What do Cultural Differences and Trading Behaviours have in Common?

An investor’s attitude to risk is usually associated with their wealth, job security, and inflation. Having this in mind, you might conclude that two people from entirely different cultures and countries will invest similarly if their economic situation is the same. And you would be right. The whole concept of investment starts within communities and individual households, built on the foundation of the societal norms that surround them and constitute the fabric of their culture.

A study by Mei Wang and Marc Oliver Rieger, professors in behavioural finance, shows that cultural background influences investment behaviour, even when inflation rates and wealth are taken into account.

According to Wang and Rieger, the more impatient the investors are, the higher the value premium in a country is. Russia and Romania, for example, are such countries. Anglo-Saxons are willing to pay more for equities. Traditionally some societies tend to be quite risk averse than others, which is reflected in the make-up of the overall economy. “Ego-traders” are usually situated in the United States. More patient ones live in Germany and the Nordics, where there are more value traders who prefer to wait for more significant returns.

People’s expectations and the idea of value or value creation have changed with time. Yet culturally, many societies still favour traditional investment tools as a way to preserve or create wealth.

The most historical of all emotional connections between cultures and specific asset classes is the one that exists with gold. The demand for gold trading has moved East over the last decade, and this is primarily due  to the cultural affinity that exists between precious metal and countries such as India and China, where gold is considered one of the safest stores of value.

A lot of capital in India is stuck in hard assets because that’s the traditional and cultural mindset of the society there. The culturally defined beliefs in the country drive high demand for gold as an asset class, whether it is traded as physical gold or as a CFD (contract for difference) on the precious metal. This cultural affinity to gold is also similar in China. It is instrumental in the Lunar New Year, and 24-carat jewelry featuring the zodiac sign is frequently given as presents, both for its symbolism and centuries-old value.

Superstition is another emotional factor influencing the investment. In the Western world, stock market returns are always lower on Friday the 13th. A similar  situation can be observed in East Asian cultures, primarily China, with the number four – investors avoid all sorts of trades on the fourth day of every month.

The coronavirus pandemic has already played out differently around the world according to individual cultures. The majority of investors globally have responded by increasing their trading activity significantly, not least because most people were quarantined at home for months, with more time on their hands to trade.

Multi asset broker Exness offers some products by region depending on geographic behaviour, popular asset classes, and even religion. Its swap-free trading accounts, for example, are explicitly created for traders of the Islamic faith. According to the Koran, they cannot take part in any trading activity that accumulates interest. These particular accounts, however, allow clients in some of Exness’s most essential regions to invest freely without compromising their faith.

According to Stanislav Bernukhov, market analyst at Exness:

“Though some specific behavioural patterns may be visible through different countries, the financial markets liberate people, allowing them to achieve success no matter what education or background one might have. Mr. Market doesn’t care whether you hold a CFA license or graduated from the Ivy League – you just need to have the skills and knowledge which comes from persistent learning and usually has nothing to do with nationality.”

Investors don’t necessarily have something to learn from their counterparts in other countries, but understanding cultural differences in trading behaviour can certainly point them to opportunities they haven’t considered before.

Tips On How To Trade The Currency Pair EUR/GBP

EUR is the Euro, the official currency of most European countries, including Italy, France, Germany, Spain, etc.

Conversely, the official currency of the United Kingdom is GPB (Pound Sterling). Both EUR and GBP currencies have higher individual values than the USD (United States Dollar). If you intend to trade the EUR/GBP, here are tips that can help you.

Tips On How To Trade The Currency Pair EUR/GBP

Understand the base and quote currency

When it comes to trading forex pairs, there’s always a base and quote currency. The pair results from a price comparison of the base and quote currency, which indicates the needed amount of the quote currency for buying the base currency.

In the case of EUR/GBP, the EUR is the base currency, as it comes first, while the GBP is the quote currency, as it comes second.

So, when it comes to trading EUR/GBP, we are looking at how much GBP is needed to purchase EUR. In other words, you are selling GBP to buy EUR.

Furthermore, there are two prices involved, which include the bid price and the asking price. The bid price is the quote currency amount for buying the base currency, while the asking price implies the quote currency amount acquired after selling the base currency.

Consider its low volatility

Volatility has to do with how fast or slow trading prices change. The forex market is volatile, considering the large number of currencies involved. However, the EUR/GBP pair has low volatility; their prices don’t change significantly very often.

As mentioned earlier, both EUR and GBP are among the most strongest currencies in the world. European countries use the Euro while the UK uses the Pound Sterling; hence, the EUR/GBP is a relatively stable currency pair, which makes them heavily traded. A major change in their prices would draw massive attention in the forex market and outside it.

Follow the economic news

When trading any currency pair via forex brokerage houses, it is ideal to follow the economic news so you don’t miss any event that could drive a major price change. This applies as well for the EUR/GBP currency pair; besides, EU countries and the UK are involved.

You should not miss important updates, including new monetary policies, capital input, capital withdrawals, inflation, etc. Notably, the short-term rates of both currencies are influenced by economic data announcements.

Therefore, you should check daily in the morning and evening for economic updates about the GBP and EUR. Furthermore, it is ideal to check political news because they can influence investor decisions.

Trade at the right hours

Trading activity in the Forex market usually reaches a peak during certain periods at major financial cities in the world. Hence, Forex trading is distinguished into three activity sessions: North America (New York), European (London), and Asian (Tokyo) sessions. Notably, the European Forex session in London starts from 7 am to 4 pm (GMT).

Although you can trade at any time in the 24/7 forex market, it is ideal to trade the EUR/GBP pair during the European Forex session; a simple way to remember this is “don’t trade when it is dark in London.”

Look out for trends

If you want to perform a profitable EUR/GBP trade, it is vital to identify ongoing trends. For the EUR/GBP pair, you should either use the EUR/GBP price analysis or a technical trend indicator.

Take, for instance, the 200-Day Period Simple Moving Average; if the chart is trending down and the prices shift below the moving average, it is a bearish trend. To avoid getting false trend signals, you should follow only short signals of the EUR/GBP pair.

Similarly, if the chart is trending up and the prices shift above the moving average, it’s an upward trend. To avoid getting false trend signals, you can follow only long signals of the pair.

Look out for correlation with other pairs

While you have your eyes set on EUR and GBP, you should always look out for other forex pairs and how they correlate. Ideally, you should look out for correlation from the past three months.

Pairs with strong correlation are likely to have EUR or GBP; For example, EUR/JPY and GBP/JPY.

With correlation, you can get trading signals for the EUR/GBP pair. Likewise, currencies with strong correlation are ideal for hedging.

Conclusion

Forex trading is a notable means for making money on the internet, while the EUR/GBP pair is a profitable one to trade.

However, as always advised, Forex trading is risky; there’s no guarantee of returns or profits. Therefore, you should only put in what you can afford to lose.

How to Invest in Cryptocurrencies: The Complete Guide for 2020

Seasoned investors continue to cross over from the more mature asset classes and regulators have eased off on the Crypto assault that led to the 2018 slump.

With Bitcoin and the broader market sitting at more than 50% below their all-time highs, there is still plenty of incentive to enter the crypto sphere.

For many, however, the crypto market may seem like a maze. There are a tremendous number of exchanges and brokers and that is before considering regulations imposed by regulators in recent years.

Investing in cryptocurrencies requires a level of due diligence not too dissimilar to the research involved in other more mature asset classes.

The volatility and sizeable returns on offer have certainly allowed investors to dream. After all, Bitcoin has yielded a mass number of Bitcoin millionaires, more commonly known as whales.

So, how do we invest in cryptocurrencies?

While there are multiple considerations, some are more important than others when looking to enter the crypto market.

Just jumping in on a whim that the majors will reach historical highs is a dangerous game. This is no dissimilar to jumping into the equity markets when they are sitting at record highs.

There is one material difference, however. The regulatory landscape has materially changed since late 2017. For this very reason, investors may continue to face plenty of uncertainty before the market can find a return to the hay days.

Understanding the key drivers and market characteristics are therefore particularly important.

Basic Essentials

In this guide, you will learn the key preparations that you need in order to build your cryptocurrency portfolio.

Before making an investment, deciding on the source of funds would certainly be step 1.

In spite of the current interest rate environment, it is recommended that you avoid funding the portfolio with debt.

Credit Card or Bank Account – Investors will, therefore, need to decide on cash or credit card. As an investor, you can either fund your crypto trading account with a debit/credit card or by funding with a bank transfer.

It is worth noting, however, that certain jurisdictions have banned the funding of crypto exchanges with credit cards. Some banks have even taken a step further and banned the transfer of fiat money to such exchanges.

Nonetheless, the simplest method to fund a crypto exchange account is with a credit/debit card. This does tend to come with higher fees and caps on transfer amounts, however.

Fiat to Bitcoin Exchange

First, you need to decide on which cryptocurrency or cryptocurrencies that you wish to trade.

You would then need to identify the exchanges that have the largest trading volumes for the chosen cryptocurrencies.

One consideration here is your source of funds. Not all exchanges allow fiat money deposits. A vast majority of exchanges restrict deposits to Bitcoin.

Carrying out the necessary research on the most appropriate exchange is important. If you are looking for an exchange that accommodates the purchase of Bitcoin with fiat money:

Coinbase is popular and easy to use, with a strong global presence. The exchange has the necessary security measures as well as delivering adequate liquidity for trading.

When searching for the right exchange, it is worth noting that each has its pros and cons. The important thing is to identify the exchange that, first and foremost, delivers on your personal requirements.

Other popular exchanges include:

These crypto exchanges not only cater to Bitcoin investors and traders but altcoins in general.

It’s also worth considering exchanges that offer a wider choice of cryptocurrencies and altcoins. This would allow you to diversify your investments and gain exposure to the broader crypto market.

Bitcoin to Crypto Exchange

The next exchanges that you should look into are the ones you will be using for the Altcoins. Many of the smaller coins, my market cap, are generally not supported by larger exchanges. Generally speaking, the only way to buy those smaller coins is by buying them using Bitcoins or Ethereum.

On most exchanges, you need to deposit Bitcoins as you cannot buy coins directly from the exchange. This is why it’s crucial that you have a Fiat to Bitcoin Exchange first.

You can buy Altcoins from Binance, BitTrex, Kucoin, and Kraken.

Choose the Right Wallet

The next step in the crypto investment journey is to select the appropriate crypto wallets. It is essential to have your crypto wallet before buying any cryptocurrencies. You will need wallets to store your coins within your secure personal wallets.

While exchanges allow investors to hold purchases coins within assigned exchange wallets, it’s recommended that you withdraw your cryptos and hold them in private wallets. This protects you and your investments from hackers and theft. It is also worth noting that wallet compatibility also needs to be considered.

Crypto wallets to choose from include but are not limited to:

Before Getting Started

Prior to deciding on the most suitable crypto exchanges and wallets to support your trading activity, you need a trading strategy. As part of your strategy build, there are a number of factors to keep in mind:

  • Only invest in what you can afford to lose
  • Do not take a loan to invest
  • Do your own research, monitor the news wires, and view technical analysis on the respective cryptos that you decide to go with. FX Empire covers the largest cryptos, with exchanges also providing technical analysis to their users free of cost.
  • Set realistic expectations, don’t be greedy, and know when to accept a loss. (It is easy to be influenced by the news wires and overzealous analysts talking of the next crypto boom or doom. It is best to block out such noise.

Forming a Crypto Trading Strategy

While identifying the most appropriate wallets and exchanges are vital, formulating a trading strategy is undoubtedly the most important pre-investment step for a prospective trader.

Key Decisions:

  • Cryptocurrency selection – A blend of the largest cryptos along with medium-sized to small cryptos by market cap is recommended. This also addresses any liquidity issues for the overall portfolio.
  • Worth noting – A certain cryptocurrencies may have values that exceed the intended investment size. In such instances, identifying an exchange that offers CFDs or partial investment of a crypto coin is important.
  • Trader durations – For traders with adequate time to trade, a short, medium, and longer-term trading strategy would make sense.
    • Smaller size, more volatile, coins increase earnings potential intraday. These should ideally form no more than 20% of the total investment pool.
    • The Largest coins should form longer-term strategies. With adequate research, however, smaller coins may also form part of this strategy.
    • For the more medium-term strategies, which would be anything beyond intraday but less than a month, a blended portfolio is recommended. This can comprise of small, medium, and large-cap coins.
  • In any trading strategy -using risk management tools and indicators is recommended. While there are fees incurred for using stop loss and trade profit, using these would protect your downside.

80/20 Rule

When considering crypto market volatility and the rise and fall of the smaller coins, an 80/20 blend of large-cap to mid to small-cap would be recommended.

This would provide the opportunity to make sizeable gains any sudden surge in the small to mid-cap cryptos, whilst also holding the more stable coins. Do note that stable is a relative term in the crypto market. Even Bitcoin can see sizeable swings on a given day…

Does the Number of Coins Matter?

It ultimately boils down to the investment strategy that you build. With a blended portfolio, 1 Bitcoin may make up your large-cap portfolio, or 20 Litecoin for instance. It is important to focus on the blend rather than the actual number of coins that make up each component of the portfolio.

Recommendations

Below is a range of cryptos to consider the different components of your portfolio. This is not a comprehensive breakdown of the broader market and there may be coins that are more to your liking. As always, carry out the necessary research before hitting the buy or sell order…

Large Caps

Tezos, Ripple, Bitcoin, Ethereum, EOS, Cardano, Bitcoin Cash SV, Bitcoin Cash, and Binance Coin.

Mid-Caps

Zcash, VeChain, True USD, Tron’s TRX, Qtum, OmiseGo, OKB, NEO, Ethereum Classic, Dogecoin, DASH, and Cosmos. These have been selected based on 24-hour volumes and have market caps of between $100m and $1bn.

Low Caps

This will consist of cryptos with a market cap of less than $100m and will likely have lower trading volumes. That means less liquidity, which is why this component should form a lower proportion of the portfolio.

Unibright, Theta Fuel, Status, MCO, Matic Network, IOST, HyperCash, BitTorrent, and ABBC Coin.

Next Steps

Once you have built your strategy, selected your cryptos, opened your trading accounts, and set up your wallets, it’s time to trade.

While you may be able to have a better sense of when to enter more mature markets, such as the global equity market, it’s less simple to pick the right entry point in the crypto world.

Other than entering at an all-time high, there’s no hard and fast rule other than waiting for any sell-off to flatten out.

Once you start trading, remain disciplined, and ensure you run your risk parameters each day.

These will include your charts that should have your support and resistance levels embedded.

And remember, not every trade will yield a return, so don’t panic should your first trade take a hit.

Forex Regulation Across Africa – The Complete Guide

Partly, this intense growth was caused by the fact that ESMA enforced new restriction laws on the maximum leverage that EU traders can use (this caused FX brokers to focus on other big markets, like Africa)

An average of over $5.1 trillion is traded daily in the Forex market. Though worldwide, there are major forex trading centres which include London, Tokyo, Paris, Sydney, New York, Zurich, Singapore, and Hong Kong. A Forex trading day starts in Australia and ends in New York. The market stays open for 24 hours a day and five and a half days a week.

There are specific regulations in countries, continents that oversee the trading of Forex. In some countries, FX trading is restricted and banned while in others, it is fully supported. In this post, our focus is on Africa as we’ll be looking at Forex regulation across the continent.

Overview of Forex Trading In Africa

Forex trading is a very competitive activity, and in Africa, it is no different. The market has experienced speedy growth over the last two decades as more Africans are being enlightened on what Forex entails.

Significantly, the last decade has seen the Forex market go from almost unnoticed to becoming one of the most dynamic industries in the content. This can be attributed to the advent of mobile devices and other technologies.

There are about 1.3 million Forex traders in Africa. South Africa and Nigeria lead the way as both countries constitute a large percentage of the total figure.

Other countries where Forex trading is gaining ground are Kenya, Egypt, Angola, Namibia, and Tanzania. This has attracted international Forex brokers like IQ Option, IC Markets, XM Forex Trading, ForexTime (FXTM), and Olymp Trade.

With this vast amount of forex traders, it is expected that government financial regulatory bodies will be interested in monitoring trading activities in individual countries.

Forex-Friendly African Countries

A lot of African countries are Forex-friendly, but there are minor restrictions from the government. Forex can be traded in Nigeria, South Africa, Egypt, Kenya, Namibia, Ivory Coast, and many other African countries.

Whereas Forex trading cannot be said to be legalized in these countries, it also does not break the law. Before a Forex broker can offer Forex trading services to a country’s citizen, it is mostly mandatory to acquire a trading license.

Forex-Prohibited African Countries

Currently, a complete Forex ban is not placed on any country in Africa, unlike world countries like North Korea and Israel. As stated earlier, there are minor restrictions from the government in some countries. These restrictions do not prohibit the trade of Forex but are imposed to prevent fraudulent and scam activities.

Some of these restrictions are on the maximum trading amount and the maximum amount you can have in your Forex account. These are similar to Forex restrictions imposed in countries like China and Russia. Furthermore, Forex trading with non-licensed Forex brokers is prohibited in some African countries. Likewise, you can only trade Forex for yourself and not for anyone else (identification is mandatory for most Forex brokers).

Forex trading is usually not welcomed in countries governed with strict sharia laws. As a result, countries like Algeria, Benin, Burkina Faso, Egypt, etc., may not be the best to engage in Forex trading.

Let’s consider how Forex trading is regulated in some major African countries:

Forex Regulation In South Africa

In South Africa, various regulatory trading rules are put in place to minimize Forex trading risks. These regulations are imposed by the South African Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB). The FSCA is the body responsible for monitoring and controlling all financial activities in the country. It is the most vigorous Forex market regulation in Africa.

The FSCA regulatory policies are in line with what is obtainable from regulatory bodies overseas. Notably, all OTC derivative brokers must report all trades in a bid to organize CFDs. Through the FSCA, Forex brokers can relate with each other without resulting in conflict.

According to topforexbrokers.co.za, the FSCA license incorporates some immense benefits like that FX brokers regulated by the FSCA treat their customer in good faith and that they help them with financial education and financial literacy. Not to mention that if anything goes south, a South African trader who is trading with FSCA regulated broker can go to FSCA if they think they have been scammed by their broker or mistreated.

Forex Regulation In Kenya

In Kenya, the Capital Markets Authority (CMA) regulates all financial activities, including foreign exchange trading. Before a Forex broker can do business in Kenya, they must be registered and licensed by the CMA.

Forex was previously unregulated in Kenya. Before 2016, lots of Kenyans were trading with unregulated brokers, and there were too many reports of fraudulent activities. As a result, the Kenyan government authorized the CMA to regulate Forex trading activities in the Finance Act 2016. The principal aim of the regulation is to make the market transparent and protect investors’ funds.

The CMA drew regulatory leads from international regulatory bodies like the Australian Securities and Investment Commission (ASIC) and the United Kingdom’s Financial Conduct Authority (FCA).

Forex Regulation In Nigeria

Forex trading in Nigeria is still unregulated despite the market being one of the most active ones in the continent. However, it is perceived that the country’s apex bank is working with the Securities Exchange Commission to commence Forex trade regulation.

Despite the absence of regulation in the country, the government does not consider Forex trading illegal. There are local Forex brokers who register just like other businesses and carry out foreign exchange activities as usual. Most Forex traders in Nigeria make use of foreign Forex brokers rather than the local ones due to this lack of regulation. The trading risk is totally on the trader, so they assume the foreign brokers are more trustworthy.

Banking policies do have effects on Forex trading in Nigeria. Some Nigerian banks may prevent customers from using their electronic cards to make payments or withdraw from foreign exchange platforms. Presently, there are imposed restrictions on the amount of foreign currency a Nigerian can spend outside the country. These are individual policies that could be eliminated if the Nigerian government properly legalizes Forex trading.

How To Select The Best Forex Broker For Africa

Due to the risks involved in Forex trading, it is vital to be cautious when deciding on the best Forex broker to invest in Africa.

Firstly, you should check for the broker license. If Forex trading is regulated in your country, check to see the Forex brokers licensed by the regulatory body. For a country like Nigeria, where the market is not restricted, consider foreign brokers who are licensed by global licensing authorities.

The next thing to do is to check out the trading platforms offered by these brokers. Check for their deposit bonuses, ratings, minimum deposit, and payment options before making a decision. For a practical trading experience, a Forex demo account should be featured where you can try your hands before going live. Do not invest real money if you haven’t fully understood how the platform works.

How To Stay Safe While Trading Forex

You should avoid any unlicensed Forex broker in Africa. The amount of Forex scams in African countries is on the high side, and it has resulted in grave losses for the victims. By going with a well-licensed broker, this risk is almost eliminated, and you can trade more assuredly.

Additionally, you should be cautious when making a substantial investment when you don’t fully understand the Forex market. Likewise, you should control your emotions and don’t spend all your money on Forex trading.

Conclusion – The Future Of Forex In Africa

Interest in Forex will undoubtedly continue to rise in the coming years. The sensitization level is currently high as Forex trading is advertised on newspapers, TVs, radios, websites, etc.

There are equally Forex seminars and programs to create awareness. More overseas Forex brokers are also picking interest in offering their services to African countries. Consequently, better regulatory policies will be imposed in countries that lack them so that aspiring traders can trade safely.

Breakeven Crude Oil Production Costs Around The World

If the market price of a raw material is higher than its cost of extracting it from the crust of the earth or any other form of production, it leads to increased output. A profitable production process provides an incentive for output.

When the cost of production is higher than the market price, output declines as it becomes a losing proposition. The price cycle in commodities causes prices to rise to levels where production increases. Higher output leads to growing inventories. As a market becomes more expensive, the elasticity of demand causes consumers to look for substitutes and buying declines, leading to price tops and reversals to the downside.

When the price of a commodity falls below the cost of production, output slows. The demand tends to increase as consumers take advantage of lower prices, and inventories begin to decline, leading to price bottoms. The price cycle in a commodities market can change because of exogenous events, but it tends to be efficient. High prices lead to glut conditions, and low prices often create shortages, over time. Production cost is one of the critical variables that fundamental analysts use to project the path of least resistance for market prices.

In the crude oil market, output costs vary according to the production location. Saudi Arabia, Russia, and the United States are the three leading oil-producing nations in the world, and each has different sensitivities to output costs.

Saudi Arabia- Think turning on a garden hose

Over half the world’s crude oil reserves are in the Middle East, and Saudi Arabia is the leading producer in the region. The Saudis have long been the most potent force within OPEC, the international oil cartel. Saudi Arabia’s vast reserves make production as easy as turning on a garden hose in our backyards for the country.

Meanwhile, the Saudi economy depends on oil revenues. The rising costs of running the country have pushed the break-even level of the price of the energy commodity to over $80 per barrel on the Brent benchmark. While the nominal production cost of oil is the lowest in the world in Saudi Arabia at $2.80 per barrel, the requirements for revenues creates a wide gap between production economics and balancing the Saudi budget.

Russia- Output costs may not matter as much in the west

Russia is an enigma when it comes to the cost of production for the energy commodity. The Russians, under President Vladimir Putin, is structured as an oligarchy. A small group runs the nation’s economy. Therefore, the production cost of crude oil is an enigma and a state secret. In 2020, the Russian leader had said that he is comfortable with a Brent price around the $40 per barrel level. The statement could shed at least some light on the price level for the energy commodity that provides enough revenue to keep the system running smoothly.

The US- The marginal producer in the world

In the 1970s and 1980s, the United States was dependent on oil imports from the Middle East. Rising prices during this century, combined with reserve discoveries in shale regions, caused production to increase. Moreover, technological advances in extracting crude oil from the crust of the earth and regulatory reforms under the Trump Administration caused daily output to rise to over 13 million barrels per day, making the US the world’s leading producer and achieving the goal of independence.

The US is a marginal producer. While production costs have declined, they are still around the $30 to $40 per barrel level. The US is in a position where it is a dominant marginal producer. When the price of oil rises above production costs, the output can increase. When it falls below, the US can turn off production and import inexpensive crude oil from other nations.

In any commodity, the production cost is a critical factor when it comes to the fundamental supply and demand equation. Pricing cycles take prices above and below break-even output costs at times. Each leading producer has different requirements when it comes to prices, which makes a global analysis complicated and the worldwide break-even equation for crude oil an economic and geopolitical enigma.

What are Commodity Currency Pairs?

The currencies of countries around the world are fiat instruments, meaning that they have no backing by anything other than the full faith and credit of the nations that issue the legal tender.In the past, many currencies used gold and silver to provide support for the foreign exchange instruments, but the metals prevented countries from making significant changes in the money supply to address sudden changes in economic conditions.

Meanwhile, some countries with substantial natural resources that account for revenue and tax receipts have an implicit backing for their legal tender. The ability to extract commodities from the crust of the earth within a nation’s borders or grow crops that feed the world allows for exports and revenue flows. While those countries have fiat currencies in the international financial system, the implied backstop of commodity production makes them commodity currencies.

Commodities provide support for some foreign exchange instruments

The fundamental equation in the world of commodities often dictates the path of least resistance for prices. While demand is ubiquitous as all people around the globe are consumers of raw materials, production tends to be a local affair.

Commodity output depends on geology when it comes to energy, metals, and minerals. Soil, access to water, and climate make some areas of the world best-suited for growing agricultural products. Chile is the world’s leading producer of copper. The vast majority of cocoa beans, the primary ingredient in chocolate, come from the Ivory Coast and Ghana, two countries in West Africa.

In Chile and the African nations, the production of the raw materials accounts for a significant amount of revenues and employs many people, making them a critical factor when it comes to economic growth. Meanwhile, the Australian and Canadian currencies are highly sensitive to commodity prices as both nations are significant producers and exporters of the raw materials to consumers around the globe.

Australia and Canada have commodity currencies

Australia and Canada produce a wide range of agricultural and energy products, as well as metals and minerals. Australia’s geographical proximity to China, the world’s most populous nation with the second-leading economy, makes it a supermarket for the Asian country. Canada borders on the US, the wealthiest consuming nation on the earth. Therefore, Australia and Canada are both commodity supermarkets for a substantial addressable market of consumers.

In 2011, commodity prices reached highs, and the price action in the Australian and Canadian currencies versus the US dollar shows their sensitivity to raw material prices.

Source: CQG

The quarterly chart of the Australian versus the US dollar currency pair highlights that highs in commodity prices in 2011 took the foreign exchange relationship to its all-time high of $1.1005. The price spike to the downside during the first quarter of 2020 that took the A$ to $0.5510 came on the back of a deflationary spiral caused by the global Coronavirus pandemic that sent many raw material prices to multiyear lows.

Canada is a significant oil-producing nation. In 2008, the price of nearby oil futures rose to an all-time peak of over $147 per barrel.

Source: CQG

The quarterly chart of the Canadian versus the US dollar currency pair shows that the record high came in late 2007 at $1.1043 as the price of oil was on its way to the record peak. The highs in raw material prices in 2011 took the C$ to a lower high of $1.0618. The deflationary spiral in March 2020 pushed the C$ to a low of $0.6820 against the US dollar.

Both the Australian and Canadian dollars are commodity currencies that move higher and lower with raw material prices over time.

Brazil’s real also tracks the prices of some commodities

Brazil is an emerging market, but the most populous nation in South America with the leading GDP in the region is a significant producer of commodities. The price relationship between the Brazilian real and the US dollar is another example of how the multiyear highs in commodity prices in 2011 sent the value of a commodity-sensitive currency to a high.

Source: CQG

The quarterly chart of the Brazilian real versus the US dollar currency pair shows that the real reached a record high of $0.65095 against the US dollar in 2011 when commodity prices reached a peak.

While the Australian and Canadian dollar and Brazilian real are fiat currencies, they each reflect the price action in the raw material markets, making them commodity currencies. The foreign exchange instruments may not have express backing of the nation’s raw material production; there is an implied backing as higher commodity prices lift the local economies and government tax revenues. Commodity currencies can serve as proxies for the asset class as they move higher and lower with raw material prices.

How To Use Technical Analysis In Forex Markets

Charts are useful tools for investors and traders as they offer insight into herd behavior. In a book written in 2004, author James Surowiecki explained how crowds make better decisions than individuals. Markets are embodiments of Surowiecki’s thesis as the current price of an asset is the level where buyers and sellers meet in a transparent environment.

When it comes to the global foreign exchange market, buyers and sellers of currencies determine the rates of one foreign exchange instrument versus others on a real-time basis. At the same time, governments manage the level of currency volatility to maintain stability. Technical analysis can be particularly useful in the currency markets as technical levels can provide clues about levels where government intervention is likely to occur.

Technical analysis includes support and resistance levels where currency pairs tend to find lows and highs. At the same time, price momentum indicators often signal where exchange rates are running out of steam on the up and the downside.

Technical analysis can breakdown at times when black swan events occur.

Futures are a microcosm of the OTC market

In the world of foreign exchange, the over-the-counter market is the most liquid and actively traded arena. The OTC market is a global and decentralized venue for all aspects of exchanging the currency of one country for another; it is also the largest market in the world. In April 2019, the average trading volume was $6.6 trillion per day. The OTC market operates twenty-four hours per day, except for weekends.

Futures markets for currency pairs are smaller, but they reflect the price action in the OTC market. When it comes to technical analysis, the futures market provides a window into the price trends and overall state of the strength or weakness of one currency versus another.

Volume and open interest metrics provide clues for price direction

The dollar versus the euro currency pair is the most actively traded foreign exchange relationship as both foreign exchange instruments are reserve currencies.

Source: CQG

The weekly chart of the dollar versus the euro futures contract displays the price action in the currency pair since late 2017. The bar chart on the bottom reflects the weekly volume, which is the total number of transactions. The line above volume is the open interest or the total number of long and short positions.

When volume and open interest are rising or falling with the price, it tends to be a technical validation of a price trend in a futures market. When the metrics decline with rising or falling prices, it often signals that a trend is running out of steam, and a reversal could be on the horizon. Volume and open interest are two technical metrics that aid technical traders looking for signs that a trend will continue or change.

Momentum indicators are powerful technical tools at times

Stochastics and relative strength indices can provide a window into the overall power of a trend in a futures market.

Source: CQG

Beneath the weekly price chart, the slow stochastic is an oscillator that aims to quantify the momentum of a price rise or decline. Stochastics work by comparing closing prices with price ranges over time. The theory behind this technical tool is that prices tend to close near the highs in rising markets and near the lows in falling markets.

A reading below 20 indicates an oversold condition, while over 80 is a sign of an overbought condition. On the weekly chart of the euro versus the dollar currency pair, the reading of 31.42 indicated that the stochastic oscillator is falling towards oversold territory in a sign that the downtrend could be running out of steam.

The relative strength indicator compares recent gains and losses to establish a basis or the strength of a price trend. A reading below 30 is the sign of an oversold condition, while an overbought condition occurs with a reading above the 70 level. At 45.55 on the weekly dollar versus euro chart, the indicator points to a neutral condition in the currency pair.

Technical analysis can fail at times

Technical analysts look for areas of price support and resistance on charts. Support is a price on the downside where a market tends to find buying that prevents the price from falling further. Resistance is just the opposite, as it is the price on the upside where a market tends to experience selling that prevents it from rising further. When a price moves below support or above resistance, it often signals a reversal in a bullish or bearish price trend.

Technical analysis is not perfect, as the past is not always an ideal indicator of the future.

Source: CQG

The chart of the currency relationship between the US and Australian dollar shows that the price broke down below technical support and experienced a spike to the downside. The price movement turned out to be a “blow-off” low on the downside that reversed after reaching a significantly lower price.

Technical analysis provides a roadmap of the past in the quest for insight into the future. Many market participants use technical analysis to make trading and investing decisions, which often creates a self-fulfilling prophecy as a herd of transactional activity can create or impede a price trend. Technical analysis is a tool that foreign exchange traders use to project the path of least resistance of exchange rates.

Some of the most influential participants in the foreign exchange markets are governments. Historical price volatility in foreign exchange markets tends to be lower than in most other asset classes because governments work independently or together, at times, to provide stability for exchange rates. Therefore support and resistance levels tend to work well over time.

What are Contango And Backwardation?

Term structure, the forward curve, or time spreads are all synonymous and reflect the price differences for a commodity over time.

In some commodities, seasonality causes prices to reach lows at certain times of the year and peaks at others. Natural gas and heating oil often reach seasonal highs during the winter months, while gasoline, grains, lumber, and animal proteins can move towards highs as the spring and summer seasons approach.

Meanwhile, the price differential for various delivery dates can provide valuable information when it comes to the supply and demand fundamentals for all commodities. Contango and backwardation are two essential terms in a commodity trader’s vocabulary.

Contango is a sign of a balanced or glut market

Contango exists in a market when deferred prices are higher than prices for nearby delivery. A “positive carry” or “normal” market is synonymous with contango.

Source: NYMEX/RMB

The forward curve in the NYMEX WTI crude oil futures market highlights the contango in the energy commodity. In this example, the price of crude oil for delivery in June 2020 was at $28.82 per barrel and was at $36.10 per barrel for delivery one year later in June 2021. The contango in the oil market stood at $7.28 per barrel.

The contango is a sign of oversupply. However, it also reflects the market’s opinion that the current price level will lead to declining production and inventories and higher prices in the future.

Backwardation signals tightness

Backwardation is a market condition in which prices are lower for deferred delivery compared to nearby prices. Other terms of backwardation are “negative carry” or “premium” market.

Source: ICE/RMB

The term structure in the cocoa futures market that trades on the Intercontinental Exchange shows that cocoa beans for delivery in May 2020 were trading at $2305 per ton compared to a price of $2265 for delivery in May 2021. The backwardation of $40 per ton is a sign of nearby tightness where demand exceeds available supplies. At the same time, the lower deferred price assumes that cocoa producers will increase output to close the gap between demand and supplies in the future.

Watch the forward curve

A fundamental approach to analyzing commodity prices involves compiling data on supplies, demand, and inventories. The term structure in raw material markets can serve as a real-time indicator for supply and demand characteristics. When nearby supplies rise above demand, the forward curve tends to move into contango. When the demand outstrips supplies, backwardations occur.

Watching the movements in term structure can provide value clues when it comes to fundamental shifts in markets. Exchanges publish settlement prices for all contracts each business day. Keeping track of the changes over time can uncover changes that will impact prices.

In tight markets where backwardations develop or are widening, nearby prices tend to move to the upside. In contango markets, equilibrium can be a sign of price stability, while a widening contango often is a clue that prices will trend towards the downside.

The shape of the forward curve can move throughout the trading day. Any dramatic shifts tend to signal a sudden change in market fundamentals. For example, a weather event in an agricultural market that impacts production would likely cause tightening and a move towards backwardation. As concerns over nearby supplies rise, the curve often tightens.

Conversely, a demand shock that leads to growing inventories often leads to a loosening of the term structure where contango rises. Observing changes in a market’s forward curve and explaining the reasons can provide traders and investors with an edge when it comes to the path of least resistance of prices.

What Is A Forward Contract?

A forward contract is an over-the-counter or exchange-traded financial transaction for the future delivery of a commodity or an asset. The buyer receives guaranteed access to the asset at an agreed-upon price. The seller receives a fixed price as well as a sales outlet from the buyer.

Forward contracts can call for payment upon delivery of the asset but may also include provisions for margin or other terms expressly agreed upon by the parties to the contract. A forward can be a useful hedging tool for both producers and consumers of commodities. However, they can also be fraught with pitfalls at times.

Forwards in the over-the-counter market

In the OTC market, a forward transaction occurs on a principal-to-principal basis between a buyer and a seller. The parties to the contract obligate themselves by contractual terms with the seller assuming the credit risk of the buyer and the buyer doing the same with the seller.

In the world of commodities, there are many derivations of the forward contract. A pre-export financial transaction is a forward where the buyer pays the seller a percentage of the value before delivery. Pre-export financial transactions require the buyer to take more risk than the seller. The price for the asset tends to reflect the higher risk undertaken by the buyer. Another form of a forward transaction is a swap, where a buyer and exchange a fixed for a floating price.

In the aftermath of the 2008 global financial crisis, changes in the regulatory environment caused many forward and swap transactions to move into clearinghouses where margin requirements lowered the potential for defaults.

Forwards are very popular in the highly liquid over-the-counter foreign exchange market. Forward transactions allow for the parties to negotiate all of the terms for the purchase and sale and they are non-standardized contracts.

Forwards on an exchange

Some exchanges offer products that are forwards rather than futures contracts. The London Metals Exchange, which is the oldest commodities exchange in the world, trades forwards on nonferrous metals, including copper, aluminum, nickel, lead, zinc, and tin. While each contract represents a standard amount of the metal in metric tons, the most actively traded product is the three-month forward. Producers and consumers favor the LME contracts as they allow for delivery of the metals each business day of the year. The LME also offers forward contracts for shorter and longer terms in all of the metals.

The difference between a forward and a futures contract

The most significant difference between a forward and a futures contract is that the forward is non-standardized. Futures have the following characteristics:

  • One stated asset or commodity
  • A physical or cash settlement
  • A fixed amount of the asset per contract
  • The currency in which the asset is quoted
  • The grade or quality of the asset that is deliverable
  • The delivery month and subsequent delivery months
  • The last day of trading
  • The minimum price fluctuation per contract, which is the tick value

Futures are subject to original and variation margin. In a non-standardized forward contract, the terms of margin when it comes to a good-faith deposit and payment of market differences are subject to negotiation.

A forward contract offers less liquidity than a futures contract as the future can be offset with any other party. Many forwards can only be offset by agreement of the original parties. In futures, the clearinghouse becomes the counterpart for all purchase and sale transactions. While both futures and forwards are derivative instruments, there are tradeoffs. Futures allow for far more liquidity, while forwards often meet the needs of those buyers and sellers looking for tailor-made solutions to financial risks.

Meta Trader 4: The Complete Guide

Most of these trading platforms are customized by MetaQuotes for a broker which is referred to as a White Label. The newest addition is MT5, but many traders like the tried and true Meta Trader 4, as it provides all the functionality you need in a forex trading platform.

Getting Started with Meta Trader 4

Meta Trader 4 is intuitive and relatively easy to use.  You can start by opening a demonstration account that allows you to test drive the system without making a deposit.  You simply need to provide a broker that uses Meta Trader Platforms, your personal information including your email and they will send you a login and password to open a demonstration account.

A demonstration account uses demonstration money and allows you to see how the platform works without risking real capital.  Don’t be afraid to place multiple trades so you understand how to execute and order and view your positions.

The first page you see when you open Meta Trader 4, can be customized as your default page. You might want to see forex quotes along with a chart as an example. On the left side is a quote sheet. It shows you a list of products that you can trade through the MT4 platform.

You can double-click on any of the items on the quote sheet and it will bring up an order page.  Here you can see a graph of a tick chart along with the asset you are planning to trade. You can fill in your volume and place a stop loss and take profit orders.  This allows you to set your risk management before you even place your trade.

Additionally, you can have a 1-click trading box in the upper left side that allows you to instantly place a trade. You can place your trade using market execution or pending order.  You also can determine the volume of your trade.  Below is the bid-offer spread. As a market taker, you buy on the offer (the blue) and sell on the bid (the red).

Navigating through Meta Trader 4 is intuitive and designed to give you easy access to all of the destinations available on the platform.  You can customize your home page to see any page, including seeing your positions.

The demo account has a tab system on the bottom left, that opens to the common tab, where you can see charts of the major currency pairs.  You can change that to see daily, weekly or any intra-day period.  You can create several tabs that provide a view that you want to see.

Above the tabs is a navigator that allows you to see technical indicators as well as expert advisors and scripts.  Technical indicators allow you to perform technical analysis of different assets. An expert advisor is a system that can be back-tested to understand the performance of an automated trading signal over time.  Scripts allow you to drive alerts and run automated trading scenarios.

If you double-click in indicators in the menu of the navigator, you will a plenty of technical indicators that can be customized. In the graph above, the MACD (moving average convergence divergence) indicator is shown, along with a pop up of a custom input that you can use to change the standard MACD.

You can change the number of units (days, weeks, months, etc…) as inputs along with the colors used to generate a MACD indicator. The MACD shows both the MACD lines as well as the MACD histogram. There are dozens of technical indicators. You can save your favorite indicators into a tab and name favorites.

Expert Advisor

Metal Trader 4, offer access to their expert advisor. An expert advisor is a system that places trades after they have been back-tested.  It will automatically execute your trades when specific criteria are met. The demo account gives you a choice of a couple of different sample expert advisors.  You can choose from a moving average crossover expert advisor or a MACD expert advisor.

You can choose the inputs you use for each of these advisors such as the number of days or hours that you want in the calculation of the signal as well as the risk management that you want to employ when trading.  Risk management is a key component of your trading. The use of a demonstration account in conjunction with an expert advisor is highly recommended.

Scripts

Within the scripts section, you will find a wide variety of trading mechanisms. This includes automated trading, along with trading signals. There is copy trading as well as specific risk-reward indicators.  You can use multiple scripts with reviews of these scripts on your demonstration account to determine if the trading performance is in tandem with your goals.

Summary

Meta Trader 4 is one of the most efficient and complete trading platforms available.  You can open a demonstration account to test drive Meta Trader 4, and determine if its right for you.  You can set up multiple pages, to see charts, quotes, along with your portfolio.  You can execute traders from the quote sheet or enter an order directly.

There is a navigator you can use to add indicators, as well as create an expert advisor.  The platform provides you with access to dozens of indicators. You also can program your indicator. MT4 also allows you to evaluate a plethora of scripts that allow you to copy other investor’s trades or set up a signal that has been reviewed by others who use meta trader to transact. This is one of the most widely used trading platforms and is the benchmark platform for retail forex traders globally.

The Benefits of Using Contracts for Differences

Contracts for differences (CFDs) are financial instruments that track many assets including forex, individual equity shares, commodities, indices, and cryptocurrencies. CFDs allow you to trade the capital markets using leverage.

What is a Contract for Differences (CFD)?

A contract for differences (CFD) is a financial instrument that tracks the movements of an underlying asset such as a stock, currency pair, commodity, cryptocurrency or index. It differs from the underlying instrument in that you do not have to post the entire amount of capital to buy the underlying instrument. Instead, you only need enough to cover the change in the price from where you plan to enter the trade, and where you will exit the trade.

This compares to a stockbroker who might require that you need to have nearly all the capital in your account to buy equity shares. In some cases, when you purchase a CFD, you might be entitled to the dividend that is granted by the company on the underlying shares. CFDs can be used to trade directionally, or you can buy one CFD and simultaneously sell a different CFD and capture the relative value change.

Do CFDs Provide Leverage?

A CFD has an imbedded leverage feature which will differ from broker to broker and asset to asset. Leverage is a feature that enhances your trading returns, as it allows you to increase the capital you control with borrowed capital.

For example, some brokers will allow you to purchase $4,000 of EUR/USD while only posting collateral of $10. To use leverage, you need to open a margin account. Each broker will have different criteria for opening a margin account. They will generally ask you questions about your trading experience as well as your investing knowledge.

It’s important to understand how leverage can impact your trading returns. If you can purchase $4,000 of EUR/USD using 400-1 leverage, it will only take a 0.25% ($4,000 * 0.0025 = $10) move to either double your money or wipe out your capital. So, while leverage is an attractive tool, it can be a double-edged sword.

When you open a margin account, your broker will require that you always have a specific amount of capital in your account.  Each time your place a new trade your broker will require that you post a specific amount of fund which is referred to as initial margin.  The margin required is the amount of capital needed if the price of the CFD moved against you by a larger than the normal amount.

Your broker wants to make sure that you have enough capital allocated to a trade that if there was a larger than normal change in the price, that you have the funds to cover the losses. As the market moves, the amount of margin that you need to hold against each trade will change. If the price of the asset that you are trading moves against you, your broker will take maintenance margin to cover additional losses in addition to your initial margin. If the price of the security you are trading moves in your favor, the initial margin will remain unchanged, but any maintenance margin that was collected will decline.

The margin calculation is in real-time, and it tells your broker the minimum amount of capital you must have in your account to continue to hold your position.  If your trade moves against you and you are unable to increase the capital you have in your account, your broker will have the right to begin to liquidate your position.  Make sure you completely understand the margin agreement you sign and your broker’s rights to liquidate your position before you start to trade CFDs.

Trading CFDs relative to Stocks

CFDs can be very efficient for investors who are looking to trade stocks. This is because the leverage that is used in CFD trading, is much higher than the leverage you can receive with a stockbroker. For example, Amazon shares are trading near $1800 per share.

This means that you would need $1,800 just to purchase one share of Amazon stock. Many CFD brokers offer leverage of 20-1 which would allow you to purchase 1 CFD of Amazon for as little as $90 per CFD. A 5% rise in Amazon shares will allow you to double your money. Additionally, for the same $1,800 that would allow you to purchase 1-share of Amazon stock, you could buy 20 Amazon CFDs. Lastly, CFDs allow you to short the stock without having to borrow the shares.

Managing Your Risk

CFD trading can be risky, especially if you use leverage, so you must have a plan in place before you make each trade. To avoid the risk of ruin, you should limit the amount of capital you place on each trade to 5-10% of your portfolio. For example, if you plan to trade a portfolio of $5,000 the maximum you should post for each trade should be $500. This will provide you with a strategy that will provide some forgiveness if you start slowly.

Another concept you should follow is to cut your losses and let your profits run.  If the market moves against you and hits your stop loss, you should exit and live to see another day. If the market moves in your favor, move your stop-loss up and let your gains compound as the market moves in your favor.

Summary

Contracts for differences (CFDs) are financial instruments that allow you to trade the capital markets without purchasing the underlying instrument. CFDs track underlying instruments and provide leverage to help you enhance your returns. This would include equity shares, commodities, indices, forex, and cryptocurrencies. To trade CFDs with your broker you will need to open a margin account. While leverage can significantly enhance your trading returns, it is a double edge sword and can also lead to robust loses. You must have a well thought out risk management plan that you can employ on each trade, before risking any of your hard-earned capital.

Decisive Action in the New Decade: How to Invest Wisely in the 2020’s

Sadly, we’re still having to cope with jittery markets and widespread instability due to a range of political, environmental and technological factors, but that’s not to say there won’t be some great investment opportunities which we can capitalize on in the coming years.

The previous decade gave us a taste of the almighty potential that disruptive technology possesses, and cryptocurrencies, in particular, taught us that the sky’s the limit if investors are shrewd, wise and, in many cases, lucky enough.

Of course, cryptocurrencies are way too volatile to consider as anything other than a gamble, but there are plenty of opportunities out there that hold potential for the coming decade. Though it’s important to note that there are lots of unforeseeable circumstances that could undermine the value of just about any investment in the future – so it’s advisable to keep on guard if you decide to buy specific assets.

Looking to the clouds

(Cloud robotics industry forecasts show that industry growth is expected in the 2020s. Image: EVA)

Hamish Douglass is the billionaire chairman of Magellan and is an expert when it comes to investing in tech companies in particular. Speaking to the Financial Review, Douglass is confident that cloud computing will be the star player of the 2020s. “Mobility, internet of things, edge computing, enables the whole cloud to come together and do things we can’t even imagine today and businesses we haven’t even thought of will be $100 billion businesses in ten years,” he explained.

The beauty of cloud computing is that it’s demonstrably effective already. As opposed to the industries of AI and Virtual Reality, which still rely on some degree of speculation, the cloud is already largely used for the storage of images, home entertainment, collaboration tools, and within a range of smart devices. Many speculate that it’s soon to infiltrate the world of gaming, too.

As technology becomes smarter, the necessity of communicating with other smart devices increases. Add to this the fact that wires are fast becoming redundant in a world that’s dependent on convenience and it leaves the Internet of Things and cloud computing as an essential development in everyday life. The massive processing power of the cloud will also be key for industries depending on the interpretation of big data and powerful calculations.

In a jittery financial landscape, it’s fair to say that shares in the cloud technology companies could be one of the safest investments of the coming decade. This isn’t to say it’s completely immune from extraneous circumstances, but it’s one of the best shots to build a healthy portfolio.

Safety in real estate

Writing for Market Watch, Mark Hulbert believes that real estate is set to offer value investments over the next 10 years.

Hulbert highlights a Bankrate survey that asked investors which type of investment they would pick if they were using money that wouldn’t be needed for 10 years. The choices were stocks, bonds, real estate, cash, gold or metals, or cryptocurrencies.

The winner by some margin was real estate, which goes some way in showing that the best investments can come from more traditional places. Nearly one-third of respondents chose the housing market, and given that the stock markets as a whole face an uncertain short-term future, it could be one of the wisest decisions.

Hulbert believes that the performance of real estate during bear markets – with the notable exception of the 2008 market crash – shows that homes are safer than equities should an economic downturn occur. “In every other stock market bear market since the 1950s, the Case-Shiller Home Price Index rose in all but one. And in that lone bear market prior to 2007 in which the index did fall, it did so by just 0.4%.”

There’s also the added perk of the housing market being much less prone to the level of volatility shown by the world stock markets, meaning that over a 10-year period, your investments are likely to fluctuate less.

Geographic diversity

(Image: Visual Capitalist)

Interconnectivity has been making the world a smaller place for some time, and when looking for future investments it’s vital to look beyond the western world.

Tobias van Gils, of Countach Research believes that the fastest GDP growth of the 2020s will come from Asia. Furthermore, Van Gils highlights neglected economies surrounding both China and India as possessing great potential for growth.

The driving force behind Asian growth in the 2020s will be China’s multi-trillion dollar Silk Road Economic Belt, as well as the 21st Century Maritime Silk Road – two infrastructure investments that are designed to bring unprecedented levels of trade across the eastern hemisphere and beyond.

(Old and new: The new Silk Road infrastructure. Image: Benzinga)

Of course, such an ambitious project comes with more caveats. Firstly, much of the GDP forecast for Asia will be influenced by the successful arrival of the Silk Road. Secondly, with so many nations working together, it’s reasonable to expect some hitches in the development of such a large project.

Relationships with the US and China have been frosty to say the least, and the decade has arrived with fresh tensions in the Middle East. While China’s emerging economy still seems like a wise investment, its level of progress will depend on a more optimistic political climate.

Capitalising on disruption

Another safe set of investment options stem from the growing range of disruptive technologies set to become available in the coming decade.

There are five key areas where disruptive technologies are ripe for the future, and they include:

Green-tech and energy

Helping to propose solutions to the growing climate emergency comes renewable energy sources like wind power and fuel cells, as well as green buildings and carbon capture and storage solutions.

Advanced materials

Including nanomaterials, graphene and solid-state batteries.

Digital technology

Relating to both 5G and 6G, AI, quantum computing, blockchain and both augmented and virtual reality.

Smart machines

Involving exoskeletons, service robots, medical robots, 3D printing, driverless vehicles and industrial robots.

Biotechnology

Potentially disrupting healthcare could come technology like personalised medicine, gene therapy, nanobiosensors, cell therapy and 3D bioprinting.

Given the important role each piece of technology can play, it’s fair to assume that the future will see widespread implementation of many disruptive solutions. However, in the next 10 years, it could come down to which governments are more willing to spend money on developing the tech.

Once again, China could play a significant role in developing disruptive technology, and may focus on sectors that carry the most economic importance.

While investments in these sectors would appear generally safe, the issue is that most disruptive technology requires significant levels of funding, and in an economically unstable environment, it can be tricky to find a government or organisation willing to invest heavily in the implementation of such tech.

However, in a world that’s beginning to wake up to climate change, it’s worth taking a look at disruptive technologies in the field of sustainability and renewable energy as an area that could develop comfortably as the new decade rumbles on.

Beating The Crunch: Can We Invest Wisely in an Economic Downturn?

The very mention of a downturn can strike fear into the hearts of investors. Economics tends to be cyclical in nature and while steady periods of growth are revered with widespread speculation, they’re usually followed by a profound decline.

We currently live in challenging times for world economies. Uncertainty surrounding the United Kingdom’s Brexit alongside ongoing trade wars between the United States and China have sent some clear warning signs that investors may be facing some challenging times in the near future.

(The future of finance in the UK is conditioned primarily by Brexit, and could prompt an economic slowdown. Image: Institute for Fiscal Studies)

The UK isn’t alone in its uncertainty. With four possible outcomes of Brexit in the coming months leading to wildly different GDP forecasts, the United Kingdom is just one of many nations operating in a fragile economic climate.

But is it possible to successful invest within the volatile markets of a recession? Here are a few points on how to wisely develop your portfolio while navigating the potentially choppy waters of an economic downturn.

Coming to terms with a recession

It could be useful to clarify what is meant by the use of the term ‘recession’, as well as ‘economic downturn’.

(Chart illustrating the impact of the financial crash and the slowdowns within the global economy that followed. Image: The Economist)

Essentially, a recession is the name given to a sustained period of economic decline. Economists typically agree that two consecutive quarters of negative Gross Domestic Product (GDP) growth can be defined as a recession, but this isn’t always the case. It’s also worth noting that GDP acts as a measure of all the goods and services produced by a country over a pre-designated period.

There are plenty of factors that can contribute to a recession, which is why many economists avoid predicting their arrival with much certainty. In 2008 the collapse of the US housing market sparked a worldwide downturn, while other factors like governmental change, natural disasters, and new legislation can all be big contributors.

Recessions take shape as a result of a widespread loss of confidence from consumers and businesses when it comes to spending money. This, in turn, leads to stagnant incomes, loss of sales and ultimately production. Unemployment generally rises due to cutbacks in industries and national leaders face the challenge of kickstarting a weak economy to remedy the effects.

Right now you may be wondering how it’s even possible for anyone to build a successful portfolio from these circumstances, let alone those looking to make intelligent investments.

As they’re intrinsically linked to the financial markets, recessions tend to point towards more instances of risk aversion from investors as they plot methods of keeping their money safe from damaging losses of value. However, the cyclical nature of finance means that recessions must give way to recovery sooner or later. Let’s take a deeper look into some of the opportunities presented to investors during a time of severe financial difficulty:

Can opportunities be identified?

Recessions are terrible things that can severely impact the lives of millions, possibly billions of individuals worldwide.

But many negative events can come with some opportunities attached. And while recessions represent a considerable burden on the world financial markets, they can also offer some extremely high-value prospects for new investors.

When a recession takes hold, asset prices typically fall hard. This means that investors who were previously priced out of making meaningful revenue from stocks, bonds, mutual funds, real estate, private businesses to name but a few, can suddenly find themselves presented with considerably lower costs than a year or two prior. As other investors are forced to part with their assets, you could swoop in and grab yourself a bargain.

(The Financial Times highlights the inverted yield curves within US Treasury bonds as a sign of a coming recession – as evidenced by historical trends within this chart. Source: FT)

The Financial Times recognises that the US Treasury yield curve has inverted due, largely, to ongoing trade wars. Further to the chart above, the newspaper also reported that UK yield curves on two and ten-year gilts inverted over the past summer – indicating that there are challenging times ahead for investors.

Naturally, when market predictions appear ominous, bearish investor sentiments become more prominent. The Financial Times reports that in the current climate, the price of gold is “soaring.” With “the price of the yellow metal rising above $1,500 per troy ounce for the first time in six years” back in August.

Prolific investors will always be on the lookout for opportunities to buy low and sell high, and even though the markets will no doubt show volatility, there’s a good chance that as a recession subsides, the assets you’ve bought into will begin to regain their true value.

With this in mind, it’s worth exploring the prices associated with specific stocks and bonds. If their respective values appear to be outstandingly low compared to their value outside of the economic downturn, you could be looking at a good opportunity to gain money as the market recovers.

Searching for value in capital markets

When it comes to equity markets, the perceptions that investors hold of heightened risk typically leads to the urge for seeing higher potential rates of return for holding equities. For their expected returns to rise higher, current prices would need to drop. This happens when investors sell off riskier holdings and transition into safer securities like government debt.

This is what makes equity markets fall prior to recessions. As investors grow fearful of seeing the collective values of their assets decline, they take a series of steps in order to retain as much value as they can.

Safety in investing by asset class

History tells us that equity markets have a pretty useful habit of acting as reliable predictors of upcoming economic downturns, so it’s important to pay close attention to the optimism or pessimism of traders within this particular field.

However, even if the equity markets are in the midst of a deep decline, there’s still cause for optimism among investors. Assets still have the ability to undergo a period of outperformance, so it can often pay to keep your ear to the ground and hunt for small pockets of clear blue skies amidst the cloud-covered horizon.

Can efficiency be found within stock investing?

Stock markets can be volatile places even at the best of times. But history shows that there’s still plenty of security that can be found by investing during a recession.

One of the safest places to invest across a range of markets can be found within the stocks of high-quality companies that have been in existence for a long period of time. While this may not guarantee security, these types of businesses have shown that they can survive prolonged periods of financial difficulty in the past.

Indeed, the NASDAQ-100 index has experienced notably less profound volatility as it recovered from 2008’s crash than stock indexes comprised of less affluent companies.

Naturally, companies with credible balance sheets and little debt regularly outperform businesses with significant operating leverage and weaker cashflows. So it’s worth looking to established organisations for a little solidity when times get tight.

Will diversification remain a safe bet?

Even in the gloomiest of financial forecasts, always diversify your bonds. Even if you come across a company that appears to be thriving amidst an economic downturn, it’s vital that you diversify your assets.

Markets are extremely jittery when the world’s news is littered with closures and the falling GDP of nations and currencies. The landscape can change with little warning, and while diversification may not be a flawless way of thriving amidst the inevitable rainy days, it stands a much better chance than taking up the option of piling your faith into one company that looks stable today with no guarantee for tomorrow or the day after.

The world of finance hasn’t been brimming with confidence for some time now, and while investments should be made at the holder’s risk, there are certainly plenty of opportunities out there to build a respectable level of profits even in the midst of an economic downturn. Above all, stay patient, look out for emerging trends and make sure you diversify your investments.

How To Trade Bonds Using Macro Indicators

Bonds; What They Are And Why You Want To Own Them

Bonds, the bond market, bond yields, and the yield-curve are important aspects of the financial markets every trader should understand. It doesn’t matter if you are a bond trader or not, understanding the nature of the bond market can provide a deeper insight into just about every other market on the planet.

First let me answer the question, what is a bond? A bond is a pledge or a promise for one individual or entity to repay a debt that can be bought and sold by the public. It is, in essence, a way to guarantee a debt, the seller is borrowing money and the buyer is lending.  Bonds can be issued by just about any type of organization but are most commonly used by governments and businesses to raise large amounts of capital.

The bond issuer agrees to pay the bondholder an amount of interest that is predetermined at the time of the exchange in return for a loan.

Governments and businesses often need to borrow more money than what they can access through traditional banking means. In order to raise this money, they use public bond markets so they can tap into a larger liquidity pool. Investors buy the bonds in return for interest payments they receive over time or upon maturity. The amount of interest the issuer pays and the owner receives depends on a number of factors including Credit Rating, Interest Rates, and Demand.

Credit ratings for bonds are similar to the credit score you get as an individual, it is a measure of the bond issuer’s ability to repay the debt. Ratings are issued by agencies like Moody’s and Standard & Poors in a range from Investment Grade through Junk. Investment Grade bonds have the least likely of default, the least amount of risk, while Junk bonds have the highest amount of risk. A higher risk of default equates to a higher interest rate for the borrower, the issuer of the bond. That is good for the owners of bonds because it means a higher rate of return.

Safety-seeking investors may accept smaller returns for guaranteed investments and focus only on investment-grade bonds.

Demand can affect a bond’s cost/return ratio the same as any trading asset. Because bonds are typically issued in batches the amount of debt available for investors to buy is limited. If there is enough demand it can drive the cost of ownership higher and lower the effective yield. This is bad news for the bond investor but good news for the issuer because it lowers their cost of borrowing.

Central Bank Policy Underpins Bond Market Conditions

Interest rates are important for bonds because they determine the cost for issuers and return for investors. What makes bond trading hard is that interest rates change over time which means there times you may want to be a seller of bonds and other times when you want to be a buyer of bonds.

The primary force behind this is the prime rate or base rate maintained by the central bank of the country in which the bond is issued. When the prime rate is high bond rates tend to be higher and when the prime rate is lower bond rates tend to be lower. The challenge for bond traders is when the central bank is the process of altering its policy and changing the prime rate.

Central banks move their target for the prime rate up and down in an attempt to maintain economic stability within their respective nations. If economic activity is too high they raise the cost of borrowing money to make it harder for businesses to borrow. If activity is too low they lower the rate in an effort to stimulate business investment and flow within the capital markets. Savvy investors can sell bonds short when rates are low and then buy them back when they are high profiting on the cost of the bonds and receive interest payments in the meantime.

Inflation – This Is Why Central Banks Change Their Policy

The number one tool that central banks use to measure the economy and determine the trajectory of their policy, whether rates are rising or falling, is inflation. Inflation is a measure of price increases over time and can be applied to many aspects of the economy. The two most commonly tracked are business and consumer inflation. To that end, two of the most tracked inflation reports are the Producer Price Index and the Consumer Price Index.

Of the two, the Consumer Price Index or CPI is by far the most important. Consumers are the backbone of modern economies. While producer prices may bleed through to the consumer level, if consumer prices get too high there is nothing for an economy to do but collapse. In the U.S., the Personal Consumption Expenditures Price Index or PCE is the favored tool for measuring consumer-level inflation. It is released once per month and as a part of the quarterly GDP announcement.

Regarding inflation, most central bankers favor a 2.0% target for consumer-level inflation. This means that when CPI or PCE prices are below 2.0% the central banks tend to be “accommodative” toward their economies and ease back on policy by lowering interest rates. When CPI or PCE is above 2.0%, central banks tighten policy by raising interest rates.

Labor Data And Its Role In The Inflation Picture

Labor data plays an important role in the inflation picture. First and foremost, no economy can function if its people are not working. The FOMC at least is mandated with two functions and one of them is to ensure maximum employment. Figures like the non-farm payrolls, unemployment, and average hourly earnings become important in that light. The difficulty the FOMC faces is that stimulating labor markets can lead to increased wage inflation.

Economic Activity, Central Banks And Bond Trading

Economic activity is the alpha and omega of bond trading. When economic conditions are good capital markets are flush, when economic conditions turn the capital markets dry up and bonds are harder to issue. The takeaway is that economic conditions are what the central banks are trying to manipulate and they do that through interest rates. When conditions are bad, interest rates will fall, when conditions improve interest rates will rise until they reach a point the economy recedes. That is the nature of the bond market and bond trading, understanding that ebb and flow is key to bond trading success.

According to Learn Bonds, when the economy is performing badly and the stock markets are highly volatile, investors tend to switch investments to fixed income securities and this boosts the activity in the bond market. But this is not always the case. High volatility can sometimes drive investors towards short-term trading via online trading platforms. This way, they can benefit from both sides of the market without having to hold stocks for long periods.

Yield Curve And Market Outlook

There is a limitless supply of bonds but not all are the same. When it comes to bonds the safest, most trusted, and closely watched are U.S. Government Treasuries. The U.S. Treasuries are issued in a variety of maturities that range from a few weeks to thirty years. The yields on each maturity are different due to demand for time-frame, either long or short-term investment and can be analyzed for insight into market sentiment.

Known as the yield curve, in good time the spread of yield increases the further out you go. This is because investors believe that interest rates will be higher in the future so they don’t want to lock-in a low yield for too long. This phenomenon results in a higher demand for shorter-maturity bonds and a “normal” yield curve. In bad times that all changes. Bond investors believe interest rates will be lower in the future so they are seeking to lock in the higher rate for a longer duration. That creates a higher demand for longer maturity bonds and a signal known as a yield-curve inversion

This graph shows a partially inverted U.S. yield curve.

Psychology and Trading

Psychology Is The Most Important Factor For Your Trading Profits

When folks begin trading, the first instinct is to focus on the charts. After all, the charts are where all the action is. That’s where you find the Double-Bottoms, Reversals, Break Outs, and Trends that make big profits. What many traders come to realize, the successful ones at least is that there is more to trading than the charts, more than just making trades.

What you may have also realized is that finding winning trades isn’t enough. There’s something standing in the way to profits and that something is psychology.

Psychology is the study of the mind, behavior, and behavior patterns; what makes us do the things we do, how do we overcome the obstacles that are holding us back. Believe it or not, trading is mostly a head game. It’s not the market you need to beat, it’s yourself.

Trading Discipline Is The Foundation For Your Success

Trading discipline is the foundation for your success because it provides a set of rules for you to follow that will help prevent unnecessary losses. I say unnecessary losses because you can’t cut out all of your losses, as a trader, you must be prepared for it or else it will drive you mad. The root causes are Fear and Greed. Fear and Greed are the two strongest emotions felt by traders and not easily overcome.

What does discipline mean? It means coming up with a set of trading rules, rules you always follow so you don’t make decisions based on fear or greed. Rules can be as simple as only trading once per day, they can be as complex as only making trades when the asset price is bouncing from support after a bullish breakout and confirmed by a bullish crossover in MACD and rising RSI.

You may not believe me but the market will make you mad. It will infuriate you by not doing what you think it should. Your rules are intended to keep you from making trades based on the madness. Grudge-trading, revenge-trading, trying to get back at the market by making wild bets with valuable trading capital is a real thing.

Here is a list of sample rules for speculative traders. These rules can be used for Forex, CFDs, Options, Commodities, or Cryptocurrencies.

  • Every trade will always be 1% (or 2% or 3%, 5% is getting risky and 10% very risky) and no more or less (as close as can be had on your platform). Using a % instead of a fixed amount will allow the trade size to grow or shrink along with the account balance to maximize profits and minimize losses.
  • I will always trade with the trend. I will determine trend by price action, trend lines, moving averages, and MACD.
  • I will only enter on confirmed entry signals. My signals are bullish/bearish crossovers in stochastic and MACD, confirmed by a break of the 30-period moving average.
  • I will not enter if price action is within 3% of resistance (for bull trades) or support (for bear-trades).
  • I will use support and resistance targets as exits targets for my trades. If price action reaches a target I will exit to take profits. Some profits are better than no profits and infinitely more satisfactory than losses.
  • I won’t have more than one trade open on one asset at a time.
  • I won’t have conflicting trades open on the same asset at the same time.
  • I won’t have more than five trades open at the same time, that’s 5% of the account at risk at one time.
  • I will always follow my rules.

That last rule, I will always follow my rules, is the most important rule of all. It doesn’t make much sense to have rules if you don’t use them. I can say without a shred of embarrassment that I learned that last lesson myself more than once. Like I said before, the market will infuriate you and drive you to do things that are self-destructive to your account and trading capital.

Factors That Affect Your Trading Psychology

There are millions of factors that can affect your trading psychology. This list is intended to be a guide to what may drive you to make bad trades. The key to understanding your psychology and improving your list of rules is to be aware you can be driven to make decisions and recognize when that is happening. If you can do that you can take yourself out of the equation, step back from the situation, and regroup without losing money. The name of the game is consistent wins and capital preservation.

  • Fear – Fear is one of the most vicious emotions a trader can face. Fear can keep you from making a trade, it can also keep you from taking profits. Fear of losing money in your account will keep you making trades but you can’t let it, you have to make trades in order to make profits. If you keep your trades small no one loss will hurt you and you will still be able to trade again. Fear of losing profits you might make can keep you from taking profits you already have. What I’ve learned is that if you don’t take profits in favor of waiting for more, more often than not the profits you have will evaporate. You have to close your trades when the profits are showing.
  • Greed – Greed is the second most vicious emotions a trader can face. Greed is the other face of fear. Greed is the fear of losing profits you don’t have, or the desire to make huge trades and even huger profits. What takes traders by surprise is that greed rears its head when you are doing well. A string of wins can get your confidence up and that can lead to making aggressive trades and big losses.
  • Ambition – Ambition is a trait that all traders shares. It takes a certain  amount of desire to succeed to embark on the journey that is a trader’s life.The problem with ambition is when it leads you to make bad decisions, like when you compare your results to another trader’s and let that influence your trading.
  • Losses – Losses, a trader’s worst nightmare. Losses occur when trades don’t go your way. They are an inevitable part of trading but can be managed. The trick is not letting them become too large, always use proper position size (the 1% or 2% in my rules), and not to throw good money after bad. If a trade goes against you don’t double up on it and don’t reverse it. If you feel yourself getting frustrated from a string of losses the best thing you can do for yourself is to walk away from the market.
  • Hope – Hope can lead traders to do bad things just as bad as fear or gree. Hope is good but it can turn against you. It’s one thing to go into the market hoping all your hard work will pay off. It’s something else entirely to go into the market hoping this one trade with your rent money will pay off huge. That’s gambling and the worst kind, it’s desperation and that’s not a good place for a trader to be.

Understanding Psychology Is The Path To Your Trading Success

Understanding your trading psychology is the path to your trading success. To put it bluntly, you have to remove all emotion from your trading if you want to be truly successful. Successful over the long-term.

Successful in a way that means you can live off of trading. In order to do that you have to have some rules, the discipline to follow them, and the ability to take yourself out of the market when emotions overtake your decision-making process.

A Word On Algorithmic Trading Versus Human Trading

Algorithmic trading is the use of computers to perform trading tasks. The big-money algo-traders have billions in money-making hundreds, thousands, and even millions of trades a day as they try to scalp whatever profits they can while waiting for the big score.

Smaller traders use Expert Advisers (MT4) and other trading software to determine trading entry and exit points. What I have to say is that the algorithms are usually good but not something you want to rely on blindly.

Algorithms are based on rules and only work while the market conditions match those rules. When market conditions change the algos stop working and losses can mount quickly. At no time should a small trader ever let an algorithm trade their account unsupervised. 

That being said, social trading accounts allow you to tie your returns to professional self-disciplined traders. Using this service you are not blindly relying on algorithms but instead, you essentially let proven successful traders execute trades on your behalf.


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Forex Trading for Beginners

Forex trading for beginners

Forex trading can be an exciting and lucrative activity, but it can also be tough, especially for beginners. Newcomers underestimate the important of financial education, tend to have unrealistic expectations, and struggle to control their emotions, pushing them to act irrationally and impair their overall performance.

What is the Forex market?

The Foreign Exchange market, also called the Forex or the FX market, is an over-the-counter market where the world’s money is exchanged. Many players trade the Forex market, such as institutional investors, central banks, multinationals, and commercial banks, among others.

As a retail trader, you can access this market with a Forex and CFD broker and make money by buying or selling currency pairs. Currencies are always quoted in pairs – for instance, in the EUR/USD currency pair, the EUR is the “base” currency, while the USD is the “quoted” currency. The quoted currency is always the equivalent of one base currency. If the EUR/USD exchange rate is worth 1.1222, then you will get $1.1222 for €1.

In our example, we can see that the EUR/USD has 4 decimals. This is typical of most currency pairs, except those that involve the JPY, which only display 2 decimals. When a currency pair moves up or down, the change is measured in “Pips”, which is a one-digit movement in the last decimal of a currency pair. When the EUR/USD moves from $1.1222 to $1.1223, the EUR/USD has increased by one “Pip”.

When you look at a currency pair quotation on your broker’s platform, you will see two prices: a selling price on the left (bid price), and a buying price on the right (ask price). The difference between both prices is called the “spread”. This “spread” is pocketed by the broker, and is one of the main ways in which they make money.

The Bank for International Settlements declared in its last triennial survey that the daily average trading volume of the Forex market reached more than 5 trillion US Dollars. It also shows that, due to this huge volume, the Forex market is the most liquid market in the world. Liquidity refers to how easy it is for traders to open and close their trading positions without affecting the price of the underlying asset. Liquidity is a good indication of how active a market is.

The concept of liquidity also works hand-in-hand with volatility, which measures the way in which market prices change. Volatility is something to be welcomed, as it is volatility that gives traders the opportunity to make profits, especially for short-term traders like scalpers and day traders.

What are the different trading styles?

As a Forex trader, there are different trading methods you can use, with the main styles being:

  • Day trading
  • Scalping
  • Swing trading

Day trading and scalping are two of the most aggressive and active trading styles. In both cases, all trading positions will be closed before the end of the trading session. Where these 2 styles differ is in trade frequency – scalping is about taking advantage of very small price changes, often buying and selling within a few seconds or minutes, while day traders may hold a position for up to several hours. While day trading and scalping are very short-term trading methods, swing trading is longer-term, with positions held up to several weeks.

Depending on the trading style you choose, you will use different types of orders. For instance, “market” orders will be used by scalpers more so than by swing traders, as these orders offer the best available price for you to enter or exit the market instantly.

For day trading or swing trading, “limit entry” orders will be more useful, are they allow traders to enter the market at a pre-determined price (“buy limit” orders are for when you want to open a “long” position, and “sell limit” if you want to open a “short” position).

As Forex trading is often offered with leverage, potential profits are magnified, along with potential losses. For this reason, it’s important to use stop-loss orders to limit your losses if the market goes against you. One of the best ways to mitigate your risk is to trade with the trend.

How important is the trend in Forex trading?

The trend is at the heart of one of the most popular techniques for trading the Forex markets – technical analysis. This strategy follows 3 assumptions: prices discount everything, history tends to repeat itself, and prices move in trends.

Therefore, when a given currency pair exchange rate moves, the market trends. While most traders think that prices can only go up or down, Charles Dow’s theory asserts that there are in fact 3 trends in the market: up, down and “sideways”.

According to Dow, you need to analysis highs and lows to be able to determine a trend. An uptrend is formed by higher highs and higher lows, while a downward trend is formed by lower highs and lower lowers. When neither the “bulls” (buying investors) nor the “bears” (selling investors) have control of the market, prices evolve within a lateral consolidation, also called a “range”.

Dow’s theory shows that each trend is formed by 3 other trends: a “primary”, a “secondary” and a “minor” trend. A primary trend usually lasts more

than a year and describes a bullish or a bearish market. Within the primary trend, the secondary trend usually goes against the main trend – it represents a corrective movement, or a “pullback”, lasting between 3 weeks and 3 months. Finally, a minor trend represents the noise of a market within the secondary trend, usually lasting less than 3 weeks.

How can candlestick analysis can help you fine-tune your entry and exit timing?

Candlestick analysis is a Japanese type of chart analysis that goes back to the 18th century. It is still one of the most popular ways to read charts today. Candlesticks are used to make better trading decisions by analyzing prices through the “body” and “wicks” of candles to decide when and where to enter or exit the markets.

A bullish candle usually has a white or green body, while a bearish candle will usually be black or red. Candles describe market participant psychology through their wicks (also called “shadows”), which show the volatility and the intensity of the movement through the highest and lowest level reached. The longer a candle, the more intense the buying/selling pressure. Conversely, the shorter the candlestick, the more indecisive the market.

Candlestick analysis is quite an effective way to analyze the markets, as it helps traders spot great trading opportunities through the visualization of “continuation”, “indecision” and “reversal” patterns in the charts.

Final words

The FX market is quite popular among newcomers, and has never been easier to access. If you use leverage and margin trading wisely, you can make a lot of money trading currencies. Learning the basics of Forex trading isn’t overly complicated. Deciding what kind of trader you are, based on your personality, and building your trading strategy accordingly, however, is a different story.

The more you know about Forex and trading, the better you will trade. So, be patient, dedicated, and committed to keep learning about trading and improving your strategy. Eventually, you will develop the skills to be profitable in Forex trading over the long-term.

Globalism and The Economy

Is the US still the world’s leading superpower?

While the strong global economic growth of the late 19th and early 20th centuries was driven in part by the two first phases of industrialization and the transport revolution in Western Europe, successive wars on the old continent have weakened growth and European countries. Since then, globalization has given a boost to global growth, while propelling the United States to global superpower status.

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What is globalization?

Globalization is all about commercial interaction between different parts of the world. These flows can be exchanges of goods, capital, services, people or information. This was all made possible by the improvement of the means of communication (NICT), the containerization revolution, the very low cost of maritime transport, the increasing liberalization of trade (GATT and then WTO in 1995) and the deregulation of financial flows between countries.

Since the 1990s, globalization has accelerated, with the fall of the USSR, the rise of the Internet, the creation of the World Trade Organization (WTO, 1995) and regional free trade agreements such as NAFTA all contributing to this acceleration.

With the First World War, the United States quickly became the world’s leading economic centre

In 1945, the US held ⅔ of the world’s gold stock and accounted for 50% of global production. The new world economic order was organized by the US (IMF and IBRD in Bretton Woods in 1944, GATT in 1947), and their currency – the American dollar, or USD – became the currency of international trade. Wall Street in New York became the economic and financial heart of the world.

What made the United States a unique superpower?

The American democratic, capitalist and liberal model, as well as the American way of life, spread to the non-communist world, with the Marshall Plan (1947) and the development of multinational companies.

By the end of the 20th century, the emergence of mass media and the Internet revolution gave Americans the opportunity to influence the entire world even more.

With the development of mass consumption that began in the 1950s, many American products arrived on other markets. Some products are now an integral part of the lives of many Europeans, Asians and South Americans, such as the Visa card, sportswear such as Nike, soft drinks such as Coca-Cola, fast food such as McDonald’s, as well as American music, cinema, universities, etc.

This undeniable cultural influence, called “soft power”, is a huge source of influence for the US across the world. This “soft power” indirectly influences and positively shapes the view of the USA in the eyes of other countries. This power makes adoption of the American point of view much more palatable to other countries, all without the need for force or threat.

In addition to “soft power”, there is also “hard power”, characterized by economic hegemony, technological progress (information technology, nuclear, space conquest) and first-rate military and diplomatic power, which make it possible to impose the will and power of the United States on the rest of the world by force or intimidation.Earth from space

The US – the powerful (and criticized) nation at the heart of globalization

The American system arouses as much wonder as questions/criticism in regards to their management of the social crisis and poverty, political extremism, weak environmental protection measures, etc. It could be argued that American influence has declined in recent years, although the country remains a first-rate power that dominates many sectors of activity.

First of all, we can see heightened criticism of the American hegemony, even if anti-Americanism is not exactly a new phenomenon. Several countries (Russia and China foremost among them) and political currents reject the American model, while US involvement in foreign wars are subject to the harshest criticism.

The United States is also experiencing an increasing number of economic competitors, such as from the European Union and the BRICS countries (Brazil, Russia, India, China and South Africa). The subprime crisis in 2007 also eroded the power of the US, both immediately following the crisis, and in the years since.

China became the world’s leading economic power ahead of the United States in 2014, after 142 years of “American rule” according to IMF figures. The increased debt burden and evidence of the United States’ dependence on foreign capital (particularly Chinese capital) is also a factor that challenges US supremacy.

How has the election of Trump altered the future of globalization?

The surprise election of Donald Trump as the 45th American president invites a re-evaluation of the future of the global economic order. Movement of goods, money, and people across international borders have all certainly changed since Trump’s election, as “resistance to globalization” was one of his prominent policy themes during his election campaign, with particular emphasis on the US-China relationship.

China and the United States have an extensive – but tense – economic partnership, often triggering periods of conflict, such as the current situation. Trade tensions have significantly increased since 2018, when Trump first sought to limit Chinese economic influence with tariffs.

Trump’s plan to reduce his country’s dependence on China focuses on increasing taxes on their imported products, so American products are favored locally and purchased instead. Of course, China reacted by increasing taxes on American imported products. These trade tensions and tariffs could cut global output by 0.5% in 2020, according to the IMF. Consequently, the organization cut its global growth forecast.

”There are growing concerns over the impact of the current trade tensions. The risk is that the most recent US-China tariffs could further reduce investment, productivity, and growth,” said IMF chair Christine Lagarde.

Trump’s wish to implement US protectionist policies will have one important consequence for the country: as the USA turns inward on worldwide economic integration, this will certainly have an impact on global stocks and flows. Knock-on effects to this policy, such as retaliation from countries like China, canceled contracts with American companies and suppliers, and countries that seek to imitate Trump’s anti-globalization agenda (like Greece and Hungary), may also all lead to significant consequences for the global economy.

What consequences on the global economy can be expected if the trade war escalates?

As noted by the European Central Bank in its analysis on Implications of rising trade tensions for the global economy, the impact of an escalation of trade tensions could be felt in different ways.

”In the case of a generalized global increase in tariffs, higher import prices could increase firms’ production costs and reduce households’ purchasing power, particularly if domestic and imported goods cannot be substituted for each other easily. This could affect consumption, investment and employment. Moreover, an escalation of trade tensions would fuel economic uncertainty, leading consumers to delay expenditure and businesses to postpone investment,” declared the ECB.

How to take advantage of the changes in our interconnected global economy? 

”In response to higher uncertainty, financial investors could also reduce their exposure to equities, reduce credit supply and require higher compensation for risk,” added the European organization.

It’s worth mentioning that ”through close financial linkages, heightened uncertainty could spill over more broadly, adding to volatility in global financial markets”, which can create great trading opportunities for investors.

Thankfully, there are plenty of available instruments that can turn a profit in any market condition. You can short an Index, diversify into a new, more promising, geography or just bet on volatility. The main things to watch for when seeking such exposure is that your broker is regulated and the scope of instruments it can provide. It doesn’t hurt when a broker has a robust, efficient and reliable trading platform, such as Multibank Group.

Times of great uncertainty breed great opportunities, investors and traders can make the most of the potential changes in the world order by focusing on the most promising region, or business sector.

Bottom-Line

The United States remains one of the world’s largest economies. It is a major power that excels in many areas, with an influence that is exercised both with hard power (economic, military and diplomatic power) and soft power (cultural influence).

However, the country faces many challenges, challenges that threaten to erode its role as a superpower, such as the emergence of significant economic competition from other countries, and their recent policy shift to economic isolationism.

Highly integrated into globalization, the recent decisions of the United States regarding greater protectionism, and the hard retreat from globalization wanted by Trump, affect the world economic order and global trade flows.

The current global climate is well encapsulated by Harvard Business Review – ”the myth of a borderless world has come crashing down. Traditional pillars of open markets – the United States and the UK – are wobbling, and China is positioning itself as globalization’s staunchest defender”…


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Should You Own Crypto-Currencies or Invest in Them?

The recent spike in cryptocurrencies prices and trading volume suggests an increasing interest from investors who want to take part in this monetary revolution. This revolution started 10 years ago with the launch of the Bitcoin (BTC), the first, biggest and most important cryptocurrency, which has gained more than 114% since the beginning of January at the time of writing.

Source: Coinmarketcap.com

The two most popular ways to take advantage of the crypto-currency market is to

  • Buy coins through an exchange
  • Trade cryptos via a CFD broker. Each way has its own advantages and disadvantages.

To decide which method is the best for you, you should first think about and develop your investment strategy. Owning cryptos (long term horizons) or trading them (short-term horizons) do not offer the same level of protection, fee scheme, payment methods, withdrawal methods, etc.

Let’s discover what differentiate them.

What does owning cryptocurrencies imply?

Owning cryptocurrencies is great if you want to use them to shop or to transfer money anywhere at any time quickly (faster than with normal bank transfers), at a lower cost and with a higher degree of anonymity than with traditional wire transfers.

To own crypto-currencies, you first need to find an exchange you can trust, one that’s available in your country, and that offers a payment method for buying cryptocurrencies with fiat currencies (American/Australian/Canadian Dollars, Euros, Sterling…).

Once you’ve bought your virtual currencies, you have to put them into a “wallet”, a program that can contain them. Most exchanges have their own “wallet” that clients can use, but it is widely recommended that you use a wallet that only you have access to and fully control.

There are different types of wallets, they can be gathered into two main groups: “cold” and “hot” wallets. The main difference is whether or not they are connected to the Internet. While “hot” wallets are connected to the net, “cold” wallets are not.

Cryptocurrency buyers and owners are often seen as soft and easy targets for hackers, as virtual currencies transactions are final, there is no anti-fraud protection, nor is it possible to reverse the charges offered by financial institutions in case of problems, as explained by IBM X-Force senior cyber threat researcher John Kuhn to NBC News. Cold storage is thus usually a more effective solution to protect your funds, as it limits the risk of hacks. The two most popular cold wallets are physical hardware wallets, such as external hard drives, and paper wallets.

Why trading currencies can be a safer and cheaper option to take advantage of the crypto-market volatility

When held on digital services, cryptocurrencies are vulnerable to cyber-thieves. Hackers usually target crypto exchanges to drain their crypto wallets (hence the reason why you shouldn’t keep your cryptos online in an exchange). In addition, as the crypto-sphere is quite new, it isn’t a regulated industry.

For this reason, using derivative financial products like CFDs (Contract For Difference) through a regulated broker can be an interesting option for you to make a profit from the crypto-market.

A CFD is a financial contract you enter into with the broker you’re using. This contract allows you to benefit from a rise (or fall) in the price of an asset, as you will exchange the difference between the opening and the closing price of your trading positions with your broker.

An important aspect of CFDs is that you never actually own the underlying asset. So, you won’t own any coins when trading CFDs on cryptos – you will simply take advantage of their price fluctuations.

Of course, using CFDs is only a good option if you want to take advantage of short-term crypto-currencies price movements, because it is a leveraged financial product that relies on margin trading. It means that as a CFD trader, you only need to put aside a part of the total value of your position to open it – this is called the margin. This technique therefore increases your market exposure.

Conclusion: owning vs. trading crypto-currencies

Are you not sure about whether you should own or trade cryptocurrencies? Think first about your financial needs, goals, and horizons.

In addition to being able to transfer money and use cryptocurrencies to shop whenever you want, owning virtual currencies can also be compared to longer-term investments. Having coins in your wallet means that you can hold your virtual currencies until you want to sell them at a higher price later on in the future. In the meantime, you won’t pay fees for holding them.

Trading crypto-currencies via leveraged products like CFDs means that you do not own any coins, you’re just taking advantage of the crypto market volatility instead. So, trading crypto-currencies is a short-term investment strategy, where you are using price changes to make a quick profit without holding the underlying asset.

So, ask yourself: would you consider yourself as an investor or a speculator?

While both seek maximum profit, an investor doesn’t have the same trading strategy, level of risk aversion and objectives as a speculator. In any case, the key to successful investing of any kind is to use the right platform for your needs.

Exchanges appear to be riskier than CFD brokers, who are regulated and offer protections to retail traders. Brokers can be useful for you to be able to apply your short-term trading strategy and appropriate money management rules in a responsive and regulated trading environment, while strengthening your financial knowledge.

With a regulated, reliable and safe broker, like Skilling, you can make your money grow while taking advantage of protections offered to retail traders. Regulated brokers in Europe, for instance, are part of a fund recovery program that can protect trader funds in case of bankruptcy. The European Securities and Markets Authority (ESMA) also imposes some restrictions on CFDs, such as a limited leverage effect (2:1 for cryptocurrencies), a 50% margin close out rule, and a negative balance protection.

As Crypto Activity Rebounds, These are the Best Cryptocurrencies to Trade

It’s no surprise to anyone who’s up-to-date on the financial markets that cryptocurrency is the new “big thing” with investors. For good reasons, too. Financial and business ideas are well-suited to the blockchain, and cryptocurrency is how they absorb value. Countless businesses, financial organizations, and applications are built on blockchain, and pinpointing the cryptocurrencies that act as foundation to this innovative decentralized environment allows one to take advantage of its overall growth.

The market capitalization of blockchain is measurable through the amount of fiat money invested into its many cryptocurrencies, and therefore the services funded by them. Since the invention of the grandfather cryptocurrency Bitcoin in 2009, this new market reached $8 billion in 2016, $25 billion by 2017, and $135 billion by 2018. For fresh and veteran cryptocurrency investors alike, the best cryptocurrencies to trade are simple to identify.

Factors to Focus on for Crypto Traders

If a cryptocurrency satisfies all four of the criteria below, then it exhibits longevity, making it a solid trading option.

  • Statistical Significance

Traders will appreciate cryptocurrencies that have high daily volume, which also usually means a larger market capitalization and a presence on many cryptocurrency exchanges. This is beneficial because it’ll be easier to find another trader to take the opposite side of a trade and act on market trends in an agile manner.

Example: Bitcoin (BTC)

Bitcoin enjoys the highest market cap ($102 billion) and volume ($16 billion daily) of any cryptocurrency and has yet to be unseated. It’s the grandfather coin and remains popular among traders due to its first-mover status, and an ambition to replace banks. With the decentralized ledger used to keep track of BTC transactions over a peer-to-peer network, its main value is derived from the ability to transact easily across the globe, but also its place as a common counter-currency.

  • Follow the Value

Blockchain is good at improving services that already exist, but also creating new value-added utilities as well. New and improved blockchain platforms have cryptocurrencies that generate value because their core ideas are so useful, and these are excellent assets to trade because of their potential.

Example: Ethereum (ETH)

Ethereum is called the “decentralized computer”. As far as creating value using new ideas, there are few more impressive. Used as a type of fuel to power applications on its blockchain, people can also use ETH to participate in games, decentralized financial services, and blockchain businesses that are a part of the growing Ethereum ecosystem.

  • Private Sector Enthusiasm

Look for mature blockchain solutions that have a market history, established team, and some sort of partnership or integration with the traditional private sector. It’s well and good to exist in the margins and slowly steal value from a business sector, but blockchain and crypto solutions that are invaluable enough are readily welcomed by those with deep pockets. This ensures a future purpose and progress to fuel fundamental price action.

Example: Ripple (XRP)

Ripple takes a constructive view of blockchain and resists the decentralized model in favor of its own administrated approach, exemplified by the cryptocurrency XRP which has some of the fastest transaction speeds in the market. Moreover, a notable group of international banks have partnered with the Ripple Foundation to appropriate XRP’s agility for their own purposes, and the list continues to grow.

  • Accessibility

It’s important for traders who don’t want to operate blockchain wallets and would rather have a unified investment portfolio to consider accessibility. Some cryptocurrencies are only available on the blockchain, necessitating knowledge about public and private keys, operating on exchanges, and more. For many it’s preferable to trade cryptocurrency Contracts for Difference (CFDs) with an online platform like Plus500, which offers direct bank deposits and CFDs for Bitcoin, Ethereum, Ripple and more (Availability subject to regulation).

Cryptocurrencies that are tradable as CFDs allow users to participate in these volatile markets without holding the underlying coins themselves. For instance, the BTC Plus500 instrument mirrors the rises and falls of Bitcoin itself, empowering traders to take advantage of its noteworthy price swings from outside the blockchain ecosystem.

It may be the new kid on the block compared to traditional assets, but cryptocurrency’s limited lifespan has proven nothing short of breathtaking. Although enormity of the risk does merit caution, traders with a taste for volatility will appreciate cryptocurrency’s immense possibilities.


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“76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.”

What are the Different Types of CFD brokers?

CFDs are relatively new financial derivatives that have become increasingly appreciated among investors, especially in the Forex market. But as with any other activity, to be successful while trading CFDs, you need to have the right set of tools – the most important one being your broker.

Of all the different CFD brokers available, almost all fall within 2 overall categories – ECNs and Market-Makers. While a novice user may not notice much of a difference between them, the behind-the-scenes mechanics are substantially different. These differences have a significant impact on you, the trader, whether you realize it or not.

What are the differences between an ECN broker and a Market Maker, and which one is best for your trading style? Let’s jump right in.

What is a CFD and how does it work?

CFDs, which stands for Contract For Difference, are financial contracts you have with your broker to exchange the difference between the opening and the closing price of a trading position.

When you trade CFDs, you do not own the underlying asset you’re investing in, as you are only getting (or paying) the difference in price between the value of your contract when you opened it and when you closed it.

CFDs are leveraged financial products, allowing you to use margin trading to profit from increased market exposure. Every time you want to open a trading position, you have to put aside a fraction of the total value of this position as collateral – this is the margin.

As a result, you are able to invest more money than what you possess in your trading account. Consequently, as leverage amplifies price movements in all directions, they can be risky – you might make larger profits, but you could also lose just as much.

In addition to leverage, one of the biggest advantages you have, when you trade CFDs, is that you can benefit from rising as well as falling markets, which means that you can earn money regardless of the market direction.

Why are CFDs popular in the Forex market?

The Forex market is the market dedicated to currencies. It is one of the most liquid and active financial markets in the world, and it is open 24-hours a day, 5 days a week. It is also the largest financial market, with US$ 5.1 trillion exchanged every day.

If you decide to trade the Forex market with CFDs, you can do so by borrowing capital from your broker to place a trade. This is called margin trading.

Trading CFDs on Forex currency pairs is very popular, as it is an ideal market for leverage and margin trading due to its high liquidity, as you can enter and exit the market quite easily with small slippage. Of course, leverage can be offered on many different markets, but leverage, as applied to the Forex market, is generally much higher than any other trading instrument.

Because CFDs are very risky leveraged products that are linked to speculation, they are not allowed everywhere. For instance, there are forbidden for US residents, but they generally are permitted in many other countries.

In Europe, the European Securities and Markets Authority is the deciding authority on the rules brokers need to follow when it comes to trading CFDs. Recently, the organization decided “to strengthen restrictions on the marketing, distribution or sale of contracts for differences to retail clients”.

Forex Brokers Regulations also varies in different parts around the world, as it is a fast-growing OTC market.

What are the different types of CFD brokers?

A “No Dealing Desk” Forex broker usually provides direct access to the interbank market and can either be an STP or an ECN broker (or a mix of both).

This type of broker only sends trading orders directly to liquidity providers, which means that it doesn’t bear the risks of its clients internally. They only act as an intermediary between trader orders and the liquidity providers available.

ECN, which stands for “Electronic Communication Network”, describes the broker type that is connected to an electronic trading system in which many buying and selling orders from different large liquidity providers compete. Therefore, an ECN broker only connects different market participants together, so then they can trade with each other.

STP stands for “Straight-Through-Processing” and describes a broker that does not execute trader orders. They only carry out trading operations, without human intervention (No Dealing Desk – NDD) to external liquidity providers connected to the interbank market.

Dealing Desk (DD) – Market Maker

A Dealing Desk Forex broker is a Market Maker, which means that they don’t offer liquidity provider prices, as they are the ones providing liquidity for its traders by offering their own prices. It is for this reason that they are called market makers, as they “create” the market for their clients. This means that they are the ones setting the bid and ask prices of any financial instruments offered.

A Dealing Desk broker is very often the counterparty of their traders’ positions, as they do not directly trade, or hedge their clients’ position, with their liquidity providers. Therefore, a Dealing Desk broker has to pay for profitable client trades with their own money. If a client makes a winning trade, the broker loses money – and vice-versa.

How do CFD brokers make money?

A No Dealing Desk CFD broker earns money on the trading volume of their clients, as it receives a commission on all trades, and/or a markup on the spread (the difference between the buying and the selling price). Most of the time, these spreads are variable spreads, which fluctuate depending on the market conditions.

A Dealing Desk CFD broker usually gets money from spreads, as well as client losses. Spreads offered by market makers are usually fixed spreads.

The most important thing for a No Dealing Desk broker to provide is the best trading conditions for their clients – that way, their clients are more successful, they trade more, and everybody earns more money. It is for this reason that most traders prefer to use an ECN or STP broker, as they find them more reliable and profitable.

As a market maker broker earns money from their traders losing money, it is often seen as less transparent, as they have the ability (and motivation) to manipulate prices. Revenue is usually higher for a Market Maker than for an ECN/STP broker, given the same trading volumes.

Bottom line

CFDs are complex financial products that are not suitable for everyone, as leverage can trigger big losses. But, leverage also means that you can make huge gains on the financial markets by using volatility to your advantage.

CFDs are generally a good fit if you’re a short-term trader (like a scalper or a day trader), and if you have time to spend in front of the markets. Most importantly, to trade CFDs you need to have a high tolerance for risk – especially if you’re trading the Forex market, as it’s a very volatile market.

To better protect your trading capital, always use tight money and risk management rules when trading CFDs on the FX market. Equip yourself with the right suite of trading tools by selecting the right broker for your trading needs.

Regardless of whether you choose a dealing or a non-dealing desk broker, both can be perfectly reliable. Trading with No Dealing Desk broker, like SimpleFX, is likely to be a better choice, both for avoiding the conflict of interest inherent in the Market Maker model, and for partnering with a broker whose interests are aligned with yours.

To find the best broker for your trading needs, be sure to:

  • Establish your preferred trading style and your requirements first
  • Make sure your broker is regulated and licensed (in the more regional markets the better)
  • Be sure that the broker’s client support is knowledgeable and easy to access
  • Open a demo account first to know if the trading platform is going to be a good fit for your trading strategy
  • Check out trading conditions:
  1. Costs
  2. Fees
  3. Spreads
  4. Minimum/maximum deposit
  5. Margin requirements
  6. Financial assets
  7. Trading platforms
  8. Type of trading accounts offered