Richard Bowman is a writer, analyst and investor based in Cape Town, South Africa. He has over 18 years’ experience in asset management, stockbroking, financial media and systematic trading. Richard combines fundamental, quantitative and technical analysis with a dash of common sense. He covers global equities, crypto assets, ETFs, currencies and indices. He holds a Diploma in Marketing Management from the Institute of Marketing Management in South Africa.
With the UK’s exit from Europe on 29 March 2019 just over 4 months away, uncertainty continues to grow. Just when it appeared that Prime Minister Theresa May had a deal and her cabinet’s approval, ministers began to resign.
It appears the Prime Minister does not have the backing of Parliament and there are mounting calls for her resignation.
Sterling is reacting sharply to developments and after strengthening marginally on news of the cabinet approval, sold off sharply when ministers began to exit.
Bank Assets on the Move
One of the very real implications of Brexit has become clear as a growing list of investment banks have announced plans to move as much as $280 billion in assets from London to Frankfurt. So far Goldman Sachs, JPMorgan, Morgan Stanley, and Citigroup are finalizing Brexit plans according to a Bloomberg article published last week.
Deutsche Bank announced in September that it planned to move assets to Frankfurt, with the Financial Times suggesting that it may move several hundred billion USD worths of assets from its London balance sheet to Germany.
The implications of moving all these assets away from London have yet to be fully digested by the market. The mechanisms involved in moving assets from one entity to another depending on the type of assets and whether they are balance sheet assets or owned by a bank’s clients. In some cases, complex derivatives may be required to transfer risk from one legal owner to another.
Regulators will have to approve some plans, which will have an impact on timing. But, these plans can only be finalized when the details of the UK’s deal with Europe is known, and the current deal seems to be anything but final.
What Are the Consequences?
In the short-term uncertainty is likely to mount over the next few months as banks grapple with logistical and legal issues. In the longer term, the only certainty is that London will have a smaller financial services industry, while Frankfurt and Dublin will see their financial services industries growing.
The currency pairs that are relevant are obviously the EUR/GBP and GBP/USD.
There is little reason to expect strength from the Pound until there is a lot more certainty. The EUR/GBP pair has traded in a fairly tight range over the last 12 months but remains close to 2017 lows. The GBPUSD may well be targeting 2017’s lows as both Brexit and weak equity markets reinforce the USD’s safe haven status.
Eventually, the Pound will probably offer a great buying opportunity, but over the next few months, any good news is very likely to follow by the more bad news. Selling Sterling rallies may be a lucrative strategy.
As far as currencies go, with the risk of falling liquidity and rising uncertainty the only winner may well be the USD.
UK assets are trading at a discount to other markets, but then there a good reason for that. It’s worth remembering that most of the companies in the FTSE 100 are global businesses that earn profits around the world. If the Pound weakens earnings from international operations go up.
Both indices will, of course, be affected by global equity markets which are currently under pressure. If calm returns to global markets the FTSE 100 may offer an opportunity which would be further supported if the GBP weakens. Meanwhile, the FTSE 250 will offer an opportunity if a sense of certainty arrives.
With the US midterm elections just a few days away, it’s worth thinking about what they could mean for global markets. If the polls have it right, the Democrats will take the House quite comfortably, while the Senate will remain in the hands of Republicans.
If that is the case, for the first time since the 2016 election, the GOP will no longer control the White House, Senate, and House, which will introduce a new dynamic to Washington.
Some Historical Perspective
Firstly, it’s worth looking at history for some perspective. The party in opposition to the president’s party does usually win more seats during the midterm election. So, it would not be unusual for the Democrats to win the House, the Senate, or both. In this case, there are also a large number of Republicans retiring (39 to be exact), so more seats than usual do not have an incumbent defending them.
While it’s often assumed that a Democrat-led house is bad for the stock market, and will be in this case, historically a Democrat controlled house has actually been slightly better than a GOP controlled house for stocks. At the same time, it’s worth remembering that we are in the tenth year of a bull market.
Historically, we have also seen market volatility increase ahead of the midterms, as we are seeing now. But, since current market volatility has several other causes – the trade war, rates, and valuations – it may not automatically end after the election.
Likely Outcome of Expected Results
If the Democrats do take the House, there are several likely outcomes. The first will be more gridlock in Washington, with fewer new laws being passed. This could be both good and bad – depending who you ask. Fewer legislative changes could mean more certainty, something investors like.
Trump and the GOP will have a hard time introducing new tax cuts or making the last round of tax cuts permanent. Some analysts even think it’s possible some tax cuts would be reversed.
Trump would also struggle to ratchet up the trade war with China, which may put his whole trade strategy in jeopardy. This would have implications for global markets, and in particular for emerging markets.
A Democrat-controlled House would probably lead to new investigations into Trump, his campaign and his business interests. The topic of impeachment may well come up to, though it would be unlikely to go very far as any verdict requires the support of 67 senators. It’s also believed that Robert Mueller will announce his findings on alleged collusion between the Trump campaign and Russia.
And Finally, large gains for Democrats would turn attention to the 2020 election and the chances and implications of the Dems taking the Senate and White House.
Of course, this is all assuming the results are in line with the polls. There are two possible surprise outcomes, namely the GOP keeping both the House and Senate or the Democrats winning control of both. Because both scenarios are unexpected, they would lead to large reactions from the market.
As far as markets are concerned, the midterm elections aren’t taking place in a vacuum. Investors are concerned about the trade war, interest rates, valuations and the sustainability of earnings growth.
If the Democrats do take the house, the knee-jerk reaction will probably be lower stock prices as further tax cuts would no longer be on the table. If an initial shock doesn’t have a knock on effects, markets will then look at the longer-term implications including the global economy and the trade war.
Gridlock in Washington may actually lead to more certainty with regard to policy and regulation as major changes would become less likely. It would also be in both parties’ interests to continue investing in infrastructure – but there is always the possibility that one or other party may try to scuttle a new bill for political gain. This would be very bad for markets.
Over the next two years, there will be plenty of opportunities for Washington to trigger new periods of volatility over the debt ceiling, investigations into Trump and possible impeachment hearings.
In the event that the Republicans retain the House, a relief rally is almost certain, but that may be followed by a new era of uncertainty as Trump attempts to double down on his policies.
The US Dollar
The USD has been a rocket for most of 2018, in part at least because of the trade war. A Democrat-controlled House would stand in the way of further escalation of the trade war, and potentially reverse some of the previous measures. Many analysts believe this will lead to USD weakness, although one would expect that to some extent this would be priced in by now.
Gridlock in Washington may also stall further tax cuts and possibly even slow government spending, both of which could also lead to USD weakness.
If the GOP does happen to retain control of the House, we can expect a strong rally in the USD as this is the result that is probably not priced into the market.
The biggest beneficiary of the Dems winning the house may be emerging markets. Emerging market assets – currencies, bonds, and equities – have all been under pressure since before the trade war started and are heavily oversold. A de-escalation of the trade war would lead to the expectation of revitalized demand for raw materials from China which may trigger a sharp relief rally for emerging-market assets. Dollar weakness would support such a rally too.
If the Democrats do not win the House, we can expect to see another wave of selling in emerging markets.
The question, of course, is how much of the expected result is already priced in? For the most part, markets have been focussed on interest rates and the trade war over the last 6 months. Equities have fallen, but a host of other reasons have been given for that. In addition, on two occasions when polls showed the gap between the parties narrowing (in May and August) there was little reaction from markets. That would suggest the expected result is not fully priced in – and we may see some trading opportunities in the next week.
US President, Donald Trump has become increasingly critical of the US Central Bank in the last 6 months. Last week he went as far as to say the Fed had ‘gone crazy’ and was ‘out of control.’ The Federal Funds Target range is now 2 to 2.25%, still close to the lowest it has been in 60 years.
The essence of Trump’s argument is that the Fed is raising rates too fast, and this will cause growth to stall. He feels there is insufficient evidence that inflation will return, and rate hikes are unnecessary at this stage.
His comments seem to have a lot to do with the stock market which has seen a marked increase in volatility over the last two weeks. Trump has been quick to point out each new stock market high, and lower prices remove his ability to do so. But whether the stock market weakness is a result of interest rates, the trade war or something else is almost impossible to determine.
Separately, Trump has also threatened to intervene to weaken the USD. This would be unprecedented and highly unusual – but then Trump is not like most presidents.
With the last rate hike came an indication that the Fed’s era of adopting and accommodative stance was over. In addition, the USD rose more than expected after the market had time to consider the remarks. As it stands, the Fed expects to hike again in December, and three more times next year. Trump is not likely to be pleased with any of this.
He is not alone in his criticism of the Fed. Many believe the Fed policy is based on outdated theories. Analysts also point out that higher rates lead to a stronger USD, offsetting the effect of import tariffs. So, for Trump not only are higher rates a threat to the economic growth he likes to take credit for, but they are harming the trade war he is waging with China.
However, the Fed may still have a point. Tax cuts and federal spending is only just the beginning to filter into the economy. When one considers that unemployment is already at very low levels, the combination could lead to a sudden jump in inflation in the next two years. Raising rates now will also give the Fed room to act if growth does hit a wall in a year or two. Furthermore, it may be just as likely that if the economy does slow, it will be because of the trade war rather than interest rates.
Nevertheless, the technicalities are probably irrelevant when it comes to President Trump. If he decides to go to war with the Fed, it’s not going to be an academic debate.
Increasingly, analysts are talking about the Fed potentially becoming politicized.
Three out of seven Fed governor seats remain vacant, and Trump can influence the Fed with the people he nominates to fill those seats. One of those seats may be taken by Michelle Bowman who is due to be confirmed by the Fed shortly. His other picks are actually facing resistance from his own party, the GOP. But, if they are not confirmed, he would have the option of nominating candidates with a more dovish stance – though he would still need them to be confirmed by the Senate.
Trump is also not happy with some of the members of the Fed he has already appointed. He stated that “I put a couple of other people there I’m not so happy with too but for the most part, I’m very happy with people,” which makes it quite possible that his attacks on the Fed are little more than rhetoric. Some have suggested that he just wants to have a scapegoat in case the economy does slow or there’s a market crash.
If Trump’s battle with the Fed remains one of rhetoric, there is little reason for it to have any implication for markets. The Fed will probably continue to raise rates gradually as they have indicated they will, only deviating from this plan if the circumstances change.
If Trump was to somehow manage to gain control or at least influence over the Fed, the implication would be that rates stay lower for a longer period. Ramping up the rhetoric could have a similar effect but to a lesser degree. So, what would lower interest rates mean for the various asset classes?
The S&P500 and the broader equity market would likely see increased volatility if tensions between the Fed and the White House escalated to the point where the source of policymaking became uncertain. But, in the event that Trump actually managed to put a lid on rate hikes, we would probably see asset price inflation, most noticeably in the stock market.
The implication of rates staying lower for longer would be for the USD to weaken against most currencies. The US Dollar index would be the obvious play as the Dollar would weaken against all major currencies.
In theory, lower rates would be bullish for Gold. In reality, there is little correlation between the two and the Gold price has disappointed more often than not in recent years. Still, any indication of Trump winning his battle with the Fed would probably lead to a knee-jerk rally for Gold. And, when we consider that Gold is still close to multi-year lows, the potential for a sustained rally is not a farfetched idea.
One of the consequences of lower rates and a weaker USD would be that import tariffs would be more pronounced. Even without tariffs, a weaker USD would lead to higher prices for imports. This would hurt China especially and would eventually hurt those countries that supply resources to China. That’s of course if the trade dispute were not resolved.
Geopolitics has a become a market mover. It is not enough to know the basic fundamentals but to follow political news and the effect of each world leaders move. For traders, that can be an opportunity.
All of this may be an academic exercise, but one worth thinking about in case Trump’s battle with the Fed heats up. Donald Trump is unlike previous US leaders and prone to going against the grain – it’s well worth preparing for the unexpected.
The developing trade war between the US and China has created turmoil in emerging markets, most noticeably in the form of a sell-off of the Chinese stock market and currency.
Trading the trade war is not very straightforward. Firstly, we really don’t know how it will end. It will probably be resolved eventually, but the timing will make a big difference.
The longer it lasts the more damage will be done, and that will have longer-term implications. A longer trade war may also trigger a domino effect through other parts of the global economy. If the trade war was to be resolved fairly soon, prices would normalize quite quickly.
One thing to remember is that it appears Trump is happy to keep the pressure on as long as the US stock indices continue making new highs. If volatility in the US stock market picks up, as it is now, he may be forced to soften his stance.
Several markets related to the trade war are currently very oversold, and should the impasse be resolved, sharp reversals are possible in some of these markets.
Traders should be careful of using the same approach across all emerging markets. Some markets have been caught up in the trade war, while others have deep-seated underlying problems of their own.
Tensions over trade began to grow between the US and China between January and May this year. In May the US began to effectively impose tariffs on certain imports from China by terminating tariff exemptions. More products were added in June and more gain in September.
The Chinese Renminbi has fallen 10% since March as the trade war has escalated. The Shanghai composite has meanwhile lost as much as 25% since the beginning of 2018.
The slide in the renminbi has to a certain extent offset the added tariffs – the weaker currency means US importers are paying slightly less before tariffs are added.
It’s worth noting that the slide in the value of the Renminbi has slowed significantly since July despite the additional tariffs with a double top potentially forming. It is possible that the Chinese Central Bank is supporting the currency to prevent capital flight, as they experienced in 2015/2016.
Not many forex brokers offer to trade in the Renminbi, but a few do. If you are looking to trade the Chinese currency you will be trading the Offshore Renminbi or CNH. The CNY is the Onshore Renminbi which us restricted and managed by the Central Bank.
Turkey has several problems. Firstly, a series of populist policy decisions by the president eroded investor confidence, triggering a selloff of the already structurally weak Lira. This turned into a vicious cycle as much of the country’s government and corporate debt is USD denominated, and effectively rises as the Lira weakens. On top of this precarious situation, the US then imposed new import tariffs on Turkish goods.
The Turkish Lira had lost almost 46% of its value by the middle of August and is now consolidating in what could turn out to be either a continuation or reversal pattern. The benchmark equity index, the BIST100, fell as much as 30%, though it has recovered some of those losses.
The Turkish economy is one of the most vulnerable in the world, and further emerging market volatility could very easily lead to further losses for both the currency and stock market. Investors will probably want to see policy changes before a sustained recovery begins.
Argentina had to turn to the IMF to help prop up its balance sheet in May, and this loan was recently increased to $57 billion. The Peso reached an all-time high of 41.47 against the USD, having traded at 18 in January. Last week, the Central Bank raised interest rates to 65%, indicating how serious the crisis is.
The benchmark stock index recently tested the all-time high recorded in January – though this has more to do with the inflationary effect of a weak currency than with earnings.
Argentina is one of the weakest markets and will be vulnerable to further fallout from the trade war. Traders watching the stock index should focus on the technical picture rather than trying to weigh up valuations and a fluctuating currency.
South Africa’s economy has been under pressure for several years as a result of a scandal-ridden government. In the second quarter, the country officially dipped into a recession.
South Africa’s currency, the Rand, is structurally weak and was also rated by Bloomberg as one of the most vulnerable in the world. The Top40 stock index has made little ground since 2014 as political uncertainty led to an investor exodus.
A certain degree of political stability has been restored and South Africa is beginning to look more like a potential turn around play. South Africa is also a major commodity exporter and highly correlated with China’s economy. If the trade relationship between China and the US is resolved, SA may be a market to watch on the upside.
Commodities, especially base metals like copper and iron ore are another potential play based on how things develop. If the standoff is prolonged its likely to have an ongoing impact on China’s domestic economy, which includes massive infrastructure projects. Besides metals prices, traders can also look to Australia’s large commodity exporters.
Global Tech Stocks
The original FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have a few problems of their own. Not only are they priced for strong growth going forward, but the likes of Facebook and Google are facing growing scrutiny over issues related to users’ personal data.
The trade war has now brought a new dynamic to the sector. Chinese tech giants Alibaba and TenCent are both under pressure due to the trade war. China is also very important in Apple’s life, both as a supplier and as a customer. Ongoing pressure on China’s economy will eventually begin to impact Apple.
As you can see there are quite a few instruments that traders can use to play the trade war, either in the case of an escalation, or continuation or in the case that it is resolved. When choosing a forex broker it’s a good idea to look at the range of instruments offered so that you have the option of expressing trades through several instruments.
As was mentioned at the beginning, it’s impossible to predict how all of this will play out. Traders should, therefore, trade opportunistically and keep an open mind.
Despite narrowing in the last few days, the spread between the yield on German and Italian bonds remains at its highest levels since early 2013. The spread narrowed to 282 bps from 306 two days earlier as risk appetite returned to markets.
Italy’s 10-year bonds now yield 3.63%, just 1.02% below Greece. German 10-year yields are 0.54% despite almost doubling this year.
The spread has widened over the course of the year amidst growing concerns over Italy’s fiscal position and the fact that the European Commission is unlikely to accept Italy’s budget proposals. The Italian Finance Minister most recently proposed raising the budget deficit to 2.4% of GDP next year – something the European Commission has so far flatly rejected.
In early September, Fitch lowered Italy’s credit rating, highlighting the weakness of the country’s fiscal position.
The proposed budget includes growth assumptions of 1.5% in 2019, 1.6% in 2020 and 1.4% in 2021. This is ahead of the forecasts made by a Bloomberg survey of economists which had a median forecast of 1.2%.
Furthermore, it is feared the situation is putting pressure on the fragile coalition between Italy’s Lega Norda and the 5-Star Movement that governs Italy.
While the situation is a long way from the full-blown crisis that threatened the Eurozone’s existence in 2011 and 2012, predictably the market is nervous that it could escalate. Already some politicians have stated that if Italy had its own currency these problems wouldn’t exist.
Adding fuel to the fire is the fact that European Central Bank is winding down its monthly asset purchase program and will be reducing its bond purchases by 50% in October. This will remove an underpin supporting Italian bond prices.
EUR/USD traders will want to keep an eye on the spread between Italian and German bond yields as it may well dominate the market narrative in the months to come. Even if the actual economic impact is limited, it will give substance to the effects growing populism could have on European economic policy. It could also create further tension between the European countries with strong economies and those with weaker balance sheets.
The Euro has lost ground against the USD since the FOMC meeting last week, and further losses are likely if the situation escalates. After reaffirming resistance above 1.18, the EUR/USD pair has fallen sharply. The pair is now trying to reclaim support at 1.1454. If it can’t hold this level, the immediate target is the major low at 1.1301 recorded in August.
The narrow price action over the past two days suggests an impending larger move in one direction or another early next week. The current consolidation has support at 1.1394 and resistance at 1.1592, although those levels could be tested further before we see a convincing move.
In the absence of news flow, the Euro is very oversold, and a bounce to at least the midpoint of the downtrend (1.1632) is highly likely. Beyond that, we will need to look at the strength of the USD. Gold, which also highly affected by rising bonds yields, is trading in a bearish sentiment since the bond market crash.
However, given the technical picture, any news flow, particularly comments from European or Italian leaders, could trigger a sharp reaction. For now, traders should watch the consolidation range carefully, especially the price action at the upper end of the range.
CFDs, or Contracts for Difference, are an alternative trading instrument that gives traders access to multiple asset classes, including stocks, forex, commodities, and even cryptocurrencies. In this post, we’ll go over the differences between trading CFDs on equities/stocks and trading the stocks themselves.
What exactly is a CFD?
It’s worth starting out by looking at exactly what you’re trading when you’re trading a CFD. Unlike stocks, bonds, and forex, CFDs are not an asset class. Instead, they’re actually trading instruments.
CFDs are OTC (over the counter) derivative contracts that are entered into between a trader and a broker or CFD provider. CFDs are very similar to futures contracts, though unlike futures, they’re priced at the current spot price. Futures, in comparison, are priced for a date in the future and can be traded on exchanges where CFDs cannot.
As the name implies, a CFD is a contract between two parties. One party agrees to pay the other the difference between the price of the underlying asset from when the contract is opened and when it is closed.
When a trader opens a new CFD trade on stocks, the broker opens an identical trade in the underlying stock, which acts as a hedge for the broker. For example, if the client has a long EUR/USD or gold CFD position, the broker owns the corresponding short position, as well as a long position in the stock.
What exactly is a stock?
A stock represents a share of the equity in a corporation. Stocks give their owners various rights, including:
The right to a proportional share of dividends that are paid out.
The right to information about the company.
The right to vote at shareholder meetings.
The right to a share of the assets if the company is liquidated.
As you can see, there is more to owning a share than merely participating in price appreciation.
Margin and Leverage
One of the key differences between CFDs and stocks is that CFDs are traded using margin, which means they come with leverage. This margin acts as a deposit and trading on margin essentially means the broker is lending capital to their client, thereby allowing them to trade with more capital than they have in their trading account. This means that both gains and losses are magnified.
Brokers that offer CFDs typically allow their clients exposure worth 5 to 50 times the value of the capital they actually commit to the trade. As an example, FXPRIMUS is a popular CFD broker which offers CFDs on over 50well-known equities. The margin on their equity trades varies between 5% and 30% of the value of the trade, depending on the volatility of the stock.
Traditional equity accounts do sometimes offer margin trading, yet this varies from broker to broker, is often limited to 50%, and often requires future collateral.
The other very compelling case for CFDs is the ease of short selling. Short selling stocks with a stock trading account are possible but this is often a tedious process. Whenever a short sale in an equity is executed, the stock has to be borrowed from a holder of the share, for which a fee is paid. The stock first has to be borrowed, before it can be sold. In many cases, borrowing stocks can be prohibitively expensive for retail traders due to the minimum amounts charged by lenders. Once the stock has been borrowed, traders are restricted in the way they can execute a short trade.
The entire process is far more straightforward with CFDs. Apart from a small number of stocks that can’t be short sold, from the trader’s perspective, there is little difference between going long or short. The entire process is built into the platform and happens behind the scenes.
CFD brokers are often able to match long and short positions from different clients off against one another, reducing borrowing costs in the process. CFD brokers can also borrow stocks at lower rates, making short positions more affordable for their clients.
Access to other asset classes
Traditional stock trading accounts allow clients to trade stocks and ETFs – which are a type of stock. You cannot use a stock trading account to trade forex, futures, commodities, indices or cryptocurrencies.
Most CFD trading platforms, however, give their clients access to several asset classes with one CFD trading account, usually forex pair like EUR/USD, GBP/ USD, etc. FXPRIMUS, for example, allows clients to trade 50 global equities, over 40 currency pairs, 3 energy contracts, 10 global indices, precious metals, and 7 major cryptocurrencies, all from one trading account.
The real advantage to this is that you can start out trading one asset class, and slowly begin to explore and add new asset classes over time.
Access to global equities
Traditionally, a stock trading account gives you access to the stock exchanges in the country in which the account is held. In most cases, though not all cases, you cannot use the UK- or US-based stockbroking accounts to trade equities in Hong Kong or Singapore.
We now live in a global world, and if you are going to trade equities you should be able to trade any company in the world. CFD brokers are able to easily add new exchanges and stocks to their platforms. Unlike normal stock accounts, clients do not need to have an account with each exchange. The CFD broker only needs one account to trade on each exchange and using that one account they can open CFD positions for all their clients.
As mentioned, stocks come with various rights. These rights do not come with CFDs. Since most traders are not interested in the underlying rights but in exposure to changes to a stock price, CFDs are a low-cost way to take advantage of price changes.
CFDs also offer a hassle-free method for traders to trade with margin, sell stocks short, and access other markets if they want. In short, while stocks are better suited to long-term investors, for day traders, swing traders and medium-term traders, CFDs are the way to go.
The FANG stocks are some of the biggest consumer and tech stocks listed on the US market. They are favorites amongst active traders because their high growth rates have led to massive returns and strong trends.
CNBC host Jim Cramer originally coined the term ‘FANG Stocks’ in 2013, and it referred to Facebook, Amazon, Netflix, and Google. Most traders now include Apple and use the acronym FAANG.
Some have even included Alibaba and Nvidia, extending the acronym to FAAANNG. However, for this discussion, we will stick to the five, FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google.
The easiest way to profit whenever a FAANG price goes up or down is to trade Contract for Difference (CFD) on these stocks.
An overview of the FAANG Stocks
Facebook is worth $450 billion, making it the fourth largest company in the world by market cap. Since listing in 2012, the company has grown EPS from $0.16 to $6.80 in 2017. It’s done this by building a user base of over 2 billion monthly users and growing the profitability of its advertising business. Facebook’s stock price has risen more than 500 percent since 2012.
Amazon is the most successful web retailer in the world and the second most valuable company in the world. Since 2010, it has grown annual earnings from $2.28 a share to $6.35, which is the reason the company is now worth $863 billion. Traders and investors both love Amazon and believe in the vision of its founder Jeff Bezos. $1,000 invested in Amazon in 1997 would be worth over $1 million today.
We all know how innovative Apple, the company that brought us the iPod, the iPhone and the iPad, is. Steve Job’s vision and the company’s long history of bringing out new products has made it the most valuable and profitable company in the world. Between 2005 and 2015, Apple grew net income from $1.13 billion to $53 billion, a 5000% increase. Its earnings per share have grown from $1.68 in 2010 to $10.36 in 2017.
Netflix is one of the fastest growing companies in history. If you had invested $1,000 in Netflix in 2002 when it listed, your investment would be worth over $400,000. However, along the way, Netflix has had some large pullbacks, allowing traders to short the stock, and then buy it back at a lower price.
Anyone who uses the internet knows how prolific Google is. It’s all over the web and makes over a hundred billion USD a year from its advertising business. Although it is no maturing as a company it still managed to grow earnings per share from $10 in 2010 to $34.2 in 2017. Google’s share price has doubled since 2015, giving the company a value of $800 billion.
Using CFDs to Trade FAANG Stocks
FAANG stocks are favorites amongst traders because they have strong underlying growth, lots of liquidity and they are in the news a lot. There are opportunities to trade over every time period from minutes to months, and opportunities to go long and short.
CFDs (contracts for difference) are one of the best instruments to use to trade these types of stocks. They offer the opportunity to use leverage and to take short positions not only on currencies and commodities such as EUR/USD, GBP/USD, gold and crude oil but also on stocks. When you trade CFDs you do not actually own the underlying asset, but you have exposure to the price move, whether its up or down.
Recommended trading strategies
There are several very different trading strategies that investors can use to trade FAANG stocks. Because these stocks are in the news a lot, traders often trade around announcements and other news flow.
Stocks offer the best trading opportunities when volatility increases, and this happens when more traders are watching them. For Apple, this happens when a new product is launched and when earnings are announced. For Amazon, Prime Day and the Christmas shopping season are important. For Facebook and Netflix, any announcement about subscriber and user numbers are important.
Traders need to work out what the market is expecting and whether the company is living up to those expectations. Traders will often buy a stock as the hype increases, and then sell when the news is released – unless it’s much better than expected. If they believe the amount of hype is unrealistic, they may even go short just before the announcement, in anticipation of disappointing news.
If you trade on short-term charts, you can take long and short positions, in the direction of the medium-term trend on a 4-hour, 60-minute or 15-minute chart. Moving average cross-over strategies work well for FAANG stocks on these charts, especially when the hype rate is increasing.
The FAANG stocks are favorites amongst active traders because they are well-known companies that people understand, and because a lot of people follow them, there is lots of volatility and liquidity. The fact that they also have high growth rates means they also have big price moves. These factors all contribute to their popularity amongst traders.
The US Federal Reserve will be announcing their decision on interest rates and releasing the minutes of the FOMC meeting today at 18h00 GMT tomorrow. A 25-basis point hike is expected by economists and investors, with another hike in December also widely expected.
Given that the rate decision is taken as a given, all eyes will be on the wording that accompanies the decision and, on the Fed’s updated Summary of Economic Projections which will also be released. In particular, the market will be looking at whether the term accommodative will be removed or softened within the statement.
Jerome Powell is widely expected to say that risks to the economic environment are balanced, but investors will also be interested to see whether he highlights trade policy (i.e. tariffs) as a major risk to the US economy.
In the absence of any unexpected concerns regarding risks, GDP growth or inflation, the market will be looking at the Fed’s projections for the economy and rates out to 2021. This will be the first time the Fed will extend its projected rate charts to 2021, where many believe rates will stop rising and level off.
Overall, the rate announcement is likely to be a non-event and investors will look to other economic data releases, the escalating trade war, and emerging markets for direction.
The US Dollar
US Dollar has weakened since the previous meeting and sentiment remains weak around the greenback, despite 10-year treasury yields hitting their highest levels since 2011. With the market already discounting a 25-basis point hike, the Dollar is only likely to strengthen if the outlook is more hawkish than expected.
There is a very small chance (2%) of a 50bps hike but considering that another hike in December is also expected by most market watchers, even this may not be enough to boost the Dollar.
The US Dollar index (below) has breached support going back to May, and it will take a very hawkish statement for it to regain this support level at 94.75. While all of this appears to point to further weakness, this too may be contained by technical levels against other major currencies.
The EUR/USD has bullish momentum but will encounter resistance between 1.181 and 1.19 – in fact it is already struggling below 1.18. If this area of resistance is convincingly breached, we may see further USD weakness.
Most of the emerging market currencies that have been under pressure in 2018 have consolidated over the past month. In general, risk assets are back in favor, and emerging currencies have benefited from this. However, they do remain vulnerable, and any volatility that follows the Fed decision would probably lead to further weakness.
In all, the rate decision is most likely to turn out to be a non-event. The market is more likely to focus on the longer-term fallout from the trade war with China, something that will impact emerging markets and China, more than the USD itself.
While the currency pairs we hear about most often are the major and minor pairs, there are actually far more exotic currency pairs to trade. In this introduction, we will define the types of currency pairs and cover some of the basics you’ll need to know before you begin trading the ‘exotics’.
Major and Minor Currency Pairs
Firstly, we should define major and minor currency pairs. The following are regarded as major currencies:
US Dollar (USD)
Japanese Yen (JPY)
British Pound (GBP)
Swiss Franc (CHF)
Canadian Dollar (CAD)
Australian Dollar (AUD)
New Zealand Dollar (NZD)
Major currency pairs refer to any pair containing one of these currencies and the US Dollar, so while there are eight major currencies, there are only seven major currency
An important issue in the currency market is liquidity – i.e. the amount of any currency being bought or sold at any time. The most liquid currency pairs tend to have natural supply and demand from exporters and importers in addition to the supply and demand generated by speculators and investors. Since all the countries listed above have substantial trading relationships with the US, constant liquidity is provided by exporters and importers.
Minor currency pairs include any two of the major currencies apart from the USD. Some of these pairs, including GBP/EUR and AUD/JPY represent pairs of countries with active
trade relationships, providing significant liquidity. Others, like CHF/JPY and EUR/JPY, have less active natural supply and demand.
Before we move on to exotic currencies it’s important to understand that there are two major forces driving the exchange rate between two currencies; natural supply and demand, and the relationship between those two currencies and other currencies – most notably the USD. If you exchange GBP for EUR, importers, and exporters in both the UK and Europe will be buying and selling both currencies, providing an active market. On the other hand, if you exchange GBP for NZD, there will be fewer importers, and exporters active in the market – the quotes will more likely be a combination of the GBPUSD rate and the USDNZD rate. With currencies that are even less liquid, exchanging one currency for another will inevitably involve exchanging the first currency for USD and then exchanging USD for the second currency.
Most forex brokers offer clients forex trading either in the direct currency market or via CFDs (contracts for difference). Either way, the spreads they offer depend on the liquidity of the underlying currency market. Even though you may see a pair quoted as just two currencies, for the trades to take place in the underlying market, at some point an extra leg may have to be executed by a market maker.
What are exotic currencies?
Exotic currencies are any currencies not mentioned already. Some like the Hong Kong Dollar (HKD) and Norwegian Krone (NOK) are actually very liquid, some like the Mexican Peso (MXN) and Thai Baht (THB) are fairly liquid, and others like the Malawian Kwacha (MWK) and Laos Kip (LAK) have very little liquidity.
Exotic pairs are those that include one major currency and one exotic currency. While there are over 150 countries that could be classified as developing nations, trading in exotic currencies is focussed on 18 currencies. Admiral Markets UK Ltd, a prominent forex and CFD broker, for instance, lists 19 exotic FX currency pairs including 10 exotic currencies. There are plenty of other exotic currencies, but in most cases, brokers will only offer those that their clients demand.
The following are the most widely traded exotic currencies:
Chinese Yuan Renminbi
Hong Kong Dollar
South Korean Won
South African Rand
With any broker, the spreads being offered for a currency pair will reflect the underlying liquidity for that pair. Admiral Markets, for instance, offers spreads as low as 0.1 pip for the EURUSD pair (the most liquid pair in the world) to 5 pips for CADCHF and 10 pips for the USDCNH. For even less liquid currencies, the spreads can be much wider, in some cases reaching 800 pips.
Which Currencies Should You Trade Exotic Currencies Against?
An exotic currency will usually have better liquidity if it is traded against the currency of a major trading partner. The Turkish Lira is therefore usually traded against the Euro, the HKD against the USD or Chinese Renminbi and Mexican Peso against the US Dollar. You would struggle to find a broker offering a Malawian Kwacha/Swiss Franc pair, but even if you did, the spreads would be very wide. In most cases, exotic currencies from countries in or close to Europe are traded against the Euro, and others are traded against the USD.
Pros and Cons of trading Exotic Currencies
The currencies of developing nations are often volatile and prone to trend strongly. Some countries with large current account deficits have structurally weak currencies that have weekend consistently for decades, while others have steadily strengthened over time.
This means there are certainly opportunities for forex traders to profit. The downside is that trading costs can be high and are some currencies are prone to large, unexpected moves when government policies are changed without warning.
For the most part, traders need to have a longer-term view when trading exotic currencies than they would with major currencies. The less liquid a currency is, the longer the time horizon should be. Some, like the Norwegian Krone and Singapore Dollar, are very liquid and can be treated like major currencies. However, others, like the South African Rand and Turkish Lira are not suitable for intraday trading and are only suitable for medium-term trading under unique circumstances. In most cases, exotic currencies require time horizons of weeks to months, unless a very unique opportunity presents itself.
Secondly, traders must familiarise themselves with the typical patterns for a particular currency before trading it. Each currency has its own unique personality and there are usually good and bad times of the day and week to trade them.
While trading exotic currencies are less straightforward than trading major and minor pairs, they do offer very profitable opportunities. Every few years there is usually an emerging market currency crisis which results in some currencies moving as much as 20 to 30%.
These situations offer forex traders opportunities they will seldom see in major pairs. It is therefore worth learning more about these currencies and adding another tool to your trading arsenal.
Risk disclosure: Forex and CFD trading carries a high level of risk that is not suitable for all investors. Presented information is not an offer, recommendation or solicitation to buy or sell. Before making any investment decisions, you should seek advice from an independent financial advisor to ensure you understand the risks involved. Read more at admiralmarkets.com.
In 2017 the world learned all about cryptocurrencies and the underlying blockchain. Many of the most valuable cryptocurrencies peaked in December 2017 and January 2018, and have trended lower since then.
While this has hurt long-term crypto investors, for traders there are now more opportunities than ever. For traders to make money they need volatility, repeating price patterns and liquidity. Crypto markets continue to offer all of these. Like commodities, crypto assets also have a tendency to trend strongly.
Several developments in the industry have also contributed to increased opportunities for traders. Several Forex brokers have introduced CFDs for cryptocurrencies which allow traders to go long and short and use leverage – essential tools to trade effectively. In addition, the introduction of Bitcoin futures contracts provides increased liquidity to the entire market.
CFDs, or contracts for difference, allow traders to trade the price of an asset without actually owning the asset. This means a trader can trade assets all over the world using one platform without the hassle of opening accounts on different exchanges.
All of this means the crypto market is one of the best markets retail traders have ever had the opportunity to trade. But that doesn’t mean traders don’t need the right tools and strategies.
Trading Cryptocurrencies on Your Mobile Phone
If you go back a hundred years, trading was done face to face on exchange floors. Later, trades were executed on the floor of exchanges, while customers placed their orders by phone. Once most exchanges became electronic, it followed naturally that customers began to access the market using PCs and laptops.
We have now entered a new era, with trading being done increasingly on mobile devices. This is not only happening because mobile devices are becoming more powerful, but because markets are beginning to trade around the clock.
As markets have become automated, trading hours have been extended to the point where several markets, including forex and cryptocurrencies, trade around the clock.
This has changed the nature of trading. It’s no longer practical to trade for specific periods of time at a desk. Traders need to plan their strategies using a PC or notebook, then use a mobile device to monitor prices and execute trades from early in the morning until late at night. Several tools, including the ability to set alerts and place limit orders, can also help in this regard.
It’s essential to have access to a good trading app or website that works properly on a mobile phone and find a broker that provides cryptocurrencies CFD’s.SimpleFX is a forex and CFD broker which now has a strong focus on cryptocurrencies.
Clients can trade all the most actively traded cryptocurrencies, including Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ethereum Classic and Ripple’s XRP. Exposure to these assets is gained via CFDs with a leverage of up to 5X.
The platform is available to traders all over the world, and cryptocurrencies can be traded against the US Dollar as well as the Euro, Yuan, and Yen. Cryptocurrencies can also be traded against one another on the platform.
The broker offers its clients several interfaces and platforms. These include apps for Android and iOS and a mobile browser interface, as well as access to MetaTrader4.
Traders wanting to test the system don’t need to register, which is unusual amongst brokers. And, if you do register, you can use your Facebook or Gmail account to do so, which speeds up the process.
Clients ofSimpleFX also have access to MetaTrader 4, widely regarded as the best technical analysis and trading platform around. Metatrader offers active traders almost every tool they will ever need to analyze the market, create trading strategies, manage orders and monitor risk.
The platform includes an extensive education section which will help you learn about trading and cryptocurrencies.
SimpleFX’s mission is to provide individual trades with the easiest CFD platform. You don’t need to install any software to use it. Just visit the simplefx.com, log in with your Facebook, Gmail or email address, and get immediate access the state-of-the-art web tools that make technical analysis effortless. Buying and selling with SimpleFX WebTrader is a child’s play.
Besides pure CFDs cryptocurrency trading, the broker offers also cryptocurrency deposits and withdrawals (Bitcoin, Bitcoin Cash, Dash, Ethereum and Litecoin) which is a unique feature on the market.
When signing up for a trading account, if you want to fund your account using crypto, you’ll be able to do so right away. If, however you want to fund the account using cash (USD, GBP etc) you’ll need to supply some documents to comply with FICA regulations.
It’s perfect time to consider bitcoin and altcoin margin trading with a leverage. Just choose the best platform for your speculation. Especially the one that offers you a top-notch workplace, combining simple tools (such as SimpleFX WebTrader) with more sophisticated professional solutions (such as MetaTrader 4), and direct crypto withdrawals, without an intermediary.
Whether you use the web browser or the App, the screens are very similar. You’ll probably spend most of your time using the watchlist or the chart pages. If you click on a particular CFD, you’ll be directed to a screen which allows you to set a profit target and a maximum loss limit. Your position will automatically be closed out when the price reaches either level. When you are trading on the go, using a mobile phone, it’s essential to make use of automatic exit features like these.
Popular Cryptocurrencies for Traders
Bitcoin is the oldest, most valuable and most widely traded cryptocurrency. For those just starting out, it’s a good place to start. Most other cryptocurrencies are variations of Bitcoin.
Litecoin is the sixth largest cryptocurrency but the third most popular choice amongst traders. It is identical to Bitcoin in many respects but has a few features which some belief make it technically superior.
Ethereum is the second largest cryptocurrency by value. It is designed as a decentralized computing network that allows decentralized applications to run on it. While Bitcoin and
Litecoin exists only to take the form of a currency, Ethereum is a currency designed to fuel an ecosystem of applications.
Bitcoin Cash came about due to a hard fork of the Bitcoin protocol. It is designed to offer cheaper, faster transactions so that it can be used for everyday payments rather than as a store of value like Bitcoin.
With round the clock trading, mobile devices are the ideal tool to access cryptocurrency markets. Fortunately, apps like SimpleFX are so easy to use that you can get started in minutes. If you are worried you don’t know enough about cryptocurrencies, fear not – the education pages will get you up to speed quickly.
The Yuan has historically been a managed rather than floating currency, which has resulted in traders largely ignoring the USDCNY pair. However, China’s importance within the global economy and the current trade war may introduce a new period for the currency.
The Trump Era
When Trump was on the campaign trail, he repeatedly accused China of manipulating the Yuan to increase the competitiveness of exports. While this may have been the case in the past, at the time there was little evidence that China was devaluing its currency. In fact, at times it was more likely that the central bank was supporting the currency.
The Yuan initially weakened when Trump was elected, but then remained stable for the first months of his presidency. Between May 2017 and April 2017, the Dollar weakened against the Yuan, moving from a high 6.90 to as low as 6.24.
The Trade War
Trade tensions between China and the US began to escalate between January and May this year. In May, the US began to impose tariffs on certain Chinese imports. Or, to put it more accurately, they terminated tariff exemptions on certain products. More products were added in June, and it seems likely this will soon be extended to all Chinese imports.
China has responded by imposing tariffs of its own on US imports. However, Trump appears unlikely to back down regardless of the impact of a trade war. Going into the US midterm elections, Trump will want to appear strong, and will not want to be seen to be giving in to pressure from anyone.
Most of the response from the exchange rate has been a function of US Dollar strength, rather than Yuan weakness. However, in July and August, the Dollar has begun to appreciate more against the Yuan than against other currencies, indicating that the Yuan is under pressure.
There has been some speculation that China’s central bank has intervened to manipulate the currency; however, the evidence doesn’t support that view. In fact, the central bank has been more hands-off than usual, and it appears policymakers are relying more on fiscal stimulus to stimulate growth.
China’s policymakers are more concerned with protecting the domestic economy than with influencing the currency. GDP growth slowed to its lowest level since 2016 in the second quarter, and the People´s Bank of China (POBC) will be concerned with preventing further slowing of the economy.
Could the trade war evolve into a currency war? It’s unlikely that the Chinese government or central bank would want to intervene, although doing so to weaken the currency further could potentially offset the effects of tariffs. It has even been suggested that the POBC would rather intervene to protect the currency’s value to prevent capital flight, something that has happened in recent years.
However, the currency could weaken further if investors decide to divest from the Chinese stock market. A greater devaluation of the Yuan is, therefore, more likely to be driven by capital flows than by government action.
There are other external factors at play, too. The US Dollar is in general appreciating against most currencies, including the Euro and Yen. To complicate matters further,
Emerging markets, in general, are under pressure, and investors are selling emerging market assets, and currencies, across the board.
Analysts are divided – many believe the Yuan will soon stabilize, at least against the basket of currencies it is priced against. Some, however, believe there may be further weakness in store for the currency. Few are looking for the Yuan to strengthen to any great extent.
Trading the Yuan
The Yuan has historically not been a popular trading currency amongst Forex traders. There are several reasons for this. The Yuan is a managed currency, and the central bank has always tried to maintain a stable exchange rate. That means relatively little volatility (not great for trading) and uncertainty over what the central bank may do (not great for trading). Liquidity has generally been a problem for the pair.
However, this may be changing. Firstly, more Forex traders now have access to platforms allowing them to trade the Yuan. Secondly, we are seeing stronger trends in the USDCNH rate, and over the last two years, these trends have lasted longer than ever. In other words, the opportunity is becoming more attractive.
The Yuan has already become a more important currency within the global economy, and it’s inevitable that it will become even more important going forward. Some have suggested that in the wake of sanctions and new tariffs, countries like Russia and China may begin trading with one another in their own currencies. This could, in turn, see central banks holding a more diversified portfolio of currencies in their reserves, including the Yuan.
Those wanting to trade the Yuan can trade the Offshore Renminbi CFD through a limited number of Forex brokers, including Admiral Markets. The Offshore Renminbi (CNH) is a market for the Yuan/Renminbi that operates entirely outside of China. Historically the CNH fluctuated more than the Onshore Renminbi (CNY), but increasing liquidity is now reducing that volatility.
Trading the USD/CNH requires traders to pay attention to geopolitical developments, as recently these are the main catalysts for the pair’s movements.
As the second largest economy in the world, the absence of China’s currency from the active Forex markets has been an anomaly. However, it looks like we may see it join the list of major currency pairs in the coming years.
The immediate direction of the Yuan may be difficult to predict, but we can be reasonably certain there are volatility and opportunity ahead. It may be time for serious Forex traders to begin paying attention to it.
Forex and CFD trading carries a high risk and is not suitable for all investors. Before making any investment decisions, you should seek advice from an independent financial advisor to ensure you understand the risks involved. Read more at www.admiralmarkets.com.
Last week, in the space of a few hours, Donald Trump’s former attorney Michael Cohen and ex-campaign manager Paul Manafort were found guilty by courts in New York and Virginia of a range of crimes. In addition, two longtime Trump associates, Allen Weisselberg and David Pecker have been given immunity from prosecution.
These developments have led to speculation that these Trump loyalists are co-operating with prosecutors and a case may be built against the President. This, in turn, has led to speculation that Donald Trump will be impeached. So, what are the chances he will be impeached, and what are the implications for financial markets if he is?
The Impeachment Process
Firstly, it’s important to point out that impeachment and removing the President for office are not the same thing. Impeachment is a process whereby the President can be removed from office, but it can also result in acquittal. In fact, no US President has ever been removed by impeachment proceedings. Presidents Bill Clinton and Andrew Johnson were both impeached and acquitted. On the other hand, Richard Nixon resigned in the face of impeachment proceedings which may well have resulted in his removal from office.
For impeachment proceedings to begin, a majority in the House of Representatives need to agree by vote that there is a reason to suspect the President, or any other officer, of treason, bribery or other high crimes and misdemeanors. These crimes are not clearly defined, and so the majority must also agree that the crimes committed can be classified as impeachable offenses.
This vote is preceded by the House Judiciary Committee drawing up articles of impeachment which lay out the accusations to be examined.
If the House votes in favor of impeachment, the articles of impeachment are passed on to the Senate. The proceedings take the form of a trial presided over by the chief justice, with selected senators acting as prosecutors. The accused is also given an opportunity to defend themselves.
The Senate then votes on each article, with a two-thirds majority being required for a guilty verdict. In the case of a guilty verdict, the punishment is then handed down.
Midterm Elections may be more important than the alleged crimes
Michael Cohen has already pleaded guilty to campaign finance violations, which he implies Donald Trump instructed him to commit. This is the only serious crime which has so far been alleged, and whether or not it would amount to an impeachable offense.
If evidence of collusion with Russia was proven to have occurred, with Trump’s knowledge or involvement, that would probably qualify as treason – but so far no concrete evidence has been suggested. There is endless speculation of other crimes he could be charged with, but again, no concrete evidence has been presented publicly.
It seems clear that Trump’s enemies are keen to see him removed by any means possible. Meanwhile, the GOP appears happy to defend him as long as his base supports him. That means the makeup of the House and Senate is of critical importance. If the Democrats control the House (with 51%), they may push forward regardless of how strong their case is. They will struggle to get 67% of the votes in the Senate (unless they somehow win over 60% of the Senate seats, but they may push forward regardless). This would be likely to result in a long, disruptive process.
The outcome of the mid-term elections in November is therefore of critical importance. Regardless of the strength of the case against Trump, there’s a good chance impeachment proceeding will begin if the Democrats win more than half the seats in the House. If they don’t, the probability is far lower.
How will markets react?
The common belief is that if a strong case for removal of the President by impeachment exists, a President will resign rather than face the humiliation of being impeached and removed. However, Donald Trump is a fighter and may be inclined to fight regardless of the case against him.
There is also the possibility of a weak case being made, the possibility of the House remaining in GOP hands and the possibility of new more serious charges emerging. In other words, there are several possible scenarios that could play out.
For markets, the worst-case scenario would be a long drawn out impeachment trial. Regardless of the outcome, the process would be disruptive and would lead to uncertainty. Impeachment proceedings would distract from other issues being dealt with by US lawmakers. They may even lead to geopolitical instability if Trump was seen as weak.
That sort of scenario would be bad for emerging markets and their currencies, which have already had a bad year. On the flipside – it would probably be good for safe-haven assets, and even for the US Dollar. It may also allow Jerome Powell to continue raising rates without any pressure from the President.
For the US economy and equity market, the effect of impeachment proceedings would depend on their effect, if any, on trade relations. For the most part, the US stock market is strong and corporate earnings continue to grow. The trade war is only affecting certain parts of the economy. Tax cuts and deregulation have already been enacted and unless there was a clear path toward his policies being reversed, corporate profits would be safe. That said, if impeachment proceedings were to begin, there would probably be an initial sell-off followed by a period of volatility.
In the event of Trump suddenly resigning, there may be an initial selloff of any risk assets including equities and emerging market currencies, but it would likely be short-lived. VP Mike Pence would take over and his priority would be to provide stability. This may actually provide a buying opportunity for emerging market currencies.
In the event that nothing happens – no impeachment and no resignation – which may still be the most likely scenario – then markets will remain focused on the emerging market rout and trade relationships around the world. In fact, over the next six months, the focus may even move to the UK’s Brexit and its effect on the UK and European trade.
This week the Indian Rupee crossed 70 for the first time in its history. India’s currency crossed the psychological level on Monday and traded as high as 70.80 on Wednesday. The Rupee is just one of several emerging market currencies to come under pressure in the wake of the Turkish Lira’s collapse. However, the Rupee may be vulnerable to further weakness regardless of the weakness of the Lira.
The Turkish Lira is now down about 35% since the beginning of the year. The Argentinian Peso has lost close to 37% of its value in 2018 after the country was forced to turn to the IMF in May. Other emerging market currencies losing ground are the Indonesian Rupee, the Philippine Peso, the Brazilian Real and the South African Rand.
However, not all emerging market currencies are losing ground. The Mexican Peso has gained ground in 2018, and most South East Asian and East Asian currencies are holding their value.
Almost all the countries that have seen their currencies come under pressure are those with wide, or widening, current account deficits. In India’s case, analysts have been worried about the deficit for some time, and these fears were confirmed when the commerce ministry announced on Tuesday that it had hit a five year high of $18 billion in July.
The current account deficit is growing due to rising oil prices and a surging USD, and FDI and foreign institutional investment flows are not high enough to offset the widening deficit. The rising oil price alone could see India’s oil import bill growing by $26 billion in 2018 and 2019, and is unfortunately likely to offset any export gains due to the weaker currency.
The central bank has also raised rates twice, in June and August, the first rate hikes in four years. It may hike rates further if the currency continues to weaken, though it will be cautious about doing so if economic growth slows.
India ratings and research have also just lowered its growth forecast for the year to 7.2%, from 7.4% sighting rising inflation due to oil import costs.
Going forward, the most important factors to watch will be the oil price and the strength of the USD. While developments in the domestic economy will play a part, they are likely to be outweighed by these external factors. Some analysts are forecasting the Rupee to reach between 72 and 73.55 by year-end, based on current fundamentals – but these can change rapidly.
If current fears over emerging market currencies ease, the Rupee will probably retrace to an extent. Short term support may come into play at 69.70, and if that doesn’t hold, the breakout level at 69 could be retested. It seems very unlikely that the currency would strengthen below that level without a substantial change in the economic environment. A likely trading range for the remainder of 2018 may be 69.70 to 72.
While the selloff of the Turkish Lira has played its part in the weakness we are seeing in the Rupee, fundamentals are equally to blame. The Rupee is not one of the currencies that is most influenced by emerging market sentiment and domestic factors rather than speculation play more of a role in the price.
Traders should, therefore, pay as much attention to oil prices and domestic developments as they do to sentiment or technical levels.
Over the course of 2017, speculation that cryptocurrencies were in a bubble grew as fast as prices rose. Now, with most crypto asset prices down 50 to 70% from their peaks, it appears certain that we were in a bubble.
But, does that mean the bubble has now burst, and has now deflated, or are we still in a bubble? The fact that opinions are divided, means there is opportunity ahead. Asset prices move when large numbers of traders find themselves on the wrong side of the market. So, let’s have a look at how the market is positioned.
Are We in a Cryptocurrency Bubble?
It’s almost certain that by the end of 2017 crypto prices were in a bubble. There is little consensus over the way digital currencies should be valued, but in 2017 very few people were asking about valuations.
Retail investors bought Bitcoin and other digital coins because prices were rising, and prices rose because investors bought them. This created a reflexive feedback loop, and valuations became irrelevant. There was also a large amount of FOMO (fear of missing out), driving prices. Predictions were being made of Bitcoin ultimately reaching prices of $50,000, $100,000 and even $1 million, and speculators were afraid they would miss out on the greatest investment opportunity in history.
This type of mania is characteristic of all bubbles. Two of the most famous bubble in history, the Tulip Bubble in the 16th century, and the Dot-Com Bubble in the late 1990s were very similar. There was no relationship between prices and reality, and markets were driven by emotion more than anything else.
After reaching a peak of close to $20,000, Bitcoin has fallen as much as 70%. Ethereum, the second most valuable cryptocurrency reached close to $1,400 and has since fallen to below $400, a 72% decline. Does this mean they are now fairly priced? No one really knows, but a lot more attention is now being placed on valuation. It turns out that for a cryptocurrency to act as a medium of exchange it doesn’t really need much value.
There are two other big problems for those with much higher price targets. Firstly, one of Bitcoins primary uses cases is as an SOV, or store of value. But that argument falls apart when it falls 70% in 6 months. Secondly, the big value underpins for Bitcoin is the fact that the ultimate number of coins in issue will be limited to 21 million. That may be true, but there is also an unlimited number of other coins that can be introduced.
However, valuation alone is not what drives markets. If investors believe in the future of the asset class, prices may rise regardless of the challenges. The question is, who is going to invest now?
Over the course of 2018, there has been growing speculation that institutional investors are going to begin investing large amounts of capital in the market. This hasn’t happened yet, and it’s difficult to tell if it will – but if it does, prices are sure to rise.
On the other hand, if institutional investors don’t come to the party, it’s very likely that it will turn out prices are still too high for the size of the market. In this case, prices could easily fall another 50%.
It’s likely that a Bitcoin ETF will be approved and launched in the next six months. This will give us a good indication of the institutional demand and will set up the next big move.
The Importance of Having an Open Mind
The world’s best traders are open to all possibilities. Those who only believe an asset will go in one direction will miss out on countless opportunities. Permabulls and permabears require so much evidence to change their minds, that by the time they do they have missed the opportunity.
If your primary means of trading cryptocurrencies is owning the actual asset, you are only in a position to buy them. That immediately puts you at a disadvantage, as you will only be looking for opportunities to go long, and will likely overlook evidence suggesting you should sell, or be short.
If you are in a position to take both long and short positions, you will be able to keep an open mind and trade the most likely direction at any given time. Being able to trade in both directions doubles the amount of opportunity available to you.
How to Short Cryptocurrencies?
So, if you want to short crypto assets, how do you do it? There are really only three options available.
The first is to short sell actual cryptocurrencies. This is very complex and involves borrowing the coins from another investor and then selling them. This is how hedge funds short stocks, bonds, and other assets, but is beyond the reach of most retail traders.
The second is by selling futures. Both the CME and CBOE have liquid futures markets. Trading futures requires opening a trading account with a broker that trades on one of these exchanges, but the catch for retail traders is that the contract size is quite large. On the CME, each contract is equal to one Bitcoin, while the CBOE has a contract size of 5 Bitcoins. At the moment, these future contracts are only available for Bitcoin, which in itself is limiting.
The third option, and by far the easiest, is CFDs. A CFD, or contract for difference, is an agreement between a broker and a client, which is very much like a future. You don’t own the underlying asset, but you are exposed to the price movements of that asset. Like futures, CFDs also allow you to use leverage, and more importantly, you can open long and short positions.
Cryptocurrency CFDs are becoming quite common, and are offered by several FX brokers. One of the most prominent isIMMFX, an online FX broker that offers CFDs on forex, indices, metals and now cryptocurrencies too.
IMMFX offers CFDs on Bitcoin, Ethereum, and Litecoin, the three most popular cryptocurrencies amongst traders. You can open long and short positions on all three currencies, which means you can also trade one against the other. The minimum trade value is also much lower than it is for futures, and you can start with as little as $50 in your account.
It is certainly possible that the market is still in a bubble, though it’s also possible that a new bull trend will begin in the next six months. Rather than speculating on which way the market will move, you can remain open to both possibilities.
If you have a trading account that allows you to take long or short positions as the price action and fundamentals dictate, you will be able to profit in both scenarios.
Bitcoin and other cryptocurrencies allow for the decentralization of the entire financial situation. One of the consequences of that is that you get to be your own bank. Rather than letting a bank look after your money – and charge you a fortune for doing so – you can look after your own crypto assets. But that also means you must take responsibility for the security of your digital currencies.
Unfortunately, there are dishonest people out there doing everything they can to get hold of your wealth. As more people are buying and storing cryptocurrencies, hackers have more incentive to try to hack every device they can to steal those digital assets. They are also becoming more sophisticated over time.
All this means you need to take secure storage of your digital assets seriously. It also means that whatever method of storage you decide on, you need a backup of your wallet, and you need to know how to recover your wallet.
Cryptocurrencies are going to be an increasingly important part of our future, and it’s important to develop a habit of securing your digital assets properly and knowing what to do if a device fails, or if it’s stolen.
To help you navigate the options and some of the confusing jargon that comes with them, we have put this guide together.
First, let’s define some of the key terms you will come across when you buy, sell or store Bitcoin:
Wallet: A wallet is used to store private and public keys. A wallet can be compared to a bank account, a credit card, or even the wallet in your pocket. However, unlike these, a crypto wallet doesn’t actually store your Bitcoin, but rather the keys you use to access your Bitcoin.
Public Key: A public key is like a bank account number. This is the address another sender will use to send Bitcoin to you.
Private Key: A private key is required to access your Bitcoin. In order to send Bitcoin from your wallet, you will require the private and public keys.
Software wallet: A software wallet is a wallet that you download to a PC, notebook, or mobile device.
Popular Bitcoin Software Wallets include:
For Windows: Bitcoin Core, Electrum, ArcBit, Armory
For Android: Bitcoin Wallet, Bither, Edge, Electrum, Airbitz
For iOS: Edge, Green Address, Bither
Hardware wallet: A hardware wallet is a device similar to a USB stick that allows you to store your keys offline.
Popular hardware wallets include: Trezor, Ledger Nano S, KeepKey
Hot wallet: A hot wallet is any wallet that is online. This can be a software wallet on your own devices, or a wallet hosted on an exchange or elsewhere in the cloud.
Cold Wallet: A cold wallet is an offline wallet. Cold storage means either keeping your keys on hardware wallet or printed on a piece of paper, stored in a safety deposit box or hidden somewhere.
Backup: A backup is a file containing your private and public keys which will allow you to restore your wallet if you lose a device or if your hard drive is damaged.
Which Wallet Is Right for You?
Your choice of wallet comes down to the trade-off between security and convenience. The easiest way to store Bitcoin is on an exchange. However, this is also the least secure method. When your cryptocurrencies are stored on an exchange, you do not have control of your keys. If the exchange is hacked, the hackers can steal the assets belonging to all the exchange’s clients, including yours.
At the other end of the spectrum are hardware wallets and paper wallets. If your assets are stored offline, hackers can’t get hold of them. But this also means you need to take full responsibility for storing your keys where nobody can get them.
If you own very little in the way of Bitcoin, an exchange is probably the way to go. If losing your Bitcoin would be a big problem, a software wallet is a better option. And, if your crypto assets are worth a considerable amount, you’ll want to keep the bulk of those assets offline, either on a hardware wallet, or a securely stored paper wallet.
All the Ways to Back up Your Bitcoin Wallet
One of the disadvantages of decentralized ledgers is that you cannot retrieve a lost password. If you lose the password to the website, or if you forget the PIN code for a bank account, there is always a way to reset that password.
Public keys are like a bank account numbers on a blockchain, and private keys are the passwords to access those accounts. The problem is that if you lose either, there is no one to turn to. If you lose the device that stores those keys, they are gone forever, and so are your Bitcoin. Therefore, you must always back up your wallet.
There are several ways to back up your wallet, the following being the most popular:
Seed phrase: Most wallet software does include a recovery process. The software will generate a seed phrase, which you need to write down and store somewhere safe. If for whatever reason, you lose your wallet, you can use this phrase to recover it.
The words need to be in the exact order they are generated. For most wallets, if you lose your password, it cannot be recovered or reset, however, if you do lose the password, you can recover the wallet using the seed phrase.
Text File: Software wallets have a function that allows you to export your keys. On some wallets, the function is labeled backup wallet, while on others it is labeled export keys. When making backup files, it’s a good idea to disconnect your computer from the internet before doing so.
On the Electrum wallet, the function is under Wallet > Private Keys > Export and looks like this:
Once you click on Export, you will be able to choose between a CSV file or a JSON file, and then choose the drive to send it to.
The file that will be generated is a text file containing all your public and private keys. Remember that once you have that file on your computer, anyone who has access to it has access to all your Bitcoin. As soon as you have created a backup file you should move it somewhere secure, encrypt it (see below), or delete the contents of the file. If you delete the file, go to your Recycle Bin and delete it there too – that’s one of the first places hackers will look for valuable information.
Copy Wallet.dat Files: The other way to make a digital copy of your wallet, is to copy the file the wallet uses to store the keys. Each software wallet stores the file in a slightly different location on your PC, so look at the documentation to find it.
The Electrum wallet stores this file on Windows as follows:
For Apple and Linux operating systems you can search for: ~/.electrum
You will probably have to make sure hidden files are being shown to find it.
Paper Copy: One of the safest ways to store your keys is to make a paper copy. Disconnect your computer from the internet and print out the file. Then cover the paper with foil (so it cannot be viewed against a light source), and seal it in an envelope. This should be hidden somewhere, or stored in a safety deposit box or a safe. Once you have done this, remember to delete the file you printed from your computer
How to Encrypt a Digital File
If anyone can open a digital backup file, they have access to all your keys, and therefore all your Bitcoin. For this reason, it’s a good idea to encrypt the file with a password.
When it comes to encrypting a file, there are several options. Most operating systems have a built-in encryption function that is secure enough for most people’s needs.
If you want to use the best encryption possible you can download encryption software from VeraCrypt, AxCrypt or a similar provider. This software allows you to choose between several methods of encryption. You can usually choose between 128 and 256-bit encryption and you can to use two-factor encryption too.
Where Should You Store Your Backup Files?
If you have made a digital backup file (preferably encrypted) you will need to store it somewhere. There are a couple of options for storing these files. Remember, there is little point keeping this file on the same devices as the device with the original wallet on it.
You could store it on another PC, notebook, or even a mobile phone or tablet. Or you can store it on a USB drive, but not if you are likely to lose the drive. The safest way to store a backup file is on a USB drive in a safety deposit box at a bank, or in a safe.
Digital backup files can also be stored using cloud storage services like Dropbox, One Drive, and others. Some people are skeptical of the level of security offered by the most popular cloud services, so make sure you encrypt files before sending them to the cloud.
Restoring Bitcoin Wallet
Restoring a Bitcoin wallet is easier than it sounds. If you have a seed phrase, you can simply use the ‘Restore’ function. Even if your device is lost or stolen, you can download a new wallet on another device, and restore it using the seed phrase.
Simply look for the ‘Restore’ function in the menu, and follow the instructions.
To restore a wallet using the wallet.dat file, simply replace the default wallet file on your computer with the backup file you made. It’s as simple as that.
If your backup file is a text file, you will need to log into the wallet interface, create a new wallet, and then copy and paste the keys from your backup text file. Again – it’s as simple as that.
Your Last Will and Testament
There’s one last thing to consider. Another challenge that cryptocurrencies have introduced is inheritance. If, or rather when, we die, if no one else has access to our Bitcoin, it’s impossible for them to be passed on to our heirs. Even if you explicitly state in your will that you are leaving your crypto assets to a spouse or child, without access to your keys, they will have no access to your digital assets.
There are several ways to make sure your heirs can access your private and public keys. Here’s a relatively simple solution: Create a simple text file with all your keys on them. Put the file in an encrypted, password-protected file on a USB stick. Use a different password from all your other passwords for this. Then give the USB stick to a family member and ask them to keep it somewhere secure. Finally, include the password for the file in your will, a copy of which is kept with your solicitor. When you die, the password will be given to your family, and they will have access to the file on the USB stick.
There are two important aspects to remember about storing your Bitcoins. Firstly, you and you alone are responsible for making sure your crypto assets are safe and that they can’t be accessed by hackers. And secondly, if you are securing your assets properly, there is no password recovery option – if you lose your wallet or access to it, your Bitcoins are gone forever.
For this reason, it’s is important to have a process to both secure your keys using a wallet AND backup those keys. Even if you don’t yet have a large Bitcoin holding, it’s worth getting into the habit of doing this thoroughly. Cryptocurrencies will play an increasingly large role in our lives in the future, and storing them properly will only become more important with time.
The Turkish Lira weakened again after President Erdogan announced his new cabinet, which included the appointment of his son-in-law, Berat Albayrak, as Finance Minister.
Turkey’s currency has been consolidating since late May, and is still within the consolidation range, although it is now once again testing the top of this range. The trend toward a weaker currency has been accelerating since 2016, and the balance of probabilities would point to the next move being to 5.00 and beyond.
The Lira is the victim of a perfect storm. Emerging markets are under pressure, Turkey’s inflation rate is accelerating, and investors are increasingly skeptical of Erdogan’s leadership. The appointment of a family member to the crucial post of Finance Minister is just the latest in a series of moves by Erdogan to consolidate power.
Inflation Is the Biggest Challenge
Of all the factors plaguing the economy and the currency, inflation is the biggest problem. The economy is now in a self-perpetuating circle, with the weakening currency leading to higher inflation, and higher inflation further hurting the currency.
Investors are often prepared to overlook poor governance and leadership, and even corruption, if they believe an economy is structurally sound. In Turkey, this just isn’t the case.
In June the inflation rate rose to 15.39. That’s a 14 year high and by far the highest rate for comparable emerging economies. Brazil’s inflation rate now sits at 4.39%, South Africa’s is 4.4% and most comparable economies in Asia are below 2%. Only Argentina (26.4%) and of course Venezuela (25,000%) are higher. The weak currency also means inflation is likely to rise even further in the second half of 2018.
The domestic economy is seeing little benefit from exports, and the government’s capacity to provide stimulus is limited. Corporations have large piles of US denominated debt to service using depreciating Lira denominated revenues. Investors are particularly concerned about corporates, as bankruptcies would likely trigger a new wave of economic problems.
The higher cost of imports flows directly into the inflation number and reduces consumer spending and confidence too. The highest price rises were seen in the transport sector, and any further strength in the oil price will add fire to the storm.
The market is expecting rates to be raised when the Central Bank meets on 24th July. But Prime Minister Binali Yıldırım said last week that the country’s top priority will be to lower both interest rates and inflation which are both in double digits. Erdogan himself has said that he doesn’t believe higher interest rates will reduce inflation and even suggested he may take over the rate-setting process. By appointing his son-in-law as Finance Minister, he’s getting close to doing just that. He has also vowed to appoint the next Central Bank governor himself. But, how he expects to bring inflation down without raising rates remains to be seen.
The Technical Picture
As it stands, resistance will come into play between 4.748 and 4.816. Beyond that, the immediate target will be 4.931, the previous high, and then the psychological level of 5.00. And, if we see the full bull flag pattern play out, we could see 5.50 quite quickly.
Can it Reverse?
The contrarian argument is less convincing but worth considering. Firstly, there is a lot of bad news now baked into the price. If the news flow doesn’t deteriorate further, holders of short positions may exit. Secondly, Turkish bonds are now yielding 16 percent which has to be attractive in such a low yield environment. In addition, emerging markets which have been under pressure for some time, are now offering value. If the tide turns, Turkey may benefit from broad buying of emerging-market assets.
If the Lira strengthens, support will come into play between 4.48 to 4.44. A convincing break of 4.44 would open targets of 4.19 to 4.22, and then stronger support at 4.01. Long-term support would come in at around 3.92. However, any sort of reversal would likely be accompanied by increasing volatility and precise targets would be less relevant.
While these factors and a possible interest rate increase could lead to a reversal in the medium term, in the longer term it would likely only be a correction.
Without a sound of economic policy, inflation will remain high and the Turkish Lira will remain vulnerable.
Forex cashback is a payment rebated to traders for every trade executed. Cashback providers refer traders to brokers and share the rebates they earn from every trade made by the client with that client. The model is becoming standard for most brokers in the industry. It’s also becoming a standard tool for traders to reduce costs.
Just as with any business, costs are as important as profits. One might even say they are more important. In the world of trading, you’re not always going to make a profit, but you will always have costs. For this reason, traders need to always explore ways to reduce their costs.
Forex rebates are paid to clients in several ways. Rebates are sometimes held by the rebate provider and withdrawn on a monthly basis by the client. In other cases, the rebate is paid daily into the trader’s trading account.
In some cases, the money is instead rebated by reducing the commission a trader pays on new trades. The mechanism by which a trader receives their rebate varies from broker to broker and from one rebate provider to another.
Rebates like these are now becoming popular not just amongst forex traders, but in the binary options and online sports betting too. Many of these industries give rebates to middlemen that introduce new clients to their platforms. Forex cashback is the next step in the evolution of this business model, where the cashback is shared with the client.
Forex rebates can vastly increase a trader’s scope to make profitable trades. By reducing the trading cost for each trade, trades that would previously have been too marginal to consider can become viable. This is especially true when trading on short time frames and scalping.
How Much Can You Save with Forex Cashback?
Rebates are usually either calculated on a round turn per lot, or on a spread. In the case of round turns per lot, the rebates average out at about $3 per lot. In some cases, they are as low as $1.50, while in other cases they can be as high as $7. These rebates can quickly add up if you are doing multiple trades a day, or a hundred trades a month. If a commission is low at the broker, the cashback can be as low as $1.50.
The basic round lot commission needs to be taken into account before assessing the rebate – it’s not just a case of choosing the highest rebate. And, remember, you are paying for all the services a broker is offering you. Some brokers offer more value-add services, research, and tools and can, therefore, justify charging more.
In the case of spreads, rebates are typically around 0.5 pips, though they can vary a lot, so shop around. Spread rebates can be as low as 0.1 pips and as high as 1.3 pips.
Some cashback rebate providers offer a tiered system, where the rebate increases with more trades. Rebate providers are sharing the introducing commission they receive from brokers with their clients. So, for the rebate provider, it makes sense to rebate a higher percentage of each commission as the number of trades increases.
Cashbackcloud offers one of these tiered programs with rebates increasing from 50 percent to 85 percent of the rebate being shared with the client.
When you open an account with a new broker, you will often receive a welcome bonus in the form of cash to trade with. Of course, this equates to yet another saving and is something to take into consideration when choosing a broker.
How to Join a Forex Cashback Plan?
Joining a rebate plan is very easy. Obviously, the first step is to choose a rebate provider. Cashbackcloud is one of the most comprehensive providers and gives its clients access to over 60 forex brokers.
You will first need to register with the cashback provider. This is free, and no credit card or other financial information needs to be provided. Once you have registered with a cashback provider you will be able to choose and connect with brokers.
You don’t have to choose a single broker, and once you choose a broker you aren’t stuck with them. In the case of Cashbackcloud, you can open accounts with up to thirty brokers. In some cases, you can even open a new account with a broker where you already have an account.
While costs are a vital element of your trading plan, your choice of broker should not be based on cost alone. There are other factors to consider too, including the number of available markets, the trading, and analysis tools on the platform, and value-add services like research.
Once you have opened accounts with one or more brokers and funded the account, you can begin trading. Your rebates will automatically be credited to your account every time you make a trade.
Since forex cashback is a way to reduce costs, you should keep tabs on your overall costs, and how much you are reducing those costs with your rebates. When opening new broker accounts, make a note of the commission rates and spreads, and read the terms and conditions to make sure the broker is not going to increase your trading costs to offset the rebate.
Managing your rebate plan should be a part of a regular program to monitor your costs. This doesn’t just include trading costs, but overheads and expenses too. This program should also include keeping regular tabs on the spreads and commissions you are paying, as well as those available from other brokers.
Remember, once you are registered with a rebate broker, you can open accounts with several brokers, so keep shopping around to make sure you are getting the best deal possible.
Finally, be careful not to overtrade due to the lower effective commissions you are paying. While lower effective commissions will make some more marginal trades viable, you are still paying for each trade. So, make sure each trade you make has positive expectancy when all costs are included.