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BASICS | EDUCATION FROM BROKERS Mon 17 Feb

Low investment, high rewards in forex trading

Understanding the use of leverage Show me the way! When we think of depositing into and withdrawing from our trading account, the idea is to have the former low and the latter high. But how exactly can we deposit relatively low amounts into our trading accounts with the view to make a generous return on our initial investment? That is the dream ticket, high returns on low capital investment. This article will highlight some key broker features to look out for to ensure you make yourself as profitable a trader as can be. Whether you are new to trading or just getting started, you may want to consider a few features that your prospective broker can offer you to boost your earning potential and grow your portfolio. Leverage One core element Forex brokers offer is leverage. Which varies from broker to broker and the account types available. You may be offered high leverage going into the 1:200 mark but this may come at a premium. You may have to pay ongoing account costs in order to have access to average leverage so it is important to weigh up whether a broker is offering true value. Try and find a broker which will offer high leverage options without a monthly premium. Leverage is, in essence, a loan within a trading account allowing investors to get involved in markets they would traditionally be priced out of. Historically when going to market, investors would have to come up with the full capital to buy a stock, reserving trading for society's elite. For instance, a trade worth $100,000 with no leverage would require the investor to stump up the whole amount to obtain the stock/commodity. Thanks to leverage we can dramatically reduce the size of investment yet trade the same volumes. If we dig deeper into the maths behind leverage we can see that a $100,000 trade using 1:500 leverage would require a $200 investment.  $100,000 (volume) / 500 (leverage 1:500) = $200.00 (capital needed to invest in that trade) So we can see from the above, that virtually any trader can compete in the market by opening large positions with low capital. A revolutionary feature for online trading platforms. New STP Broker EagleFX offers maximum leverage of 1:500 on an array of Forex majors, crosses and exotics with no ongoing account costs. How should leverage be used? Leverage allows traders to invest low amounts with the potential to turn a large profit. However, leverage should be approached with caution as it can also magnify losses. That being said, the rewards can be BIG! When approaching leverage, it would be considered advisable for a trader to be honest with themselves in terms of how experienced they are.  Ask yourself: How long have I been trading?How successful am I at trading?Am I a novice or expert?Can I afford to magnify losses on an investment?Will I monitor open positions closely to protect my investment? More experienced traders may be better suited to a higher leverage setting as they would be considered better prepared to enter markets. Equally, it would be advised that beginners use a lower leverage setting as to protect their investment and not magnify losses. Analysis When entering a particular market, whether experienced or not, traders must be equipped with appropriate knowledge for them to take full advantage of high leverage options. There are 3 core areas of research and analysis that traders can adopt. It is useful to explore a variety of sources whilst researching as to not get one sole opinion from one media outlet - there may be an agenda attached to it.  Technical analysis is used by traders to study price movements in the markets. This can be done using charts, data and graphs to review historical price movements of a certain asset with a view to spotting future trends. Indicators such as Bollinger bands are useful when conducting this type of research. Fundamental analysis is used to establish a general overview of how an economy is performing. This includes interest rates, employment levels, and GDP. Traders can develop a general understanding of the strength of a particular currency based on this information and open Forex positions with added confidence. The current stability of a country is useful to know when entering the Forex market. Sentimental analysis draws on raw data of how many traders have opened a position on a particular currency pair. It allows us to delve into the psychology behind the interest in a market and the emotional state of traders within the Forex market. Sentiment indicators are numerical indicators that show how a particular group feels about a market. There are many available online. EagleFX has a news feature section on its website which contains a 'Daily Market Analysis' section for you to review the latest market movements. This feature coupled with the 'Economic Calendar' will help you stay informed and ahead of the curve! Demo accounts A feature of a responsible broker will be to provide a space where potential depositors can practice using the functions and features of that platform.  Using MT4 as a beginner can be a daunting prospect. Although tried, tested and revered by millions of traders around the globe, the award-winning platform should be tested before going live. So, you as a trader can get the most out of it.  It is of particular significance to develop a trading strategy to suit you and your account budget, especially when using high leverage. A demo account with like for like conditions as a real account will allow you to chop and change leverage and find a suitable setting for YOU. Spread The tighter the spread the better as this represents the cost of a transaction on a platform. A platform that offers tight spreads is an ideal environment for scalpers looking to enter the market and leave quickly with a profit. Scalpers need a tight spread as they will place the most trades out of all trading strategies thus paying more commission. Customer support Always ensure a broker you choose offers a high standard of customer care. Beginners using lower leverage settings as well as experts using high leverage will all need some degree of support in unforeseen circumstances. To sum up Whether new to trading or a seasoned pro, it is important to gauge our leverage setting to suit you.  Set yourself goals whilst trading and try not to let emotions take over. Set a target profit and stick to this. Do not let greed creep into trading decisions as this deadly sin can be lethal to your account balance. Use a demo account and practice trading with leverage if this is a new concept to you. If you feel like you're not trading successfully and not seeing the ROI you dream of, then there is no shame in going back to the drawing board and developing a new strategy.  Develop your perfect strategy in pristine trading conditions today at https://www.eaglefx.com/ Join for free today and starting trading with as little as $10.00. This article was submitted by EagleFX. ForexLive

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TRADING PSYCHOLOGY Sat 15 Feb

Do you have the growth mindset as a trader? If not, get one.

It's all in how you approach your trading In her book "Mindset: The New Psychology of Success", Carol Dweck characterizes people in two general buckets.  Fixed mindset Growth mindsetThe FIXED MINDSET person: Looks at CHALLENGES and avoids themGives up easily when OBSTACLES get in the waySee EFFORT as fruitless or worseIgnores useful negative feedback or CRITICISMFeel threatened by the SUCCESS OF OTHERSIn contrast a person with a GROWTH MINDSET: Embraces CHALLENGESPERSISTS in the face of setbacksSees EFFORT as the path to masteryLEARNS from criticismFinds LESSONS and INSPIRATION in the success of othersIn things we do in life, we have a choice whether we want to have a fixed mindset or growth mindset.   It was Valentines Day yesterday, so lets take a look at a relationship.  When married to someone, you will run into a CHALLENGE like school choices for your children.  You may want to home school them, while your spouse wants to send them to private or public school. You can ignore that challenge or have a discussion about it, analyze the costs and benefits and embrace the CHALLENGE. You might have a OBSTACLES like not being able to afford private schooling for your child. You can give up and just accept the less desirable  alternative plan, OR you can persist and find ways where you may be able to make it happen by cutting back on eating out, bringing your lunch to work, delaying the new car purchase (or get something less luxurious), search out scholarships and/or find other ways to save the needed money to make your preferred choice for your children a reality. You might see making the EFFORT to solve the inevitable marriage problems as fruitless, OR you can instead see the EFFORT of making the ebbs in a marriage a chance for renewal of your love for each other You may choose to get angry at your spouse for useful CRITICISM of your driving habits, or you can take a step back and LEARN  that maybe it does not make sense to speed or tailgate with your children sitting in the back seat. You may choose to take the "team" out of your marriage and instead make everything a competition full of resentment toward the spouses successes, or you can get INSPIRATION and joy from your spouses success and share the victories even if it requires a sacrifice on your part.  Traders also have a choice when it comes to having a fixed or growth mindset.   Do you take the easy road or embrace the hard challenging road? Trading is a CHALLENGE. It may be the hardest thing you ever try to do - even harder than marriage ; ).   There are so many variables that go into becoming a successful trader. Yet I have seen so many traders take the easy way, and do things like buy a overpriced signal service, or take some randoms persons trade recommendation from twitter without understanding the "whys", risks and even the experience of the person you are getting the advise from.   I know we at Forexlive may fall into the category of a "trade advise giver".  However, I know whenever I or my colleagues at Forexlive recommend a level to trade,  we will always either spell out "why" fundamentally or technically, define the risk and show and verbalize the next targets (or do all of the above).   Personally, since I am focused on the technicals, I go to great lengths to not only give details in the post, but mark up the charts with comments, arrows, yellow areas, circled numbers so that you can easily envision why "this level" is so important to me (and potentially you too).   However, the CHALLENGE to you is to understand the process of what it takes to become a traders and embrace that challenge. My greatest wish is not that you take our advise as gospel, but for you to embrace the challenge to learn from what we write, process and ultimately "fish for yourself" by using our bait. Do you give up easily when OBSTACLE get in your way or do you persist in the face of failure? Trading is so humbling. There are doctors, lawyers, top leaders in business, who likely got straight A's in school and quite frankly failed very little in their lives.  They are blessed with the intelligence to learn and excel in learning. Yet they try to trade and find the OBSTACLES immense. Trading is a discipline where all types of random variables are thrown at you that cause the price to go one way, when you knew for sure it would go the other way (given another set of variables).   If there is a profession where there are more obstacles, I am all ears to hear which one it is.    If you CAN NOT learn to accept failure in trading, a trend move against your position will take care of you in short order.   Having the growth mindset to not only accept failure but persist when the trading gods throw you a curve ball, is essential to be successful as a trader. Do you see effort in your knowledge growth as a trader as fruitless or do you see the effort toward learning as a path to mastery? I am not sure even the best trader in the world ever feels like they completely "master" trading.  We ALL fail.   However, those failures need self reflection and a desire understand the error in your ways. When I say this, I don't mean to imply that every little 5 or 10 pip loss needs a full CSI investigation. As mentioned, we all will lose.  However, there are times when we really do something that is more of bigger "trading sin".  It is those trades that we need to learn from, and increase our knowledge of what to do and what not to do.   Most of the times, you may already know the error in your ways (i.e. ignored my stop. leveraged too much or traded when the risk was just too high). However, if you are going to move toward mastery, you need to learn from mistakes and increase your knowledge. What about reading book after book on trading. Will that make you a better trader? Growth mindset people in many disciplines can indeed master their subject by absorbing more and more information from other experts.  Medicine and technology advancement are disciplines that growth mindset people can master more and more with more and more knowledge cramming. So can it be done in trading?  Needless to say, there is loads of money being spent on AI trading, or developing new models that will gather reams of data and spit out a bias, a trade, that will make fortunes.  Their system will defy the market. It will BE the market.  Is that realistic?  To me only if you can literally take your money and MOVE the market price.  Why? Because what your model says may not be what the model of someone BIGGER than you is saying.  If you are a weakling as far as trading capital, you will be manhandled by someone bigger than you 100% of the time.  My feeling is that there comes a point where traders (especially retail) have an information overload or can reach a point where the marginal cost far outweighs the marginal benefit.  In fact, too much information can do more harm than good as you reach a point of "analysis by paralysis".   Having said that, many traders think this game is a 50-50 proposition and that because they had a hunch the EURUSD was going up - and it did - that the same hunch will work tomorrow and the next day and the next day.  Trading is not about hunches and the thrill of the quick victory.  There are things that ALL traders need to understand and learn if they hope to be successful.   I like to think my book "Attacking Currency Trends" (4.5 stars out of 5 on Amazon) gives traders the foundational knowledge to move toward "mastery" as a trader.   Following the posts on Forexlive.com is knowledge growth that you can learn from, and will help toward mastery. That is not to say that what we say goes 100% of the time, but what we say/post is as factual and supported, and as timely as we can possibly be.  It can as a result, be the basis for your opinion/analysis/trade.  Be aware that it is important to have a growth mindset of knowledge in your trading,but there may be limits too. Do you ignore useful NEGATIVE feedback or LEARN from criticism in your trading? Trading is a lonely game. Typically, it is you vs. "the market".  So feedback does not come from a nagging spouse or even a boss for most traders (although some traders do in fact have bosses that may give negative feedback). Having said that, for traders the NEGATIVE feedback comes from the profit and loss.    As mentioned there will be drawdowns in our trading accounts. However, it is important to understand when we really "sinned" in our trading by ignoring the negative feedback from a loss that keeps on getting bigger and bigger and bigger.   Most traders, with some knowledge and risk management can do ok in trading for a while. However, where the most traders disappear from trading (never to be seen again),  is when they take those big counter trend hits to their P&L.  I worked for many years at a retail broker and believe me, traders blow up in trending markets.    Remember trading is about you vs "the market". The "market" is reflected in the price action. If you think the price is going to go higher, and it continues to go lower and lower and lower, you are ignoring the NEGATIVE feedback that "the market" is giving you. It does not lie. Big losses are a traders NEGATIVE feedback. Learn to understand what "the market" is telling you.  If so, you will avoid those huge drawdowns that will deplete your trading account.  Do you feel threatened by the success of others or do you find lessons and inspiration in the success of others? We are all in this game called trading together.  We all put our pants on one leg at at time.  No one is the master of the trading universe. However, there are those that are successful, explain themselves and who are frankly "better than you" (or me for that matter).   Now we at forexlive.com are open to criticism and rightfully so.  No one is perfect in this game called trading.  However, I know our job is to inform, give ideas, educate, provide a forum for trading and do it in a timely basis 24 hours a day 5+days a week.  The proof our our success, is we are followed by many.   In fact, Adam sent me one of our recent followers on Friday: I am not sure Ms Shelton (Federal Reserve nominee for those who may not know) is interested in my charts per se (although I would be honored if she had the growth mindset to understand more), but she likely will absorb information from Adam and Justin and Eamonn and grow from it. Otherwise, why follow us.  She does because she has a growth mindset.   SUMMARY: Whether it is in your relationships or trading, it is important to have growth mindset.  Don't get stuck in your fixed stubborn ways that don't allow you to expand, and get better. Instead embrace these growth mindset simple principals and if you do, I am sure you will become a better trader.  ForexLive

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MARKET WISDOM | EDUCATION FROM BROKERS Tue 4 Feb

What can we learn from 3 top global traders?

Lessons we can learn from the market wizards Success In Forex we can define success as turning a profit and staying in the black. Experienced traders will always tell you that to be profitable, a range of characteristics, attributes, and trading styles must be deployed for success. Particular attributes in a professional trader and new trader will be noticeably different. This article will delve into the key differences between the 'big hitters' of the trading world next to the 'average' trader. The article will also explore what you can do differently, to up your game, and get an insight into the minds of big money movers! If the only reason a trader trades is to make money and not to be successful, then will a trader truly succeed? We can learn how to use indicators/charts etc but we cannot teach someone the attitude, hunger and drive to succeed. Start trading your way towards success with pristine trading conditions at EagleFX. Differences between average and expert All traders lose, but how amateur traders lose compared to more experienced Forex traders is different. What attributes do experienced and professional traders possess that amateur traders do not?  Big profit traders do not need the money so they have the luxury to relax, bide their time and open a position at the best time without any FOMO anxiety. There is also a pressure that comes with trying to make money today which is essential or needed. This comes back around to the point that pro traders do not trade too hard. Without a crushing pressure to make a profit or win, there is more room for a trader to relax and conduct their proper research and enter markets at the right time. Let's take a look at the core differences between the pros and amateurs: Mentality - Successful traders view a loss as feedback. Losses can be viewed as constructive feedback. Manage your emotions in such a way.Price action - Pro traders use price action/indicators/signals.Don't try too hard - Not to say do not try and learn as much as you can. Reading and gathering information is essential but do not try to force it when it comes to making a profit.Successful traders know when to walk away. Not overtrading or letting greed step in the way of trading with balance.Pros take a step back after a winning trade. Reflect on how you are feeling and get your emotions in check. Don't let a win lull you into a false sense of security where ego can take over.Don't give up and don't stop learning - Pros learn from their trades which are not profitable. Just as new traders should not be too deterred by a loss. Losses are inevitable, especially in volatile Crypto markets. Losses are to be expected but is what we take away from those experiences is what counts. Recording how we feel to reflect on later is a good way to harness emotions, learn and move forward. Now that we have identified some key differences, let's take a look at some big names of the trading world and what they have done to gain such wealth and success. George Soros - 'The best trader in the world!' George Soros has been coined as the best trader in the world! To many, this sentiment is a fact. Soros started his career at F.M. Maye before starting his own firm in 1970 - Soros Fund Management. He famously made $1bn in a single day by shorting the GBP in 1992 in the Black Wednesday UK currency crisis and came exceptionally close to single-handedly bankrupting the Bank of England. Here is how he did it! Soros' specialty was predicting and sometimes forcing the catalysts to big market events. Building up to the pounds almost collapse, Soros knew that almost everyone was ready to bet against the Pound if there was some sort of bad news that would trigger a stampede large enough to overwhelm the Bank of England. Starting in August 1992, Soros and his fund began building a position against the pound.  Soros did this by: Going to a bank or another hedge fund to borrow GBP with the promise of repaying them with added interestThen go to the Forex market and sell borrowed GBP to buy German Deutsch Marks insteadThe idea being that when the exchange rate drops, he could buy back the same GBP at a cheaper rate earning the difference as a profit.By the end of August, Soros had slowly built a position equivalent to $1.5 billion against the pound This helped Soros earn the nickname ''The man who broke the Bank of England'' All things considered, the exchange barely moved. To kick start the position he had opened and lucky for Soros, the president of the Bundesbank claimed that ''some currencies might come under pressure''. This was enough for Soros and he took his chance. Soros has shown that waiting for the right moment to move and using fundamental analysis that fortunes can be made by markets depreciating. He has a net worth of $8.3Bn and has donated over $30B to charity. Stanley Druckenmiller - Mentored by Soros Druckenmiller is a 66-year-old US national from New York. He is ranked #145 on Forbes with a net worth of $4.7bn Druckenmiller made a fortune as a hedge fund manager with over 30 years of success in the industry. Druckenmiller sees Soros as his advisor and with good reason. Up until the year 2000, Druckenmiller worked under George Soros where the pair almost broke the Bank of England in 1992 by shorting the GBP.  One of his particular traits is that he likes to be involved in one particular movement so as not to cloud judgment - investing as much positive energy as possible into one trade. This helps to keep emotions in check and maintain discipline. Long or short GBP today with high leveraged trading at EagleFX with access to over 50 currency pairs with leverage up to 1:500. ​Bill Lipschutz ​Bill Lipschutz is a full-time Forex trader and considered to be one of the world's best! Whilst studying architecture at Cornell University, Bill Lipschutz Grandmother passed away leaving him with a tidy $12,000 in the form of a shares portfolio. Within 5 years, Lipschutz turned the initial capital amount into $250,000!  Fast forward a short time later and the same man who amassed a small fortune over 5 years, blew it all within a few days. The point being that all traders, no matter how successful, are all human. What is evident here is that Lipschutz let his emotions take over his decision making and ultimately cost him.  Alas, he did not simply give up. Bill was quoted as saying that during losing streaks: ''You have to work hard to restore confidence, and cutting back trading size helps achieve that goal.''  A resounding statement that we can all take note of. Lipschutz picked himself back up, dusted himself down and got back to work. Noticeable achievements include: Making almost a million dollars per hour, over 6 hours trading the NZD/USD in September 1985 Made over $300m in 1985 aloneMade $20million trading JPY in 1987 What have we learned? That it is of paramount importance to research markets and listen out for news releases that may have an economic impact on a country. George Soros is arguably the King of this. Don't give up! Bill Lipschutz showed as that just because we are down, doesn't mean we are out! The race can long so be prepared to be patient. Bide your time when waiting to strike. Trade a vast array of assets with some of the tightest spreads in the industry at EagleFX Join for free and start trading with as little as $10.00. This article was submitted by EagleFX. ForexLive

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FUNDAMENTAL STRATEGY | MARKET WISDOM Sat 1 Feb

What's the number one thing to grasp in FX?

Keep the main thing, the main thing I was thinking this last week what I would consider to be the most important aspect of FX trading to understand. There are many different aspects of trading: the fundamentals, the technicals, sentiment analysis, trading psychology and risk management to mention the main 'pillars'. The reality of course is that you really need to be able to grasp a combination of these factors to be confident in your trading. However, what is the one thing, the 'penny dropping' moment, that really sets the course for an aspiring trader. This article is written about that one key concept you need to grasp if you have not already grasped it. The main thing is to pair strength against weakness It really is as simple as the title of this section. Pair strength against weakness. Whenever you are trading always pair up weakness against strength. Think about it for a moment. If you had to predict which boxer would win in a boxing match, and your life depended on it, which fighter would you look to back? The strongest one of course. Now let's say an 18 stone pro-fighter is in one corner and one 13 stone , out of shape and overweight office worker is in the other corner. Which one would you project to win? The strong, 18-stone pro- fighter of course. Think of currency trading in exactly the same light. Look to back the strong fighter/currency against the weaker fighter/currency. Every morning, when I come to my desk around 06:30 GMT the first thing I am looking for is, 'who is the strong fighter/currency today?'. Is it the GBP? The AUD? The NZD? Which one is strong and why? I then look for the weak fighter/currency and pair them together looking to enter mainly on pullbacks. I'm backing the strong against the weak.So, here Is an example of what I wrote down from Friday December 13 last year and the questions I ask myself: The strong vs the weak The Strong Currency: GBP Vs The Weak Currency: JPY The reasons for the GBP strength and JPY weakness This part is important. Make sure you have valid reasons for the strength and weakness of the currency. I am not just looking for technical reasons here, but fundamental reasons.Here were my reasons on the morning of December 13: I expect near term GBP strength as the Conservative party has secured a large majority in the UK election. For today, expect the GBP strength to remain on relief that Britain will now pass the Withdrawal Agreement Bill at the end of this month.  I expect near term JPY weakness on relief that the two major geo-political risks look to fade into the background. The US-China trade phase 1 deal looks like it will be signed and Brexit looks like it will finally happen. This has resulted in JPY weakness which I am expecting for the following session. What changes this outlook? This is the part when you tell yourself what will change your outlook. What are the risks. This is helpful so you know what changes will cause you to pull the trade. In this way you don't need to wait for your stops to be hit. In the example above JPY strength was the main risk and here is the rationale again: Risks to this outlook: Any news that the US-China phase 1 deal will not be signed today will invalidate this outlook as JPY will strengthen on this news as a safe haven currency.  What about the technicals? Finally, when you have your bias for the day, it is simply a case of finding your entries, stops and profit levels. I generally like to wait for pullbacks. On December 13 I was looking at the following for that next session: Expect GBPJPY buyers at the 50% pullback and profit taking at recent highs This method works across higher timeframes too. This approach also works across multiple timeframes. So for example whenever you see a divergence in central bank policy this can provide a strong vs a weak currency that you can expect to last for a few weeks. This can make for some great swing trades. It also works as a principle for demand and supply too This principle also works with single commodities, but this time simply pair up strong demand against weak supply (or vice verse of course). Consider the following tragic example. In January 2019, when Iron Ore supply was restricted due to a terrible industrial disaster in Brazil by the mining company Vale ,we saw Iron Ore prices supported and bid strongly for 6 months. Look at the chart below: The reason for this was that Brazil is the second largest exporter of Iron Ore behind Australia with an apx 20% share of the market. With such a significant part of their Iron ore production being hit many Iron Ore traders could see the impending issue and Iron Ore was bid. So, once you understand the key principle trading starts to make sense. It is not all 'random' and a bastion of 'chaos' theory. Yes, there are elements of unpredictability and good and bad 'luck'. However, the main principle of trading the strong against the weak is the key issue to grasp. If you are just starting out in FX you need to join a community or course that teaches this key concept and applies it day to day. Rome was not built in a  day and skills take time to develop. Left to yourself, it will be much harder. ForexLive

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ECONOMICS | BASICS Fri 31 Jan

Fed's balance sheet in focus

Understanding the balance sheet The Fed is going to continue adding cash into the banking system by buying billions of Treasury bills for a few more months. However, it want to start cutting back these purchase in Q2 according to Jerome Powell on this week's rate meeting.    Why did the Fed start buying Treasury Bills? The Fed did this in response to a surge in borrowing costs in bank funding markets last Autumn. In order to keep providing liquidity in the US money markets the Fed propped up the gap. The Federal Reserve had acquired a large catalogue of Treasuries and mortgage backed securities after the 2008/9 financial crisis through three quantitative easing programmes (known as QE or asset purchases/ easy money).  The purpose of QE was to drag down long term bond yields and reduce the cost of borrowing.  2017 Then in 2017 the Fed started to reduce the amount of these asset purchases. The amount of these purchases are known as the Fed's balance sheet. Last August the unwinding if QE, by reducing the balance sheet, ended August 2019. However, in September 2019 the money market reaction was that the balance sheet was now too small The Fed responds The Fed responded through daily cahs injections in the repurchase agreemen market. Known as the repo market. On top of this the Fed started buying Tresaury Bills to get bank reserves levels up.  The extent of the Fed's purchases The Fed has been buying around $60billion a month of T-bills and reserve levels have risen more than $270 billion  to roughly $1.67 trillion. He said that the bottom end of his range and floor is $1.5 trillion as that was the level around which liquidity problems arose. Powell wants to slowly reduce support here, but he has given no timeline to how he will taper these purchases. Take a look here at the impact on the asset purchase chart below.  So, who cares about this? Equity investors are concerned. Some people are arguing that the latest move by the Fed is QE in disguise and is what has been supporting the latest bull run in US stocks. The thinking is that the Fed is signalling that they will step in to catch a falling market. Uncle Sam (well the one in the Fed, at any rate) will save the day when and if the going gets tough.  What's the trade? A sudden halt or stop in the balance sheet will hit US stocks. Short S&P500 is the vanilla option in this instance, but the Fed will likely signal a gradual reduction. However, I hope that this lifts the fog on 'repo markets' and 'balance sheets' if you have been letting that wash over your head recently. If you like this article give it a like or a recommend as it lets me know how useful or otherwise this kind of articles are.  ForexLive

1
UNUSUAL MARKETS Thu 30 Jan

At times of crisis and uncertainty, people surrender judgement to authorities

This is a story as old as time There's nothing better than the metaphorical warm hug of a top-level bureaucrat in a crisis. Humanity is more-informed that ever but with uncertainty at extremes, we still abandon critical thinking and defer to authorities. It's a tale as old as time. The WHO has soothed the nerves of markets for the moment by spinning the announcement of a global heath emergency into something like a commercial for the Chinese tourism office. "I have seen the capacity and I believe they will control this outbreak as soon as possible," said WHO Director-General Tedros Adhanom Ghebreyesus. There is some mockery on twitter but it's something that's straight out of the public health playbook. As I wrote before the press conference: In public health 101 they teach two things on the first day: Wash your hands Don't spread fear and panic There could be bodies on the streets outside their Geneva office and they would be up there spreading calm. Why? The only thing worse than a pandemic is a pandemic without any authorities. If you're waiting for the WHO to tell you when to sell risk, you're going to be painfully behind the curve. ForexLive

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UNUSUAL MARKETS | MARKET WISDOM Wed 22 Jan

Finding value in fear

It is not every day that markets get caught out by overwhelming fear ForexLive CDC confirms that traveler from China diagnosed with coronavirus in SeattleChina coronavirus news conference - 440 cases, 9 deathsCoronavirus infection among medical workers validate people-to-people transmissionMacau confirms first case of coronavirusThailand says 4 confirmed cases of coronavirus The new coronavirus outbreak brings back many lessons in markets and one of them is to not be too blinded by the fear. There is no doubt that things may still get worse before they get better, especially with the fact that the hectic travel period during the Chinese New Year holidays is yet to come. But ultimately, it is all about trying to identify how bad things will really be. We're already seeing markets start to be a little more greedy over the past few hours - as compared to the pessimistic behaviour seen in trading yesterday. US futures are up by ~0.5% while the Shanghai Composite index has erased gains of over 1% earlier to hit session highs now, keeping near flat levels on the day. As with all such related fears and geopolitics, they will eventually pass at some point in time. Instead, the real fear in all of this is whether or not the new coronavirus outbreak is going to have a more profound impact (longer-term) on markets. In this case, perhaps it may chip a little away at the Chinese economy this year. However, unless this threatens to be develop into something like the SARS virus outbreak back in 2002-03 and plague markets with some element of uncertainty for a few months, expect markets to quickly move on from the pessimism here. Sure, there may still be some days in the near-term that fear may creep back in. But don't squint your eyes and cower in terror. Instead, open your eyes and look for value. Eventually, there will be a turning point and that's when fading the fear pays off.

MARKET WISDOM Mon 20 Jan

The jump from trend to bubble is faster than ever

What's the rush? I love this quote from George Soros because it is more true every day. He said it in his book on the crash of 2008 but he might be talking about fake meat, marijuana or electric cars today. We can all see trends towards environmentalism, renewables, e-commerce, the internet, eating out and TV streaming along with a dozen other things. The reaction function of the market is to identify a trend and throw money at it in a virtual gold rush, hoping that one day the claims will pay. Last year we saw it in WeWork. Co-working was undoubtedly a trend and WeWork was the biggest and best-known name in the space. SoftBank and others drove the company valuation into the stratosphere but it all came crashing down when the collective conscience of the world realized the business model could easily be replicated. The big macro trend of the generation is low and falling inflation. We're at the point now where every bond investor -- voluntarily or not -- is betting on low inflation. The perception (or perhaps misconception) is that inflation will stay low forever. If the market is wrong, it would be the mother of all financial busts. The bond market is worth more than $100 trillion with a myriad of derivatives layered on combined with endless knock-on effects, like mortgage rates. Other trends are less controversial but misconceptions abound. Renewable energy is coming and the age of fossil fuels will one day end. Yet just in the past few years we've seen a dramatic drop in investment in fossil fuels. While a 50-year investment in a oil field is a bad idea, there is unceasing demand for the next 15 years. If no one is bringing on new production in the meantime, what happens to the price? I often think about the paradox of a remote mining town. With mines, you usually know the lifespan so you know when it will close, everyone will be out of a job and the local economy will collapse. That leaves the housing market in a precarious spot. At the end of the line, you want to be a renter but somewhere before that, it makes more sense to buy. When exactly is the crossover? As the time winds down, you would assume there is massive demand for rentals and that market could become completely disconnected. Any way you look at it, the volatility would skyrocket. That's how I see the fossil fuel era ending. It's like a mine right now that has a short life. It's past the point where people are investing in projects that have a payback period of more than 30 years. Yet it's still highly uncertain when oil won't be needed anymore. One belief was that shale was a perfect bridge because it could be ramped up quickly and operations have short shelf lives. However that turned out to be a misconception itself and wells are costing much more. The final piece of the puzzle is price. I think it's inevitable that we get a spike in oil prices but even at $80, $90 or $100 we may find that companies are loath to invest because the market won't reward it and won't believe high prices will last. Markets are the best way to price anything but in a changing world, be wary of identifying any 'trend' and assuming it will lead to profits. ForexLive

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FUNDAMENTAL STRATEGY Sun 12 Jan

JP Morgan on the yen - narrow ranges to persist

JPM client note on the Japanese yen, say its losing its attraction as a safe haven play USD/JPY annual range of less than 10% for three consecutive years 2019 range less than 8% (smallest since 1980) Yen: "when a risk-on mood was strong, market participants would normally actively engage" in the yen-carry tradebut when risk-off hit "investors would be pressed to close their positions"  - to sell the higher-yield currency & buy back yen they had sold, which is why the yen would strengthen in risk-off environments "But because in recent years the yen is no longer being sold off in the first place, it is not acting as much like a safe-haven currency as in the past" JPM on what will prompt wider ranger: if interest rates increase in other countries (opening a wider gap with rates in Japan)would encourage yen-carry trades Yeah 1980 might have been a narrow range but as the 80s went on things did hot up (check your historical charts …. google the Plaza Accord) Probably not about the yen range but its from the 80s (ok, 1979) ForexLive

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