Forex brokers withdrawing from the USA market and walking away from the NFA and the CFTC is becoming a standard occurrence. Last December, GFT, one of the largest FX brokers on the planet, stunned customers worldwide when it announced it would be pulling out of the US market. Then, this February, FX Solutions announced it would no longer be accepting US customers either. Just last month in April, Easy Forex announced its withdrawal from the USA. The pattern is clear, and it is a cause for concern among USA traders, who are all wondering whether their broker is next. What is causing these brokers to pull out of the US market?
GFT’s statement on its decision is rather vague: “GFT has made the difficult business decision to cease supporting US retail forex trading; rather, we are focusing on our institutional relationships which exist in the US and globally.” FX Solutions has stated only that its decision to turn away from the US market will allow “all the Group to focus its efforts on growing the FX Solutions brand in the Middle East and Asia.”
Easy Forex withdrew from the USA market following the announcement by the NFA that it will be increasing the reserve capital requirements for FX brokers from $1 million to $20 million. Interestingly enough, the NFA’s decision to change the capital requirements seems to be a direct response to decisions like that made by GFT. “Over the past year or so, we have observed that several NFA Member FCMs are almost exclusively acting as counterparty in Forex transactions with ECPs,” stated the NFA in its press release regarding the new capital requirements. The majority of FX brokers will not affected by the decision since they are not as thinly capitalized as Easy Forex. Two other brokers, Forex Club, and Advanced Markets, will be impacted by the change, and may need to withdraw from the NFA as a result of the change.
The CFTC and NFA have been tightening up rules and regulations governing retail Forex transactions for a number of years now, and these brokers are not the first to depart. As of two years ago, there were eighteen brokers around the world accepting USA customers. That number has dwindled down to almost half that. There is a lot of fraud in the retail FX industry, which has led the CFTC and NFA to require a much higher net capital of $20 million (NFA Financial Requirements Section 1(a) effective June 2013), but also to reduce the allowable leverage from 100:1 to 10:1 (regulation RIN 3038-AC61).
The result? Unfortunately, even legitimate brokers are having a difficult time retaining USA customers, who are turning to non-regulated brokers overseas for higher leverage and fewer trading restrictions. As a result, trading volume for brokers like GFT and FX Solutions has dropped. This is why it is more profitable for these companies to pull out of the USA market entirely and focus on other global markets where they can offer more competitive services.
At the current rate of decline, there will likely only be several currency trading brokers offering services to USA clients in a few years. There may be an upside for the remaining companies; the brokers that survive the transition will be faced with far less competition, and may have the opportunity to do highly profitable business in the US. While not all FX customers consider regulation a must, there are many retail traders who will not trade with an unregulated broker. This would funnel their business exclusively toward the remaining FX companies still operating with a CFTC/NFA license.
Andriy Moraru works with one of the biggest Forex portals – earnforex.com.
You can browse the list of about two hundreds brokers and find the right one for you with the regulation you may trust: http://www.earnforex.com/
Anyone who regularly invests in the Forex market has to be aware of the Federal Reserve and what it’s actions can do to the market. It is essentially the central bank of the United States, and makes decisions about money supply and interest rates. On June 20, 2012, Fed chairman Ben Bernanke needs more announcements about Fed policy. These announcements had an impact on the market, and many investors are wondering what the future of the market holds.
Operation Twist
In the recent announcements, chairman Bernanke announced that the Fed was going to be extending Operation Twist until the end of 2012. With Operation Twist, the Fed is essentially trading $267 billion in short-term securities for long-term securities. This is an operation that is aimed at easing the stress on the financial markets.
After these announcements, many investors and experts wondered if it would be enough to help the economy. The Fed has already embarked on two rounds of quantitative easing, which is essentially money printing, since the financial catastrophe of 2008. Many investors thought that Bernanke might hint at the third quantitative easing session to help the markets. The fact that he didn’t mention this, has hurt the condition of the financial markets a little bit.
Moving Forward
No one really knows for sure what the Federal Reserve will do moving forward. Some big government cuts are scheduled to take place on January 1st, 2013, which could hurt the economy in the short-term. Because of this, some expect that the Fed will eventually unleash quantitative easing for the third time.
What it Means for the Forex Market
If you plan on investing in the Forex market in the near future, you have to pay attention to what the Federal Reserve decides to do. If they decide to engage in QE3, it can have drastic effects to the Forex market. Initially, it will probably boost the markets, and drive the value of the dollar up relative to other currencies. Over the long-term, it will help contribute to the decline in value of the dollar. As more money is printed, it drives the value of the dollar down.
If you are going to be trading in the market in the next couple of years, pay special attention to the meetings and announcements of the Federal Reserve. What they say will have a big impact on what happens in the market almost immediately.
Dan Harrison is a full-time private forex trader and blogger based in NYC. He blogs about Forex on letstalkaboutfx.com and on other sites. You can follow him on Twitter or add him on Google +
The euro is half of many of the currency pairs in the market. The situation in the market has driven down the value of the euro relative to other currencies. This means that the currency pairs that includes euro have been drastically affected by the economic crisis. Investors who have invested in these pairs have noticed a great deal of volatility in recent months.
For the pairs where the euro is the first currency in the pair, they have seen many new lows. While this may seem like a bad thing, investors who have placed short trades on these pairs have made quite a bit of money. On the other side of the spectrum, the investors who made long trades on these pairs have lost some large sums of money.
Other Pairs
In the Forex market, there are also a number of other pairs that are not associated with the euro directly. Although these pairs do not include the euro as one of their currencies, that does not necessarily mean that the situation has not affected them. In many cases, the euro has had a profound affect on all of the other currency pairs in the market as well. For example, the Great Britain pound and the euro are very closely related since the United Kingdom is part of the European Union, even though they don’t use the euro. When the euro is affected, the Great Britain Pound is also affected.
Considerations
In today’s world, we are operating in a global economy like never before. Because of this, all of the currency pairs have been affected to some degree by the problems in Europe. On the days where the euro has had big problems, all of the other currency pairs have moved quite a bit as well. This means that if you are an investor in the Forex market, you have to pay special attention to the news announcements surrounding Europe. All of the news announcements can have an impact on any currency pair that you are planning on trading at any point.
The recent efforts of European leaders to prop up the eurozone comes in the form of an up to 100 billion Euro mini-bail out to the financial sector of Spain. Spain’s Prime Minister Mariano Rajoy was quick to credit his government with the proactive approach they have taken to restructuring and getting the Spanish financial crisis into check. A bailout was sought to assist the floundering Spanish financial sector due to rising rates and greater difficulty in securing loan monies. An unwillingness to loan between financial entities has been one of the major hindering complications for recovery of various world economies.
The question is- what kind of impact will this actually have on Spain and the Euro as a whole? Floating currencies need supply and demand to retain value. A bailout can be a much needed adrenaline shot in the arm of an economy to get debts under control and money flowing between entities again. Naturally, there is no guarantee that anything positive will come from the bailout except for the Spanish banks being able to shake some toxic debts. After all, those Euros have to come from somewhere. Whether or not the bail out will do any good will depend on how lenders interpret the maneuver.
A combination of the Spanish bailout news and informal meeting of EU leaders in Brussels recently caused turbulent conditions for Euro pairs. The meeting regarding how to handle the turmoil in Greece already spurred a potential reversal in the EURUSD pair. The announcement of such a heavy expenditure of Euros for the benefit of Spain could be enough to cement the reversal or usher the downtrend back in. The response will be interesting to watch in the coming days as the markets are given more opportunity to react.
The big question for forex traders is- how will they react? Is this the start of a great opportunity to step into a potential major uptrend? Or are we just seeing a false break north of the EMA that will correct in the relatively near future? We’re curious to hear your opinions on the evolving situation in the Eurozone. Drop down to the comments and make yourself heard!
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A very common rule that many successful forex traders abide by is simply, “Always trade with the trend.”
Moving with the trend gives the trader a much higher chance of success than if they attempt to swim against the current. Determining the trend is not as simple as just looking at the chart. Sure, there are plenty of signals to be found with trend lines or looking at your primary trading chart. Confirmation plays a major role in determining whether or not the market is in a position to be traded or if it is better to just wait for a better opportunity.
Predictability in price movements is going to vary depending on the time increment you choose to trade on. The higher the time increment, the more accurate the chart tends to be in terms of predictability. Scalpers and day traders often need to rely more on instinct and experience to predict the way their chosen pair is going to react. However, there is no reason why any sort of trader cannot browse through the higher increment charts to see what the overall market is doing. Checking the 4 hr, daily, or weekly charts can provide a much clearer picture of what is likely to occur.
The recent movements of the EUR/USD pair are a good example. A look at the 4 hr and 1 day charts shows that the pair was in a significant downtrend from the beginning of May 2012 through early June 2012. A look at the 4 hr chart shows a significant upswing that appeared to be the kick off of a reversal spurred by the informal Brussels summit on how to best handle Greece’s difficulties. Another significant fundamental indicator is the 100 billion Euros of approved aid to help prop up Spain’s financial sector.
A quick look at the daily chart shows a very significant potential for a profitable opportunity. The end of the week showed a pin candle followed by a strong bullish engulfing candlestick. Aggressive traders may want to start to look for an entry in the very near future while more conservative traders will probably want to wait on a confirmation of the reversal in the form of a bounce with new low-highs and high-highs.
Significant risk comes in the form of a misread of the present trend. Fundamental analysis techniques typically need to play out over a longer period of time. So it is quite possible that the sudden spike is just a knee-jerk reaction to the recent news coming out of the European sector. Remember- fear and greed drive the forex market. Predicting mass human psychology is not the easiest of endeavors. Thus we want to keep a close eye on what the Moving Average is doing on multiple charts so that we may better take advantage of this pullback or reversal.
Technological advancement touches mankind in so many ways that it is impossible to keep track of them all. The arena of trading is no different in that regard. Brokers will often claim that their trades are executed at light speed or faster than an eye blink for good reason. The firm Fixnetix developed the iX-eCute chip that is able to process trades in 740 billionths of a second (nanoseconds). In an industry where time literally translates to money, a trader cannot afford to be working through sub par technology.
That does not mean that the human element is in danger of being replaced. As fast as the technology is getting to support the overall process, a pair of human eyes and a mind are still the most efficient means of interpreting the information. The flow of information is so great, humans need supporting technology to access it and make the most of it in a timely fashion. Thus the market for analytical information continues to expand while development of hardware like the iX-eCute chip is an integral supporting factor.
iX-eCute chip that is able to process trades in 740 billionths of a second
A great concern from bystanders is the effect this kind of speed will have on regulation practices and risk management. The risk is much higher for something to go extremely awry with executions on the market with so many processes taking place in such a narrow window. Industry producers offer reassurance in the form of built in checks and controls to ensure the chip is doing what it is supposed to be doing. FX Brokers are able to log and pull histories to prove they are in compliance with industry regulation at request. Other brokers are putting their own checks and balances in place, with some offering as many as 20 additional micro-checks for transaction compliance and security.
Pairing this technology with algorithm trading may seem to be a game-breaker. In many ways it could be. Algorithm trading is not a perfect solution to making money on the markets. Essentially, the trader is using the algorithm to help make the decisions they do based on their own research. The trader cannot peer into the algorithm to see why it decided the way it did. They can note the factors leading up to it. Mistakes will occur as they often do when it comes to an automated technology. It isn’t likely that many traders will trust their entire livelihood to the decision of a machine.
Related articles: http://www.bbc.co.uk/news/business-15722530
Nothing drives the human mind like an old fashioned crisis. Rampant speculation and attempts to prevent massive losses while generating profits motivates investors to react in certain ways. Taking a look at former crises that impacted America is one way to attempt to predict future responses. However it should be noted, there is no foolproof methods of prediction when it comes to the human mind. An educated guess is about the best anyone will be able to manage.
• The Impact of War
Conflict between humans is a natural part of the human experience. The United States itself has been involved in a number of conflicts and wars. Those conflicts have touched the financial markets to make princes and paupers. A very common denominator amongst the various wars is the sharp decline the United States Dollar entered for the duration. Some of the most prevalent wars that saw this kind of action were both of the World Wars and the American Civil War.
That puts a rather interesting light on the current value of the USD. Is the slide in performance tied to the War on Terror and military actions in Afghanistan and Iraq? The USD declined during the other conflicts, does it not make sense that it would do the same during this one? If that is the case, then a declaration of peace will be celebrated just as passionately by investors, the military, and those caught up in between.
• The Impact of Leadership
The leaders of the United States government can always manage to have a massive impact on the value of the dollar. It may be on purpose, accidental, or really have little to do with that leader at all. The perception of these events is largely the determining factor.
A potential change in leadership, President Reagan being shot, the Clinton/Lewinsky scandal, rumors of a G.W. Bush impeachment; do have an affect on the dollar. That affect comes down to how investors feel the market is going to respond to the news. A change in leadership means a potential change in values, approach, and economic policies will be coming as well. One cannot expect their successor to share the same political ideas regardless of being allies or in the same political party.
Significant events such as these cause investors to try and shelter themselves from potential losses. Their announcement has traditionally caused a devaluation of the USD as investors pulled in their funds to ride out the coming storm.
• The Impact of Social Upheaval
It is a great American tradition to defy authority. Unfortunately, defying authority is normally not good for the USD. Circumstances that cause an upheaval or disruption in normal abilities to do business will often see a decline of the dollar. The effect may be pronounced or it may not be as drastic. Regardless, the negative impact makes investors jittery about how the market will perform. Thus, they pull into their shells to wait it out before pushing their funds back in.
• The Commonality
It appears that there are a good number of things that cause a decline in value of the USD. However, the opposite is equally as true. The dollar will normalize and come back to a higher level. It may not always be where it started. Decline does not last forever; neither does war, social upheaval, or the impact of a leader’s actions.
The drawdown in Afghanistan may signify the start of a raise in USD value. Though it is impossible to predict, one can see how it would be a distinct possibility after looking at former conflicts.
We hope that you are ready for some speculative thinking because the subject we have to present is pretty interesting. Recently, scientists at CERN suggested that they may have been able to accelerate neutrinos, or subatomic particles, past the speed of light.
The ramifications are expansive and stunning if they are verified. Modern technology is designed and built with the assumption of speed of light as a maximum. What happens when that maximum is lifted? All of the sudden, the door is open to near instant transmission of data even faster than the hundredths of a second we see now.
Algorithmic trading would definitely feel a major impact with this new development. The system would be able to fly through the parameters, compare them to market conditions, and execute their trades many times faster. That will bring micromanagement in algorithmic trading to a whole new level as more areas of information are accessible, faster.
The transmission of information itself is all too important. Even now we see scientists attempting to develop ways to determine the optimal location to set up shop to execute trades between two locations. The idea is to ensure optimal performance when trading between the two locations. Such speculation would be obsolete if information was being transmitted at a faster than light speed.
The greatest impact would likely be in the functionality of computers in general. Like your car, a computer is a series of complex parts that work together to provide the benefit that it does. The information transmitted in a car is largely mechanical; pressing the brake pedal engages the brakes, turning the steering wheel moves the front wheels to turn. A computer is doing much the same thing except on an electrical level. Starting a program loads it into the RAM where it can temporarily store information as the processor sorts out commands and writes program information back to the hard drive when it changes. Though it is not always easy to tell, there is a whole lot going on even just by starting up a game of Solitaire.
Imagine if you could steer or brake your automobile with only a thought. It did not require you to think about it, transmit that information to your arms or foot, to transmit that action to the mechanical systems. Instead, a mere thought and you could stop before rear-ending another driver or swerve out of the way of a road obstruction. How many tenths of a second could be shaved off reaction time and potentially save lives?
That is the importance of the CERN experiment. Technology that can execute faster than the speed of light is circumventing quite a lot of time that is lost through traditional transmission. Algorithm trading could be considering, comparing, and executing faster than the snap of one’s fingers. It would bring a greater level of control and ability to minimize loss while maximizing gain to those involved.
Science is all about enhancing one’s understanding of the universe and the collective benefit that comes with it. Would Einstein be upset to see his theory proven wrong? Absolutely not. He was a scientist and he understood perfectly well that science is a continuous process. The science of yesterday is built on by the science of today which will be built on by the science of tomorrow further reaching for that elusive pinnacle of understanding.
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Many people hear the word deflation and automatically connect it to a negative definition. That is the result of the impact of the last major deflation during the Great Depression. It is important to note that deflation itself is neither good nor bad.
First, let’s take a look at some relevant negative examples.
A falling money supply was the catalyst that caused the Great Depression to rocket forward. Simply put, the crash of the stock market removed all the liquidity from the money supply. It could not flex with demands. The economy contracted in on itself as less money was available. In turn, businesses had to fire workers to attempt to stay afloat. Banks stopped lending money as more borrowers defaulted on their loans. The whole thing ground to a stop, a stop that is incredibly bad for a healthy economy.A tighter money supply can be caused by a number of factors. Large interests choosing to not spend is one of the larger contributors. The United States Government significantly slashing spending without redirecting the funds would be an example, however that is not likely to happen given the size of the deficit and number of other programs to pay for. An increase of demand for money provides much the same effect.
Anyone remember the housing bubble bust? The economy finally caught up to itself in the way lending was being handled which had a drastic impact on the circulation of money. More home buyers ended up defaulting on their loans, banks developed more stringent lending standards with the country breathing down their necks, less loans were going out while less payments were coming in.
College graduates are finding less opportunities in a country where a college degree really does not mean a whole lot unless it was for a specific vocation that required it.The result? Massive debts from defaulting home owners and students with loans, no jobs to get the money to pay on those debts, and decreasing interest rates to attempt to stimulate it. In other words, American dollars are being put in a metaphorical piggy bank where they sit to stagnate. Unfortunately, that is what makes the situation worse not better and why it is such a flashpoint for financial institutions like the Fed.There is a good definition of deflation too. That occurs when the pace of product out paces dollars thus causing a fall in the value of the product. The benefit is in how it translates down the line.
Less expensive production and products means more availability which allows a better circulation. Good examples of this principal in action are the 1800’s Industrial Revolution and the 1990’s which saw a boom thanks to the rise and easy access of technology.The deflation we see today is not the good kind, however do not take that to mean deflation is always bad. It is the circumstances that cause it.
The inexperienced with financial markets often view them as mystical, analytical places where tight rules and information governs movements. A much closer look reveals that while there are plenty of rules, guidelines, and regulations; a whole lot of market responses are driven by human emotion.
Speculation on events that transpire can drive the market just as much as the event that occurs. An excellent example of this is the Lewinsky/Clinton scandal after she announced she had a dress with President Clinton’s DNA on it.
This announcement came when American markets had already closed for the weekend. The New Zealand, Australian, and Asian markets were all still open. The Asian markets did not really move a whole lot as it seemed they adopted a wait and see attitude. The New Zealand and Australian markets however, saw a massive sell off of United States dollars that drove value way down. The opening of European markets did not see much change from any other normal day. The result was a devalued dollar that took some time to correct. Since there was no real positive action on behalf of the dollar, it fell within the definition of market failure as spending dollars became expensive.
So what drove these things? It is quite likely speculation and social environment played a major factor. The speculation comes into play when trying to predict the fallout of the news. Would President Clinton be impeached? Would Vice President Al Gore end up in his position? From an economics stand point, it is a valid question. President Clinton had his own economic goals for the country, favored programs, plans enacted, and support garnered on Capitol Hill. If he was impeached, what would become of those programs? They would not likely receive the same focus they enjoyed under President Clinton. Thus the value of their presence would be diminished.
Compare that response to how Europe’s markets reacted to the news and action. It was business as usual for Europe and their market activity. Why such a drastic difference? The answer may lay in the way Europeans view sexuality. In the United States, it is a great and scandalous thing for the president to have had an affair. Looking at European countries, it is basically nothing. Quite a few European leaders are known to have tawdry affairs and no one bats an eyelash when pictures inevitably end up in circulation. Is it right? Is it wrong? That is irrelevant. All that is relevant is how the people involved in the market perceive it.
Looking at it that way, the sell off makes sense in the New Zealand and Australian markets. The response of the Europeans to shrug it off as a leader up to his wacky high jinx and shenanigans is a logical reaction with their higher level of acceptance of sexuality.
The problem with the sell off is that it caused a massive contraction of the dollar. The dollar is often viewed as the most liquid asset as you can do the most with it; buy, sell, invest, and more. The value of the dollar shrinking like it did made it much harder to do business with. No one wants to trade in devalued currency and it becomes impossible to cover expenses because all of the sudden you need 6 to 8 times more dollars than originally needed. Financial institutions are especially at risk as they work to manage their short-term liabilities versus liquidity on a daily basis. A business that has greater liquidity available to it is at a considerably higher value than one who does not, even if the second business has a higher net worth.
The reason? You can’t take a $20,000 delivery truck and pay bills without actually selling the truck. The smaller business with the $20,000 in United States Dollars does not have to go through all the time, effort, and pay middle men to get their $20,000 to pay debtors. The massive sell off caused that liquidity to contract and dry up. The European markets corrected it by buying the value back up once they opened.
Examples like this is why it is imperative to have a decent understanding of the society, cultures, and mentality of other investors involved in a market. Things that are important to Australia or the United States may not cause the average European or Asian to bat an eye. Predicting these kinds of reactions before they occur can let an investor ride that wave of emotion to profit.