, bid/ask spreads and
desk, knew what was really going on. volume.
Just tallying the total amount sold and Only if one could aggregate all of
reconciling the now huge position the the prices made on every ECN and by
desk had, was not an easy task. every bank and broker, could a truly
As the rumour spread and speculation accurate record be built. Even then
mounted, USDJPY and DEMJPY though, a bank may provide a rate on
continued to fall rapidly. Then came the several ECNs, good in $10mio, but as
second wave, or so everybody thought. soon as one of its prices is hit, it will
Again the Chief Dealer shouted, “Get immediately ‘pull’ that rate from the
me calls!” and started to sell USDJPY other ECNs. Therefore, even though
and DEMJPY again. The market transactions went through in those few a 40 bid may appear to be good in
thought it was the start of a second wave minutes, none were recorded by exact $50mio, if one could aggregate all
of selling by the BoJ, as this was their time. The author himself probably of the prices at a given moment, the
typical style and accordingly marked executed trades, with more than half reality is, that it may well not be case
their prices much lower and again sold a dozen banks, but the most that if you tried to execute a trade of that
themselves. Then came the stroke of would have been recorded was either a size.
genius – they started to buy, and buy conversation on ‘Reuters’ or a hurried
everything, shouting, ”Mine, mine, scribble on a deal ticket after a phone Trading the Crosses
mine…” with the accompanying hand transaction, later reconciled with the
gesture of bring the palm of the hand up counterparty. If someone wanted to sell the
towards the shoulder, to the still falling Therefore, although an extreme Swiss Franc against the Japanese
prices, as other banks initially thought example, it illustrates the point very Yen, as it’s not a commonly quoted
it was just part of a ‘spoof ’ to sell into. well; there simply isn’t a completely pair, it has relatively little liquidity
Before the market realized what reliable source of accurate, historic FX on the electronic platforms and as
was going on, they’d covered the entire data available before the dominance a consequence has a wider price.
position and locked in a massive profit, of ECNs and the situation hasn’t However, USDCHF and USDJPY are
literally in the space of a few minutes. improved significantly since: more actively traded, so a professional
Everybody on the desk was given a trader would go ‘through the legs’
slice of the pie, for a job very well done The Advent of Electronic Trading or ‘components’, buying USDCHF
and it’s the type of trading that we will Platforms and selling USDJPY, with the USD
unlikely see again – such were the days amounts netting out to zero, leaving
before the dominance of ECNs. As electronic platforms began a CHFJPY position. This means the
There is of course a point to this to dominate more and more of the trader actually traded CHFJPY, but
anecdote of course, other than to volume, so accurate data has become no price may actually have traded on
record it for posterity: more readily available, as computers any ECN or with any broker ‘direct’ in
Although a huge amount of are easily able to capture the exact CHFJPY.
30 FX TRADER MAGAZINE July-September 2009
TRADING SYSTEMS FX
Gaps and Spikes was ‘off market’, or fair given the time of the definitive highs, lows and the
day and liquidity. volume they traded in, order fills remain
Although FX is by far the most liquid One of the challenges of using a a cause of much debate, on a daily basis,
market, there are still times when no simple algorithm to clean the data is in the FX market.
prices are recorded for periods of time, that some genuine market moves can
particularly during the less liquid Asian look a lot like a ‘spike’ in a fast market, Predictive Pricing
session and, as we have seen above, when some news, or economic data,
particularly in the less liquid crosses. has just been released. A way around As there is no central price for a
This means that not only do genuine this is to confirm the rate via the other currency pair, a bank or broker is free
gaps occur in historic data, but there components. Looking at AUDUSD to make whatever price it wants to their
are also often times when a certain pair and USDJPY components at the time customers and the customer is equally
traded on one electronic platform, but could check for example, a ‘spike’ in free to trade on that price, or trade
not on others. These gaps in the price AUDJPY. elsewhere.
data need to be ‘filled’, which can be done Some traders are very predictable in
using a simple algorithm, otherwise Highs and Lows their trading behaviour and only trade
any indicator, even a simple moving with one counterparty. This leaves them
average, would have an input of zero One of the most commonly asked open to ‘predictive pricing’ algorithms.
for the price at that time, which would questions in FX trading is where the For example, if some traders sold
of course USDJPY
create a earlier in the
hugely there simply isn’t a fully reliable source of accurate, day, then it’s
incorre ct
reading ,
historic FX data available before the dominance of ECNs likely that
their next
w h i c h trade in
may well trigger an erroneous trading highs and lows were, as this is where USDJPY will be to cover that position
signal in an historic simulation. queries occur and money is lost and and buy. Some ECNs therefore have
Conversely, not only are there times made on orders. If an order to buy the ability to show each customer a
when there is no price, there are times was placed at 0.9840 and the low was different price.
when a spike in the data appears: 0.9839 offered, then the order would Therefore while a neutral price
This can be due to a number of be filled. If the low price quoted was in USDJPY may be 98.94/96, one
factors, but often where somebody 0.9840/43 but was never traded, or customer’s ECN might show a price
has left an offer to take profit at, ‘given’ at 0.9840, then the order would always marked a point higher at
for example, 1.2580 overnight. If not have been filled. As it’s often hard 98.95/97, until they have closed their
somebody else has a stop order to buy if enough to determine in a real trading short position, when it will then go
1.2520 is traded and there are no other situation whether an order should have back to a neutral price, earning the
prices in the system until the 1.2580 been filled, it’s impossible to be certain bank an extra pip on that trade and the
offer, then that would be the next price with a historic simulation. In fact, if customer believing he’s being shown a
dealt. It’s market practice to cancel a large buy order had been placed at relatively tight two point price all day.
these deals the following morning, 0.9840, this could affect the price action The author has first hand experience
when an obviously ‘off market’ rate itself, with market makers buying ahead of such pricing engines, with one of his
was traded, but nonetheless, it will still of the 0.9840 bid, knowing the market former colleagues having built just such
often appear in the historical data made will be supported there. an engine, for a first tier investment
available and there is a ‘grey’ area where With the market so fragmented, and bank. It’s a perfectly legitimate practice,
it is questionable whether the rate dealt with no central exchange to determine as the customer has the freedom to
Mike Buzzeo
Sr. Vice President - Marketing
FXCM - Forex Capital Markets LLC
FXTM: FXCM claims over 100.000 Authority (FSA# 217689). FXCM is FXCM offers a twenty-four-hour-a-day,
trading accounts today. What is the dedicated to technological innovation seven days a week live support by phone,
company’s average nominal trading that enhances the online trading IM, and e-mail.
volume per month? experience, and this is why FXCM has
MB: Over the past sixteen months attracted over 125,000 live accounts FXTM: With a view to the new US
(Jan ‘08 - April ‘09), on average over which trade through FXCM’s multiple regulations, which fundamental assets a
USD$590 billion of notional volume is platforms, including MetaTrader 4. forex broker should have to ensure stable
traded across the FXCM platforms on a At the core of FXCM’s business model growth in the US?
monthly basis. is its No Dealing Desk execution which MB: Speaking on behalf of FXCM we
eliminates conflict of interest between see our competitive edge with No Dealing
*Notional USD volume is base currency USD
exchange rate. Average monthly exchange broker and trader, ensuring that there is Desk as the fundamental assets that will
rates are used to calculate notional volume. no dealer intervention in trades. Trades continue to ensure our stable growth in
are executed back to back with some of the US and abroad. We recognize that
FXTM: Which are the distinctive the world’s premier banks or financial clients are concerned that dealing desk
advantages which make FXCM one institutions, who compete to provide brokers are trading against them, and
of the world leading market brokers? FXCM’s clients with the best bid/ask hunting their stops. More than 85% of
In other words, why do many private prices. Some even provide spreads as low our trading volume is generated through
currency traders choose to open an as 1 pip. the No Dealing Desk model and this is
account with FXCM today? FXCM also offers clients an extensive the number one reason clients switch to
MB: Forex Capital Markets (FXCM) suite of free forex trading signals through FXCM.
is a leading global forex broker that caters DailyFX +. These signals are interactive Other key assets we at FXCM
to the retail and institutional market trading alerts that update automatically attribute to our steady growth would be
in over 80 countries. Founded in 1999, in real time, twenty-four hours a day, on a our segmentation and product offerings.
FXCM is one of the largest and most dynamic basis. Tracking six strategies on FXCM offers different account sizes
financially strong brokers, regulated in fourteen currency pairs, FXCM Trading (Micro or Standard) to appeal to many
the United Kingdom, the United States, Signals have a customizable alerts section different traders. FXCM also offers
Australia, Canada, France, Dubai, Hong that updates live when signals change. specialty products for target audiences.
Kong, and now Italy. In the United The FXCM Trading Station also features Examples of these products include:
Kingdom, FXCM UK is a regulated the ability to trade from charts and has Forex System Selector, an automated
forex broker with the Financial Services won multiple awards through the years. currency platform; MetaTrader4, a
34 FX TRADER MAGAZINE July-September 2009
BROKERS FX
world known and well-liked platform; The average daily volume in the global offerings for traders and we are excited to
Proprietary trading signals and DailyFX. foreign exchange market is continuously deliver these offerings to new markets.
com, a top research and news site that growing. Traditional daily turnover was
provides a constant twenty-four hour reported to be over US$3.2 trillion in FXTM: Where does Italy stand in
stream of in-depth market analysis that April 2007, and since then, according FXCM’s international development
is designed to give the foreign exchange to Euromoney’s annual FX poll, volume plan? How important is it compared to
trader the edge in today’s market grew a further 41% between 2007 and neighboring countries such as France,
2008. Spain o Germany for example?
FXTM: FXCM has chosen a No The recent regulation changes from MB: FXCM has recently expanded
Dealing Desk system in order to eliminate the NFA including higher capital its global foot print by opening offices
the potential conflict of interest that requirements and oversight of firms, in Paris, Sydney and Dubai, and also
some brokers have between their clients’ seems natural with the increasing by opening dedicated desks for the
profit/loss and their own firm’s bottom popularity of forex trading. FXCM German and Nordic markets. We are
line. How important do you reckon this proud to announce that Italy will be
decision might have been in the success next. Soon FXCM Italy will be opened
and growth of the company over the last and ready to service Italian clients.
years? FXCM is dedicated to the Italian forex
MB: FXCM has experienced market and will provide an advanced
tremendous client growth over the and transparent platform with the
last two years as a result of the firm’s benefits of local regulation, banking, and
switch to No Dealing Desk execution. customer service. Like all other FXCM
One main reason for the switch is offices we will be holding in-house forex
FXCM’s belief that transparency is of educational seminars and will invite all
utmost importance, especially in today’s local traders to visit with us.
economic climate.
The decision to enhance FXCM’s FXTM: What do you estimate is the
business model to No Dealing Desk current size of the Italian retail forex
provides traders with very tight spreads trading market (in terms of number of
and fast execution, something traders fx traders)? And how do you expect the
and brokers can benefit from and feel FXCM New-York
Italian forex market to evolve in the next
comfortable with. FXCM has been years?
a pioneer for retail forex brokers, and believes that the changes are - due to the MB: FXCM sees enormous potential
other firms have started to follow our evolving economic time - positive and and growth in the Italian forex market
example and execution model. FXCM’s necessary. FXCM expects other markets and we want to introduce high quality
No Dealing Desk execution is one of the will be developing to create a better execution, service, and forex education to
most important and successful strategic overall environment for traders and we our Italian traders. This is very important
decisions in the company’s history. welcome that. to FXCM.
We are confident that, by opening
FXTM: Do you expect other markets, FXTM: Will such regulations affect a locally regulated office in Italy that
outside the US, to follow the latest NFA your international development plan in provides full brokerage services, the Italian
regulation decisions? any way? forex market will grow exponentially.
MB: The forex market is fast growing MB:No,even though the environment FXTM: What will be the key
and is one of the largest and most is likely to be in flux for a while to com, advantages FXCM will offer to Italian
liquid financial markets in the world. we believe that we have the best product clients compared to other local and
international brokers? FXTM: What is the minimum account accounts are provided through FXCM
MB: FXCM will strive to be the size you propose, and the maximum UK, an FSA regulated entity. For a
premier forex provider in Italy. Because leverage? Are these key competitive novice trader, FXCM offers a $50,000
of FXCM’s access to highly competitive advantages to get new clients today? practice account as well as a number of
prices from our relationships with some MB: Standard account size: forex trading courses.
of the world’s largest banks, and as a Minimum Account Size $2,000 FXCM also has many referring,
premier “No Dealing Desk” or agency Recommended Account Size $10,000 institutional, and white-label
execution forex firm focusing on Italian and Up relationships and is always looking to
traders, FXCM offers clients no dealer Smallest Trade Size 10k Units expand its affiliates.
intervention and tight spreads as low as Available Leverage Up to 200:1
1 pip. Approximate Pip Value $1 per Pip FXTM: What is your advice to a
FXCM will provide a variety of Micro Account (via FXCM UK) new currency trader today with regards
currency trading products, forex trading Minimum Account Size $25 to choosing the right broker?
technology services, and education, with Recommended Account Size $500 MB: First, I would advise new
superior personalized customer support Smallest Trade Size 1k Units traders find a broker that exercises
in Italian. Available Leverage 400:1 due diligence, one that is regulated
Additional benefits to trading with Approximate Pip Value $0.10 per Pip and financially strong. FXCM is
FXCM will include; trading directly FXCM specializes in self-traded forex regulated in eight jurisdictions and
from charts, positive rolls at all margin accounts with options available for has offices, partners, and affiliates
levels, twenty-four hour online access all levels of trading experience. Micro in the major financial centers of the
with customer support, and free access accounts available through FXCM UK world. This positions FXCM to
to real-time proprietary trading signals. (fxcm.co.uk) begin at only $25 and offer provide exceptional service to traders
1K lot sizes. Benefits include trading everywhere. FXCM also believes clients
FXTM: Some international brokers directly from charts, positive rolls at should have the necessary information
already have a local presence in Italy all margin levels, up to 400:1 leverage to make intelligent choices. That’s
through a translated website and offer and free access to real-time proprietary why we publish our quarterly balance
customer support in Italian. What trading signals. FXCM offers live sheet. FXCM is proud of our financial
difference does it make for the end user support twenty-four hours a day, seven discipline and strong balance sheet.
to have a registered office and physical days a week via phone, IM, and e-mail. Second I would also like to add that
presence in the country? new traders getting into the forex
MB: FXCM believes that, whenever FXTM: Forex trading is becoming market should gain as much practice
possible, local presence and registration more and more accessible to people and education as possible. There is a
within a particular region are key of various levels of income. What is lot to know and learn before trading
ingredients to connecting with traders. FXCM’s typical potential customer? in the forex market. FXCM offers a
People want to know that they are MB: FXCM works with all types of $50,000 practice account, educational
trading with a reputable firm that traders who are looking for excellent courses, free webinars, and free news
takes the time to understand the local execution, low spreads, and superior and research via DailyFX.com, a
environment. By opening an office in customer service. On the retail side, site where traders can communicate
Italy and securing regulatory licensing, FXCM segments its self-trading accounts with one another, ask questions on
FXCM is committing its resources to into Micro, Standard (10K) and Active the forum, stay up-to-date on the
the region and, through the strength of Trader, as well as an automated trading latest economic events and read over
its products and customer service, hopes system called Forex System Selector. numerous articles written by the
to gain the trust and confidence of the Accounts can be denominated in seven DailyFX analyst team.
Italian trading community. different currencies and segregated
Like we established in the introductory which is paid up front (see Figure 1). general pricing of options. The Black-
article, an option represents a right So a call option can always be replicated Scholes model prices the option using
with no obligations for the option by the comparable put option strike, spot, time to maturity, interest
holder. Also, we saw that the seller of combined with a forward contract rates of the domestic and foreign
an option runs a much greater risk than and vice versa. This relationship is currencies in the underlying, and
the buyer, which is why a premium known as the put–call parity. Given finally volatility.
passes from buyer to seller. To liken it the price of an equivalent option, Starting with the placement of the
to our everyday lives, we can observe it is possible to replicate the payoff strike, if we look at a call option, the
that the valuations the options seller thereby inducing a price on the option higher the strike the less likely it is that
must make are comparable to the being valued. Replication using the the option yields a payoff at maturity.
considerations an insurance company underlying forward or spot is the main The call option is therefore cheaper for
makes when pricing an insurance cornerstone used to price options higher strikes. In the option market,
policy – the two parties have to agree and is the foundation of the famous the measure of how likely the option
on the size of the premium. This is B l a c k- S c h o l e s
where it gets challenging, so let’s have pricing formula.
a look at the considerations that must The Black-
be made. Scholes model
We can start by establishing that and its extension
the premium can never be negative, to FX markets,
since payoff at maturity is zero or the German-
positive. Digging deeper, the size of Kohlhagen
the premium must naturally depend model, is based
on the choice of strike, the time to on trading the
maturity and the expected movements underlying. We
in the underlying FX rate. However, will not go into
the price of options also has much to the details about
do with our abilities to replicate the this here, but we
payoff. will look into
Starting off very simply, if we choose it in upcoming
to buy a call option and sell a put articles regarding
option with the same strike and hedging. Great
maturity we end up with a payout intuition can,
profile at maturity equal to that of a however, be Figure 1 Payout at maturity. Red line is the forward
long FX forward outright contract, made of the contract. Green line the payout from the short put option
with a difference attributable to B l a c k- S c h o l e s and blue line the payout from the long call. The similar
funding cost on the option premium model and the payoff is the reason for the put-call parity.
is to have a positive payout at maturity the underlying FX rate, the last is like an 18 old boy taking out car
is called moneyness. In general, call component of the Black-Scholes insurance – he will have to pay a high
options are said to be in-the-money if price, is therefore important for the premium, because he is perceived as
the strike is below the forward of the value of the option. FX spot traders “risky” to the seller of the insurance
same maturity and out-of-the-money will know that some currency crosses (option). Conversely, EURCHF
if the strike is above. The opposite such as AUDUSD tend to exhibit might be likened to a middle aged
is true for put options. The option much larger moves up or down than female driver who has never had an
with strike equal to the forward is others, for example EURCHF. Say accident – naturally, a lower premium
said to be at-the-money. Notice that we look at a call option in both the will be asked for! Actually going back
the in- and out-of-the-money term AUDUSD and EURCHF with the to the put-call parity, from which we
is with respect to the FX forward strike placed 10% higher than the know that a short put and long call
outright and therefore is implicitly a current forward price. It is much with same strike and maturity should
function of the interest rates of the more likely that the AUDUSD would be equal to the forward plus premium
domestic and foreign currencies in have moved up more than 10% by the funding, the price of the put and call
the underlying (given that the FX time of maturity. Furthermore, since with same strike and maturity must
forward outright rate is calculated the option has limited down side, therefore increase with the same value
simply as a product of the FX spot the increased likelihood for a fall in from an increase in volatility.
rate and the ratio of discount factors underlying from higher volatility Looking at the parameters used to
from each of the two currency yields does not increase the risk in the price the option, we see that volatility
over the respective time period). option, therefore a higher volatility is the great unknown. Therefore,
The value of being in - or out-of- of the underlying always translates the options market has adopted the
the-money of course also depends into a higher price of the option. The terminology of trading “vols”. If the
on the time to maturity. If we think same holds true for the put option. market participants anticipate larger
of options like insurance, it becomes So again, to liken the theory of moves in the price of the underlying in
easy to understand that the longer you option pricing to our everyday lives, the future, the volatility parameter is
have to expiry, the more the option we could say that AUDUSD cross raised, raising the price of the traded
will cost, just like with car insurance:
if you take it out for one day, it costs a
little, if you take it out for one year, it
will cost a lot more. Holding an out-
of-the-money option is not a problem
if maturity is far away, since the price
will have time to move the option in
the money. In the case of in-the-money
options, it is also a benefit to have a
long time to maturity, since downside
risk is limited and there is a potential
for larger gains. An interesting
consequence of this is that everything
being equal an option loses its value
as time goes by, known as time decay
Figure 2 shows the one month historical volatility versus the implied volatility of
or bleed. This is how earnings can be
an at-the-money option with one month to maturity. Notice that implied volatility
made by selling options. rises before historical volatility.
Volatility, or the movement in
options. Conversely if the market that some of the assumptions don’t many reasons, not least because it
participants expect price to be more always strictly hold, e.g. that interest provides all market participants a
stable in future, then the volatility rates and volatility are known well-understood common ground
parameter is lowered. Note that and constant over the term of the reference framework for agreeing
the volatility parameter used is option or that the price changes prices, which therefore lends
participants’ expectation about in the underlying follow a normal support to a market like fx options
future volatility, not the historic distribution as opposed to a model with transparency and decent depth
volatility measured from past FX which incorporates kurtosis, or the of liquidity.
rate changes, as can be seen in gap risk of significant immediate
Figure 2. The volatility parameter is changes/jumps of prices from one
referred to in the markets as implied level to another. However, the
volatility, since it is the volatility pricing dynamics remain broadly Steffen Gregersen
the markets imply will be observed the same and the Black-Scholes
in the underlying over the life time model is very robust compared In the next articles, the author will
of the option. to fancier academic models. cover the reasons and suitability of
Readers may be familiar with the Therefore, the Black-Scholes hedging; speculative trading and
fact that the Black-Scholes model is model remains the dominant way basic options strategies; Black Swans
considered by some to be
C32046 FXMgTrim137x216 flawed in29/6/09
TA124x191 of pricing
10:24 and
Pagequoting
1 options for and exotic options.
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As an educator working with traders they have missed the best point to do. There is only so much to learn.
of all levels of ability, I am always execute for no other reason than Additionally, traders often place too
struck by how little most traders they were afraid of taking the risk much reliance on study/education/
really concern themselves with the at that particular moment. Often, analysis in the first place. Analysis
issue of market psychology and their these same traders feel a strong sense does not produce 100% winning
own personal trading psychology. of anxiety once they finally take a trades no matter who you are or how
In my opinion, this is the single position or “kick themselves” for much you have to invest. This over-
most significant part of a winning missing the perfect place to trade. In confidence in analysis is compounded
approach and no trader can reach his the long run, although they have a by the traders own need for
or her full potential without a sound solid method of finding opportunity, confidence when he executes. When
understanding of market psychology their participation is fraught with working with traders directly, I find
and their own psychology. emotional turmoil. that most traders resist the concept
What is the problem here? of thinking in probabilities; which is
For example, I work regularly with all that you can do when working in
traders who have very well-thought A LACK OF PERSONAL any traded market. Trading is about
out methods of analyzing markets and UNDER STANDING AND probabilities—not certainties.
very carefully select their positions. ACCEPTANCE OF WHAT
They have back-tested their approach TRADING REALLY IS Because the markets are zero-sum
and have a high degree of confidence transactions it is not mathematically
in what they uncover with their In my view, the problem is a lack of possible to ever know with certainty
system—but that any trade
Trading is about
lack the ability hypothesis is the
to “pull the correct one until
trigger” at the
best execution probabilities, not certainties later. No matter
how you slice it,
spot. They can there will always
show me very precisely why a market personal understanding or acceptance be orders placed into the market
had potential to move in a particular about what trading really is and a from both sides as long as there will
direction and often have uncovered lack of understanding of underlying be markets to trade. No matter the
a significant turning point that may market structure. First, there is only current level of price, there will always
last for weeks in some cases—but so much analysis of the market we can be a group of traders who feel the price
Franz W. Schmadl
Founder and CIO of OSV Currency Partners, based in Bad Homburg,
Germany, and Darien, Connecticut.
JW: How long have you traded about your job? In addition currencies are the most
foreign exchange, tell us about your FS: It never gets boring and there sensitive asset to changes in the
career evolution are new challenges every day. There macro landscape. They are traded 24
FS: I started in the mid 80’s and is neither rest, nor complacency hours and represent the most liquid
held numerous positions in research possible. One has to constantly market.
and in asset management. Currency analyze the world and refine the
management was always an essential investment ideas and positions. JW: What are the key positions
part of the investment process and I Interaction with clients and other n an FX Management company?
started to develop a return oriented players serves as much for collecting RS: CIO, Risk Manager, Head of
currency program in 1997. OSV important information as well as for Trading Executions, COO and Head
was founded by myself and other personal contacts. of Marketing.
partners in 1992. After having sold
the company to a large investment JW: How is FX a unique market? JW: Which authority regulates
holding company in 1996, my partner FS: Currencies are truly global OSV Partners? Do you keep and
Fred J. Gatling and I bought it back and reflect a country’s entire update a compliance and risk
in 2007. Today, OSV Partners has a position versus the rest of the world. management policy? How time
total staff of 17 people. Currencies serve as a reference point consuming, and how important, is it
for a country’s general investment to satisfy regulation requirements on
JW: What do you particularly like rating and standing in the world. one side and internal procedures on
the other? crisis we closed out all our US Dollar capture more inefficiencies?
RS: We are regulated by the CFTC short, only to see the markets collapse FS: Our trading focuses primarily
and NFA. Impeccable compliance right after it. Would we do it again? on EUR/USD and USD/JPY. These
activity and documentation is an Yes, because it was the result of our are liquid, low spread relations that
important element in a firm’s success. risk management discipline. can be traded intraday as well as
Without it a firm cannot exist. for strategic positions. Less mature
We at OSV put great emphasis on JW: Do you use a blend of strategy currencies are better suited for
transparency, independent third types for diversification or only one? longer term structural positioning,
party valuation and independent FS: Our investment process while trading them in the short term
holding of client assets. is screening the world in a gets diluted over time through the
comprehensive way. Diversification spreads. For this reason, I would not
JW: You are in charge of the is entering our process through the suggest individual traders to trade
currency program. How would you selection and de-selection of trades. them.
describe your investment strategy? Within the portfolio we believe
FS: Our investment style is that concentration can add value JW: When developing strategies
discretionary. We use a theme driven, while still maintaining a proper risk how approximately would you expect
macro top down research process, profile. to allocate your time among building
focusing on the most attractive entry signals, exit signals and money
fundamental / technical constellations JW: How do you think your management rules, and how much
between various countries and/or performance has been over time? time will you allocate to further
regions. This strategy is the result of What market conditions are expected research?
more than 20 years of life work and to have a positive and negative impact FS: Our investment process is
research. on it? very disciplined. Within the entry/
FS: Overall excellent, our clients exit strategy a well defined loss/risk
JW: Risk, an exciting yet dangerous have made money over time. We had management procedure basically
word. How do you manage risk? a dry period in between, but that is takes care of all decisions. Entering
FS: Risk management is one of over with last year’s performance of a position is a function of risk
the cornerstones of our successful almost +40%. tolerance, volatility expectation and
currency program. We place big the impact of this particular trade
emphasis both on our risk management JW: Can you give some recent for the rest of the portfolio. Exits
and our systems. The reward is a very examples of where you have made a are a result of hitting profit targets
attractive gain/loss ratio and strong unique winning decision? or loss limits and volatility based
long term performance. FS: USD/JPY short in 2008 is a portfolio adjustments. We are a
good example. Also, the rise of the discretionary firm that reacts to a
JW: What’s an example of the kind Dollar against the emerging market changing environment. It is clearly
of trade that added value to your currencies during the last quarter in important to consider volatility
learning process? 2008. changes and to assess on an ongoing
FS: The biggest value from this basis the fundamental environment.
learning process is how to trade and JW: Do you use less mature If it changes it is likely to have an
manage a loss profile. Losses and currencies, or do you plan to add impact on the portfolio. And also,
loss trades are an essential part of them to your studies and trading? we are a research driven firm and we
every investment strategy. The key Or do relative lack of liquidity and allocate a significant amount of time
difference is how to trade and manage wider dealing spreads outweigh any to research. There is no one set system
your loss profile. During the Russian potential gains from being able to that works forever. It is essential to
Bonds, in the sense of financial government is supervising the financial policy, an equity portfolio, a bond or a
instruments, have been in circulation system and would never let a bank fail, structured product, this simply isn’t a
virtually ever since people began to would it?” Hah. “With so many bankers, long-term truism.
accumulate wealth. The term “bond” in accountants and lawyers working with
its literal sense means “that with or by borrowers, everything should have been In terms of traditional risk assessment for
which a thing is bound” (source: Oxford taken into account so that my money is bonds, an approximate “hierarchy of risk”
English Dictionary) and also means an protected, no?” Wishful thinking. would look something like the following,
obligation, a duty, or a covenant between with the entities at the top of the drawing
two parties. In the technical and legal In addition to ingraining the concept of representing the “greatest” amount of risk,
sense, it is a deed by which one party a balanced portfolio in the mind of every and those at the bottom representing the
agrees to pay an amount of money (or investor, there is one other phrase that “least” amount of risk:
transfer property) to another party under needs repeating at every turn: no reward
certain conditions and usually within a without risk. In the simplest of terms, the
certain timeframe. higher the return on an investment, the
INCAPITAL
This is neither an offer to sell, nor the solicitation of an offer to buy any financial instrument. Always consult the applicable prospectus prior to purchasing any securities. EU sales restrictions apply.
ODL (Order Direct Limited) was founded in the ODL Capital (for institutional business), ODL
UK in 1994. It was the first and most important Japan KK , Tokyo, ODL Monaco SAM and ODL
Electronic Option Broker House in the London Vancouver, Canada. The group can also count on
Stock Exchange. In 2004 ODL received a new an extremely active Corporate Finance Division
liquidity injection by the new senior management specialised in the Mining and Oil sector, raising
team and expanded in terms of regional areas funds for the leading companies in the mining
and financial products. 28 of staff in 1994, ODL field in several developing countries. The Market
Markets (the name under which ODL trades in Maker entity is ODL Securities Limited and it is
the UK for retail clients) now relies on over 200 authorised and reg ulated by the Financial Ser vices
professionals worldwide and an impressive client Authority (FSA). It is a member of the London
base from over in 100 countries. The London Stock Exchange, NYSE, LIFFE and Euronext and
Head Office manages the risk exposure generated a designated broker and member of APCIMS.
from the trading activity of ODL Markets,
BROKER REVIEW
Main Strengths:
ODL’s principle strengths are: consistent liquidity, Unlike most brokers, ODL pays interest on
transparency and price integrity with spreads in unused margin. All platforms provided give
over 80 currency pairs (2 to 5 pips on the major access to your own back office system: clients can
currency pairs). monitor their trading position constantly and
receive confirmations in real time, illustrating
Risk management is one of ODL’s priorities: clients the remaining margin, statements, realized and
can monitor risk exposure in real time. Clients can unrealized profit/loss.
also run multiple positions for each currency pair
which can be individually selected for closing. ODL Securities is a third party member of CLS
(Continuous Link Settlement), allowing the
Another aspect that differentiates ODL from other company to offer pricing to the big/medium banks
brokers is the earning of interest on cash balances. worldwide.
- Toolbar: allows modification of the platform quickly positions , track history, news, alarms and a few
according to the trader’s needs. It is possible to insert new other options. It also allows traders to check details of
windows via the Insert and remove buttons. Moreover it their account, select technical analisys applications or
is possible to decide the position of every single button create new indicators according to trader needs.
in the toolbar by clicking on the “up” and “down” button
and to memorise the chosen configuration by clicking
the reset button. Fig.3 Creating a new EA (Expert Advisor)
- Languages: MT4 allows traders to choose from
25 languages including Arabic and Chinese; once a - Chart Window: with MT4 it is possible to
language is chosen it is enough to restart the PC. visualize various chart types (such as candlesticks, lines,
- A window to the market: from this window it is bars…) and create personalized charts with timeframes
possible to monitor almost the entire market: bid and from 1, 5, 15, 30 minutes, 1 and 4 hours, daily, weekly
ask for every single currency pair (FX), CFD’s (Europe to monthly; it offers many technical analysis features,
and US), Index and commodities. Moreover, clients graphic tools and studies like Fibonacci Retracement,
can insert at the market orders or pending orders, select Fibonacci Channel, Fibonacci Time Zones, Fibonacci
charts and select the most interesting currency pairs by Fan, Fibonacci Arc and many others. (Fig.4)
clicking on the “show all” button. It is possible to have
access to other features by right-clicking on the markets
window.
Fig.4 Chart
- Window navigator: it gives the opportunity to
A very good MetaTrader broker, with 2 pips fixed spreads the customer service on the web, but as
on the Major currency pairs. for many brokers, opinions vary a lot from user to user.
As it is also a multi-platform broker, users can Overall, a great forex broker with over 10 years of
find the platform which best suits their trading experience in the sector, which is proof of seriousness and
needs. There have been some complaints about professionalism.
GFT UK
GFT Global Markets UK opened High technology meant the introduction of a propriety
in 2006, thanks to the expertise operating platform focused on
of Gary L.Tilkin, a veteran of user needs, which offered access
financial markets and president of to the market, order execution,
the company. market analysis and graphic
support all in one free and
GFT was born as a “rib” of integrated package: GFT
Global Futures & Forex Ltd and Dealbook. In 2004 Dealbook
constituted in 1997, a business FX2 was also launched. It
challenge that originated in Tilkin’s home office and that offered additional tools but
now has clients in 120 countries, more than 240 employees what impresses is GFT’s capacity
(40 of which are in the London branch) located in New for continuing investment in
York, Chicago, Tokyo, Dubai, Singapore, Sydney and research and development
obviously London. despite the groups leadership in
the market.
From the beginning Tilkin’s philosophy was hinged on
5 fundamentals: high technology, quality and service Today GFT offer Dealbook in 3 different configurations:
variety, security and financial strength. 360 Dealbook (tested), Dealbook FX web and Dealbook
Mobile for mobile smart phone use.
One of GFT’s main strengths is certainly the proprietary institutional growth forced the company to differentiate
technology, which differentiates them from other forex the offer with one of the most reliable ECN platforms in
brokers, offering third party trading platforms. the market, and with very competitive liquidity.
GFT also created a series of high added value analysis Financial stability
instruments for Dealbook, such as Foresight-AITM
revision software (based an Artificial Intelligence principle), The financial solidity of the company has been confirmed
Dynamic Trend Profile (offering trading signals) and the by several awards including:
Di Napoli Levels pack (including proprietary indicators). - One of the best 500 high technology growth firms of
North America for 3 years ( Deloitte)
The company also now has a white-label product such as -16th company in 2005, just 2 companies behind Google,
the Currenex platform, that is particularly appreciated 236th in 2006 and 305th in 2007 among US firms with
by institutional investors and FX Managers. Exponential the highest yield (Inc. Magazine)
TRADING INSTRUMENTS
GFT can provide products for all FX Market needs and in a brilliant track record. We argue that GFT should
particular: provide more investment programs based on different
- “contracts for differences” (CFDs) where traders trading strategies to offer clients more diversification of
can exploit opportunities by trading on open and close of investment on FX markets related to the risk inclination
the market among more than 2,900 financial instruments of the client.
(stocks, futures, currencies, interest rates and metals)
- “spread betting”, which allows the use of a fiscally COSTS AND EXECUTION
appealing derivative in particular use in the UK GFT DealBook360 is the platform for retail clients.
- “spot trading”, for trading on more than 120 Being a propriety platform, it uses the normal scheme of
currency pairs a market maker with all flows managed directly by GFT
desk. On this account there are no commission costs on
CUSTOMER SUPPORT FX spot only on CFDs on particular stocks.
GFT offers both a dealing desk and technical support
available 24 hours a day, available today only in English. Using Currenex platform (GFT Prime configuration)
Costs are applied on volumes and are negotiable each
ACCOUNTS time on the basis of the trading amounts and actual
Clients can choose different types of accounts: Mini , and prospective turnover. GFT Prime is offered only to
Standard, Silver, Gold, and Platinum , from 500 USD for a institutional clients, and it requires minimum sizes in
Mini to 250.000 USD for a Platinum. terms of funding and expected turnover.
GFT also offers various free additional services such as Liquidity offered through GFT Prime is excellent. GFT
analysis instruments and news services for Silver, Gold and Prime is a white label version of Currenex, so someone
Platinum accounts (6 months for Platinum accounts). would think liquidity is as all other Currenex versions, but
it’s not. As many of our readers may not know, Currenex is
Wallwood is a GFT Investment Program. It is dedicated only a software product, and the liquidity provided fully
to investors who have a medium inclination to risk with depends on the quality of the credit relationships of the
at least a two year investment horizon. This program has counterparty with the market making banks. GFTPrime’s
medium-low volatility but at the present time cannot prove liquidity is in line with the best offer in the market.
Proprietary PLATFORM
DealBook360
Technical outlook
MAJOR TRENDS AND TARGETS FOR THE MAJOR FX RATES
EUR/USD
EUR/USD retreate d from its new a ll-time Sig nificantly, this cleare d the downtrend line
trade d hig h at 1.6039 on 15 July 2008 to reach from 1.6039 (around 1.3550), the mid March
a 2 ½ year low at 1.2329 on 28 October 2008, re cover y hig h at 1.3739 and the 260 day (1
close to the 50% retracement of the 8 year rise year) moving avera g e near 1.3900.
from the October 2000 a ll-time trade d low
at .8232. Initia l consolidation was followe d Althoug h a head and shoulders top pattern
by a strong corre ctive re cover y to 1.4721 in has de velope d over re cent we eks since pea king
De cember 2008, slig htly exce e ding the 61.8% at 1.4338, a re versa l is favoure d to be limite d
retrace of the 1.6039-1.2329 de cline. to the 1.3313-1.3423 area (the middle of the
pre vious 1.3739-1.2888 de cline, and the mid
The 1.4721 re cover y hig h was actua lly spot- on March hig her low). The uptrend conne cting
the fa lling 260 day (1 year) moving avera g e, and 1.2459 and 1.2888 a lso interse cts around this
a re versa l then commence d. Steady losses then support area .
a lmost f ully retrace d the t wo -month re cover y
phase, reaching 1.2459 in early March. The rising 1 month and 3 month moving
avera g es (shown in g re en and re d ) are a lso
Althoug h the re cover y from 1.2459 initia lly supportive, favouring a subse quent extension
lef t a potentia l lower top at 1.3739 in mid hig her throug h the 1.4338 top towards the
March ( just under the 8 month downtrend De cember & S eptember 2008 hig hs at 1.4721
line conne cting 1.6039 and 1.4721), the & 1.4862, possibly the 76.4% retracement
subse quent emerg ence of a hig her low at 1.2888 of the 1.6039-1.2329 de cline at 1.5163 over
a month later set up a renewe d re cover y phase. coming months.
EUR/GBP
EUR/GBP bottomed at .5684 in 2000, but it was not lasting decline. The loss of the 5 month uptrend line at
until late 2002 that a major uptrend was confirmed. An that time warned of a further decline towards .8499, the
initial rise to .7253 in 2003 was followed by a prolonged 61.8% retracement of the .7695-.9801 bull leg, and this
sideways to slightly lower correction, hitting .6537 in has since occurred. In doing so, the 260 day (1 year)
early 2007 before returning to strength. moving average which did so well in containing losses
in October 2008 has been exceeded and if the break of
The 2003 peak at .7253 was cleared in late 2007 and a .8499 is sustained then the risk will rise for a further
run-up to .8184 occurred in September 2008. As the tumble over coming weeks and months towards .8192-
chart below shows, weakness from .8184 was supported .8193 and possibly to eventually retest .7695.
at .7695 in October 2008, spot-on the rising 260 day
(1 year) moving average. An accelerated rise was then To avert the immediate risk of a further sustained
enjoyed, peaking at .9801 on almost the last trading day decline, we need to see a rebound over recent lower tops
of 2008. at .8866 and the .9036-.9081 area. At present this is
not the expected course of action and an initial bounce
A choppy decline has occurred since then, but it was not towards those levels may simply unwind an oversold
until early April that the dynamics changed from being a condition, paving the way for the next leg lower.
correction within an uptrend to unwind an overbought
condition into a more significant and most likely longer Steve Jarvis
MAJORS REPORT
TREND EURO, US DOLLAR, YEN, BRITISH POUND
DOLLAR/YEN
Dollar/yen has been moving in a major down trend for several reached and overcome the psychological resistance at 100 (high
decades: at the beginning of the seventies it was trading at at 101.50 on April 6th). The following correction brought the
around 350, since the mid-eighties it went stably below 175. pair back to 93.85 at the end of May; then it started moving
After having collapsed to a historical low at 79.75 in April 1995, sideways below 99. By and large, in the last three months the
the dollar started a strong reversal, reaching a top at around dollar moved within a trading-range between 93.55/85 and
147.65 in August 1998. From that level, the major down trend 100/101.50. If the support at 93.55/85 holds, the picture for the
resumed, with a series of falling highs and “raids” below the key coming weeks remains sideways: new buy orders are expected
support at 115 (a level repeatedly supported by the Bank of over 99-100, for a new test of 101.50. If the pair succeeded in
Japan’s interventions). The dollar reached a bottom at around overcoming this level (premature) the rally would resume, with
101.35/85 at the end of 1999, level tested again at the end of first target in area 103.75/104 and extensions, in the coming
2004. The break of that support during last year, caused a new months, towards the key resistance area 110-115, where strong
sell-off, that led the dollar towards 87 at the beginning of this sell orders are to be expected. Renewed weakness for the dollar
year. is expected below 93.55/85, targeting 91.40-92.00 and then
From the beginning of February the dollar started to rally and the January 2009 low at around 87.
EURO/DOLLAR
Euro/dollar was first traded in January 1999, at upwards, with a first wave that reached a top at
around 1.1800-1.1900 and fell to a historical low at 1.3735, followed by a pull-back towards the support
0.8231 on October 26th, 2000. From that bottom, at 1.2885 (April 20th-22nd) and a second rally with
the euro began accumulating and – since summer a peak at 1.4340 at the beginning of June. The rise
2002 – moving upwards, entering progressively a of the pair in the last quarter must be read within
major up-trend and reaching a top at 1.6038 on a bigger sideways frame, between 1.2330/1.2460
July 15th, 2008 (+95% vs. the historical low). The and 1.4360/1.4720, from the beginning of October
fall below the strong support at 1.5275 on August 2008. The technical picture for the coming months
8th, 2008 (level that had supported the pair in the remains sideways/slightly positive: there would be
period April-July) caused a major reversal, with a a confirmation of the recent bullish signal for the
fast decline towards 1.3900, followed by a pull-back euro above 1.4340/60, targeting the December 18th
to a top at 1.4866 on September 23rd and a new 2008 peak at 1.4719 and then 1.4865-1.4900, with
sell-off to a bottom at 1.2330 on October 28th. extensions towards the critical resistance at 1.5000,
In mid-December, a strong rally brought the pair, where strong sell orders are to be expected. A fall
in just a week, to a top at 1.4719. Then it started below 1.3700/50 would imply a loss of momentum,
going down again and fell to a bottom at 1.2460 at even if a signal of weakness would require a break
the beginning of March, 2009. below 1.3400: in that case, the target would be the
strong support in area 1.2885-1.3000, where buy
During the last three months, the pair moved orders are to be expected.
EURO/YEN
The cross euro/yen was first traded in January 1999, yen. After the break of 156 in September 2008 – in
at around 132.50-135.50, and fell to a historical low correspondence with the trendline that sustained the
at 88.96 in October 2000. From the bottom, the euro major up trend), the cross collapsed to a low at 113.65
began moving upwards, entering progressively a major on October 27th, 2008. In the following months, the
up-trend, and reaching a historical high at 169.95 in cross moved sideways, above that level and below 131.
July 2008 (+91% vs. the October 2000 bottom). The In January 2009, the euro reached a new low at around
strong depreciation of the yen during last years has 112.10 (-34% form the historical high).
been mainly caused by the so called “carry trade”, i.e.
the funding in low-yield currencies like the Japanese Form the end of January, the cross started to rally,
yen with the contextual reinvestment in asset classes reaching a top at 137.41 at the beginning of April,
in other currencies (i.e. stocks and bonds in euro, followed by a correction towards 124.40 on April 28th
Australian and American dollars, etc.). After the burst and a second up-movement with a peak at 139.19 on
of the real estate and financial bubble – begun in the June 5th. If the support at 128.25 holds, the sentiment
2007 summer, with an acceleration after September remains positive, with a possible rise over 139.20 to
2008 – a progressive strong disinvestment from Stock test the resistance in area 140-142, with extensions
Exchanges around the world led to massive yen buying in the coming months towards 150, where strong sell
in order to square up carry trade positions. That orders are to be expected. Renewed weakness below
provoked a crash of euro vs. yen, driven by a double 124.40-126 (not very likely), targeting 122 and then
source: the fall of euro against the dollar and, at the 120. Below this support (unlikely) there would be a
same time, the decline of the US dollar versus the new test of the January low at 112.11.
EURO/GBP
The cross euro/gbp was first traded in January 0.8000-0.8200, where buy orders are expected;
1999, at around 0.7100, and fell to a historical below this level the fall could continue towards
low at 0.5683 in May 2000. From the bottom, 0.7695. The overcome of 0.9080 (not very likely
the euro began moving upwards, entering at the moment) would give a signal of renewed
progressively a major up-trend, and reaching a strength for the euro, targeting the January-
historical high at 0,9809 on January 1st, 2009 March highs in area 0.9475-0.9520 and then
(+72.6% vs. the May 2000 low). From that peak (unlikely) the historical high at 0.9809, reached
a strong correction drew the cross down to a low on January 1st 2009, with extensions towards the
at 0.8638 on February 10th, 2009. Then the cross psychological resistance level at 1.0000.
bounced back to a top at 0.9478 on March 19th.
FX SPOT MONITOR
Country Flag USD Spot Last vs USD % Ch 3M % Ch 12M 12mth High 12mth Low
CENTRAL BANKS
Country Flag Central Bank Rate Name Actual Previous
ECONOMIC DATA
GDP CPI Industrial Production Unemployment
y-o-y y-o-y y-o-y level
USA -5.50 0.10 -1.10 9.40
Eurozone 0.60 0.10 -1.90 9.20
UK -4.10 0.60 0.30 7.20
Japan -4.00 -1.10 5.90 5.00
Switzerland -2.40 0.20 3.50
Australia 0.40 2.50 5.70
Canada -5.40 0.70 8.40
New Zealand (partecipation) -2.70 3.00 68.4(partecipation)
Sweden -6.50 -0.40 -2.10 9.00
Norway -0.40 3.00 -1.40 2.60
South Africa -1.30 8.00 -21.60 23.50
Czech Rep. -3.40 1.30 -22.10 7.90
Poland 0.80 3.60 -5.20 10.80
Hungary -6.70 3.80 -27.10 9.90
Russia -11.00 0.60 -17.10 9.90
China 6.80 -1.40 8.90
India 6.70 9.80 1.40
Mexico -8.20 0.26 -13.20 5.31
Brazil -1.80 0.47 -14.80 8.80
Levels Date: 26-Jun-09 Source: Thomson Reuters
FX POLL
3 Month Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 23 1.38 1.23 1.5 1.373 0.0.62 1.4151
GbpUsd 23 1.57 1.39 1.73 1.569 0.082 1.6296
AudUsd 23 0.77 0.65 0.89 0.771 0.055 0.8001
UsdJpy 23 98 87 110 98 4 95.92
UsdChf 23 1.1 1.03 1.24 1.113 0.049 1.071
UsdCad 23 1.135 1.01 1.34 1.143 0.071 1.1128
EurJpy 23 135 119.6 154 134.7 6.5 135.75
EurChf 23 1.526 1.469 1.596 1.53 0.023 1.5149
EurGbp 23 0.87 0.818 0.96 0.876 0.028 0.8678
GbpJpy 23 155 129.6 176 135.7 9 156.3
1 Year Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 23 1.388 1.16 1.6 1.363 0.113 1.4151
GbpUsd 23 1.605 1.28 1.86 1.609 0.134 1.6296
AudUsd 23 0.78 0.677 0.91 0.786 0.0654 0.8001
UsdJpy 23 102.9 85 116 102.8 7.9 95.92
UsdChf 23 1.12 0.95 1.35 1.139 0.097 1.071
UsdCad 23 1.13 1 1.33 1.14 0.086 1.1128
EurJpy 23 138 114 165 140.3 11.6 135.75
EurChf 23 1.555 1.456 1.687 1.561 0.049 1.5149
EurGbp 23 0.845 0.778 0.962 0.85 0.049 0.8678
GbpJpy 23 161.7 133 201.6 165 16.3 165.3
Levels Date: 26-Jun-09 Source: Thomson Reuters
MARKETS VIEW
Stock Indices Last % Ch 6M % Ch 12M Commodities Last % Ch 6M % Ch 12M
Gold 939.05 7.30% 2.49%
MSCI World 962.83 7.61 -32.96 Silver 14.11 30.17% -17.58%
Dow Jones Ind. 8424.1 0.05 -28.27 Brent DTD 68.43 98.23% -49.86%
S&P 500 916.39 6.00 -30.39 WTI 69.1 73.23% -50.26%
Nasdaq 100 1478.87 34.62 -23.69
Eurostoxx 50 2389.91 0.85 -30.58 Bonds Last % Ch 6M % Ch 12M
UK FTSE 100 4241.01 0.85 -24.95 5Y Euro 2.52 0.249 -1.969
Dax 4776.47 3.70 -27.46 10Y Euro 3.427 0.530 -0.088
Cac 40 3129.73 1.50 -30.27 10Y US Treasury 3.544 1.440 -0.487
S&P Mib 18831.48 -1.05 -36.88 30Y US Treasury 4.332 1.696 -0.264
Swiss SMI 5375.99 -0.71 -24.29 10Y UK Gilt 3.703 0.604 -1.304
Nikkei 225 9877.39 13.91 -29.17 10Y CH Govt Bond 2.358 0.187 -0.977
Australia AORD 3899.5 9.57 -28.19
HK Hang Seng 18600.26 28.84 -19.26 Money Markets Last % Ch 6M % Ch 12M
Shanghai Comp. 2928.211 57.90 0.69 US 6M Depo 1.095 -0.716 -2.039
Singapore StraitT. 2317.95 32.55 -22.91 EUR 6M Depo 1.334 -1.703 -3.787
India BSE30 14764.64 49.92 0.88 GBP 6M Depo 1.41625 -1.582 -4.752
Brazil Bovespa 51649.84 41.25 -21.77 CHF 6M Depo 0.50667 -0.340 -2.458
Russia RTSI 955.45 44.46 -58.99 JPY 6M Depo 0.68875 -0.296 -0.325
Levels Date: 26-Jun-09 Source: Thomson Reuters
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Tue 21
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3:30pm CAD BOC Monetary Policy Report
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11:45pm NZD Building Consents m/m
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1:30pm USD PPI m/m 1:30pm CAD GDP m/m
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Wed 12
1:30pm CAD Trade Balance 5:30am AUD RBA Rate Statement
Tue 1
1:30pm USD Trade Balance 9:30am GBP Manufacturing PMI
7:15pm USD FOMC Statement 3:00pm USD ISM Manufacturing PMI
7:15pm USD Federal Funds Rate 3:00pm USD Pending Home Sales m/m