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EarnForex.com Monthly Newsletter
| | | | Welcome to the latest issue of EarnForex.com newsletter — September 2015. In this issue of EarnForex.com newsletter, I will remind you about the most important Forex-related events of the last month and will also show you the list of the site's latest updates. | | EDITORIAL: Many Faces of Hedging | | Hedging is a popular term in online Forex trading. Unfortunately, it can get confusing as there are three different concepts described by this word. Two of them are worth looking into while one can cause negative effect on your performance despite its popularity. Going both long and short on the same currency pair seems to be a nice trading technique at a first glance. Unfortunately, it is one of the most misleading tactics to use in retail Forex. The usual rationale goes like this: why turn paper loss into realized loss when one can just lock a losing sell order with a buy order? In fact, locking the loss that way is no different from moving it from paper to your balance. What's more, you are losing extra on spreads, swap rates, and required margin (unless your broker offers free hedging margin-wise). Hedging your risks (trades in other markets, holding foreign currency, etc.) with spot Forex positions is a viable trading technique. If you expect to earn a big amount in some foreign currency, it may be prudent to hedge against the rates fluctuations by shorting the foreign currency against your own with some retail broker. Likewise, trades in options or equities can be hedged using leveraged spot trades. It is necessary to remember that the goal of such hedging is not to gain profit but to protect some existing or future earnings. Triangular arbitrage is a less known scheme. The idea here is to open positions on three different currency pairs that together form a neutral stance on the market. For example, going long EUR/USD, long USD/JPY, and short EUR/JPY results in a market-neutral position if the right proportions are used in trade volumes. The goal here is not to make profit on price movement (there cannot be any profit or loss if position sizes are correct), but to earn on a swap rate difference produced from such an arbitrage. The difficult part is to find a broker with such three currency pairs that can form a triangular arbitrage and provide the resulting interest rate yield big enough to be worth all the margin, spreads, and executional risks involved. It is important to distinguish between the forms of hedging if you plan to incorporate some sort of it into your trading system. Of course, I would not recommend using the classic MetaTrader hedging as a means to "lock your losses" even if the cost of it seems low. Getting out of the losing position is always cheaper than to hold on a pair of hedged trades. | | Overview of the major currency pairs' performance in August | | EUR/USD — was in an uptrend during the bigger part of the month until it lost nearly all of its gains in one week. It was at the maximum at 1.1713 on August 24, at its minimum at 1.0847 on August 5, finishing the month at 1.1210. GBP/USD — rose slowly during the first three weeks and fell abruptly during the final one. The highest monthly rate was at 1.5818 on August 25, while the lowest — at 1.5335 on August 28. GBP/USD finished August trading at 1.5340. USD/JPY — moved slowly during the first half of August but then, posted a significant spike down and a minor recovery afterwards. The pair rose to as high as 125.27 on August 12, reaching a bottom at 116.13 on August 24 and closing the month with the 121.21 rate. EUR/JPY — demonstrated a distinctive M-pattern in August. The monthly high was at 139.00 on August 21, the monthly low — at 134.99 on August 5. Trading ended at 135.85 for this currency pair. GBP/JPY — showed a major drop after a lot of sideways movement during the month. The maximum level for this pair was 195.27 on August 18, while the minimum — 183.15 on August 24. The month's trading ended at 185.92 for GBP/JPY. | | Fundamental background of the past month | | The US dollar experienced weakness in August as traders trimmed bets on an interest rate hike in September after China's stock market broke down. The Federal Reserve policy minutes did little to help the currency as they were perceived to be dovish by market participants. The greenback regained some of the lost ground by the month's end as there were policy makers who thought that the September hike is still in the cards. The euro fared surprisingly well during the last summer month. The currency even soared during China's scare, effectively taking over the role of a safe haven from the dollar. The news that Greece is going to receive the next round of bailout from the European Union at last also supported the currency. The Great Britain pound was following macroeconomic reports, rising on good news and falling on bad. Yet sometimes the sterling behaved in opposition to fundamentals. As one could expect, the Japanese yen performed very well thanks to the Chinese problems. Yet the currency had its negative factors in the form of underwhelming economic reports and prospects for monetary easing. The Canadian dollar showed poor performance on the Forex market during August as crude oil prices continued to move down, though the rally of crude by the end of the month allowed the currency to trim losses. Both Australia and New Zealand have strong economic ties to China, therefore it is not surprising to see that the Australian and the New Zealand dollars were among the weakest currencies on the FX market during the month. Gold had a rather good month of trading, at least partially thanks to the dovish Fed minutes, even though China and its problems had a detrimental effect on the metal's performance. | | Interest rate changes in August | | Iceland | 6.75% | +0.50% | 7.25% | | | Top 5 Forex brokers of the last month | | Four new Forex brokers have been added to EarnForex.com since the last issue of the newsletter: - Capital Index — a regulated Cypriot broker with MetaTrader 4 platform and two account types: one based on fixed spreads, and the other one based on lower spreads and commission. The minimum account size is $100.
- Darttrader — a funny Russian broker with full-scale references to Star Wars franchise. It is a bad idea to keep your money with a broker that does not take trading seriously, but their conditions look to be aimed at hardcore active FX traders: $2 minimum account size, 1:500 leverage, fixed and variable spreads available, the usage of scalping and expert advisors is encouraged.
- TrioMarkets — a new company regulated by CySEC. They offer rather standard service with MetaTrader 4 and WebTrader platforms. The minimum account size is $100. They also have quite a big choice of trading instruments with Forex leverage up to 1:400.
- VerumFX — a Russian broker with CROFR regulation and rather plain MT4 trading conditions — up to 1:200 leverage and $100 minimum account size.
You can always view our full list of Forex brokers. | | There were the following important Forex industry news since the last issue of the newsletter: - MetaQuotes launched a fully functional MetaTrader 4 web platform beta version.
- British Financial Services Compensation Scheme announced that the customers of LQD Markets, which went under in January this year after SNB schock, are to be compensated for the amount of funds they had in their account (up to £50,000).
- CFTC approved the tighter rules for the US retail Forex industry. Brokers will need to be better capitalized, to conduct better risk management programs, and to provide more disclosures among other things.
- RoboForex enhances its CopyFX platform by enabling proportional copying of the trading strategies.
- Australian regulator ASIC made XM.COM and FIBO Group to stop offering their services to Australian traders.
- Dukascopy now offers trading accounts denominated in gold.
- GFT Forex is now out of retail FX business and its clients are moved to City Index.
| | Until the next newsletter issue! | | That is all for the September issue of the EarnForex.com newsletter. If you have questions, comments or just want to see something else in the next monthly issue, please let us know. | | |
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