Forex Trading Magazine - ber reviewrok S survival brokers...ruggero Mameli spent 11 years in london working in fX, derivatives and fixed income. he joined danske Bank and worked between

the impact of new US regUlationS and the private traderS choice

brokers guidesurvival

Green ShootS recovery cL S G Loba LMarket Gate

MajorS report

tradinG pSychoLoGy

and the MarketS

centraL bankSdiSreGardinG t h e d o L L a r ?

TRADER MAGAZINE

JULY - SEPTEMBER 2009

broker reviewS

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CONTENTs FX

05 editor’S note

macroeconomicS07 Green Shoots recovery:fundamental analysis of the first economic recovery signs and their impact on currencies

foreX indUStrY24 cLS : a gate for the global fX market

BroKer reviewS48 odL Securities Limited51 GFt Uk

optionS37 the dynamics of option pricing

interview34 Mike buzzeo, Sr. vice president marketing, fXcm, shares his views on the new US regulations and explains the company’s current development

43 Franz Schmadl, cio, oSv partners, explains the importance of risk management coupled with a solid investment and independent decision making process

trading pSYchololgY40 why successful trading has very little to do with the market

focUS46 bonds: how to choose a bond, balancing risk and reward

technical analYSiS54 majors technical outlook eUr/USd – eUr/gBp 57 new Zealand dollar59 majors report 59 dollar/Yen, euro/dollar, euro/Yen, euro/gBp

international data63 fX Spot monitor64 central Bank rates 65 economica data - fX poll 66 markets view

67 economic calendar

foreX BroKer SUrvival gUide:The impact of the new nfa regulations and the traders’ choice from the forexds awards 2009

16

t r a d i n g S Y S t e m S :

why building a reliable fX historical database is a real challenge

28

central BanKS diSregarding the dollar ?

a study about central banks’ current monetary policies

13

FX TRADER MAGAZINE July-September 2009 3

alessandro balsotti, is head of fX trading in abax Bank and covered the same role previously in Banca caboto. for several years he has been the fX market-maker of italian lira, greek dracma and czech crown in Jp morgan.

d. roy Fraser, is the managing director of incapital europe limited, the investment bank that runs a platform providing regulated financial intermediaries with investment-grade bonds. Their tenet of “Bonds for today’s investor” can be further explored at incapital.com, internotes.com and structuredinvestments.com

Steffen Gregersen has played a leading role in Saxo Bank’s Quantitative analysis and advance research department in its development of the bank’s option pricing models. he holds a degree in mathematics and economics from the University of copenhagen where his thesis was on the effects of jumps in underlying prices on option prices.

jason alan jankovsky is a 20+ year veteran of leveraged transaction trading. he has been trading extensively in futures, options, and foreX since 1986. working in almost all facets of the business, he has authored several trading systems, he has trained other successful traders and has been published in many industry periodicals. his numerous articles on global cash foreX have appeared in “tradersavvy”, “The perspective”, “Sfo magazine” and other industry publications. he is the author of “trading rules that work: The 28 essential lessons every trader must master” and “The art of The trade: what i learned (and lost) trading the chicago futures markets” (wiley & Sons, october 2006). Both books are amazon.com top-100 best seller.

jw partners is an independent fX solution provider, based in milan, with a strong fX specific know-how. Jw supports institutional investors and hnwi in building quality fX multimanager portfolios, and fX underlying structures.

Steve jarvis has over 20 years experience of providing technical analysis to fX professionals. formerly chief technical analyst at mcm currencywatch and informa global markets, Steve is head of technical analysis at interpreta,

tradermades technical analysis service. fully annotated technical commentaries are provided on tradermades maverick charting system. The service is available as an add-on to maverick, or via a separate web-based login. to arrange for a free trial, call 020-8313-0992 or e-mail [email protected]

ruggero Mameli spent 11 years in london working in fX, derivatives and fixed income. he joined danske Bank and worked between london and copenhagen and was also involved in some project developments with the new York office. he is a contributor to Bloomberg television, cnBc class and cnB arabya. he is a specialist in islamic finance and geopolitics of the middle east.

caspar Marney, started his trading career, as a spot currency trader and technical analyst with hSBc in london. he then moved to SBc warburg (later UBS) as a proprietary trader and global head of technical analysis for fX and precious metals, where he became one of the bank’s most successful traders and a regular commentator on financial television.

Giorgio Martini has been a forex trader since 2000 and has worked for leading italian banking groups. his articles are regularly published on the italian financial portal www.smarttrading.it . he also collaborates with age italia, an independent financial consultancy firm.

Maurizio Milano, began his career as forex dealer in 1995. he started the technical analysis department at Banca Sella group. he teaches technical analysis at the University of turin, italy. his contributions can be found in the most renowned italian financial newspapers and televisions: Borsa&finanza, il Sole24ore, il corriere della Sera, class-cnBc, radiorai1. he is member of Siat (the association of the italian technical analysts) and ifta (the international federation of technical analysis).

javier paz is the ceo of forex datasource, a boutique market research firm that continues to track and attract broker evaluations from traders worldwide through its website www.forexds.com. The firm will announce on may 2010 the results of its 2nd forexds trader’s choice awards.

CONTRIBUTORSFX

editor : emmanuelle girodet

[email protected]

advertising manager:monique atlan

[email protected]

webmaster:hristo Katzarski

[email protected]

graphic design: preslav dobrev

editorial support:lorenzo lorenzi

luca di BariKylie lippert

trading carries a high level of risk, and may not be suitable for all investors. The objective of fX trader magazine is to give readers the tools, training and information which will help them be better prepared to trade on the foreign exchange. however, any analysis, news, research, strategy, or other information contained on this magazine is provided as general market information and does not constitute investment advice.

fX trader magazine, will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Subscriptions:www.fxtradermagazine.com

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FXEDITOR’s note

welcome to the second edition of fX trader magazine. it’s with great pleasure that we publish this edition, considering the big success of the previous issue.

The magazine has not only been downloaded by a great number of traders but, we also received many compliments and messages of congratulation from the industry, for the quality of the articles and of the editorials. This, of course, is our best reward but, also emphasizes that the interest for forex markets is always there and continues to grow. So, we will try to do our best to pursue our mission by continuing to provide readers with quality editorial content.

in this issue, we’ve chosen Javier paz’s article as the main one, because the author underlines the progressive regulation process of the fX market, currently taking place in the US. The introduction of rule 2,43b from the nfa is the first strong signal that the regulation entities want to protect the final client. This is, we believe, a positive thing. from the original “far west” market conditions that were ruling fX in its infancy, we

can now expect a complete new set of regulatory decisions which will transform the industry in the next years, and inevitably generate further industry consolidation.

europe will very probably follow the same path as well, as soon as forex will have reached mass market

dimensions. This could even happen before we expect it to, considering the strong disparity in terms of costs and regulation procedures, which currently benefits european brokers, as Javier points out in his article. if, on the one hand, this implies higher costs for brokers in the future, on the other hand, this invevitable process will benefit the final client, both in terms

of protection and service supply but, most importantly, in terms of trading execution transparency and price quotations.

we might start to see a change of market sentiment in the various internet forums regarding issues like Stop hunting and other aspects of trading execution, which are at the

disadvantage of forex traders. and why not expect best execution to be introduced on the retail market as well? This is possible too. in other words, a very exciting future is ahead of us…

The interview of michael Buzzeo, Sr. vice president marketing of fXcm, also allows to understand why one the leading international forex brokers supports those new regulations and explains how, in his opinion, they could impact the european markets.

to summarize, the forex market continues to expand

and get better structured. fX trader magazine will be there to follow industry developments and will continue to inform you and analyze new important market news and events.

Emmanuelle Girodet

new US broker regulations for abetter protection of the fX trader

Safe Keeping Cage of Thomson and Mckinnon Brokerage Firm


www.tradeinterceptor.com

http://www.tradeinterceptor.com/forextradingtraining/

the macro framework in the last three months has evolved into a clear direction: the triumph of the ‘green shoots’. in mid-march, the struggling stock market was just beginning to recover from violent declines suffered in the first nine weeks of 2009. By mid-June, the message is clear: the market seems to have chosen, from the alphabeti soup of potential recoveries from the darkest of recessions, his letter. the equity market each day that passes seems to say emphatically: it will be a v recovery (and not a U, a w or, worse yet, an l of Japanese memories). the fX world, for many months deeply bound to the destiny of the global economy, could not respond in a more coherent way. from march 15th to June 12th market close aUd and nZd have definitely been the victorious currencies (around 24% gain on the dollar!). easily explained given their notoriously cyclical nature, linked to global growth, especially to asian growth (which seems to be a primary force in this recovery, with the notable exception of Japan). partial

victory for the cad (+12%). more surprisingly, after facing plenty of obstacles, the pound has also been a real outperformer (+18% on the dollar and +8% on the euro), the UK perhaps being the nation where more evidence of the ‘green shoots’ of recovery showed up. of course the emerging currencies have performed well, especially those whose value is usually measured versus the dollar, such as the Zar (+19%), the currencies of latin america and those of nJa (non-Japan asia). eastern europe and turkey, quoted instead against a euro in-shape, have shown rather marginal progress (between flat and 3%). the other side of the coin has been the renewed weakness of the dollar. the first week of June has seen the greenback mark yearly lows against all major currencies: 1.4337 eur/Usd, 1.6363 gbp/Usd, 1.0592 Usd/chf, 0.8264 aud/Usd, 0, 6435 nzd/Usd, 1.0785 Usd/cad. the euro has settled, along with the Swiss franc (for now quite able to resist the strong will of weaker currency of its own central bank),

in an intermediate position. the Yen, without much noise, has actually shown a similar weakness to the dollar, with Usd/Jpy virtually unchanged in the middle

I am not young enough to know everythingSir James Matthew Barrie (with Peter Pan’s voice)

green Shoots recovery


FXMACROECONOMIcs

of an uninspiring three months range (93.50 - 101.50), unusually peaceful compared to the crazy volatility of the last two years.

renewed dollar weakness

talks of a weak dollar are back in the news after an age of lasted for months in conjunction with the most violent period of the economic-financial crisis and the de-leveraging that has been an obvious consequence. the inverse correlation between its USd strength and ‘risky assets’ health has been further confirmed. But other factors have helped the market to focus on current and prospective weakness of the U.S. currency. the particularly aggressive and prompt policy of the federal reserve lowering interest rates and pursuing Quantitative easing has been accompanied politically with a significant fiscal effort in an attempt to avoid a deflationary

spiral. this led the market to question the future sustainability of the U.S. debt or even to blame the fed. they are even regarded as willing to monetize the debt (i.e. buying treasuries without sterilization) in a premeditated effort to move the costs partially away, thanks to a major increase in inflation. Big deficits considered unsustainable (though we are still far from the debt / gdp ratio of some countries in europe or Japan, there has been talk about a possible future downgrade for government debt in dollar rating ) and, worse still, a scenario of hyper–inflation, obviously go hand in hand with a marked weakness of the currency involved. much emphasis has been given to the voice of the main holders of dollar reserves (china, Japan, russia, Korea, the gulf countries and many others). Such

statements need to be followed carefully because in their hands are concentrated around 2,750 billion of foreign reserves. even slight changes in allocation can generate huge flows. concern that the fiscal-monetary policy of the U.S. could trigger instability in the dollar and its status as world reserve currency has been often flagged recently. Some warnings on the desire / need for gradually removing the dollar as the main instrument of world trade and reserve have even done the rounds from time to time. however, it is quite difficult to give face value to statements of central bankers in countries with huge reserves in dollars: they are trapped in an uncomfortable position, in the middle of risking losses due to a weak dollar and the even bigger risk of generating those losses themselves if the longed diversification were to become

FX MACROECONOMIcs


disordered. it will be worth keeping an eye on the statements that will follow the first official summit of the Bric’s (Brazil, russia, india, china) leaders on June 16th in Yekaterinburg (russia, the Urals). 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

a better economic scenario and a faster and stronger recovery than expected. But more recently we got overlapping threatening clouds: fears of hyper-inflation and debt (un) sustainability and the

already mentioned torments of the weakening dollar. the 10 year yield differential between the U.S. and the euro-area, in normal times, is positively correlated to the eur/Usd. Since mid-april this correlation has completely broken down (actually it did inverted): relatively higher yields for the U.S. fixed income are no longer an element of support for the currency (more interesting and rewarding for the foreign investor), but indicators of a potential crisis of confidence in the dollar (chart 1). a correlation to be closely monitored in the coming months.

pound is back

among the major currencies, the best performer in recent weeks has certainly been the pound. at the end of 2008 it was trading at 0.9800. it seemed that parity between the euro and pound were

chart 2. pound is back.

chart 1. The correlation between eur/Usd and 10Y yield differential reverses.


FXMACROECONOMIcs

inevitable. Such an impression was renewed in January and march (Quantitative easing announced by the Bank of england): the eur/gbp cross found strength again to try the upside however, stopping short at 0.9500.around mid-march a new era was starting : a relentless march for the British currency, even more striking against the dollar. the most deadly scenarios for the British economy (scenarios who had many supporters, among all of whom we remember Jim rogers with his ‘all rats have to abandon the sterling sinking ship’) were – easier now to say in retrospect - already discounted at those prices closer to parity. Besides, the popular green shoots of the second quarter seem to have enjoyed a particularly climate on the island: most economic data (indicators of confidence, unemployment, house prices, retail sales) kept beating expectation, indicating how the British economy may be anticipating other western

countries out of the recession. the market has continued to try, stubbornly, to sell gBp considering from time to time to have good reasons to do so. - in april, after the of alistair darling’s heavily criticized Budget 2009 (between april 22nd and 24th eur/gbp climbed to 0.8940 from 0.8800). - in may, after dovish declarations by the Bank of england (may 7th) and then after the outlook downgrade from stable to negative on UK debt by S & p (may 21st). - Before the June election weekend, when a political crisis for gordon Brown’s government seemed imminent (the last rattle of pound bears with eur/gbp hitting 0.8860 from 0.8600). all brief glory for Sterling haters. a clear demonstration of force from this battered currency. in the

downmove eur/gbp has broken the 200 days moving average (just above 0.8600) and the previous year low of 0.8638 (february 10th). and such a price action now appears to many a clear reversal of trend.

the baltic countries and the european periphery

the Baltic States are in a complicated and uncertain situation. for sure one in which it is worth keeping the radar well lit on latvia, lithuania, estonia. these countries have their currencies tied to the euro. the situation most at risk is the latvian one (whose currency, the lat, is actually free to fluctuate in a narrow band of +1 / -1% around a parity of 0.7028 against the euro). after years of economic boom, built on the weak foundations of the uber-abundant world liquidity

FX MACROECONOMIcs

chart 3. Swedish crown and the Baltic problem.


and excessive private sector borrowing in foreign currency, the gdp contracted -18% in 2008 and an equally dramatic decline is to be expected in 2009. the current account deficit reached a record 25% of gdp, the private debt with foreign countries increased to 130% of gdp and with the currency tied to the euro, there has been a loss of competitiveness made even more worrying considering recent currency devaluations in eastern europe. a situation that in some ways recalls the 2008 iceland experience (unfortunately not marked with a happy ending ). currently local authorities, supported by the eU and the imf, say they are fully determined to defend the currency. an aid package was already established last year (7.5 billion euros), against a budget deficit that should not exceed 5% for 2009. But with the current economic contraction heavier than expected,

estimates recently saw the deficit to reach 12%. it is therefore necessary for the government to make further budget cuts to bring it back to about 7%. Unemployment has already reached 14%. many people wonder if this blind determination to defend the currency would turn out to be a cure worse than the disease: the economy falling apart and an unchanged need to devalue thereafter. exactly what argentina was forced into in 2001 (see on this parallel a recent roubini article in the ft). Some argue that an early devaluation (25%-30% suggested by most economists), accompanied by an extraordinary entry path into euro, could be way better than an outright fundamentalist currency. in any case, the situation is fluid, fragile and uncertain. it could create an impact in the fX market, either way. let’s see where. Sweden: Swedish banks are notoriously vulnerable to Baltic

economies (the banking sector in those countries is mostly owned by major Swedish banks). many fluctuations in the Swedish crown recently have been generated by escalation of tensions and following relaxation in the financial system of latvia and other Baltic countries. eastern europe: the link here is not as ‘real’. however hUf and pln have been used as proxy for playing devaluation (or resisting devaluation expectations). the contagion reasoning goes that in case of breakage of fixed exchange in latvia and shortly afterward in estonia and lithuania, the currency of Bulgaria (also linked to the euro) would be dragged into the same fate, despite economic fundamentals not so disastrous (current account deficit actually quite at Baltic levels, 26% gdp, but an expected contraction of the economy for 2009 of ‘only’ -1.6%). romania would be next 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


FXMACROECONOMIcs

mailto:[email protected]

http://www.ac-markets.com/

mailto:[email protected]

central banks disregarding the

dollar ?

last month we recommended taking profits on many of the trades that we had been advocating this year (on the sidelines, 14 may 2009), expecting the market to have a decent correction from the recent rally in risk and associated sell-off in the dollar. Specifically, we expected eUr/USd to drop to either 1.3450 or 1.3200 and nZd/USd to correct to around 0.5850. as both of these levels were achieved on 18 may we recommended reselling 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.

indeed, on a break above 1.3750 we would look for a fairly rapid move up to 1.47, and would perhaps add more risk to our portfolio at that time. we are becoming more

confident on our short dollar call for the following reasons.

rUSSia iS MovinG oUt oF doLLarS; are otherS LikeLy to FoLLow ?

the russian central Bank is one of the most transparent of the global central banks about the make-up of its reserves. its latest annual report reveals that the euro overtook the dollar as its primary currency

holding within its foreign currency reserves. the percentage of reserves held in euros rose to 47.5% as of January 2009, up from 42.4% a year earlier. as the euro’s price fell by around 4.5% between the two dates we know the change is not a result of valuation effects.

over the same period, the dollar’s share in russia’s fX reserves fell to 41.5% from 47% previously. given the valuation effects, if the


MONETARY POLICIES FX

Bank did nothing dollar reserves would have risen to around 49%. this is particularly important if other central banks start to do, or are doing, the same. with global central banks holding USd6.7trn of fX reserves at the end of 2008, even small shifts are likely to have a big impact on the market. every 1% move amounts to USd67bn of dollar sales. the deputy governor has subsequently said that this does not represent a fundamental change in the way the Bank intends to keep its reserves, but the annual report is factually correct. the imf’s latest data on the composition of global currency reserves showed that there was significant selling of dollars in the final quarter of 2008 (exhibit1), as we have mentioned previously (not so reserved?, 7 april 2009). there was USd176bn of USd selling in the 4Q 2008 suggesting that central banks had

already started switching out of dollars although this is difficult to ascertain for certain given the financial crisis that unfolded during the quarter and the associated reserve declines that occurred for many em central banks as they sought to defend their currencies from excessive weakness.

Swap Line aGreeMentS, SdrS another Move away FroM doLLarS

Some central banks have also made less direct attempts to disregard the dollar. mr Zhou, governor of the pBoc, recently posted an essay on the central bank website discussing the need to create a reserve currency “that is disconnected from individual nations”, possibly in the form of Special drawing rights (Sdrs). china has also agreed a number of bilateral trading

deals with the likes of Brazil and argentina, so that local currencies can be used instead of the US dollar.

this was in the news again recently as Brazil’s president visited china with aides suggesting that the two countries would work towards using their own currencies in trade transactions rather than the US dollar.

while such arrangements have limited impact on the dollar in the short term, they of course come at a time when the US is pursuing a policy of quantitative easing which we think will eventually undermine the dollar. as we discussed here a few weeks ago, we know that the chinese authorities share our concerns about this and the potential risks that are being taken with future inflation if the federal reserve’s balance sheet cannot be shrunk quickly enough once the economy starts to recover. we therefore think it conceivable that the big reserve holders of the world might want to limit their exposure to such risks, and russia

exhibit 1. central bank buying of major currencies (quarterly)

Source: nomura, imf



certainly seems to be thinking along these lines.

a simple chart of the yield differential between the euro area and the US (exhibit 2) reveals that so far this year yields on US paper, especially those further out the yield curve, have underperformed europe (i.e. yields in the US have risen relative to those in the euro

area), despite the fact that the federal reserve has been buying treasuries. this perhaps suggests that demand for US fixed income assets is starting to weaken, a factor which is likely to undermine the dollar and potentially challenge the funding of the US current account deficit. So far this process has been slow, but if the dollar starts to fall more quickly

and it is accompanied by weakness in US fixed income assets, then higher yields might undermine the economic recovery and the strong performance of risk assets.

for now we remain constructive on risk. over the past weeks there have been a few developments which have supported this view. the election result in india is positive for risk generally. despite our concerns about long-dated fixed income assets the money market continues to normalize rapidly. exhibit 3 depicts this clearly.

the front eurodollar contract has rallied by almost 90bp since mid-march. the fact that three big US banks seem likely to pay back the tarp loans soon could be another sign that the worst of the financial crisis is behind us.

Global Foreign Exchange ResearchNOMURA International



exhibit 2. Bund – US treasuries

Source: nomura, Bloomberg

exhibit 3. eurodollar front contract

Source: nomura, Bloomberg

SUrvival gUide for fX BroKerS

forex Brokers regulatory changes

The traders opinion from the 2009 forexds awards

FX MARKET REGULATIONS


FXMARKET REGULATIONS

cUrrent broker LandScape

o ver the course of the past two years, regulatory oversight in the US and the global financial meltdown have changed the landscape

of what it takes to be a competitive fX broker.

as you read this a few regulated fX brokers are teetering on the verge of going out of business, most unregulated brokers are complacently moving on, while a new batch of brokers are entering the market, probably unprepared, driven by the allure of profits or by the zeal of sponsoring a perceived technological or business improvement.

the fX broker market is consolidating in regulated countries like the US, Switzerland and Japan. if a fX broker regulated by the U.S. national futures

association (nfa) were to fail, chances are that one morning clients might receive an e-mail from the broker’s ceo informing them that their accounts will be serviced by some big firm within days. in other words, the transition to a new broker would be a bit disconcerting, but smooth. But what about if a firm is regulated elsewhere or not regulated at all?

this article takes a hard look at how client perceptions of brokers may be leaving some firms more vulnerable than others in light of regulatory changes.

even if you followed fX brokerage news over the past 18 months, it is very likely that each announcement was evaluated in isolation. a clearer image of industry trends emerges as we evaluate these announcements as a whole.


• Jan 08. ifX markets, founded in 2004, is fined $60,000 by the nfa for failing to supervise its introducing Brokers (iBs). aug 08, ifX parent company city index merges ifX markets into fX Solutions• Jan 08. nfa completes closure of two fX brokers: one world capital group, fXlQ for insufficient net capital requirement• Jan 08. nfa fines advanced markets inc $150,000 for inadequate record-keeping and introducing broker supervision• Jan 08. nfa launches a massive effort to close down fraudulent commodity pool operators (cpos), resulting in dozens of high profile scams• Jun 08. Saxo Bank begins nfa registration process as futures commodities Broker (fcm, i.e. fX broker dealer). oct 08 Saxo Bank pulls out registration petition. Saxo Bank announces personnel cuts throughout the world. may 09 financial statements show increase in revenues and net profits, of 61% and 23% year-on-year, respectively.• aug 08. The US congress passes the “cftc reauthorization act of 2008” granting expanded powers to the cftc and its enforcement agency, the nfa. The act raises the net capital requirement (ncr) fX dealers would need to keep to $20 million by may 2009. The ncr had been $5 million through Sep 08 and only $250,000 through feb 06.• Sep 08. ig markets buys an 87% stake in Japanese currency broker fXonline for $207 million. may 09 financial times report casts negative light on the acquisition due to recently announced Japanese regulator’s intention to drastically curtail leverage, ig markets publicly trades prices fall

• oct 08. mg financial, founded in 1992, becomes a subsidiary (iB) of rosenthal collins group (rcg), a futures broker

• nov 08. cmc markets pulls its registration from the nfa and announces personnel cuts in the US, australia and other parts of the world• Jan 09. odl Securities sells its US accounts to fXcm• Jan 09. hotspot fXr announces the sale of its retail fX accounts to fXcm• Jan 09. acm USa, nfa-registrant since 2007 and indirectly related to ac markets, announces suspension of operations and the transfer of accounts to ac markets of Switzerland• feb 09. US regulator finra announces reduction in leverage for forex traders to 1.5:1, reportedly in response to fX brokers that wanted to circumvent nfa oversight in the US• mar 09. last month for online fX brokers in Switzerland to register as banking entities, as mandated by The Swiss federal Banking commission and finma in 2008. Bank license applicants: ac markets, mig investments, dukascopy, and gfX group (forex.ch). realtime forex S.a decided to move operations to malta. • apr 09. nfa fines fX broker i-trade fX $250,000 for inadequate anti-money laundering (aml) procedures. a week later, on may 09 i-trade fX announces sales of its accounts to fXcm.• apr 09. gfS forex & futures, a nfa-regulated firm, exits the US market to be based in the United Kingdom

• apr 09. nfa announces rule “nfa compliance rule 2-43(b)” prohibiting hedging trades, mandating fifo accounting, and imposing restrictions on pending orders

• may 09. Japanese fSa announces intention to curtail leverage to 20:1 or 30:1 by the summer of 2009. • may 09. ava fX, a fX broker owned by an israeli public firm, reports 1Q09 revenues of $11.8 million, with net income of $5.1 million after marketing and advertising expenses of $3.6 million.



http://www.forex.ch/

these series of events leads us to think that a number of major brokers entered the US late, in 2007 and 2008, allured by the fact that the US represents some 30% of the global market place. who were these firms? there were brokers with a substantial following in other continents, like Saxo Bank, alpari, and ig markets. there were US futures brokers that wanted to expand into spot fX, like mf global, rosenthal collins group, pfg Best, and ikon global markets. and there were also new entrants like i-trade fX and advanced markets. mg financial, a broker dating to 1992 but not known for keeping up with the times, sold out to rosenthal collins group and became an introducing broker to them. the passage of the cftc reauthorization act was a major cause for cmc markets closing its US operations to focus on more competitive regions like the eU and australia. this move was also matched by Saxo Bank, which abruptly ended its four-month dealer registration request with the nfa.

as the minimum regulatory capital increased in the US from $5m to $10m to $15m to $20m within a few months, more brokers continued to either sell out or move out of the United States. odl Securities and hotspot fXr opted to sell their US retail fX business to fXcm. acm USa, a partner with (but separately owned than) ac markets of Switzerland suspended its US venture. right before the increase to a capital requirement of $20m, i-trade fX, a newer mt4 platform broker was heavily fined by the nfa and sold its entire business to fXcm.Some like alpari US and ig markets have stayed in the US while others have exited the market, driven away

by the direct and indirect cost of regulation. there are approximately 15 fX brokers that are regulated in the US, down from about 22 a year ago. our estimate is that we might have only 10-12 firms left a year from now. clearly, the industry appears to have reached a point where there are two very different types of fX brokers: 1) well capitalized, highly regulated, operationally sophisticated brokers, and 2) unregulated/lightly-regulated brokers that have profitable businesses but have questionable operational sophistication and marketing. there are two regulatory bodies with substantial experience in spot off-exchange currency (forex)

markets: the United States nfa and the United Kingdom’s financial Services authority (fSa). the majority of the remaining regulators are either increasing their regulatory oversight in forex – like Switzerland and Japan – or maintaining lower regulatory standards – malta, cyprus, Belize, and other off-shore jurisdictions. the differences in regulatory oversight and the associated cost are dramatic. a broker outside of the nfa/fSa regulation does not have the incentive to adhere to

any of the following major nfa requirements:- report key statistics on a daily, weekly, monthly and quarterly basis, under the threat of major fines for lateness, inaccuracy, or deception- Keep records, transactional data and price data for years- have emergency contingency plans and data privacy protection plans - Be able to prove marketing claims and have



clear dispute-resolution procedures - Screen accounts according to anti-money laundering and anti-terrorism rules - Strictly supervise the marketing claims of authorized agents soliciting accounts- publish detailed risk disclosures Since 2006, the nfa has not hidden its displeasure with (spot) forex brokers that were not part of its on-exchange futures brokers group. it set out to fine most such regulated brokers operating in the US from 2006 through early 2008. as these brokers adhered more strictly to the newly aggressive rule enforcement, the nfa sought approval from congress to increase the minimum capital requirement to levels that were 80 times what they were through feb 2006.

the odds are high that the new “nfa compliance rule 2-43(b)” announced on april 09 will prove to be a serious regulatory overstep by the nfa. it is likely to hurt the broker industry in the United States. all brokers offering metatrader4, by far the most popular trading platform in the world with over 50% market share, will be particularly hard-hit. US brokers will have costly modifications to make on the client interface and broker backoffice for something that will actually deter a substantial number of traders to open accounts with them. in our opinion, UK fX brokers are best positioned to gain from this nfa controversial decisions, as long as the UK fSa does not follow the same regulatory steps. a massive regulatory shakedown is also taking place in Switzerland, where the Swiss federal Banking commission had given fX brokers until mar 2009 to register as a bank with finma (Swiss financial market Supervisory authority) in order to continue to offer retail forex from a Swiss headquarters. ac markets, mig investments, dukascopy, and gfX group (forex.ch) filed their banking application with finma by the deadline, while others sold out to existing banks or left Switzerland to less strict jurisdictions within the eU zone. the Swiss regulatory push would have greater credibility if finma had not dragged on the closure of fraudulent Swiss broker crown fX for

months – crown fX was able to continue to attract clients throughout much of the shut down process while existing accounts had their accounts frozen.major changes also appear to be brewing in the Japanese retail fX world. Since its inception, the Japanese retail fX market has been in the hands of a few dozen Japanese brokers. there are reports that this later group routinely turned down equity stake offers in their firms from foreign brokers. finally in late 2008, fXonline, one of the top five Japanese brokers, sold an 87% stake to ig markets of the UK for $207 million.

Unfortunately for domestic brokers, regulatory winds appear to have changed in Japan. in may 09, the Japanese financial Services authority reported that it was requesting a sharp reduction in leverage for all retail fX transactions to a maximum of 20:1 or 30:1 no later than the summer of 2009. Some believe that this change will mean higher spreads in Japan and lower liquidity during the asian session. more likely, though, will be the gradual flow of fX accounts out of Japan and a more rapid foreign takeover of Japanese brokers.



the 2009 ForeXdS awardS the opinion oF FX traderS

So as the winds of regulation change and create opportunities, the broker sentiment of fX traders is what ultimately decides winners and losers. The average

trader has to choose from a pool of over 100 fX brokers that, to most traders, appears confusingly similar. information about brokers on the web is highly dispersed, has questionable credibility, and is arranged in ways that make comparisons difficult. most people choose a broker using a trial and error method, which can be very costly.at this point, it is appropriate to take a short detour and explain the origin of the forexds awards. my involvement in foreign exchange began in 2000, working for BankBoston as a currency strategist. Then in 2005 i came to know the needs of retail traders as i launched the institutional sales department of interbank fX. By mid 2007, i felt strongly to do something about the abundance of low quality broker data and left iBfX to launch forexdatasource.com as a market research firm and information portal. after a year of preparing the survey methodology, we began to collect broker data in a systematic way with minimal self-referral bias or double counting. This research was aided by the fact that my team counted with a background in applied statistics and broker operations. after one year of data collection, we gathered slightly more than 1000 broker evaluations from 82 countries. This extensive statistical sample with a wide geographic representation was the basis for the forexds awards.

we asked traders to rate a fX broker from a list of 50 medium and large brokers. They answered the question: “how likely are you to refer this broker to others, from 1 to 10 (where 1=low, 10=high)?” They applied this broker evaluation in five satisfaction categories: overall, trading platform, customer service, accounts department, and funding department. The numeric results allowed us to calculate what is known in statistics as the net promoter Score (npS), a simple percentage that reveals whether a firm has more “promoter clients” than “detractor clients.” The simplicity and logic of the npS statistic is powerful, and it is also helpful to know what firms are more likely to gain market share and remain in business.

Broker capital - US$ million

oanda 159.7

highforeX.com (gain capital) 90.8gft 80.7fXcm 60.5fX SolUtionS 41.5

mediumiBfX 36.5cmS foreX 29.7ig marKetS 22.8

lower

foreX clUB 21.8alpari (US) 21.0advanced marKetS 19.8mB trading 17.1eaSY foreX US 15.6iKon gloBal marKetS 13.4Source: CFTC, Apr 2009, Adjusted Net Capital

The net promoter Score is calculated as follows: percentage of promoters – percentage of detractors = npS %. a promoter rates a broker with a 9 or a 10, while a detractor rated it with a 1 through 6. votes of 7 or 8 are considered “neutral” and are not considered in the npS. for the forexds awards, forex datasource used simple averages of the evaluations in the global fX Broker category and npS scores in the ranking of continent leaders. we recognized that ranking all brokers globally had many shortfalls. most brokers had a strong presence in one continent only. we discovered significant differences in the average number of promoters and detractors in different con tinents – see table. we also had diversity in the number of votes for a broker as well as diversity in the size of brokers.

npS by continent

promoters detractors neutral npS

africa 25% 24 50 1aSia 21 29 50 -8eUrope 27 27 46 0americaS 39 14 46 25oceania 29 29 42 0Source: Forex Datasource, 2009, Best Overall category



http://forexdatasource.com/

The global fX Broker category recognized seven brokers that were among the top 6 brokers in more than one continent. This group of peers was then matched against one another in the five sub-categories: Best overall, platform, customer service, accounts and funding departments. This year’s winner in this category was iBfX, followed closely by oanda and alpari UK in third place. Some of the 50 brokers in the survey did not sufficient votes to allow us to consider the results representative of their client base. we applied the criteria of a minimum of 8 votes, resulting in a list of 28 brokers that accounted for 96.3% of all votes received.

twelve continental leaders

highest Broker Satisfaction

aSia eUrope americaS africa oceaniaBroker npS Broker npS Broker npS Broker npS Broker npS

1 odl markets

18.00% odl markets

15.40% interactive Broker

66.70% alpari UK

26.00% oanda 33.30%

2 iBfX -7.80% gft 9.10% cmS forex

58.30% fXdd 14.00% iBfX 16.70%

3 Saxo Bank

-10.00% alpari UK

8.30% gft 30.00% fXcm -14.00% fXcm 0.00%

continent npS

-8.00% 0.00% 25.00% 1.00% 0.00%

highest platform Satisfaction

aSia eUrope americaS africa oceaniaBroker npS Broker npS Broker npS Broker npS Broker npS

1 iBfX 18.60% iBfX 30.00% iBfX 45.70% fXpro 50.00% oanda 33.30%

2 fX Solutions

12.50% alpari UK

21.10% fXdd 37.50% alpari UK

-10.00% iBfX 25.00%

3 fXdd -8.30% fXcm 21.10% gft 37.50% fXdd -20.00% fXcm 11.10%

continent npS

-20.00% -1.00% 15.00% -10.00% 0.00%

Source: forex datasource, 2009, Best overall and Best platform categories

global fX Broker

Best overall

platform cust Svce

accounts funding

iBfX 1 1 1 1 1oanda 2 7 2 2 2alpari UK 3 4 3 3 3fXdd 4 3 5 4 4fXpro 5 2 6 5 5fXcm 6 6 7 6 6SaXo 7 5 4 7 7Source: forex datasource, 2009

the continental leader category allowed all 28 brokers (even global fX Brokers) to compete on an equal basis, using the net promoter Score of each firm to determine

three winners per continent in two sub-categories: highest Broker Satisfaction, and highest platform Satisfaction.



in our mind, the global fX category is a recognition of a broker’s size and standing in the market, whereas the continental leader is perhaps more important to determine client satisfaction. the three graphs breaking down brokers by number of votes and overall rating provide yet another

angle from which to analyze brokers. there is a logarithmic trend line in each graph to provide a sense of benchmark for each of the three tiers. Something to consider when viewing these graphs is that brokers who received a lot of votes may be a reflection of having been in the retail fX market for many years or having a big marketing budget, and not necessarily a reflection of how popular they are. our sense is that companies like ava fX and dBfX have lower number of votes because they are new entrants. a low number of votes can also be seen as an indication of declining performance or lower appeal within a very competitive market. others like ac-markets may have been hurt because our survey focused on english speaking traders, not on a french-speaking audience. in conclusion, there are major regulatory changes underway in some areas of the world that are leading to a sharp contrast in fX broker selection: either a transparent, highly regulated broker or an opaque, lightly regulated broker. Beyond the issue of regulation, there is the issue of broker performance as perceived by clients. the forexds awards is arguably the first major public study to systematically measure trader preferences and to create a framework of fX broker comparison. even after you have considered all the facts presented in this report, a wise trader would do well to heed the following broker-selection tips:- first identify your own “key fX broker criteria”. answer the question “the one or two items that are most important to me are”, for example: high leverage, fixed spreads, tight spreads, regulatory environment, high platform rating , high capitalization, etc.- Use the key criteria that is necessary to screen out most brokers, leaving 2-3 brokers that meet all or most of your criteria,- conduct deep due-diligence on the remaining brokers, interviewing them directly and using the information on this report and other reputable public sources to determine the best match,- after six months, re-evaluate your broker relationship and possibly repeat the selection process

Javier Paz



FX FOREX INDUSTRY

cLS a gate for the global FX market

meeting former colleagues and old friends is always a pleasure, and each time we all tend to say the same thing at least once: “i miss those days when we traded fX together”. honestly, i don’t. i’d rather trade fX today, it’s much easier.

By the end of the 90’s i was in london. it was my first job in the city, i was enthusiastic and excited. i knew every single spot trader in italy, so the flows were guaranteed. my first job was in den danske (danske Bank) and it was then that i had to face my first problems - to get one of the thousand small italian banks to trade with a Scandinavian bank and it wasn’t easy at all. for danes, italy was of course the country of michelangelo, but that was an old story. now it was just the country of pizza, pasta and wines. for

italians, Scandinavia was the country of Santa claus, numerous blonde girls looking forward to enjoying some time with a wild group of italian “geezers”, who love karaoke, wear splendid sunglasses and, moreover, were great lovers. none of them ever related their respective countries to finance let alone financial. food or sex - this is all it was!

when i first started setting up a credit line, this is when i began to realize how big the problem actually was. to obtain a credit line i had to get incredibly boring balance sheets to my colleagues in the credit department. These balance sheets were finalized with huge delays and published with even longer delays, which got promptly lost in the italian mail system. when i had finally

managed to receive the elusive italian balance sheets and after a few minutes of happiness and classic italian pride (consisting of going around the trading floor to chat with colleagues, casually holding the balance sheets in my hands and displaying them as though they were a trophy, showing off as only italians can do, possibly making a few calls on my two new super hi tech mobile phones), i then realized that the balance sheets were in italian and not english. to obtain the english version was a much bigger issue. i remember, in a moment of deep depression caused by the hard work that relations with italians can involve, going to pay a visit to the royal marine forces representative office to look for a job and telling them i was albanian,


to avoid having to deal with italian traders anymore. my mother asked me to not join the royal marine force so i didn’t. i decided at the end of the day, there were worse things than dealing with italians. a month prior to the publication of the new balance sheets, i generally managed to get the english version from the previous year. at this moment i ran to the credit department with my danish, german, french, and British colleagues laughing at me.

i couldn’t blame them, i had to agree. once i had all the documents in place, it was finally time to proceed with the credit line procedure. here i had to face my worst nightmare - the British sense of. The credit analysts, before even opening the balance sheets, looked at them, took them in their hands, looked at me, then glanced at the balance sheets again, looked at me again. i couldn’t figure out what was going on, until i

dared to ask: -mate, something wrong? –-no, nothing wrong- was the reply. But then, he added:-tell me ruggero, how is it the italian version weighs 3 Kg and the english version about 100 gr.?-good question indeed!

it was true, there was a huge difference in weight, number of pages and definitely in content. Just for the love of god,

they usually proceeded without further questions. Unfortunately, more often than not the applications were declined, although if i insisted, i was offered a few thousand lira credit line, equivalent to 1 or 2 British pounds - enough for a coffee with tip. whenever i have the opportunity to meet old friends and colleagues, i always think of those years - the fun, the easy life and while i miss all of that, from a professional point of

view, no thanks. The situation today, i think, is much better.it is already a few years that, thanks to a consortium of the biggest banks in the world, a new settlement system is taking over. it is the clS or continuous linked Settlement. clS allows, whoever is involved in the system, to trade fX with any of its members or third party participants - which, as of today, counts for over 4600 names - eliminating the risk of settlement due to time zones.

The difference between clS members and clS third party participants is the following - the first are shareholders and they are selected according to liquidity, capacity to offer a professional service and financial assets. The latter are just “market users”. Years ago it was extremely difficult if not impossible, for a medium size bank, to have trading relations with banks in asia, the middle east or latin america. These days, clS members like UBS, hSBc and many others (70 banks among the top names), give the opportunity to small banks

to easily approach the fX market. This means tighter spreads, big or small amounts receive the same quality of service and access to international counterparts. Thanks to clS, even a small italian bank could, in theory (but probably not, after what i’ve written) trade with a small australian bank - provided they both have a trading line with one of the 70 member banks.

clS allows to trade fX with any of its members and 3rd party participants eliminating the risk of settlement due to time zones


FXFOREX INDUSTRY

This is a “dream come true” for every fX sales guy and for the small banks which have been ignored for years by the bigger local banks. The extraordinary thing regarding the clS system is that every member bank is responsible for all of the transactions of the third party participants they sponsor. practically, if one of the third party participants fails to make a payment, the sponsor member will be responsible, ergo, even the counterpart risk for users is eliminated. finally the market is truly global. clS was up and running in September 2002 with only 39 members, 7 currencies available to trade and very low flows. in 2008 the success is so big that in 24 hours the amounts traded are in the order of 10 trillion $. The rhythm of growth is incredible and clS has finally been given the success it deserves. a network which covers every single corner of the globe and involves not only the banking industry, but also those corporations which need to have direct and professional access to the fX market, such as nike and hewlett packard to name just two of many. investment funds and hedge funds are also users, though their names are not disclosed since they use clS banking services. identities are not published in the list of clS users. 55% of fX transactions executed by the member Banks are done across the clS network.

as i said, there are 70 member Banks and each of them gives access to a large number of users, 4688 as of today. There are 17 currencies currently available in the system: US dollar, euro, UK pound, Japanese Yen, Swiss franc, canadian dollar, australian dollar, Swedish Krona, danish Krone, norwegian Krone, Singapore dollar, hong Kong dollar, new Zealand dollar, Korean won, South african rand, israeli

Shekel and mexican peso. The system is based on a continuous process of payment instructions. clS receives the instructions within 38 minutes of the trade. The instructions are checked and once matched, the exchange of currencies proceeds at the same time. in the event that instructions don’t match, counterparts are immediately alerted. The status of every single transaction is available to counterparts in real time around the clock. The funding of transactions is executed on a multilateral basis for about 95% of the cases. This

means that for 1 trillion $, only 50 billion is funded by the clS Bank. This is the real gate for the fX global market. definitely a great development which comes from an intensive study of fX market needs. how and when clS will be properly appreciated and adopted in italy is not known. obviously if italian banks continue considering only the balance sheet figures before granting an fX trading line, ignoring completely the

aim of clS and its concept, the gate to a global fX market will be kept closed to potential italian market users. clS is not accepted by italian traders purely i think because they consider t h e m s e l v e s better than others. This o u t d a t e d m e n t a l i t y precludes several

companies which work hard and require that access, the opportunity to approach the fX markets. if italian fX traders would spend more time trading the market rather than feverishly following prada’s last collection, spending less time drinking cappuccinos in the morning and apes (trendy word for aperitif ) in the evening, i’m sure they would begin to understand that the fX global platform is much wider than the one they view through their gucci sunglasses.

Ruggero Mameli

FX FOREX INDUSTRY


http://www.tradeinterceptor.com/forextradingtraining/

building robust trading Systems part 2 - finding a good historical data source

“reminiscences of a forex operator…”

in the last article, we introduced the idea of building robust trading systems for foreign exchange, and compared some of the characteristics of the fX and futures markets, with fX having its own unique, but also non-random, behaviour. This article now explores the first major challenge of actually building a system, namely, building a reliable historical database:

if we were discussing futures markets, this would be relatively straightforward, as there is only one price traded at any given time with a specific volume, which is readily available, direct from almost all of the relevant futures exchanges as well as third parties. The fX market is rather unique though:

while being by far the most liquid market in the world, it’s also the most fragmented. with no central exchange, each bank makes its own price, for each currency pair. Therefore, at any given moment, eUrUSd may theoretically be quoted as 1.3340/42 at one bank, 1.3339/41 at another and 1.3341/43 at a third, each with their own white labelled, or proprietary, electronic trading platform, otherwise known as an ecn (electronic communication network). There are also a growing number of ecns competing for liquidity, where ‘buy

side’ counterparties can submit their own prices into the systems. This makes it impossible to get a truly complete, clean and accurate picture of intraday fX prices. however, even the current, fragmented, electronic market is a quantum leap forwards, from only relatively recent years:

in the beginning – voice brokers

Before ecns existed, most fX trading was done over the phone, with a trader sitting on a ‘spot’ desk, as the author once was, with half a dozen ‘broker boxes’, all shouting out prices. for example a ‘dollar mark’ (US dollar v german deutsche mark)

spot dealer (the author pre-dates the euro) might have one broker box calling out, “thirty, thirty-five, in five” and another, “thirty, thirty-four, three by five” etc., with the ‘three by five’ denoting the size, in millions, that the price was good in and the ‘big figure’ not quoted as that was known by all involved.

each trader, for each currency pair, would have a number of boxes shouting out similar prices and hence the classic image of a bank’s trading floor, being a cacophony of sound. The reality is much different these days, with the voice brokers having been almost entirely replaced by ecns, particularly in the major currency pairs.

FX TRADING SYSTEMS


in the days of voice brokers, part of the spot traders’ art was to recognise the brokers voice with the best price, good in the size he wanted to execute, which as a junior dealer, was probably the hardest skill to master; particularly when the broker at each institution wouldn’t always be the same person, as they would need to go to lunch, be away on holiday, or just step off the desk for a few moments. a junior on a desk would usually cover several dealers, when they similarly stepped off the desk, so may have had over twenty voices to recognise and remember which ‘box’ they were on. all the deals were also entered manually, unlike today’s ecns, where the deals automatically go in the trading ‘blotter’. on this occasion it is probably very fair to say that junior traders today really do have it easy by comparison.

if an order was too large to execute with just one counterparty, a ‘call out’ would be made, where the dealer would stand up and shout, “get me calls!” 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

their order. This meant that one would often buy from the first few ‘calls’, hoping this would prompt the other banks to believe you were a buyer, drive the price up, quoting higher prices, into which you could then sell. hence it was always a game of bluff, counter-bluff and spoof.

one anecdote worth recounting, in which the author was involved, is a spot desk of a first tier bank, making a huge return in the space of a few minutes, solely by a simple, but beautifully executed spoof:

The bank was known to be one that had a good relationship with the Bank of Japan (BoJ) and through which they had intervened in the market before, to strengthen their currency, occasionally coming into the market and selling a collosal, market-moving amount of USdJpY and demJpY. This always kept dealers wary of being the other way around, lest they got caught the wrong way on an intervention, and hence kept the Yen supported.

Therefore the chief dealer and his number two, the Yen trader, knew that if the bank was to be seen selling a huge amount of demJpY and USdJpY, the market may well think that the BoJ was intervening and would then also start selling, to capture the pending move down. one day they stood up and shouted “get me calls!”, which in itself wasn’t unusual, as this happened on most large orders:

as each of the other traders, and assistants, all started getting prices from banks and shouting them out, they shouted, “yours!” together with the hand gesture of pushing an open hand down and away from the body (for the avoidance of any doubt as to the instruction) until they’d sold literally several hundred million US dollars and german deutsche marks, against the Yen.

nobody knew what was going on, but everyone did his or her job and got the order executed. The sales desk was asking what was happening,


TRADING SYSTEMS FX

TRADING SYSTEMS FX

as customers called up to ask what the reason was for the big move, as everybody saw and heard the huge commotion coming from the spot desk and the inevitable rumour spread that it was ‘BoJ’ intervention. nobody on the desk said a word to confirm or deny the rumour, as nobody else on the desk, knew what was really going on. Just tallying the total amount sold and reconciling the now huge position the desk had, was not an easy task.

as the rumour spread and speculation mounted, USdJpY and demJpY continued to fall rapidly. Then came the second wave, or so everybody thought. again the chief dealer shouted, “get me calls!” and started to sell USdJpY and demJpY again. The market thought it was the start of a second wave of selling by the BoJ, as this was their typical style and accordingly marked their prices much lower and again sold themselves. Then came the stroke of genius – they started to buy, and buy everything, shouting, ”mine, mine, mine…” with the accompanying hand gesture of bring the palm of the hand up towards the shoulder, to the still falling prices, as other banks initially thought it was just part of a ‘spoof ’ to sell into.

Before the market realized what was going on, they’d covered the entire position and locked in a massive profit, literally in the space of a few minutes. everybody on the desk was given a slice of the pie, for a job very well done and it’s the type of trading that we will unlikely see again – such were the days before the dominance of ecns.

There is of course a point to this anecdote of course, other than to record it for posterity:

although a huge amount of

transactions went through in those few minutes, none were recorded by exact time. The author himself probably executed trades, with more than half a dozen banks, but the most that would have been recorded was either a conversation on ‘reuters’ or a hurried scribble on a deal ticket after a phone transaction, later reconciled with the counterparty.

Therefore, although an extreme example, it illustrates the point very well; there simply isn’t a completely reliable source of accurate, historic fX data available before the dominance of ecns and the situation hasn’t improved significantly since:

The advent of electronic trading platforms

as electronic platforms began to dominate more and more of the volume, so accurate data has become more readily available, as computers are easily able to capture the exact

time, price and volume of every trade. however, there is still no central ecn and rather than one becoming the dominant player, as some expected, the market has continued to fragment. This means that at every minute of the day, each currency pair is trading at different prices, bid/ask spreads and volume.

only if one could aggregate all of the prices made on every ecn and by every bank and broker, could a truly accurate record be built. even then though, a bank may provide a rate on several ecns, good in $10mio, but as soon as one of its prices is hit, it will immediately ‘pull’ that rate from the other ecns. Therefore, even though a 40 bid may appear to be good in $50mio, if one could aggregate all of the prices at a given moment, the reality is, that it may well not be case if you tried to execute a trade of that size.

trading the crosses

if someone wanted to sell the Swiss franc against the Japanese Yen, as it’s not a commonly quoted pair, it has relatively little liquidity on the electronic platforms and as a consequence has a wider price. however, USdchf and USdJpY are more actively traded, so a professional trader would go ‘through the legs’ or ‘components’, buying USdchf and selling USdJpY, with the USd amounts netting out to zero, leaving a chfJpY position. This means the trader actually traded chfJpY, but no price may actually have traded on any ecn or with any broker ‘direct’ in chfJpY.


Gaps and Spikes

although fX is by far the most liquid market, there are still times when no prices are recorded for periods of time, particularly during the less liquid asian session and, as we have seen above, particularly in the less liquid crosses. This means that not only do genuine gaps occur in historic data, but there are also often times when a certain pair traded on one electronic platform, but not on others. These gaps in the price data need to be ‘filled’, which can be done using a simple algorithm, otherwise any indicator, even a simple moving average, would have an input of zero for the price at that time, which would of course create a h u g e l y incorre ct r e a d i n g , w h i c h may well trigger an erroneous trading signal in an historic simulation. conversely, not only are there times when there is no price, there are times when a spike in the data appears:

This can be due to a number of factors, but often where somebody has left an offer to take profit at, for example, 1.2580 overnight. if somebody else has a stop order to buy if 1.2520 is traded and there are no other prices in the system until the 1.2580 offer, then that would be the next price dealt. it’s market practice to cancel these deals the following morning, when an obviously ‘off market’ rate was traded, but nonetheless, it will still often appear in the historical data made available and there is a ‘grey’ area where it is questionable whether the rate dealt

was ‘off market’, or fair given the time of day and liquidity.

one of the challenges of using a simple algorithm to clean the data is that some genuine market moves can look a lot like a ‘spike’ in a fast market, when some news, or economic data, has just been released. a way around this is to confirm the rate via the other components. looking at aUdUSd and USdJpY components at the time could check for example, a ‘spike’ in aUdJpY.

highs and Lows

one of the most commonly asked questions in fX trading is where the

highs and lows were, as this is where queries occur and money is lost and made on orders. if an order to buy was placed at 0.9840 and the low was 0.9839 offered, then the order would be filled. if the low price quoted was 0.9840/43 but was never traded, or ‘given’ at 0.9840, then the order would not have been filled. as it’s often hard enough to determine in a real trading situation whether an order should have been filled, it’s impossible to be certain with a historic simulation. in fact, if a large buy order had been placed at 0.9840, this could affect the price action itself, with market makers buying ahead of the 0.9840 bid, knowing the market will be supported there.

with the market so fragmented, and with no central exchange to determine

the definitive highs, lows and the volume they traded in, order fills remain a cause of much debate, on a daily basis, in the fX market.

predictive pricing

as there is no central price for a currency pair, a bank or broker is free to make whatever price it wants to their customers and the customer is equally free to trade on that price, or trade elsewhere.

Some traders are very predictable in their trading behaviour and only trade with one counterparty. This leaves them open to ‘predictive pricing’ algorithms. for example, if some traders sold

U S d J p Y earlier in the day, then it’s likely that their next trade in

USdJpY will be to cover that position and buy. Some ecns therefore have the ability to show each customer a different price.

Therefore while a neutral price in USdJpY may be 98.94/96, one customer’s ecn might show a price always marked a point higher at 98.95/97, until they have closed their short position, when it will then go back to a neutral price, earning the bank an extra pip on that trade and the customer believing he’s being shown a relatively tight two point price all day.

The author has first hand experience of such pricing engines, with one of his former colleagues having built just such an engine, for a first tier investment bank. it’s a perfectly legitimate practice, as the customer has the freedom to

there simply isn’t a fully reliable source of accurate, historic fX data available before the dominance of ecns

TRADING SYSTEMS FX


TRADING SYSTEMS FX

trade on the price, or not, but the phrase, ‘caveat emptor’, is just as true in today’s fX market, as it was in roman times, when the phrase was first coined:

consider a system, which generated a trading signal, in USdJpY, just once a day, for 252 trading days a year. giving one point away on each trade may well result in an otherwise profitable system, recording a net loss. without knowing why the losses were occurring, the trader may believe a perfectly robust system was no longer performing and even worse, if he were to run a simulation on that years’ data, he might see that he should have made a profit, still not knowing where the 252pt ‘loss’ was made. This highlights how critical efficient execution is, no matter how robust the back testing and how clean and reliable the historical data; something that we’ll look into in much more depth, in a future article.

interest rates

one extraneous factor we have to take into account, when dealing with fX, which futures traders do not have to account for, is the interest rate differential. as each currency yields a certain rate of interest, then one earns interest in the purchased (long) currency and pays interest in the sold (short) currency. This means that if a position was held long “Kiwi Yen” (nZdJpY) then the interest rate, or ‘carry’ would be approximately 3pct per annum, at current rates. That is to say, if the exchange rate and interest rates remained the same in one year’s time, then the trade would yield a 3pct return, being the interest rate differential earned by holding the new Zealand dollar vs.

that paid borrowing Japanese Yen.That difference is accounted for by

‘rolling’ the position every night, or ‘tom/next’ as it’s called. when a trade is rolled, it’s closed out at an agreed rate at the end of the day (called a ‘reval.’ being short for ‘revaluation’) and re-instated with a small adjustment made in the price, to account for the roll (the difference in the interest rates).

for an intra-day trading system, this isn’t a factor; if the positions are flat overnight, then there is no ‘roll’. for a longer term trading system, which holds trades overnight, then the interest rate differential has to be taken into consideration, to correctly calculate the results. with some historic interest rate differentials being very large, this can make a dramatic difference, and again be the difference between a system being profitable or otherwise, hence the ‘carry trades’ which seek to exploit exactly those differentials.

however, although the central bank rates may be fixed and known, the counterparty will usually charge a small mark-up on the ‘tom/next’. Sometimes, this can be as much as several percent. Therefore it’s important to know both the interest rates and the mark-up from the broker, to negotiate them as low as possible and factor them into any simulations.

time Zones

probably the most overlooked factor when dealing with fX data is that europe, the US and asia, all operate on different time zones. if we wanted to code an ‘opening range break out’ system for the london open, which is one of the most liquid times of day, then we should use local time in london and not gmt.

although most data is provided in gmt, traders and therefore market behaviour, operate on local time, so daylight savings need to be taken into account. Unfortunately the US has slightly different dates when they observe dSt and most of asia doesn’t observe daylight savings at all, so it’s impossible to make one universal adjustment for local time across all the sessions and days of the year.

Therefore one either has to adjust the data, to local time, for the session one is interested in trading, or write an adjustment into the code, dependent on both the time of day, and date that the order is being executed. for example, if the data is in gmt, then closing a position at the close of the day in london, at 5pm, would still be 5pm in november as local time is


gmt. however, if the same trade were done in June, closing at 5pm local time in london, would be 4pm according to the time stamp of the data, as daylight Savings would have been in effect.

Synthetic prices

we know that the major currency pairs are the most liquid, with the better pricing; being those traded against the dollar and the euro. therefore, if we had the data for those, then we could derive the ‘cross rates’, such as chfJpY, gBpcad etc.

the one challenge here of course is that if we had 60 minute ohlc (open, high, low, close) data, for each hour of the day, and calculated the implied ‘crosses’, then we would only know the open and close accurately for those hours, as we have no way of knowing that the high or low of each component occurred (and almost certainly didn’t) at the same time, within the hour.

however, it’s certainly one viable method to create a reliable database. if we had hourly data for the seven major currency pairs i.e. 8 currencies, then we could calculate a synthetic price from those ‘components’ for the other 21 ‘crosses’. for example, gBpJpY is the gBpUSd rate multiplied by the USdJpY rate etc.

this creates a relatively clean set of data for the crosses, but only a line chart, as the crosses would not contain accurate highs and lows. i.e. one could not plot a bar chart, which would require the highs and lows of each hour.

conclusion

historic fX data is an absolute prerequisite, before even attempting to build a robust fX trading system, but it can only ever be an approximation, unlike the futures markets, which have a central exchange and no interest rates or ‘rolls’ to take into account and where the data is almost always supplied in local exchange time.

The fX market is simply too fragmented to have one universally agreed set of historic data and the trend is for the market to become more fragmented and not less so, with new electronic platforms being released each year, some carving a niche in certain currency pairs, or time zones.

historic price data before the dominance of ecns is much less accurate than more recent data and is, at best, an average rate traded for a certain time period. accurate open, high, low and close (ohlc) data simply cannot, and does not, exist before the days of ecns and since then (approximately late 1990’s onwards) it is far more accurate and more readily available, but can still only be an approximation. (daily data is much more accurate as the ‘ohlc’ rates for a given currency pair on a certain date are generally agreed, particularly for the ‘majors’).

as an algorithmic fX trader, the best solution is to find a good source of data and then ‘clean’ it as much as possible, cross referencing the crosses and majors, filling in any gaps and cleaning out any spikes. Then the data must either be offset to account for ‘daylight savings’ in the time zone one is interested in trading, if the system has any time input, or it can be written into the code of a

system itself.finally, if it’s a system that holds

many positions for a number of days, or frequently overnight, then the rolls must be factored into the simulations. There are many pieces of software available for analysing futures markets that can be adapted for fX data but none ‘off the shelf ’ to date provide, as far as the author is aware, the unique functionality required to account for such unique nuances of fX.

all of these challenges probably contribute to the relative lack of successful systematic traders in fX, given its huge liquidity and clear capacity for systematic trading.

Better software and data will certainly be more readily available in the future, as fX continues to grow as an investment class. The author himself is currently involved in beta-testing a number of software packages and working with one software company to provide the unique functionality needed to test fX systems, ‘off the shelf ’, so it’s certainly something that will be available, in the near future.in the meantime, the following resources may be useful:

Caspar Marney

Historic FX Data

Olsen Data www.olsendata.com/

EBS www.icap.com/markets/foreign-exchange/spot-fx.aspx

Tradestation www.tradestation.com

Interest Rate Data

Pinnacle www.pinnacledata.com/

TRADING SYSTEMS FX


http://www.olsendata.com/

http://www.icap.com/markets/foreign-exchange/spot-fx.aspx

http://www.tradestation.com/

http://www.pinnacledata.com/

fXtm: fXcm claims over 100.000 trading accounts today. what is the company’s average nominal trading volume per month?

mB: over the past sixteen months (Jan ‘08 - april ‘09), on average over USd$590 billion of notional volume is traded across the fXcm platforms on a monthly basis.

*Notional USD volume is base currency USD exchange rate. Average monthly exchange rates are used to calculate notional volume.

fXtm: which are the distinctive advantages which make fXcm one of the world leading market brokers? in other words, why do many private currency traders choose to open an account with fXcm today?

mB: forex capital markets (fXcm) is a leading global forex broker that caters to the retail and institutional market in over 80 countries. founded in 1999, fXcm is one of the largest and most financially strong brokers, regulated in the United Kingdom, the United States, australia, canada, france, dubai, hong Kong, and now italy. in the United Kingdom, fXcm UK is a regulated forex broker with the financial Services

authority (fSa# 217689). fXcm is dedicated to technological innovation that enhances the online trading experience, and this is why fXcm has attracted over 125,000 live accounts which trade through fXcm’s multiple platforms, including metatrader 4.

at the core of fXcm’s business model is its no dealing desk execution which eliminates conflict of interest between broker and trader, ensuring that there is no dealer intervention in trades. trades are executed back to back with some of the world’s premier banks or financial institutions, who compete to provide fXcm’s clients with the best bid/ask prices. Some even provide spreads as low as 1 pip.

fXcm also offers clients an extensive suite of free forex trading signals through dailyfX +. These signals are interactive trading alerts that update automatically in real time, twenty-four hours a day, on a dynamic basis. tracking six strategies on fourteen currency pairs, fXcm trading Signals have a customizable alerts section that updates live when signals change. The fXcm trading Station also features the ability to trade from charts and has won multiple awards through the years.

fXcm offers a twenty-four-hour-a-day, seven days a week live support by phone, im, and e-mail.

fXtm: with a view to the new US regulations, which fundamental assets a forex broker should have to ensure stable growth in the US?

mB: Speaking on behalf of fXcm we see our competitive edge with no dealing desk as the fundamental assets that will continue to ensure our stable growth in the US and abroad. we recognize that clients are concerned that dealing desk brokers are trading against them, and hunting their stops. more than 85% of our trading volume is generated through the no dealing desk model and this is the number one reason clients switch to fXcm.

other key assets we at fXcm attribute to our steady growth would be our segmentation and product offerings. fXcm offers different account sizes (micro or Standard) to appeal to many different traders. fXcm also offers specialty products for target audiences. examples of these products include: forex System Selector, an automated currency platform; metatrader4, a

Mike Buzzeo

Sr. Vice President - MarketingFXCM - Forex Capital Markets LLC

INTERVIEW

FX BROKERS

shares his views about the new US regulations and explains the reasons of FXcM’s fast development in the last 2 years, with recent office openings in various european locations and soon a new FXcM italy.


world known and well-liked platform; proprietary trading signals and dailyfX.com, a top research and news site that provides a constant twenty-four hour stream of in-depth market analysis that is designed to give the foreign exchange trader the edge in today’s market

fXtm: fXcm has chosen a no dealing desk system in order to eliminate the potential conflict of interest that some brokers have between their clients’ profit/loss and their own firm’s bottom line. how important do you reckon this decision might have been in the success and growth of the company over the last years?

mB: fXcm has experienced tremendous client growth over the last two years as a result of the firm’s switch to no dealing desk execution. one main reason for the switch is fXcm’s belief that transparency is of utmost importance, especially in today’s economic climate.

The decision to enhance fXcm’s business model to no dealing desk provides traders with very tight spreads and fast execution, something traders and brokers can benefit from and feel comfortable with. fXcm has been a pioneer for retail forex brokers, and other firms have started to follow our example and execution model. fXcm’s no dealing desk execution is one of the most important and successful strategic decisions in the company’s history.

fXtm: do you expect other markets, outside the US, to follow the latest nfa regulation decisions?

mB: The forex market is fast growing and is one of the largest and most liquid financial markets in the world.

The average daily volume in the global foreign exchange market is continuously growing. traditional daily turnover was reported to be over US$3.2 trillion in april 2007, and since then, according to euromoney’s annual fX poll, volume grew a further 41% between 2007 and 2008.

The recent regulation changes from the nfa including higher capital requirements and oversight of firms, seems natural with the increasing popularity of forex trading. fXcm

believes that the changes are - due to the evolving economic time - positive and necessary. fXcm expects other markets will be developing to create a better overall environment for traders and we welcome that.

fXtm: will such regulations affect your international development plan in any way?

mB:no,even though the environment is likely to be in flux for a while to com, we believe that we have the best product

offerings for traders and we are excited to deliver these offerings to new markets.

fXtm: where does italy stand in fXcm’s international development plan? how important is it compared to neighboring countries such as france, Spain o germany for example?

mB: fXcm has recently expanded its global foot print by opening offices in paris, Sydney and dubai, and also by opening dedicated desks for the german and nordic markets. we are proud to announce that italy will be next. Soon fXcm italy will be opened and ready to service italian clients. fXcm is dedicated to the italian forex market and will provide an advanced and transparent platform with the benefits of local regulation, banking, and customer service. like all other fXcm offices we will be holding in-house forex educational seminars and will invite all local traders to visit with us.

fXtm: what do you estimate is the current size of the italian retail forex trading market (in terms of number of fx traders)? and how do you expect the italian forex market to evolve in the next years?

mB: fXcm sees enormous potential and growth in the italian forex market and we want to introduce high quality execution, service, and forex education to our italian traders. This is very important to fXcm.

we are confident that, by opening a locally regulated office in italy that provides full brokerage services, the italian forex market will grow exponentially.

fXtm: what will be the key advantages fXcm will offer to italian clients compared to other local and

FXBROKERS

FXCM New-York


international brokers?mB: fXcm will strive to be the

premier forex provider in italy. Because of fXcm’s access to highly competitive prices from our relationships with some of the world’s largest banks, and as a premier “no dealing desk” or agency execution forex firm focusing on italian traders, fXcm offers clients no dealer intervention and tight spreads as low as 1 pip.

fXcm will provide a variety of currency trading products, forex trading technology services, and education, with superior personalized customer support in italian.

additional benefits to trading with fXcm will include; trading directly from charts, positive rolls at all margin levels, twenty-four hour online access with customer support, and free access to real-time proprietary trading signals.

fXtm: Some international brokers already have a local presence in italy through a translated website and offer customer support in italian. what difference does it make for the end user to have a registered office and physical presence in the country?

mB: fXcm believes that, whenever possible, local presence and registration within a particular region are key ingredients to connecting with traders. people want to know that they are trading with a reputable firm that takes the time to understand the local environment. By opening an office in italy and securing regulatory licensing, fXcm is committing its resources to the region and, through the strength of its products and customer service, hopes to gain the trust and confidence of the italian trading community.

fXtm: what is the minimum account size you propose, and the maximum leverage? are these key competitive advantages to get new clients today?

mB: Standard account size: minimum account Size $2,000 recommended account Size $10,000 and Up Smallest trade Size 10k Units available leverage Up to 200:1 approximate pip value $1 per pipmicro account (via fXcm UK)minimum account Size $25 recommended account Size $500 Smallest trade Size 1k Units available leverage 400:1 approximate pip value $0.10 per pip

fXcm specializes in self-traded forex accounts with options available for all levels of trading experience. micro accounts available through fXcm UK (fxcm.co.uk) begin at only $25 and offer 1K lot sizes. Benefits include trading directly from charts, positive rolls at all margin levels, up to 400:1 leverage and free access to real-time proprietary trading signals. fXcm offers live support twenty-four hours a day, seven days a week via phone, im, and e-mail.

fXtm: forex trading is becoming more and more accessible to people of various levels of income. what is fXcm’s typical potential customer?

mB: fXcm works with all types of traders who are looking for excellent execution, low spreads, and superior customer service. on the retail side, fXcm segments its self-trading accounts into micro, Standard (10K) and active trader, as well as an automated trading system called forex System Selector. accounts can be denominated in seven different currencies and segregated

accounts are provided through fXcm UK, an fSa regulated entity. for a novice trader, fXcm offers a $50,000 practice account as well as a number of forex trading courses.

fXcm also has many referring, institutional, and white-label relationships and is always looking to expand its affiliates.

fXtm: what is your advice to a new currency trader today with regards to choosing the right broker?

mB: first, i would advise new traders find a broker that exercises due diligence, one that is regulated and financially strong. fXcm is regulated in eight jurisdictions and has offices, partners, and affiliates in the major financial centers of the world. This positions fXcm to provide exceptional service to traders everywhere. fXcm also believes clients should have the necessary information to make intelligent choices. That’s why we publish our quarterly balance sheet. fXcm is proud of our financial discipline and strong balance sheet.

Second i would also like to add that new traders getting into the forex market should gain as much practice and education as possible. There is a lot to know and learn before trading in the forex market. fXcm offers a $50,000 practice account, educational courses, free webinars, and free news and research via dailyfX.com, a site where traders can communicate with one another, ask questions on the forum, stay up-to-date on the latest economic events and read over numerous articles written by the dailyfX analyst team.


FX BROKERS

http://www.fxcm.co.uk/

http://www.dailyfx.com/

like we established in the introductory article, an option represents a right with no obligations for the option holder. also, we saw that the seller of an option runs a much greater risk than the buyer, which is why a premium passes from buyer to seller. to liken it to our everyday lives, we can observe that the valuations the options seller must make are comparable to the considerations an insurance company makes when pricing an insurance policy – the two parties have to agree on the size of the premium. This is where it gets challenging, so let’s have a look at the considerations that must be made.we can start by establishing that the premium can never be negative, since payoff at maturity is zero or positive. digging deeper, the size of the premium must naturally depend on the choice of strike, the time to maturity and the expected movements in the underlying fX rate. however, the price of options also has much to do with our abilities to replicate the payoff.Starting off very simply, if we choose to buy a call option and sell a put option with the same strike and maturity we end up with a payout profile at maturity equal to that of a long fX forward outright contract, with a difference attributable to funding cost on the option premium

which is paid up front (see figure 1).So a call option can always be replicated by the comparable put option combined with a forward contract and vice versa. This relationship is known as the put–call parity. given the price of an equivalent option, it is possible to replicate the payoff thereby inducing a price on the option being valued. replication using the underlying forward or spot is the main cornerstone used to price options and is the foundation of the famous B l a c k- S c h o l e s pricing formula. The Black-Scholes model and its extension to fX markets, the german-K o h l h a g e n model, is based on trading the underlying. we will not go into the details about this here, but we will look into it in upcoming articles regarding hedging. great intuition can, however, be made of the B l a c k- S c h o l e s model and the

general pricing of options. The Black-Scholes model prices the option using strike, spot, time to maturity, interest rates of the domestic and foreign currencies in the underlying, and finally volatility.Starting with the placement of the strike, if we look at a call option, the higher the strike the less likely it is that the option yields a payoff at maturity. The call option is therefore cheaper for higher strikes. in the option market, the measure of how likely the option

The dynamics of option pricing

FXOPTIONS

Figure 1 Payout at maturity. Red line is the forward contract. Green line the payout from the short put option and blue line the payout from the long call. The similar payoff is the reason for the put-call parity.


is to have a positive payout at maturity is called moneyness. in general, call options are said to be in-the-money if the strike is below the forward of the same maturity and out-of-the-money if the strike is above. The opposite is true for put options. The option with strike equal to the forward is said to be at-the-money. notice that the in- and out-of-the-money term is with respect to the fX forward outright and therefore is implicitly a function of the interest rates of the domestic and foreign currencies in the underlying (given that the fX forward outright rate is calculated simply as a product of the fX spot rate and the ratio of discount factors from each of the two currency yields over the respective time period).The value of being in - or out-of-the-money of course also depends on the time to maturity. if we think of options like insurance, it becomes easy to understand that the longer you have to expiry, the more the option 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 or bleed. This is how earnings can be made by selling options. volatility, or the movement in

the underlying fX rate, the last component of the Black-Scholes price, is therefore important for the value of the option. fX spot traders will know that some currency crosses such as aUdUSd tend to exhibit much larger moves up or down than others, for example eUrchf. Say we look at a call option in both the aUdUSd and eUrchf with the strike placed 10% higher than the current forward price. it is much more likely that the aUdUSd would have moved up more than 10% by the time of maturity. furthermore, since the option has limited down side, the increased likelihood for a fall in underlying from higher volatility does not increase the risk in the option, therefore a higher volatility of the underlying always translates into a higher price of the option. The same holds true for the put option. So again, to liken the theory of option pricing to our everyday lives, we could say that aUdUSd cross

is like an 18 old boy taking out car insurance – he will have to pay a high premium, because he is perceived as “risky” to the seller of the insurance (option). conversely, eUrchf might be likened to a middle aged female driver who has never had an accident – naturally, a lower premium will be asked for! actually going back to the put-call parity, from which we know that a short put and long call with same strike and maturity should be equal to the forward plus premium funding, the price of the put and call with same strike and maturity must therefore increase with the same value from an increase in volatility. looking at the parameters used to price the option, we see that volatility is the great unknown. Therefore, the options market has adopted the terminology of trading “vols”. if the market participants anticipate larger moves in the price of the underlying in the future, the volatility parameter is raised, raising the price of the traded

Figure 2 shows the one month historical volatility versus the implied volatility of an at-the-money option with one month to maturity. Notice that implied volatility rises before historical volatility.


FX OPTIONS

options. conversely if the market participants expect price to be more stable in future, then the volatility parameter is lowered. note that the volatility parameter used is participants’ expectation about future volatility, not the historic volatility measured from past fX rate changes, as can be seen in figure 2. the volatility parameter is referred to in the markets as implied volatility, since it is the volatility the markets imply will be observed in the underlying over the life time of the option.readers may be familiar with the fact that the Black-Scholes model is considered by some to be flawed in

that some of the assumptions don’t always strictly hold, e.g. that interest rates and volatility are known and constant over the term of the option or that the price changes in the underlying follow a normal distribution as opposed to a model which incorporates kurtosis, or the gap risk of significant immediate changes/jumps of prices from one level to another. however, the pricing dynamics remain broadly the same and the Black-Scholes model is very robust compared to fancier academic models. therefore, the Black-Scholes model remains the dominant way of pricing and quoting options for

many reasons, not least because it provides all market participants a well-understood common ground reference framework for agreeing prices, which therefore lends support to a market like fx options with transparency and decent depth of liquidity.

Steffen Gregersen

In the next articles, the author will cover the reasons and suitability of hedging; speculative trading and basic options strategies; Black Swans and exotic options.

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FXOPTIONS

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as an educator working with traders of all levels of ability, i am always struck by how little most traders really concern themselves with the issue of market psychology and their own personal trading psychology. in my opinion, this is the single most significant part of a winning approach and no trader can reach his or her full potential without a sound understanding of market psychology and their own psychology.

for example, i work regularly with traders who have very well-thought out methods of analyzing markets and very carefully select their positions. They have back-tested their approach and have a high degree of confidence in what they uncover with their s y s t e m — b u t lack the ability to “pull the trigger” at the best execution spot. They can show me very precisely why a market had potential to move in a particular direction and often have uncovered a significant turning point that may last for weeks in some cases—but

they have missed the best point to execute for no other reason than they were afraid of taking the risk at that particular moment. often, these same traders feel a strong sense of anxiety once they finally take a position or “kick themselves” for missing the perfect place to trade. in the long run, although they have a solid method of finding opportunity, their participation is fraught with emotional turmoil.what is the problem here?

a Lack oF perSonaL Under Sta ndin G a nd acceptance oF what tradinG reaLLy iS

in my view, the problem is a lack of

personal understanding or acceptance about what trading really is and a lack of understanding of underlying market structure. first, there is only so much analysis of the market we can

do. There is only so much to learn. additionally, traders often place too much reliance on study/education/analysis in the first place. analysis does not produce 100% winning trades no matter who you are or how much you have to invest. This over-confidence in analysis is compounded by the traders own need for confidence when he executes. when working with traders directly, i find that most traders resist the concept of thinking in probabilities; which is all that you can do when working in any traded market. trading is about probabilities—not certainties.

Because the markets are zero-sum transactions it is not mathematically possible to ever know with certainty

that any trade hypothesis is the correct one until later. no matter how you slice it, there will always

be orders placed into the market from both sides as long as there will be markets to trade. no matter the current level of price, there will always be a group of traders who feel the price

SUcceSSfUl trading haS verY little to do with

the marKetS

FX TRADING PSYCHOLOGY

trading is about probabilities, not certainties


is “too high” or “too low” relative to their individual point of view or the systematic approach they use. in fact, this potential increases with each “new” advance in economic theory, fundamental change, computing power or mathematical hypothesis. The more people think and the more people participate, the potential for something “new” to grab someone’s attention remains. This is why every year there are new methods of analysis, new trading systems based on something never thought of before, and new ways of reading into the fundamentals; none of which improve the net result traders are seeking.

But the fact is—all of this technology and/or change still results in the same thing happening: someone has to decide to place an order. There will always be a certain percentage of them going long/short and someone will be on the other side. Therefore, as this order flow develops and changes, it creates a constantly changing price level for the market. learning to accept

the probabilities in your analysis is the first step in learning to take every signal you get from your system. You will never be 100% correct anyway and you don’t need to be.

Your only need is to get on the right side of the order flow often enough to get a lead on the price change. The rest is discipline to hold your winners and cut your losses. The issue of trusting your analysis/system and maintaining discipline is a purely psychological one—it has very little to do with the markets.

a Lack oF UnderStandinG oF UnderLyinG Market StrUctUre

next, once you have learned to develop the psychology behind thinking in terms of probabilities, you need to adjust your developing market awareness to focus on underlying market structure—not prices. The inherent limitation (some would say failure) behind technical analysis is

that it uses price to project and/or predict price. Through various ways of applying algorithms or mathematical variation all technical analysis attempts to “massage” prices in such a way as to provide some clue as to where prices are going next. The reason this can’t be done with any certainty is for the reason mentioned before: the issue of zero-sum transactions. at the simplest level—there must be a buy order matched to a sell order for any transaction to complete. This happens at the last traded price. if those orders are both orders to open a position, one trader is now long at that traded price and the other is short. The issue of why two people can come to equal yet opposite conclusions about any price is an entire different discussion but for now, we are concerned about how prices move from the moment after the execution is done.

after the order was filled only one thing can happen: more buy orders will come in and more sell orders will come in. if the buy orders are larger than the sell orders from that moment on, the market will rise. if the sell orders are larger than the buy orders, the market will fall. There is no way on earth to know if that will happen until it doeS happen. technical analysis cannot “predict” that nor can you. Your system cannot know for certain if the order flow will come on larger from which side. BUt—and this is a huge “but”—you might be able to find a reasonably sound reason for a change in the order flow and a reasonable guess as to which price that might happen at. But there is no way to know for certain. This


FXTRADING PSYCHOLOGY

is why you need to think in terms of probabilities and be concerned with the underlying market structure.

for example, if a market has been in a steady climb for several straight days and each day the highs are higher, the lows are higher and the closes are higher; one thing is certain: the order flow has been dominate on the buy side. if this action represents an “overbought” condition from some form of analysis a system might offer a “sell” signal. if at this point the market corrects, your system is “right” and a winning trade is now on the table. But if your system signals a short—and the market rises—you have a loss. in either case, the analysis did not predict the next price action; that was determined by the order flow and that represents the psychology of the traders involved. another system might have signaled a “breakout” while another might have signaled “neutral”.

in any case, the system is not the important thing. it is the trader’s discipline that creates the eventual gain or loss in the account. if the trader knows the probability of his approach and a short works, that is one of the winners the system finds. how the trader manages that lead determines his results; not the signal. if the system puts the trader in a loser, it is how fast the trader liquidates that determines his results. if the trader “overrides” his system and takes a trade the system did not call—his results again are determined by his discipline.The point is for the trader to get beyond the flawed thinking that

the trading system is the key to his long-term success. whatever the issues are that a trader is dealing with, for the most part, they have nothing to do with the market. they have to do with his trust in himself, his willingness to think in terms of probabilities and his commitment to managing his trades no matter how

they are found. in the end, the trader himself determines his results; not the market. the market will only do one thing and that is process the orders as traders place them. if you can learn more about what is likely to cause a rush of orders into the market that is certainly an edge. more importantly is to trust your approach and take every signal. after that, your thinking determines how far you go. of course, this short discussion

cannot offer a quick solution to managing trader psychology or understanding market psychology but hopefully it will give you a start. in my experience, i have found that journaling your trading thoughts and logging your trade results can help provide you a solid foundation to finding clues needed for you to

win. always remember: the market is a machine that processes orders. nothing more. we as traders participate in that machine and it is how we participate that makes all the difference. The more you study your actions the more you can get knowledge of how you use the machine. in any case, you determine your results.

Jason Alan Jankovsky

it is the trader’s discipline that creates the eventual gain or loss in the account

FX TRADING PSYCHOLOGY


Jw: how long have you traded foreign exchange, tell us about your career evolution

fS: i started in the mid 80’s and held numerous positions in research and in asset management. currency management was always an essential part of the investment process and i started to develop a return oriented currency program in 1997. oSv was founded by myself and other partners in 1992. after having sold the company to a large investment holding company in 1996, my partner fred J. gatling and i bought it back in 2007. today, oSv partners has a total staff of 17 people.

Jw: what do you particularly like

about your job?fS: it never gets boring and there

are new challenges every day. There is neither rest, nor complacency possible. one has to constantly analyze the world and refine the investment ideas and positions. interaction with clients and other players serves as much for collecting important information as well as for personal contacts.

Jw: how is fX a unique market?fS: currencies are truly global

and reflect a country’s entire position versus the rest of the world. currencies serve as a reference point for a country’s general investment rating and standing in the world.

in addition currencies are the most sensitive asset to changes in the macro landscape. They are traded 24 hours and represent the most liquid market.

Jw: what are the key positions n an fX management company?

rS: cio, risk manager, head of trading executions, coo and head of marketing.

Jw: which authority regulates oSv partners? do you keep and update a compliance and risk management policy? how time consuming, and how important, is it to satisfy regulation requirements on one side and internal procedures on

Franz W. Schmadl

Founder and CIO of OSV Currency Partners, based in Bad Homburg, Germany, and Darien, Connecticut.

explains the importance of risk management coupled with a very solid investment and independent decision making process

INTERVIEW

Manager OSV Currency PartnersStrategy OSV Currency ProgramLocation USA / Germany / SwitzerlandAssets Under Management 135 mln UsdType Systematic fundamental modelling, discretionary decision processStyle Spot /Forward, NDFsInstruments FX Spot or NDFCurrencies Major, selected EM

interview by Jw partners for fX trader magazine


FXFX MANAGERS

the other?rS: we are regulated by the cftc

and nfa. impeccable compliance activity and documentation is an important element in a firm’s success. without it a firm cannot exist. we at oSv put great emphasis on transparency, independent third party valuation and independent holding of client assets.

Jw: You are in charge of the currency program. how would you describe your investment strategy?

fS: our investment style is discretionary. we use a theme driven, macro top down research process, focusing on the most attractive fundamental / technical constellations between various countries and/or regions. This strategy is the result of more than 20 years of life work and research.

Jw: risk, an exciting yet dangerous word. how do you manage risk?

fS: risk management is one of the cornerstones of our successful currency program. we place big emphasis both on our risk management and our systems. The reward is a very attractive gain/loss ratio and strong long term performance.

Jw: what’s an example of the kind of trade that added value to your learning process?

fS: The biggest value from this learning process is how to trade and manage a loss profile. losses and loss trades are an essential part of every investment strategy. The key difference is how to trade and manage your loss profile. during the russian

crisis we closed out all our US dollar short, only to see the markets collapse right after it. would we do it again? Yes, because it was the result of our risk management discipline.

Jw: do you use a blend of strategy types for diversification or only one?

fS: our investment process is screening the world in a comprehensive way. diversification is entering our process through the selection and de-selection of trades. within the portfolio we believe that concentration can add value while still maintaining a proper risk profile.

Jw: how do you think your performance has been over time? what market conditions are expected to have a positive and negative impact on it?

fS: overall excellent, our clients have made money over time. we had a dry period in between, but that is over with last year’s performance of almost +40%.

Jw: can you give some recent examples of where you have made a unique winning decision?

fS: USd/JpY short in 2008 is a good example. also, the rise of the dollar against the emerging market currencies during the last quarter in 2008.

Jw: do you use less mature currencies, or do you plan to add them to your studies and trading? or do relative lack of liquidity and wider dealing spreads outweigh any potential gains from being able to

capture more inefficiencies?fS: our trading focuses primarily

on eUr/USd and USd/JpY. These are liquid, low spread relations that can be traded intraday as well as for strategic positions. less mature currencies are better suited for longer term structural positioning, while trading them in the short term gets diluted over time through the spreads. for this reason, i would not suggest individual traders to trade them.

Jw: when developing strategies how approximately would you expect to allocate your time among building entry signals, exit signals and money management rules, and how much time will you allocate to further research?

fS: our investment process is very disciplined. within the entry/exit strategy a well defined loss/risk management procedure basically takes care of all decisions. entering a position is a function of risk tolerance, volatility expectation and the impact of this particular trade for the rest of the portfolio. exits are a result of hitting profit targets or loss limits and volatility based portfolio adjustments. we are a discretionary firm that reacts to a changing environment. it is clearly important to consider volatility changes and to assess on an ongoing basis the fundamental environment. if it changes it is likely to have an impact on the portfolio. and also, we are a research driven firm and we allocate a significant amount of time to research. There is no one set system that works forever. it is essential to


FX FX MANAGERS

have a well defined discipline of risk taking and loss cutting. without that you will go under.

Jw: do you favour any particular time frames in your strategies, or do you diversify across a range of them? what is your average trade duration, and how is high the trading frequency?

fS: we believe there is value in both short-term and long-term trading strategies. Short-term trading can be of high frequency, ranging between intraday to a few days. Strategic positions are targeting time frames of up to a year. it is quite important not to mix up the activities of these two areas. for example, strategic positions are not really qualified to be traded and vice versa.

Jw: what are your average and maximum leverage used?

fS: average is around 1.25 times

capital and maximum can go to as high as 5 times.

Jw: how many execution brokers do you use? how do you split execution between electronic and “dear old voice”?

fS: we have six execution brokers on the boxes, but electronic execution constitutes 70% of all trades.

Jw: how does liquidity impact the efficiency of your strategies? have you already explored to what aUm limit the strategies would allow you to grow to?

fS: our strategy can accept a lot of assets. we currently have in place an infrastructure that can manage assets in excess of one billion US dollars.

Jw: what is the single biggest strength of your team?

fS: experience and quality risk management coupled with a very

solid investment and independent decision making process.

Jw: at Jw we say it’s more important to plan and know how to react than forecast, but can you give us your feeling about the most popular, eUrUSd, over the next 6/12 months.

fS: that will be a hard one. Since the key drivers for the eUro are resting with the outlook for monetary policy and the action of the ecB much will depend on their assessment of activity. as we, like everyone else, don’t know about what they will do – the decision to forecast eUr/USd is not tied to fundamentals like growth differentials, yields, etc. but to the assessment of how strong the ecB will push rates lower or even go quantitative. additionally, i believe the U.S. in the long run needs a lower dollar and will produce one. that said, i expect US dollar weakness to set in, but not before the ecB has decided on its quantitative easing.

Jw: what’s the best advise to give to an inexperienced or semi professional trader who wants to enter the fX fund management industry?

fS: Start as short-term as possible and have tight stops. if possible, sit next to a very experienced person. learn by watching and how to avoid mistakes. that’s key. Be prepared to deal with your losses and deploy a proper risk management system before you start. that will keep you out of trouble and alive to benefit from your good trades.

FXFX MANAGERS


FX FOCUS ON BONDS

Bonds, in the sense of financial instruments, have been in circulation virtually ever since people began to accumulate wealth. The term “bond” in its literal sense means “that with or by which a thing is bound” (source: oxford english dictionary) and also means an obligation, a duty, or a covenant between two parties. in the technical and legal sense, it is a deed by which one party agrees to pay an amount of money (or transfer property) to another party under certain conditions and usually within a certain timeframe.

as markets have evolved and become fully internationalized, it is quite impossible for investors to have a personal knowledge of the other party that is being “bound” through the issue of debt instruments such as bonds. even when the most sophisticated fund managers in the world employ analysts and accountants to quantify the risks involved in purchasing bonds, there are regularly nasty surprises. investors are expected to make rational risk assessments for the bonds in which they invest, but for all but the most highly-informed investors, this is an extremely difficult task. “argentina is a sovereign nation and will always repay its debts, right?” wrong. “The

government is supervising the financial system and would never let a bank fail, would it?” hah. “with so many bankers, accountants and lawyers working with borrowers, everything should have been taken into account so that my money is protected, no?” wishful thinking.

in addition to ingraining the concept of a balanced portfolio in the mind of every investor, there is one other phrase that needs repeating at every turn: no reward without risk. in the simplest of terms, the higher the return on an investment, the

greater the risk. if there was no chance whatsoever that a borrower could default on its obligations, the real interest rate that it would pay on its bonds would theoretically be zero (real interest rate being defined as nominal interest rate less inflation). i would hope that after the events of the last 2 years, no one out there still believes that financiers are alchemists who can turn lead into gold. except for a miniscule number of financial geniuses, anyone who consistently beats average returns is consistently taking above average risk with their investments. retail investors always want to think there is a way of “beating the odds” without taking extra risk, but whether it be an insurance

policy, an equity portfolio, a bond or a structured product, this simply isn’t a long-term truism.

in terms of traditional risk assessment for bonds, an approximate “hierarchy of risk” would look something like the following, with the entities at the top of the drawing representing the “greatest” amount of risk, and those at the bottom representing the “least” amount of risk:

one has to be very careful in these days of “stress-tested” banks to say that there aren’t a lot of corporations that seem less risky than many banks, even governments for that matter, but over time this grid offers a fairly consistent basis for assessing risk. within each of these boxes, however, there are subgroups that have higher or lower levels of risk: a municipal government is likely to be riskier than a national government, and local savings bank is likely to be riskier than a global bank, a local company is likely to be riskier than a multinational corporation, etc.

how to choose an appropriate bond: balancing risk & reward

there is no reward without risk


MARKETDRIVEN

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.

Incapital products are designedtomeet the precise needs fortoday’s challengingmarketplace.

EuropeanMoney-Markets

PrimaryCorporateBonds

SecondaryUS$BondTrading

StructuredProducts

USAgencies

DomesticUSCDs

+ 44 (0)207 605 4000

incapital.comstructuredinvestments.com

INCAPITAL

as most are aware, global ratings agencies do extensive research on nearly every borrower in the world and assign their own risk assessment ratings (moody’s, Standard & poors, fitch, dBrS, etc). the point being made is that your investment choices come down to a fairly simple risk-reward calculation.here are some bonds in eUr that give matter for thought in relation to the above descriptions and comments:

Roy Fraser

Issuer Ratings Maturity Coupon Current Yield Comment

EIB Aaa/AAA 15/10/2025 4.50% 4.60% Sleep at night and get a decent coupon for going longer; easy to sell if need be

KfW Aaa/AAA 16/01/2012 3.375% 2.00% Still better than a bank account

Denmark Aaa/AAA 17/03/2014 3.125% 3.08% Recent sovereign issue mid maturity

Italy Aa2/A+ 01/08/2016 3.75% 3.95% Bit better yield for going down the sovereign credit curve

Rabobank Aaa/AAA 05/05/2016 4.375% 4.45% Highest rated bank left standingBank of America A2/A 23/03/2015 4.00% 6.75% This is a test of your risk-reward skills

Shell Aa1/AA+ 14/05/2013 3.00% 3.00% Solid company, solid business sector

BASF A1/A+ 09/06/2015 5.125% 4.20% Good corp story but now a bit expensive

Telecom Italia Baa2/BBB 01/02/2012 6.25% 4.05% This one will keep getting more expensive as the

year goes by

Daimler A3/A- 10/06/2011 6.875% 4.00% Will they go bust? Is 4% a decent return for this risk? Are they really single A?

FXFOCUS ON BONDS


http://www.incapital.com/

BrokersFX

odl (order direct limited) was founded in the UK in 1994. it was the first and most important electronic option Broker house in the london Stock exchange. in 2004 odl received a new liquidity injection by the new senior management team and expanded in terms of regional areas and financial products. 28 of staff in 1994, odl markets (the name under which odl trades in the UK for retail clients) now relies on over 200 professionals worldwide and an impressive client base from over in 100 countries. the london head office manages the risk exposure generated from the trading activity of odl markets,

odl capital (for institutional business), odl Japan KK , tokyo, odl monaco Sam and odl vancouver, canada . the group can also count on an extremely active corporate finance division specialised in the mining and oil sector, raising funds for the leading companies in the mining field in several developing countries. the market maker entity is odl Securities limited and it is authorised and reg ulated by the financial Ser vices authority (fSa). it is a member of the london Stock exchange, nYSe, liffe and euronext and a designated broker and member of apcimS.

Main StrengthS:

odl’s principle strengths are : consistent liquidity, transparency and price integrity with spreads in over 80 currency pairs (2 to 5 pips on the major currency pairs).

risk management is one of odl’s priorities: clients can monitor risk exposure in real time. clients can also run multiple positions for each currency pair which can be individually selected for closing.

another aspect that differentiates odl from other brokers is the earning of interest on cash balances.

Unlike most brokers, odl pays interest on unused margin. all platforms provided give access to your own back office system: clients can monitor their trading position constantly and receive confirmations in real time, illustrating the remaining margin, statements, realized and unrealized profit/loss.

odl Securities is a third party member of clS (continuous link Settlement), allowing the company to offer pricing to the big/medium banks worldwide.

BrOKer reVieW

ODL Securities Limited

Graham Wellesley, CEO O D L S e c u r i t i e s G r o u p


innOVatiOn anD technOLOgy odl offers various free trading platforms which are easy-to-use, windows-based, customizable, with pre-programmed configurations and which allow users to place various order types such as - marKet, limit, Stop and oco. trading strategies are also available to professional traders along with support to small or new traders. The company’s main objective is to guarantee a professional service to enyone intending to approach the fX market, independently from a trader’s background

cuStOMer SerVice

The non trading desk is covered by multilingual staff from 07.00 until 19.00 london time. Their responsibility is to answer all client calls for trading, orders, back office and admin issues, basically anything clients might need. The trading desk runs 24 hours and is covered by very experienced and professional traders. all of them have an interbank background. to be part of the trading team it is

essential to have had several years experience among the top 10 international market makers, and the company will only consider applicants with such experience.

accOuntS anD traDing cOnDitiOnS odl offers mini-accounts and full accounts:mini accounts need minimum funding and can be opened online with one acceptable proof of id. The maximum trade account is €5000 and its value cannot exceed €10 000 (cumulative over 12 months), after which clients will be invited to switch to a “full account” (an account for active and professional traders). There are no fees for upgrade to a full account, but further proof of id is required.

odl is committed to ensure you deal on the price you see and to give clients the opportunity to access the gold and Silver market with just 1% leverage (1 to 100). The deal size is not restricted: clients can trade from 10 000 to 100 million (equivalent of $1 /point to $10 000/point).

traDing PLatfOrMSodl proposes various trading platforms including metatrader4 for retail traders, Strategy runnner for futures traders, and ariel, currenex, or hotSpotfX for professional traders.

we’ve chosen to give a brief overview of meta trader 4 as the most commonly used platform amongst retail clients.

mt4’s main advantages are:• Instantexecutionandrequest-for-quoteexecution(rfQ)• PossibilitytouseTrailingstops• Technicalanalysispackage:30+in-builtindicatorsand charting tools, the ability to create various custom indicators, different time periods (from minutes to months);• Multi-languageprograminterface;• Historydatabasemanagementandrealtimedataimport/export facility;• Signalsofsystemandtradingactions;

• Internale-mail;• Comprehensivetradingstatements.• MobileTrading:MetaTrader4MobileforPDA’sand mobile phones

mt4 offers the following useful applications:

fig. 1 central panel


FXBrokers

- toolbar: allows modification of the platform according to the trader’s needs. it is possible to insert new windows via the insert and remove buttons. moreover it is possible to decide the position of every single button in the toolbar by clicking on the “up” and “down” button and to memorise the chosen configuration by clicking the reset button.- languages: mt4 allows traders to choose from 25 languages including arabic and chinese; once a language is chosen it is enough to restart the pc.- a window to the market: from this window it is possible to monitor almost the entire market: bid and ask for every single currency pair (fX), cfd’s (europe and US), index and commodities. moreover, clients can insert at the market orders or pending orders, select charts and select the most interesting currency pairs by clicking on the “show all” button. it is possible to have access to other features by right-clicking on the markets window.

- window navigator: it gives the opportunity to

quickly positions , track history, news, alarms and a few other options. it also allows traders to check details of their account, select technical analisys applications or create new indicators according to trader needs.

- chart window: with mt4 it is possible to visualize various chart types (such as candlesticks, lines, bars…) and create personalized charts with timeframes from 1, 5, 15, 30 minutes, 1 and 4 hours, daily, weekly to monthly; it offers many technical analysis features, graphic tools and studies like fibonacci retracement, fibonacci channel, fibonacci time Zones, fibonacci fan, fibonacci arc and many others. (fig.4)

BrokersFX

fig. 2 order window

fig.3 creating a new ea (expert advisor)

fig.4 chart

fX traDer Magazine cOMMent:

a very good metatrader broker, with 2 pips fixed spreads on the major currency pairs.

as it is also a multi-platform broker, users can find the platform which best suits their trading needs. There have been some complaints about

the customer service on the web, but as for many brokers, opinions vary a lot from user to user.

overall, a great forex broker with over 10 years of experience in the sector, which is proof of seriousness and professionalism.


gft uKgft global markets UK opened in 2006, thanks to the expertise of gary l.tilkin, a veteran of financial markets and president of the company.

gft was born as a “rib” of global futures & forex ltd and constituted in 1997, a business

challenge that originated in tilkin’s home office and that now has clients in 120 countries, more than 240 employees (40 of which are in the london branch) located in new York, chicago, tokyo, dubai, Singapore, Sydney and obviously london.

from the beginning tilkin’s philosophy was hinged on 5 fundamentals: high technology, quality and service variety, security and financial strength.

high technology meant the introduction of a propriety operating platform focused on user needs, which offered access to the market, order execution, market analysis and graphic support all in one free and integrated package: gft dealbook. in 2004 dealbook fX2 was also launched. it offered additional tools but what impresses is gft’s capacity for continuing investment in research and development despite the groups leadership in the market.

today gft offer dealbook in 3 different configurations: 360 dealbook (tested), dealbook fX web and dealbook mobile for mobile smart phone use.

StrengthS

technology and innovation

one of gft’s main strengths is certainly the proprietary technology, which differentiates them from other forex brokers, offering third party trading platforms.

gft also created a series of high added value analysis instruments for dealbook, such as foresight-aitm revision software (based an artificial intelligence principle), dynamic trend profile (offering trading signals) and the di napoli levels pack (including proprietary indicators).

The company also now has a white-label product such as the currenex platform, that is particularly appreciated by institutional investors and fX managers. exponential

institutional growth forced the company to differentiate the offer with one of the most reliable ecn platforms in the market, and with very competitive liquidity.

Financial stability

The financial solidity of the company has been confirmed by several awards including:- one of the best 500 high technology growth firms of north america for 3 years ( deloitte) -16th company in 2005, just 2 companies behind google, 236th in 2006 and 305th in 2007 among US firms with the highest yield (inc. magazine)

BrOKer reVieW

DealBook 360 DealBook Web DealBook Mobile


FXBroker review

traDing inStruMentS gft can provide products for all fX market needs and in particular:- “contracts for differences” (cfds) where traders can exploit opportunities by trading on open and close of the market among more than 2,900 financial instruments (stocks, futures, currencies, interest rates and metals)- “spread betting”, which allows the use of a fiscally appealing derivative in particular use in the UK- “spot trading”, for trading on more than 120 currency pairs cuStOMer SuPPOrt gft offers both a dealing desk and technical support available 24 hours a day, available today only in english.

accOuntSclients can choose different types of accounts: mini , Standard, Silver, gold, and platinum , from 500 USd for a mini to 250.000 USd for a platinum.gft also offers various free additional services such as analysis instruments and news services for Silver, gold and platinum accounts (6 months for platinum accounts).

wallwood is a gft investment program. it is dedicated to investors who have a medium inclination to risk with at least a two year investment horizon. This program has medium-low volatility but at the present time cannot prove

a brilliant track record. we argue that gft should provide more investment programs based on different trading strategies to offer clients more diversification of investment on fX markets related to the risk inclination of the client.

cOStS anD eXecutiOngft dealBook360 is the platform for retail clients. Being a propriety platform, it uses the normal scheme of a market maker with all flows managed directly by gft desk. on this account there are no commission costs on fX spot only on cfds on particular stocks.

Using currenex platform (gft prime configuration)costs are applied on volumes and are negotiable each time on the basis of the trading amounts and actual and prospective turnover. gft prime is offered only to institutional clients, and it requires minimum sizes in terms of funding and expected turnover.liquidity offered through gft prime is excellent. gft prime is a white label version of currenex, so someone would think liquidity is as all other currenex versions, but it’s not. as many of our readers may not know, currenex is only a software product, and the liquidity provided fully depends on the quality of the credit relationships of the counterparty with the market making banks. gftprime’s liquidity is in line with the best offer in the market.

Broker review FX

PrOPrietary PLatfOrMdealBook360

dealbook 360 which is available on the web and on mobile smartphones competes with the diffused metatrader of metaquotes. The interface philosophy is quite the same with a unique cockpit offering different views and functionalities (fig.1), such as

-pending order window-open position window-quotes window -news window-account window fig.1 main window


The graphic quality of the interface is pleasant and user friendly, and is available in many languages. The orders window provides a good solution , where in addition to the usual options (at best, stop, limit, oco, and so on) users can also customize orders with the “scale out” option (fig.2), a feature which is far more comfortable than for example the metatrader4 scaling, which creates 2 separate orders.moreover, and this is an important plus for intraday traders, the orders window allows the customization of the minimum size/amount/lot, whereas most platforms have a pre-defined minimum amount.

The charting package of dealbook 360 is quite complete, in line with competition, on the number and variety of indicators to choose from, possibility to customize the worksheet and to design proprietary trading strategies. another useful feature is the possibility to add alarms by default to the indicators, which is an option that requires more complicated programming on other competitors’ platforms.

in general, customization options of charts are complete and allow for a comfortable setup; the visual space between candles can be customized, and the candle size can even be defined in pixels; very interestingly for high frequency traders, orders can be input with a click from the chart itself.

fig.2 orders window

fig.3 dealBook charting

fig.4 chart customization window.

fX traDer Magazine cOMMent:

we found that dealBook 360 is an excellent software to trade forex both at the retail and semi-professional level. combined with the very good liquidity of the gft prime version, the offer is precise and comprehensive for fX market users. we appreciate the investment effort on a proprietary trading technology for the retail market, as opposed to many competitors who chose a common third party trading platform provider. however, it is important that gft continues investing in dealBook 360 in order to keep up with competitors’ platforms, especially as metatrader is now near to release metatrader5.from a customer service point of view, we appreciated the skilled technical staff. it is a pity that technical support only

exists in english, considering that the sales department is available in other languages such as italian, Spanish, portuguese and german.good secondary services such as training, comments & analysis, and “ready trading solutions” are provided for retail clients too.we hope gft will add further functionalities to dealBook 360 for trading systems programming and interface, similar to those currently offered by other leading trading platforms. overall, gft is a top tier fX retail broker and the company’s expansion in the last years has proven that gft’s offering has been well received by the market.


FXBroker review

FX TRADER MAGAZINE April-May 2009 39

Current level Major trend Major target Trend change levelEUR/USD 1.3900 Up 1.5163 1.2888USD/JPY 97.00 Up 105.10 93.57USD/CHF 1.0850 Down 1.0018 1.1741GBP/USD 1.6465 Up 1.7451 1.4400USD/CAD 1.1250 Down 1.0005 1.2503AUD/USD .8015 Up .8930 .7251NZD/USD .6365 Up .6951 .5444EUR/JPY 134.85 Up 147.09 124.44GBP/JPY 159.75 Up 178.82 139.06AUD/JPY 77.90 Up 87.74 66.87EUR/CHF 1.5070 Down 1.4818 1.5233EUR/GBP .8440 Down .8192 .9081EUR/NOK 8.9200 Down 8.4597 9.1610EUR/SEK 10.8500 Down 10.2200 11.2880

technical oUtlooK

MAJOR TRENDS AND TARGETS FOR THE MAJOR FX RATES

C

M

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advert-armageddon copy.pdf 25/03/2009 10:35:32

TECHNICAL ANALYSISFX

TECHNICAL ANALYSIS FX

eUr/USd retreate d from its new a l l-time trade d hig h at 1 .6039 on 15 July 2008 to reach a 2 ½ year low at 1 .2329 on 28 october 2008, c lose to the 50% retracement of the 8 year rise from the october 2000 a l l-time trade d low at .8232. initia l consol idation was fol lowe d by a strong corre ctive re cover y to 1 .4721 in de cember 2008, s l ig htly exce e ding the 61.8% retrace of the 1 .6039-1.2329 de cl ine.

the 1.4721 re cover y hig h was actua l ly spot- on the fa l l ing 260 day (1 year) moving avera g e, and a re versa l then commence d. Steady losses then a lmost f u l ly retrace d the t wo -month re cover y phase , reaching 1.2459 in early march .

althoug h the re cover y from 1.2459 initia l ly lef t a potentia l lower top at 1 .3739 in mid march ( just under the 8 month downtrend l ine conne cting 1.6039 and 1.4721), the subse quent emerg ence of a hig her low at 1 .2888 a month later set up a renewe d re cover y phase .

Sig nif icantly, this c leare d the downtrend l ine from 1.6039 (around 1.3550), the mid march re cover y hig h at 1 .3739 and the 260 day (1 year) moving avera g e near 1 .3900.

althoug h a head and shoulders top pattern has de velope d over re cent we eks s ince pea king at 1 .4338, a re versa l i s favoure d to be l imite d to the 1 .3313-1.3423 area (the middle of the pre vious 1 .3739-1.2888 de cl ine, and the mid march hig her low). the uptrend conne cting 1.2459 and 1.2888 a lso interse cts around this support area .

the ris ing 1 month and 3 month moving avera g es (shown in g re en and re d ) are a lso supportive , favouring a subse quent extension hig her throug h the 1 .4338 top towards the de cember & S eptember 2008 hig hs at 1 .4721 & 1.4862, possibly the 76.4% retracement of the 1 .6039-1.2329 de cl ine at 1 .5163 over coming months .

EUR/USD


eUr/gBp bottomed at .5684 in 2000, but it was not until late 2002 that a major uptrend was confirmed. an initial rise to .7253 in 2003 was followed by a prolonged sideways to slightly lower correction, hitting .6537 in early 2007 before returning to strength.

The 2003 peak at .7253 was cleared in late 2007 and a run-up to .8184 occurred in September 2008. as the chart below shows, weakness from .8184 was supported at .7695 in october 2008, spot-on the rising 260 day (1 year) moving average. an accelerated rise was then enjoyed, peaking at .9801 on almost the last trading day of 2008.

a choppy decline has occurred since then, but it was not until early april that the dynamics changed from being a correction within an uptrend to unwind an overbought condition into a more significant and most likely longer

lasting decline. The loss of the 5 month uptrend line at that time warned of a further decline towards .8499, the 61.8% retracement of the .7695-.9801 bull leg, and this has since occurred. in doing so, the 260 day (1 year) moving average which did so well in containing losses in october 2008 has been exceeded and if the break of .8499 is sustained then the risk will rise for a further tumble over coming weeks and months towards .8192-.8193 and possibly to eventually retest .7695.

to avert the immediate risk of a further sustained decline, we need to see a rebound over recent lower tops at .8866 and the .9036-.9081 area. at present this is not the expected course of action and an initial bounce towards those levels may simply unwind an oversold condition, paving the way for the next leg lower.

Steve Jarvis

EUR/GBP



new Zealand dollar

Central Bank: RBNZ Economic data

www.rbnz.govt.nzCurrent interest rate: 2.50%Last change: 30/04/2009Next meeting: 10/06/2009

Pil reale: +0.5%Real GDP: -1.9%Inflation: 3.0%Unemployment: 4.6%Current account balance/GDP: -8.9%

NEW ZEALAND DOLLAR (06/05/2009) eurnzd has violated its long bearish trend which began with a max of 2.4322 in 1998. Between may and June of 2008, the downtrend line connecting the max 2.4322-2.3025-2.1164 was broken with a great rally, which was able to push the cross up to 2.5770 in february of 2009.

observing the lowest part of the chart, we note that eurnzd appreciated to 2.4322 from 1.6172 (+50%) between 1997 and 1998. following this, there was a very long correction in 3 waves. The currency finished 2005 over the min 1.6321 of 1998 and the bull market started there, completing its first wave in July 2006 at 2.1164, followed by a deep second wave of correction which saw the currency end July 2007 at 1.7046, close to 78.6% retracement of the first wave. This was a launching pad for the next extended wave. The third wave finished after 80 weeks at 2.5770 (+51% - similar to the rise of 1997-1998).

This extended third wave had the same price expansion of the first wave, shifting the starting base from the top of the first impulse (2.1164). considering the second wave was very deep and displayed a zig-zag pattern, all expectations are now addressing the fourth wave which

might be flat or a triangle, but anyway should not become lower than a 38.2% retracement of the third wave (2.2437 while the april bottom was 2.2458) or, in the furthermost hypothesis, lower than the first wave, defined by 2.1164.

The 40 weeks moving average that has seen the end of the bear market rally, is now at 2.2640 and should be considered as a future support.

from a temporal point of view, we can estimate the end of the fourth wave between october 2009 and

february 2010, when the temporal length of the second wave will be retested at 61.8% and 100%. we can only guess a price target for the end of wave 4, but surely the trend line which connects the max of wave 1 (2.1164) and 3 (2.5770) will represent an important limit to the future fifth wave.

The real change is the rate that you can use to buy goods or services produced in a country with other goods or services produced in another one.This rate can evaluate the convenience to buy in a foreign country, and a value lower than 100 means that the local goods are more profitable in price terms compared with those imported from a foreign country.


TECHNICAL ANALYSIS FX

http://www.rbnz.govt.nz/

on the 31st march 2009 (Bank of international Settlement) the effective real change of the new Zealand dollar was 74.62.

the “purchasing power parity” fundamental assumption is that the exchange rate between two currencies should naturally have a tendency to improve so that the basket of basic goods in both currencies has the same cost and that the nominal change between two currencies from two countries is equal to the ratio between the two currencies purchasing power.

in accordance with the most recent evaluations supplied by the oecd, the new Zealand dollar has an undervaluation of 22% with respect to the euro, and 12% with respect to the US dollar.

nzdUsd maintains its bearish sentiment from february 2009, when it reached a top of 0.8210. from that point, there has been a downtrend that, in 5 waves, has scored the first min at 0.5200 in november 2008, after a drop of almost 37%.Soon afterwards, there was a Kiwi reaction that stopped at 0.6068, under the 0.6128 that represents the bear market max of the fourth wave.

the most interesting point is the next bearish movement, still in 5 waves so that it confirms a bear market is setting out again.the 0.4964 min was readjusted at 0.4902 on the 4th march 2009, but we think that this is the result of an expanded flat that at 0.5974, probably completed the second wave with a 200 days moving average to form a dynamic resistance.

the bearish theory persists, at least until the resistance of 0.6128 is breached, with 0.6350 (38.2% of retracement for the whole bear market) as the next resistance.in case there will be new downtrends in the next weeks, as we predict, the first target for the third wave will be represented by 0.4808, a level where this third movement will be equal in wideness to the first wave. instead, the 17th June will represent a first possible

bottom date, as the number of descending days here in the third wave will be equal to 1.618 in wave 1 (32). in the event the third wave is extended, then we can expect a fall at least until 0.4087, a level that we have not seen since 2001.

the Big mac index is a comparison tool for the currency purchasing power. the parity ratio of the Big mac purchasing power between two currencies, comes from the division of the Big mac cost in one nation (in its own currency) with the Big mac cost in another one (in its own currency). this value is compared with the current exchange rate. if it is lower, then the first currency is undervalued (according to the purchasing power parity theory) with respect to the second one. if it is higher then the first currency is overvalued.

at the moment, the new Zealand dollar compared with the euro is undervalued by 59% while compared with the US dollar it is undervalued by 26%.

giorgio martini

NEW ZEALAND DOLLAR (06/05/2009)



maJorS reportTREND EURO, US DOLLAR, YEN, BRITISH POUND

SPOT PRICE 22/06/2009 01/01/2009 ∆% 01/01/2008 ∆%

EURUSDUSDJPYEURJPYEURGBP

1.384595.99132.77 0.8447

1.395290.79

126.65 0.9573

-0.8%5.7%4.8%

-11.8%

1.4583111.79163.04 0.7350

-5.1%-14.1%-18.6% 14.9%

Technical Analysis FX

DOLLAR/YENdollar/yen has been moving in a major down trend for several decades: at the beginning of the seventies it was trading at around 350, since the mid-eighties it went stably below 175. after having collapsed to a historical low at 79.75 in april 1995, the dollar started a strong reversal, reaching a top at around 147.65 in august 1998. from that level, the major down trend resumed, with a series of falling highs and “raids” below the key support at 115 (a level repeatedly supported by the Bank of Japan’s interventions). The dollar reached a bottom at around 101.35/85 at the end of 1999, level tested again at the end of 2004. The break of that support during last year, caused a new sell-off, that led the dollar towards 87 at the beginning of this year. from the beginning of february the dollar started to rally and

reached and overcome the psychological resistance at 100 (high at 101.50 on april 6th). The following correction brought the pair back to 93.85 at the end of may; then it started moving sideways below 99. By and large, in the last three months the dollar moved within a trading-range between 93.55/85 and 100/101.50. if the support at 93.55/85 holds, the picture for the coming weeks remains sideways: new buy orders are expected over 99-100, for a new test of 101.50. if the pair succeeded in overcoming this level (premature) the rally would resume, with first target in area 103.75/104 and extensions, in the coming months, towards the key resistance area 110-115, where strong sell orders are to be expected. renewed weakness for the dollar is expected below 93.55/85, targeting 91.40-92.00 and then the January 2009 low at around 87.

TREND SUPPORTS SPOT PRICE RESISTANCESTrend 3-6 months side S1 93.55/85++

95.99R3 103.75-104.00+

Trend 6-12 months side S2 91.40-92.00 R2 101,50++Trend 12-18 months side-up S3 87++ R1 99-100+


EURO/DOLLAR

euro/dollar was first traded in January 1999, at around 1.1800-1.1900 and fell to a historical low at 0.8231 on october 26th, 2000. from that bottom, the euro began accumulating and – since summer 2002 – moving upwards, entering progressively a major up-trend and reaching a top at 1.6038 on July 15th, 2008 (+95% vs. the historical low). the fall below the strong support at 1.5275 on august 8th, 2008 (level that had supported the pair in the period april-July) caused a major reversal, with a fast decline towards 1.3900, followed by a pull-back to a top at 1.4866 on September 23rd and a new sell-off to a bottom at 1.2330 on october 28th. in mid-december, a strong rally brought the pair, in just a week, to a top at 1.4719. then it started going down again and fell to a bottom at 1.2460 at the beginning of march, 2009.

during the last three months, the pair moved

upwards, with a first wave that reached a top at 1.3735, followed by a pull-back towards the support at 1.2885 (april 20th-22nd) and a second rally with a peak at 1.4340 at the beginning of June. the rise of the pair in the last quarter must be read within a bigger sideways frame, between 1.2330/1.2460 and 1.4360/1.4720, from the beginning of october 2008. the technical picture for the coming months remains sideways/slightly positive: there would be a confirmation of the recent bullish signal for the euro above 1.4340/60, targeting the december 18th 2008 peak at 1.4719 and then 1.4865-1.4900, with extensions towards the critical resistance at 1.5000, where strong sell orders are to be expected. a fall below 1.3700/50 would imply a loss of momentum, even if a signal of weakness would require a break below 1.3400: in that case, the target would be the strong support in area 1.2885-1.3000, where buy orders are to be expected.

Technical AnalysisFX

TREND SUPPORTS SPOT PRICE RESISTANCESTrend 3-6 months up S1 1.3700/50+

1.3845R3 1.4865-1.4900++

Trend 6-12 months up S2 1.3400+ R2 1.4720++Trend 12-18 months side S3 1.2885-1,3000++ R1 1.4340/60+


EURO/YENthe cross euro/yen was first traded in January 1999, at around 132.50-135.50, and fell to a historical low at 88.96 in october 2000. from the bottom, the euro began moving upwards, entering progressively a major up-trend, and reaching a historical high at 169.95 in July 2008 (+91% vs. the october 2000 bottom). the strong depreciation of the yen during last years has been mainly caused by the so called “carry trade”, i.e. the funding in low-yield currencies like the Japanese yen with the contextual reinvestment in asset classes in other currencies (i.e. stocks and bonds in euro, australian and american dollars, etc.). after the burst of the real estate and financial bubble – begun in the 2007 summer, with an acceleration after September 2008 – a progressive strong disinvestment from Stock exchanges around the world led to massive yen buying in order to square up carry trade positions. that provoked a crash of euro vs. yen, driven by a double source: the fall of euro against the dollar and, at the same time, the decline of the US dollar versus the

yen. after the break of 156 in September 2008 – in correspondence with the trendline that sustained the major up trend), the cross collapsed to a low at 113.65 on october 27th, 2008. in the following months, the cross moved sideways, above that level and below 131. in January 2009, the euro reached a new low at around 112.10 (-34% form the historical high).

form the end of January, the cross started to rally, reaching a top at 137.41 at the beginning of april, followed by a correction towards 124.40 on april 28th and a second up-movement with a peak at 139.19 on June 5th. if the support at 128.25 holds, the sentiment remains positive, with a possible rise over 139.20 to test the resistance in area 140-142, with extensions in the coming months towards 150, where strong sell orders are to be expected. renewed weakness below 124.40-126 (not very likely), targeting 122 and then 120. Below this support (unlikely) there would be a new test of the January low at 112.11.

TREND SUPPORTS SPOT PRICE RESISTANCESTrend 3-6 months up S1 128.25

132.77R3 140-142++

Trend 6-12 months up S2 124.40-126++ R2 139.20+Trend 12-18 months side-up S3 120-122+ R1 135.50

Technical Analysis FX


EURO/GBP

the cross euro/gbp was first traded in January 1999, at around 0.7100, and fell to a historical low at 0.5683 in may 2000. from the bottom, the euro began moving upwards, entering progressively a major up-trend, and reaching a historical high at 0,9809 on January 1st, 2009 (+72.6% vs. the may 2000 low). from that peak a strong correction drew the cross down to a low at 0.8638 on february 10th, 2009. then the cross bounced back to a top at 0.9478 on march 19th.

from the tops of march, the cross started heading south again, broke the previous lows of february and reached 0.8400. as long as the cross remains below the resistance at 0.8800, the sentiment remains bearish, with a possible prosecution of the downtrend towards the critical support in area

0.8000-0.8200, where buy orders are expected; below this level the fall could continue towards 0.7695. the overcome of 0.9080 (not very likely at the moment) would give a signal of renewed strength for the euro, targeting the January-march highs in area 0.9475-0.9520 and then (unlikely) the historical high at 0.9809, reached on January 1st 2009, with extensions towards the psychological resistance level at 1.0000.

maurizio milano

TREND SUPPORTS SPOT PRICE RESISTANCESTrend 3-6 months down S1 0.8335

0.8447R3 0.9475-0.9520++

Trend 6-12 months down-side S2 0.8000-0.8200++ R2 0.9080+Trend 12-18 months side S3 0.7695++ R1 0.8800


Technical AnalysisFX

Country Flag USD Spot Last vs USD % Ch 3M % Ch 12M 12mth High 12mth Low

Eurozone EUR= 1.4058 -12% 13% 1.5987 1.2457

UK GBP= 1.6485 -18% 20% 2.008 1.3746

Japan JPY= 95.22 -14% 9% 110.49 87.31

Switzerland CHF= 1.0859 -11% 10% 1.2241 0.9843

Australia AUD= 0.8053 -18% 34% 0.9787 0.6018

Canada CAD= 1.1535 -11% 17% 1.2995 0.9832

New Zealand NZD= 0.6448 -20% 31% 0.8097 0.4923

Sweden SEK= 7.7813 -16% 33% 9.2927 5.838

Norway NOK= 6.4459 -11% 30% 7.2227 4.953

Iceland ISK= 127.55 -14% 78% 147.55 71.67

Israel ILS= 3.963 -6% 23% 4.236 3.213

South Africa ZAR= 7.907 -32% 10% 11.62 7.2025

Egypt EGP= 5.598 -2% 6% 5.694 5.2825

Saudi Arabia SAR= 3.75 0% 1% 3.7685 3.7115

Czech Rep. CZK= 18.501 -21% 28% 23.438 14.404

Poland PLN= 3.2091 -18% 59% 3.9003 2.0221

Hungary HUF= 196.76 -22% 37% 251.64 143.19

Russia RUB= 31.1604 -14% 35% 36.3438 23.1531

Turkey TRY= 1.5354 -15% 33% 1.806 1.1512

China CNY= 6.833 -4% 0% 7.083 6.8108

Hong Kong HKD= 7.7499 -1% 0% 7.8142 7.7483

Singapore SGD= 1.4525 -7% 8% 1.5562 1.3476

Taiwan TWD= 32.95 -6% 10% 35.21 29.996

India INR= 48.02 -8% 21% 51.96 39.75

South Korea KRW= 1278.3 -19% 31% 1570.1 973.5

Thailand THB= 34.04 -6% 10% 36.26 31.04

Malaysia MYR= 3.53 -5% 13% 3.726 3.1305

Indonesia IDR= 10220 -16% 13% 12100 9070

Philippines PHP= 47.95 -4% 16% 49.94 41.3

Mexico MXN= 132383 -15% 34% 15.555 9.858

Brazil BRL= 19472 -22% 25% 2.511 1.5591

Chile CLP= 528.2 -23% 23% 682.5 430.6

Venezuela VEB= 2144.6 0% 0% 2144.6 2144.6

Colombia COP= 2164 -17% 31% 2608.15 1655.9

Levels Date:26-Jun-09 Source: Thomson Reuters

FXINTERNATIONAL DATA

fX Spot monitor


Country Flag Central Bank Rate Name Actual Previous

USA FED Fed funds 0-0.25 0-0.25

Eurozone ECB Refi 1.00 1.50

UK BOE Bank Repo 0.50 0.50

Japan BOJ O/N Call 0.10 0.10

Switzerland SNB 3 mth Libor 0.25 0.25

Australia RBA Cash 3.00 3.25

Canada BOC O/N Funding 0.25 0.50

New Zealand RBNZ Cash 2.50 3.00

Sweden Riksbank Repo 0.50 1.00

Norway Norges Bank Depo 1.25 1.50

Iceland CBI Policy 12.00 13.00

Israel BOI Short Term Lending 0.5 0.50

South Africa Reserve Bank Repurchase 7.50 9.50

Egypt CBE O/N Depo 9.00 9.50

Czech Rep. CNB 2 Week Repo 1.50 1.75

Poland NBP 28 Day Intervention 3.50 3.75

Hungary MNB 2 Week Depo 9.5 9.50

Russia CBR Refinancing 11.50 11.50

Turkey TCMB O/N Borrowing 8.75 10.50

China PBC 1 Year Lending 5.31 5.31

Taiwan CBC Discount 1.250 1.250

India RBI Repo 4.80 5.00

South Korea BOK O/N Call 2.00 2.00

Thailand BOT Repo 1.25 1.50

Indonesia BI BI 7.00 7.75

Philippines BSP Repo 4.25 4.75

Mexico BDM Target 4.75 5.25

Brazil BCB Selic 9.25 10.25

Chile CBC MPR 0.75 0.75

Levels Date: 26-Jun-09 Source: Thomson Reuters

central BanKS

FX INTERNATIONAL DATA


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


FXINTERNATIONAL 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


economic data

fX poll


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


marKetS view

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FX INTERNATIONAL DATA

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http://www.fxtradermagazine.com/Index_en.php

July

wed 1

12:50am JpY tankan manufacturing index

2:30am aUd Building approvals m/m

2:30am aUd retail Sales m/m

9:30am gBp manufacturing pmi

1:15pm USd adp non-farm employment change

3:00pm USd iSm manufacturing pmi

3:00pm USd pending home Sales m/m

Thu 2

2:30am aUd trade Balance

12:45pm eUr minimum Bid rate

1:30pm eUr ecB press conference

1:30pm USd non-farm employment change

1:30pm USd Unemployment rate

fri 3 9:30am gBp Services pmi

mon 6

9:00am gBp halifax hpi m/m

3:00pm USd iSm non-manufacturing pmi

11:00pm nZd nZier Business confidence

tue 7

5:30am aUd cash rate

5:30am aUd rBa rate Statement

9:30am gBp manufacturing production m/m

1:30pm cad Building permits m/m

3:00pm cad ivey pmi

wed 82:30am aUd home loans m/m

1:15pm cad housing Starts

Thu 9

2:30am aUd employment change

2:30am aUd Unemployment rate

tentative gBp mpc rate Statement

12:00pm gBp official Bank rate

fri 10

12:00pm cad employment change

12:00pm cad Unemployment rate

1:30pm cad trade Balance

1:30pm USd trade Balance

Sun 12 11:45pm nZd retail Sales m/m

mon 13 9:30am gBp ppi input m/m

tue 14

10:00am eUr german Zew economic Sentiment

1:30pm USd core retail Sales m/m

1:30pm USd ppi m/m

1:30pm USd retail Sales m/m

wed 15

tentative JpY BoJ press conference

9:30am gBp claimant count change

1:30pm USd core cpi m/m

3:30pm cad Boc Business outlook Survey

7:00pm USd fomc meeting minutes

11:45pm nZd cpi q/q

Thu 16 2:00pm USd tic long-term purchases

fri 178:15am chf retail Sales y/y

1:30pm USd Building permits

mon 20 2:30am aUd ppi q/q

tue 21

2:30am aUd monetary policy meeting minutes

9:30am gBp cpi y/y

12:00pm cad core cpi m/m

2:00pm cad Boc rate Statement

2:00pm cad overnight rate

wed 22

2:30am aUd cpi q/q

9:30am gBp mpc meeting minutes

1:30pm cad core retail Sales m/m

Thu 23

9:30am gBp retail Sales m/m

3:00pm USd existing home Sales

3:30pm cad Boc monetary policy report

4:15pm cad Boc gov carney Speaks

fri 249:00am eUr german ifo Business climate

9:30am gBp prelim gdp q/q

mon 27 3:00pm USd new home Sales

tue 2811:00am gBp cBi realized Sales

3:00pm USd cB consumer confidence

wed 29

4:00am nZd nBnZ Business confidence

1:30pm USd core durable goods orders m/m

10:00pm nZd official cash rate

10:00pm nZd rBnZ rate Statement

11:45pm nZd Building consents m/m

Thu 30


7:00am gBp nationwide hpi m/m

1:30pm cad gdp m/m

fri 31 1:30pm USd advance gdp q/q

JUlY, aUgUSt, SeptemBer 2009gmt london time


FXEconomic Calendar

august

Sun 2 11:45pm nZd labor cost index q/q

mon 3

2:30am aUd rBa monetary policy Statement




tue 4




wed 5


9:30am gBp manufacturing production m/m

9:30am gBp Services pmi



11:45pm nZd employment change q/q

11:45pm nZd Unemployment rate

Thu 6






fri 7

tentative gBp halifax hpi m/m





3:00pm cad ivey pmi

mon 102:30am aUd home loans m/m

9:30am gBp ppi input m/m

tue 11tentative JpY BoJ press conference


wed 12

12:50am JpY prelim gdp q/q

9:30am gBp claimant count change

10:30am gBp Boe gov King Speaks

10:30am gBp Boe inflation report



7:15pm USd fomc Statement

7:15pm USd federal funds rate

Thu 13





11:45pm nZd retail Sales m/m

fri 147:00am eUr german prelim gdp q/q


Sun 16 11:45pm nZd ppi input q/q

mon 178:15am chf retail Sales y/y

2:00pm USd tic long-term purchases

tue18


9:30am gBp cpi y/y



1:30pm USd ppi m/m

wed 19 9:30am gBp mpc meeting minutes

Thu 20 9:30am gBp retail Sales m/m

fri 2112:00pm cad core cpi m/m


mon 24

4:00am nZd inflation expectations q/q

9:30am gBp revised gdp q/q


tue 253:00pm USd cB consumer confidence

11:45pm nZd Building consents m/m

wed 26

9:00am eUr german ifo Business climate


3:00pm USd new home Sales

Thu 27

2:30am aUd private capital expenditure q/q

11:00am gBp cBi realized Sales

1:30pm USd prelim gdp q/q

fri 28 1:30pm cad gdp m/m

September

tue 1







FX Economic Calendar


wed 2

2:30am aUd gdp q/q


7:00pm USd fomc meeting minutes

Thu 3


9:30am gBp Services pmi




fri 4

tentative gBp halifax hpi m/m





3:00pm cad ivey pmi

tue 89:30am gBp manufacturing production m/m


wed 9

2:30am aUd home loans m/m



10:00pm nZd official cash rate

10:00pm nZd rBnZ press conference

10:00pm nZd rBnZ rate Statement

Thu 10







2:00pm cad Boc rate Statement

2:00pm cad overnight rate

Sun 13 11:45pm nZd retail Sales m/m

mon 14 9:30am gBp ppi input m/m

tue 15




1:30pm USd ppi m/m


wed 169:30am gBp claimant count change


2:00pm USd tic long-term purchases

Thu 17

tentative JpY BoJ press conference

8:15am chf retail Sales y/y

1:00pm chf libor rate

1:00pm chf SnB monetary policy assessment


mon 219:45am gBp inflation report hearings

12:00pm cad core cpi m/m

tue 229:30am gBp cpi y/y


wed 23

9:30am gBp mpc meeting minutes

7:15pm USd fomc Statement

7:15pm USd federal funds rate

Thu 24

9:00am eUr german ifo Business climate

9:30am gBp retail Sales m/m


11:45pm nZd current account

11:45pm nZd gdp q/q

fri 25


3:00pm USd new home Sales

day 2 all g20 meetings

Sun 27 10:45pm nZd Building consents m/m

mon 28 9:30am gBp current account

tue 2911:00am gBp cBi realized Sales

3:00pm USd cB consumer confidence

wed 30

12:50am JpY tankan manufacturing index



3:00am nZd nBnZ Business confidence

7:00am gBp nationwide hpi m/m


1:30pm cad gdp m/m

october

Thu 1




fri 21:30pm USd non-farm employment change



FXEconomic Calendar

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Forex Trading Magazine - ber reviewrok S survival brokers...ruggero Mameli spent 11 years in london working in fX, derivatives and fixed income. he joined danske Bank and worked between