Introduction to the Major Fundamental Influences on Forex Prices

When most individuals think of trading, they think of stocks and futures. This is probably because of the long-term history of these investment vehicles. Some may even think of cryptocurrencies because of their huge popularity with a younger generation of investors.

What they may not realize, however, that in terms of market value, there is one asset class that dwarfs them all and, in fact, some may not have even realized that they’ve already speculated in it when they’ve traveled internationally or bought something from a foreign country.

This huge investment class is the foreign exchange market, also known as FOREX. In the FOREX market, an estimated $6 trillion is traded on a daily basis. To put this in perspective, the U.S. stock market trades around $257 billion a day; quite a large sum, but only a fraction of what FOREX trades.

For a novice trader, there is a lot to learn about trading in the foreign exchange market because it lacks the familiarity of stocks like Apple, IBM and Google, as well as the glamor of gold and silver futures.

Before even attempting to trade or invest in the FOREX market, individuals have to become aware of the macro-economic and geo-political factors that help drive the price action in this trading vehicle.

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What is FOREX?

Simply stated, the word FOREX is derived by combining parts of foreign currency and exchange. It is also referred to as FX trading.

Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, trading, finance or tourism. FOREX markets tend to be the largest and most liquid asset markets in the world.

Briefly, Forex markets exist as spot (cash) markets as well as derivatives markets, offering forwards, futures, options, and currency swaps.

Market participants use Forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among other reasons.

What is a FOREX Pair?

In foreign exchange, currencies trade against each other as exchange rate pairs. For example, EUR/USD is a currency pair for trading the Euro against the U.S. Dollar.

A FOREX pair or currency pair is simply the quotation of the value of a given currency against another. The first is termed the base currency and is the currency being sold, while the second is known as the quote currency and is the currency being bought.

For example, the quotation EUR/USD = 1.0700 would mean 1 Euro is exchanged for $US1.07.

What are the Factors Affecting Forex Pairs?

If you desire to become a successful FOREX trader then you have to develop an understanding of the fundamentals that drive the price action. This is the information that will help you to establish an informed hypothesis about whether a particular FOREX pair is being fairly valued at present and what potential upsides or downsides might be from current price levels.

These include: central bank policy, interest rates, inflation, economic growth, trade data, and political/government factors.

How Does Central Bank Policy Influence FOREX Prices?

The major central banks influence Forex prices by controlling open market operations and interest rate policies. They are responsible for fixing the price of its domestic currency on Forex.

Any action taken by a central bank in the FOREX market is done to stabilize or increase the competitiveness of that country’s economy. A central bank may weaken its own currency by creating additional supply during periods of long deflationary trends, which is then used to purchase foreign currency. This effectively weakens the domestic currency, making exports more competitive in the global market.

Central banks use these strategies to calm inflation. Their doing so also serves as a long-term indicator for FOREX traders.

How Do Interest Rates Influence FOREX Prices?

Interest rates have a significant influence on currency movements. So much so that a currency pair will often spike up or down following a central bank announcement.

The main reason for the volatility is the so-called carry trade, where investors borrow at lower interest rates in one currency and invest at higher interest rates in another.

Basically, investors tend to chase yields so when a central bank raises rates, it tends to make that country’s currency a more attractive investment.

How Does Inflation Influence FOREX Prices?

Central banks raise and lower interest rates to control inflation. Therefore, movement in the inflation rate can impact currency prices. For example, if a country’s central bank believes inflation is rising too quickly, it may raise interest rates to lift the cost of borrowing and to take money out of the system. This action is designed to slow the economy.

For this reason, the national consumer price index (CPI) is one of the most closely watched pieces of information for FOREX traders.

How Does Economic Growth Influence FOREX Prices?

Economic growth is tied directly to the inflation rate, which relates to interest rates. When a country’s economy is growing quickly as measured by the Gross Domestic Product (GDP), for example, the rate of inflation will typically start to rise. This usually means the central bank will need to lift interest rates to slow the rate of growth.

This is why the currency of a country showing strong economic growth will often appreciate against those of other countries showing slow or negative growth.

How Does Trade Data Influence FOREX Prices?

Balance of Trade data, which is based on the relationship between a country’s imports and exports, also has an impact on the direction of a currency’s prices. Trade figures can also be seen by some as a sign of the strength of the economy, which in turn has implications for inflation and interest rates, and therefore the domestic currency.

If a country is exporting more goods than it imports, for example, it increases demand for its currency as the money used to pay for those exports ultimately needs to be converted into the domestic currency.

How Does Political/Government Factors Influence FOREX Prices?

Government policy can have profound implications on FOREX prices especially if it influences the inflation rate.

A government could decide to trim spending and pay down debt, which may end up causing the economy to slow.

Following the pandemic of 2020, many governments flooded their economies with fiscal stimulus. As this money trickled through the economy, it caused inflation which is fueling a response from central banks in the form of interest rate hikes.

In response, Forex markets have experienced heightened volatility as the major central banks race to stem runaway inflation by raising rates. Investors will become more attracted to the currency of the country that raises interest rates more aggressively.

Other Factors to Consider When Trading FOREX

Although fundamental data and daily news events play a major role in the price action of a currency, it is important to note that an estimated 90% of the daily FOREX volume is fueled by speculators (traders). So in addition to knowing the major fundamental influences on the long-term direction of currencies, traders will also need to learn about the technical factors that play a major role in the movement of currency prices.

5 Investment Tips for Forex Market Investors

Forex trading is a complex but fascinating field. Forex traders have tremendous opportunities to make money, but they also need to constantly improve their skills. In this article, we’ll discuss how you can enhance your trading results.

Consistency is the Key to Successful Trading

If you want to be successful as a trader, you must have a trading strategy and a proper trading plan for each trade you make. Once you choose your trading strategy, you should stick with it for a while to see whether it produces positive results in the current market environment.

Many traders, especially beginners, fail to appreciate the importance of consistency in trading. They quickly switch between trading strategies if some trades go in the wrong direction.

This is a major mistake as trading is a probability game. To be profitable, you do not have to be right about the market direction every time. Instead, you need a trading strategy with a decent risk/reward and win/loss ratios.

Any strategy that you choose should be tested with a sufficient number of trades to see if it works well in the current market environment. This is very important since trading strategies need time to show their true performance.

For example, if your strategy has a 60% win/loss ratio, you may easily start with three losing trades in a row. You need to make more trades to see its potential. The more trades you make, the more confidence you’ll have in the expected results of your strategy. If you switch to another trading strategy right after a disappointing start, you’ll never know the true potential of your trading strategy.

Choose Your Risk Levels Wisely

You need to make a certain number of trades to test any trading strategy. Therefore, you must limit risk in each trade you make in order to provide yourself with an opportunity to test various trading strategies.

The math is simple. If you risk just 1% of your account in every trade, you’ll have to make 100 losing trades in a row to run out of money. This is an extremely unlikely scenario.

Do not be greedy during the testing phase. Choose modest risk levels for every trade, test various strategies without stress and concentrate on execution of every trade. Once you have established what works best for you in the current market environment, you’ll be able to increase your risk level if you wish so.

Analyze Your Trades

Profitable trading requires analyzing trades on a regular basis. Proper analysis provides you with an opportunity to learn what works in the current market environment – and, even more importantly, what does not work.

To get the best out of your analysis, you’ll have to follow a certain strategy (as noted above, consistency is the key to success in trading). If you make trades based on your “gut feeling” rather than a well-defined strategy, there’ll be nothing to analyze – your results would be random.

Meanwhile, following a strategy will equip you with information that will improve your trading performance.

Start by looking at whether all your trades met the conditions of your strategy. Even experienced traders sometimes fail to make trades according to their strategy. Reasons for such failures may be emotional (markets are always exciting) or technical (for example, some patterns look similar). Eliminating unnecessary trades should boost your performance so do not take this issue lightly.

Once you have established which trades were made according to your preferred strategy, you can analyze its performance. This analysis will show whether your strategy works in the current market environment, as well as expected win/loss and risk/reward ratios. If you are satisfied with the results, keep using your current strategy and focus on execution. If results fail to meet your expectations, you can tweak your existing strategy or try a new one.

If you choose to tweak your existing strategy, make sure to proceed with just one change at a time so that you can evaluate the impact of this change on the performance of your strategy. If you make several changes and something goes wrong, you will not be able to learn what hurts your performance.

Focus on a Limited Number of Instruments, then Expand your Watchlist

Forex markets offer multiple trading opportunities every day, but it is not easy to track them all if you have just started trading.

Thus, you should start by tracking a limited number of instruments so that you do not miss entry and exit points according to your strategy.

Once you have tested your strategy on several instruments, you can add more pairs to your watchlist and evaluate whether your strategy works with them.

Eventually, you will have a set of various strategies to choose from, and you’ll learn what works best for every pair you trade.

Having several strategies is very important for a trader’s success in the long term as markets always change. Let’s discuss how to deal with this challenge.

Be Prepared for the Inevitable Change

Change is the only constant thing in markets and – this is why you often hear that past performance does not guarantee future results.

What works well today may not work tomorrow, and a strategy that brings disastrous results in the current market environment may turn into a real gold mine in the future.

Fortunately, you can prepare for the inevitable change. Analyze your trades and closely track the results of your current trading strategy. Pay attention to the efficiency of your strategy – if you see that its performance is declining over time, then it’s time to act.

Do not wait until your current trading strategy stops being profitable. Instead, start testing another strategy on a limited basis once you see that the performance of your current strategy is declining.

By the time your previous strategy stops bringing profits, you’ll be ready to use a new strategy that works better in the current market environment. Be prepared, and you’ll successfully navigate through all market changes and profit from them!

This article is brought to you by Forex4you.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

Cryptocurrency vs Forex Market – Similarities and Differences

Over the past few years, cryptocurrencies have become mainstream, and many traders wonder whether they should focus on crypto markets instead of forex or try to have the best of both worlds. This article explains the similarities and differences between these two asset classes so that you can make an informed decision.

Similarities Between Crypto Markets and Forex Markets

To start trading, you’ll need a trading account and a modern electronic device with a stable internet connection. You can easily learn the basics of crypto trading if you have experience with trading forex and vice versa. Charts are widely available and execution is fast, so that you can concentrate on your trading.

Like forex markets, crypto markets are driven by the supply-demand balance. The price moves higher when there are more buyers than sellers and drops when sellers overwhelm buyers. Thus, you’ll be able to use familiar indicators and chart patterns when trading crypto.

Differences Between Crypto Markets and Forex Markets

While crypto trading looks very similar to forex trading on the screen, there are many differences that will be discussed below.

Number Of Available Instruments

Inforex, traders typically concentrate on main currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD). Some traders prefer to work with exotic currency pairs, which include a major currency and a currency of a developing economy like South Africa or Mexico.

Currently, there are more than 11,000 different cryptocurrencies, and the number keeps growing. Some of them are actively traded, like Bitcoin or Ethereum, but many cryptos are only known to hard-core crypto enthusiasts.

There are many instruments to choose from in crypto markets, whereas forex markets can occasionally experience periods of calm trading for days or even weeks.

It is impossible to track all cryptocurrencies, so traders will have to choose a finite number of coins to track. Thus, traders will still be working with a limited watchlist.

Liquidity

Forex is an extremely liquid market, and forex trading volume exceeded $6.6 trillion in 2019. Regardless of your position size, you will be able to easily buy or sell your chosen instrument without material slippage. This is a big advantage as you will always be able to get out of the trade at a price that is equal or very close to the price that you see on the screen.

This is not true for most cryptocurrencies. The total crypto market cap is less than $2 trillion, and more than 45% of this market cap is taken by Bitcoin. For most cryptocurrencies, trading is not nearly as active as in Bitcoin, so traders may have some trouble getting out of the trade at a desired price.

Huge Difference Between Coins

Due to the enormous number of available cryptocurrencies, there is a huge difference between various coins. Anyone who is willing to trade lesser-known cryptocurrencies will have to dive deep into their fundamentals.

As noted above, there is no way to track all opportunities in crypto markets, so traders will have to focus on coins that they understand well. This makes the size of their trading watchlist similar to the size of a typical watchlist for forex traders.

Volatility

Cryptocurrencies are very volatile while forex markets are more stable. The world’s leading cryptocurrency, Bitcoin, started this year at $29,000 and moved up towards the $65,000 level before pulling back to $30,000 and rebounding towards $45,000. Smaller cryptocurrencies can make huge moves within short time frames.

Such moves are rare in forex markets and mostly occur in exotic pairs. In this light, it is easier to control risk on forex, but the profit potential is bigger in crypto markets.

Profit Potential

Crypto markets gained popularity as they offer opportunities to make outsized profits. In trading, risk increases together with profit potential, so traders should be prepared to take bigger risks when trading cryptocurrencies. In fact, the value of many coins may ultimately drift to zero if the projects do not work well or capital flows into more established coins, which is the norm for more advanced stages of developing markets.

It should be noted that traders can always increase their potential in forex trading by using leverage. Leverage is a double-edged sword, so risks also increase, but traders can manage risks by choosing the appropriate amount of leverage for their trades.

Market Hours

Crypto market is open 24/7 while the forex market is open 24/5. This is a huge difference from a lifestyle point of view. Forex traders can switch off their screens and enjoy their weekends. Crypto traders should always be in touch with markets as cryptocurrencies often make big moves on weekends.

While both markets are open 24 hours, forex market activity follows a regular pattern as forex trading is driven by big institutions. The situation is different in crypto markets as bigger institutions have only recently started to increase their activity, and many coins are driven by individual traders or small crypto investing firms.

Security

Crypto markets are still in their early development stages, and appropriate regulations are currently developed in various countries. Crypto traders have to deal with counterparty risks (scams occur, which is natural for booming markets) and hacking risks. Just recently, hackers have stolen $600 million in Poly Network (oddly, they have returned about half of the stolen assets at the time of writing this article).

In contrast, the forex market is heavily regulated, so forex traders face fewer risks. Forex traders should still check the history of their broker and the appropriate regulations in the country where the broker is registered. As the forex trading industry is well-developed, scams have been mostly eliminated.

Choosing between Crypto Trading and Forex Trading

Traders should check their financial goals, available capital, trading style, and lifestyle demands when choosing between crypto and forex markets.

The best way to make an informed choice is to try both crypto trading and forex trading with small accounts. After a few months, you’ll see which market suits your needs.

Don’t forget, you aren’t required to choose between crypto trading and forex trading, which means you can take advantage of the opportunities available on both markets.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you

Analysis Methods – Fundamental, Technical and Sentiment Analysis

Technical analysis is the study of trading activity through the use of patterns, trends, price movement, and volume. Fundamental analysis is the study of price movement to determine the value of an asset. Sentimental analysis is feeling the tone of the market through the study of crowd psychology.

Each of these methods of looking at an asset’s value has its merits and no one of them is complete on its own. Still, with some types of trading, you will want to rely more heavily on one type of analysis than another in order to better control the risk.

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Analysis Tools Defined

Technical analysis differs from fundamental and sentimental analysis in that it only takes into account the price and volume of an asset.

The core assumption is that all known fundamentals are factored into price; thus, they become irrelevant and there is no need to pay close attention to them.

The technical trader is not attempting to measure the asset’s intrinsic value, but rather trying to use technical analysis tools like chart patterns, oscillators and trends to determine what an asset will do in the future.

Fundamental analysis relies on macro-and micro-economic factors to determine the long-term and short-term value of an asset. Fundamental analysis looks at the factors that cannot be measured in a price chart. Some of these factors include supply/demand, economic strength, and economic growth.

Sentimental analysis has often been described as “reading the news”. However, it is probably closer to “reading the price action”. This is because something reading the headlines can fool a trader. Therefore, sentimental analysis works better over the short run with technical analysis, but over the long run, fundamental analysis will likely override any short-term sentimental biases.

Trading with sentimental analysis alone can be effective, but you need to be patient when you utilize this method. News does not happen every day for every asset. If you specialize in currencies, for example, you might only be making a couple of trades per week.

How and When to Use the Three Analysis Tools

Every trader will have a slightly different way of analyzing their assets of choice, and this is okay.

Some traders refer to themselves as pure technical traders and choose to ignore the fundamentals completely. They rely on statistical confidence in trading signals and assume the fundamentals have been priced into their analysis.

Fundamental traders tend to develop a bias in a market based on the macro-economic or long-term fundamentals then make adjustments to the microeconomic or short-term fundamental news.

Sentimental traders tend to react to the headlines and trade the momentum based on the news. This implies that a sentimental trader leans toward the technical side since momentum refers to price action.

A sentimental trader is linked to the fundamental side of the equation because the best momentum-generating headline is often caused by a surprise in the news. In order to be surprised by the news, one has to know the fundamental expectations ahead of a report, for example.

Summary

There is no one way to trade that is better than another. However, when measuring trading risk, technical analysis is probably the best tool to use. Furthermore, when building a trading system, technical analysis is probably best because of the plethora of statistical tools available to back-test trading theories.

It’s difficult to measure the success of fundamental analysis over the short run because it takes a long-time for a major fundamental event to develop. Think about how difficult it is to trade central bank activity over the short run. Then think about how much easier it is once a central bank decides to loosen or tighten policy.

Sentimental analysis is primarily used by the trader who likes action. The sentimental trader often has an indication of what the fundamental report is expected to show then reacts to whether the report is above or below expectations. Furthermore, the trader likely takes a peek at the chart to determine the momentum of the price action. In this case, it’s safe to say the sentimental analysis trader is more likely to use a blend of technical and fundamental analysis.

Many people thrive on short-term trades, but just as many need to trade longer-term in order to be successful. A well-rounded approach will utilize both time frames and will also use all three types of analysis.

You’ve probably heard the popular phrase about how you shouldn’t keep all of your eggs in one basket. This is a fancy way of saying you shouldn’t rely solely on one method for success. This suggests that trading a blend of technical, fundamental, and sentiment analysis may be the best approach with more control over risk.

Trading is a high-risk activity any way you look at it and you will want to reduce that risk for long-term success. A little bit of short-term trading plus a little bit of long-term trading will be your best choice for sustained results. Just like blending a little technical analysis with a little fundamental analysis.

Meanwhile, if you like trading the action then sentimental trading is probably the best, provided you use technical chart points to control the risk.

Interest Rates and Their Importance

In simple terms, an interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money loaned.

Interest rates affect the cost of loans. As a result, they can speed up or slow down the economy. The Federal Reserve manages interest rates to achieve ideal economic growth.

Banks and other institutions charge interest rates so they can run a profitable business. They borrow money at a lower rate than the rate that they charge. This generates a profit.

Credit card companies charge interest on the goods and services that you purchase. Mortgage companies charge interest on the money borrowed to buy a house.

Banks and the U.S. Treasury also pay interest to investors who put money into savings accounts, CDs, Treasury bills, notes and bonds. In these cases, the investors lends the money to the bank or Treasury.

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What is an Interest Rate?

An interest rate is either the cost of borrowing money or the reward for saving it. It is calculated as a percentage of the amount borrowed or saved. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).

Understanding APR

The annual percentage rate (APR) is the total cost of the loan. It includes interest rates plus other costs. The biggest cost is usually one-time fees, called “points.” The bank calculates them as a percentage point of the total loan. The APR also includes other charges such as broker fees and closing costs.

Both the interest rate and the APR describe loan costs. The interest rate will tell you what you pay each month. The APR tells you the total cost over the life of the loan.

Understanding Interest Rates

Interest is essentially a charge to the borrower for the use of an asset. Assets borrowed can include cash, consumer goods, vehicles, and property, according to Investopedia.

Home buyers borrow money from banks when they take out a mortgage. Other loans can be used for buying a car, an appliance, or paying for college.

Banks also become borrowers when an investor deposits money into a savings account. They pay the investor interest on the money deposited. They then use the deposited money to fund loans that they charge a higher rate to borrow. The difference between what a bank pays and what a bank receives is their profit.

How Interest Rates Work

When an individual borrows money from a bank, it applies the interest rate to the total unpaid portion of his loan or credit card balance, and he must pay at least the interest in each compounding period. If not, the outstanding debt will increase even though the individual is making payments.

Bank interest rates are very competitive, and their lending and savings rates aren’t the same. A bank will charge higher interest rates if it thinks the borrower is a credit risk. For that reason, it assigns a higher rate to revolving loans such as credit cards. The interest rate a bank pays a savings account holder is usually determined by market conditions usually set by the Federal Reserve.

Fixed Versus Variable Interest Rates

Lending institutions charge fixed rates or variable rates on their loans. Fixed rates remain the same throughout the life of the loan. At first, your payments consist mostly of interest rate payments. As time passes, the borrower pays a higher and higher percentage of the debt principal. An example of a fixed-rate loan is a conventional mortgage.

Variable rates change with the prime rate. This is the interest rate an institution charges to its best borrowers. The prime rate is based on the Fed funds rate. This is the interest rate the Fed charges to its best banking customers.

How Are Interest Rates Determined?

Interest rates are determined by the Federal Reserve, or the Fed funds rate, or by Treasury note yields, which are determined by the financial market conditions.

The Federal Reserve sets the Federal Funds rate as the benchmark for short-term interest rates. The Fed funds rate is what banks charge each other for overnight loans. The banks consider other banks their best customers.

Treasury note yields are determined by the financial market’s demand for U.S. Treasurys, which are sold at auction. Under certain economic conditions, demand for Treasurys will be high. When investors are willing to pay more for Treasurys, interest rates move lower. There are certain conditions like an economic recovery when interest rates increase, this drives down U.S. Treasurys.

Impact of High versus Low-Interest Rates

High interest rates have a negative effect on the economy because they make loans more expensive. When interest rates are high, few consumers and businesses can afford to borrow. This slows down economic growth. At the same time, it encourages people to save because they get paid more for their savings deposits. This takes money out of the economy and slows down growth.

Low-interest rates have the opposite effect on the economy. Low mortgage rates, for example, increases home buyer demand. This tends to drive up home prices. Savings rates fall and investors move money into assets that pay higher yields like the stock market. Basically, low rates increase liquidity that helps the economy expand.

Fed Tries to Hold Rates Steady

Consumers and investors often ask, “If low-interest rates provide so many benefits, why wouldn’t the Federal Reserve keep rates low all the time?”

It is generally accepted that the U.S. government, the Federal Reserve, some businesses and consumers prefer low-interest rates.

The U.S. government likes low interest rates because it borrows tremendous amounts of money to run the country. Capital intensive companies like technology firms prefer lower rates as well as consumers who want to buy houses, cars, appliances and clothes on credit. Banks, however, prefer higher rates because they tend to increase profits due to the high rates of interest they can charge on loans.

But low-interest rates can cause interest rate. If there is too much liquidity, then the demand outstrips supply and prices rise. Some inflation is good for the economy because it shows growth, but runaway inflation tends to be detrimental to the economy.

Investment Strategies for Extremely Volatile Markets

Volatile markets can be very challenging to navigate. At the same time, they offer great opportunities for outsized profits. In this article, we’ll discuss key things that will help you stay the right course during times of extreme volatility.

Always Stick to Your Plan

Trading always requires planning. A proper plan becomes even more important when markets are volatile since traders have to react quickly. It is important to stick to your original plan during big price swings, as they cause big emotions. Make sure that you are well-prepared before you make a trade. Once you have established a position, you may have little time to analyze the market’s movements, so you should just stick to your original plan. Changing plans “on the fly” often leads to poor results.

Adjust Your Position Size

Extreme volatility provides traders with a chance to win big. But, losses may also be significant if your trade goes the wrong way. In this light, it is important to limit your position size to successfully survive volatility and profit from the opportunities it provides. Some traders feel the urge to increase their position size when they feel that markets are ready for a big move. You should resist this temptation. If you see several opportunities, you’d be better off taking several positions of limited size rather than betting big on one trade.

Use Limit Orders

As the market situation changes fast, it is extremely important to get the correct price for every entry. Thus, you should only use limit orders. You can place such orders a bit above (or below, depending on the direction of your trade) the market to increase your chances to get into a trade at times of huge volatility, but you should not be too generous. A good price is a very important component of a successful trade. It is better to avoid getting into a trade altogether than to get into a trade at a price you weren’t expecting.

Use Wider Stop Loss Orders

When markets move fast, prices can easily breach key levels even if these levels are strong. Stop loss orders should be wider if you want to avoid being stopped out of a good trade – your trade need some room to “breathe” when the market is volatile. If you have adjusted the size of your position and stayed within the limits of your usual risks, wider stops will not cause problems.

Watch Your Leverage

Leverage is a two-edged sword. It helps you make more money in a winning trade, but it also bites hard when the trade goes in the wrong direction. Be conservative with leverage when markets are volatile. Volatility itself will provide you with a great opportunity to make money. Attempts to artificially increase potential profits by using excessive leverage may hurt your trading account if the market suddenly turns against you.

Focus on Short-Term Trades

Markets can move very fast in both directions at times of extreme volatility. Thus, traders should focus on short-term trades so that they can take their profits off the table before the direction of the instrument changes. Even traders who are comfortable with calm, positional trading will be better off taking at least some profits when their trade goes in the right direction in volatile markets.

Exit Your Positions in Parts

There is no magic indicator that will show you when the market is changing its direction if prices are changing very fast. You should exit your positions in parts to increase your chances of taking advantage of the instrument’s move. This tactic will also help you limit losses (or avoid them) if the trade went according to your original plan but then suddenly reversed course.Besides, it will be easier to sit through major swings if you have already taken some money off the table.

Breakthroughs Typically Work Well In Volatile Markets

Extreme volatility is a time when market moves are very strong. Thus, instruments easily breach levels and attract more speculative traders which is good for the continuation of the move. Going with the market’s momentum will work better in the majority of cases in this environment. False breakthroughs will also occur, but the percentage of false breakthroughs will be lower than at times of calm, range-bound markets.

Don’t Catch Falling Knives

As we have discussed above, momentum is a major factor in volatile markets. As they say, the trend is your friend, and this is especially true at times of volatility. While “bottom picking” may look attractive as it promises outsized profits, risks are often too big when markets are volatile. Furthermore, it is much more difficult to determine the potential bottom when prices are moving very fast in comparison with ordinary times.

Do Not Trust RSI And Similar Indicators When Markets Move Fast

By definition, volatility causes outsized moves. Thus, instruments will become overbought or oversold, but it means nothing in such an environment. Time and time again, you will see that an “overbought” instrument is rallying if momentum is strong, while the “oversold” instrument keeps dropping like a rock. Watch momentum and key levels and do not worry about indicators screaming “overbought”/”oversold”. Such indicators work much better in calmer markets.

Once A Major Level Was Breached, Minor Levels May Have Little Impact on Trading Dynamics

When markets are extremely volatile, you should focus on key technical levels. Minor levels, which may have served as material obstacles during calm times, will be ignored in most cases. That’s the nature of volatile markets. Price swings are big, and only major levels count.

Bottom Line

Stay calm and focused despite extreme volatility. Have a plan and stick to this plan. Do not be greedy – take smaller positions and use wider stops. Do not forget to take some profits off the table if your trade is going in the right direction. Follow momentum and don’t try to find the ultimate top or bottom. Extreme volatility is a time of opportunity – use this time wisely.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you

How To Choose The Right Forex Strategy

How To Choose The Right Forex Strategy

There are many trading strategies available, but going through them one by one is not practical. Instead, traders should focus on the following key things when choosing a trading strategy.

Available Time

Your search should start with the question “How much time do I have”. If you can sit behind your desk for hours watching charts, you’ll be able to choose from the whole set of forex trading strategies, including those that were developed for day trading and scalping.

If this is not your case, you should focus on longer timeframes. Such strategies will allow you to set alerts at key entry points in advance, and you’ll be able to trade according to your plan while taking a look at markets from time to time rather than staying glued to your screen all day long.

It’s important to note that you should be frank with yourself. Markets will not wait for you to come back home from your daily job. If you try to use a strategy that does not fit your schedule of life, your results may be disappointing.

Traits Of Character

Your forex trading strategy should fit your personality. This is a very important point as success in trading is very dependent on the psychological strength of the trader.

If your trading strategy is uncomfortable for you for whatever reason, you will become anxious, get tired and make mistakes that will cost you money.

If you are able to make fast decisions but patience is not your strength, you’d be better off searching among strategies for shorter timeframes, like the ones created for day trading or scalping. In the opposite case, you’d look into strategies developed for swing trading or positional trading.

A forex trading strategy that fits your personality will make your trading much easier so you should not neglect this important part when choosing which strategy to use.

Risk Tolerance

Some forex trading strategies are rather risky (but offer higher potential returns), while other are more conservative. Your forex trading strategy should fit your risk tolerance level, or you’ll set yourself up for trouble.

Your risk tolerance depends on your psychological traits (some traders are more conservative, while others are risky and are ready to experience material losses in pursuit of big profits) and financial situation.

If you plan to supplement you current income with trading, you’d be better off choosing more conservative strategies. In case your goal is to grow your account aggressively and you have other sources of income that support your lifestyle, you could try strategies that involve bigger drawdowns.

In any case, if the risk of your forex trading strategy exceeds the level of your risk tolerance, you will not be able to execute the strategy correctly and your results would be poor. In this light, aligning your trading strategy with your financial goals is very important for your future success in trading.

Market Direction

There are two basic types of market behavior – a trending market and a ranging market. You must evaluate the type of market before choosing your forex trading strategy.

Using strategies that tend to perform in a trending market when the market is in the range may lead to a disaster. For example, various strategies based on breakouts will fail time after time in a true-ranging market since you’ll get caught in many false breakouts.

The same is true for using strategies for the ranging market at a time when the market is moving in a strong trend. Your attempts to buy at support levels or sell at resistance levels will fail in a trending market since these levels will likely get breached.

In this light, you should learn to distinguish between a trending market and a ranging market and have a forex trading strategy for each type of market behavior.

Recent Performance Of The Forex Trading Strategy

Past performance is no guarantee of future results – you have probably heard this statement many times. This is true as trading strategies that worked in the past may not work in the current market environment.

However, this does not mean that you should not back-test the forex trading strategy that you are going to use. If you have correctly identified the current type of the market (trending or ranging) and selected the appropriate forex trading strategy, you should take a look at how it would have performed in recent weeks or months.

If you see that the strategy would have delivered positive results, you should try it in real trading. However, if your analysis shows that the strategy was not working in recent weeks, you should search for another forex trading strategy that had better performance.

Putting It All Together

Now that we’ve discussed the main things to consider when choosing a forex trading strategy, let’s take a higher-level view on this process.

The most important thing is to stay realistic when choosing a forex trading strategy. There is no need to rush. You should take your time and carefully evaluate your personal financial goals, time available for trading, current preferences in trading and the current state of the market.

You should also prepare for various market conditions. At a minimum, you should have a plan at hand for a trending market and a ranging market. Ideally, you should have several strategies for each type of market so that you can quickly switch between them if you see that one of your strategies does not perform according to your initial expectations.

You must also keep in mind that any strategy needs time to show its true performance in current market conditions so you should be patient and give it some time before you draw final conclusions.

If you do everything correctly, you’ll have a set of trading strategies that could be tweaked over time to suit your needs.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you

What You Need to Know about SPACs – Wall Street’s Hottest Trend

Recently, U.S cryptocurrency exchange “Bullish” announced it is aiming for a $9 billion listing on the New York Stock Exchange via a merger with Far Peak Acquisition Corporation, a special purpose acquisition company (SPAC).

While many were focusing on what this transaction will mean to the crypto industry, others were asking, what is a SPAC and why should I learn about it? Still, others want to know if it’s an investment strategy that’s here to stay or another Wall Street fad.

What is a Special Purpose Acquisition Company (SPAC)?

According to most legal sources, a special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.

SPACs aren’t new. They have been around for decades, but have recently become more popular because low yields have driven investors to seek alternative ways to increase their capital. Not only have they become popular with sophisticated, high-wealth individuals, but they have also drawn the attention of underwriters who envision a big payday in the form of commissions and fees.

SPAC IPOs have seen a resurgent interest since 2014, with increasing amounts of capital flowing to them.

  • 2014:  $1.8 billion across 12 SPAC IPOs
  • 2015:  $3.9 billion across 20 SPAC IPOs
  • 2016:  $3.5 billion across 13 SPAC IPOs
  • 2017:  $10.1 billion across 34 SPAC IPOs
  • 2018:  $10.7 billion across 46 SPAC IPOs
  • 2019:  $13.6 billion across 59 SPAC IPOs
  • 2020:  $83.3 billion across 248 SPAC IPO

How is a SPAC Formed?

A SPAC is created, or sponsored, by a team of institutional investors, Wall Street professionals from the world of private equity or hedge funds. They create this entity that has no commercial operations. It makes no products and does not sell anything. In fact, the SPAC’s only assets are typically the money raised in its own IPO, according to the Security and Exchange Commission (SEC).

What’s interesting about a SPAC is that when it raises money, the investors buying into its IPO do not know what the eventual acquisition target company will be. That’s part of its mystique, however, since institutional investors with track records of success can more easily convince other investors to invest in the unknown. Due to this, a SPAC is also often called a “blank check company.”

How Does a SPAC Operate?

After the SPAC is legally created, it now needs cash to create the capital needed to do the acquiring of another company, for example, in the future. Remember, the SPAC is not going to raise money to buy equipment, computers, software, or even pay rent. It needs the money to buy what is often referred to as the “eventual acquisition target company”.

A SPAC will raise the money it needs through its own IPO. CNBC says that SPAC IPOs are usually priced at $10 a share. Once the initial capital is raised, the money goes into an interest-bearing trust account until the SPAC’s founders or management team finds a private company looking to go public through an acquisition.

Legal experts say that once an acquisition is completed (with SPAC shareholders voting to approve the deal), the SPAC’s investors can either swap their shares for shares of the merged company or redeem their SPAC shares to get back their original investment, plus the interest accrued while that money was in trust. The SPAC sponsors typically get about 20% stake in the final, merged company.

Time is of the Essence

Once SPAC sponsors raise the capital they need to go to work acquiring companies, they can’t sit on the funds forever, even if they are protected by trust and earning interest. SPAC sponsors also have a deadline by which they have to find a suitable deal, typically within about two years of the IPO. Otherwise, the SPAC is liquidated and investors get their money back with interest.

What are the Advantages of a SPAC and Who Benefits?

Owners of smaller companies find selling to a SPAC more profitable because the sale often adds about 20% to the price of the deal compared to a typical private equity deal. Additionally, being acquired by a SPAC can also offer business owners what is essentially a faster IPO process under the guidance of an experienced partner, with less worry about the swings in broader market sentiment.

Business owners are often worried about extreme market volatility or the fear that weak investor sentiment could force the postponement of an IPO. By dealing directly with the SPAC, these worries are essentially eliminated.

Furthermore, a deal with a SPAC can be wrapped up in just a few months versus the traditional process of registering an IPO with the SEC, which can take up to six months.

Basically, the key advantage is a business owner can get his money faster and without a lot of government tape.

Are There Any Pitfalls?

Nothing is guaranteed and SPACs are no exception to that rule. Although they are extremely popular in 2021 for large institutional investors and other billionaire backers, this trend can go away quickly if “something better” comes along.

Other factors that could determine its long-term popularity include the fact that target companies run the risk of having their acquisition rejected by SPAC shareholders. Even the rich get cold feet about a deal. Furthermore, investors are literally going blindly into the investment.

SPACs will probably retain their popularity until the major players decide to let the smaller investors into the game. That’s usually when the rules change and the government regulations get tougher in order to protect undercapitalized investors from losing all their money.

What are Some High-Profile Examples of SPACs?

We don’t know yet how the SPAC for Bullish will play out because it was just announced. But since it involves cryptocurrencies, it will probably become a profitable venture since investors looking to get aboard the craze have been throwing money at the asset class.

High-profile SPACs like DraftKings and Virgin Galactic have performed well for investors, but that hasn’t always been the case with average returns from SPAC mergers completed between 2015 and 2020 falling short of the average post-market return for investors from an IPO.

A noted prominent short-seller of SPACs said, “a business model that incentivizes promoters to do something – anything – with other people’s money is bound to lead to significant value destruction on occasion.”

Like any investment, it pays to do your homework before putting money into a SPAC.

What Distinguishes Japanese Technicians from Western Technicians

However, within years I realized that there were major shortcomings to the Western technical approach as they were based upon technical studies which used lagging indicators.

One of my mentors, Larry Williams expressed that sentiment in the best possible way. He said that as a Western technical analysts we are like individuals sitting at the back of a boat looking at the wake caused by the propellers. We are attempting to derive where the boat is headed by determining where it has been. Truly a lagging indicator. But he added one caveat, “only the captain knows when he will turn the wheel”.

However, it was a client of mine that first exposed me to the art of Japanese technical analysis. Within my first few years of trading, I noticed that the vast majority of first-time futures traders lost money. Within that pool of new traders, I noticed one gentleman who had the uncanny knack of selling market tops right before a key reversal, as well as buying market bottoms before a pivot occurred.

After witnessing him correctly predict and profit from 10 consecutive trades, I realize he was using a technique that was completely foreign and unfamiliar to me. I asked him what techniques he used to have such a stellar performance and he answered that it would be too complicated to explain, but he could send me a book that would detail this technique.

The book I’m referring to is the Japanese chart of charts written by Seiki Shimizu. It was the first book written by a famous Japanese trader and translated into English in 1986. It is one of the more difficult books I have ever tackled in that the Japanese language is composed of “Kanji”, or word pictures.

According to Seiki Shimizu, “A chart is like a cat’s whiskers” In his book, he writes “Standing on the corner we notice many things… in the case of a skipping rope, a child will always focus on the moving rope while jumping. However, this habit and instinct are not limited to human beings. A cat preying for a mouse will wait near a likely hiding hole. If a mouse does appear, the cat must decide which way it thinks the mouse will go and springs in that direction once the mouse begins to move. I don’t think the cat understands the mouse’s feelings and thought patterns. It’s the cat’s whiskers that are said to have the telepathic power of being able to interpret a mouse’s movement by smell, light, and wind. Therefore, I believe it is this power that moves a cat’s whiskers, whereupon the cat decides whether to wait or chase after the mouse.

It is said that “A market price is a living thing.”

Japanese Candlestick Charts and their patterns were conceived over three hundred years ago by a rice trader named Sokyu Honma (1716 -1803). Sokyu lived in Sakata, Japan, and was also known as Sokyu Honma and Munehisa Homma.

It was rumored that he made 100 consecutive profitable trades. His success was so great that he achieved the rank of honorary Samurai, as well as attaining the government rank of a financial advisor.

At first, his methods of trading were kept a secret as they were passed down when he compiled a book in 1755 called the ‘Fountain of Gold – the Three Monkey Record of Money’. This book detailed his findings and observations of market sentiment.

Simply put the Japanese technical approach can mathematically quantify market sentiment. Something that has alluded to Western traders.

This article has been written as an ancillary discussion to the interview that David Linda myself did this morning in which we spoke about my methodology. As it is too complex to be able to discuss the totality within a single opening letter I am providing links to articles that I have written for Kitco education at the end of this article.

I hope that the knowledge presented within these brief presentations will allow you as a trader to gain insight, and most importantly be a more effective trader.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

References on the Japanese candlestick technique found in the Kitco education section;

THE HISTORY OF JAPANESE TECHNICAL ANALYSIS

EAST VERSUS WEST (LESSON ONE)

EAST VERSUS WEST – CLASSIC NAMES AND EXPLANATIONS OF JAPANESE CANDLESTICKS (LESSON TWO)

THE SAKATA FIVE

AN INTRODUCTION TO HEIKIN-ASHI CHARTS

How To Choose A Cryptocurrency Exchange

Most people consider investing or trading in Bitcoin and other cryptocurrencies as intimidating. This is because the cryptocurrency market has been presented to most people as a very technical financial market.

However, that is not the case. You can start trading or invest in cryptos in no time, as long as you follow the right process. Following the right process starts by choosing the cryptocurrency exchange to use. Crypto exchanges are your gateway to the cryptocurrency market. Hence, the reason why they are important.

This guide helps you learn how to choose a crypto exchange and some of the best ones in the market.

Table of Contents

What Are Crypto Exchanges?

Crypto Exchanges are platforms where people can buy and sell cryptos like Bitcoin. You can use the exchanges to trade one cryptocurrency for another — converting Bitcoin to Ether – or to purchase the cryptocurrency using regular fiat currencies like the USD or GBP. These platforms reflect the current market prices of the cryptocurrencies they offer. The users can also convert the cryptos back to fiat currencies on an exchange, giving them the option to withdraw the funds back to their regular bank account or leave it on the exchange platform to trade back into cryptocurrencies later.

There are hundreds of cryptocurrency exchanges available to traders and investors. Hence, making it a tough decision to choose the best ones. However, the criteria outlined below will help you determine how to choose the right cryptocurrency exchange for you.

What Are The Criteria For Choosing Crypto Exchanges?

  • Authenticity and security.

Conduct your research to determine whether the exchange you are choosing is a legitimate and secure platform. The authenticity and security of a platform will help you determine if your funds would be safe with the crypto exchange. Traders have lost billions of dollars to scam platforms. Hence, ensure you check the reputation of the platform and the various security protocols they have in place to secure your data and funds.

  • Method of purchase.

The method of purchasing cryptos varies between platforms. Some platforms support deposits by bank transfer, some use PayPal, others accept credit and debit cards, and some only use cryptocurrency for purchases. Study the various payment options available on the platforms and choose the one most suited to you. For starters, with no coins, it is essential that you choose a platform that accepts fiat currency as it allows you to enter the market with little stress.

  • Supported coins and tokens.

Virtually all crypto exchanges support Bitcoin and Ethereum. However, there are thousands of cryptocurrencies, and some investors want to gain exposure to others aside from BTC and ETH. Thus, you have to know the coins and tokens supported by a crypto exchange before you choose one. Binance is the most popular because it grants traders and investors exposure to more cryptocurrencies than other platforms.

  • Fee structure.

The transaction fee structure differs across various crypto exchanges. Understanding the fee structure of a crypto exchange is crucial as it allows you to know what you are dealing with when conducting several activities. Ensure that you choose a platform that doesn’t have hidden transaction fees. You can choose a platform that offers flat transaction rates or those with a more flexible structure.

  • User interface and user experience.

This criterion is very important to your success as a cryptocurrency trader or investor. An exchange with an intuitive interface and good user experience makes it easier to trade the cryptocurrencies available. However, user experience is subjective, and people enjoy various interfaces. Furthermore, ensure to check the customer service and other customer-related functionalities offered by a crypto exchange. The easier to access the platform, the better.

The Top Four Cryptocurrency Exchanges For Experts And Beginners

There are hundreds of cryptocurrency exchanges available to traders and investors. However, these four are some of the leading and most powerful crypto trading platforms in the world.

Binance

Binance is considered the most powerful cryptocurrency exchange in the world. With a trading volume above $13 billion per day, Binance is the largest. It also offers traders access to hundreds of coins and tokens as it has one of the largest collections of altcoins in the market. In addition to regular spot trading, Binance offers other services such as staking, derivative trading services and more. Binance is available in over a hundred countries globally, providing crypto trading services to millions of people. Finally, Binance is a good option for anyone who wants more advanced charting than most other exchanges.

Register on Binance here.

Coinbase

Coinbase is amongst the most widely used digital currency trading exchanges, especially for traders in the United States. It is now a publicly listed company and provides services to crypto traders in the US, Europe and other parts of the world. Coinbase processes over $2 billion in trading volume per day. It offers crypto trading services to both retail and institutional traders, with the Coinbase Pro platform specially dedicated to the professional traders and investors. As a publicly-listed exchange, Coinbase offers insured custodial wallets for investors and traders to store their coins. Coinbase is highly secure but doesn’t offer as many cryptocurrencies as Binance.

Sign up with Coinbase here.

Kraken

Kraken is one of the oldest trading platforms currently in existence in the crypto space. Due to the number of years, it has been around, Kraken is admired by many and provides trading services to thousands of traders globally. Similar to Coinbase, Kraken is looking to become a publicly-listed company. Kraken allows traders to access hundreds of cryptocurrencies, fund their accounts using fiat currencies and cryptocurrencies, and gain access to other cryptocurrency trading services.

Register with Kraken here.

CEX.IO

CEX.IO is another leading cryptocurrency exchange. Its excellent user interface makes it a good platform, especially for people new to the cryptocurrency world. It allows users to access a wide range of cryptos, including the leading ones such as Bitcoin, Ether, and Litecoin. The customer support on CEX.io is also one of the best in the crypto space

Register with CEX.IO here

How To Use A Cryptocurrency Exchange

Using a cryptocurrency exchange is simple and involves a few steps. They are;

  • Register with the cryptocurrency of your choice.
  • Provide your name and other correct details and proceed to verify your account in accordance with the AML and KYC standards
  • Access your cryptocurrency exchange account and fund it using any of your preferred payment methods
  • Identify the coin or token you wish to buy and swap the deposited funds with the desired cryptocurrency. You can also buy BTC, ETH or USDT with the deposited fiat currency before swapping these cryptocurrencies with your desired coin or token.
  • If you intend to hold the coins for long, it is best to move them to a cold storage wallet. However, you can leave them on the exchange wallet if you intend to trade the coin.

Final Thoughts

Cryptocurrency exchanges are central to your success as a trader or investor. Hence, knowing how to choose a crypto exchange is crucial. The above-reviewed platforms are some of the best exchanges available to traders globally.

Price Inflation: Definition, Measures, Types and Pros and Cons

Inflation news has been dominating the headlines for several months as the global economy begins to slowly reopen following the more than year-long pandemic. The rapid rise in prices has become a top concern as central bankers, consumers and investors fret about the rising cost of groceries, housing, gasoline, and other living expenses. The most immediate way inflation is felt by consumers is the negative effect on purchasing power and quality of life.

Table of Contents

What is Inflation?

The simple definition is a general rise in prices. The classic definition is “too much money chasing too few goods.” The price of individual items fluctuates all the time so it takes a collection of items rising at the same time to drive the inflation meter higher.

How is Inflation Measured?

Probably the best-known measure of inflation in the U.S. is the Consumer Price Index (CPI), which measures the average change in prices paid by urban consumers for things like food, clothes, housing, and transportation. The Federal Reserve measures inflation by the personal consumption expenditure (PCE) price index. While CPI looks at what people are buying, PCE looks at what businesses are selling.

Core inflation is another term that is tossed around quite often. It takes into consideration all inflation minus food and energy, which tend to be volatile. They can be influenced by oil supply and weather, and since the events can be deemed as short-term, their numbers are stripped out of the total inflation picture.

Cost-Push Inflation vs. Demand-Pull Inflation: What’s the Difference?

Cost-push inflation is not that common. It starts with a decrease in total supply or an increase in the cost of that supply. Suppliers raise prices because they know consumers will pay it.

Demand-pull inflation exists when aggregate demand for a good or service outstrips aggregate supply. It begins with an increase in consumer demand. Sellers meet such an increase with more supply. But when additional supply is unavailable, sellers raise their prices. (Learn more about cost-push and demand-pull inflation here.)

Why Should I Care About Inflation? (Pros and Cons)

It’s the Fed’s job to calm people’s nerves over inflation. Generally speaking, consumers don’t worry about inflation being too low.

Throughout April and May 2020 at the start of the pandemic when prices were plunging, consumers weren’t fretting over low food and gasoline prices. They were focused on avoiding coronavirus. While quarantined, and with the economy on lockdown, fewer people were driving and gasoline and crude oil prices fell sharply.

Now that most of the lockdowns have ended, more people are working and individuals are driving and flying. This is driving up gasoline and crude oil prices. In other words, prices are reflating from extremely low levels in early 2020 to higher prices in the Spring/Summer of 2021.

Historically low-interest rates are also helping to drive inflation higher. When the economy was stable in early 2020 before the pandemic, mortgage rates were relatively stable but higher than they are at this time. When the Fed slashed its benchmark rates, mortgage rates fell sharply. Low mortgage rates are one of the factors driving up demand for housing.

Demand for housing is increasing, but the supply of available homes to buy is low so people are building new houses. After a sluggish 2020 drove down demand for building materials such as copper and lumber, the current surge in home building is driving up demand for these materials. The increase in prices is another contributing factor to a rapid rise in inflation.

The Fed sees the rise in gasoline, copper, and lumber prices as a temporary reaction to the reopening of the economy. They don’t see the rise in prices as here to stay. Policymakers can explain away the jump in prices as economic growth. They feel they have the measures to combat inflation, but they also run the risk of stopping growth too fast.

Factors Affecting Currency Prices

No financial marketplace comprehends as much of what is proceeding in the global trading community at any given time as foreign currency exchange, but in the end, Forex prices are a result of supply and demand forces.

The cost of one currency relative to another is constantly shifting due to the forces of supply and demand. So it is safe to say that a currency’s value is not influenced by one single force, but by several. These forces generally fall into three categories:

How Does Market Psychology Drive Forex Prices?

One of the more difficult aspects of the Forex markets to comprehend is the influence market psychology can have on the price of a currency. Since it doesn’t involve financial statements or central bank policy decisions, Forex traders have a hard time putting their fingers on it.

Sometimes it’s only the way a central bank phrased its policy statement or the tone of a speech, but Forex traders quickly turn “hawkish” or “dovish” in their sentiment and thus exert the force of market psychology on the currency markets.

Falling under the category of market psychology are the following:

Buy the rumor, sell the fact

It is the tendency for the cost of a currency to reflect the impact of a particular action before it occurs and when the anticipated event comes to pass, react in exactly the opposite direction.

Flight to Quality

Forex investors often seek the protection of a safe haven currency during times of unsettling international events. During this event, investors demand currencies perceived as stronger over their relatively weaker counterparts.

Flight to Safety

When there is clarity in the markets, investors will seek the currency offering the highest yield. This is generally known as a “risk-on” scenario. In other words, investors are willing to take on additional risk to capture a higher reward. During times of uncertainty investor sentiment may revert to a “risk-averse” mentality where they sell the higher-yielding or “risky” currencies in favor of the lower-yielding or ‘safer” currencies.

Whether because of economic or political trends, very often certain currencies move in long, pronounced trends attracting the attention of long-term cycle investors. Since there is no real business cycle or growing season affecting currency prices, certain types of investors who have the staying power look to exploit the long-term tendencies of currencies.

What are the Key Economic Influences Driving Forex Price Action?

The key economic influences driving the price action are usually disseminated by government agencies, central banks, and major private industry experts. They come in the form of regularly scheduled reports, press conferences, news releases, speeches, and news media quotes.

Falling under the category of economic influences are the following:

Economic Numbers

Although all economic numbers have some impact on the Forex markets over the short run, some numbers wield more powerful influences on the movement of the markets. These numbers typically rotate, giving each a chance to share the spotlight.

An example would be traders putting more emphasis on a GDP report than a retail sales report when overall economic growth is a major issue.  At times, a weekly jobless claims report will move a currency more than a monthly jobs report.

Under certain conditions, economic data may influence a currency more than a central bank decision. At times, a central bank may issue an unchanged policy decision, but a stronger-than-expected labor market report may drive prices higher as investors price in a possible change in policy in the near future.

The easiest way to understand this is to assume that trader tastes and preferences change.

Economic Policy

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government’s central bank influences the supply and cost of money, which is reflected by the level of interest rates).

Government and central bank policies can often change as both tend to identify a problem then try to fix it by providing emergency fiscal stimulus (Government) or slashing interest rates (Central Banks).

These moves often take time to work through an economy, but Forex traders don’t necessarily wait for this to occur. They react to the initial move by the government or the central bank then make adjustments later.

The price action in the EUR/USD in June 2021 highlighted how central bank policy can influence a Forex pair’s direction. The single-currency plunged that month when the Federal Reserve changed its tone to hawkish by moving up the dates of its next interest rate hike. Meanwhile, the European Central Bank (ECB) held rates steady and offered no guidance as to the timing of its exit from its loose monetary policy.

Economic Conditions

Economic conditions fall into several broad categories that are usually driven by longer-term events. In other words, a bad report here and there, wouldn’t be considered an “economic condition”. However, a weak trend in employment or strong inflation figures will fall into the “economic conditions” category.

While a short-term surprise in a report may cause a day or two of volatile, counter-trend price action, longer-term trends in economic data tend to drive longer-term movement in a currency.

Economic Growth and Health

Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization, and others, detail the levels of a country’s economic growth and health.  Investors tend to demand the currencies with the best economies.

Government Budget Deficits or Surpluses

Simply stated, narrowing budget deficits are usually good for a currency’s value. Widening government budget deficits are generally bad. These reports tend to have a longer-term influence on a currency’s price. These reports usually don’t cause short-term volatility until they hit an extreme or record level.

Balance of Trade Levels and Trends

Forex investors watch balance of trade levels and trends very carefully. Surpluses and deficits are perceived as indicators of the competitiveness of a nation’s economy. Once again, these reports tend to drive the longer-term trend in a currency.

How Do Political Conditions Influence Forex Prices?

Internal, regional, and international political conditions can have a profound effect on currency prices. Political upheaval and instability can have a negative impact on a nation’s economy, while the rise of a political faction that is perceived to be fiscally responsible can have a positive effect.

One country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency. Election results and shifts in political party power.

Why Pandemics Can Be a Source of Forex Volatility?

Forex traders have learned the hard way that a pandemic can be the source of price volatility. In 2020 when the COVID-19 pandemic hit the global economy, the playing field was leveled around the world.

With all economies tanking at the same time, all the major currencies plunged. However, traders tried to maintain the relationships between the major Forex pairs, but for a short-time, money was flowing into the U.S. Dollar for protection. We learned earlier that this was because of flight to safety, or flight to quality buying.

Most central banks and governments made the same moves – drastically lower rates and flood the financial markets with tremendous amounts of cash.

As conditions changed and economies began to settle and reopen, trading conditions improved, but now traders were more focused on GDP growth, rising inflation increased factory activity, but most importantly, domestic interest rates.

Interest Rate Differential Ultimately Determines a Currency’s Strength

All of the factors mentioned earlier in the article are great for identifying short-term volatility and long-term trends, but ultimately, it all comes down to the interest rate differential or the difference in government bond yields. It’s the interest rate differential that drives the Forex price action and makes one currency more attractive than another.

As economic conditions improve, government bond yields tend to rise. The yields in the most improving economies tend to move up faster than others. Since money seeks the highest yield, investors will buy the currency with the most attractive yield.

The most glaring confirmation of how the interest rate differentional drives a currency is in the USD/JPY Forex pair.

In mid-2021, the U.S. Federal Reserve announced it was moving closer to raising interest rates, while the Bank of Japan announced it was considering additional stimulus. In the U.S., yields rose on the news, widening the spread between U.S. Government bond yields and Japanese Government bond yields, this made the U.S. Dollar a more attractive investment.

Crypto Trading Beginner’s Guide

Sentiment about cryptocurrencies was split among users after the market drawdown in May. More experienced traders were ready for the fall, and mainly newbies and enthusiasts lost their funds and exited the market in anger.

In this review, I will try to tell, based on personal experience and knowledge, all the subtleties of trading on the crypto market.

Cryptocurrency trading spot or derivatives

Today, exchanges and marketplaces offer many trading tools for trading in the cryptocurrency market. Crypto markets offer different contracts, like spot and derivatives. A significant difference between trading on the spot market and the derivatives market is the actual acquisition of an asset. So, for example, when trading on the spot market, a person acquires an asset for the purpose of selling it in the future to generate profit from a difference in price.

Trading in the spot market can be compared to trading in the stock market, and the person trading in this market will be considered an investor. To fix profits on the spot market, you can set only one order – a sell order, and place a buy order to buy putting the amount of the purchased or sold the asset. The most popular exchanges for spot trading are Coinbase, Kraken, Gemini, Binance.

Coinbase

Unlike the spot market, when trading in the derivatives market, a person does not actually acquire an asset but opens a position for the purpose of price speculation, and a person trading in this market is classified as a trader. The advantage of trading in the derivatives market is trading in both directions, that is, profits can be obtained even if the price of an asset falls, comparable to trading contracts for differences (CFDs) and trading futures (also a class of derivatives). Derivatives trading platforms provide a fairly high leverage, which allows a trader to increase his capital and reap great benefits, but also implies the risk of losing all funds in the position.

It is also important to take into account that trading on the derivatives market, a trader can set various orders to make a profit from the trade or accept a loss for the trade: take profit and stop loss functions. That is, since the asset is not actually purchased, two orders can be placed simultaneously. The advantage is that a trader, when the price reverses, will be able to close the position with an insignificant loss, and if the price continues to move in the predicted direction, close the position and fix the profit automatically. Popular exchanges and platforms for trading crypto derivatives: FTX, Bybit, Overbit, and Bitget.

Overbit

Market analysis and education

There are several types of analysis for predicting price movement: technical, fundamental, market sentiment analysis.

Technical analysis

The most popular type of market analysis, which includes the study of asset price movements and trading volumes. Everyone determines for themselves a trading strategy based on technical analysis, but mainly Dow theory, Elliott Wave theory, and Fibonacci mathematical tools are used. The best tool for technical analysis nowadays is considered TradingView.

TradingView

Fundamental analysis

The study includes an analysis of such fundamental data as the financing of the project, reports on the updates made, deposit/withdrawal of funds to/from the exchange, the open interest ratio, the funding rate, as well as, if the asset is traded against a currency, economic data affecting this currency (more often the US dollar).

Market sentiment analysis

The second most popular analysis method in the cryptocurrency market. Market sentiment is calculated using algorithms that wander popular social networks and all over the Internet looking for positive and negative comments about the cryptocurrency. Such algorithms are used to calculate one of the important indexes – the “Fear and Greed” index.

Education

Most crypto exchanges and cryptocurrency trading platforms provide their own training materials, but they are more introductory and do not contain detailed information. Therefore, after reading materials on any type of analysis of the cryptocurrency market, you should not consider yourself a pro and open positions that exceed 50% of your deposit. Coinbase is a good example of providing educational material. To start trading after completing the training, you can use indefinite demo trading on HitBTC for spot, Binance and Bitget for derivatives, the latter provides only a few pairs, but the balance can be replenished with an unlimited number of times.

Coinbase

Signals

There are groups and traders, as well as various applications/indicators that sell signals for a certain fee. Signals are calls to open a position or place an order when a certain price is reached. You must study each received signal yourself, if you are ready to use such services, then do not disregard your own analyses, so you can learn how to trade yourself even faster.

Copy-trading

You can use signals and enter manually into the market, or you can copy the orders of popular traders. Copy trading is based on the automatic opening of a position with the copying of all settings: entry price, take profit, stop loss. The world leader and first social trading platform, eToro pioneered copy trading in the forex market, and now provides the same platform with minor modifications for trading cryptocurrencies. Copy-trading can also be used to conduct your own analysis, to consider why the trade was successful and vice versa.

On BitGet platform, which claims to have a higher copy trading turnover than eToro, it is possible to view all traders in detail, consider the trading strategy and positions, which can also be used to study trading in the market. Just like trading with other tools, copy-trading has its own risk of account drawdown, therefore, before subscribing to a trader to copy his trades, you need to view the history of his trades in detail, as well as find information about him on the Internet, in social networks.

BitGet

Conclusion

Trading in the cryptocurrency market has its risks, but so does the reward. You should always take a cold-blooded attitude towards all market situations. To begin with, study the market, study and possibly start using signals and copy trading on small volumes, but always strive for an independent understanding of the market and analyze. Study carefully risk management, never trade more than 50% of the balance at the initial stage. Do not get upset about low profits, a small profit is better than any loss.

Technical Analysis in the Forex Markets

Traders apply technical analysis to the Forex markets because they believe that exchange rates are not always determined by economic fundamentals like central bank activity, prices and interest rates. Although long-term trends in the Forex markets are likely caused by these fundamental events, it seems that Forex traders are driven to use technical analysis because of the volatility and leverage offered by the various Forex markets.

Despite being a separate asset class, technical analysis when applied to Forex markets is no different than technical analysis used to analyze equities or futures markets. How Forex markets trade, how orders are executed, leverage and the hours the markets are open has a lot to do with how to apply technical analysis to Forex markets, but basically the same oscillators and indicators relevant to equities and futures markets apply to Forex markets.

Forex Technical Analysis – The Basics

It is generally accepted that there are three branches of technical analysis. These three areas are: sentiment indicators, flow-of-funds, and market structure indicators.

Sentiment indicators deal with the action of different market participants such as central and commercial banks. The idea behind using this information as an indicator is that their actions may represent major turning points.

Flow-of-Fund indicators analyze the financial positions of various investor groups. Basically they keep track of who is buying and who is selling. This may include tracking cash positions of the major foreign currency players.

The last branch of technical analysis and the one that we are mainly concerned about in this article deals with market structure or the character of the market indicators. These indicators include moving averages, price patterns, trendlines and oscillators.

Why Study the Trend?

The basic principle of technical analysis is the trend. In order to understand the trend, the technical trader must first define trend, know why the trend is important, and distinguish between major and minor trends.

There is no question that markets trend. Traders and investors hope to buy a Forex pair at the beginning of an uptrend at a low price, ride the trend, and sell the currency pair when the trend ends at a high price.

Trends exist in all lengths, from long-term trends that occur over decades to short-term trends that occur or 1-minute or tick charts. Trends of different lengths tend to have the same characteristics. In other words, a trend on the monthly chart will behave the same as a trend on a five-minute chart. One key to understanding trends is for the investor to choose the trend which is most important for them based on their investment objectives, their personal preferences, and the amount of time they can devote to watching the market action.

Trend traders tend to have 20/20 hindsight since past trends are easy to spot. Trading trends would be easy if the investor could spot a new trend at a bottom, buy and then exit at the top. This does not happen of course in practice since investors may be too early or too late in spotting optimal entries and exits. This is the reason for studying charts, moving averages, oscillators, support and resistance as well as other important technical tools.

Investors need to determine when a trend is beginning and ending as early as possible. This sounds simple but remember that technical analysis is not fortune telling so trend trading ideas may not perfectly predict the future. The idea is to use the indicators in the investor’s toolbox to find opportunities that under the right conditions could generate a successful trade. Investors should also be aware that under certain market conditions, these technical tools may not work. Trends can change suddenly and without warning. This is why investors should be aware of the risks and protect themselves against such occurrences.

The basic trend trading strategy involves two things:  first the investor must decide where to enter a position and second, where to exit. The entry is often easier than the exit. When exiting a position, the investor must choose when to exit to capture a profit, and when to exit to protect against a loss. The key is to make the right decisions at the right price levels in order to avoid giving back profits and to protect against large losses.

One of the great advantages in studying the trends of markets is that technical analysis involves analyzing prices. Knowing prices can help an investor know when something is either right or wrong with an investment. At the same time, risk of loss can be determined ahead of time. This ability is unique to technical analysis. Because actual risk can be determined, investors can practice money management principles to further lessen the risk of financial “ruin”.

In summary, technical analysis can be used by the investor to determine the trend, when it is changing, when it has changed, when to enter or exit a position. When trend trading, the basic premise is: when analysis of the trend is wrong, exit the position.

What is a Trend?

Simply stated, a trend is a series of higher-tops and higher bottoms or lower-tops and lower-bottoms. Of course, higher-tops and higher-bottoms indicate an uptrend and lower-tops and lower-bottoms indicate a downtrend. Recognizing when a trend is beginning or ending is most important to the trader.

If one cannot make sense of the chart, then the best thing to do is stay out of the market until an easily identifiable trend can be determined. Trends vary in terms of length and magnitude so it is important to the investor that the trend be recognized early and long enough for the investor to take advantage of it.

Basic Trends

In order to be a successful trend trader, the investor must know why identifying trends is important. In addition, they must be able to recognize an uptrend, downtrend and a trading range. The concept of support and resistance is also important to the trend trader. Finally, the trend trader must be aware of the major methods for determining trends as well as the major signals that a trend is reversing.

As an investor, you must know why identifying trends is important. Firstly, it allows one with a minimum amount of risk of error to determine at its earliest time when a trend has begun. Secondly, trend trading allows the trader to select and enter a position in the direction of the current trend either up or down. Finally, trend trading allows the investor to exit when the trend is changing.

Trend Indicators

Trend Indicators are used to follow the trend of the market. Following is a list of the main trend indicators used by most technical analysts and explanations on how to use them. These trend indicators are also found in most market analysis software packages like the MT4, eSignal and TradeStation platforms.

Trend Indicators:

Average Directional Movement Index
Accumulation Swing Index
Bollinger Bands
Commodity Channel Index
Exponential Moving Average
Mass Index
Parabolic SAR
Simple Moving Average
Weighted Moving Average
Williams Accumulation/Distribution

In summary, Forex markets like all trading instruments follow trends. Because of leverage and volatility, however, traders must make adjustments to their trading style based on their use of leverage and volatility. This means finding the right time period to trade that fits their trading goals and objectives.

Once a trader is satisfied that he is using the correct time frame, then the first thing he must do is study and experiment with the various trending tools available.

The first step in becoming a successful Forex trader is to learn to trade the trend. The trend to follow will be determined by a trader’s personal preference for a particular time period.

Beginners Guide – Common Mistakes To Avoid While Trading

Trading Without A Plan

This is the most common mistake made by beginners. You like something about a technical setup, and the next second you make the trade. Trading is a sure way to deal damage to your account.

Instead, you should focus on a trading plan which should include price targets for taking profits and cutting your losses short. The market situation could change, but you’re prepared to react if you have a thorough plan.

Avoiding Stop Orders

Stop orders help traders take some profits off the table or cut potential losses in case the position starts to move against them. Some traders avoid these orders as they are afraid to be “stopped out”, but beginners should use them. I’d also note that stop orders provide traders with an opportunity to get out of their desks for some time instead of staying glued to the screen for the full length of the trade.

Failing To Cut Losses

This mistake connected with the previous one, “Avoiding Stop Orders”. When the trade goes the wrong way, a trader may hope that the position will change its course, and fail to exit at the price determined in the trading plan.

With a determined stop order price, a move in price signals a change in trend. The situation may get out of control, with losses growing fast. To avoid this scenario, a trader should be ready to cut losses at a predetermined price without hesitation.

Making Trades With Bad Risk/Reward Ratio

The potential reward in every trade should be bigger than its potential risk. If you stick to this simple rule, your trading would be profitable even if only half of your trades are profitable.

Sometimes, beginners see a “sure thing” and enter trades where the potential risk exceeds the reward. This may work out well a couple of times due to blind luck, but this strategy is a sure way to lose money in the longer term.

Taking Positions Of Uncomfortable Size

Sometimes, beginner traders get greedy and put too much money into one trade. They are not prepared to see bigger numbers jumping around on their screen, so ordinary market volatility makes them sweat. As a result, mistakes made and money lost.

The simple way to avoid this mistake is to stay close to comfortable position size. Of course, a trader should progress along the trading journey, but position size increased week after week rather than doubled or tripled because a trader feels lucky today.

Excessive Focus On News

News has a big impact on the foreign exchange market – traders react to economic reports, central bank commentary, general political developments.

Beginner traders should keep in mind that market’s interpretation of news is the only thing that matters, while their opinion will have no impact on market dynamics.

A trader may believe that strong economic data from the Eurozone should be bullish for EUR/USD, but the market’s opinion on any given day may be different. Failure to respect the market’s opinion will lead to a loss, so traders should always focus on the market itself rather than on their own interpretation of the news flow.

Ignoring News

While an excessive focus on news will likely hurt your performance, ignoring news is not an option. You should always know about important economic reports and the time of their release because such news is often market-moving.

Changing Trading Strategies

Any trading strategy needs time to show its potential. If a trader fails to stick to one strategy for a material period of time, he will never be able to find out whether it works or not.

Besides, constant shift between trading strategies creates confusion and chaos, which is bad for your trading account. Once you have chosen a trading strategy, you should use some time to check whether it is working well in current market conditions.

Making Trades For Fun

The goal of trading is to make money. If a trader’s goal is to feel the excitement of global markets, he’s on the path to losing money.

Sometimes, beginner traders get bored and start making trades for fun., This does not end well. To maximize the likelihood of a profitable trade, a trader must wait for the correct setup according to the trading plan.

Failing To Keep A Trading Journal

A trading journal is a great way to learn about markets and your trading. Once you have enough data, you’ll be able to analyze what works well and what does not work.

Keeping a trading journal may look like a tedious task, especially after an unsuccessful day. But, your efforts will pay off as the trading journal will provide you with unique insights about your strengths and weaknesses as a trader.

Adding To Losing Positions

Adding to losing positions to average down is a big mistake for beginner traders. Beginners should learn to cut their losses, while complicated strategies that may involve averaging down are suitable only for advanced traders.

The key thing to keep in mind is that adding to losing positions increases risk in a trade that is already going in the wrong direction, and this is dangerous for beginners.

Getting Emotional While Trading

While movies often show traders, who throw their laptops out of the window, this is not something that you should replicate. If you get too emotional, you should stop trading until you calm down.

Sometimes, traders get “mesmerized” by markets and start making trade after trade even if they are losing money. You should avoid getting into this state of mind, so you should move out of your desk at first signs of strong emotions.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you

 

Who are the Major Forex Players Behind the Liquidity?

The Forex market is the single largest market in the world not just in terms of average daily turnover and average revenue per trader but also the largest market in terms of participants.

Liquidity: What is It? Where Does It Come From? Why Does It Matter?

Important to the structure of the Forex market is liquidity. Without liquidity, the activity would be chaotic, highlighted by jumps and gaps in prices. A highly liquid market, however, creates a smooth entry and exit transition, making it desirable for all of the players in the market to participate from small speculators to large institutions.

Liquidity isn’t created out of thin air, or by a small trader in the U.S., Europe or Asia. It is generated by a liquidity provider, which is by definition a market broker or institution which behaves as a market maker in a chosen asset class.

Essentially, the liquidity provider acts at both ends of currency transactions. He sells and buys a particular currency at certain prices. When he does this, he is making the market.

Some may be asking, “Why Should I Care About Liquidity?” The answer is greater price stability. Liquidity providers take out a substantial amount of risk and in doing so can be handsomely rewarded because they can see the order flow.

More importantly, they are willing to take the other side of a trade during a volatile trading period, thereby allowing small speculators to manage their risk more efficiently. There are few things worse than being on the wrong side of a trade in an illiquid market.

List of the Major Forex Players

  • Commercial Banks – Banks are usually involved in both large quantities of speculative trading and also daily commercial turnover. Some trade in billions of dollars in foreign currencies everyday. Some trade on behalf of clients. Others trade proprietary accounts.

Commercial and investment banks provide bid-ask quotes for all currency pairs they make a market in. They usually offer the tightest spreads for these currency pairs to the biggest and best customers, and often resort to trading the pairs on behalf of their clients, rather than depending on just the bid-ask spreads to make profits.

The major commercial bank liquidity providers include Citibank, Deutsche Bank, Societe Generale, Union Bank of Switzerland and HSBC.

  • Central BanksCentral banks play an important role in the Forex market and that role is controlling the supply of different currencies. Besides having to worry about regulating inflation and interest rates, they are also responsible for stabilizing the Forex market when necessary.

Central banks may not be as active as commercial banks, but when there is a dire need such as a financial crisis, they stand ready to intervene if necessary to provide liquidity to their respective nations through money market operations.

Central banks are often approached as a last resort if normal Forex operations are being stressed.

  • Investment Firms – Investment management firms commonly manage huge accounts on behalf of their clients and require the exchange of foreign currencies so they have to facilitate these transactions through the use of the foreign exchange market.
  • Retail Forex Brokers – This group handles a fraction of the total volume of the entire Forex market that is estimated at between 25 to 50 billion dollars each day or about 2% of the total market volume.

Unless a retail Forex broker has high capital reserves, it cannot trade with the major liquidity providers and have access to all of the perks including tight spreads that come with having huge amounts of capital.

Retail traders including speculators seldom have the need to trade in such huge volumes, unlike institutional traders. Therefore, their access to the Forex market is usually via regulated online Forex brokers, who are the secondary liquidity providers in the market.

  • Speculators – These are the risk-taking individuals or private investors who purchase and sell foreign currencies and profit through fluctuations in their prices.
  • Algorithmic Traders – High-frequency algorithmic traders or Algo traders have managed to change the landscape of Forex CFD trading. Today’s world of electronic trading and computerized trade-matching has allowed a proliferation of programmed high-frequency traders using among others highly sophisticated pattern recognition analysis to enter the trading arena under the guise of liquidity providers.

Conclusion

Liquidity affects market volatility and, although, volatility can be a friend or foe, a certain level of volatility is necessary for trading opportunities. Illiquidity can lead to wild price swings and unmanageable fluctuations.

To be a successful trader, it is important to manage the risk and the volatility. Getting a grasp of these two factors starts with understanding liquidity.

Stock Buybacks: Why Would a Company Reinvest in Themselves?

U.S. corporate buybacks are on the rise in 2021 lifting investor spirits after last year’s pandemic dampened activity. While most investors are eager to see how much buybacks may support their investments, some are confused over what they are and how they work, and whether they are actually good or bad for a company’s stock price.

Corporations often buy back large blocks of their stocks typically when share prices are low, but some may choose for other reasons to buy their company’s stock even when analysts believe company shares are overvalued. Whether they buy their shares at cheap or expensive levels, a stock buyback is not always beneficial for individual investors.

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Historic Background

Stock repurchases weren’t always legal per se. After the stock market crash of 1929 and the Great Depression, the U.S. government passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to try to prevent it from happening again.

The 1934 legislation didn’t bar stock buybacks, per se, but it barred companies from doing anything to manipulate their stock prices. Companies knew that if they did a stock buyback, it could open them up to accusations from the Securities and Exchange Commission (SEC) of trying to manipulate their stock price, so most just didn’t.

Tax cuts during the Trump administration made stock repurchases very popular as corporations spent billions on their own stock to reward shareholders and investors. However, corporate executives and insiders have also been accused of taking advantage of the stock buyback boom to sell shares they own to the companies they work for, profiting handsomely. Companies are spending millions or billions of dollars to reward shareholders and prop up their stock prices with buybacks, even if that means laying off workers to do it.

Recently, the Biden Administration announced it was planning on reforming current tax laws. If corporations begin to fear that some of the tax advantages of a stock buyback may be reduced or eliminated then this may encourage companies to become more active in 2021 before the tax changes become law.

What is a Stock Buyback?

A stock buyback, also known as a share repurchase, takes place when a corporation buys its own outstanding shares in order to reduce the number of shares available on the open market.

In a stock buyback, a company repurchases its own shares from the broader marketplace, usually through the open market. That leaves the remaining shareholders with a bigger chunk of the company and increases the earnings they reap per share, on top of the regular dividend payments that companies make to shareholders out of their profits.

Why Companies Perform Buybacks

Corporations buy back shares for a number of reasons such as to increase the value of remaining shares available by reducing the supply of outstanding shares or to prevent other shareholders from taking a controlling stake, sometimes called a hostile takeover.

Another reason for a buyback is for compensation purposes. Companies often award their corporate employees with stock and stock options. This benefits the existing shareholders and board members who are usually paid in stock options.

Pros of Stock Buybacks for Investors

  1. Boost in share prices
  2. Rising dividends
  3. Better earnings per share
  4. Less excess cash
  5. Positive psychology

“With the market being as expensive as it seems, share repurchases could drive the market that much higher,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

“It adds to the Street’s belief that there’s an underlying bid, we’re not in this alone, and someone else is going to support the stock and that’s the company,” he said. “It turns out to be a good thing for share prices. But they run the risk of overvaluing stocks, and it speaks to the broader question about why companies are doing it.”

Cons of Stock Buybacks for Investors

  1. Poor predictions
  2. Sinking dividends
  3. Poor use of capital
  4. Management self-interest
  5. Cover for stock handouts

Larry Fink, CEO of BlackRock, one of the largest investment companies in the world, in 2014 warned U.S. companies to slow down on buybacks and dividends.

“We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns,” he wrote in a letter.

Recent Activity Indicates Companies Leaning to the Pro Side

The rapidly improving economy and stocks at record highs may be fueling a flurry of stock buyback activity in 2021.

Banks have improved their capital positions and should be allowed to continue to buy back their own shares, Treasury Secretary Janet Yellen said in March.

Regulators restricted share repurchases in 2020 for the biggest institutions in the country as a precautionary measure after COVID-19 reached pandemic status. After those banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow buybacks to resume, though with some restrictions.

Yellen, speaking in March before the Senate Committee on Banking, Housing and Urban Affairs, said she agreed with allowing the share buybacks.

“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said. “But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”

They are expected to do just that as the buyback restrictions eased during the first quarter of 2021.

While Yellen see no problem with financial institutions resuming buyback activity, Warren Buffett’s capital-deployment machine pulled back on several fronts at the start of the year as the billionaire took a more cautious stance on stocks.

Berkshire Hathaway Inc slowed its buyback pace, according to a regulatory filing Saturday. Buffett has struggled in recent years to keep up with Berkshire’s ever-gushing cash flow. That’s led him to repurchase significant amounts of Berkshire stock, pulling a lever for capital deployment that he had previously avoided in favor of big acquisitions or stock purchases. He set a record in the third quarter of last year, snapping up $9 billion of stocks, but slowed that pace during the first quarter with repurchases of $6.6 billion.

Berkshire repurchased more stock in January and February than the company did in March when the stock climbed 5.8% according to the filing. Buffett’s long been disciplined on the price of buybacks, noting in 2018 when the company loosened its repurchase policy that he and his longtime business partner and Berkshire Vice Chairman Charlie Munger can repurchase shares when they’re below Berkshire’s intrinsic value.

Despite buybacks that fell short of Buffett’s quarterly record, the billionaire investor has continued to go after Berkshire’s own stock since the end of March, with at least $1.25 billion of repurchases through April 22, according to the filing. And given that Berkshire has no set amount allocated for buyback plans, sizable repurchases are still a nice bit of capital deployment, according to CFRA Research analyst Cathy Seifert.

“The fact that Berkshire allocated over $6 billion to buybacks this quarter is going to be positively received by investors” Seifert said.

What Bloomberg Intelligence Says

“The $6.6 billion 1Q buyback was an expected drop from 4Q, but still significant. Nearly all segments showed accelerated revenue and earnings.”

Share Buyback Plans are Booming

Corporate buyback announcements ‘exploded’ as trading in April wrapped up and that helped push stocks higher, said Vanda Research.

A jump in buybacks should help soften the blow in the U.S. equity market in the event of a drawdown.

“As net equity supply shrinks every dollar invested in the U.S. market will have a larger marginal impact,” said Vanda.

Explainer: What is a Global Minimum Tax and How Could it Affect Companies, Countries?

By Leigh Thomas and David Lawder

Yellen said on Monday that she is working with G20 countries to agree on a global minimum, which she said could help end a “30-year race to the bottom on corporate tax rates.”

WHY A GLOBAL MINIMUM TAX?

Major economies are aiming to discourage multinational companies from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made. Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

With a broadly agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing them to compete on innovation, infrastructure and other attributes.

The Trump administration took a first stab at capturing revenues lost to tax havens with a U.S. corporate offshore minimum tax in 2017. The “Global Intangible Low-Taxed Income,” or GILTI, tax rate was only 10.5% – half the domestic corporate tax rate.

WHERE ARE INTERNATIONAL TAX TALKS?

The Paris-based Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries for years on two major efforts: setting rules for taxing cross-border digital services and curbing tax base erosion, with a global corporate minimum tax part of the latter.

The OECD and G20 countries aim to reach consensus on both fronts by mid-year, but the talks on a global corporate minimum are technically simpler and politically less contentious.

The minimum tax is expected to make up the bulk of the $50 billion-$80 billion in extra corporate tax that the OECD estimates companies will end up paying globally if deals on both efforts are enacted.

HOW WOULD A GLOBAL MINIMUM TAX WORK?

If countries agree on a global minimum, governments could still set whatever local corporate tax rate they want. But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.

The Biden administration has said it wants to deny exemptions for taxes paid to countries that don’t agree to a minimum rate.

The OECD said last month that governments broadly agreed already on the basic design of the minimum tax although the rate remains to be agreed. International tax experts say that is the thorniest issue.

Other items still to be negotiated include whether industries like investment funds and real estate investment trusts should be covered, when to apply the new rate and ensuring it is compatible with the 2017 U.S. tax reforms aimed at deterring tax-base erosion. (Graphic: Statutory corporate tax rates in OECD countries, https://graphics.reuters.com/OECD-TAX/oakpeldjxvr/chart.png)

WHAT ABOUT THAT MINIMUM RATE?

The Biden administration wants to raise the U.S. corporate tax rate to 28%, so it has proposed a global minimum of 21% – double the rate on the current GILTI tax. It also wants the minimum to apply to U.S. companies no matter where the taxable income is earned.

That proposal is far above the 12.5% minimum tax that had previously been discussed in OECD talks – a level that happens to match Ireland’s corporate tax rate.

The Irish economy has boomed in recent years from the influx of billions of dollars in investment from foreign multinationals, so Dublin, which has resisted European Union attempts to harmonize its tax rules for more than a decade, is unlikely to accept a higher minimum rate without a fight.

(Reporting by Leigh Thomas in Paris and David Lawder in Washington; Editing by Dan Burns and Leslie Adler)

What is Dogecoin?

Dogecoin describes Dogecoin as “the internet currency”.

The Shibu Inu is a Japanese breed of dog that was popularized as an online meme. “Doge” is a Shibu Inu and Dogecoin’s friendly mascot.

Dogecoin’s Community members are referred to as Shibes.

As a true cryptocurrency, Dogecoin provides users with a completely anonymous, decentralized, and secure environment.

Dogecoin holders can use Dogecoin to buy goods and services or trade them for other currencies.

Holders are also known to use Dogecoin to “tip” fellow internet-goers who create or share great content.

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Who invented dogecoin?

Jackson Palmer and Billy Markus created Dogecoin.

Dogecoin was born as a concept in 2013 and launched in December 2013 by engineers Jackson Palmer and Billy Markus.

Before the creation of Dogecoin, the two engineers had reportedly never actually met in person.

How can I buy dogecoin?

There are multiple ways to obtain Dogecoin, including getting tipped on the Dogecoin community and mining them.

You can also buy and trade Dogecoin, however, on crypto exchanges that support Dogecoin.

There are numerous crypto exchanges that support the buying and selling of Dogecoin.

Based on 24-hour volumes, WenX Pro, Binance, and CoinDCX have the largest 24-hour Dogecoin/USDT trade volumes at the time of writing.

Other popular exchanges supporting the buying and selling of Dogecoin include:

When choosing a suitable exchange to buy Dogecoin, the trading volume must be among one of the key deciding factors.

Others factors

When selecting an appropriate exchange, there are also a number of other factors to consider. These include:

  • Jurisdiction: Ensure that you find an exchange that supports your jurisdiction and language.
  • Exchange security: When considering the cases of exchange hacks in the not too distant past, 2FA should be a minimum requirement if you plan to hold your Dogecoin on an exchange.
  • Exchange Capabilities: For those look for more than just buying and holding, access to trading indicators and risk management controls including stop loss would be a consideration.
  • Trade pairings: For those looking to purchase with fiat money, the option to deposit fiat or purchase with fiat money is important. Not all exchanges support crypto purchases with fiat money.
  • Exchange Fees: Fees do vary significantly across the exchanges. This becomes a greater consideration for those looking to buy and sell Dogecoin on a more frequent basis.
  • Platform customer support: It is always important to have access to customer support to assist with any issues.

When considering the above, WenX Pro has the largest 24-hour DOGE/USDT trading volume at $360.16m

A distant 2nd and 3rd, by volume, are Binance ($149.81m) and CoinDCX ($149.70m), according to Coinranking.com.

For many, Binance may be the preferred exchange simply for market position and the sheer size of its global network.

When trading cryptos, significant daily volatility means that liquidity must be a deciding factor to limit slippage.

Dogecoin Wallets

Before signing up to an exchange in order to purchase your Dogecoin, you will need a Dogecoin wallet.

To get started, simply:

  • Get a Dogecoin compatible wallet.
  • Buy some Dogecoin.
  • Use your Dogecoin.
  • Stay up-to-date.

From the Dogecoin homepage, you can download a Dogecoin wallet for desktop or smartphone.

For your desktop, you can select a wallet for Windows, OS X, or Linux.

We do recommend that you store all of your purchased Dogecoin within your personal Dogecoin wallet.

Once you have your Dogecoin wallet, sign up to a Dogecoin-supported exchange and purchase your Dogecoin.

<h2 “what”>What can I buy with dogecoin?

The main uses of Dogecoin are currently:

  • Purchasing goods and services.
  • Tipping across the Dogecoin community.
  • Donating to charities.

For those looking to purchase goods with Dogecoin, there are numerous merchants that accept Dogecoin.

Dogecoin holders can purchase a wide array of goods ranging from cars to precious metals.

One of the more prominent companies accepting Dogecoin is the U.S NBA franchise the Dallas Mavericks.

In early 2021, the Dallas Mavericks owner claimed to have done more than 20,000 #Dogecoin transactions. Mark Cuban’s NBA franchise had become the largest Dogecoin merchant in the world.

What is going on with it now?

Its rise to fame has led to a far wider acceptance of Dogecoin.

Across the U.S, CoinFlip announced in early 2021 that people could purchase Dogecoin at 1,800 ATMs across 46 states.

Through the early part of 2021, Dogecoin had hit the crypto news headlines as more famous members of the crypto community began to plug Dogecoin.

Unlike other cryptos, such as Bitcoin and Litecoin, there is an infinite number of Dogecoins. As a result, Dogecoin will not face the same supply and demand outlook as the likes of Bitcoin and Litecoin.

While the endless supply means that the upside for Dogecoin may not be as meteoric as Bitcoin’s, there are also benefits.

The endless supply does mean that Dogecoin is ideal for smaller transactions.

At the time of writing, DOGE stood at $0.0575. While well below the January 2021 all-time high of $0.1004, DOGE has managed to retain much of its 2021 gains.

The crypto newswires contributed to late January’s spike and the upside for the current year.

Year-to-date, Dogecoin was up by over 1,000%, with the Dogecoin Shibes looking for a return to $1 levels.

As the community grows and Dogecoin becomes more widely accepted, more plugs by the crypto elite would support a return to $1 levels.

What are the risks of investing in dogecoin?

As is the case with any crypto, the volatility alone means that investors must trade Dogecoin with care.

As previously mentioned, the other issue that Dogecoin holders face is the endless supply.

This means that any intrinsic value could be diluted as the crypto market gets flooded with more Dogecoin.

As Bitcoin and Litecoin gain market interest, their finite supply remains an allure that Dogecoin is unable to compete with. This leaves holders facing downward pressure as the broader market makes ground.

On the tech side, there have been no material changes to the Dogecoin blockchain in recent years. This means that Dogecoin could also become dated and fall behind its peers.

There have been reports of Dogecoin Shibes leaving the Dogecoin community in favor of more current platforms.

As things stand, the Dogecoin community has been key to delivering price support. The community has, in the past, raised funds to return monies to those who have been hacked.

Once the community begins to weaken, Dogecoin may lose ground without any blockchain enhancements.

Why is dogecoin so popular?

In the early years, Dogecoin’s almost instant popularity was attributed to the founders’ lightheartedness.

While a number of crypto communities were battling it out, Dogecoin was meant to be a joke.

More significantly, however, was undoubtedly the generosity of the Dogecoin Community.

Not only did the community raise funds for multiple charities and good causes but also raise funds to cover losses faced by hacked Dogecoin holders.

To this day, the Dogecoin Community remains integral to the ongoing success of Dogecoin and its continued popularity.

Celebs and Dogecoin

A number of crypto celebs have surfaced and 4, in particular, have plugged Dogecoin, contributing to its early-2021 surge to $1.

Elon Musk, Gene Simmons, Mark Cuban, and Snoop Dogg are perhaps the most famous of them all.

Tesla Motors CEO Elon Musk single-handedly drove Bitcoin to its current all-time high $61,699 and Dogecoin to its all-time high.

After Tesla Motors’s purchase of Bitcoin and its acceptance of Bitcoin as payment, the Dogecoin plug had hit in the midst of the crypto market frenzy

As more prominent crypto advocates plug the likes of Dogecoin, the markets will be looking for fresh highs.

What is NEM – The Full Guide

NEM

NEM is a blockchain written in Java, the double-layer blockchain supports multiple ledgers on its cryptocurrency layers. NEM’s ecosystem is built in such a way that seamlessly connects and transfers any type of digital assets between private and public blockchains. A collective growth mindset, made NEM to abdicate the POS consensus and introduce the POI. NEM is the world’s first practitioner of POI (Proof-of-Importance) consensus. Although it is similar to Proof-of-Stake which requires locking of certain amounts of coins in the ecosystem, there are several major differences.

The key difference between the POS and POI consensus is that in the POS consensus the amount of coins staked does matter, whereas a staker allocating 10% of the staked amount will be able to mine only 10% of blocks in the network. The POI consensus is used to determine network participants which are eligible enough to add blocks to the blockchain, in NEM’s ecosystem adding blocks to the blockchain is called “harvesting”.

In POS the more coins one stakes, the higher the reward and the reputation, however in POI mechanism, there are three key factors which build the reputation of the node: vesting (holding of 10000 XEM in the wallet), transaction partners, number of transactions within 30 days.

Symbol

Symbol is NEM’s project mainly focused on Enterprise. Symbol is a hybrid blockchain, which means that the blockchain is not fully accessible by anyone although it still bears features of a blockchain such as transparency, security and solidness. The hybrid blockchain is fully customizable and blockchain nodes can decide which transactions should be verifiable, who can participate in the blockchain and which transactions can be public.

The interoperability of public and private chains from what it seems like allow a cost-efficient, seamless data transfer between these two chains, avoiding third party bridges, which are used in interconnection of public and private chain protocols. Just like other blockchains built nowadays, Symbol is interoperable, which means no intermediaries needed for data transfer and token swaps between any blockchain and Symbol.

Source: Symbol Platform official website

As NEM commented, the launch of the mainnet of Symbol is scheduled on March 15, after a long 4 years of developments. On March 12, the project will pre-launch Opt-in and snapshot phase at a block height of 3,105,500.

The Opt-in means that any NEM’s proprietary token – XEM holders can receive Symbol’s proprietary token – XYM upon the mainnet launch. Basically what that means is that during the block height of 3,105,500 the system will read all wallets that have participated in the Opt-in and will allocate XYM to the Symbol account created during the Opt-in, which is exactly the same as the balance of one’s XEM wallet. In other words, hold your XEM in your NEM wallet (note: the wallet must be updated to the latest one), apply for Opt-in, create a Symbol account, for each 1 XEM in your balance you will receive 1 XYM, the XEM balance will remain intact, according to the announcement on NEM’s official website.

How is it going to impact XEM?

The Symbol is a promising project, it already made partners with some big names in the industry. The XYM token is already listed in Poloniex, Bitpanda, Gateio and others, and listing of the XYM is already on the task list of giants such as Binance, Huobi, Kucoin and 17 other exchanges. Some exchanges will support the snapshot of wallets for XYM allocation, among such are Binance, Kucoin, and recently announced Coinex.

While the excitement in this airdrop is heavy, XEM price seems to be silent and waiting for an alert to trigger. While the cryptocurrency market is in an uptrend today with Bitcoin gaining almost 4% today only according to the data of the cryptocurrency trading platform Overbit,

XEM/USD lies low like a leopard before a jump.

Source: TradingView

Based on the technical chart analysis, XEM/USD is currently in a corrective 5-wave ABCDE formation, which formed a symmetrical triangle. Based on the technical analysis, the chart pattern and the MACD indicator, XEM/USD will probably break the upper edge of the triangle and move upwards. The resistances to watch here are $0.7530 and $0.8000. Closing below the lower edge might lead to a drop to $0.6100 and $0.6000.

One should bear in mind that in most cases listings of new coins and airdrops led to massive sell-offs among the token investors. In case of NEM and Symbol such might not be the case or the so-called “dump” might not be as heavy as during the boom of ICO’s. The first reason is that in the emerging ecosystem of NEM, many might consider becoming network participants, the overall crypto market sentiment still remains bullish and tokens of cross-chain networks such as Polkadot are among the top investment appealing, enterprises are going blockchain and are integrating blockchain into their existing network another example of a project which allowed enterprises to connect their external data to blockchain is Chainlink, whose token LINK is along-side Polkadot’s DOT is an outperforming coin and still is appreciated by long-term investors. As the crypto-adoption is growing, more stores are tend to accept cryptocurrencies as payment, projects like Symbol will assist in bringing the crypto and blockchain to the IoT we got used to.