The Abandoned Baby is a reversal Japanese candlestick pattern that is formed by three candles: one doji and two candles with bodies.
Before AND after the doji, there is a gap.
The shadows on the doji must completely gap below or above the shadows of the first and third candle.
There are two types of Abandoned Baby:
- Bullish Abandoned Baby
- Bearish Abandoned Baby
The Abandoned Baby pattern is fairly rare as the price movements need to meet specific criteria in order to create the pattern.
To identify an Abandoned Baby pattern, look for the following criteria:
Bullish Abandoned Baby
- There must be a large black (or red) candlestick in a downtrend.
- The black candle must be followed by a doji that gaps below the close of the first candle.
- The last candle in the three-candlestick pattern must be white (or green) and open above the doji.
Bearish Abandoned Baby
- There must be a large white (or green) candlestick in an uptrend.
- The white candle must be followed by a doji that gaps above the close of the first candle.
- The last candle in the three-candlestick pattern must be black (or red) and open below the doji.
It is very important that there are gaps between the first and second candles as well as the second and third candles.
Neighboring candles must NOT overlap.
If they do overlap, it is considered a Morning Star or Evening Star candlestick pattern.
The Abandoned Baby is a reversal pattern.
After a solid uptrend or downtrend, there is a pause, a moment of uncertainty (depicted by the doji).
Then, the momentum suddenly shifts.
If there had been an uptrend previously, the bears take control and push the price downward.
If there had been a downtrend previously, the bulls take control and push the price upward.
This rapid shift signals a strong reversal.
The larger the gaps, the greater the reversal.
This report is a record of all transactions made in a trading account over a specific period of time. It shows all the monetary activity in a client’s account.
The account value is how much one’s account is worth.
The accumulation area represents a period of buying, typically by institutional buyers, while the price remains fairly stable.
On a price chart, the accumulation area is described by mostly sideways price action with above-average volume.
It may signal that large institutional traders are buying, or accumulating, large quantities of an asset over time.
The accumulation area is important for traders to recognize when making buy and sell decisions.
Identifying the accumulation area helps traders spot good entry points before the price begins to rise.
The accumulation area signals the possibility of a breakout.
When price doesn’t fall below a certain price level and moves in a sideways range for an extended period, this can indicate that the asset is being accumulated by institutional buyers and as a result will breakout to the upside soon.
The opposite of the accumulation area is the distribution area.
The distribution area is where institutional traders begin selling.
Being able to recognize whether an asset is in the accumulation zone or the distribution zone is critical to trading success.
The goal is to buy in the accumulation area and sell in the distribution area.
The Accumulative Swing Index, or ASI, is a tool developed by J. Welles Wilder to measure the breakout potential of a given market.
The ASI takes the form of a number from 100 to -100, with positive values indicating an upward trend and negative values indicating a downward trend.
Once calculated, the ASI can be charted in conjunction with a candlestick chart.
The chief value of the ASI is that it’s susceptible to the same technical analysis tools as a candlestick chart, allowing traders to use trendlines, wedges, triangles, and other tools in order to determine support and resistance levels.
However, ASI charts are much simpler and smoother than candlestick charts, making them both easier to analyze and less susceptible to indicating false breakouts.
If the absolute value of the ASI for a given day exceeds the absolute value of the ASI at the time of a previous breakout, a new breakout from the trend is imminent, and traders can take positions accordingly.
The ASI is based on Wilder’s Swing Index, which is an extremely complex calculation that incorporates high, low, and close prices for an asset along with numerous other variables, some of them specific to certain kinds of markets.
On its own, the Swing Index isn’t particularly useful as a predictive tool, but the Swing Indexes for several successive days can be incorporated by another calculation into the ASI, which fulfills Wilder’s original intention for the measure.
Full instructions for calculating the Swing Index and ASI are available in Wilder’s “New Concepts in Technical Trading Systems”, and a number of popular pieces of trading software are able to calculate the ASI automatically.
A secure identifier marked by a unique string of characters that enables payments to an individual or entity.
It usually requires a private key to exclusively access the funds.
For example, Bitcoin addresses are alphanumeric strings that begin with a 1 or 3, while Ethereum addresses begin with ‘0x’.
Bitcoin addresses are usually 26-35 characters, Ethereum addresses are 40 characters.
The ADP National Employment Report provides a monthly snapshot of U.S. nonfarm private sector employment based on actual transactional payroll data.
It is also popularly known as the ADP Jobs Report or ADP Employment Report.
The report is sponsored by Automatic Data Processing Inc., the firm that has prepared the report since 2006, handles payroll for about a fifth of U.S. private employment.
The ADP National Employment Report is viewed as a useful preview to the more detailed Bureau of Labor Statistics’ Employment Situation Report.
Why is the ADP National Employment Report important?
If you’re employed by a non-government company, there’s a possibility that your paycheck is processed by Automatic Data Processing Inc. (ADP).
The company handles payroll for about a fifth of U.S. private employment, putting it in a unique position to survey trends in the nation’s labor market.
Traders often consider the ADP report as the prelude to the BLS release of NFP because of the existent correlation between the two. The overlaying of both series below should speak for itself.
Another reason that forex traders follow this report is the same as with the Employment Situation report.
Solid growth in employment figures increases inflationary pressures which increase the likelihood that the Federal Reserve will raise interest rates.
How to read it?
A strong report indicates a lot of hiring in the private sector.
If more people are working, household income rises and that fosters more consumer spending.
What forex traders look at this report, they try to determine what impact the estimates will have on U.S. interest rates.
Job growth of less than 100,000 a month suggests a weakening economy.
Where to find it?
Published monthly, two days before the Bureau of Labor Statistics puts out the NFP.
Previous months’ data, consensus, and actual releases are available.
What time is it released?
The ADP National Employment Report is published monthly by the ADP Research Institute in close collaboration with Moody’s Analytics.
The ADP National Employment Report s is released on the first Thursday of every month, at 8.15 am ET.
A tool used confirm that a trend is continuing. If there are more declining issues, the trend might see a reversal in the near future.
The Advance/Decline Index is calculated by subtracting the number of declining prices from the number of advancing security prices.
The currency of Afghanistan. Currency Code (AFA)
An agency model is a method for executing client orders without taking inventory risks.
Dealers running an agency model charge a commission for:
- Placing a customer’s order with the market and for…
- Finding a counterparty willing to take the opposite side of the transaction.
Aggressors are traders who remove liquidity from the market by entering buy and sell orders at current market prices.
Rather than entering limit orders, aggressors buy the current market ask price or sell at the current bid price.
Because aggressors purchase available contracts at the current market price, their orders are executed immediately.
This immediate action means aggressors sell at lower and lower prices and buy at higher and higher prices, thereby pushing other traders out and taking liquidity out of the market.
In contrast, passive traders add liquidity to the market by placing trades with bids and offers, which may not be immediately filled or executed.
What do Aggressors do?
Aggressors review pricing in a market that has a range of orders at various prices.
The best bid and best offer prices will set the bid-ask spread.
The difference between those two prices will vary depending on the prevailing market conditions.
The number of contracts available for purchase or sale may also be different.
For example, if the bid-ask spread for EUR/USD is 1M units at 1.1010 / 1.1012, an aggressor would immediately buy 1M units at the best asking price of 1.1012 or instantly sell 1M units at the best bid of 1.1010.
A passive trader motivated to buy EUR/USD might offer a bit more, for example, 1.1011
Passive trading tends to narrow spreads and add liquidity to markets, while aggressive trading removes liquidity.
How do Aggressors affect market liquidity?
Market participants have access to the order book, which shows a list of all current bids and offers, some of which may not be close to the current market price.
Using our example above, the best available market price for EUR/USD is 1M units at 1.1010.
Other bids may “res”t below that price, such as 2M units for 1.1009 or 3M units at 1.1008.
Also, other ask offers may be above the best current asking price.
If the best offer is currently 1.1012, higher offerings might be 3M units for sale at 1.1013 or 2M units at 1.1014.
By taking immediate action at the current bid or asking price, aggressors continue to sell at lower and lower costs or buy at higher and higher prices.
This squeezing causes volatility, which will become more common as markets get thin and imbalanced as other traders are pushed out.
Alan Bollard is a former Governor of the Reserve Bank of New Zealand (RBNZ).
Dr. Alan Bollard was appointed as Governor of the Reserve Bank of New Zealand in September 2002 and his term ended in 2012.
Dr. Bollard’s previous positions include:
Secretary to the Treasury (1998- 2002)
The Treasury manages the Crown’s finances and is the Government’s principal economic adviser.
Chairman of the New Zealand Commerce Commission (1994 – 1998)
The Commission is the regulatory authority in charge of the Commerce and Fair Trading Acts, which governs competition between firms.
Director of the New Zealand Institute of Economic Research (1987 – 1994)
The Institute provides advice on applied economics and forecasting.
Dr. Bollard has also worked as an economist in a variety of positions in the United Kingdom and in the South Pacific.
Dr. Bollard has written a number of books on the New Zealand economy, has produced a computer simulation game called “Oikonomos” where one plays as the Minister of Finance, and has helped rebuild the famous Phillips hydraulic economic simulation model “the Moniac.”
He is married to Venture Capitalist Jenny Morel and they have two sons, Albert and Lewis.
Alan Greenspan was nominated as Chairman of the Board of Governors of the Federal Reserve (US) by US President Ronald Reagan, as Paul Volcker
The currency of Albania. Currency code (ALL)
The currency of Algeria. Currency code (DZD)
The Alligator indicator was created by Bill Williams.
The Alligator is used to confirm current price trends and their primary direction.
Aside from identifying existing trends, experienced traders also use the Alligator indicator to enter counter-trend moves.
In principle, the Alligator technical indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.
The three Balance Lines are known as the Jaw, the Teeth, and the Lips.
The blue line (Alligator’s Jaw) is the Balance Line for the time frame that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);
The red line (Alligator’s Teeth) is the Balance Line for the value time frame of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
The green line (Alligator’s Lips) is the Balance Line for the value time frame, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
Lips, Teeth, and Jaw of the Alligator show the interaction of different time periods.
As clear trends can be seen only 15 to 30 percent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.
The Alligator is sleeping.
When the Jaw, the Teeth, and the Lips are closed or intertwined, it means the Alligator is going to sleep or is asleep already.
As it sleeps, it gets hungrier and hungrier.
The longer it will sleep, the hungrier it will wake up.
The Alligator wakes up.
The first thing it does after it wakes up is to open its mouth and yawn.
The Alligator eats.
Then the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to hunt it.
The Alligator suffers a food coma.
Having eaten enough to feel quite full, the Alligator starts to lose interest in the food/price (Balance Lines join together). This is the time to take profit.
- (13) – Number of Periods to use for Jaw
- (8) – Number of Periods to use for Teeth
- (5) – Number of Periods to use for Lips
- (8,5,3) – Shift for Jaw, Teeth, Lips
Altcoins are cryptocurrencies other than bitcoin. Many altcoins are forks (variations) of bitcoin.
“Altcoin” is a combination of two words: “alt” and “coin”. The word “alt” is short for alternative and “coin” means currency.
This nomenclature comes from the idea that bitcoin is the original cryptocurrency and that all others are then considered “alternate” or “alternative” coins.
Together, they imply cryptocurrencies that are an alternative to the original cryptocurrency named bitcoin.
Many altcoins have emerged but bitcoin still remains the largest and most popular of all cryptocurrencies.
The term “altcoin” is also used quite broadly to refer to digital assets that would also technically be referred to as “tokens” rather than coins.
The best-known examples are the ERC-20 tokens that exist on top of the Ethereum blockchain.
Since the creation of Bitcoin in 2008, more than 2,000 alternative cryptocurrencies were deployed.
Many of these altcoins were created as modified copies of Bitcoin, through a process known as Hard Fork. Despite sharing some similarities, each altcoin has its own functionalities.
When analyzing the market, analysts can generally be divided into two camps – fundamentals and technicals.
Fundamental analysts are those who mainly look at the fundamental aspects of an economy in forming their opinions. They stay on top of the markets by reading and analyzing what the current economic data say about current market conditions, what is fundamentally driving the market, and where it’s headed.
Technical analysts are those who primarily rely on chart indicators and patterns to help predict where price will move next. Some tools that technical analysts use are Fibonacci retracement, candlesticks and momentum indicators.
Andrews’ Pitchfork is a channel-based analysis technique developed by Dr. Alan Andrews.
The channel drawing technique uses three parallel trend lines to show areas of support and resistance. The three parallel lines are created from three consecutive major peaks or troughs.
The trend lines automatically generated by plotting three points on a chart, each marking an important pivot point.
It is suggested that one of the following schemes be used:
- In an uptrend, trough-peak-trough.
- In a downtrend, peak-trough-peak.
The first two points define the trendline, the last two points define the channel.
After the last two points are connected, the channel is completed, and the median line is added, the plot indeed resembles a fork.
The main rule of using Andrews’ Pitchfork is the same as for the channel:
- In an uptrend, the upper channel line might serve as a resistance level
- In a downtrend, the lower line might serve as a potential support level.
The handle (median line) shows the strength of the trend:
- In a strong uptrend, price tends to be above the median line.
- In a strong downtrend, price tends to be above the median line.
Andrews’ Pitchfork can be transformed into Schiff and Modified Schiff Pitchfork.
- Schiff Pitchfork moves the start point of the handle line halfway to the base of the channel.
- Modified Schiff Pitchfork adjusts the handle start point by the distance equal to half a difference between price values of base points of the channel.
How to Draw Andrew’s Pitchfork
Here is an example of an Andrew’s Pitchfork during an uptrend.
- First find the most recent low, which is Point A. This is where the middle tine or median line will begin.
- Then find the highest move made from Point A. which is Point B.
- The next point is found by looking for the lowest retracement move from Point B, which is Point C.
Point A rallies to Point B, then retraces to Point C, then resumes its uptrend.
Notice how when the uptrend reverses, the lower trend line that used to act as a support level has now become a resistance level.
How to Trade Andrew’s Pitchfork
The pitchfork shows continuous points of support and resistance.
Andrew’s Pitchfork tool allows traders to trade channels when the market is trending.
Generally, one would sell when the price rises to upper tine, which is line B, and take profit when the price reaches the middle tine, which is line A
One would also buy if price falls to the lower tine, which is line C, and take profit when it rises back to the middle tine, line A.
Angela Dorothea Merkel is Chancellor of the Federal Republic of Germany and is currently the Chairwoman of her political party, the Christian Democratic Union (CDU).
In November 22, 2005 Merkel became the first female Chancellor of Germany. In 2009 her party acquired the most votes, granting her a re-election and enabling her to form a larger coalition government.
Originally a physical chemist by profession, Merkel went on to become the Federal Minister of Women and Youth in 1991; Federal Minister for the Environment, Nature Conservation and Nuclear Safety in 1994, and President of the European Council for six months and Chairwoman of the G8 Summit in 2007.
The currency of Angola. Currency code (AOA)
Anti-Money Laundering (AML) is is a term used in the financial industry to describe a set of procedures, laws and regulations that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities.
AML regulations require institutions allowing customers to open trading accounts to complete due-diligence procedures to ensure they are not aiding in money-laundering activities. The legal responsibility to perform these procedures is on the institutions, not on the criminals or the government.
Release schedule : 13:00 (GMT); monthly, on the first week of the following month
Source of report : Australia and New Zealand Banking Group Ltd. (ANZ)
Web Address : http://www.anz.com
Address of release :
An application programming interface (API) is a set of rules and specifications followed by software applications to communicate with each other.
It is an interface between different software applications that facilitates their interaction.
An API is a prerequisite for algorithmic trading.
Currency appreciation refers to the increase in the value of one currency against another.
For instance, when the EUR/USD exchange rate moves from 1.05 to 1.10, it means that the euro has appreciated by $0.05 against the US dollar.
One euro now costs $1.10 instead of $1.05.
There are many reasons why a currency appreciates.
Monetary and fiscal policy, interest rates, inflation, the trade balance, other countries’ economic strength, tourism figures, political stability, and many other macroeconomic conditions all contribute to exchange rate fluctuations and the appreciation of a currency relative to other currencies.
Currency appreciation, like currency depreciation, has immediate consequences for international trade which affects businesses operating with foreign currencies.
Currency appreciation means lower returns for export companies with foreign currency exposure, while for importers, it represents lower costs.
In contrast, currency depreciation allows exporters to lower prices and make their products more competitive and it is observed as a disadvantage for importers because it increases their costs.
Taking an equal and opposite position at the same time to benefit from small price differences between related markets.
The currency of Argentina. Currency code (ARS)
The currency of Armenia. Currency code (AMD)
The Aroon Oscillator measures the strength of a trend and is constructed by subtracting Aroon Down from Aroon Up.
Developed by Tushar Chande in 1995, the Aroon is an indicator system that can be used to determine whether the price is trending and if so, how strong the trend is.
“Aroon” means “Dawn’s Early Light” in Sanskrit and Chande chose that name for this indicator since it is designed to reveal the beginning of a new trend.
The Aroon Oscillator oscillates between -100 and +100 with zero as the centerline. It signals an uptrend if it is moving towards its upper limit and a downtrend when it is moving towards the lower limit. The closer the Aroon Oscillator value is to either extreme the stronger the trend is.
The Aroon Oscillator is a single line that is defined as the difference between Aroon(up) and Aroon(down).
All three take a single parameter which is the number of time periods to use in the calculation.
Since Aroon(up) and Aroon(down) both oscillate between 0 and +100, the Aroon Oscillator ranges from -100 to +100 with zero serving as the crossover line.
Aroon(up) for a given time period is calculated by determining how much time (on a percentage basis) elapsed between the start of the time period and the point at which the highest closing price during that time period occurred.
When the price is setting new highs for the time period, Aroon(up) will be 100.
If the price has moved lower every day during the time period, Aroon(up) will be zero.
Aroon(down) is calculated in just the opposite manner, looking for new lows instead of new highs.
When Aroon(up) and Aroon(down) are moving lower in close proximity, it signals a consolidation phase is underway and no strong trend is evident.
When Aroon(up) dips below 50, it indicates that the current trend has lost its upward momentum.
When Aroon(down) dips below 50, the current downtrend has lost its momentum.
Values above 70 indicate a strong trend in the same direction as the Aroon (up or down) is underway.
Values below 30 indicate that a strong trend in the opposite direction is underway.
The Aroon Oscillator signals an upward trend is underway when it is above zero and a downward trend is underway when it falls below zero.
The farther away the oscillator is from the zero line, the stronger the trend.
The Aroon Up/Down technical indicator identifies when the price is in a trend or trading sideways.
It was developed by Tushar Chande, who used the word “aroon” due to its meaning in Sanskrit: “dawn’s early light” or “the change from night to morning”.
The indicator uses two lines: Aroon Up and Aroon Down.
- Aroon Down is a measure of how close the current bar is to the most recent lowest Low bar found in the last N bars.
- Aroon Up is a measure of how close the current bar is to the most recent highest High bar found in the last N bars.
The Aroon Up/Down indicator ranges from 0 to 100.
The default period is 14 days.
How to Use Aroon Up/Down
- If price makes a new 14-day high, the Aroon Up = 100.
- If price makes a new 14-day low, the Aroon Down = 100.
- If price does not make a new high in 14 days, the Aroon Up = 0
- If price does not make a new low for 14 days, the Aroon Down = 0.
Similar to the ADZ indicator, the Aroon indicator is used to determine if the market is trending or not.
A related technical indicator, the Aroon Oscillator can be defined as the difference between the Aroon Up and Aroon Down values.
The currency of Aruba. Currency code (AWG)
An ascending channel is a chart pattern formed from two upward trend lines drawn above and below a price representing resistance and support levels
The ascending channel is also known as a “rising channel” and “channel up“.
The lower line is identified first, as running along the lows: it defines the trend line. The upper line (he “channel line”) is identified as parallel to the trendline, running along the highs.
It is a bullish chart pattern defined by a trend line supporting the series of higher lows and a diagonal resistance level connecting the higher highs.
An ascending channel looks similar to the Rectangle pattern, but the difference is that an ascending channel slopes up.
When in the channel, prices are expected to bounce off both upper and lower boundaries; the more such reversals occur, the more reliable the pattern.
An ascending channel is the exact opposite of the descending channel.
When the price is around the bottom trendline, look for long opportunities, although aggressive traders could trade long and/or short at both trend lines looking for a bounce or pullback.
Another way to trade this pattern is to wait for the price to break through either trendline.
A break out above the upper trendline generates a strong buy signal, while a break down below the lower trendline generates a strong sell signal.
When the price breaks through the trend line (lowe line), it might indicate a significant change in trend.
Breaking through the channel line (upper line), in contrast, suggests an acceleration of the existing trend.
Keep in mind that just like all the other patterns, channels might be prone to false or premature breakouts, which means that price may retreat back into the channel.
Ascending channels are useful due to their ability to predict overall changes in trends.
Ascending channels, like descending channels., are a tool for determining whether the trend in price will continue.
As long as prices remain within the ascending channel, the upward trend in price can be expected to continue.
Another strategy of using an ascending channel is to identify where the price fails to reach the upper line.
The failure to reach it often signifies trend exhaustion. This could be an early warning that the trend is going to reverse. The breach of the trend line (lower line) may be more likely to happen.
Ascending channels often appear within an overall downtrend in prices, and represent either a continuation of the trend or a reversal of the trend.
The direction of the break will determine whether it’s a continuation or a reversal.
An ascending trend line is a chart pattern containing two or more higher lows that can be connected with a straight line.
It is a bullish pattern created by connecting two or more lows, with each successive low higher than the previous low.
This creates an upward sloping trend line
An ascending trend line is also known as an “uptrend line“.
Since technical analysis is built on the assumption that prices trend, the use of trend lines is important for both identifying and confirming trends.
An ascending trend line acts as support and indicates that demand (more buyers than sellers) is increasing even as the price rises.
A rising price combined with increasing demand is very bullish, and shows really strong buying pressure.
As long as the price action stays above this line, it is a bullish trend.
Price can bounce as the trend line acts as support.
Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal.
The more points there are to connect, the stronger a trend line becomes.
The strength of the trend line is also determined by how many market participants recognize the trend line.
If a lot of the market acknowledges the same trend line that you see, then the trend line becomes self-fulfilling.
As long as prices remain above the trend line, the uptrend is considered solid and intact.
A break below the ascending trend line indicates that buyer demand has weakened and a change in trend could be imminent.
If price breaks through the ascending trend line, you can short the breakdown but be aware of fakeouts (false breakouts) though.
An ascending triangle is a bullish chart pattern and is formed by a series of higher lows and an upper resistance level.
It is defined by two lines:
- A horizontal resistance line running through peaks.
- An uptrend line drawn through the bottoms.
While two bottoms belonging to the same trendline would suffice for pattern recognition, it is more favorable when there are more.
As price rallies, it finds resistance and begins to erase some of its gains.
The subsequent fall in price is shorter than the previous fall and this manifests the series of higher lows.
If a line is drawn above and below the pattern, the top line will appear straight while the bottom will slope upwards at an angle.
The higher lows indicate more buyers are gradually entering the market and buying pressure increases as price consolidates moving further towards the apex.
Price is consolidating with a bullish bias so traders should watch out for an impending breakout up through the resistance level.
If price can break through the resistance level, that level will now act as a support level
The breakout can occur based on technical analysis and/or be caused by news flow so it is worthwhile to also consider the fundamentals and market sentiment when using this pattern.
Watch out for fakeouts (false breakouts) carefully as they might be easily confused with the true ones when, in fact, the price is going to retreat back into the triangle.
An ascending triangle is classified as a continuation chart pattern.
Continuation patterns are expected to lead to the continuation of an existing trend.
Continuation patterns also include symmetrical triangles, descending triangle, wedges, flags, rectangles, and pennants.
While the ascending triangle is considered a bullish continuation pattern, exceptions are quite possible. It’s not infrequent to see it develop in downtrend conditions.
If formed in the downtrend, the ascending triangle is more likely to act as a reversal pattern.
Breakouts can also happen in both directions. Statistically, upward breakouts are more likely to occur, but downward ones seem to be more reliable.
The majority of breakouts of either direction are observed in the second half of the pattern formation distance.
ASIC stands for Application-Specific Integrated Circuits. An ASIC mining rig is essentially a computer specifically designed to quickly perform one specific task over and over.
ASIC technology has made it faster to mine bitcoin, while operating more efficiently than GPU mining rigs. ASIC miners can only mine the cryptocurrency that it was designed for.
The ask is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
The “ask” price is also known as the “offer” price.
The ask price is one of the prices often quoted in the buying and selling of financial assets.
It represents the price at which you can buy an asset, and as such will usually be higher than the market price.
It is the opposite of the bid.
In forex, this is the price that you, the trader, may buy the base currency.
The bid (the price at which you can sell an asset) is quoted as lower than the ask (or offer), and the difference between the two is known as the spread.
In recent events, asset purchases usually pertains to the purchasing of government bonds to lower interest rates, inject capital into the economy or both. It is an unconventional monetary policy used by a central bank to stimulate the economy, otherwise know as quantitative easing.
A type of encryption involving two keys:
- A private key
- A public key.
A message that is encrypted with the private key must be decrypted with the public key and vice versa.
The public key is easily derived from the private key but the reverse is nearly impossible.
Instruction given to a dealer to buy or sell at the best possible rate that can be obtained.
Instruction given to a dealer to deal at a specific rate or better. Hence-“at or better.”
ATH is the acronym for “All Time High”.
The cryptocurrency is trading at the highest price it has ever achieved.
Austerity refers to the government’s reduction of spending in order to lower their deficit. Austerity measures, which usually involve wage cuts and tax hikes, are implemented by the government to ensure their creditors that they will be able to pay back their loans.
The currency of Australia. Currency code (AUD)
The Autorité des marchés financiers (AMF) was established to improve the efficiency of France’s financial regulatory system and to give it greater visibility.
The ADX or Average Directional Index is a technical indicator used to measure the overall strength of a trend.
Developed by J. Welles Wilder, the Average Directional Index (ADX) helps traders measure how strongly price is trending and whether its momentum is increasing or falling.
It’s important to emphasize that while ADX measures the strength of a trend, it does NOT identify the trend’s direction.
It can be used to find out whether the market is ranging or starting a new trend.
The oscillator ranges between 0 and 100 with high readings indicating a strong trend and low readings indicating a weak trend.
ADX is related to the Directional Movement Index (DMI) and, in fact, the DMI has the ADX line included.
How to Use ADX
The ADX takes a different approach when it comes to analyzing trends.
It won’t tell you whether the price is trending up or down, but it will tell you if the price is trending or is ranging.
This makes it useful as an effective filter for either a range or trend strategy by making sure you are trading in sync with current market conditions.
The ADX ranges from 0 to 100.
Wilder considered a value above 25 to suggest a trending market, whereas a value below 20 suggests that there is little or no trend.
A value of 0 indicates that the price is equally likely to move in either a positive or negative direction, meaning that there is no overall market trend.
A value of 100 indicates that the price is exclusively moving in either a positive or negative direction, indicating an extremely strong trend.
Here are some guidelines:
- If the ADX value is between 0-20: The trend strength is regarded as absent or weak
- If the ADX value is between 25-50: The trend strength is considered to be strong
- If the ADX value is between 50-75: The trend strength is very strong
- If the ADX value is between 75-100: The trend strength is insanely strong
Values greater than 60 are rare.
Any reading less than 20 is considered to be a weak trend and may signal an impending reversal.
When the ADX turns down from high values, then the trend may be ending. You may want to consider closing any open positions
If the ADX is declining, it indicates that price possibly becoming less directional, and the current trend is weakening. Be careful using any trend-following systems here.
If ADX has stayed below 20 for a lengthy time and then rises, it may signal to trade the current trend.
If the ADX is rising then the price is showing a strengthening trend.
- The value of the ADX is proportional to the slope of the trend.
- The slope of the ADX line is proportional to the slope of the actual price movement.
- If the price trend is a constant slope, then the ADX value tends to flatten out.
Remember, because the ADX is derived from both positive and negative directional indicators, it only measures TREND STRENGTH rather than TREND DIRECTION.
How to Calculate ADX
The ADX is derived from two directional indicators, known as DI+ and DI-:
- The positive directional indicator (+DI)
- The negative directional indicator (-DI)
These two indicators are derived from the Directional Movement Index (DMI).
ADX is calculated by finding the difference between DI+ and DI-, as well as the sum of DI+ and DI-.
The difference is divided by the sum, and the resulting number multiplied by 100.
The result is known as the Directional Index or DX.
A moving average is then taken of DX, typically over a fourteen-day period (although any number of periods can be used.)
This final moving average is the ADX.
The Average True Range (ATR) is a technical indicator that measures the volatility of an asset’s price.
Since ATR is a volatility indicator. it shows how much price fluctuates, on average, during a given time frame.
It was introduced by Welles Wilder in his book, “New Concepts in Technical Trading Systems“. What’s incredible is that this book also includes the Parabolic SAR, RSI, and the Directional Movement Concept (ADX).
Average True Range can reach a high value when price fluctuations are large and rapid.
Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation.
Average True Range (ATR) can be interpreted in the following way:
- The higher the value of the indicator, the higher the probability of a trend change.
- The lower the indicator’s value, the weaker the trend’s movement is.
The indicator does not provide an indication of price trend, simply the degree of price volatility.
How to Calculate ATR
In order to calculate the ATR, the True Range needs to be discovered.
True Range takes into account the most current period high/low range as well as the previous period close (if needed).
There are three calculations that need to be completed and then compared against each other.
The True Range(TR) is the largest of the following:
- The Current Period High minus (-) Current Period Low
- The Absolute Value (abs) of the Current Period High minus (-) The Previous Period Close
- The Absolute Value (abs) of the Current Period Low minus (-) The Previous Period Close
True Range = max[(high – low), abs(high – previous close), abs (low – previous close)
The absolute value is used because the ATR does not measure price direction, only volatility. So there should be no negative numbers.
Once you have the True Range, the Average True Range can be plotted.
Think of the ATR as the moving average the True Range.
Period: (14): The number of periods used in the range calculation.
If the chart displays hourly data, then period denotes hours. If daily charts are used, then period denotes days. For weekly charts, the period will stand for weeks, and so on.
Wilder used a period of 7. Other common periods used are 14 and 20.
Welles Wilder developed the Average True Range (ATR) to create a tool to measure volatility.
Using daily charts, Wilder defined the True Range to be the greatest for the following periods:
- The distance from today’s high to today’s low.
- The distance from yesterday’s close to today’s high.
- The distance from yesterday’s close to today’s low.
True Range measures market volatility and is an integral part of indicators such as ADX (Average Directional Movement) or ADXR (Average Directional Movement Rating), and others, to identify the directional movement of a market.
The Average True Range indicator identifies periods of high and low volatility in a market.
High volatility describes a market with ongoing price fluctuation, whereas low volatility is used to label a market with little price activity.
Measuring market volatility can help in identifying buy and sell signals and, additionally, risk potential.
Markets with high price fluctuation offer more risk/reward potential, because prices rise and fall in a short time, giving the trader more opportunities to buy or sell.
When a market becomes increasingly volatile, the ATR tends to peak rising in value.
During periods of little volatility, the ATR decreases in value.
A market will usually keep the direction of the initial price move, though this is certainly not a rule.
Traders tend to use the Average True Range to measure market volatility and then rely on other technical indicators to help identify market direction.
The Awesome Oscillator (AO) is a technical indicator created by Bill Williams that’s used to measure momentum.
AO calculates the difference between a 34-period and 5-period Simple Moving Averages.
The Simple Moving Averages that are used are not calculated using closing price but rather each bar’s midpoints.
The Awesome Oscillator is generally used to confirm trends and anticipate possible reversals.
How to Use Awesome Oscillator
Here are three ways to use the Awesome Oscillator:
- When the Awesome Oscillator is below the zero line forming a peak, go short.
- When the Awesome Oscillator is above the zero line forming a gap, go long.
- Twin Peaks is a method that considers the differences between two peaks on the same side of the zero line.
- When the Awesome Oscillator forms two peaks above the zero line, where the second high is lower than the previous one, go short.
- The trough between both peaks, must remain above the Zero Line for the duration of the setup.
- When the Awesome Oscillator forms two lows below the zero line, where the second low one is higher than the previous one, so long.
- The trough between the two lows, must remain below the Zero Line the entire time.
Crossing the Zero Line
- When the AO value crosses above or below the zero line. This indicates a change in momentum.
- When the Awesome Oscillator crosses it from up to down, go short.
- When the Awesome Oscillator crosses from down to up, go long.
Awesome Oscillator Trading Strategy
Awesome Oscillator generates three types of trading signals:
A Saucer Setup looks for more rapid changes in momentum.
The Saucer method looks for changes in three consecutive bars, all on the same side of the Zero Line.
A Bullish Saucer setup occurs when the AO is above the Zero Line. It entails two consecutive red bars (with the second bar being lower than the first bar) being followed by a green Bar.
A Bearish Saucer setup occurs when the AO is below the Zero Line. It entails two consecutive green bars (with the second bar being higher than the first bar) being followed by a red bar.
2. Nought Line Cross
The histogram crosses the naught line in an upward direction changing its values from negative to that of positive ones. In this situation, we have a Buy signal. The Sell signal would be a reversed pattern.
3. Two Pikes
The indicator displays a Buy signal when the figure is formed by two consecutive pikes both of which are below the naught line and the later-formed pike is closer to the zero level than the earlier-formed one. The Sell signal would be given by the reverse formation.
Awesome Oscillator is a 34-period simple moving average, plotted through the central points of the bars (H+L)/2, and subtracted from the 5-period simple moving average, graphed across the central points of the bars (H+L)/2.
MEDIAN PRICE = (HIGH+LOW)/2
AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)
SMA = Simple Moving Average.
Period1 (5) – The number of periods to use for the first simple moving average.
Period2 (34) – The number of periods to use for the second simple moving average.
Period3 (10) – The number of periods to use for the SMA applied to the above 2 moving averages.
The currency of Azerbaijan. Currency code (AZM)
Bags are cryptocurrencies that have plummeted in value from their ATH (all-time high).
This is a investor or trader who has been holding (or hodling) a particular cryptocurrency for too long and now has to face the consequences of that decision.
In extreme cases, a bag holder has bought at a high and missed the opportunity to sell, leaving this person with worthless coins.
The currency of the Bahamas. Currency code (BSD)
The currency of Bahrain. Currency code (BHD)
The term bailout became well known during the 2008 Great Financial Crisis (GFC) as governments around the world spent almost $1 trillion to rescue their banks from collapse.
The term bail-in was coined after the crisis by bankers who wanted to assure the public that the biggest lenders could survive without any more taxpayer handouts. So bail-in is supposed to be the antidote to bailout.
What’s a bail-in?
A bail-in forces investors in a bank’s bonds when a lender goes belly up.
Banks go belly-up when their shareholder equity is wiped out, which happens when loans or investments they’ve made go sour.
In return for taking a cut in the value of their bond, known as a writedown, creditors are usually given shares of the bank in a debt-for-equity swap.
The writedown is the equivalent of fresh capital and lets the bank continue functioning, at least for a while.
When you bail in the creditors, they become new shareholders of the bank while it goes through a resolution process similar to bankruptcy.
It’s less disruptive because the bank can continue functioning with the fresh capital from the creditors.
Although it was originally construed as part of a quick resolution mechanism, the term bail-in has come to cover every case of creditor loss-sharing when a bank gets in trouble.
The bail-in approach was invented in 2010, when executives at Credit Suisse Group AG proposed it as a mechanism to replace bailouts.
The U.S. and the European Union later included the concept in new laws.
What’s the case for bail-in?
Bankers and most regulators have long argued that banks can’t be put through a regular bankruptcy process because their assets lose value extremely fast.
A regulator-supervised resolution that keeps a bank running while winding it down could help prevent a loss of value.
Banks need continuous funding to maintain their assets and a bail-in provides fresh equity to help bridge the gap.
Creditors who are bailed in benefit if assets can be sold in an orderly fashion.
Putting bondholders on the hook is also supposed to reduce the moral hazard created by bailouts.
Moral hazard is the idea that banks will take greater risks if they assume the government will step in should things go wrong.
A bailout is a financial term referring to an extraordinary act of lending, or outright giving, capital to an entity (a company, bank, individual, etc.) that is in danger of failure due to bankruptcy or insolvency. A bailout can also be given to a failing entity to allow it to exit gracefully without leading to a contagion.
The difference in value between a country’s imports and its exports.
The Baltic Dry Index covers dry bulk shipping rates, or the costs of moving raw materials by sea.
Shipping costs vary according to the type of commodity being shipped, the amount (supply and demand).
This index is managed by the Baltic Exchange in London and the data can be directly subscribed to by major financial news services as well as the Baltic Exchange.
The currency of Bangladesh. Currency code (BDT)
A bank levy is what happens when your bank account gets frozen while the money in your account gets taken away from you. This normally happens when you do not pay your taxes or debt.
Normally, it is government agencies (like the IRS) that make use of a bank levy, using it to collect unpaid taxes.
They will freeze your account and they take money equal to the amount that is owed. When you account is under a bank levy , you will not have access to your funds until the entire debt is paid back.
The Bank of Canada (BoC) is Canada’s central bank and is located in Ottawa, the capital of Canada.
Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act.
Canada’s central bank was founded in 1934 and opened its doors in March 1935. In 1938, it became a Crown corporation belonging to the federal government.
The Bank of Canada Act has been amended several times, but the preamble to the Act has not changed.
The Bank still exists “to regulate credit and currency in the best interests of the economic life of the nation.”
The Bank of Canada’s four main areas of responsibility are:
- Monetary policy: The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable.
- Financial system: The Bank promotes safe, sound, and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
- Currency: The Bank designs, issues and distributes Canada’s banknotes.
- Funds management: The Bank is the “fiscal agent” for the Government of Canada, managing its public debt programs and foreign exchange reserves.
In practice, however, it has a more narrow and specific internal definition of that mandate: to keep the rate of inflation (as measured by the Consumer Price Index) between 1% and 3%
The most potent tool the Bank of Canada has to achieve this goal is its ability to set the interest rate for borrowed money.
Because of the large amount of trade between Canada and the United States, specific adjustments to interest rates are often affected by those in the US at the time.
The Bank of Canada is the sole entity authorized to issue currency in the form of banknotes in Canada.
The bank does not issue coins, they are issued by the Royal Canadian Mint.
Canada no longer requires banks to maintain fractional reserves with the Bank of Canada.
Instead, banks are required to hold highly liquid assets such as treasury bills equal to 30 days of normal withdrawals (liquidity coverage), while leverage is primarily tied to adequate loss-absorbing capital, mainly Tier 1 (equity) capital.
The Bank of Canada, although it is run through the Canadian government, is ultimately owned by the people.
The bank was formed in 1934 as a private corporation, but within four years it became a Crown corporation and was taken over by the government.
Unlike other government agencies, however, the bank’s governor and senior governor are appointed by the bank itself.
Who Runs the Bank
The Governing Council
The Bank of Canada is led by the Governing Council, the policy-making body of the Bank, which is responsible for:
- conducting monetary policy
- promoting a safe and efficient financial system
The Governing Council is made up of the Governor, the Senior Deputy Governor, and four Deputy Governors.
The Governing Council’s main tool for conducting monetary policy is the target for the overnight rate (also known as the key policy rate). This rate is normally set on eight fixed announcement dates per year.
The Council reaches its decisions about the rate by consensus, rather than by individual votes, as is the case at some other central banks.
The Executive Council
The Bank’s Executive Council is made up of the Governing Council and the Chief Operating Officer. Together, they chart the strategic direction of the Bank.
As the Bank’s Chief Executive Officer, the Governor ultimately has full control over the business of the Bank. His responsibilities include:
- chairing the Board of Directors;
- leading the Bank’s Governing Council, and
- conducting monetary policy to achieve an inflation target agreed upon by the Bank and the Government of Canada.
The Governor and the Senior Deputy Governor are appointed by the independent directors with the approval of the Governor in Council (the federal Cabinet) for a seven-year term.
This allows the Governor to adopt the medium- and longer-term perspective essential to conducting effective monetary policy.
The Senior Deputy Governor
The Senior Deputy Governor is the deputy executive of the Bank of Canada. She:
- oversees the Bank’s strategic planning and operations;
- shares responsibility for the conduct of monetary policy as a member of the Bank’s Governing Council; and
- is a member of the Bank’s Board of Directors.
The Board of Directors
The Board of Directors is appointed by the Minister of Finance for a three-year term, subject to the approval of the Governor in Council.
It is composed of the Governor, the Senior Deputy Governor, 12 outside directors, and the Deputy Minister of Finance (who has no vote).
Their responsibilities include:
- providing general oversight of the management and administration of the Bank
- reviewing the Bank’s general policies (on matters other than monetary policy and for approving the Bank’s corporate objectives, plans, and annual budget)
- keeping the Bank informed about prevailing economic conditions in their respective regions
- appointing the Governor and Senior Deputy Governor Monetary policy is neither formulated nor implemented by the outside directors.
The Bank of England is the central bank of the United Kingdom.
Its headquarters are in the central financial district of the City of London.
The BoE is also known as the “Old Lady’ of Threadneedle Street”. And as the world’s eight-oldest bank, it’s definitely old. Over 300 years old.
The Bank of England was founded in 1694, nationalized on 1 March 1946, and gained independence in 1997.
Standing at the center of the UK’s financial system, its mission is to “promote the good of the people of the United Kingdom by maintaining monetary and financial stability.”
One of its main jobs is to make sure you can pay for things easily and securely in the UK. So the BoE produces banknotes (cash) and oversees many of the other payment systems you use (like debit or credit cards).
It also works to keep the cost of living stable so the British pound (GBP) keeps its purchasing power. One way it does is by changing the main interest rate in the UK.
The BoE also regulates and supervises all the major banks, building societies, credit unions, insurers, and investment firms in the UK to make sure they are safe and sound.
The BoE keeps the whole UK financial system stable.
A financial system connects people who want to save, invest, or borrow money.
Lastly, it keeps the UK’s financial system stable by keeping a close watch on any risks and taking action if needed.
For example, the BoE can lend to banks if they need it to ensure they can continue to lend to businesses and support the economy. And it makes sure that a failing bank doesn’t cause problems for the depositors, UK taxpayers, or the wider economy.
Monetary Policy Committee
The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets for three and a half days, eight times a year, to decide the official interest rate in the United Kingdom.
The official bank rate (also called the “Bank of England base rate” or BOEBR) is the interest rate that the Bank of England charges banks for secured overnight lending.
It is the British Government’s key interest rate for enacting monetary policy. It’s like the U.S. discount rate, which is the interest rate that U.S. banks can borrow from the Fed.
It is also responsible for directing other aspects of the government’s monetary policy framework, such as quantitative easing and forward guidance.
The Committee comprises nine members, including the Governor of the Bank of England.
The Bank for International Settlements (BIS) is the central bank for central banks.
Its customers are central banks and international organizations. The BIS does not accept deposits from or provide financial services to private individuals or corporate entities.
Established in 1930, the Bank for International Settlements is the oldest international financial institution.
The BIS is owned by 62 central banks, representing countries from around the world that together account for about 95% of world GDP.
From its inception to the present day, the BIS has played a number of key roles in the global economy.
Its head office is in Basel, Switzerland and it has two representative offices: in Hong Kong SAR and in Mexico City.
Their mission is “to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.”
It has three main purposes:
- Aim at promoting monetary and financial stability.
- Act as a forum for discussion and cooperation among central banks and the financial community.
- Act as a bank to central banks and international organizations.
The BIS frequently acts as the market intermediary between national central banks and the market.
The BIS has become increasingly active as central banks have increased their currency reserve management.
When the BIS is reported to be buying or selling at a level, it is usually for a central bank and thus the amounts can be large.
The BIS is used to avoid markets mistaking buying or selling interest for official government intervention.
As part of their work in the area of monetary and financial stability, they regularly publish related analyses and international banking and financial statistics that underpin policymaking, academic research, and public debate.
The Bank of Japan (BoJ) is the central bank of Japan.
It is a juridical person established based on the Bank of Japan Act of 1882 and is not a government agency or a private corporation
The bank is often called Nichigin (日銀) for short.
It has its headquarters in Chūō, Tokyo, and is run by a group of individuals known as “The Policy Board“.
The Bank of Japan’s objectives are:
- “to issue banknotes and to carry out currency and monetary control” and
- “to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of the stability of the financial system.”
The BoJ achieves this by influencing short- and long- term interest rates to remain at target levels and purchases assets, mainly through open market operations.
Monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPMs).
At MPMs, the Policy Board discusses the nation’s economic and financial situation, sets the guidelines for money market operations and the Bank’s monetary policy stance for the immediate future.
MPMs are held eight times a year for two days.
Monetary policy decisions are made by a majority vote of the nine members of the Policy Board, which consists of the Governor, the two Deputy Governors, and the six other members.
Immediately after an MPM, the Outlook for Economic Activity and Prices (Outlook Report), also known as the “The Bank’s View”, is released.
A week after the MPM, a Summary of Opinions is released. This is literally a summary of opinions on economic and financial developments and monetary policy.
About two months after the MPM, the minutes of the meeting will be released, which is called…surprise surprise..the MPM Minutes.
A list of scheduled dates of the meetings, policy statements, minutes of the meetings; and the Outlook for Economic Activity and Prices (the Outlook Report) can be found on the BoJ’s website.
A bank run takes place when a bank’s depositors try to withdraw all their money as they worry about the bank’s stability.
This usually happens when depositors realize that their money is parked in a bank that is heavily exposed to bad debt, when credit rating agencies downgrade the bank’s standing, or when the bank is rumored to be close to bankruptcy.
As more people demand to withdraw their money, their fear becomes a self-fulfilling prophecy as banks reserves are usually not filled with enough cash to cover sudden and massive withdrawals.
Eventually, this could push the bank closer to insolvency and increase the likelihood of default.
Banking institutions cater to both the majority of commercial turnover and large amounts of speculative trading every day. The set of forex products offered by various banking institutions vary depending on their size. Some banks offer only spot exchange and currency forwards while the larger institutions offer currency options, currency swaps, currency futures, and option-dated currency forwards.
A large bank could trade billions of dollars daily, much of which is undertaken on behalf of customers, but some is conducted by proprietary desks, in other words: trading for the bank’s own account.
A study by Greenwich Associates reveals that the top foreign exchange dealers are dominated by banking institutions such as Deutsche Bank, UBS, Citigroup, Barclays, and the Royal Bank of Scotland. The exact percentage of the daily global forex turnover accountable to banking institutions is not known but Deutsche Bank and UBS each comprise more than 10% of the market share.
A type of chart used in the forex. It has four major points- the high and low prices which form the vertical bar, the opening price marked on the left side of the bar, and the closing price marked on the right.
The currency of Barbados. Currency code (BBD)
What is Base Currency?
The base currency is the first currency in a currency pair.
It compares the values between the first currency and the second currency in a currency pair.
In the forex market, currency unit prices are quoted as currency pairs.
The base currency, which is also known as the transaction currency, is the first currency appearing in a currency pair quotation.
The second part of the currency quotation is called the quote currency or the counter currency.
For example, if you were looking at the EUR/USD currency pair, the euro would be the base currency and the U.S. dollar would be the quote currency.
In forex, currency pairs are written as XXX/YYY or simply XXXYYY.
Here, XXX is the base currency and YYY is the quote currency.
EUR/USD and USD/CAD are two examples of this format.
The abbreviations used for currencies are prescribed by the International Organization for Standardization (ISO). These codes are provided in standard ISO 4217.
Currency pairs use these codes made of three letters to represent a particular currency.
Currencies showing a currency pair are usually separated with a slash character. The slash is sometimes removed but it means the same thing.
The base rate, or base interest rate, is the interest rate that a central bank, like the Bank of England or Federal Reserve, will charge to lend money to commercial banks.
Basing is a chart pattern used in technical analysis that shows when demand and supply of a product are almost equal.
It results in a narrow trading range and the merging of support and resistance levels.
A basis point is a unit used in trading to describe a fraction of the percentage used to express changes in the value of financial instruments.
It is equal to one-hundredth of one percent, or 0.01%.
A basis is also referred to as bp, which is pronounced “bip” or “beep”.
What is basis point?
A basis point is used as a measure of the change in the value of assets or a change in interest rates.
The basis point represents change expressed as a percentage of the value.
It signifies a fraction of the percentage, meaning that one basis point change would indicate a change of 0.01 percent, while a 100 percent change in terms of bps would be a 10,000 basis points change.
Accordingly, a basis point denotes one-hundredth of one percent (1/100 of 1 percent).
The translating basis point to percentage is done by dividing the basis point by 100.
Translating percentage change to basis point is done by multiplying the percentage by 100.
For example, a change in an instrument is stated to be 80 basis points. The conversion is as follows:
80 basis point to percentage = 80/100 = 0.8%
Another example, the change for another instrument is 2%. The conversion is as follows:
2% to basis points = 2 x 100 = 200 basis points.
What does basis point mean?
The need for this type of measure comes from the confusion which may arise when changes are stated only in percentages.
For example, saying that the rate of 10 percent has a positive change of 2 percent is difficult to understand.
So is the change from the current 10 percent to 12 percent or the increased rate is 10.2 percent?
Avoiding this kind of misinterpretation is possible when changes are stated in basis points.
When something changes by 20 basis points, it is clear that the change is 0.20 percent.
The basis points could indicate a change in the interest rates, bond yields, stock prices, and other financial assets.
Interest Rate Example
The current interest rate is 1 percent.
A central bank says it will increase its benchmark interest rate by 50 basis points.
This would mean that the new interest rate would be:
1 percent + 0.5 percent (or 50 basis points) = 1.5 percent
A bear is a trader who believes that prices will decline.
Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory.
They hold an opposite view to bulls, who believe that a market is going to head upwards.
A bear flag is a bearish chart pattern that’s formed by two declines separated by a brief consolidating retracement period.
The flagpole forms on an almost vertical panic price drop as bulls get blindsided from the sellers, then a bounce that has parallel upper and lower trendlines, which form the flag.
The initial sell-off comes to an end through some profit-taking and forms a tight range making slightly higher lows and higher highs.
This illustrates that there is still selling pressure present although traders are also entering long positions looking for a reversal and this forces price to drift in an upwards direction.
During the consolidation, traders should be prepared to take action should price break down through the lower range level and/or make a new low as this indicates the bears are in control again to force another sell-off.
When the lower trendline breaks, it triggers panic sellers as the downtrend resumes another leg down
The success of a bear flag can be greater after a significant downside move due to the possible increase of overhead resistance.
Bear flags can be stronger when the swing low that begins the pattern is also an all-time low due to the possible lack of underlying support.
A bear market is a market in which prices are noticeably declining.
When the market is on a sustained downward trajectory, with little optimism or lots of pessimism from traders to bring about a rally, it is referred to as a bear market.
A bear trap is a situation when traders put on a short position when the price of a currency pair is falling, only for the price to reverse and move higher.
Bearish traders think the recent price action signals that an uptrend has ended when it actually has NOT.
Instead of declining further, the price stays flat or the uptrend resumes.
A bear trap results in a false trend reversal when the price is in an uptrend.
How a Bear Trap Works
Traders, usually institutional traders, who “set” the bear trap do so by selling the asset until it fools other traders into thinking its upward trend has stopped or is dropping.
Bear traps tempt traders into entering short positions based on the expectation that price will continue to fall which never happens.
The gullible and/or amateur traders who fall into the bear trap will often go short, thinking price will drop further.
They start shopping online for lambos thinking they’ll be rich soon.
At that point, the institutional traders who set the trap will buy at the lower price and will release the “trap”.
This counter move produces a trap and often leads to sharp rallies.
Eventually, they are forced to exit out of their short positions.
To exit a short position requires buying, so this buying pressure will cause the price to rise even further.
The bears are caught in a trap.
Once the bear trap is released, the price usually resumes its uptrend.
The term “bearish” means a trader is pessimistic and that the price will go lower from where it currently is.
If you are bearish on a market, you believe that the market is going to fall.
A “bearish market” is when the price is in a downtrend, marked by lower highs and lower lows.
The Bearish Engulfing pattern is a two-candlestick pattern that consists of an up (white or green) candlestick followed by a large down (black or red) candlestick that surrounds or “engulfs” the smaller up candle.
Basically, the pattern gets its name because the second candle engulfs the first candle.
The Bearish Engulfing candlestick pattern is considered to be a bearish reversal pattern, usually occurring at the top of an uptrend.
To identify the Bearish Engulfing pattern, look for the following criteria:
- There should be a definite uptrend in progress.
- The first candle must be a white (bullish) candlestick.
- The second candlestick must be black (bearish).
- The black candlestick must completely cover the white candle (i”engulf” it). This means that the top of the black candle’s body must be above the top of the white candle’s body, and its bottom must be below the bottom of the white candle’s body.
The opposite pattern of the Bearish Engulfing pattern is the Bullish Engulfing pattern.
This difference is that the Bullish Engulfing pattern occurs in a downtrend followed by a down (black or red) candle that is engulfed by a white candle.
Before the Bearish Engulfing pattern occurs, the price must be in a definite uptrend.
The market gaps up but then selling pressure appears and forces the price to fall so hard, that the candle closes lower than the previous up (white or green) candle.
This second candle signals a shift in sentiment and a trend reversal is likely.
The pattern has greater reliability when the open price of the engulfing candle is well above the close of the first candle, and when the close of the engulfing candle is well below the open of the first candle.
The larger the second candle is compared to the first candle, the stronger the bears have become.
To analyze a specific Bearish Engulfing pattern, observe the following:
- If the preceding uptrend is significant, the pattern will likely be effective.
- The higher the top and the lower the bottom of the engulfing candlestick’s body, the more powerful the pattern is.
This means a trader with a substantial amount of capital who is bearish (believes price will fall) on the price of a cryptocurrency.
A summary of economic conditions around the United States compiled for the Federal Reserve Board. Each Federal Reserve Bank gathers anecdotal information on current economic condition in its District through reports from Bank and Branch directors and interviews with key businessmen, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. This report allows outsiders to know what the Fed governors are looking at as they prepare for their upcoming FOMC meeting.
The Fed uses this report, along with other indicators, to determine interest rate policy at FOMC meetings. The Beige Book is considered a valuable tool, acting in essence as a general gauge on the overall strength of the economy, it is even considered that occasionally it can have the power to shift market reactions if the findings represent a significant enough deviation from current analyst expectations.
It must be remembered, however, that the report does not actually provide a clear view of what the FOMC members think about the economy, but instead presents a series of economic facts concerning the various districts. It is also worth bearing in mind that while these facts may be accurate, they appear in the form of descriptive information, not as a break down of the actual data itself.
If the Beige Book portrays inflationary pressure, the Fed may raise interest rates, which is dollar bullish.
If the Beige Book portrays recessionary conditions, the Fed may lower interest rates, which is dollar bearish.
Two weeks before each FOMC meeting, the Fed releases the Beige Book so called due to its tan cover. It provides current information on eocnomic conditions around the United States. This book is given to each FOMC member. The Beige Book is not a collection of statistical data. It is compliation of anecdotal information from each of the 12 Federal Reserve Districts and is based on interviews with local businesspeople and academics who are surveyed about the econcomic health in their region.
Federal Reserve Board
It is released at 2:00pm EST two Wednesdays before each FOMC meeting.
Eight times a year.
The ‘Beige Book’ is the informal name given to the report issued by the Federal Reserve, the full name for the Beige Book report is actually “Summary of Commentary on Current Economic Conditions by Federal Reserve District”.
The Beige Book is released eight times a year, two Wednesdays prior to each FOMC (Federal Open Market Committee) meeting and is a key tool in advising the members on changes that have occurred within the economy since the last meeting.
Essentially, the Beige Book is a compilation of data gathered from each District within the Federal Reserve and is a mixture of anecdotal evidence on current economic conditions in the district gained through reports from various bank directors and also interviews with economists and market experts, along with other sources. The Beige Book report presents this information in the form of summaries by both district and sector.
The currency of Belarus. Currency code (BYR)
The currency of Belize. Currency code (BZD)
Former Chairman of the Board of Governors of the United States Federal Reserve (Fed) from 2006 to 2014
Ben Bernanke, born Ben Shalom Bernanke in 1953 in Augusta, Georgia (USA) graduated from Harvard University in 1975.
He earned a Ph.D. in 1979 from the Massachusetts Institute of Technology. Ben Bernanke taught economics from 1979 to 1985 at Stanford University, and was a professor at Princeton University
The currency of Bermuda. Currency code (BMD)
The currency of Bhutan. Currency code (BTN)
The bid is the amount that your broker is willing to pay in order to buy a financial instrument.
It is the opposite of an ask, which is the price that a seller will take in order to part with a financial instrument.
In forex, this is the price that you, the trader, may sell the base currency.
Bids usually comprise two elements:
- The price which the buyer is willing to pay
- The quantity of the financial instrument they are looking to purchase.
A trade is executed when a matching bid and ask are combined.
For example, a trader bidding 110.25 for 1,000 units of USD/JPY will see their trade executed when a seller agrees to that price and level.
The bid (the price at which you can sell an asset) is quoted as lower than the ask, and the difference between the two is known as the spread.
The bid/ask spread is the difference between the bid and ask price.
The “ask” price is also known as the “offer” price.
It’s the difference between the buyer’s and seller’s prices.
The “bid “represents demand and the “ask” represents supply for an asset.
In other words, it’s what the buyer is willing to pay for something versus what the seller is willing to get in order to sell it
Biflation is a phenomenon where both inflation and deflation occur at the same time. This term was coined by Dr. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment group.
Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting.
For example, a quote of “50/60” on EUR/USD could indicate a price of 1.3050/60.
The numbers to the left of the decimal point in an exchange rate.
Known as the Big Mac Purchasing Power Parity. Used by The Economist to show the value of a currency based on the price of a McDonald’s Big Mac in that country.
In finance, binary option (also called fixed return option, all or nothing or digital option)is a type of option where the payoff is either some fixed amount of some asset or nothing at all. Binary options have been available since the middle of 2008.
Binary options are trading options that pay out a pre-set and fixed amount if the underlying asset on which the option is based reaches the trader
Bitcoin (BTC) is a form of digital currency that runs on a distributed network of computers.
You can’t hold bitcoins n your hand as you would with traditional currency.
Instead, bitcoin is created and held in digital form and relies on cryptography for security.
Because it is a digital currency, bitcoin is pretty much like email for money.
Just like how you can create an email address to send, store, and receive messages, you can also create a bitcoin wallet to send, store, and receive money.
And just like with email, all you need is a smartphone and an internet connection.
Bitcoin is a decentralized currency, meaning it is not controlled by a single entity (like a central bank). Nobody controls it.
It was the world’s first cryptocurrency with the first Bitcoin block, known as the genesis block (or block 0), being mined on January 3, 2009.
The digital currency is referred to as bitcoin (with lower “b”) or simply BTC.
Bitcoin was created by a person (or group) under the pseudonym Satoshi Nakamoto.
The idea was to create a unique digital payment system that would permit borderless financial transactions to occur without the need for mediators like banks or governments.
The promise of Bitcoin is that it can become a global payment platform that is not in the control of any company, government, or special interest (other than the developers and miners of the Bitcoin community).
Bitcoin Cash is peer-to-peer electronic cash for the internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate.
It was created in August 2017 and is essentially a clone of the original Bitcoin blockchain but has increased block size capacity (from 1 MB to 8 MB) which improves its ability to grow and scale.
The original Bitcoin uses 1 MB block sizes, but Bitcoin Cash supporters believed a larger block size could better serve the currency during its scaling process. So on August 1, 2017, the Bitcoin blockchain forked into two different chains. Bitcoin still uses 1 MB blocks, while the newly-formed Bitcoin Cash uses 8 MB block sizes.
What is the ticker symbol for Bitcoin Cash?
Bitcoin Cash is represented by a number of different ticker symbols depending on the service or wallet.
BCH or BCC are the most popular tickers, with XBC being used to meet the International Standard for currency codes (ISO 4217).
People who predicted (or gambled on) bitcoin’s rise when it was still small. Their love for the cryptocurrency is so strong most or all of their portfolio comprised of bitcoins. Maximalists are typically so heavily invested into bitcoin, they refuse to see its many downsides even when laid out clearly.
A block refers to a collection of data related to transactions that are bundled together with a predetermined size and are processed for transaction verification which eventually becomes part of a blockchain.
An online browser where all the information of the blocks is displayed. It also shows the transaction history and address balance.
For example, the Bitcoin Block Explorer is a web tool that provides detailed information about Bitcoin blocks, addresses, and transactions.
The block header contains the necessary metadata for “chaining” blocks together to form the blockchain. This metadata differs between cryptocurrencies.
The block height is the quantity of blocks following the very first one on the blockchain. The very first block is referred to as the genesis block. A genesis block always has a height of zero when nothing follows it. The longer the blockchain is, the higher is the quantity of the block height.
The reward for each block created. This is an incentive reserved for solving the mathematical problem linked to the block. Different kinds of cryptocurrencies give out block rewards with different values. For example, the reward for mining a Bitcoin block is 12.5 bitcoins per block mined, which halves every 210,000 blocks.
A blockchain is decentralized, digital ledger where transactions made in bitcoin or other cryptocurrencies are recorded chronologically and publicly.
The block contains information that, once added to the blockchain, becomes part of the permanent and immutable database, connecting to other blocks in the blockchain like the links in a chain.
A blue chip stock is that of a well-established company which is considered stable and which pays regular dividends. Typically, the term ‘blue chips’ is used to refer to the constituents of the major stock indices. The term derives from the high value of blue casino chips.
The currency of Bolivia. Currency code (BOB)
Bollinger Bands (BB) is a popular technical indicator created by John Bollinger that helps determine whether prices are high or low on a relative basis.
Bollinger Bands (BB) were created in the early 1980s by trader, analyst, and teacher John Bollinger.
The indicator filled a need to visualize changes in volatility.
Traders generally use Bollinger Bands to determine overbought and oversold zones, to confirm divergences between prices and indicators, and to project price targets.
Bollinger Bands consist of a band of three lines that are plotted in relation to prices.
The three lines:
- Upper Band
- Middle Line
- Lower Band
The line in the middle is usually a Simple Moving Average (SMA) set to a period of 20 days
The SMA then serves as a base for the Upper and Lower Bands.
The Upper and Lower Bands are used as a way to measure volatility by observing the relationship between the Bands and price.
Typically the Upper and Lower Bands are set to two standard deviations away from the SMA (The Middle Line), but can usually be adjusted by the trader.
As volatility increases, the wider the bands become. Likewise, as volatility decreases, the gap between bands narrows.
- Period (20) – the number of bars, or period, used to calculate the study. John Bollinger recommends an optimal period of 20 or 21 periods and warns that periods of less than ten periods do not seem to work well.
- Band Width (2) – The half-width of the band in terms multiples of standard deviation. Typically, “2” is used.
First, calculate a simple moving average. Next, calculate the standard deviation (SD) over the same number of periods as the simple moving average (SMA).
For the upper band, add the standard deviation(SD) to the simple moving average (SMA). For the lower band, subtract the standard deviation (SD) from the simple moving average. (SMA)
Typical values used:
- Short term: 10-period moving average, bands at 1.5 standard deviations. (1.5 times the standard dev. +/- the SMA)
- Medium-term: 20-period moving average, bands at 2 standard deviations.
- Long term: 50-period moving average, bands at 2.5 standard deviations.
How Bollinger Bands Work
- When the bands tighten during a period of low volatility, it raises the likelihood of a sharp price move in either direction. This may begin a trending move. Watch out for a false move in the opposite direction which reverses before the proper trend begins.
- When the bands separate by an unusually large amount, volatility increases and any existing trend may be ending.
- Prices have a tendency to bounce within the bands’ envelope, touching one band then moving to the other band. You can use these swings to help identify potential profit targets. For example, if a price bounces off the lower band and then crosses above the moving average, the upper band then becomes the profit target.
- Price can exceed or hug a band envelope for prolonged periods during strong trends. On divergence with a momentum oscillator, you may want to do additional research to determine if taking additional profits is appropriate for you.
- A strong trend continuation can be expected when the price moves out of the bands. However, if prices move immediately back inside the band, then the suggested strength is negated.
How to Use Bollinger Bands
Traders generally use Bollinger Bands to determine overbought and oversold zones, to confirm divergences between prices and studies, and to project price targets.
The wider the bands, the greater the volatility. The narrower the bands, the lesser the volatility.
Some traders use Bollinger Bands with other technical indicators, such as RSI.
- If price touches the Upper Band and the other technical indicator does not confirm the upward move (i.e. there is divergence), a sell signal is generated.
- If the other technical indicator confirms the upward move, no sell signal is generated, and in fact, a buy signal may be indicated.
- If price touches the Lower Band and the other technical indicator does not confirm the downward move, a buy signal is generated.
- If the other technical indicator confirms the downward move, no buy signal is generated, and in fact, a sell signal may be indicated.
Another strategy is to the Bollinger Bands by itself.
- In this approach, a chart top occurring above the Upper Band followed by a top below the upper band generates a sell signal.
- On the other hand, a chart bottom occurring below the Lower Band followed by a bottom above the lower band generates a buy signal.
Bollinger Bands also helps determine overbought and oversold markets.
- When prices move closer to the upper band, the currency pair is becoming overbought, and as the prices move closer to the lower band, the currency pair is becoming oversold.
- The price momentum should also be taken into account. When a price enters an overbought or oversold area, it may become even more so before it reverses.
- You should always look for evidence of price weakening or strengthening before anticipating a trend reversal.
Bollinger Bands differ from similar indicators such as Keltner Channels or Moving Average Envelopes in such a way that the width of the range is not constant, but it changes according to historical volatility.
If volatility increases, the band becomes wider, and if volatility decreases, the band becomes narrower.
- A significant widening of the band may signal the end of a trend.
- A significant narrowing of the band implies the start of a new trend.
Bollinger Bands are comprised of a Middle band (SMA), and Upper and Lower Bands based on Standard Deviation (SD) which contract and widen with volatility.
The Bands are a useful tool for analyzing trend strength and monitoring when a reversal may be occurring.
Bollinger Bands are not predictive though. They are always based on historical information and therefore react to price changes, but don’t anticipate price changes.
Like other indicators, Bollinger Bands are best used in conjunction with other indicators, price analysis, and risk management as part of an overall trading plan.
A bond is a financial instrument that involves lending money to an institution for a fixed period of time.
Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.
When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.
In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it “matures,” or comes due after a set period of time.
Governments (at all levels) and corporations commonly use bonds in order to borrow money. Governments need to fund roads, schools, dams, or other infrastructure.
Corporations will issue bonds to grow their business, to buy property and equipment, to undertake profitable projects, for research and development, or to hire employees.
A bond is referred to as a fixed-income instrument since bonds traditionally paid a fixed interest rate (coupon) to debtholders. Variable or floating interest rates are also now quite common.
Bonds are the most common type of fixed-income security, but others include CDs, money markets, and preferred shares.
Bonds usually come in four varieties, depending on the type of institution you are lending to.
- Corporate bonds are issued by companies. Companies issue bonds rather than seek bank loans for debt financing in many cases because bond markets offer more favorable terms and lower interest rates.
- Municipal bonds are issued by states and municipalities. Some municipal bonds offer tax-free coupon income for investors.
- Government bonds such as those issued by the U.S. Treasury. Bonds issued by the Treasury with a year or less to maturity are called “bills”; bonds issued with 1–10 years to maturity are called “notes”; and bonds issued with more than 10 years to maturity are called “bonds”. The entire category of bonds issued by a government treasury is often collectively referred to as “Treasuries.” Government bonds issued by national governments may be referred to as sovereign debt.
- Agency bonds are those issued by government-affiliated organizations such as Fannie Mae or Freddie Mac.
Owners of bonds are debtholders, or creditors, of the issuer.
The bond will contain details of its interest rate (known as its coupon) from the outset.
Since your initial investment is returned to you after the period of the bond expires (called the maturity date), this is the only profit that bonds pay.
Bond values are set at a par, typically either $100 or $1000.
This represents the face value, or the amount that the initial investment will be worth at the bond’s maturity. Interest rates are a calculation of the credit status of the issuer and the duration of the loan.
Bond prices are inversely correlated with interest rates: when rates go up, bond prices fall and vice-versa.
Bonds have maturity dates at which point the principal amount must be paid back in full or risk default.
A government bond auction is the process of selling short and long-term government bonds to investors in an attempt to minimize the cost of financing national debt.
The process starts with the central bank announcing how much money it intends to borrow. Details like the term length of the bonds and the date of the auction are included in the announcement.
Interested market players like broker-dealers, institutions, and individual investors then submit the amount of bonds that they
A bond yield is an annual amount you receive in interest from a bond, as a percentage of the bond’s initial cost.
It is the premium that investors are paid for holding on to government or corporate debt.
Bond yield is used to compare the potential returns of all kinds of bonds.
Basically, a bond is a loan and they function pretty much in the same way a local bank charges borrowers for interest on the loans it gives out.
Traders pay attention to bond yields because they reflect investor confidence.
If there is a weak demand for a bond, its yields rise to attract more buyers.
On the other hand, lower bond yields typically imply that there is a high demand from investors, either because they are confident that they will get paid back at maturity or that they feel it is a safe place to hold their assets.
The interest rate the bond issuer will pay is called the coupon and it is fixed, but the yield varies because the formula depends on the price of the bond in the market.
For example, if you pay $100 for a bond with an interest rate of 5%, the yield you receive will be 5%.
But if you bought that same bond for $88, the yield would be about 5.7%.
This figure is known as the current yield.
It’s based on market price and is the one most commonly used by investors to compare bonds.
There are other types of bond yield to look at.
- Nominal yield, which is the interest paid out divided by the bond’s face (original) value.
- Yield to maturity, which shows the average yield you can expect bond if you hold it until it reaches the end of its term.
An overall summary of a trader’s positions.
Boris Schlossberg is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com.
Widely known as a leading foreign exchange expert, Boris has more than 20 years of financial market experience.
His career on Wall Street began over 2 decades ago with Drexel Burhnam Lambert and during that time he has traded a variety of financial instruments, from equities and options to stock index futures and foreign exchange.
In 2004, Boris joined FXCM and helped start the firm’s FX Education initiative.
In 2005, he joined FXCM’s research team as Senior Currency Strategist and provided fundamental and technical analysis to the company’s global network of individual and institutional customers, as well as financial media outlets.
In 2007, while still at FXCM, Boris started BKForex Advisors with Kathy Lien.
A year later, Boris joined Global Futures & Forex Ltd as Director of Currency Research where he provided research and analysis to clients and managed a global foreign exchange analysis team with Kathy Lien.
Since 2012 Boris has focused exclusively on running BKForex.com where he generates trade ideas and designs algorithms for the FX market in partnership with Kathy.Lien.
Boris’ extensive experience in trading and developing momentum based techniques provide the foundation for BK Asset Management’s strategies.
Mr. Schlossberg is a weekly contributor to CNBC’s Squawk Box and a regular commentator for CNBC Asia and CNBC Europe
His daily currency research is widely quoted by Reuters, Dow Jones, and Agence France Presse newswires and appears in numerous newspapers worldwide.
Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities
He is the author of the following books:
- Technical Analysis of the Currency Market
- Millionaire Traders: How Everyday People Beat Wall Street at its Own Game
The currency of Botswana. Currency code (BWP)
The currency of Brazil. Currency code (BRL)
A breakdown is a breakout to the downside.
Price trades sideways for a while but it is unable to garner the strength to move higher. When this happens, it signals buyer weakness.
A breakdown happens when there is a breakout downward through support.
The buyers who used to be at this level are gone, but there is still selling pressure.
Price that breaks downwards through a support level is expected to continue to fall.
This is considered a sell signal. Especially if volume is also increasing.
If the price has fallen significantly since the break, a better price can be achieved by waiting for a reaction back.
Please note that price in an uptrend often triggers false sell signals on breakdowns through support.
The point at which gains equal to losses.
In terms of price action, it is the level at which the risk on the trade is recovered. This means that if the trader chooses to close at that particular price, he neither wins nor loses.
A breakout is when the price moves above a resistance level or moves below a support level.
The price movement of a breakout can be described as a sudden, directional move in price that is typically followed by increased volatility and heavy volume.
Traders who trade breakouts live by the motto, “No price is too high to buy and no price is too low to sell.”
Because not all traders recognize or use the same support and resistance levels, breakouts can be subjective.
Breakouts indicate the potential for the price to start trending in the breakout direction.
A breakout to the upside indicates that the price will start trending higher. This signals traders to possibly go long or exit short positions.
Once the resistance level is broken, it reverses its role and turns into a support level if price experiences a correction or pullback.
A breakout to the downside, also called a breakdown, hat the price will start trending lower. This signals traders to possibly go short or exit long positions.
Once the support level is broken, it reverses its role and turns into a resistance level if price experiences a correction or pullback.
Breakouts that occur on HIGH volume (relative to normal volume) show greater conviction which means the price is more likely to trend in that direction.
Breakouts that occur on LOW volume (relative to normal volume) show weak conviction and are more prone to failure. Price is less likely to trend in the breakout direction.
How to Trade Breakouts
A breakout occurs because the price has been contained below a resistance level or above a support level, potentially for some time.
The resistance or support level becomes a line in the sand that many traders use to set entry points or place their stop losses.
When the price breaks through the support or resistance level, two things usually happen:
- Traders waiting for the breakout jump in.
- Traders who had placed their stop losses in this area get stopped out.
This surge in buying and selling will often cause the volume to rise, which shows that lots of traders were interested in the breakout level.
Breakouts are commonly associated with chart patterns, including rectangles, triangles, wedges, and pennants.
These patterns are formed when the price moves in a certain way that support and/or resistance levels develop.
These levels are monitored heavily by traders.
If the price breaks above resistance, traders go long. If price breaks below support, traders go short.
After a breakout, the price may, but not always, retrace to the breakout point before moving in the breakout direction again.
After an upside breakout, the price may retest its previous resistance level, which has now turned into a support level.
After a breakdown (downside breakout), the price may retest its previous support level, which has now turned into a resistance level.
This happens because some shorter-term traders will often buy the initial breakout, and then quickly take profit.
In order to exit their long position, they must sell. This selling temporarily drives the price back to the breakout point.
If the breakout is genuine, then the price should move back in the breakout’s direction. If it doesn’t, it’s a “fakeout” or “failed breakout“.
Fakeouts do occur regularly.
The price will often move just beyond resistance or support. This tricks the gullible breakout traders into entering.
The price then reverses and fails to continue moving in the breakout’s direction.
This can happen multiple times before a real breakout happens.
Trading breakouts is not easy.
Trading chart patterns like triangles, flags, and pennants provide higher-probability breakouts than ranges (or rectangles).
Since ranges are easier to identify, this means ranges attract traders who have opposite approaches:
- Breakout traders
- Range traders
In this scenario, opposites do not attract. They create fakeouts.
Brent Crude is one of three major oil benchmarks used by those trading oil contracts, futures, and derivatives.
It is also called Brent oil, Brent blend, and London Brent.
The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman, though there are many smaller oil varieties traded as well.
Brent crude is the most traded of all of the oil benchmarks.
Most oil is priced using Brent Crude as the benchmark, akin to two-thirds of all oil pricing.
Brent blend is not traded directly in real-time, but brent futures are traded on the Intercontinental Exchange (ICE) as well as NYMEX, with delivery dates for all 12 months of the year.
This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. This makes it easy to refine into diesel fuel and gasoline.
Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes (also known as the BFOE Quotation).
Its relative ease of transporting being produced at sea, make it so widely traded.
The Brent Crude oil marker is also known as Brent Blend, London Brent, and Brent petroleum.
The Bretton Woods Agreement is a pact that was made all the way back in the 1940’s by the economic powers at that time to stabilize currencies. What it did was establish a fixed exchange rate for currencies in terms of gold to make trade among nations easier. This kind of exchange rate system lasted until 1971, before the US finally decided to end the convertibility of the dollar to gold.
BRIC is an acronym for the economic bloc of countries consisting of Brazil, Russia, India, and China.
In 2010, South Africa joined the BRIC group.
BRIC countries were originally projected to be the fastest-growing market economies by Jim O’Neill of Goldman Sachs in 2001.
The Goldman Sachs thesis does not argue that these countries are a political alliance, like the European Union (EU), or a formal trading association. Instead, it asserts they have power as an economic bloc.
Economists believe these nations will become dominant suppliers of manufactured goods, services, and raw material by 2050 due to low labor and production costs.
A broadening formation is an example of a consolidation pattern and a highly useful tool in the prediction of the likelihood of a reversal in the direction of a current trend. When found in an uptrend it indicates not a continuation of that trend, but a near-term reversal of the price action.
The broadening formation occurs when the fluctuation within the price produces a series of higher highs and of lower lows that steadily widen over time and are generally thought to be found only in found in topping formations where they are considered to be the result of unrealistic expectations of bullish investors.
Unlike the majority of other consolidation patterns, broadening formations feature increasingly wide ranges and are subject to much greater levels of volatility as time passes. Volume levels increase as the share price rises, which although normally indicates a bullish position rallies in this instance usually prove to be very short lived and the following declines are prone to decimating former support levels leading to an eventual collapse.
A broker is a financial intermediary that matches counterparties to a transaction without being a party to it.
In forex, a broker is an agent or company that executes orders to buy and sell currencies for their clients.
They act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties.
Brokers are agents working on commission and not principals acting on their own account.
A broker-dealer is a financial intermediary whose activities include acting as both broker and dealer in financial markets.
BTD is an acronym for “Buy the Dip“. It’s spoken between traders to suggest buying a specific cryptocurrency during a price dip.
BTFD means “Buy The Fucking Dip”.
BTFD is just an ultra-sophisticated way to say, “When price retraces in an uptrend, go long.”
In a strong bull market, dips are gifts.
So your mindset should be focused on one thing and one thing only.
Dips are lyfe. BTFD.
When people are panicking and selling due to FUD, this is the time to BTFD.
The currency of Bulgaria. Currency code (BGN)
A bull is a trader who believes that prices will rise.
Bulls are speculators who are optimistic that a market, instrument, or sector is going on an upward trajectory.
A bull flag is a bullish chart pattern formed by two rallies separated by a brief consolidating retracement period.
The flagpole forms on an almost vertical price spike as sellers get blindsided from the buyers, then a pullback that has parallel upper and lower trendlines, which form the flag.
The initial rally comes to an end through some profit-taking and price forms a tight range making slightly lower lows and lower highs.
Eventually, the price peaks and forms an orderly pullback where the highs and lows are literally parallel to each other, forming a tilted rectangle.
This illustrates that there is still support in the market although the unwinding of some large long positions and traders entering short positions looking for a reversal forces the price to drift in a downwards direction.
During the consolidation, traders should be prepared to take action should price break up through the upper range level and/or make a new high as this indicates the bulls are in control again to push another rally.
Upper and lower trendlines are plotted to reflect the parallel diagonal nature.
The breakout forms when the upper resistance trend line breaks again as prices surge back towards the high of the formation and explode through to trigger another breakout and uptrend move.
The sharper the spike on the flagpole, the more powerful the bull flag can be.
A bull market is a market characterized by rising prices.
When a market, instrument, or sector is on an upward trend, it is generally referred to as a bull market.
Although the term bull market can be used loosely to refer to any strong market activity, it is often used in the financial markets when the price of an asset rises 20% or more from its previous low point.
Typically, a bull market arises when investors are optimistic about the future performance of an asset or the overall market indexes.
While a 20% increase in market prices is often regarded as the start of a bullish trend, most signs of an impending bull market are not that clear.
Traders use technical analysis to help them recognize bullish signals
A few examples of technical indicators include moving averages (MAs), the Moving Average Convergence Divergence (MACD), Stochastic, and the Relative Strength Index (RSI).
A bull trap is a situation when traders put on a long position when the price of a currency pair is rising, only for the price to reverse and move lower.
A bull trap is also known as a “sucker’s rally“.
A bull trap fools some traders into thinking a market is done falling and that it’s a great time to buy.
But lo and behold, it turns out it is NOT a great time, because the price soon reverses direction, catching buyers in a money-losing trap.
Bullish traders think the recent price action signals that a downtrend has ended when it actually has NOT.
Instead of rising further, the price stays flat or the downtrend resumes.
A bull trap results in a false trend reversal when the price is in a downtrend.
A bull trap is the opposite of a “bear trap” which can fool traders into selling out too soon in the middle of a bull market.
How a Bull Trap Works
Bull traps can emerge after a downturn appears to have been exhausted.
After a steep price declines, there are obviously folks who see a “bargain” and want to grab an early seat for the ride back up or simply pick a bottom.
Other traders want to exploit or take advantage of this behavior.
These traders, usually institutional traders, who “set” the bull trap do so by buying the currency pair until it fools other traders into thinking its downtrend trend has stopped.
Large traders will buy large amounts in order to artificially drive the price upward to create a “false bull market”.
Behind the scenes, other lovely names are a “bull market mirage” or “bull…sh*t market”.
Bull traps tempt traders into entering long positions based on the expectation that price will continue to rise which never happens.
These initial buying spurts may push prices above certain chart levels, and these “breakouts” can trigger more buying.
The gullible and/or amateur traders who fall into the bull trap will often go long, thinking price will rise further.
They start shopping for a Hermès Himalaya Birkin Bag thinking they’ll be rich soon.
At that point, the institutional traders who set the trap will sell at the now higher price and will release the “trap”.
This counter move produces a trap and often leads to a sharp fall in price.
The breakouts are actually fakeouts, the price soon resumes a downward path.
Eventually, the “suckers” are forced to exit out of their long positions.
To exit a long position requires selling, so this selling pressure will cause the price to fall even further.
The bulls are caught in a trap. They got tricked.
Once the bull trap is released, the price usually resumes its downtrend.
The term “bullish” means a trader is optimistic that the price will go higher from where it currently is.
If you are bullish on a market, you believe that the market is going to rise.
A “bullish market” is when the price is in an uptrend, marked by higher highs and higher lows.
The term is based on a bull attacking upwards with its horns.
The origin of the term is unclear, but legend says it’s from a painting by William Holbrook Beard called “The Bulls and Bears in the Market,” which is believed to depict the U.S. stock market crash of 1873.
If you are “a bull” or “bullish“, it means that you have a positive sentiment and are optimistic about making money in a market.
A Bullish Belt Hold, known as “yorikiri” in Japanese, is a single Japanese candlestick pattern that suggests a possible reversal of the current downtrend.
Like the Marubozu candlestick pattern, the bulk of the candle’s meaning is found in its size because the shadows (or wicks) are either tiny or nonexistent.
Occurring after a downtrend, the Bullish Belt Hold isn’t difficult to spot and it’s also quite common. To identify it, look for the following criteria:
- A downtrend must precede the candlestick.
- After the stretch of bearish candlesticks, a bullish (white) candlestick must appear.
- The pattern should be composed of a long white candlestick with a short upper shadow (or no upper shadow).
- The candlestick should lack a lower shadow entirely.
The Bearish Belt Hold pattern is the opposite of the Bullish Belt Hold, which is a single black candle that forms after an uptrend.
The Bullish Belt Hold candle’s opening price is at the low of the trading session.
During the session, however, the price rallies up and it closes at (or near) session highs, forming a white candlestick.
The bottom of the candle represents the opening price, the top of the candle represents the closing price, and the top of the upper wick identifies the highest price reached in the session.
The Bullish Belt Hold candle typically signals a trend reversal, from bearish to bullish.
To better analyze a Bullish Belt Hold candlestick, look for the following observations:
- The longer the candle, the more powerful and significant the reversal potential.
- To confirm the signal, the pattern should be followed by a bullish candlestick.
A Bullish Engulfing Pattern is a two-candlestick reversal pattern that forms when a small black candlestick is followed the next day by a large white candlestick, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.
To “engulf” means to sweep over something, to surround it, or to cover it completely.
The Bullish Engulfing pattern features one candlestick covering (or engulfing) another.
This two candlestick pattern occurs after a downtrend and is formed by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering).
To identify the Bullish Engulfing Pattern, look for the following crucial criteria:
- An obvious downtrend must be in progress.
- There should be a small black candle at the bottom of the downtrend.
- A white candle must follow the black candle and its body must completely cover the black candle (engulf it).
- The white candle’s top must be above the black candle’s top, and its bottom must be below the black candle’s bottom.
Since a Bullish Engulfing pattern appears in a downtrend, you know that the bears were in control
There is a gap down, but the bears aren’t able to push the price very far before the bulls take command.
The price rises and the candle closes higher than the previous candle’s open price.
This shows a shift in sentiment, from a gap down in the morning to a strong upward surge during the session that forms a large bullish candle.
The bulls are in control and it seems that a reversal is possible (though confirmation is still needed).
To better analyze a specific Bullish Engulfing pattern, observe the following:
- If the preceding downtrend is long and significant, the reversal pattern will likely be effective.
- The taller the white candle’s body, the stronger the candlestick pattern is.
The Central Bank of Germany.
The currency of Burundi. Currency code (BIF)
Reports total U.S. business sales and inventories or Total current-dollar sales and inventories for the manufacturing, wholesale, and retail sectors of the economy.
Traders look at how retail inventory numbers will influenceinterest rates. If inventories are rising at a faster pace than sales, this usually indicates that economy is slowing down. A slowing economy means lower interest rates, which is dollar bearish.
It is considered dollar bullish if both sales and inventories are rising at the retail, wholesale, and manufacturing level.
The Business Inventories Report includes comprehensive sales and inventory statistics from all three stages of the manufacturing processes, that is to say, manufacturing, wholesale, and retail. By the time the report is released however, all three of its sales components and two of the inventory components contained therein would have already been reported.
As the retail inventory is effectively the only new piece of information the Business Inventories Report contains, the report itself causes few ripples in the market. Occasionally however, retail inventories do swing far enough to affect changes to the aggregate inventory profile which may affect the GDP outlook. At the times when this does happen, the report has been known to elicit a small market reaction.
In essence, while the market tends to be far more interested in forward-looking statistics these aggregate sales figures tend to be dated and say little about personal consumption, they are however still a good coincident indicator.
The information contained in Business Inventories is really a far more useful to market economists than it is to other market participants.
Census Burea, Department of Commerce
It is released at 8:30am EST six weeks after the month ends. For example, data for June isreported in mid August.
Business Inventories – http://www.census.gov/mtis/www/mtis.html
Buy-side refers to a market participant that acts as a dealer’s customer.
Buying pressure occurs when the majority of traders are buying, indicating the majority think the market price will increase.
Cable is slang for the GBPUSD currency pair.
It is one of a few slang terms for different currency pairs.
The term originated from the exchange rate originally being transmitted by a transatlantic cable, and the name stuck.
Occasionally, people also refer to the price of the British pound as cable.
Camarilla Pivot Points is a modified version of the classic Pivot Point.
Camarilla Pivot Points were introduced in 1989 by Nick Scott, a successful bond trader.
The basic idea behind Camarilla Pivot Points is that price has a tendency to revert to its mean until it doesn’t.
What makes it different than the classic pivot point formula is the use of Fibonacci numbers in its calculation of pivot levels.
Camarilla Pivot Points is a math-based price action analysis tool that generates potential intraday support and resistance levels.
Similar to classic pivot points, it uses the previous day’s high price, low price, and closing price.
Camarilla Pivot Points are a set of eight levels that resemble support and resistance values for a current trend.
These pivot points work for all traders and help in targeting the right stop loss and profit target orders.
C = Previous day’s close
H = Previous day’s high
L = Previous day’s low
R4 = (H – L) x 1.1 / 2 + C
R3 = (H – L) x 1.1 / 4 + C
R2 = (H – L) x 1.1 / 6 + C
R1 = (H – L) x 1.1 / 12 + C
S1 = C – (H – L) x 1.1 / 12
S2 = C – (H – L) x 1.1 / 6
S3 = C – (H – L) x 1.1 / 4
S4 = C – (H – L) x 1.1 / 2
The most important levels are S3.S4 and R3, R4.
R3 and S3 are the levels to go against the trend with a stop loss placed around R4 or S4.
While S4 and R4 are considered as breakout levels when these levels are breached its time to trade with the trend.
How to Use Camarilla Pivot Points
Camarilla Pivot Points offer guidance for both sideways and trending markets.
Trading the Camarilla Pivot Points is done on the basis of open price on the next day (or session).
Depending on where price opens, the tool can suggest a trade that could exploit a reversion to the mean or a breakout to new highs or lows.
Here are five different scenarios showing how traders can trade with Camarilla Pivot Points.
Scenario #1: Open price is between R3 and S3
- Buy when the price moves back above S3 after going below S3. Target will be R1, R2, R3 levels.
- Place Stop loss at the S4 level
- Wait for the price to go above R3 and then when it moves back below R3 again, sell or go short.
- Profit target will be S1, S2 S3 levels and stop loss above R4
Scenario #2: Open price is between R3 and R4
- Buy when the price moves back above R3 again after going below R3. Target will be 0.5%, 1% and 1.5% .
- Place stop loss at R3
- Wait for the price to go above S3 and then when it moves back below S3 again, sell or go short.
- Target will be S1,S2,S3 levels, and the stop loss will be above R4. Target S1, S2, and S3.
Scenario #3: Open price is between S3 and S4
- Wait for the price to go above S3 and then when it moves back above S3 again, then go long.
- Target will be R1,R2 R3 levels and stop loss below S4.
- Wait for the price to go below S4 and then when it moves below S4, go short.
- Place stop loss above S3. Target 0.5%, 1% and 1.5%
Scenario #4: Open price is above R4
- Buying can be risky at this level. Wait for the price to go below R3.
- As soon as the price moves below R3. go short.
- Place stop loss above (R4+R3)/2. Target S1 , S2 and S3
Scenario #5: Open price is below S4
- Selling could be risky at this level as the price has opened with a big gap down.
- Wait for the price to go above S3.
- When the price moves above S3, buy
- Place a stop loss of (S4+S3)/2. Target R1, R2, and R3.
These are five scenarios on how to use Camarilla Pivot Points
For better results, try combining Camarilla Pivot Points with other technical indicators like Stochastic, RSI, and MACD.
An experienced trader who trades currencies throughout the whole day.
The currency of Cambodia. Currency code (KHR)
The currency of Canada. One of the major currencies traded. Currency code (CAD)
The currency of Cape Verde. Currency code (CVE)
Carbon credits pertains to the right to emit a certain volume of greenhouse gases. The current measure is that one ton of C02 (or C02 equivalent gases) is equal to one carbon credit.
To encourage businesses and companies to minimize their emission of greenhouse gases, they can exchange, buy, and sell carbon credits in the international market.
The Carry Trade is a trading strategy where investors/traders sell or borrow assets with lower-yielding interest rates to fund or buy higher-yielding assets.
In forex, carry trade involves borrowing in currencies with low-interest rates (called funding currencies) and investing in those with high-interest rates (the target currencies)
Examples of recently attractive target currencies are the Brazilian
real, the South African rand and the Australian dollar.
Popular funding currencies included most recently the U.S. dollar and historically also the Japanese yen or the Swiss franc.
If the target currency does not depreciate vis-à-vis the funding currency during the life of the investment, then the investor earns at least the interest differential.
This strategy does not work if uncovered interest parity (UIP) holds.
The UIP condition states that higher-yielding currencies will tend to depreciate against lower-yielding ones at a rate equal to the interest differential so that expected returns are equalized in a given currency.
Under UIP, any interest differential is expected to be fully offset by currency movements.
A large body of empirical literature documents that UIP fails almost
universally at short- and medium-term horizons.
In many cases, the relationship is precisely the opposite
of that predicted by UIP: currencies with high-interest rates tend to appreciate while those with low-interest rates depreciate.
This failure of UIP is so well established that the phenomenon is called the “forward premium puzzle”.
The failure of UIP is no secret to investors, hence the popularity of carry trades.
The carry trade puts upward pricing pressure on target currencies and downward pressure on funding currencies.
This could result in the amplification of the underlying exchange rate
In addition, it may also result in more rapid exchange rate moves when carry trade investors unwind their positions.
A popular carry trade has been to sell Japanese yen and buy higher yielding currencies such as the Australian dollar and New Zealand dollar.
For example, if you buy the AUD/JPY, then you sell Japanese Yen (which yields 0.00% a year)and buy an equivalent amount of Australian Dollars (which yields 3.50% a year) simultaneously.
As long as you hold that position you would pay 0.00% interest a year for borrowing Japanese yen, and receive 3.50% a year for holding Australian dollars.
The interest rate differential of that position is +3.50 (3.50% – 0.00%).
So you would receive approximately 3.50% a year on the value of the position, depending on the margin interest charged by the broker and on exchange rate volatility.
The market on which a futures or optionscontract is based.
A Catalyst is a news or economic event that influences traders to buy or sell an asset quickly.
This generally prompts a change in value of that asset, and often times, at a higher pace than the asset’s normal volatility range.
A catalyst can really be anything, but for forex traders, catalysts tend to come from monetary policy news/changes (e.g., interest rate changes, quantitative easing), economic updates (e.g., changes in employment, inflation, GDP, etc.), and geopolitical updates (e.g., Brexit).
Identifying and understanding catalysts are a key component to a trader’s skill set as trading opportunities only come from when markets are moving, and from understanding when a directional bias may change.
The currency of the Cayman Islands. Currency code (KYD)
The Cboe EuroCurrency Volatility Index tracks near-term projected volatility of the euro/U.S. dollar exchange rate.
It measures the market’s expectation of 30-day volatility of the EUR/USD exchange rate by applying the VIX methodology to options on the CurrencyShares Euro Trust (FXE).
The Cboe EuroCurrency Volatility Index is also known as the “Euro VIX” and has a ticker symbol of EVZ.
Like VIX, EUVIX is calculated by interpolating between two weighted sums of option midquote values, in this case, options on EVZ.
The two sums essentially represent the expected variance of the Euro to Dollar exchange rate up to two option expiration dates that bracket a 30-day period of time.
EVZ is obtained by annualizing the interpolated value, taking its square root, and expressing the result in percentage points.
Like other VIX benchmarks, EVZ uses options spanning a wide range of strike prices.
FXE is an exchange-traded fund (ETF) that holds Euro on-demand deposits in Euro-denominated bank accounts.
As such, the performance of FXE is intended to reflect the USD/EUR exchange rate, minus fund expenses.
Here’s a chart example showing Cboe EuroCurrency Volatility Index (EVZ).
A central bank is an organization that manages the currency of a country or group of countries and controls the money supply.
Central banks, also called reserve banks, came into being because their absence in the past had resulted in booms and busts in financial services involving bank failures that wiped out people’s savings.
The main objective of many central banks is price stability.
In some countries, central banks are also required by law to act in support of full employment.
The critical feature of a central bank is its legal monopoly status, which gives it the privilege to issue banknotes and cash.
Most central banks are not government agencies and are perceived to be politically independent.
A central bank is not a commercial bank.
An individual can’t open an account at a central bank and deposit money or ask it for a loan.
What central banks do is conduct monetary policy, using various tools to influence the amount of money circulating in an economy, interest rates charged on loans, and the rate of inflation.
Inflation occurs when prices continue to rise, meaning a country’s currency is worth less than it was before because it can’t buy as much (also known as a decline in purchasing power).
Inflation is a sign that the economy is growing. But high inflation is a problem because it discourages investment and lending and wipes out people’s savings as it erodes the value of money.
Deflation is the opposite of inflation. This is when there is a decline in prices.
Central banks work hard to keep inflation and deflation in check.
A central bank does act as a bank for commercial banks and this is how it influences the flow of money and credit in the economy to achieve stable prices.
Commercial banks can turn to a central bank to borrow money, usually to cover very short-term needs.
To borrow from the central bank they have to give collateral – an asset like a government bond or a corporate bond that has a value and acts as a guarantee that they will repay the money.
Because commercial banks might lend long-term against short-term deposits, they can face “liquidity” problems.
This is a situation where they have the money to repay a debt but not the ability to turn it into cash quickly.
This is where a central bank can step in as a “lender of last resort.”
This helps keep the financial system stable.
Central banks can have a wide range of tasks besides monetary policy. They usually issue banknotes and coins, often ensure the smooth functioning of payment systems for banks and traded financial instruments, manage foreign reserves, and play a role in informing the public about the economy.
Many central banks also contribute to the stability of the financial system by supervising the commercial banks to make sure the lenders are not taking too many risks.
What Does A Central Bank Do?
As the organization that controls a nation’s monetary policy, central banks have the ability to both grow and slow the growth of the economy.
That’s because central banks have a reserve of cash that commercial banks can draw from to give out loans, the cost of which is determined by national interest rates.
If inflation is increasing, the central bank can raise interest rates, which makes it more expensive for an individual to take out a loan from her bank.
The central bank might stop producing money or compel commercial banks to buy financial instruments like treasury bills or foreign currency, which reduces the supply of money in an economy. This is called contractionary money policy.
On the other hand, if the economy is slowing, the central bank can lower interest rates, giving commercial banks cheaper access to funds that therefore let individuals and businesses borrow more. The central bank might start printing money again. This is called expansionary money policy.
Most central banks set a reserve requirement for commercial banks, meaning that they must retain a specified percentage in cash of what they owe to account holders, which makes sure banks don’t run out of money.
Countries that don’t set a reserve requirement, like the U.K., often have capital requirements instead, which are determined by the ratio of a bank’s capital to its risk.
Central Banks and Interest Rates
Central banks don’t directly set the interest you’ll receive in your savings account. Instead, they set an underlying interest rate.
A central bank either sets the “base rate” which is either:
- The amount that commercial banks are charged to borrow from each other (like in the U.S., where the Fed sets the “federal funds rate”).
- The amount that commercial banks are charged to borrow from the central bank (like in the U.K., where the Bank of England sets the “Bank Rate”).
Why does the central bank change the interest rate?
A central bank lowers interest rates when it is trying to stimulate the economy and increases interest rates when it is trying to contain inflation caused by an economy that’s “overheating” (or growing too fast).
Lower interest rates stimulate an economy in a few ways:
- Businesses can borrow money and invest in projects that will receive more than the risk borrowing rate.
- When interest rates are lower the stock market is discounted at a lower rate, leading to an appreciation in stock market values which causes a wealth effect.
- People invest their money into the economy (stocks and other assets) because they can earn more in these assets than at currently low-interest rates.
If economic growth is too fast, inflation might become too high and unstable.
This makes it difficult for households and businesses to plan for the future because prices are hard to predict with confidence. This can hinder spending and slow growth.
To prevent this scenario, a central bank might raise interest rates to try and slow the rate of growth in spending, and bring inflation back under control.
Central Banks and the Forex Market
Central banks play a key role in the currency markets because of their power over monetary policy.
They have a direct influence over the money supply, which in turn affects the demand and price of the currency.
Through the use of different policies, central banks can try to manipulate the markets so that they can keep their currency at specific levels.
Some countries and their central banks try to peg their currency to that of another currency or basket of currencies.
For example, China and Hong Kong “peg” their currencies to the U.S. dollar.
The central bank can participate in the forex market by buying and selling their currency at the spot market in order to keep it from changing too much.
Another motivation for central banks is to keep the local currency at a specific price in order to make their local economy more attractive for international trade.
A central bank intervention occurs when a central bank buys (or sells) its currency in the foreign exchange market in order to raise (or lower) its value against another currency.
Why do central banks intervene?
Intervention usually happens when a nation’s currency is undergoing excessive downward or upward pressure from market players, usually speculators.
A significant decline in the value of a currency has the following drawbacks:
- It raises the price of imported goods and services and triggers inflation. This will push the central bank to raise interest rates, which will likely hurt asset markets and economic growth. This could also lead to additional losses in the currency.
- A nation with a large current account deficit (buys more goods and services than it sells from abroad) that is dependent upon foreign inflows of capital may undergo a dangerous slowdown in the financing of its deficit, which will require raising interest rates to maintain the value of the currency and could risk serious repercussions on growth.
- It pushes up the exchange rate of the nation’s trading partners and drives up the price of their exports in the global market place. This will also trigger serious economic slowdown, especially for export-dependent countries.
Central banks will often buy foreign currency and sell local currency if the local currency appreciates to a level that renders domestic exports more expensive to foreign nations.
Therefore, central banks purposely alter the exchange rate to benefit the local economy.
Means and Forms of Intervention
Foreign exchange intervention takes several shapes and forms. Here are the most common:
|TYPES OF INTERVENTION||DIRECT OR INDIRECT|
|Concerted Intervention||Direct and indirect|
- Verbal Intervention. Also known as “jawboning”. This occurs when officials from the central bank “talk up” (or “talk down”) a currency. This is either done by threatening to commit real intervention (actual buying/selling of currency), or simply by indicating that the currency is undervalued or overvalued. This is the cheapest and simplest form of intervention because it does not involve the use of foreign currency reserves. Nonetheless, its simplicity doesn’t always imply effectiveness. A nation whose central bank is known to intervene more frequently and effectively than other nations is usually more effective in verbal intervention.
- Operational Intervention. This is the actual buying or selling of a currency by a nation’s central bank.
- Concerted Intervention. This happens when several nations coordinate in driving up or down a certain currency using their own foreign currency reserves. Its success is dependent upon its breadth (number of countries involved) and depth (total amount of the intervention). Concerted intervention could also be verbal when officials from several nations unite in expressing their concern over a continuously falling/rising currency.
- Sterilized Intervention. When a central bank sterilizes its interventions, it offsets these actions through open market operations. Selling a currency can be sterilized when the central bank sells short-term securities to drain back the excess funds in circulation as a result of the intervention.
Currency interventions only go unsterilized (or partially sterilized) when action in the currency market is in line with monetary and foreign exchange policies.
This occurred in the concerted interventions of the “Plaza Accord” in September 1985 when G7 collaborated to stem the excessive rise of the dollar by buying their currencies and selling the greenback.
The action eventually proved to be successful because it was accompanied by supporting monetary policies. Japan raised its short-term interest rates by 200 bps after that weekend, and the 3-month euroyen rate soared to 8.25%, making Japanese deposits more attractive than their US counterpart.
Another example of an unsterilized intervention was in February 1987 at the “Louvre Accord” when the G7 joined forces to stop the plunge of the U.S. dollar.
On that occasion, the Federal Reserve engaged in a series of monetary tightening, pushing up rates by 300 bps to as high as 9.25% in September.
Impact on Currency Markets
Before listing the determinants of a successful FX intervention, it is important to define “success”.
A central bank that spends about $5 billion (medium-size) on intervention and manages to raise/lift the value of its currency by about 2% against the major currencies over the next 30 minutes is said to be successful.
Even if the currency ends up losing its gains over the next two trading sessions, the proven ability of that central bank to move the market in the first place gives it some kind of respect for the next time it “threatens” to step in.
- Size Matters. The magnitude of the intervention is usually proportional to the resulting movement of the currency. Central banks equipped with substantial foreign currency reserves (usually denominated in dollars outside the US) are those that command the most respect in FX interventions. As of Q3 2003, the three central banks with the highest amount of FX reserves were: the Bank of Japan ($550 billion); the Bank of China ($346 billion), and European Central Bank ($330 billion).
- Timing. Successful FX interventions depend on timing. The more surprising the intervention, the more likely it is that market players are caught off-guard by a large inflow of orders. In contrast, when intervention is largely anticipated, the shock is better absorbed and the impact is less.
- Momentum. In order for the “timing” element to work best, intervention is more ideally implemented when the currency is already moving in the intended direction of the intervention. The large volume of the FX market ($1.2 trillion per day) dwarfs any intervention order of $3-5 billion. So central banks usually try to avoid intervening against the market trend, preferring to wait for more favorable currents. This may be done through verbal posturing (jawboning), which sets the general tone for a more fruitful action when the actual intervention begins.
- Sterilization. Central banks engaging in monetary policy measures in line with their FX actions (unsterilized intervention) are more likely to trigger a more favorable and lasting change in the currency.
Implications for Traders
- During central bank interventions, currency traders are advised to take extra care when submitting orders and selecting stop losses.
- It is not advisable to trade against the currents of intervention. A single sell order by a central bank, for instance, could trigger a series of stop-loss orders by players that will exacerbate the selling and create gaps in the market.
- If you insist on trading against the market, then your stop-loss orders must be somewhat closer to your positions than at normal market conditions.
- Be aware of levels of support. It is near these points (usually below them) at which central banks step in to lift currencies.
Central counterparty clearing houses (CCPs) are financial organizations, often operated by major banks, created with the objective of easing trading in derivatives and equities and guaranteeing efficiency and stability in financial markets.
CCPs perform two primary functions as the intermediary in a transaction:
What is clearing?
In the clearing process, the CCP becomes the counterparty to the buyer and the seller.
The CCP defines what is required from each party in a transaction to reduce counterparty credit risk and to guarantee the settlement of the operation, even if one of the parties defaults.
What is settlement?
In the settlement process, the CCP oversees the correct and timely transfer of securities and/or cash between the parties to complete the transaction.
After a transaction has been carried out between two counterparties, it is transferred to a CCP.
The CCP then assumes the counterparty risk for both counterparties to the transaction.
The CCP’s responsibilities include risk checking, clearing, settlement, and general market monitoring.
A central limit order book (“CLOB”) is a trade execution model based on a transparent system that matches customer orders (bids and offers) on a ‘price/time priority’ basis.
Outstanding offers to buy or sell are stored in a queue and filled in a priority sequence, by price and time of entry.
The principle of price/time priority refers to how orders are prioritized for execution.
Orders are first ranked according to their price. Then orders of the same price are then ranked depending on when they were entered.
The highest (“best”) bid order and the lowest (“cheapest”) offer order constitutes the best available market price.
Customers can routinely cross the bid/ask spread and benefit from low-cost execution. (You’re able to enter limit orders “in between” the bid and ask.)
They also can see market depth or the “stack” in which customers can view bid orders for various sizes and prices on one side vs. viewing offer orders at various sizes and prices on the other side.
The CLOB is by definition fully transparent, real-time, anonymous, and low cost in execution.
The use of a CLOB is common for highly standardized securities and small trade sizes.
In the CLOB model, customers can trade directly with dealers, dealers can trade with other dealers.
And most importantly, customers can trade directly with other customers anonymously.
CLOB vs. RFQ
In contrast to the CLOB approach is the Request For Quote (“RFQ”) trading method.
RFQ is an asymmetric trade execution model.
In this method, a customer queries a finite set of participant market makers who quote a bid/offer (“a market”) to the customer.
The customer may only “hit the bid” (sell to the highest bidder) or “lift the offer” (buy from the cheapest seller).
The customer is prohibited from stepping inside the bid/ask spread and trying to reduce their execution fees.
Contrary to the CLOB model, customers can only trade with dealers. They can not trade with other customers.
And most importantly, they can not make markets themselves.
Trade execution costs are lower when more market participants can compete for order flow versus when orders are routed to a limited number of market makers with (potentially) non-competitive quotes.
The Chaikin Oscillator was developed by Marc Chaikin to compare volume and price levels for an asset. The Oscillator can be used to indicate when an asset is overbought or oversold and thus to indicate upcoming reversals.
To calculate a Chaikin Oscillator chart, a trader first generates an Accumulation/Distribution Line (A/D Line) for an asset. The A/D Line is derived from an index called the close location value, or CLV, which compares high, low and close prices. If the close price is above the midpoint of the high-low range, the CLV will be positive; if the close price is below the midpoint, the CLV will be negative. A cumulative total of the CLV times the volume of the asset generates the A/D Line, which is high when closing prices and volume are high and low when closing prices and volume are low, indicating pressure in either direction on the asset. The Chaikin Oscillator is then simply a ten-period moving average of asset price less a three-day moving average of the newly-generated A/D Line’s value.
When the Oscillator is at a high value, the A/D Line is at a low value relative to the asset price, indicating that selling pressure is increasing on the asset and that a price reversal is imminent. Conversely, when the Oscillator is at a low value, buying pressure is increasing and an increase in price is equally imminent. Thus investors can use the Oscillator to help determine the appropriate time to sell or buy an asset in order to take advantage of (or to avoid being caught up in) the imminent reversal.
A chart pattern is a graphical presentation of price movement by using a series of trend lines or curves.
Chart patterns can be described as a natural phenomenon of fluctuations in the price of a financial asset that is caused by a number of factors, including human behavior.
Chart patterns are the foundation of technical analysis.
In technical analysis, chart patterns are used to find trends in the movement of an asset’s price.
A trader armed with the knowledge required to recognize patterns, along with the skill to apply them to their decision-making process can increase their odds of anticipating where the price will move next.
The skill required to interpret the chart patterns correctly takes practice and commitment to acquire.
There are many different chart patterns that are used in technical analysis.
The most basic form of chart pattern is a trend line.
Popular chart patterns include head and shoulder formations, double and triple tops and bottoms, pennants, flags, and wedges.
Patterns can be based on seconds, minutes, hours, days, months, or even ticks and can be applied to a line, bar, candlestick charts.
Chart patterns aren’t bound by any scientific principle or physical law, their effectiveness highly depends on the number of market participants paying attention to them.
There are two basic types of patterns: continuation and reversal.
Continuation Chart Patterns
Continuation patterns identify opportunities for traders to continue with the trend.
The most common continuation patterns include Triangle patterns, Flag patterns, and Pennant patterns.
Reversal Chart Patterns
The opposite of a continuation pattern is a reversal pattern. These are used to look for scenarios to trade the reversal of a trend.
Reversal patterns seek to find where trends have ended.
“The trend is your friend until it bends.” is another phrase for those looking for a reversal in a trend.
Common reversal patterns are Double Tops and Double Bottoms, Head-and-Shoulders and Inverse Head and Shoulder patterns, and Triple Top and Triple Bottoms.
Why Do Chart Patterns Work?
Because markets are fractal, chart patterns work across all time frames.
Fractals refer to a recurring pattern that occurs amid larger price movements.
Trader psychology is the main driving force of price action, so these chart patterns work across all asset classes from stocks, bonds, currencies, commodities, and cryptocurrencies.
Technical traders believe the price reflects all the fundamental information, including market sentiment and perceived fair value.
If this is true, then chart patterns should be the ultimate predictor of future market movement.
Chart patterns need to be analyzed in the context of the trend which is key to successfully trading chart patterns.
Determining the dominant trend is paramount because only then can we use chart patterns to know whether the current trend is more likely to continue or more likely to reverse.
To better understand why chart patterns work, it’s important to look at the psychology behind the price and the supply and demand forces that give these chart patterns their shapes.
The Psychology behind Chart Patterns
To get a sense of the price action, you need to read the charts through a lens that shows what other market participants are thinking.
The basis of chart patterns is market psychology because these price formations reflect the buying and selling pressures in a visual format.
The supply and demand forces are the ones that shape these price patterns.
A chart can give us a complete pictorial record of all trading activity and can provide us with a framework to analyze the battle raging between the bulls and the bears.
Most importantly, chart patterns can assist us in finding out who is winning the bulls and bears battle.
Trading is all about determining who is winning this battle because this will allow you to take trades according to the market sentiment.
No matter the time frame you use to trade these chart patterns, they still work because emotion and supply and demand are universal laws.
Since orders are submitted by human beings, what gives the shape to a price chart is the buy and sell orders or the supply and demand forces.
Every chart pattern has a story that creates the current shape of the pattern.
For example, a Bull Flag shows that the bulls are not buying anymore, but they hold and defend their positions by keeping the price in a narrow range.
Flag patterns are a powerful price action because it incorporates the trend in the price structure.
A top-down approach to trading chart patterns incorporates three main steps.
- Decide on the time frame you want to trade, which should reflect the type of trader you are. The intraday charts like the 5 and 15 minutes are usually used for day trading or scalping the market. The 4-hr and the daily chart can be used for swing trading and the weekly and monthly time frame for position trading.
- Identify the dominant trend of your preferred time frame.
- Once you see the dominant trend, you can then spot chart patterns to time the market.
You need to avoid trading solely based on chart patterns without having an established a framework because you’ll end up trading on pure emotion.
Context and planning are the backbones of good decisions in trading.
Chart Pattern vs. Candlestick Pattern
What’s the difference between a candlestick pattern versus a chart pattern?
|CANDLESTICK PATTERN||CHART PATTERN|
A mix of one or more candlesticks gives
rise to a candlestick pattern.
|When the price changes as a result of |
psychological and fundamental aspects
over a long time period,
it gives rise to chart patterns.
Candlestick patterns appear over a
short time span.
|The trend direction is shown for a longer |
The trend direction is indicated for a short time span.
|The change in trend direction can also be |
indicated by chart pattern.
This pattern is adapted for short-term
entry & exit points.
|This pattern is adapted for longer-term buy and sell signals.|
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future direction.
They are also commonly known as technical analysts or technical traders.
There are several patterns that chartists will look out for as an indication of the future direction of an instrument.
Chartists differ from fundamental analysts, who look at an asset’s current fundamentals in order to decide on the best time to buy and sell.
Many traders will use both fundamental and technical analysis when planning a trading strategy.
This report is created by The National Association of Purchasing Management. It rates the level of factory health in the upper Midwest. It is also known as the Business Barometer. Announced at the end of the month in The Chicago Report. Because it is released on the last day of the reporting month, it is used to predict the ISM Report.. The Chicago PMI is based on a level of 50. Any level higher is considered expansion. Naturally, any level lower is a sign of contraction.
The Chilean peso is the official currency of Chile since 1975. Its ISO code is CLP, and its symbol is ($).
Banco Central de Chile, the Chilean central bank, issues the peso with the currency subdivided into 100 centavos.
The current peso was introduced in 1975 as the third currency in a succession of different pesos. The first of them was adopted in 1817 to replace the Spanish colonial reals with a rate of 1 peso per 8 reals.
In 1851 the value of the peso was pegged to the French franc at a rate of 5 francs per peso. The same year the reals and the escudos (another subdivision of the peso) were removed, and the peso was subdivided into 100 centavos.
In parallel, gold coins were issued with a different value. One gold coin was 1.35 gr of gold, while one French franc equaled 1.45 grams of gold.
In 1885 Chile adopted the gold standard, and the Chilean peso was pegged to the British Pound at a rate of 13.33 Pesos per 1 British pound.
In 1914, the opening of the Panama Canal and the consequences of the World War I caused an economic downturn in Chile, and the devaluation of the currency, forcing the government to introduce a monetary reform in 1926.
The Banco Central de Chile was created, and the Chilean peso was devaluated to a rate of 40 pesos per 1 British pound.
In 1932 the gold standard was abandoned and the Chilean peso devaluated further. During the 1950s, hyperinflation hit the country and the peso fell further until, in 1960, the peso was replaced by the escudo at a rate of 1,000 pesos per 1 escudo.
The life of the escudo extended from 1960 to 1975 until the new peso replaced it at a rate of 1000 escudos per 1 new peso.
The new peso was allowed to float against a basket of currencies according to a “crawling band system” until 1982 when the peso was pegged to the dollar. In 1984, the crawling band system was restored
In 1990, the Chilean Central Bank was granted full operational autonomy, and in 1999, the Chilean Peso was allowed to float free against other currencies.
Since the introduction of the floatability, the Chilean peso has remained relatively stable against its main peers, although the Central Bank of Chile has been forced to perform occasional market interventions to stem excessive peso volatility.
The currency of China. Currency code (CNY)
The Chinese yuan is the official currency of the People’s Republic of China.
The renminbi is the name of the currency in China, where the yuan is the unit of currency.
Its ISO code is CNY although RMB can also be used.
The global importance of the yuan has increased over the last 10 years, in parallel with Chinese efforts to boost its use. It became the world’s 5th most traded currency in 2015.
The yuan was pegged to the dollar until 2005, when the People’s Bank of China decided to allow it to float.
In 2008, due to the Great Financial Crisis, the government limited yuan volatility by implementing an average rate, which is fixed daily, which limited fluctuation is permitted.
This is known as the yuan’s band of floatation.
In November 2015, the IMF approved the inclusion of the yuan in the basket of currencies that determine the value of the Special Drawing Rights (SDR).
This elite set of reserve currencies also includes the U.S. dollar, the euro, the British pound, and the Japanese yen.
Christine Madeleine Odette Lagarde is a French lawyer and the Managing Director of the International Monetary Fund since July 5, 2011 replacing Dominique Strauss-Kahn . Previously, she held various ministerial posts in the French government: she was Minister of Economic Affairs, Finances and Industry and before that Minister of Agriculture and Fishing and Minister of Trade in the government of Dominique de Villepin. Lagarde is the first woman to ever head the IMF.
In 2011, Lagarde was ranked the 9th most powerful woman in the world by Forbes magazine.
An approximation of the number of coins or tokens that are circulating in the public market.
Funds that are freely available.
The process of settling a trade.
The actual monetary value given to an asset. This value in a trade serves as a compromise at which a buyer agrees to buy and a seller agrees to sell.
A person that holds an account. A trader who goes to a broker to make transactions.
A position that has been terminated or ended.
Cloud mining is the process of mining cryptocurrency by using shared hardware output from remote data centers. Cloud mining contracts eliminated the need for home-based mining rigs.
In a PoS system, validators are given the right to forge a block based on the coin age of their stake. Coin age is determined by how many idle days old the sake is, multiplied by the amount of coin at stake. If the validators stake is idle for 30 days or more, they may be selected to forge the next block. They bigger and more idle the validators stake is, the better the chance of being selected (versus in a PoW system, where your hash power is the determining factor). Once a stake forges a block, the coin age gets reset back to 0 (and must wait 30 days for the chance to forge another block. Coin age has age-cap of 90 days to help level the playing field for other validators.
The process of moving your cryptocurrencies “offline”, to prevent them from being stolen by hackers. There are a variety of ways to do this, but most cold storage methods include using paper wallets, USB storage or hardware wallets.
Something of value lent to act as a guarantee of performance.
The currency of Colombia. Currency code (COP)
Comdolls is a nickname for the term “commodity dollar”.
Currencies like the Australian, Canadian, and New Zealand dollars are known as “comdolls” because their respective economies are highly dependent on exporting commodities.
Commodities are used as materials in the production of goods or services.
Australia is the second-largest gold producer in the world, behind only China, while Canada is the fourth largest of the world’s oil producers. New Zealand exports a lot of dairy and meat.
Importers often need to get their hands on comdolls if they want to buy these commodities. This is why the comdolls’ price action is usually correlated with commodity prices.
Commercial corporations, unlike other market participants, are part of the 10% of market players who do not partake in the Forex markets looking for profit. Rather, they do so for the sake of hedging risk. Such corporations make transactions in both the futures and spot markets for their daily operations. They need it to pay suppliers for raw materials, as well as to pay employees from different countries.
For example, Corporation A (a US based firm) needs to buy steel from Australia, but needs Australian dollars to complete the transaction. The company will then buy AUD at the spot market so that they can complete the transaction.
Another example would be a company needing steel six months from now. The problem is the company will have to deal with potential change in currency rates if they decide to buy the in the future. In order to protect itself from potential currency risks, the company can buy a futures contract that will fix the exchange rate. While the company may miss out if the AUD weakens over the next six months, it also protects itself just in case the currency appreciates. Thus, the use of futures contracts helps to eliminate or limit currency risks.
A transaction fee charged by a broker.
The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market.
Each Friday, the CFTC (US Commodity Futures Trading Commission) reports the COT (Commitment of Traders) report.
This report shows the changes in open positions of futures traders, including commercials, small speculators, and large speculators.
Traders follow the COT report to identify extreme levels of long or short positions in a currency, which may signal a trend reversal.
The report helps them determine whether they should take short or long positions in their trades.
How to Read the COT Report
The Commitments of Traders (COT) is a report issued by the Commodity Futures Trading Commission (CFTC).
It aggregates the holdings of participants in the U.S. futures markets (primarily based in Chicago and New York), where commodities, metals, and currencies are bought and sold.
The COT is released every Friday at 3:30 ET and reflects the commitments of traders for the prior Tuesday.
The COT provides a breakdown of aggregate positions held by three different types of traders:
- “Commercial traders” (in forex, typically hedgers)
- “Non-commercial traders” (typically, large speculators)
- “Nonreportable” (typically, small speculators).
The Net Non-Commercial Positions are contracts held by large speculators, mainly hedge funds and banks trading currency futures for speculation purposes.
Speculators are not able to deliver on contracts and have no need for the underlying commodity or instrument, but buy or sell with the intention of closing their “sell” or “buy” position at a profit, before the contract becomes due.
These contracts, sold in lot sizes that vary by currency, net out to have either a surplus of buy requests (positive values in the chart) or sell requests (negative values).
The Open Interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants.
That is, the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on. These figures are not netted, but instead show overall volume (that is, interest).
How to Use the COT Report
The Commitments of Traders (COT) reports can sometimes give traders a good idea of future significant moves in the market.
The CFTC requires large speculators and commercial traders, or hedgers, to report their net positions twice each month.
In general, the large speculator category represents fund traders and professional traders who carry large positions. Commercial traders also report their net positions to the CFTC.
The number “non-reportable” positions are derived from subtracting the number of large spec and commercial positions from the total open interest.
This group of traders is generally thought to be small speculators and hedgers who are not holding a position large enough to report to the CFTC.
The COT report’s results can be used as a tool to give traders a better understanding of the psychology of the marketplace, the net position of the commercials in the market, and the net position of the large traders.
Large traders (funds) are typically trend-followers and will add or liquidate their positions depending on the technical action of the market since the release date of the report.
There are many different ways to analyze the reports, but for the most part, the large traders’ net position and “change in position” over a two week period are the most important numbers to watch.
Keep in mind that the small trader’s net position is usually vulnerable to either long liquidation or short-covering if the market starts to move against them.
As a result, a classic bullish set-up for a given market would be when large traders are net long and small traders are net short.
The market will be in a weakened bullish set-up “if” the two-week trend in the large trader position is down, or in other words, if the funds are in the process of liquidating their net long position. This is a warning flag.
The larger the net short position of the small trader (relative to history) and the extent that small traders are holding a position “against” the trend are factors that will add to the bullishness of the report.
A classic bearish set-up in the market exists if large traders are holding a net short position (more bearish if adding to the position in the past two weeks) with small traders net long the market (more bearish if net long position is relatively large and the trend is decisively down).
A commodity is a raw or unprocessed material that can be bought or sold and is used to make something else that eventually is consumed.
Commodities are used as materials in the production of goods or services.
A commodity has monetary utility and is considered a physical asset.
Commodity examples include those that plucked from the ground and those that have to be dug up deep underground.
Typical commodities include:
- “Energy” (crude oil, gasoline, heating oil, natural gas)
- “Metals” (gold, silver, copper, platinum, palladium)
- “Softs” (cocoa, coffee, cotton, orange juice, sugar)
- “Grains and Oilseeds” (corn, soybeans, soybean meal, soybean oil, wheat)
- “Livestock / Meats” (feeder cattle, live cattle, lean hogs)
- “Other” (lumber, dairy products)
Crude oil is currently the world’s most actively traded.
Commodities are traded on an exchange.
The main three global commodities markets are the:
- CME Group (formed from the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade)
- Intercontinental Exchange
- London Metal Exchange
For trading purposes, a given commodity typically is interchangeable.
One barrel of oil is considered the same as any other.
To be traded on the markets, a commodity must be interchangeable with another commodity of the same type and grade.
That means that to a trader, gold is gold: no matter where it was mined, or which company mined it.
The term for this quality in commodities is fungible.
They are split into two varieties:
- Hard commodities are metals or energy resources, mined or extracted from natural resources. Soft commodities are agricultural, farmed, or grown.
- Soft commodities tend to be seasonal, and prone to spoilage.
The buying and selling of commodities for profit are known as commodities trading.
Commodities trading is split into two types:
- The spot market
- The futures market
The spot market is used for commodities that will be delivered immediately, and the futures market is for commodities that will be delivered at some point in the future.
Most commodities traders are speculators and do not wish to take delivery of the commodities they are trading, so most futures contracts are closed before their delivery date.
Futures contracts are traded on futures exchanges, with most commodities being associated with a specific local exchange.
Who Trades Commodities?
There are two broad types of commodity market participants:
- Hedgers (aka “commercials”). These are businesses that are actually producing, shipping, processing, or otherwise handling the commodities in question. They include oil and gas producers and refiners, miners, grain millers, farmers, and meatpackers.
- Speculators. These include banks, hedge funds, and individuals who trade commodities. They speculate that the price of a commodity will go up or down within a certain time frame, and they place trades with the aim of turning a profit.
How Do You Trade in Commodities?
For individual traders, there are several routes into the commodities markets that don’t involve planting your own corn or raising your own pigs.
- Futures contracts. A futures contract is an agreement to buy or sell a certain amount of a commodity at a certain price in the future. If the price of a futures contract rises, the buyer, in theory, can profit; in contrast, the seller of a futures contract potentially profits if the price goes down (this is known as going short). In futures markets for retail traders, actual “delivery” of a commodity is rarely allowed; usually, contracts are “closed out” prior to expiration.
- Options on futures. Put or call options based on crude or gold, for example, are traded on many futures exchanges. These contracts grant the holder the right, but not the obligation, to buy or sell a specific futures contract at a specific price on or before an expiration date.
- Exchange-traded funds (ETFs). ETFs are marketable securities that trade like common stocks and can be bought or sold on an exchange. Many ETFs are linked to a single commodity, a basket of commodities, or a commodity index.
- Traditional stocks. Many publicly traded companies have direct exposure to commodities and commodity markets (miners, oilseed processors, and oil and gas exploration companies, for example) or indirect exposure (such as farm equipment manufacturers).
As you can see, not only that commodities are bought and sold there on a “spot”’ on an immediate purchase and payment basis.
There are also ‘forward contracts’ enabling products to be bought and sold at a fixed price for delivery at a particular future time.
And there are also ‘options’ and ‘futures’. An option gives a party an option to buy or sell at a future time but not the obligation to do so. Futures are similar but they require parties to deliver a commodity or pay for it.
It is easy to see that options and futures are like bets on the future price of a commodity on which they are constructed. As a result, they can be used for hedging of “real” trades. For example, an airline might buy a forward contract or choose an option or a future to lock in the future price of its fuel.
But these commodities derivatives are also opportunities to speculate – buying or selling in the belief that price changes will be profitable. If you can hedge your bet using an option or a future, so much the better (or safer).
Private investors can gain exposure to the commodities markets by investing in funds that, in turn, invest in commodities.
An increasingly popular form of commodity investment is stock market listed exchange-traded funds (ETFs).
You can buy and sell shares in ETFs, which are backed by physical commodities, just like any shares.
The charges levied by the managers of ETFs are lower compared to other investment funds, and the process of buying into them or selling out is much quicker and easier.
The Commodity Channel Index (CCI) is a technical indicator that measures the current price level relative to an average price level over a given period of time.
It was created by Donald Lambert and originally designed to identify cyclical turns in commodities.
The CCI is categorized as a momentum oscillator, which means that CCI is used to identify overbought and oversold levels.
The fundamental assumption behind the CCI indicator is that commodities move in cycles, with highs and lows coming at periodic intervals.
The CCI indicates when one of those cyclical reversals is imminent.
While Lambert originally used CCI to trade commodities, the indicator is used across different assets nowadays.
How Commodity Channel Index (CCI) Works
The Commodity Channel Index (CCI) measures the current price level relative to an average price level over a given period of time.
The CCI fluctuates above and below zero.
- CCI is relatively high when prices are far above their average.
- CCI is relatively low when prices are far below their average.
Using this method, CCI can be used to identify overbought and oversold levels.
The percentage of CCI values that fall between +100 and -100 will depend on the number of periods used.
- A shorter CCI will be more volatile with a smaller percentage of values between +100 and -100.
- The more periods used to calculate the CCI, the higher the percentage of values between +100 and -100.
Lambert’s trading guidelines for the CCI focused on movements above +100 and below -100 to generate buy and sell signals.
Because about 70 to 80 percent of the CCI values are between +100 and -100, a buy or sell signal will only generate 20 to 30 percent of the time.
- When the CCI moves above +100, price is considered to be entering into a strong uptrend and a buy signal is given.
- The position should be closed when the CCI moves back below +100.
- When the CCI moves below -100, price is considered to be in a strong downtrend and a sell signal is given.
- The position should be closed when the CCI moves back above -100.
How to Use the Commodity Channel Index (CCI)
The CCI is a versatile indicator and can be used in different ways.
Overbought and Oversold Levels
CCI is used to identify overbought and oversold levels.
- An asset is considered oversold when the CCI falls below -100.
- From oversold levels, a buy signal might be given when the CCI moves back above -100.
- An asset is considered overbought when the CCI rises above +100.
- From overbought levels, a sell signal might be given when the CCI moved back below +100.
As with most oscillators, divergences between the indicator and the actual price action an also be applied to increase the strength of signals.
- A positive divergence below -100 would increase the strength of a signal based on a move back above -100.
- A negative divergence above +100 would increase the strength of a signal based on a move back below +100.
CCI Trend Line Breaks
Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs.
- From oversold levels, an advance above -100 and trend line breakout is considered bullish.
- From overbought levels, a decline below +100 and a trend line break is considered bearish.
Traders use the CCI to help identify price reversals, price extremes, and trend strength.
As with most technical indicators, the CCI should be used in conjunction with other forms of technical analysis.
How to Calculate the Commodity Channel Index (CCI)
The proper calculation of the CCI requires several steps.
They are listed in the proper sequence below.
You must first compute the typical price, using the high, low, and close for the interval. It is the simple arithmetic average of the three values.
The formula is:
TP = (High + Low + Close) / 3
- TP represents the typical price.
- High is the highest price for this interval.
- Low is the lowest price for this interval.
- Close is the closing price for this interval.
Next, you calculate a simple moving average of the typical price for the number of periods specified.
TPAVG = (TP1 + TP2 +... + TPn) / n
- TPAVG is the moving average of the typical price.
- TP is the typical price for the nth interval.
- n is the number of intervals for the average.
The next step is rather complex; it computes the mean deviation. The formula is:
MD = (|TP1 - TPAVG1| +... + | TPn - TPAVGn |) / n
- MD is the mean deviation for this interval.
- TPn is the typical price for the nth interval.
- TPAVGn is the moving average of the typical price for the nth interval.
- n is the number of intervals.
The symbol | | designates absolute value. In mathematical terms, negative differences are treated as positive values.
Now, the computation for the final CCI value is:
CCI = (TPt - TPAVGt) / (.015 * MDT)
- CCI is the Commodity Channel Index for the current period.
- TPt is the typical price for the current period.
- TPAVGt is the moving average of the typical price.
- .015 is a constant.
- MDT is the mean deviation for this period.
For scaling purposes, Lambert set the constant at .015 to ensure that approximately 70 to 80 percent of CCI values would fall between -100 and +100.
Commodity Futures Trading Commission (CFTC) is a US-based agency responsible for regulating the derivatives markets, which includes options, swaps, and futures contracts.
CFTC plays an important role in regulating financial markets.
Without such regulation and regulators, market participants could be subjected to fraud by unscrupulous individuals and, in turn, lose faith in our capital markets.
This could make capital markets ineffective at efficiently allocating financial resources to the most deserving means of production and productive economic activities to the detriment of investors, consumers, and society.
It was founded in 1974 as an independent organization that took the responsibilities of its preceding regulatory agency named Commodity Exchange Authority (CEA).
In the past, futures contracts were commonly traded in the context of agricultural commodities. That is one of the reasons the CEA was part of the United States Department of Agriculture (USDA). However, the futures industry became increasingly complex and now presents a wide variety of contracts.
The CFTC’s mission statement:
The mission of the Commodity Futures Trading Commission is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation.
The CFTC’s vision statement:
To be the global standard for sound derivatives regulation.
Although focused on different industry sectors, the CFTC shares common goals with the Securities Exchange Commission (SEC).
Both agencies are working to prevent market manipulation and fraudulent activities, including Ponzi and pyramid schemes.
As part of their strategy, the so-called whistleblower programs reward citizens that provide valuable information about fraudulent activities.
After the Great Financial Crisis (“GFC”) of 2008, then-President Barack Obama approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, which granted the CFTC and SEC increased authority, especially over large derivatives traders.
The CFTC organization consists o:
- The Commissioners
- The offices of the Chairman
- The agency’s operating units
The Commission consists of five commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms.
The President, with the consent of the Senate, designates one of the commissioners to serve as Chairman.
No more than three commissioners at any one time may be from the same political party.
Clearing and Risk (DCR)
The Division of Clearing and Risk (DCR) oversees derivatives clearing organizations (DCOs) and other market participants in the clearing process.
The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. Potential violations include fraud, manipulation, and other abuses concerning commodity derivatives and swaps that threaten market integrity, market participants, and the general public.
Market Oversight (DMO)
The Division of Market Oversight (DMO) fosters open, transparent, fair, competitive, and secure markets through oversight of derivatives platforms and swap data repositories.
Swap Dealer and Intermediary Oversight (DSIO)
The Division of Swap Dealer and Intermediary Oversight (DSIO) primarily oversees derivatives market intermediaries, including commodity pool operators, commodity trading advisors, futures commission merchants, introducing brokers, major swap participants, retail foreign exchange dealers, and swap dealers, as well as designated self-regulatory organizations.
Office of the Chief Economist (OCE)
The Office of the Chief Economist provides economic support and advice to the Commission, conducts research on policy issues facing the Commission, and educates and trains Commission staff.
The OCE plays an integral role in the implementation of new financial market regulations by providing economic expertise and cost-benefit considerations underlying those regulations.
Office of Data and Technology (ODT)
The Office of Data and Technology provides technology and data management support for market and financial oversight, surveillance, enforcement, legal support, and public transparency activities. ODT also provides general network, communication, storage, computing, and information management infrastructure and services.
Office of the Executive Director (OED)
The Executive Director ensures the Commission’s adaptation to the ever-changing markets it is charged with regulating, directs the allocation of CFTC resources, develops and implements management and administrative policy, and ensures program performance is measured and tracked Commission-wide.
Office of the General Counsel (OGC)
The Office of General Counsel provides legal services and support to the Commission and all of its programs.
These services include: representing the Commission in appellate, bankruptcy and other litigation; assisting in the performance of adjudicatory functions; providing legal advice and support for Commission programs; drafting and assisting in the preparation of Commission regulations; interpreting the CEA; and advising on legislative, regulatory, and operational issues.
Office of the Inspector General (OIG)
The Office of the Inspector General is an independent organizational unit at the CFTC. Its mission is to detect waste, fraud, and abuse and to promote integrity, economy, efficiency, and effectiveness in the CFTC’s programs and operations.
As such it has the ability to review all of the Commission’s programs, activities, and records. In accordance with the Inspector General Act of 1978, the OIG issues semiannual reports detailing its activities, findings, and recommendations.
Office of International Affairs (OIA)
The Office of International Affairs advises the Commission regarding international regulatory initiatives; provides guidance regarding international issues raised in Commission matters; represents the Commission in international fora such as the International Organization of Securities Commissions (IOSCO), OTC Derivatives Working Group (ODWG), and OTC Derivatives Regulators Group (ODRG); coordinates Commission policy as it relates to policies and initiatives of major foreign jurisdictions, the G20, Financial Stability Board (FSB), and U.S. Treasury Department; negotiates cooperative arrangements and responds to inquires related to supervisory cooperation or information sharing; and provides technical assistance to foreign market authorities, including advice, training, and an annual meeting and symposium.
Office of Legislative and Intergovernmental Affairs (OLIA)
The Office of Legislative and Intergovernmental Affairs (OLIA) is the chief advisor to the CFTC Chairman on matters before the U.S. Congress and serves as the Commission’s official liaison with Members of Congress, federal agencies, and the Administration.
Office of Minority and Women Inclusion (OMWI)
The Office of Minority and Women Inclusion leads the CFTC’s civil rights, equal employment opportunity, diversity, and inclusion programs.
Office of Public Affairs (OPA)
The Office of Public Affairs is the Commission’s primary public-facing office that provides honest, timely, and useful information across all communication platforms in order to serve internal and external stakeholders in all sectors to accomplish and facilitate the Commission’s mission. OPA proactively conducts outreach and creates messages designed to raise awareness of the CFTC brand in order to promote public trust.
Whistleblower Office (WBO)
The CFTC’s Whistleblower Program provides monetary incentives to individuals who report possible violations of the Commodity Exchange Act that lead to successful enforcement action, as well as, privacy, confidentiality, and anti-retaliation protections for whistleblowers who share information with or assist the CFTC.
The CFTC’s Advisory Committees were created to provide input and make recommendations to the Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of U.S. markets.
The committees facilitate communication between the Commission and U.S. futures markets, trading firms, market participants, and end-users.
The committees currently include:
- Agricultural Advisory Committee
- Energy and Environmental Markets Advisory Committee
- Global Markets Advisory Committee
- Market Risk Advisory Committee
- Technology Advisory Committee
- CFTC-SEC Joint Advisory Committee
The Commodity Research Bureau Index, or CRB Index, is an index of sensitive commodities, designed to gauge the average direction of movement in the commodity sector.
The index is composed of:
Fats and Oils: Soybean Oil, tallow, butter, and lard.
Textiles and Fibers: Print cloth, burlap, wool tops, and cotton.
Food stuffs: Sugar, butter, hogs, cocoa, Kansas City wheat, soybean oil, steers, corn, Minneapolis wheat, lard.
Metals: Lead, tin, copper, steel, zinc.
Livestock and Products: Steers, hides, lard, tallow, hogs.
A commodity trading advisor (CTA) is an individual or firm that provides individualized advice regarding the buying and selling of futures contracts, options on futures, or certain foreign exchange contracts.
Commodity trading advisors require a Commodity Trading Advisor (CTA) registration, as mandated by the National Futures Association, the self-regulatory organization for the industry.
A CTA acts much like a financial advisor, except that the CTA designation is specific to providing advice related to commodities trading.
- Regulated by the:
- SEC regulates equity and bond-related securities
- CFTC exchange-traded futures and options products as well as foreign exchange
- Registered through the CFTC and members of the National Futures Association (NFA).
Obtaining the CTA registration requires the applicant to pass certain proficiency requirements.
Commodity Trading Advisors (CTAs) are professional investment managers, similar to portfolio managers in mutual funds, who seek to profit from movements in the global financial, commodity, and currency markets by investing in exchange-traded futures and options and OTC forward contracts.
Generally, CTA registration is required for both principals of a firm, as well as all employees dealing with taking orders from, or giving advice to, the public.
CTA requires registration to give advice regarding all forms of commodity investments, including futures contracts, forwards, options, and swaps.
Investments in commodities often involve the use of significant leverage and, therefore, require a higher level of expertise to trade properly while avoiding the potential for large losses.
The regulations for commodity trading advisors date back to the late 1970s as commodity market investing became more accessible to retail investors.
Generally, a CTA fund is a hedge fund that uses futures contracts to achieve its investment objective.
CTA funds use a variety of trading strategies to meet their investment objectives, including systematic trading and trend following.
However, good fund managers actively manage investments, using discretionary strategies, such as fundamental analysis, in conjunction with the systematic trading and trend following.
How do CTAs Differ?
CTAs generally manage their clients’ assets using a proprietary trading system or discretionary method that may involve going long or short in futures contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, Nasdaq 100 futures), soft commodities (cotton, cocoa, coffee, sugar) as well as foreign currency and U.S government bond futures.
There are a variety of trading methodologies used to identify trading opportunities and implement risk management strategies.
After years of trading and testing methodologies, CTAs maintain a disciplined trading niche through either a systematic or discretionary approach.
- Technical vs. Fundamental
- Systematic vs. Discretionary
- Trading Styles
- Trend Following
- Counter Trend
- Option Writing or Selling
- Global Macro/Fundamental Focus
- Short-Term, Intermediate-Term, and Long-Term
- Emerging vs. Developed Markets
CTAs vs. Hedge Funds
A CTA trades futures and currencies whereas a hedge fund can trade a greater range of securities.
Also, while investment into a hedge fund would involve wiring the entire principal investment into the hedge fund, for a CTA, the investor only has to put up the cash needed for the margins.
The CTA is an “advisor” not a “fund”.
CTAs are basically managed-futures strategies (because trading commodity futures is way easier and less costly than trading actual commodities), and managed futures are generally set up as a hedge fund structure because that allows higher fees to the owners off of a lower capital base than something like a mutual fund.
Technically, managed futures are a wider category than CTAs, because managed futures can include futures on financial products such as equities, equity indexes, and fixed income products, which are not technically commodities.
However, some traditional CTAs have effectively morphed into managed futures because the ability to trade financial futures improves diversification and can increase returns
For historical reasons, though, these firms may still be known as CTAs.
The currency of the Communaute Financiere Africaine. Currency code (XAF)
The currency of Comoros. Currency code (KMF)
In auditing, completeness deal with whether all transaction that should be in the financial statements are included. For instance, completeness asserts that the accounting of all sales of goods and services be included in the financial statements.
The currency of the Comptoirs Francais du Pacifique. Currency code (XPF)
The U.S. Consumer Confidence Index (CCI) measures the degree of optimism that consumers feel about the overall state of a country’s economy, as well as their own personal financial situation.
The CCI survey is conducted monthly and contains about 50 questions that track different aspects of consumer attitudes toward current and future business conditions, current and future employment conditions, and total family income for the next six months.
This report is highly regarded by the Fed and can be a key factor in determining U.S. monetary policy.
A survey of 5,000 consumers asking them how they feel about the current economy and their spending patterns.
They will also be asked how confident they are about buying expensive consumer goods. The report is split into how people feel now and their expectations over the next few months.
How to Read It:
A neutral level is in the region of 100.
Figures below 75 are generally weak, while levels above 125 are strong.
A high level of consumer confidence stimulates economic expansion while a low level can lead to an economic downturn.
A sharp drop in confidence can signal that the economy is weakening, but the correlation between spending and confidence figures is not very strong.
Only index changes of at least five points should be considered significant.
Why is it important?
Consumer confidence surveys are key indicators of the overall health of the economy. When people feel confident about the stability of their incomes it influences their spending and saving activities.
A pessimistic consumer worries investors in the U.S. markets. It raises the probability of falling interest rates and a weakening economy, both of which are detrimental to the dollar’s value.
Investors might sell the dollar and look for higher yields and a stronger economy elsewhere.
An optimistic consumer can raise interest rates and the stock market returns to levels that provide a higher return relative to other countries in the world.
This would result in increased demand for the U.S dollar.
Where to find it?
The Conference Board is a subscription-based service.
The best way to find is to simply Google “Consumer confidence”.
The Consumer Confidence Index measures how consumers feel about the economy, jobs, and spending.
Happy consumers are more likely to shop, travel, and keep the economy strong. Unhappy consumers become protective of their wallets which is bad for the economy.
This report can occasionally be helpful in predicting sudden shifts in consumption patterns. And since consumer spending accounts for two-thirds of the economy, it gives us insights about the direction of the economy.
The Conference Board
It is released at 10:00 am EST on the last Tuesday of the month being surveyed.
Minor revisions can occur as more survey results are collected and processed.
The Index of Consumer Confidence, more commonly referred to as the CCI or Consumer Confidence Index is a monthly report issued by an independent economic research organization called The Conference Board.
The CCI is based on statistical data gathered from five thousand households and is considered an accurate measurement of how the general public view the United States economy for that month and even goes as far as to involves calculating the number of “help wanted” advertisements in local newspapers in order to determine just how tight the job market really is.
This measurement is thought to be highly indicative of the consumption component of the gross domestic product and the Federal Reserve consults the CCI when seeking to determine changes to interest rates. The CCI also has the power to affect prices on the stock market.
The base confidence level of the CCI is set at 100, as decided at the beginning of the index in 1985. The Conference Board is known to declare an economic recession whenever there occur two or more consecutive quarters where the confidence levels fall below 100.
The data contained in the CCI is of a timely nature and is considered to be a predictor of movements in the business cycle. Although it bears remembering however that the report is just a survey and there is no actual data series to take figures from as only “planned spending” is collected as opposed to actual dollars spent, meaning that the CCI is unable to forecast the future.
Confirmation means a cryptocurrency transaction has been verified (via the mining process) and added to a block that contains many other transaction.
Confirmations are more blocks containing many more transactions that have been added to the blockchain. Confirmation time varies between cryptocurrencies.
Bitcoin has a confirmation time of about 10 minutes. This means that about every 10 minutes, your bitcoin transaction get buried deeper within the blockchain, making it more difficult to alter.
Many exchanges will require multiple confirmations until the transaction is considered secure.
Confluence occurs when several technical analysis methods give the same trade signal.
Usually, these are technical indicators, but may also be combined with chart patterns, price action, and chart overlay tools.
Originally, the term confluence is used to describe a geographic point where two or more rivers come together to form a single body of water.
But following the same logic, it’s now used in the context of trading, to describe the confluence of multiple trading signals.
In the chart below, you have a confluence of indicators creating a strong resistance area consisting of:
- A descending trendline
- 200 SMA acting as a dynamic resistance level
- 61.8% Fibonacci retracement level
- RSI showing an “oversold” reading
Other examples of confluence could be:
- RSI signaling oversold and the price is trading near a support level.
- A trendline coming together at the bottom of the Bollinger Band.
- Price trading near its 200 SMA, the 50% Fibonacci retracement level meeting, and a major support level.
In a nutshell, the concept of confluence can be summarized as:
“An area in the market where two or more structures come together to form a high-probability buy/sell zone.’
The confluence of trade signals could lead to greater accuracy and profitability.
“Confluence trading” is when you combine more than one trading technique or analysis to increase your odds of a winning trade.
You use multiple trading indicators that all give the same “reading”, as a way to confirm the validity of a potential buy or sell signal.
Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade.
For example, if you use a single technical analysis tool that has a 40% accuracy rate of predicting the price movement, and then use a second on-correlated technical analysis tool to filter your decision further, then you increase your odds of winning.
In other words, you use the concept of “confluence” to find a trade setup using multiple technical analysis methods, and all of these independent forms of analysis signal a similar directional price movement.
For instance, this happens when support and resistance levels are closely in line with Fibonacci retracement and extension levels.
Psychological levels, previous highs and lows, and dynamic support and resistance levels (such as moving averages or Bollinger Bands) can also act as areas of interest.
When these levels coincide, they form stronger support or resistance levels, which could be used as entry points or take profit levels.
The currency of Congo. Currency code (CDF)
The set of rules that determine consensus (agreement) on a blockchain.
A consolidation is a period of range-bound activity after an extended price move.
Consolidation illustrates the lack of a trend in a particular trading range. Price has “consolidated”.
It frequently occurs after downtrends or uptrends, and can be seen as a stretch of indecision.
Consolidation draws to a close when price breaks through existing lines of support and resistance.
An index that measures the change in price of a representative basket of goods and services such as food, energy, housing, clothing, transportation, medical care, entertainment and education. It’s also known as the cost-of-living index.
The CPI measures inflation (a sustained rise in prices in an economy) as experienced by consumers in their day-to-day living expenses
The increase in the CPI is what most people think of as the “inflation rate.” It is used by retailers in predicting future price increases, by employers in calculating salaries and by the government in determining cost-of-living increases for Social Security.
Signs of inflation means the central bank has to raise interest rates. The most widely used indicator of inflation is CPI. If CPI is increasing, then it gives a central bank such as the Fed the necessary supportive data to hike rates. Higher interest rates are bullish for the country’s currency.
The CPI is a measure of the change over time in the prices paid by consumers for a market basket of goods and services.
These goods and services include food, clothing, shelter, newspapers and CDs. Items on which the average consumer spends a great deal of money, such as food, are given more weight, or importance, in computing the index than items such as toothpaste and movie tickets, on which the average consumer spends comparatively less.
The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. These items relate to savings and not to day-to-day consumption expenses.
Each month, data collectors from the ”’Bureau of Labor Statistics (BLS)”’ called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors’ offices, all over the United States to obtain price information on thousands of items used to track and measure price change in the CPI. These economic assistants record the prices of about 80,000 items each month. These 80,000 prices represent a scientifically selected sample of the prices paid by consumers for the goods and services purchased.
During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit.
If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of 8 when previously they had been sold by the dozen) of the good or service since the last time prices had been collected, the economic assistant selects a new item or records the quality change in the current item.
The recorded information is sent to the national office of BLS where commodity specialists, who have detailed knowledge about the particular goods or services priced, review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments. These can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item’s features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI’s measurement of price change.
Bureau of Labor Statistics, Department of Labor
It is released at 8:30am EST on the second or third week following the month being covered. Always released after the Producer Price Index.
No monthly revisions.
The Consumer Price Index, or CPI as it is more commonly known is also sometimes referred as the ”Retail Price Index” and is often considered the most widely used and most accurate measure of inflation and tends to also be regarded as an indicator of the effectiveness of the current government policies. Essentially, the CPI is a “basket” of various consumer goods and services that have been purchased by the wage earners of certain urban areas and which have been tracked from month to month.
The CPI is a fixed quantity price index and also a form of cost of living index and is considered one of the most useful tools in financial circles as it can provide clues as to movements in inflation.
When inflation rises, our purchasing power subsequently falls into decline meaning that every dollar earned is capable of buying a lesser percentage of a good or service. While it is typical for The federal reserve to battle rising inflation by increasing short term interest rates this is often frowned upon by investors because the cost of borrowing increases.
Close attention needs to be paid to the “core rate” as this rate excludes volatile energy and food prices to give a more strict measurement of general prices. Ideally, for within the financial markets you would generally be looking for the CPI to rise at an annual rate of just 1-2%, as any amount over this would indicate a warning about growing levels of inflation.
CPI can be greatly influenced in any given month by a movement in volatile food and energy prices. Therefore, it is important to look at CPI excluding food and energy, commonly called the “core rate” of inflation. Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars. In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.
The harmful spread or influence of an economic, financial, or policy problem to other markets or aspects of society.
A continuation pattern is a chart pattern described as a series of price movements that indicate that there is a temporary halt in the current prevailing trend, but that the current trend should continue after the break.
Chart patterns can be divided into two broad categories: continuation and reversal patterns.
Continuation patterns suggest that after the chart pattern completes, the price will continue to move in the same direction that was in prior to the chart pattern.
To make it easy to remember, continuation chart patterns continue the current trend.
Continuation patterns are typically traded by waiting for a breakout and entering a (long or short) position in the breakout’s direction,
Ideally, the breakout is in the SAME direction as the trend.
Not every continuation pattern will result in a trend continuation, where the price resumes moving in the current trend. Some will result in a trend reversal, where price moves opposite of the current trend.
By waiting for the breakout, you will know whether which one it’ll be.
Examples of continuation chart patterns include:
Chart patterns are used as a way to explain the activities of buyers and sellers by displaying the forces of supply and demand in a visual form.
You are able to see when the forces of demand (bulls) are in control, and when the forces of supply (bears) are in control.
As a “visual summary” of all buying and selling activity, chart patterns provide a “picture” of the battle raging between the bulls and bears.
Chart patterns and technical analysis can help determine who is winning the battle, which allows traders to position themselves accordingly.
CLS, or continuous linked settlement, is a cross-border payment system for the settlement of foreign exchange trades that eliminates settlement risk.
Standard foreign exchange transactions involve a settlement risk.
As the exchange of the two currencies involved is not simultaneous, the party that sells a currency before receiving the currency purchased from the counterparty is exposed to a certain risk.
CLS removes settlement risk by using a payment-versus-payment mechanism (“PVP”). This means that you get paid only if you pay.
On settlement day, each counterparty to the trade pays to CLS the currency it is selling.
CLS pays out the bought currency only if the sold currency is received.
In effect, CLS acts as a trusted third party in the settlement process.
It’s important to note that CLS is not a central counterparty, the trade remains between the two counterparties.
The CLS system is run by CLS Bank International, which is solely dedicated to settling foreign exchange trades.
The CLS Bank was established in 2002 and is owned by the world’s largest banks.
CLS Bank (CLS) is a limited purpose bank for settling FX, based in New York with its main operations in London.
While the CLS Bank is based in New York, it maintains accounts in the various countries in whose currencies it settles trades.
All transactions are settled through the bank in a single 5-hour window during each business day.
Today, CLS settles payment instructions in 18 currencies for 70+ settlement members and over 25,000 third-party customers.
CLS settles $5.3 trillion of payments on an average day.
It is regulated and supervised by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.
An agreement of trade.
A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in the price of an underlying asset.
A CFD is a financial derivative that allows traders to speculate on the price movement of the underlying instrument, without the need for ownership of the instrument.
CFDs are financial derivatives that allow traders to take advantage of prices moving up or prices moving down on underlying financial instruments and are often used to speculate on those markets.
It is is a contract between two parties, typically described as “buyer” and “seller” to settle the difference in the value of a financial instrument between the time at which the contract is opened and the time it is closed.
It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product.
In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference.
Normally, the contract price of a futures contract is higher than the current price of the underlying asset (normally a commodity). The futures contract price is higher because of the effect of the time value of money. As the expiration date nears, the spread between the spot price and the futures contracts price becomes smaller and smaller. On the delivery date of the contract, the futures and spot prices should be equal.
This process of futures and spot prices approaching one another is called convergence.
A rate of a specified currency for converting all profits and losses into U.S. dollars.
A U.S. report which states the average increase in prices for all domestic personal consumption items. The Core PCE Price Index is a less volatile report than the PCE Price Index in that it does not include more volatile food and energy prices.
In trading, correlation is a measurement of the relationship between two assets.
A positive correlation suggests that Security B will move in the same direction as Security A.
For example, the http://www.babypips.com/school/eurjpy-your-very-own-barometer_of_risk.html German stock market (DAX) and EUR/JPY moved in the same direction from 2004 to 2010. That is, EUR/JPY rose when DAX performed well and plummeted when the stock market dropped.
A negative correlation suggests that Security B will move in the opposite direction of Security A.
An example is the correlation between http://www.babypips.com/school/using-the-usdx-for-forex.html EUR/USD and the dollar index (USDX]. A strong dollar would usually lift USDX, but it will also boost the dollar against the euro, resulting in a downward price action for EUR/USD.
The cost of maintaining a trading position is often referred to as the cost of carry or carrying charge.
It can come in many forms, including interest on margins or the loans used to make the trade or the cost of storage and insurance associated with holding a commodity.
In forex, there are several costs that can arise from keeping a position open.
Changes in interest rates can require a charge on your account, or overnight funding charges can be incurred.
Often, the cost of carry will already be included in the price of opening a new position.
The cost of carry of a position varies depending on the type of trade and asset being traded.
The currency of Costa Rica. Currency code (CRC)
In the Council of the European Union, government ministers from each EU country meet to discuss, amend, and adopt laws, and coordinate policies.
It is also is known informally as the EU Council.
The Council of the European Union defines the EU’s overall political direction and priorities.
It is NOT one of the EU’s legislating institutions, so it does not negotiate or adopt EU laws.
Instead, it sets the EU’s policy agenda, traditionally by adopting “conclusions” during European Council meetings which identify issues of concern and actions to take.
The ministers have the authority to commit their governments to the actions agreed on in the meetings.
Together with the European Parliament, the Council is the main decision-making body of the EU.
The Council of the European Union should not be confused with:
- European Council: quarterly summits, where EU leaders meet to set the broad direction of EU policymaking
- Council of Europe: not an EU body at all
What does the Council do?
- negotiates and adopts EU laws, together with the European Parliament, based on proposals from the European Commission
- coordinates EU countries’ policies
- develops the EU’s foreign & security policy, based on European Council guidelines
- concludes agreements between the EU and other countries or international organizations
- adopts the annual EU budget – jointly with the European Parliament
How is the Council of the European Union structured?
The members of the European Council are the heads of state or government of the 27 EU member states, the European Council President, and the President of the European Commission.
The High Representative of the Union for Foreign Affairs and Security Policy also takes part in European Council meetings when foreign affairs issues are discussed.
There are no fixed members of the EU Council.
Instead, the Council meets in 10 different configurations, each corresponding to the policy area being discussed.
Depending on the configuration, each country sends their minister responsible for that policy area.
For example, when the Council meeting on economic and financial affairs (the “Ecofin Council”) is held, it is attended by each country’s finance minister.
Who chairs the meetings?
The Foreign Affairs Council has a permanent chairperson, the EU High Representative for Foreign Affairs and Security Policy.
All other Council meetings are chaired by the relevant minister of the country holding the rotating EU presidency.
For example, any Environment Council meeting in the period when Estonia holds the presidency will be chaired by the Estonian environment minister.
Overall consistency is ensured by the General Affairs Council – which is supported by the Permanent Representatives Committee.
This is composed of EU countries’ Permanent Representatives to the EU, who are, in effect, national ambassadors to the EU.
Eurozone countries coordinate their economic policy through the Eurogroup, which consists of their economy and finance ministers.
It meets the day before Economic & Financial Affairs Council meetings.
Agreements reached in Eurogroup gatherings are formally decided upon in the Council the next day, with only ministers of Eurozone countries voting on those issues.
How does the Council of the European Union work?
The European Council mostly takes its decisions by consensus.
If a vote is taken, neither the European Council President nor the Commission President takes part.
All discussions & votes take place in public.
To be passed, decisions usually require a qualified majority:
- 55% of countries (with 27 current members, this means 15 countries)
- representing at least 65 % of the total EU population
To block a decision, at least 4 countries are needed (representing at least 35% of the total EU population)
In certain specific cases outlined in the EU treaties, it decides by unanimity or by qualified majority.
- Sensitive topics like foreign policy and taxation require a unanimous vote (all countries in favor).
- A simple majority is required for procedural & administrative issues.
The second currency in a currency pair. Also known as the Quote currency.
A counterparty is the opposite party in a financial transaction. This means that both parties in a transaction can be referred to as a counterparty.
Entering into a contract with a counterparty generates what is known as counterparty credit risk.
Credit risk is the possibility that the counterparty to a transaction may not be able to fulfill their obligations in order to complete the transaction successfully.
One of the most common counterparty risks is payment default, which is the inability to pay outstanding amounts when due.
This risk is often eliminated by using a Central Counterparty Clearing House.
This third-party intermediary assumes the credit risk of both counterparties and identifies what is needed from each counterparty for the successful completion of the transaction.
For example, as counterparties, the purchaser and supplier of a product, are often unknown to each other, a clearing house can be essential to greatly reduce counterparty risk.
The added risk from international investments.
Any action of closing a position.
Occurs when a trader covers a short position after it has reached and “bounced” off a support level.
The action of closing out a profitable short position as the security reaches a certain level of support. This move is conservative in that a trader cuts profit at a point in which he/she can still gain more profit.
The crack spread refers to the difference between the price of crude oil and the prices of refined products.
The typical spread ratio is to buy 3 crude oil contracts and sell 2 gasoline contracts plus 1 heating oil contract (3:2:1).
This price difference represents the yield of “cracking” 1 unit of crude oil.
Like in any other security, investors look at credit ratings to determine a debt issuer’s ability to repay a loan. In forex trading, credit ratings are mostly referred to sovereign debt, or bonds, issued by governments to finance public projects and services. We usually see credit ratings expressed in letters like AAA, BB+, or D.
Since sovereign debt is usually denominated in foreign currencies, countries with unstable exchange rates or low economic growth usually have low credit ratings as they present additional risk of not being able to pay back their investors. As a result, countries with low credit ratings usually have to pay more than its high-rating counterparts in order to borrow the same amount of money from markets.
Do credit rating decisions directly affect my favorite currency pairs?
Since credit ratings factor greatly in investors’ analyses, any major announcement from major credit rating agencies can directly affect your currency trades.
Take note that the fact that not all credit ratings agencies are in sync with their assessments suggests that no single ratings agency can present the whole picture when it comes to analyzing sovereign debts.
Credit rating agencies are companies that provide objective estimates on how capable a debt issuer (ex. banks, companies, governments) is in fulfilling its debt obligations. Today we usually see these valuations expressed in letters like AAA, BB+, or D.
A lot of major players in the credit rating industry started out by publishing basic information and statistics about stocks and bonds across different industries. Over time, as the amount of information available in markets began to overwhelm individual and institutional investors, a need for cohesive and simplified security analyses emerged.
Who are the major players in the credit rating industry?
Standard & Poor’s (S&P), Moody’s and Fitch Ratings are currently the top dogs in the biz.
The negative chance that a person who owes currency cannot repay.
The currency of Croatia. Currency code (HRK)
A couple of currencies in which one currency is traded against another.
Cross rates are used to calculate the exchange rate for a currency pair whose exchange rate is not commonly quoted.
For example, EUR/GBP, CHF/JPY, or AUD/NZD.
This process is known as a cross rate because the exchange rate is calculated by comparing the value of each currency in the pair against a third (major) currency, usually the U.S. dollar.
For example, if you know the AUD/USD and NZD/USD exchange rates, you can cross these to calculate the AUD/NZD exchange rate.
The term “cross rate” can also be used to refer to any currency pairs that do not include the U.S. dollar.
The base currency always has a value of one, and is the reference currency for the exchange rate of the currency pair.
The amount of crude oil, gasoline, and distillate in a country.
The crush spread refers to the process of converting soybeans into the by-products of soybean meal and soybean oil.
The spread ratio is to buy 10 soybean and sell 11 soybean meal plus 9 soybean oil contracts (10:11:9).
This price difference represents the gross profit margin of soybean processors.
A cryptocurrency is a digital currency that uses a blockchain and relies on cryptography for security.
Many are based on public blockchain technology, a distributed ledger of all transactions that is decentralized and can’t be changed under most circumstances.
The nature of the blockchain means that individuals can transact directly with each other, even if they don’t trust each other.
Unlike traditional currencies, such as the U.S. dollar, they are not controlled by any central government or authority.
Cryptocurrencies don’t need a centralized party like a bank to carry out transactions between individuals.
Cryptography is used to keep transactions secure and to control the creation of additional units of a currency.
Bitcoin is considered the first cryptocurrency and is currently, the largest and most famous, out of the more than 1,600 cryptocurrencies now available on the interwebz.
The study of techniques by which communication is secured.
Cryptography is the practice and science of techniques for securing information through encryption and decryption.
cTrader is an intuitive and easy-to-use trading platform with advanced trading capabilities such as fast entry and execution and coding customization.
Created by Spotware with the mission to balance simple and complex functionality, cTrader can be used by both new and advanced traders.
Traders can place advanced order types and better understand the orders they’re placing in more detail.
Although cTrader is a relative newcomer to the world of trading platforms, it has already developed a loyal following of traders.
The currency of Cuba. Currency code (CUP)
A Cup and Handle is a bullish continuation chart pattern that marks a consolidation period followed by a breakout.
Chart patterns form when the price of an asset moves in a way that resembles a common shape, like a rectangle, flag, pennant, head and shoulders, or, like in this example, a cup and handle.
There are two parts to this chart pattern:
- The cup
- The handle
The cup forms after a downtrend is followed by an uptrend and looks like a bowl or rounding bottom.
As the cup is completed, price trades sideways, and a trading range is established on the right-hand side and the handle is formed.
A breakout from the handle’s trading range signals a continuation of the previous uptrend.
How to Trade the Cup and Handle Chart Pattern
The cup should resemble a bowl or rounding bottom.
The perfect pattern would have equal highs on both sides of the cup, but in the real world, perfect doesn’t exist.
After the high forms on the right side of the cup, there is a pullback that forms the handle.
The handle is the consolidation before the breakout.
The handle needs to be smaller than the cup. The handle should not drop into the lower half of the cup, and ideally, it should stay in the upper third.
The buy point occurs when the asset breaks out or moves upward through the old point of resistance (right side of the cup).
This breakout should occur with increased volume.
The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point.
Any form of money a government endorses and is used for trade.
Various weightings of other currencies grouped together in relation to a basket currency. Sometimes used by currencies to fix their rate, often on a trade-weighted basket.
Currency codes are three-letter abbreviations that identify a country’s currency.
The International Organization for Standardization publishes currency codes in a list referred to as ISO 4217.
The vast majority of these codes contain two characters referring to the country and a third character related to the currency unit.
For example, the ISO 4217 code for the pound sterling is “GBP” – the two first characters refer to Great Britain (GB) and the third one to the pound (P).
In the foreign exchange market, these codes allow traders to eliminate potential confusion caused by names designating more of one currency such as with dollar, peso, pound, or krona.
Currency devaluation is a monetary policy tool used by governments to deliberately reduce the value of a country’s currency in relation to another currency, group of currencies, or standard.
Currency devaluation is a deliberate downward adjustment of the value of a country’s currency against another currency.
Devaluation is a tool used by monetary authorities to improve the country’s trade balance by boosting exports at moments when the trade deficit may become a problem for the economy.
After devaluations, the same amount of a foreign currency buys greater quantities of the country’s currency than before the devaluation.
This means that the country’s products and services are likely to be sold at lower prices in foreign markets, making them more competitive.
Devaluation usually takes place when a government notices regular capital outflows (or capital flight) from a country, or if there is a significant trade deficit (where the total value of imports outweighs the total value of exports).
Governments can use this when their country has a fixed exchange rate or a semi-fixed exchange rate.
Governments devalue their currencies to improve their trading position in the world.
For example, in 2015, the People’s Bank of China (PBOC) devalued its currency by changing the market mechanism for fixing the yuan against the dollar.
This made the yuan weaker and Chinese exports cheaper.
Due to this devaluation, there were fears around the world that other governments might seek to protect their export markets and also devalue their currencies, possibly starting a currency war.
Currency Devaluation vs. Currency Depreciation
Devaluation is a deliberate action and should not be confused with currency depreciation, which is a fall in a currency’s value as a result of non-governmental activities.
Currency exchange controls are government restrictions that limit its citizens’ ability to purchase foreign currencies and limit purchases of the home currency from abroad.
Also known as foreign exchange controls, these restrictions are normally applied to restrict capital flow in countries with a partially convertible currency.
This tool is generally implemented to protect the economy by preventing capital flight.
Currency controls are usually seen in vulnerable countries that lack the stability and infrastructure to support the free flow of foreign exchange.
Freely convertible currencies including the U.S. dollar, euro, and Japanese yen have no controls at all.
However, almost all exotic currencies are subject to foreign exchange controls. For example:
- China, the second-largest economy in the world, runs various controls over its currency, the yuan renminbi, despite it now being part of the basket of reserve currencies.
- The Brazilian real is a non-convertible currency, meaning that the currency cannot leave the country. It is not traded on the foreign exchange market.
In the context of free trade, the value of currencies fluctuates continuously according to the dynamics of demand and supply. In order to limit the volatility of their exchange rate and provide greater economic stability to their countries, central banks may implement foreign exchange controls.
In the case of weaker economies, the main objective of foreign exchange controls is to avoid speculation with their currencies. Such speculation could otherwise cause significant variations in the exchange rate, potentially triggering capital flows with devastating economic consequences for the country.
These are the most common currency controls:
- Banning or limiting purchases of foreign currency within the country
- Banning or restricting the use of foreign currency within the country
- Setting exchange rates (instead of letting the value of the currency fluctuate according to market forces)
- Restricting currency exchange to retailers approved by the government
- Limiting the amount of money that may be imported or exported
Currency controls are a challenge for international companies as they hinder their ability to trade in local currencies.
These restrictions often entail further processing efforts for the company and increase the costs of FX operations and cross-border payments.
Currency exposure is a term referring to the vulnerability of an investment, cash flow, or financial position to variations in the exchange rate of two currencies.
Currencies are constantly exposed to fluctuations in exchange rates in the global foreign exchange market, which makes them inherently volatile.
Holders of a given currency are vulnerable to its depreciation against other currencies.
Companies that work in multiple currencies are particularly exposed to this risk.
The greater the number of currencies and the volumes of money involved, the greater the exposure or, in other words, the greater the potential threat to the company’s profit margins and bottom line.
Currency exposure can be quantified as the total amount of capital involved in all transactions divided by the total amount of capital involved in currency exchange transactions.
The larger the resulting volume, the greater the currency exposure, and the greater the need to implement a robust currency exposure management strategy.
In order to protect their profit margins, companies implement strategies to manage currency exposure.
These can range from simple forward contracts to more sophisticated alternatives like dynamic hedging, which allows them to fully automate their FX risk management.
A currency forward, also known as a forward contract, is an agreement that allows the buyer to lock in an exchange rate the day on which the agreement is signed for a transaction that will be completed later.
Forward contracts are one of the main methods used to hedge against exchange rate volatility, as they avoid the impact of currency fluctuation over the period covered by the contract.
Currency forwards are an effective hedging resource and also allow buyers to indicate the exact amount to be exchanged and the date on which to settle in the forward contract.
While a currency forward protects the buyer against any negative movements in the exchange rate, it also means that should the exchange rate move in their favor, they will not receive the more favorable rate.
Currency forwards are traded over-the-counter (they are not traded on a central exchange).
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
A currency future is known as an FX future or foreign exchange future.
This type of foreign exchange derivative sets the price at which one currency will be exchanged for another at a specified date in the future.
Currency futures are one of the instruments used to hedge against currency risk.
They are highly regulated, and any counterparty still holding the contract at the expiration date is legally bound to take delivery of the currency on the given date and at the given price.
What is the difference between spot and futures prices?
A futures price differs from a spot price as it is not based on current market value, but a potential market price in the future.
If traders have open positions on a spot currency rate, they may use a currency futures contract to hedge.
What is the difference between currency futures and currency forwards?
Both currency futures and currency forward contracts are financial derivatives that allow people to buy and sell currency pairs at a specific time and at a given price.
Though they are similar in nature, they operate with a few key differences:
|Currency futures are…||Currency forwards are…|
|Traded on an exchange||Traded over-the-counter|
|Highly standardized transactions with legally binding terms and conditions||Privately negotiated and specific to individual traders needs|
The main difference between a currency future and a currency forward is that futures are traded through a central market, whereas forwards are over-the-counter contracts (private agreements between two counterparties).
The risk of default on futures contracts is virtually zero as they always involve a central clearinghouse, whereas forwards always carry the risk of counterparty default. Some providers require client collateral in order to cover this risk.
A forward contract sets a rate with an expiry date. A futures contract establishes a daily market (mark-to-market) rates, and the daily price differences are settled or included daily in the contract until it ends.
A futures contract is normally a speculative product for investors, while forwards are more commonly used by companies seeking to protect themselves against currency volatility.
Currency hedging is the creation of a foreign currency position, simply known as a “hedge“, with the purpose of offsetting any gain or loss on the underlying transaction by an equal loss or gain on the hedge.
Whether the future exchange rate goes up or down, the company is protected because the hedge effectively “locks in” a home-currency value for the exposure.
A company that undertakes a currency hedge is therefore indifferent to the movement of market prices.
Hedging differs from speculation, where a currency position is taken in anticipation of an expected change in foreign currency rates.
Currency hedging is the most important element of a company’s currency risk management.
Depending on a firm’s competitive profile, on the nature of the markets in which it operates and on the goals set by its management, a firm can choose between several possible currency hedging strategies, most of which can be executed by means of software solutions that automate the entire process.
How does currency hedging work?
Currency hedging starts by assessing the risk exposure and by choosing a hedging instrument.
The risk exposure is usually a foreign-currency-denominated commercial transaction defined as the payment (or receipt) of a fixed amount of foreign currency in exchange for the receipt (or delivery) of a fixed quantity of goods or services.
In most transactions, there is a time span between the moment the transaction is initiated and the moment the foreign currency is to be paid or received.
That time span creates currency risk and therefore the opportunity and/or the need for currency hedging.
The hedging instrument is the financial instrument that creates the offsetting position.
The most widely used foreign exchange hedging tool is a currency forward contract, also known as a ‘forward’.
A forward contract consists of a promise to exchange one currency for another on settlement day at a specified exchange rate.
Because size and delivery dates can be set on any terms, forward contracts are inherently flexible.
Forward contracts are considered ‘accounting friendly’—another reason for their widespread use.
About 90% of companies use them as the hedging instrument of choice.
Foreign currency futures and options contracts are the other two main FX hedging instruments.
Currency Hedging Example
An exporter with USD as its functional currency expects to sell finished goods for EUR 100,000 to a European client in two months’ time.
The export is to be settled a month after the goods are delivered.
When the transaction is initiated, the spot exchange rate is EUR-USD 1.23 and the forward rate is 1.25.
To hedge the currency risk, the exporter enters a forward contract to deliver EUR 100,000 on the date that payment is expected from the customer.
The counterpart to the forward contract agrees to pay, upon maturity, the difference between the forward rate and the spot rate on a notional amount of EUR 100,000.
What happens on the day both operations are settled, assuming that the spot rate has moved down to EUR-USD 1.18?
The exporter settles the forward contract with the cash proceeds of the EUR sale and receives USD payment on the forward contract.
Between the moment the sale was initiated and the settlement date, its value has declined by USD 5,000 (18,000 — 23,000).
This loss is offset by a USD 7,000 (25,000 — 18,000) gain on the forward contract.
The net FX gain of USD 2,000 results from the forward points, or the difference between the forward and spot rate when the hedge was entered into: EUR 100,000 x (1.25 — 1.23).
Decisions concerning how to implement currency hedging —i.e., what specific currency hedging strategy to implement— need to be taken in accordance with the firm’s overall currency risk management.
In turn, the risk management framework will consider a number of different factors, like the company’s business profile or the risks that it faces.
While the trend towards flexible business models appears to be irreversible, new technology solutions are being developed to fully support CFOs and treasurers in the task of hedging their currency exposure in ever more dynamic ways, regardless of the size of their companies.
Currency manipulation is the act of changing its value against other currencies instead of leaving it free to fluctuate based on market dynamics. This can be done by fixing the exchange rate or deliberately increasing or decreasing its value.
This practice is usually frowned upon since it results to an artificial distortion in currency prices. In fact, it is considered an illegal practice based on US laws and international agreements.
This could also give way to unfair trade advantages since artificially devaluing a country’s currency could make its exports relatively cheaper and more attractive. In the long run, this could eventually result to a global trade imbalance.
A currency option is a contract through which a seller offers a buyer the right, but not the obligation, to purchase or sell a specific currency at a defined exchange rate on or before a fixed date.
Currency options are financial derivatives. Its value is “derived” from the underlying asset. In this case, a specific currency pair.
Call options allow the holder to buy a currency pair at a stated price within a specific timeframe. Put options allow the holder to sell a currency pair at a stated price within a specific timeframe.
There are a few key components in a foreign currency option.
- The Premium is the price that the option buyer pays for the right to buy or sell that currency at a fixed rate on or before a specific expiration date.
- The Strike Price is the exchange rate at which the currency will be bought or sold before that maturity date.
A Japanese company with USD/JPY exposure could buy a currency option with an expiration date set for six months later to protect itself against any adverse currency movements if they have a USD payment due on that date.
If the strike price is more favorable than the spot exchange rate on the date on which this option matures, the option expires “in the money” (“ITM”) and the holder should exercise it.
However, if the exchange rate on the expiration date is better than the strike price, the holder will not exercise his option. In this scenario, the option expires “out of the money” (“OTM”).
While currency options are one of the hedging instruments available to businesses, in practice, they are mostly used for speculation.
Currency traders use options to make money by purchasing the option and simultaneously exchanging that cash on the spot market to pocket the difference.
A currency pair is a price quote of the exchange rate for two different currencies traded in the foreign exchange market.
Forex trading is the simultaneous buying of one currency and selling another.
When you trade in the forex market, you buy or sell in currency pairs.
Each currency in the pair is listed as a three-letter code.
The first two letters identify the name of the country and the third letter identifies the name of that country’s currency, usually the first letter of the currency’s name.
For example, USD stands for the US dollar and CAD for the Canadian dollar
In the USD/CAD pair, you are buying the U.S. dollar by selling the Canadian dollar.
The first currency listed in a currency pair is called the base currency, and the second currency is called the quote currency.
The quote currency is also known as the “counter currency”.
Currency pairs compare the value of one currency to another. It indicates how much of the quote currency is needed to purchase one unit of the base currency.
The price of a currency pair is how much one unit of the base currency is worth in the quote currency.
For example, for the currency “EUR/USD”, EUR is the base currency and USD is the quote currency.
If EUR/USD is trading at 1.0950, then one euro is worth 1.0950 U.S. dollars.
If the euro appreciates against the dollar, then a single euro will be worth more dollars and the pair’s price will rise.
If the euro depreciates against the dollar, the pair’s price will fall.
If you think that the base currency in a pair is likely to strengthen against the quote currency, you can enter a long position (“buy the pair”).
If you think it will weaken, you can enter a short(“sell the pair”).
A currency peg is a governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price.
It can sometimes also be referred to as a fixed exchange rate or pegging.
A currency peg is a kind of exchange rate policy wherein a country’s domestic currency is only allowed to fluctuate within a narrow range (usually between -1% to +1%) against the value of another currency.
Currency pegging is usually done by countries that wish to stabilize their global trade operations.
By using a currency peg, the risk caused by exchange rate fluctuations of businesses involved in international trade is reduced.
This kind of exchange rate policy is very useful for countries with robust trade industries.
China, the Bahamas, and the Marshall Islands have pegged their currencies to the U.S. dollar.
Niger and Senegal have pegged their currencies to the French franc.
Bangladesh, Czech Republic, and Thailand have pegged their currencies to a basket of several select currencies.
Currency risk is the impact of currency fluctuations on the value of a company’s cash flows or on its accounting position.
The quantification of currency risk is known as “exposure” or “risk exposure“.
The two major types of currency risk exposure are:
- Economic exposure
- Accounting exposure.
Economic exposure is concerned with a firm’s cash flows; it results from combining operating exposure and the cash-flow elements of transaction exposure.
Accounting exposure is concerned with a firm’s foreign currency denominated assets, liabilities, revenues, and expenses as shown in its financial statements.
It results from combining translation exposure and the accounting elements of transaction exposure.
What is operating exposure?
Operating exposure to foreign exchange risk is the impact of exchange rate changes on a company’s future operating revenues and costs.
To the extent that a firm’s competitive position is affected by changes in exchange rates, it has operating exposure, even if it does not deal with foreign currencies.
Thus a ski resort in Chile, with no FX transactions, has operating exposure to FX risk if a devaluation of the Argentine peso draws customers to cheaper destinations in the neighboring country.
What is transaction exposure?
Transaction exposure measures the effect of exchange rate on foreign currency denominated transactions—sales and purchases for which a contract is in place.
For example, an exporter with EUR as its functional currency has an agreement to sell finished goods to a US client in three months’ time.
The export, denominated in USD, is to be settled another three months after the goods are delivered.
The time span between the moment the sale is initiated and settled creates currency risk as for the EUR cash flow as the EUR-USD rate fluctuates.
When the corresponding foreign currency denominated accounts receivable/payable are issued and appear on the firm’s balance sheet, the transaction creates accounting exposure as well.
What is transaction exposure?
Translation exposure to currency risk is the effect of exchange rate changes in the current balance sheet and income statement.
Translation exposure comprises the foreign currency gains and losses that occur when a group’s financial statements are consolidated and the accounts of foreign subsidiaries are translated into the home currency.
FX translation can be carried out by expressing all balance sheet and income statement items at the current exchange rate, or by applying different exchange rates (current rate/historical rate) to different assets and liabilities on the balance sheet.
The currency spot rate, or just spot rate, is the current exchange rate for any currency pair, for immediate settlement “on the spot”.
For most currencies, the spot rate is usually displayed to four decimal places. For certain currencies such as the Japanese yen, it is only displayed to two decimal places.
The exchange rate between two currencies is determined by a variety of factors that affect each currency’s value, including interest rates, national economic performance, and inflation.
It is also affected by the price that buyers of the currency are prepared to pay and, in turn, how much sellers are prepared to accept. These are called the bid and ask prices.
Trading in the highly liquid FX market, exchange rates tend to be unstable and prone to significant fluctuations.
That volatility might be profitable for speculative investors but can be detrimental for international companies with business lines in foreign currencies.
Negative changes in the exchange rate may erode their profit margins to the point of incurring losses.
Currency trading, forex trading, or foreign exchange trading is the buying and selling of currencies on the forex market with the aim of making a profit.
It is one of the most actively traded markets in the world, with individuals, corporations, and banks contributing to a daily average trading volume of more than $5 trillion.
Unlike shares or commodities, currency trading does not take place on exchanges but directly between two parties, in an over-the-counter (OTC) market.
The forex market is run by a global network of banks, spread across four major forex trading centers in different time zones: London, New York, Sydney, and Tokyo.
Currency trading works like any other exchange where you are buying one asset using a currency.
In the case of forex, the market price tells a trader how much of one currency is required to purchase another.
For example, the EUR/USD currency exchange rate shows how many US dollars buy one euro.
There are two popular ways to trade the currency markets. Either with derivative products or through a forex broker.
The most popular forex derivatives are spread bets and CFDs.
Traditionally, a lot of currency trades have been made via a forex broker, but with the rise of online trading, you can take advantage of currency price movements using derivatives like spread betting or CFD trading.
The Current Account is the difference between a nation’s total exports of goods, services, and transfers, versus its total imports.
Transactions in financial assets and liabilities are excluded.
The level of the current account is followed as an indicator of trends in foreign trade so it is considered as a big market mover.
The Current Account Balance (CAB) is a function relating to a country’s Balance of Payments (BOP), others being the Capital Account and the Financial Account.
Basically, it is the broadest measure of international flows of capital, goods, and services in and out of a country.
What is the Current Account?
A country’s current account is a way to determine its economic activity and can allow us to form a clear picture of the current extent of activity of a country’s industries, services, and capital market, as well as credit or debt to other countries.
The current account is the broadest measure of trade because it covers not only trade in goods and services but also investment flows between countries.
It also represents the amount of U.S. assets that have been transferred into foreign hands to cover the gap between American exports and imports.
The formula used for calculating the current account balance is:
X = Exports of goods and services
M = Imports of goods and services
NY = Net income abroad
NCT = Net current transfers
Why is the Current Account important?
The Current Account Balance can strongly reflect a country’s overall economic position.
If the CAB of a country is standing at a surplus, then it indicates that the economy is a net creditor to the rest of the world.
It also demonstrates how much that country is saving as opposed to investing, meaning that the country is providing an abundance of resources to other economies, and is owed money in return.
A CAB level that is in deficit, however, shows that an economy that is a net debtor to the rest of the world meaning that it is investing more than it is saving and so is using resources from other economies in order to meet its own domestic consumption and investment requirements.
The currency of Cyprus. Currency code (CYP)
The currency of the Czech Republic. Currency code (CZK)
A graph that shows the past price movement of a security in which each bar or candlestick represents a day’s worth of data.
The point of the day at which the trading day is over.
DAOs (Decentralized Autonomous Organizations) are organizations that operate entirely by encoded computer programs called smart contracts. All the transaction history and program instructions are managed within a blockchain.
Dark Cloud Cover is a two-candlestick pattern that is created when a down (black or red) candle opens above the close of the prior up (white or green) candle, then closes below the midpoint of the up candle.
When you spot the Dark Cloud Cover pattern on a Japanese candlestick chart, expect a potential bearish reversal.
This candlestick pattern is easy to identify because its formation reflects its name.
At the end of an uptrend (a “sunny day”), a black candle appears (a “dark cloud“), signaling a trend reversal.
The Dark Cloud Cover pattern is the opposite of the Piercing pattern (which is a bullish reversal candlestick).
To identify a Dark Cloud Cover, look for the following criteria:
- A definite uptrend must be occurring.
- The pattern consists of two candles.
- The first candle in the pattern is an up or bullish candle (white or green).
- The second candle is a bearish candle (black or red) must follow a bullish candle.
- The black candle must pass through the midpoint of the previous candle. It must open above the high of the previous candle, and it must close more than halfway down the body of the previous candle.
- Confirmation of the pattern is achieved when another black candle, of smaller size, forms after the second candle.
The Dark Cloud Cover pattern can be summarized by imagining a dark cloud overtaking the sky on a bright, sunny day.
When you see a Dark Cloud Cover pattern, due to the uptrend that precedes it, that the bulls were in control.
The bulls continue to push forward after the open, and the price gaps up, but then the bears step in.
The price closes near the low of the day, and the uptrend ends.
If the bears continue to control the market on the next candle, a reversal is likely.
Here are some tips on analyzing a Dark Cloud Cover pattern when you see one:
- The higher the gap up is from the previous candle’s close, the bigger the reversal will be. This shows that the market was unable to sustain that high price level.
- The longer the white candle and black candle are, the more pronounced the reversal will be.
- The lower the black candle closes into the white candle, the stronger the reversal will be.
- If the volume is high on both candles relative to previous candles, the reversal is more likely to occur.
Make sure that the Dark Cloud Cover pattern you’re seeing is NOT a Bearish Engulfing pattern. They’re very similar in appearance.
If the second candle closes below the previous candle’s open, you have a Bearish Engulfing pattern, not a Dark Cloud Cover pattern.
A dark pool is a trading platform in which pre-trade transparency is deliberately limited, typically by withholding information about market depth or likely transaction price.
Dark pools limit transparency in order to induce liquidity suppliers to offer greater quantities for trade.
Dash (DASH) is a cryptocurrency based on Bitcoin software but has anonymity features that make it impossible to trace transactions to an individual.
It was created by Evan Duffield in 2014 and was previously known as XCoin (XCO) and Darkcoin.
Dash describes itself as digital cash that aims to offer financial freedom to everyone. Payments are fast, easy, secure, and with near-zero fees.
Built to support real-life use cases, Dash aims to provide a fully-decentralized payment solution. Users can purchase goods at thousands of merchants and trade it at major exchanges and brokers around the globe.
How does Dash work?
Dash was created as a hard fork of Bitcoin in order to enhance privacy — an element that the Dash dev team found lacking in Bitcoin’s system — and for the most part, has similar functionalities and use cases as Bitcoin’s peer-to-peer electronic cash.
Dash is a Proof-of-Work blockchain with block generation times averaging about 2.5 minutes. On the Dash network, individuals can mine Dash coin via the X11 mining algorithm.
What makes Dash so unique is the second tier in its system composed of Masternodes.
A Masternode is an individual who holds enough Dash (1000 Dash) to have a “stake” in the ecosystem, Masternodes also enable dash-specific functions like InstantSend and PrivateSend.
Think of these Masternodes as something like voting shareholders. They vote on things such as what should happen with new projects, who should get funding from the treasury, and which direction development should go.
And thanks to Masternodes, Dash doesn’t need to reach unanimous community consensus to make significant changes to its codebase, so it’s not at risk of hard forking due to changes in the core code.
Instead of the forking model, Masternodes vote on community proposals, and if the number of nodes who vote ‘yes’ outweighs the number of nodes who vote ‘no’ by at least 10%, then the proposal is approved.
For supporting the network, Masternodes receive 45% of the block reward–miners receive the other 45% of the block reward, and 10% of the block reward is withheld and goes to a fund that distributes wealth for approved community-proposals and initiatives.
What did Dash improve?
Governance, privacy, and speed are cornerstones of the Dash network; each of these elements is crucial to any decentralized community.
However, these features are riddled with inefficiencies on many existing decentralized systems–which is why Dash set out to provide solutions to the sub-optimal networks with weak offerings that existed in the market.
Unlike most blockchain networks, Dash has a governing body — the Masternodes — responsible for voting on network proposals, as well as facilitating the operations — PrivateSend and InstantSend — that happen in the second tier of their network.
For facilitating these transactions, Dash Masternodes are rewarded with 45% of the block reward for their work.
To become a Masternode, an individual must own at least 1,000 Dash.
Privacy is one of, if not, the central pillar in Dash — as a matter of fact, privacy is such an important feature of Dash, that Dash coin is often referred to as a privacy coin.
To achieve the level of privacy that decentralized network advocates are comfortable with, Dash mixes the coins within their network together to muddle their ownership and then redistributes these coins back to wallet addresses, so it becomes unclear who’s coins belong to who.
In the Dash network, this feature is called PrivateSend; when a user PrivateSends a tx, all of that transaction inputs previous histories are cleared, making it impossible to distinguish one Dash coin from another. This lack of history makes Dash relatively fungible, which is a significant characteristic that makes
Dash more like a feasible payment method than other cryptocurrencies with little to no fungibility like Bitcoin–where the price of 1 Bitcoin is not the same in every location, and therefore not entirely fungible (equally interchangeable at a global level).
As mentioned above, Dash’s InstantSend feature makes the Dash coin a more feasible payment method than other cryptocurrencies such as Bitcoin.
When a Dash transaction is sent using InstantSend, the network of Masternodes is able to lock the transaction funds and only unlocks them for their specific purpose.
In other words, the Masternodes act as escrow agents, which effectively allows a transaction to be instantly sent and finalized over the Dash network since the nodes lock those funds and only allow them to be used in a particular, pre-specified way.
Dash’s InstantSend feature is a major improvement over Bitcoin’s lengthy 6-confirmation-before finality-rule that many individuals abide by–the difference is a transaction that is finalized in about 1.3 seconds (Dash) opposed to a transaction that is finalized in about an hour (Bitcoin).
Why use Dash?
If you care deeply about anonymity and privacy — or maybe Bitcoin’s 6 confirmation rule puts a dent in your lifestyle or payment settlement process — then you might want to consider using Dash.
With Dash’s PrivateSend, an emphasis is placed on anonymity and privacy when transacting with your peers, and through Dash’s InstantSend, transactions are sent and finalized within 1.3 seconds.
Both of these features are likely to eliminate any privacy and transaction speed issues you were experiencing on other blockchain networks.
Also, if you are interested in supporting a network in return for a generous portion of the block reward, then you might be interested in becoming a Dash Masternode, and the Dash network may be the perfect fit for you.
David Dodge is the former Governor of the Bank of Canada, having retired on January 31, 2008.
Mr. Dodge was appointed Governor of the Bank of Canada on February 1st, 2001, for a term of seven years. As Governor, he was also Chairman of the Board of Directors of the Bank.
A native of Toronto, Mr. Dodge received a bachelor’s degree (Honours) in Economics from Queen’s University, and a PhD in Economics from Princeton (1972).
During his academic career he has served as Assistant Professor of Economics at Queen’s University; Associate Professor of Canadian Studies and International Economics at the School of Advanced International Studies, Johns Hopkins University; Senior Fellow in the Faculty of Commerce at the University of British Columbia; and Visiting Professor in the Department of Economics at Simon Fraser University. He has also served as Director of the International Economics Program of the Institute for Research on Public Policy.
Mr. Dodge has also held senior positions in the Central Mortgage and Housing Corporation, the Anti-Inflation Board, and the Department of Employment and Immigration. After serving in a number of increasingly senior positions at the Department of Finance, including that of G-7 Deputy, Mr. Dodge was appointed Deputy Minister of Finance in 1992. In that role, he served as a member of the Bank’s Board of Directors until 1997.
In 1998, Mr. Dodge was appointed Deputy Minister of Health, where he served until the announcement of his appointment as Governor of the Bank of Canada.
A person who makes and closes trades within the same trading day, or “flat” (no open positions) at the end of the session.
Opening and closing a position on the same day. Day traders trade on very short-term market movements.
A dead cat bounce is a small, brief recovery in the price of a declining asset.
The phrase “dead cat bounce” is used to describe a brief recovery in the price of a declining asset that is shortly followed by a continuation of the downtrend.
The phrase comes from the saying, “Even a dead cat will bounce if it falls from a great height.”
This phrase originated on Wall Street and was popularly applied to situations where one can see a small comeback during a major decline.
In technical analysis, a “dead cat bounce” is seen as a price continuation pattern.
During the initial stages of a Dead Cat Bounce pattern, it might be confused with a trend reversal.
It begins with a downward move followed by a significant price retracement.
However, after some time, the price stops rising, and the downward trend continues, breaking previous support levels and creating new lows.
As such, Dead Cat Bounce patterns may also result in what is called a bull trap, where traders open long positions and hope for a trend reversal that never happens.
A list of all the transactions occurred in a specific time period, usually a trading day.
Primary method of recording a transaction.
A dealer is a financial intermediary that stands ready to buy or sell assets with its clients.
A dealer is an individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities.
Dealers trade for their own account and risk. This is in contrast to brokers who trade only on behalf of their clients.
The Debt-to-GDP ratio measures the amount of a country’s national debt in relation to its GDP.
Often expressed as a percentage, this figure indicates a country’s ability to pay back its debts based on its output. The lower the debt-to-GDP ratio, the more capable the country is of paying back its debt, and the lower the risk of default.
Decentralized means not controlled by any single entity or institution. Blockchain is an example of something that is decentralized, all full nodes in the network own a copy of the blockchain. And not just a single entity (which would make it centralized). In a decentralized system, if one node goes down, the rest of the network continues to operate without hiccups.
A default occurs when a person or entity fails to meet its debt obligations. It can be in the form of unpaid loans, mortgages, bonds, and promissory notes. A debtor is also considered to have defaulted when a violation of loan conditions is committed.
Shortfall in the balance of trade, balance of payments, or government budgets.
Deflation is an economic phenomenon involving a generalized decline in the price of a basket of goods and services. in a country or region.
Deflation happens when the annual inflation rate turns negative. Such an event is usually brought about by a reduction in the money supply and/or credit.
It is the opposite of inflation and is therefore often referred to as “negative inflation”. It occurs once the rate of inflation falls below 0%.
Deflation strikes fear into the hearts of central bankers because it’s much harder to fight than inflation, which requires painful but relatively straightforward interest rate hikes.
Falling into a deflationary cycle tends to be extremely negative for an economy and is a development every country tries to avoid.
Deflation prompts consumers to delay purchasing decisions because they expect prices will drop further.
This reduces industrial production and economic activity, depresses business profits, drives down wages, and/or layoffs which increases unemployment.
As prices continue to fall, profits are squeezed further and companies respond by cutting wages further, laying off more employees, which reduces demand for their products and worsens the problem.
It’s a self-reinforcing cycle that can only be broken with massive spending, normally by governments with the help of their central bank.
To avoid this, central banks tend to use different monetary policy tools at their disposal.
For example, following the outbreak of the 2020 COVID-19 pandemic, the major central banks reacted by cutting their interest rates in an attempt to facilitate credit flows and launched massive bond purchasing programs to stimulate inflation by boosting the money supply.
In the forex market, these measures translate into a sharp increase in currency volatility.
Expansionary monetary policies tend to weaken the related currency against the currencies of the main trading partners.
These expansion programs, simultaneously implemented in different countries, lead to sharp fluctuations in the main currency crosses and pose serious challenges to companies exposed to currency risk.
The settlement of a transaction by receipt or tender of financial instrument or currency.
The delivery date, also known as the settlement date or value date, refers to the specific date on which an investment contract must be completed.
Companies using financial instruments like forwards or futures contracts to protect their foreign currency transactions from currency risk must meet the delivery dates established in the contracts.
In futures trading, the delivery date is the day on which the shares or commodities underlying the futures contract are to be transferred to the investor.
In other words, the delivery date is also the maturity date of a futures or forward contract.
Some futures contracts may require the physical delivery of a commodity.
In this case, they can specify a delivery month, which is the month in which the seller must deliver the underlying asset and the buyer has to pay for it.
In such instances, the terms of the contract may also define a delivery location.
Futures contracts traded on US exchange markets (bonds, stocks, foreign exchange, and stock indexes) generally have quarterly delivery dates in March, June, September, and December.
In currency forward contracts, which are over-the-counter agreements, the delivery date and the price of the asset are agreed privately between the two parties involved.
The Demarker Indicator is a technical analysis tool developed by Tom Demarker for identifying high-risk buying or selling areas in a given market.
Two variants of the Demarker Indicator exist, one bounded by values from -100 to 100, the other bounded by values from 0 to 1. The basic principle behind the Indicator is the same in either case. If the high price for a period is higher than the previous period’s high, the DeMax variable for that period is the difference between the highs; the DeMin variable for the period works similarly for the low prices. The Demarker Indicator is then the moving average of DeMax divided by the sum of the moving averages of DeMax and DeMin. Thus, the higher the value of DeMax relative to DeMin, the greater the value of the Demarker Indicator.
On the 0 to 1 Demarker Indicator scale, a value anywhere above .7 indicates that a downward price turn is imminent, while a value anywhere below .3 indicates that the price will shortly turn upward. Values between .3 and .7 indicate relatively low-risk periods for entering a given asset market. Thus savvy traders can use the Demarker Indicator either to determine when to enter a market, or when to buy or sell an asset in order to capitalize on probable imminent price trends.
The currency of Denmark. Currency code (DKK)
Currency depreciation is the opposite of currency appreciation. It is the decrease in the value of one currency against another.
If the EUR/GBP exchange rate falls from 0.95 to 0.92 the British pound (GBP) has depreciated by £0.03.
One euro now costs £0.92 pounds (or 92 pence) instead of £0.95.
A currency may depreciate for different reasons, including a negative trade balance, interest rates, inflation, monetary and fiscal policies, and political stability.
Central banks may even introduce negative interest rates (NIRP) to force currency depreciation. Especially if the currency is so strong that it’s hurting the country’s export industry.
If a central bank cuts interest rates, assets denominated in that currency will be less attractive to investors as the interest they yield will be lower.
Consequently, the announcement of an interest rate cut normally triggers a depreciation of the currency, as investors tend to sell assets in that currency and buy assets in currencies with higher yields before the actual interest rate cut takes place.
Essentially, a currency depreciates because of a loss of investor confidence. Extreme losses of confidence can have a severe effect on a currency and by extension, the economic health of the country where the currency is used.
The simple definition of a depression is a large scale recession that lasts an extended period of time. Some define a depression as a scenario where real GDP drops by over 10%. Another way to differentiate it from a recession is the period of time. Recessions are said to typically last one year while an economic depression lasts several years.
A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves.
Because there is nothing physically being traded when derivative positions are opened, they usually exist as a contract between two parties.
Derivatives are financial instruments that acquire the majority of their value from the price of the underlying asset they are tracking such as commodities and currencies, or from securities such as stocks and bonds.
Swaps, futures, forwards, and options are the most common derivatives. Investors trade them on an exchange or over-the-counter (OTC) usually as an alternative to speculating in the underlying asset or to hedge their risk on a position in the underlying asset.
A descending channel is a chart pattern formed from two downward trendlines drawn above and below a price representing resistance and support levels.
The descending channel pattern is also known as a “falling channel” or “channel down“.
The upper line is identified first, as running along the highs and is called the trendline.
The lower line (the “channel line”) is identified as parallel to the trendline, running across the bottom.
It is a bearish chart pattern defined by a trend line supporting the series of lower lows and a diagonal resistance level connecting the lower highs.
When in the channel, prices are expected to bounce off both upper and lower boundaries. The more such reversals occur, the more reliable the pattern.
A descending channel looks similar to the Rectangle pattern, but the difference is that the descending channel slopes down.
A descending channel is the exact opposite of the ascending channel.
When the price is around the upper trend line, look for short opportunities, although aggressive traders could trade long and/or short at both trend lines looking for a bounce or pullback.
Another way to trade this pattern is to wait for the price to break through either trendline.
A break out above the upper trendline generates a strong buy signal, while a break down below the lower trendline generates a strong sell signal.
When the price breaks through the trend line (upper line), it might indicate a significant change in trend.
Breaking through the channel line (lower line), in contrast, suggests an acceleration of the existing trend.
Keep in mind that just like all the other patterns, channels might be prone to false or premature breakouts, which means that price may retreat back into the channel.
Descending channels are useful due to their ability to predict overall changes in trends.
Descending channels, like ascending channels, are a tool for determining whether the trend in price will continue.
As long as prices remain within the descending channel, the downward trend in price can be expected to continue.
Another strategy of using a descending channel is to identify where the price fails to reach the lower line.
The failure to reach it often signifies trend exhaustion. This could be an early warning that the trend is going to reverse. The breach of the trend line may be more likely to happen.
Descending channels often appear within an overall uptrend in prices, and represent either a continuation of the trend or a reversal of the trend.
The direction of the break will determine whether it’s a continuation or a reversal.
A descending trend line is a chart pattern containing two or more lower highs that can be connected with a straight line that has a negative slope.
It is a bearish pattern created by connecting two or more highs, with each successive high lower than the previous low.
This creates a downward sloping trend line
A descending trend line is also known as a “downtrend line“.
Since technical analysis is built on the assumption that prices trend, the use of trend lines is important for both identifying and confirming trends.
A descending trend line acts as resistance and indicates that supply (more sellers than buyers) is increasing even as the price falls.
A falling price combined with increasing supply is very bearish, and shows really strong selling pressure.
As long as the price action stays below this line, it is a bearish trend.
Price can pullback as the trend line acts as resistance.
Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal.
The more points there are to connect, the stronger a trend line becomes.
The strength of the trend line is also determined by how many market participants recognize the trend line.
If a lot of the market acknowledges the same trend line that you see, then the trend line becomes self-fulfilling.
As long as prices remain below the trend line, the downtrend is considered solid and intact.
A break above the descending trend line indicates that buyer demand has increased and a change in trend could be imminent.
If price breaks through the descending trend line, you can go long the breakout but be aware of fakeouts (false breakouts) though.
A descending triangle is a bearish chart pattern that is used in a downtrend market and is formed by a series of lower highs and a lower resistance level.
The descending triangle is formed from two trendlines, one for high prices and one for lows.
The upper trendline of the triangle is a descending trendline, while the lower trendline is a horizontal trendline.
The resulting shape is a right triangle whose hypotenuse moves downward over time.
As price declines, it keeps finding resistance at a certain level and recovering some of its losses.
The subsequent retracement is shorter than previous retracements and this creates a series of lower highs.
The lower highs indicate more sellers are gradually entering the market as they are willing to accept a lower price in order to establish a short position.
This creates selling pressure as price consolidates moving towards the apex.
Prices on the upper trendline continue to decline, narrowing the triangle formation, until the level of support represented by the lower trendline is broken.
Since price is consolidating with a bearish bias, traders need to watch out for impending breakout down through the support level.
When the level of support is broken, it becomes a level of resistance, confirming the overall downward trend of the asset’s price over time.
Such a breakout can occur based on technical analysis and/or be caused by news flow so it is worthwhile to also consider the relevant fundamentals and market sentiment when using this pattern.
In order to confirm a descending triangle on an asset’s chart, traders must look for two reaction lows of similar magnitude and two reaction highs, each declining in price over time.
There should be a reasonable amount of distance between each low or high.
A descending triangle is generally considered a bearish continuation pattern. However, it can be occasionally observed in uptrends, in which case a major trend reversal might be expected.
In terms of breakouts, this pattern is also somewhat ambivalent as the escape from the Descending Triangle can happen in both directions.
Statistically, downward breakouts are more likely to occur, but upward ones seem to be more reliable.
Among the upward breakouts, the most desirable to find are those that happen after a gap. Larger gaps seem to leave less chance for the price to retreat back into the triangle.
Refers to a group that deals with a specific currency or currencies.
All information required to make a transaction.
The Detrended Price Oscillator (DPO) attempts to remove trend from price to make it easier for traders to identify price cycles with its peaks and troughs
As the name indicates, DPO is a technical indicator designed to give information about the price of an asset without taking into account existing price trends.
Cycles longer than the period specified for the indicator are removed, leaving only the shorter-term cycles.
DPO is displaced to the left so that the indicator is aligned with the peaks and troughs in price.
The logic behind this is that detrended prices can help traders to understand the buying and selling pressure based on short-term fluctuations in the price of an asset, without taking into account larger upswings or downswings in price.
How to Use the Detrended Price Oscillator (DPO)
The Detrended Price Oscillator (DPO)is used to identify cycles with its peaks and troughs.
Cycles can be estimated by counting the periods between peaks or troughs.
Users can experiment with shorter and longer DPO settings to find the best fit.
One of the fundamental assumptions of the DPO is that long-term price trends are composed of short-term price trends and that only by looking at short-term trends can long-term trends be understood.
Severe peaks and troughs in the DPO indicate potential reversals in the overall trend.
How to Calculate the Detrended Price Oscillator (DPO)
In order to calculate the Detrended Price Oscillator, you need to establish g a period of time that could be said to indicate a trend in price.
For example, if prices steadily increase over a twenty-day period, then you would use “20” as the period of time that indicates a trend.
Divide this period by two and add one to arrive at a number n.
Then take the moving average of an asset’s price n days before the period in question, and subtract this from the asset’s closing price for that period.
The resulting number is the period’s DPO.
This calculation method ensures that although short-term price trends are included in a DPO chart, longer-term trends are excluded.
DPO = Close (n/2 + 1 Periods ago) – n Period SMA
The Diamond formation, also known as a Diamond Top, is a relatively rare chart pattern formation.
When a Diamond Top forms, it forms at the conclusion of a long uptrend in price, and it indicates an imminent reversal of the trend.
There is an uptrend leading to the Diamond Top formation and this pattern looks like a diamond that is leaning to one side.
In the first “half” of the Diamond, the price creates higher highs and lower lows forming a broadening triangle. In the second “half”, it closes up.
A Diamond Top formation generates a very strong sell signal since it’s screaming “Market Top!”
Traders recognize a diamond formation by first recognizing a Head and Shoulders pattern (a peak and trough, followed by a higher peak and another trough, followed by a peak somewhere below the level of the previous peak).
Four trendlines are drawn: one (ascending) from the first peak to the second peak, one (descending) from the second peak to the third peak, one (ascending) from the second trough to the low of the third peak, and one (descending) from the first trough to the second trough.
The four lines altogether form a rough diamond shape, giving the chart its name.
The Diamond Top forms an overall descending trend channel, allowing traders to determine levels of support and resistance for the asset’s price as it enters a downtrend or a momentary reversal.
However, if the lower support line of the channel is broken, traders consider it likely that asset prices will reverse and begin to climb again.
Digital signatures verify the integrity of a transaction through public key cryptography. The signing process proves cryptocurrency transactions are made from the rightful sender and have not been altered.
Digital signatures are generated from the transaction hash and private key. The public key is then used to determine if the signature was produced from the proper transaction hash and private key.
A dip is when a cryptocurrency experiences a decline in price. Dips are visually identified as a “valley” on a price chart.
DMA, or Direct Market Access, is a type of trade execution where traders are offered direct access to the interbank, enabling them to place trading orders with liquidity providers (LPs).
Trading with a DMA account is ideal for forex traders looking for maximum transparency and control.
While a DMA account has direct access to liquidity, orders are still sent in the broker’s (not the trader’s) name.
The broker is basically acting as your “agent”, allowing you access to trade directly from LPs, but from the LP’s perspective, they’re still trading with your broker.
Think of it as your broker “vouching” for you.
Full market depth exposes traders to multiple levels of liquidity that allows them greater insights into the market and control to trade on the best bids and offers sourced directly from liquidity providers.
DMA enables traders to submit buy or sell orders directly to the order book of the underlying market (OTC or exchange), bypassing all intermediaries.
It’s for serious traders who demand deep liquidity and the control to take advantage of rapid price opportunities.
It’s a way of placing trades that offers more flexibility and transparency than traditional dealing (which is usually referred to as OTC, or over-the-counter).
With DMA, traders place trades directly on the order books of exchanges.
DMA traders can see the orders directly on the books of the exchange that they are dealing with and are charged on a commission basis instead of via the spread.
DMA can be a good way for advanced traders to get a more comprehensive view of the market, and see the best possible prices available.
How do orders get filled in a DMA account?
Limit orders placed via the DMA trade ticket will be immediately passed to the execution venue where they effectively become bids/offers for other participants in the liquidity pool to interact with.
Traders must have sufficient margin for a limit order at the time of entry and when stop or limit price is triggered.
Stop Loss orders placed via the DMA trade ticket are held at the execution venue and are contingent upon a price trigger before being exposed to the liquidity pool.
How does CFD trading with DMA work?
DMA allows you to trade on underlying market prices and depth, but what you’ll actually receive on placing a trade is a CFD from your CFD provider.
It works like this:
- DMA displays the best bid and offer price available for a particular market, plus further prices on either side of the order book
- You place an order, and your CFD provider instantaneously conduct a margin check to ensure you have sufficient funds to cover the margin on your proposed trade
- If the margin check is satisfied, an order is placed in the market, and at the same time, a parallel CFD is created between you and your CFD provider.
So while you’re trading at market prices, you won’t gain any ownership rights over the equities or currencies that form the subject of your CFD.
What’s the difference between DMA and ECN?
There are many similarities between the two models in terms of pricing. Both provide clients with access to the interbank market which creates tight pricing with a depth of book transparency.
In a typical anonymous ECN model, the individual client must have secured their own credit line from a traditional Prime Broker or Prime of Prime provider in order to participate in the ECN.
A direct price stream refers to when a liquidity provider streams prices at which trades can be executed directly with another party.
Trading not intermediated via a third party.
Both counterparties to the trade know with whom they are trading.
As a model, direct streaming offers an alternative to trading on a venue.
The advent of direct, continuous bilateral pricing streams is slowly but surely starting to shake up how the market thinks about electronic trading.
Direct streaming allows everyone – dealers, electronic market makers, and the buy-side – to get much (if not all) of what they get from CLOB and RFQ markets in one place.
As an evolution of current execution protocols, direct price streaming is interesting to broker-dealers for several reasons:
- It allows them to automate trading, helping them to manage costs.
- It allows them to maintain bilateral relationships with clients, so that liquidity provision can be correlated to their profitability.
What is a direct price stream?
In its simplest form, direct streaming is when a dealer or electronic market maker continuously sends prices and sizes at which it is willing to both buy and sell currencies to their customer.
Different pricing is provided for different sizes.
The customer receives both a price and size that is tailored for them, without submitting a request, so information leakage from the buy side’s perspective is eliminated pre-trade.
When liquidity providers are willing to stream firm prices, the risk that clients might telegraph their trading intentions at-trade is also removed.
Things get more interesting, and useful when a customer aggregates streams from all of their liquidity providers.
The result is effectively a customized central limit order book of immediate, actionable liquidity.
It only includes counterparties that customer knows and has agreed to trade with, and so the prices they see are tailored to the relationships they have with those counterparties.
And to take the idea one step further, clients could also aggregate liquidity from the anonymous CLOB markets with the direct streams they’re receiving from their liquidity providers, creating an even more complete picture of market liquidity.
While some of their direct liquidity providers are likely also trading in those order books, it gives them the ability to act with other market participants (albeit anonymously) with whom they do not have relationships.
It has been suggested that if the use of direct price streams continues to grow, it could disintermediate the electronic trading platforms.
History, however, tells us that this is very unlikely.
It didn’t take long for U.S. equity traders in the late 1990s to realize that managing direct connections with every trading counterparty to transmit orders and executions was inefficient, and they quickly looked to aggregators to ease the burden.
Platforms are already stepping in to facilitate the distribution and aggregation of direct streams.
They are particularly suited for the task given they have existing connections to both liquidity takers and makers, saving everyone involved both operational and legal work.
They also can provide some enhancements to the model that would be harder to do if stream aggregation was managed by each end-user.
For platforms that are registered as or have agreements with a broker-dealer, liquidity makers and takers can choose to trade with one another anonymously.
By submitting their preferences to the venue in advance, clients can still feel comfortable that they are only trading with approved counterparties, and that they’re still receiving a “relationship price”.
But by using the platform’s broker-dealer as the intermediary, which allows the execution to be consummated anonymously, they can limit information leakage even further.
Quotes in fixed units of foreign currency against domestic currency.
The Directional Movement Index (or DMI) was developed by J. Welles Wilder in order to determine the overall direction of an asset’s price.
This technical indicator helps traders assess the trend direction by comparing prior highs and lows
DMI is composed of two lines:
- A positive directional movement line (+DI)
- A negative directional movement line (-DI).
An optional third line, called directional movement (DX) shows the difference between the lines.
- If +DI is above -DI, there is more upward pressure than downward pressure in the price.
- If -DI is above +DI, then there is more downward pressure in the price.
Crossovers between the lines are also sometimes used as trade signals to buy or sell.
For example, the +DI crossing above the -DI may signal the start of an uptrend in price.
The larger the spread between the two lines, the stronger the price trend.
- If +DI is way above -DI the price trend is strongly up.
- If -DI is way above +DI then the price trend is strongly down.
How to Calculate DMI
To calculate the DMI, you calculate the difference between the current high and the previous high (“HiDiff”), as well as the difference between the previous low and the current low (“LowDiff”).
HiDiff and LowDiff are then compared.
- If HiDiff is greater in value, a variable +DMI is set to HiDiff and a variable -DMI is set to 0.
- If LowDiff is greater, -DMI is set to LowDiff and +DMI is set to 0.
- If the two values are equal, or if no trend is seen in either highs or lows, both values are set to 0.
A calculation known as the Welles Summation is then performed on both +DMI and -DMI, resulting in two numbers: +DI and -DI, both ranging from 0 to 100.
Dirty float or managed float are two terms that refer to a foreign currency regime by which a central bank intervenes in the foreign exchange markets to manipulate the balance of supply and demand in order to curb the volatility of a specific currency.
Central bank interventions aim to avoid the consequences of economic shocks or speculative attacks that might cause wild fluctuations in the exchange rate with potentially disastrous implications for domestic economies.
For decades, the currencies of the major industrialized countries had a fixed exchange rate system, which was gradually opened up in the 1980s and 90s with the advent of trade liberalization and globalization.
Now, the currencies of most of the developed countries have free-floating rates officially, although their central banks occasionally take action in the forex market to limit that floatability.
These actions aiming to protect economic stability tend to have advantageous consequences for international companies, as they limit their currency risk.
For example, the Swiss National Bank (SNB) maintained a “currency floor” of 1.20 in the EURCHF to avoid excessive appreciation of the Swiss franc against the currency of its primary trade partners in the EU.
Currency appreciation of the Swiss franc would damage the competitiveness of Swiss exports.
In January 2005, after years of market operations to defend that limit, the SNB decided to abandon the 1.20 floor without prior notice, triggering a massive euro devaluation.
An account in which the account holder gives power to a company or trading body to handle buy/sell transactions. The trading body also has power to choose which currencies to buy or sell.
This account type is also referred to as a managed or controlled account.
While other trading styles emphasize the reading of signals based on mathematical formulas or price action patterns, or fundamental analysis alone, discretionary traders are the “jack of all trades” of the Forex market and tend to incorporate all forms of analysis. These traders not only rely on their well developed trading processes and framework of the fundamentals and technicals to make a decision, but also sometimes intuition as well (i.e., years of market experience). Because of their experience, discretionary traders tend to be flexible with their trading rules and more adaptable to market changes.
The downside to the discretionary trading style is that trading decisions are more susceptible to the strong emotional effects of managing financial risk. Also, depending on the time frame, it requires more attention to the market than mechanical or automated trading methods.
The Disparity Index is a technical indicator that measures the relative position of an asset’s most recent closing price to a specific moving average and reports the value as a percentage.
Traders commonly attribute this measurement to Steve Nison, based on his book, ”Beyond Candlesticks”.
The Disparity Index can take either a positive or a negative value.
- A positive value indicates that the asset’s price is rapidly increasing.
- A negative value indicates that the price is rapidly decreasing.
- A value of zero means that the asset’s current price is exactly consistent with its moving average.
Trading signals are generated when the Disparity Index indicator crosses over the zero line.
The Disparity Index crossing the zero line acts as an early signal of an imminent rapid change in the trend, and therefore the price.
Extreme values in either direction may indicate that a price correction is about to occur.
Nison’s book suggests that the Disparity Index can indicate whether an asset is overbought (in the case of a positive value) or oversold (in the case of a negative.)
Since overbought and oversold levels are vulnerable to rapid price reversals, the Disparity Index is a good indicator of when following the trend of a given asset might be a dangerous proposition.
Collective agreement by various computers in a network that allows it to work in a decentralized, P2P manner without the need of central authority to deter dishonest network participants.
A list of recorded, time-stamped transactions that is simultaneously broadcast, copied and verified via consensus across many different computers in a P2P distributed network. If every computer (node) in the network has an identical copy of the ledger, illegitimate entries or corrupted versions are easier to detect.
Divergence is a concept in technical analysis that describes when an asset’s price is moving in the opposite direction of another piece of data, usually a technical indicator.
For example, if the price begins to move in a negative correlation to an indicator, (e.g. “higher highs” in price, but “lower highs” in the indicator), this could be viewed as a leading indicator for a potential change in price direction.
Divergences are used by traders in an attempt to determine if a market trend is getting weaker, which may lead to a consolidation period or a trend reversal.
Trading volume is one simple example of an indicator that can produce divergences.
In this case, the price will create a divergence when moving in a direction that goes against the trading volume.
For example, if the price is moving up with decreasing volume, there is divergence.
While divergences can occur between an asset’s price and any other piece of data, they are most commonly used with technical indicators, especially with momentum oscillators, such as the Commodity Channel Index (CCI), Relative Strength Index (RSI), Stochastic, and Williams %R.
Types of Divergences
There are TWO types of divergence:
Each type of divergence will contain either a bullish bias or a bearish bias.
If the price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular BULLIS divergence.
If the price is making a higher high (HH), but the oscillator is lower high (LH), then you have regular BEARISH divergence.
In an uptrend, if the price makes a higher low (HL), look and see if the oscillator does the same. If it doesn’t and makes a lower low (LL), then you have a hidden BULLISH divergence.
In a downtrend, if the price makes a lower high (LH), look and see if the oscillator does the same. If it doesn’t and makes a higher high (HH), then you have a hidden BEARISH divergence.
Keep in mind that regular divergences are possible signals for trend reversals while hidden divergences signal trend continuation.
- Regular divergences = signal a possible trend reversal.
- Hidden divergences = signal a possible trend continuation.
The currency of Djibouti. Currency code (DJF)
Dogecoin (DOGE) is an altcoin that first started as a joke in late 2013. Dogecoin, which features a Japanese fighting dog as its mascot, gained a broad international following and quickly grew to have a multi-million dollar market capitalization.
A Doji is a single candlestick pattern that is formed when the opening price and the closing price are equal.
The lack of a real body conveys a sense of indecision or tug-of-war between buyers and sellers and the balance of power may be shifting.
The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or a plus sign.
By themselves, the Doji is usually considered a neutral pattern but is part of multiple-candlestick patterns.
The Doji is the smallest and simplest of all candlesticks, making it very easy to identify. Look for the following criteria:
- The open and close of the candlestick must be at (or near) the same price level so that the Doji either lacks a body or has a very tiny body.
- There must be an upper shadow, a lower shadow, or both.
The horizontal line of the Doji shows that the open and close occurred at the same level.
The vertical line of the Doji represents the total trading range of the timeframe.
The shape of the Doji signifies indecision between buyers and sellers.
When you see a Doji candlestick pattern, you know that the session closed very near to where it opened, which is why the candle doesn’t have a body.
Indecision reigns, as neither the buyers and sellers are in control.
A “tug-of-war” is occurring, during which neither party is dominant.
Although the price may have fluctuated throughout the session, it was driven back to its original, opening price.
This moment of indecision often signals a trend reversal.
A Doji is not as significant if the market is not clearly trending, as sideways or choppy markets are indicative of indecision.
If the Doji forms in an uptrend, this is normally seen as significant, since it signals that the buyers are losing conviction.
If the Doji forms in a downtrend, this is normally seen as significant, since it signals that the sellers are losing conviction.
The currency of the Dominican Republic. Currency code (DOP)
A Double Bottom is a chart pattern where the price holds a low two times and fails to break down lower during the second attempt, and instead continues higher.
The pattern is characterized by a distinct drop in price, followed by a slight reversal (or bounce) with a second drop occurring soon after to either the same or similar level as the first before another, significant reversal so that the chart appears to take on the form of the letter “W“.
The Double Bottom reflects very strong levels of support and often indicates a strong change of trend.
Double Bottoms appear in a downtrend and reverse it to the upside as price breaks through the resistance line.
It is considered a bullish reversal chart pattern since the price holds a low two times and eventually continues with a higher high.
The bounce between the two lows should be moderate.
The pattern is confirmed once the price reaches a higher high than the top of the bounce between the two lows.
When that resistance level is broken, it confirms a bullish trend reversal.
Premature breakouts can be a problem in Double Bottoms as they occur frequently, depending on the bottom shape.
The risk that a cryptocurrency can be spent twice (or more).
A Double Top is a chart pattern where the price reaches a high twice and fails to break out higher during the second attempt.
The pattern comprises two peaks of nearly the same size and a bottom between them.
The line running through the tops is the resistance line which should be nearly horizontal.
The pattern forms an “M” shape and is considered a bearish reversal chart pattern.
The pullback between the two highs should be moderate.
This new minor support level is called the “Neckline“.
The pattern is confirmed once the price breaches the low of the pullback between the two highs.
Double Tops appear in an uptrend and reverse it to the downside as price breaks through the support line (Neckline).
A more conservative approach is to wait for the price to test the Neckline.
The Neckline has now become a support-turned-resistance level.
A dove is someone who favors a looser monetary policy, which means lower interest rates, with the aim of boosting economic growth.
This should increase spending, benefitting the economy, and increasing employment. But it comes with the risk of rising inflation.
Lower interest rates tend to encourage investors to move their capital into higher-risk assets and discourage saving. This can have a positive effect on the equities and equity indices within an economy.
Lowering interest rates makes government bonds less attractive to foreign investors. This reduces demand for the country’s currency and can cause the currency to fall.
The Dow Jones Industrial Average is one of the premier US stock indices, comprising a weighted average of the stock prices of 30 of the largest US companies.
The Dow Theory is widely considered one of the earliest forms of technical analysis.
It was originally promulgated by Charles H. Dow who noticed that stocks tended to move up or down in trends, and they tend to move together, although the extent of their movements could vary.
In 1897, Charles Dow developed two broad market averages. The “Industrial Average” included 12 blue-chip stocks and the “Rail Average” was comprised of 20 railroad enterprises.
These are now known as the Dow Jones Industrial Average and the Dow Jones Transportation Average.
The Dow Theory resulted from a series of articles published by Charles Dow in The Wall Street Journal between 1900 and 1902.
The Dow Theory is the common ancestor to most principles of modern technical analysis.
Interestingly, Charles Dow did not use his observations to forecast potential price movements but saw it as a barometer of the general business climate.
It was not originally intended to forecast stock prices. However, subsequent work has focused almost exclusively on this use of the Theory.
After Dow’s death in 1902, his close friend, Samuel A. Nelson attempted to explain Dow’s methods in his book, “The ABC of Stock Speculation“.
William P. Hamilton, who succeeded Charles Dow as the Editor of The Wall Street Journal, refined Dow’s principles and developed them into a theory, which he explained in his book, “The Stock Market Barometer: A Study of Its Forecast Value of 1922“.
Both Dow’s work and Hamilton’s work were analyzed and studied by Robert Rhea who refined Dow Theory further into the theory we know today, in his book, “The Dow Theory of 1932“.
Basic Principles of the Dow Theory
The Dow Theory comprises six assumptions:
1. The Averages Discount Everything
The averages discount everything as they reflect the combined activities of thousands, if not millions of traders, speculators, and investors at any one time.
An individual stock’s price reflects everything that is known about it. As new information arrives, market participants quickly disseminate the information and the price adjusts accordingly.
Thus, every known and foreseeable event is discounted, as is every condition that could affect the supply and demand of the individual stocks.
2. The Market Is Comprised of Three Trends
At any given time in the stock market, three forces are in effect: the Primary trend, Secondary trends, and Minor trends.
- The Primary or Major Trend that usually lasts at least one year can continue for many years. This trend is usually responsible for a price movement, up or down, of at least 20%. The Primary Trend is interrupted by the Secondary Trend that moves against the Primary Trend to correct it when it becomes overstretched.
- The Secondary Trend interrupts the movement of the Primary Trend, moving in the opposite direction. However, identifying a Secondary Trend while it is in the process of development is very difficult. The Secondary Trend lasts for at least three weeks but can continue for several months and usually retraces at least 1/3 of the previous price movement. At times the Secondary Trend can fully retrace the preceding movement but it often stops at 1/2 or 2/3 of the preceding movement.
- The Minor Trend is the day-to-day fluctuations of the averages. It usually lasts less than six days and is not given any importance in Dow Theory.
The Dow Theory holds that, since stock prices over the short-term are subject to some degree of manipulation (Primary and Secondary trends are not), Minor trends are unimportant and can be misleading.
3. Primary Trends Have Three Phases
The Bull Market is characterized by an advancing Primary Trend and usually consists of three phases:
- The Accumulation Phase occurs when astute investors start buying stocks at low prices from sellers who are under duress as the economic news is still bad and is often at its worst. Trading activity is usually still moderated during this phase but is starting to increase.
- The Accumulation Phase is followed by a phase that is characterized by steady advances accompanied by increasing activity as improving corporate begins to draw attention. This is usually the most profitable phase for the technical analyst.
- The final phase is characterized by phenomenal advances as more and more of the public are drawn to the market.
The Bear Market is characterized by a declining Primary Trend and like the Bull Market, it also usually consists of three phases:
- The Distribution Phase occurs when the astute investors that bought during the accumulation phase of the previous bull market start to sell their holdings. Trading activity is usually still high during this phase but is starting to decrease.
- The Panic Phase follows as buyers thin out and selling becomes more urgent. The downward trend accelerates to a near-vertical drop characterized by climatic volumes. This phase is usually followed by a long recovery (Secondary Trend) or sideways movement before the final phase begins.
- The final phase is characterized by the discouraged selling of buyers that held through the panic phase or bought during the recovery period. The discouraged selling is not as violent as in the panic phase.
4. The Averages Must Confirm Each Other
The Industrials and Transports must confirm each other in order for a valid change of trend to occur.
Both averages must extend beyond their previous secondary peak (or trough) in order for a change of trend to be confirmed.
In other words, the two averages must both be moving in the same approximate direction. If the two averages do not conform to the same trend, then the trend is not 100% valid.
5. The Volume Confirms the Trend
The Dow Theory focuses primarily on price action. Volume is only used to confirm uncertain situations.
Volume should expand in the direction of the primary trend.
- If the primary trend is down, the volume should increase during market declines.
- If the primary trend is up, the volume should increase during market advances.
6. A Trend Remains Intact Until It Gives a Definite Reversal Signal
An uptrend is defined by a series of higher-highs and higher-lows. In order for an uptrend to reverse, prices must have at least one lower high and one lower low (the reverse is true of a downtrend).
When a reversal in the primary trend is signaled by both the Industrials and Transports, the odds of the new trend continuing are at their greatest.
However, the longer a trend continues, the odds of the trend remaining intact become progressively smaller.
The sale of a currency at a price lower than the previous sale.
A downtrend is an overall move lower in price, created by lowers lows and lower high.
A downtrend describes the price movement of a financial asset when the overall direction is downward.
In a downtrend, each successive peak and trough is lower than the ones found earlier in the trend.
The downtrend is therefore composed of lower swing lows and lower swing highs.
As long as the price is making these lower swing lows and lower swing highs, the downtrend is considered intact.
Once the price starts making higher swing highs or higher swing lows, the downtrend is in question or has reversed into an uptrend.
Lower Peaks and Troughs
Lower peaks and troughs characterize downtrends with lower lows and lower highs taking place.
A peak refers to the highest point. A trough is the lower point.
A downtrend is characterized by the chart’s peaks and troughs reaching new lows as the trend progresses.
So, if you look at the chart over time, it may be zigzagging, but it’s generally going down.
How to Trade a Downtrend
Traditionally, the way to spot a downtrend is to look for lower lows, as well as lower highs.
That’s because there are too many sellers and too little demand, so the price goes down.
The highs are also lower because sellers are motivated to get rid of their position, and there aren’t enough buyers to step in and replace them.
Traders utilize trend lines to identify a downtrend and spot possible trend reversals.
The trend line is drawn along the falling swing highs, which helps show where future swing highs may form.
A downtrend is when price action is moving lower over a period of time and is most recognizable by prices creating lower lows and lower highs.
A downtrend provides traders with an opportunity to profit from falling asset prices.
Buying an asset once it has failed to create a lower peak and trough is one of the most effective ways to avoid large losses that can result from a change in trend.
The price should be making lower swing lows and lower swing highs to confirm that a downtrend is present.
When an asset fails to produce lower swing highs and lows, it means that an uptrend could be underway, the asset is ranging, or the price action is choppy and the trend direction is hard to determine.
In such cases, traders may opt to step aside until a downtrend is clearly visible
- Look for prices to reach previous highs but are not able to breakthrough. This is a good indication that buyers are no longer buying and we could be setting up for a move lower.
- Use previous highs as a stop location
- Look for a break in previous lows to confirm the downtrend
- Profits should be taken as prices flush below previous lows and stops should be adjusted to the last previous high.
- Trends are temporary. Even if they are strong or have a potential for making profits, never risk too much on any one trade.
A Dragonfly Doji is a type of single Japanese candlestick pattern formed when the high, open, and close prices are the same.
It signals a potential reversal.
The candle ends up with a tall lower shadow and no body.
It is usually seen at the bottom of a downtrend.
A Dragonfly Doji is more bullish than a hammer.
To identify a Dragonfly Doji, look for the following criteria:
- The Dragonfly has a long lower shadow but no upper shadow, and it resembles the capital letter T.
- The candlestick is formed when the opening and the closing prices are at the highest of the session.
The Dragonfly Doji is bullish.
A Dragonfly Doji signals that the price opened at the high of the session. There was a great decline during the session, and then the price closed at the high of the session.
The result is that the open, high, and close are all the same (or about the same) price.
This candlestick’s presence is most significant when it appears after a downtrend, preceded by bearish candlesticks. It suggests that the downtrend may be coming to an end.
Drawdown is a measure of peak-to-trough decline, usually given in percentage form. In trading, drawdown refers to the reduction in your trading account from a trade or a series of trades.
When a person or group sell a bunch of coins at a market value, driving the price of the coins down.
A key indicator of future manufacturing activity. This goverment index measures the dollar volume of orders, shipments, and unfilled orders of durable goods. Durable goods are new or used items generally with a normal life expectancy of three years or more.
Measures demand for U.S. manufactured durable goods, from both domestic and foreign sources. When the index is increasing, it suggests demand is strengthening, which will probably result in rising production and employment. A falling index suggests the opposite.
Also one of the earliest indicators of both consumer and business demand for equipment.
The durable goods orders reports serves to accurately measure the dollar volume of all orders, shipments, and unfilled orders of durable goods for the preceding month. For this purpose, durable goods are defined as those goods whose intended lifespan is of three years or more.
Such orders are to be considered one of the leading indicators of manufacturing activity, and the market is often seen to move as a result of this report, despite the fact that its volatility and tendency to be subject to large revisions tend to make it a less than perfect indicator. These issues can however be minimized by looking at the breakdown of orders as the total number is often skewed by huge increases in aircraft and defense orders meaning increases based solely on strength in one sector tend to be discounted, as the market is usually more impressed with broadbased increases in orders.
This report is also notable for the narrow category of non defense capital goods which tend to mirror the GDP category PDE (producers’ durable equipment) where shipments of non defense goods are a good proxy for PDE in the current quarter, while providing an indication of PDE growth in the coming quarters.
Dust transactions are transactions for minuscule amounts of bitcoin. A TX is considered “dust” when the value is lower than the cost of spending it. Dust transactions are uneconomic and considered “spammy” to the network.
DYOR is an acronym for “Do Your Own Research“.
DYOR is defined as the process of doing your own research before putting your money at risk.
An electronic desk or e-trading desk is a trading desk that generates continuous algorithmic price quotes for clients via different types of electronic trading venues and protocols.
The currency of the East Caribbean. Currency code (XCD)
ECDSA is an acronym for Elliptic Curve Digital Signature Algorithm. An elliptic curve digital signature algorithm is used to generate a key pair in public key cryptography.
An ECN (electronic communication network) is a technology-based venue incorporating numerous liquidity providers (LPs), both bank and non-bank, who continuously stream their pricing to the ECN.
The ECN will, in turn, aggregate the pricing.
When viewing the entire depth of the aggregated price feed of an ECN, you will notice that it has many levels of liquidity.
Liquidity Providers prefer to stream smaller ticket size pricing to the ECNs due to the fact that this allows them to provide tighter spreads knowing that they aren’t at risk of getting hit with large tickets on those spreads.
The LPs are also aware that, by pricing competitively, they have a chance of being “Top of Book” (ToB) and can win business from competitors in the space.
The end result is a very tight ToB.
The Economic and Monetary Union (EMU) is an umbrella term for the group of policies aimed at converging the economies of member states of the European Union.
The decision to form an Economic and Monetary Union was taken by the European Council in the Dutch city of Maastricht in December 1991, and was later enshrined in the Treaty on European Union (the Maastricht Treaty).
Economic and Monetary Union takes the EU one step further in its process of economic integration, which started in 1957 when it was founded.
Economic integration brings the benefits of greater size, internal efficiency and robustness to the EU economy as a whole and to the economies of the individual Member States.
This, in turn, offers opportunities for economic stability, higher growth and more employment – outcomes of direct benefit to EU citizens.
An economic calendar refers to the schedules dates of significant news releases or events that may affect the movement of currency exchange rates and the financial market as a whole.
These events often have a significant impact on financial markets and currency volatility.
An economic calendar allows traders to know what is going to happen when.
The forex market is most affected by monetary and fiscal policy announcements.
Traders use the economic calendar to plan trades and to be aware of any event risks that may affect any of their open trade positions.
An economic indicator is a measurement or data point on the economy that provides a barometer of how the country is doing, which could influence an asset’s value.
Some of the most common and followed U.S. Economic Indicators
- Real Gross Domestic Product (GDP)
- Consumer Price Index (CPI)
- Beige Book
- Durable Goods
- Consumer Confidence Index
- Employee Cost Index
- Employment Situation Report
- Housing Starts
- Philadelphia Fed Index
- Producer Price Index
- Purchasing Managers Index
- Retail Sales Dat
Economists are scientists who study economics. They study market conditions by analyzing economic data that is released daily, and try to explain what is affecting the economy. They predict how current market conditions will alter future government fiscal and monetary policy.They based their predictions on theory and how the market should act.
Economists are more concerned with the longer term outlook of the economy, because there are normally delays when the government makes changes in policy.
The Efficient Market Hypothesis (EMH) is a financial economic theory stipulating that the financial markets reflect all available information on the price of assets at any given time.
Initially developed by economist Eugene Fama in the ‘60s, the theory states that it is nearly impossible for investors to gain an edge over the market in the long run.
Assets will be valued at their fair price, as all known information will be traded on until it ceases to be useful.
Strength of Information
When speaking of efficient markets, theorists distinguish between three levels of available information: weak, semi-strong, and strong.
Weak implies that current prices take into account all historical data, and, consequently, that technical analysis is irrelevant.
However, it omits other kinds of information and does not reject the notion that methods like fundamental analysis or extensive research can be used to gain an edge.
The semi-strong form dictates that all public information has already been factored into the price (news, statements by companies, etc.).
As such, proponents of this branch believe that even fundamental analysis cannot yield any advantage. The only way to gain an advantage over the market is to exploit private information, which is not yet known to the public.
Strong form holds that all public and private information is reflected in an asset’s price – on top of historical performance and public information, any data available to insiders, too, will be taken advantage of.
This form holds that there is no conceivable way for any market participant to gain an edge with any type of information, as the market will already have taken it into account.
EMH is Controversial
EMH is a long-established theory, but it isn’t without its critics.
Empirical data has not properly proven or disproven the validity of the hypothesis, but many opponents believe there to be a plethora of emotional factors at play that cause the undervaluation or overvaluation of financial assets.
Although it is a cornerstone of modern financial theory, the EMH is highly controversial and often disputed.
Proponents of the Efficient Market Hypothesis conclude that, because of the randomness of the market, investors could do better by investing in a low-cost, passive portfolio.
Opponents of EMH believe that it is possible to beat the market and that stocks can deviate from their fair market values.
Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns (alpha) consistently, and only inside information can result in outsized risk-adjusted returns.
The currency of Egypt. Currency code (EGP)
The currency of El Salvador. Currency code (SVC)
Electronic Brokering Services is an organization created by some of the world’s biggest banks and financial institutions, whose goals are to provide an efficient, cost friendly, and liquid interbank Forex trading platform. It was formed in 1990 to rival market leader Reuters and its trading system.
It is estimated that about $200 billion worth of spot Forex transactions take place on this platform, which takes up the majority of all spot transactions. The EBS is also the major network where major pairs, like EUR/USD and USD/JPY are traded.
Electronic direct trading is a bilateral trade conducted electronically without the involvement of a third party.
This includes trades conducted via single-bank trading platforms but also via direct electronic direct price streams with API connectivity.
Electronic indirect trading is a trade executed over an electronic matching system.
This could include trades conducted via multi-dealer platforms (MDPs), ECNs operating on a CLOB or dark pools.
An electronic market maker is a firm that provides prices on electronic trading (e-trading) venues and continuously submits limit orders to buy or to sell.
It provides liquidity to those traders requiring immediacy via marketable orders.
Some electronic market-makers also stream prices on a continuous basis either directly or indirectly (via electronic platforms).
The Elliott Wave Theory (“EWT”) is named after Ralph Nelson Elliott.
It is a method of technical analysis based on crowd psychology.
Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves.
Elliott believed that markets tended to follow a repeating pattern that was driven by crowd psychology.
Regardless of the changes taking place in market conditions, Elliott’s research suggested that investors were ultimately repeating the same boom and bust cycle over and over again.
In fact, Elliott believed that all of man’s activities, not just the stock market, were influenced by these identifiable series of waves.
With the help of C. J. Collins, Elliott’s ideas received the attention of Wall Street in a series of articles published in the Financial World magazine in 1939.
During the 1950s and 1960s (after Elliott’s passing), his work was advanced by Hamilton Bolton. In 1960, Bolton wrote Elliott Wave Principle–A Critical Appraisal. This was the first significant work since Elliott’s passing.
In 1978, Robert Prechter and A. J. Frost collaborated to write the book Elliott Wave Principle.
Today, Robert Prechter has taken up Elliott’s mantle and leads a new generation of so-called “Ellioticians”, applying his theory to today’s financial markets.
High-profile practitioners include Prechter, Jack Schwager, and billionaire Paul Tudor Jones.
How does Elliott Wave Theory work?
The underlying forces behind the Elliott Wave Theory are of building up and tearing down.
Here are the basic concepts of the Elliott Wave Theory:
- Action is followed by a reaction.
- There are five waves in the direction of the main trend followed by three corrective waves (a “5-3” move).
- A 5-3 move completes a cycle. This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.
- The underlying 5-3 pattern remains constant, though the time span of each may vary.
The basic pattern is made up of eight waves (five up and three down) which are labeled 1, 2, 3, 4, 5, a, b, and c.
- Waves 1, 3, and 5 are called impulse waves.
- Waves 2 and 4 are called corrective waves.
- Waves a, b, and c correct the main trend made by waves 1 through 5.
The main trend is established by waves 1 through 5 and can be either up or down.
Waves a, b, and c always move in the opposite direction of waves 1 through 5.
Elliott Wave theory understands that public sentiment and mass psychology move in 5 waves within a primary trend, and 3 waves in a countertrend.
Once a 5 wave move in public sentiment is completed, then it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply a natural cause of events in the human psyche, and not the operative effect from some form of “news.”
A Wave Within a Wave
Elliott Wave Theory holds that each wave within a wave count contains a complete 5-3 wave count of a smaller cycle.
- The longest wave count is called the Grand Supercycle. Grand Supercycle waves are comprised of Supercycles, and Supercycles are comprised of Cycles.
- This process continues into Primary, Intermediate, Minute, Minuette, and Sub-Minuette waves.
The following chart shows how 5-3 waves are comprised of smaller cycles.
This chart contains the identical pattern shown in the preceding chart, but the smaller cycles are also displayed.
For example, you can see that the impulse wave labeled 1 in the preceding chart is comprised of five smaller waves.
Fibonacci numbers provide the mathematical foundation for the Elliott Wave Theory.
Briefly, the Fibonacci number sequence is made by simply starting at 1 and adding the previous number to arrive at the new number (i.e., 0+1=1, 1+1=2, 2+1=3, 3+2=5, 5+3=8, 8+5=13, etc).
Each of the cycles that Elliott defined is comprised of a total wave count that falls within the Fibonacci number sequence.
For example, the preceding chart shows Waves 1, 3, and 5 are made up of a smaller 5-wave impulse pattern while Waves 2 and 4 are made up of a smaller 3-wave corrective pattern
Elliott Wave practitioners use their determination of the wave count in combination with the Fibonacci numbers to predict the time span and magnitude of future market moves ranging from minutes and hours to years and decades.
There is general agreement among Elliott Wave practitioners that the most recent Grand Supercycle began in 1932 and that the final fifth wave of this cycle began at the market bottom in 1982. However, there has been much disparity since 1982.
Many heralded the arrival of the October 1987 crash as the end of the cycle. The strong recovery that has since followed has caused them to reevaluate their wave counts.
And there lies the weakness of the Elliott Wave Theory. Its predictive value is dependent on an accurate wave count.
Determining where one wave starts and another wave ends can be extremely subjective.
Elliott Wave has been used by some of the most successful traders on Wall Street and totally dismissed by others.
A public-key cryptography based on the algebraic structure of elliptic curves over a finite number of elements.
Emerging markets, or EM, also known as emerging economies or developing countries, are nations that are investing in more productive capacity.
They are moving away from their traditional economies that have relied on agriculture and the export of raw materials.
The economy of a developing country becomes more engaged with global markets as it grows.
An emerging market economy is transitioning from a low income, less developed, often pre-industrial economy towards a modern, industrial economy with a higher standard of living.
Emerging market economies can offer greater returns to investors due to rapid growth but also offer greater exposure to some inherent risks due to their status.
The economies of China and India are considered to be the largest emerging markets.
The 10 Big Emerging Markets (BEM) economies are (alphabetically ordered): Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea, and Turkey.
Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand are other major emerging markets.
The Empire State Manufacturing Index (ESMI) is a survey given out by the Federal Reserve Bank of New York to manufacturing companies within the state of New York. It measures how the people who run these companies feel towards the economy. The most watched statistic of the report is the business confidence index as it provides the general sentiment of the manufacturing industry
This report measures the change of a country’s employment conditions from the previous month. In laymen terms, it means it counts the total number of people who lost their jobs or gained employment in the previous month. A negative figure means that overall, more jobs were lost than gained in the previous month, while a positive figure means more jobs were created than lost.
The markets monitor employment because it is directly related to consumer spending. Naturally, people would be more willing to spend if they were employed and vice versa.
The Employment Cost Index (ECI) is generally considered to be one of the most comprehensive measurement of labor costs and their growth rate and as such, it is said to signal changes in wage inflation.
The impacts of the data can herald changes in interest rates, as shown by larger than expected increases on the prior results, which may cause interest rates to rise. Large growth rates in the ECI also increase the likelihood for an increase in the Federal Funds Rate.
The Employment Situation Report is released on a monthly basis.
You’ve probably heard people call it by different names: the employment report, jobs numbers, non-farm payrolls, but they all refer to the same colossal report: The Employment Situation.
It includes a basket of employment reports such as the Unemployment rate, Average Hourly Earnings, and the Non-Farm Payrolls report.
The Non-Farm Payrolls report is arguably one of the biggest market movers in the Forex. If you are looking for a report that creates a lot of volatility then this is the one for you!
What is the Employment Situation Report?
The Employment Situation report aims to lay out a thorough picture of the previous month’s state of employment in the United States, mainly:
- How many people are working now
- How many people are looking for work
- How much people are getting paid
- How many hours people are working
The Employment Situation consists of two separate reports:
- An establishment survey that tracks approximately 697,000 work sites for nonfarm payroll, work hours, and wage data.
- A survey of households of approximately 60,000, presenting data on unemployment and unincorporated self-employment.
All of this information is broken down across multiple demographics. It’s a lot to pore over so most people just the Summary that accompanies each report.
What to Focus on in the Employment Situation Report
The Employment Situation typically summarizes data according to five main categories:
1. Non-farm Payrolls
The nonfarm payrolls number presents the total number of full- and part-time workers in every U.S. sector and industry minus farming jobs.
When private payrolls are highlighted, all government jobs are excluded; when manufacturing payrolls are highlighted, it refers only to manufacturing jobs.
2. Unemployment Rate
The unemployment rate tells you the percentage of unemployed people in the labor force. Keep in mind: it counts only people who are actively looking for jobs.
3. Average Hourly Earnings
The average hourly earnings tell you how much U.S. workers are getting paid.
4. Average Workweek
The average workweek figure tells you the number of hours people worked over a period of a week.
5. Participation Rate
The participation rate tells you the percentage of people who are either working or looking for work.
Because it also presents the percentage of people who are not working, it can help you better understand the unemployment rate.
What is the Employment Situation Important?
The Employment Situation gives traders a way to gauge the future direction of the economy.
When it comes to economic reports that sometimes move markets, the Employment Situation arguably holds a lot of weight.
Excluding U.S. farming jobs, this report covers 89% of the jobs that drive the entire economy.
In addition to providing recent data on employment across nearly all sectors of the U.S. economy, the report can also be used to forecast potential trends in other aspects of the economy.
Everyone” watches this report closely.
They pay close attention to the numbers, waiting to see if the “actual” numbers miss or beat the “consensus” figures.
Because everyone watches it closely, it moves violently no matter what the report actually says.
However, since the Employment Situation covers everything from the number of workers to how much they’re making, it makes this report a powerful tool for “guessing” where the economy is headed.
The jobs report can help you determine aggregate wage growth.
For example, market participants like to use average hourly earnings growth and the length of the average workweek to gauge what the aggregate wage growth was for the month.
This is important because it can help forecast the health of the consumer, which drives roughly two-thirds of the U.S. economy.
For example, if the labor market is growing, that means more people are making money.
The more people that make money, the more spending there will be.
More spending results in a higher GDP, and GDP my friend, is the broadest measure of the economy.
Some of the granular, job-category-specific data from the establishment survey can help traders analyze the health of certain sectors. For example, the survey tracks employment changes in residential and commercial building construction, mining, and several categories of retail employment, among others.
Specific sector data is used to help forecast the health of companies in an industry. Such data can also offer clues to other key economic indicators.
For example, the number of manufacturing jobs from the establishment survey is used to help forecast durable goods data.
It’s important to remember, though, that one month’s set of numbers doesn’t constitute a trend.
It’s best to consider each data point in the context of trends across time periods to get a more complete picture.
A trade order to buy or sell but closes at the end of the trading day. Hence- End of day order. Also known as an EOD.
The Engulfing pattern is formed by two candles, where the body of the first candle is “engulfed” by the body of the second candle.
Engulfing patterns provide an approach for traders to enter the market in anticipation of a possible trend reversal.
An engulfing pattern is a reversal candlestick pattern that can be bearish or bullish depending upon whether it appears at the end of an uptrend or downtrend.
The pattern formation consists of two candles.
The first candle is characterized by a small body, followed by a taller candle whose body completely engulfs the previous candle’s body.
There are two types of engulfing candlestick e patterns:
- Bullish Engulfing pattern
- Bearish Engulfing pattern
The Bullish Engulfing pattern provides the strongest signal when appearing at the bottom of a downtrend and indicates a surge in buying pressure.
The bullish engulfing pattern often triggers a reversal of an existing trend as more buyers enter the market and drive prices up further.
The pattern involves two candles with the second candle completely engulfing the body of the first candle.
The Bearish Engulfing pattern is simply the opposite of the Bearish Engulfing pattern.
It provides the strongest signal when appearing at the top of an uptrend and indicates a surge in selling pressure.
The Bearish Engulfing pattern often triggers a reversal of an existing trend as more sellers enter the market and drive prices down further.
The pattern involves two candles with the second candle completely engulfing the body of the first candle.
Traders can look to trade engulfing patterns by waiting for confirmation of the move. This is done by observing price action after the pattern has formed and seeing if the price continues in the expected direction.
An entry order is one that is used to enter a trade at a specified price level. If the currency pair never reaches that price level then the entry order is not executed.
There are three types of entry orders:
A market order allows the trader to buy or sell at the best current price.
A Limit Order|limit order is an order to buy at market below the current market price or to sell at market above the current price if the order price is reached. This is used when the trader thinks that the price action will reverse upon hitting that specified price level.
A Stop order|stop order is an order to buy at market above the current market price or to sell at market below the current price if the order price is reached. This is used when the trader thinks that the price action will continue upon reaching that specified price level.
EOS is the native token of EOSIO network, which is a type of blockchain technology that is positioning itself as a decentralized operating system.
EOS.IO is a blockchain protocol powered by its native token, EOS.
In practice, this means providing blockchain developers with a set of necessary tools and services to build and scale decentralized applications.
The network’s first whitepaper came out in 2017 and the team ran a year-long ICO securing more than $4 billion in investment. It is one of the largest crowdfunding events in the crypto history, with EOSIO now holding one of the largest market caps of all blockchain systems.
The protocol emulates most of the attributes of a real computer including hardware (CPU(s) & GPU(s) for processing, local/RAM memory, hard-disk storage) with the computing resources distributed equally among EOS cryptocurrency holders.
EOSIO operates as a smart contract platform and decentralized operating system intended for the deployment of industrial-scale decentralized applications through a decentralized autonomous corporation model.
The smart contract platform claims to eliminate transaction fees and also conduct millions of transactions per second. EOS (EOS) is software that introduces a blockchain architecture designed to enable vertical and horizontal scaling of decentralized applications.
The EOS software provides accounts, authentication, databases, asynchronous communication, and the scheduling of applications across multiple CPU cores and/or clusters.
How does EOS work?
EOS aims to build a decentralized blockchain that can process transactions super fast and free of charge as well as support smart contracts.
EOS strives to function as an operating system by providing out-of-the-box services like cloud storage, user authentication, and server hosting. This is supposed to make the development of dApps incredibly simple and streamlined.
To use the EOS blockchain and resources, developers must hold EOS tokens – they don’t need to actually pay to use EOS, they just have to hold some coins to get access to it.
In some regards, EOS is similar to Ethereum. They both are capable of hosting dApps that are built using smart contracts.
But one of the main differences is that EOS is being built to process thousands of transactions per second while Ethereum is able to process a measly 15 transactions per second.
EOS makes this possible because it adds an extra layer on top of Ethereum, solving the scalability issues. However, this also means that EOS’s market value is permanently tied to Ethereum’s.
What are the key benefits of EOS?
- Scalability: As mentioned already, EOS is being designed for the development of industrial-scale dApps. It’s much more scalable and user-friendly (comes with a web toolkit for interface development and self-describing interfaces) than what can be achieved with current blockchains.
- Free for everyone: The platform aims to enable developers to create dApps that are free to access for blockchain users, opening up the platform’s benefits to everyone.
- Utility token: The native token EOS is a utility token, meaning that it gives holders both the bandwidth and storage on the blockchain, which is proportionate to the entire stake (e.g., holding 1% of EOS tokens permits the usage of up to 1% of the blockchain’s bandwidth).
- Solves gas issue: EOS combines high throughput of BitShares and Graphene with the amazing smart contract capabilities of Ethereum as well as solves the gas price issue. So, in short, it is free and faster and more scalable than any other Ethereum-based blockchain.
Why use EOS?
Many companies have migrated to the EOSIO network from Ethereum to solve the scalability issues.
As one of the many sidechain solutions being implemented on the Ethereum blockchain, EOSIO stands out as a well-rounded, out-of-the-box option.
EOS, the native utility token, is not mined but traded for resources, such as bandwidth and storage, and used to pay transaction fees. That’s why all transactions on EOSIO are free.
While the EOS ICO has given the network a celebrity-like status, the project has received its fair share of criticism, some skeptics have even called the software’s “blockchain” status into question (EOS supporters have come back with a strong answer, though).
A type of token standard for Ethereum which ensures the tokens perform in a predictable way. This allows the tokens to be easily exchangeable and able to work immediately with decentralized applications that also use the ERC20 standard. Most tokens released through ICOs are compliant with the ERC20 standard.
The currency of Eritrea. Currency code (ERN)
The currency of Estonia. Currency code (EEK)
A type of cryptocurrency that is used for operating the Ethereum platform and is used to pay for transaction fees and computational tasks. In the platform, transaction fees are measured based on the gas limit and gas price and ultimately paid for in ether.
Ethereum is a decentralized, open-source, and distributed computing platform that enables the creation of smart contracts and decentralized applications, also known as dapps.
Ethereum, or the Ethereum Virtual Machine (EVM), is an attempt to build a new version of the internet:
- An internet where money and payments are built-in.
- An internet where users can own their data and your apps don’t spy and steal from you.
- An internet where everyone has access to an open financial system.
- An internet built on neutral, open-access infrastructure, controlled by no company or person.
Rather than centralized hubs (or private companies) that control massive troves of personal data, Ethereum is designed to create more decentralized information networks enabled by a series of distributed nodes and Ethereum wallets.
The idea for Ethereum was developed in 2013 by Vitalik Buterin, a computer programmer and contributor to Bitcoin Magazine.
He advocated for more functionality on the Bitcoin blockchain to make it easier for developers to build applications.
When his plan was met with resistance from the Bitcoin community, he developed the framework for Ethereum, created a team, and published the Ethereum whitepaper.
After a pre-sale to raise money to fund the development of the Ethereum Virtual Machine, the network went live on July 30, 2015.
If the internet is like a vast highway, then the current system has few on- and off-ramps. These existing ramps are also controlled by a toll of sorts, which either exists as actual fees or costs that require users to pay in the form of surrendering personal or financial data.
The goal of a decentralized internet is to give people control over their information, enable censorship-resistant technologies (these range from financial applications outside of corporations or governments, to better election technologies, to forms of gaming and data storage that aren’t stored on centralized servers), and remove the need/cost of third parties.
A decentralized internet replaces large, centralized gatekeepers that control the flow of information, with internet operating infrastructure that is spread all over the world.
In other words, a decentralized internet provides many more on-ramps and off-ramps, which makes the internet more secure and more democratic.
Ethereum helps accomplish the vision of decentralized computing in two ways.
The first way is to create a distributed system of nodes, which happens anytime a computer or miner joins the Ethereum blockchain — and anyone, with sufficient computing power, can become a node, which makes Ethereum a permissionless blockchain.
A node is any machine that contains a copy of the blockchain. The more nodes that exist, the more resilient Ethereum becomes to security breaches and outages.
A wide distribution of the network makes it possible for developers to build decentralized applications using open-source smart contracts, which is the second way that Ethereum is enabling digital decentralization.
A smart contract is basically a computer program that executes a transaction after a series of requirements are met.
Most Ethereum apps are written using the Solidity language (there are also other Ethereum-specific languages).
Three Popular Uses Cases for Etheruem
there are three major uses emerging for Ethereum: As a platform for initial coin offerings (ICOs), as a means to create ERC20 tokens, and as a way to create ERC271.
An initial coin offering is very similar to when a traditional company launches an initial public offering (IPO) to raise capital in order to grow.
In the case of an ICO, a person or group of people get together, create a website or whitepaper explaining a project, and then launch a coin or token sale.
While the ICO boom of 2017 helped fuel the meteoric rise of the cryptocurrency market and helped launch a lot of new and interesting projects, the ICO fundraising mechanism was also used to raise money for projects that were not developed enough to ever be successful, and/or were outright frauds.
In a lot of cases, some of the hundreds of ICOs that have been launched in the past two years were launched on Ethereum.
It’s like the paradox of success, Ethereum developers did such a good job of building a means for people to launch decentralized projects without any kind of oversight or gatekeeper, that the many projects took advantage of the system and general euphoria about raising money in the crypto space.
However, despite the overdone ICO boom, the ability to quickly create and launch a project without having to raise capital through traditional channels has helped many really innovative and interesting projects get off the ground.
An ERC20 token is a digital unit of account that is completely exchangeable with another unit of the same system.
In other words, ERC20 tokens are designed to be fungible. This aspect of fungibility allows the tokens to be traded back and forth, much the way dollars can be traded for dollars, or euros can be traded for other euros.
The creation of the ERC20 standard was really an important piece of infrastructure because it allows cryptocurrency projects to interoperate in a sense.
For example, the 0x Protocol, which was built according to the ERC20 standards, is building decentralized exchanges, which will allow other ERC20 token projects to exchange tokens and other forms of value.
Besides the infrastructure layer, the ERC20 standard also means that individual token projects can build independent token economies.
In the long-run, well-conceived and well-executed token economies will allow projects to support themselves and drive growth and adoption.
Right now, token economies are sprouting up around new ways of sharing digital data, new ways of controlling personal identity, futures markets, and all kinds of interesting ideas that are made possible by ERC20.
On the opposite end of the spectrum of the ERC20 tokens are tokens that fall under the ERC271 standard.
Instead of being fungible, or one easily converted for another, ERC271 tokens are non-fungible.
Having the ability to create and distribute non-fungible tokens opens the potential to use ERC271 tokens to create collectibles or tokenize (or make a digital representation) of anything that is unique and valuable.
This could range from artwork to baseball card collections.
A non-fungible token model is still an emerging field, but interesting projects are developing to explore the possibility of using ERC271 as a means to secure digital property and rights, which could lead to applications that extend way beyond any current cryptocurrency use cases.
Potential applications range from creating digital scarcity to enabling things like genetic algorithms, where one unique digital good could potentially be paired with other unique digital goods, leading to offspring of sorts, with the lineage verifiable and traceable via the Ethereum blockchain.
Like other blockchains, Ethereum has a native cryptocurrency called ether (ETH). ETH is digital money.
If you’ve heard of Bitcoin, ETH has many of the same features. It is purely digital, and can be sent to anyone anywhere in the world instantly.
The supply of ETH isn’t controlled by any government or company – it is decentralized, and it is scarce. People all over the world use ETH to make payments, as a store of value, or as collateral.
As Ethereum grows to become a massive network, more and more Ethereum wallets are being created to hold ether, which is the Ethereum blockchain’s currency.
Ether’s main value is that it is the native token to the Ethereum blockchain. Just like on the Bitcoin blockchain, transactions on the Ethereum blockchain come at a cost.
The transaction cost on Ethereum, which is known as gas, is paid in ether.
Ethereum currently uses the proof-of-work, which like Bitcoin, relies on a system of validating the blockchain’s transactions and creating new coins through difficult computation.
As the proof-of-work process becomes more difficult, it will require more resources to contribute to the network.
For Bitcoin, this system works because there is a fixed supply of 21 million coins. With Ethereum, there is no fixed supply, so the proof-of-work and intense computation might make less sense.
Instead, the Ethereum community will attempt to move to a proof-of-stake system, which is a means of using distributed consensus (rather than mining) to confirm transactions and keep the blockchain moving forward.
Ethereum blockchain’s currency ether is currently ranked number two by cryptocurrency market capitalization, and there is almost 111 million ether in the circulating supply.
Ethereum Classic (ETC) is a type of cryptocurrency that is a continuation of the original Ethereum blockchain following the DAO attack in June 2016.
Ethereum Classic is a decentralized blockchain platform that lets anyone build and use decentralized applications that run on blockchain technology.
Like Bitcoin, no one controls or owns Ethereum Classic – it is an open-source project built by people around the world.
Ethereum Classic was designed to be adaptable and flexible, with the goal of making it easy to create new applications on the Ethereum Classic platform
Ethereum (ETH) is essentially a hard fork of the blockchain that was formed to refund the money that was siphoned during the attack (around $50 million).
History of Ethereum Classic
In the early days of Ethereum, a hacker successfully stashed away $50 million worth of ether overnight, and almost got away with it.
The fallout caused an ideological battle that divided the Ethereum community and shook the cryptocurrency community.
Would the community stick to the principle that “code is the law,” in the case of the hardened smart contracts that ran the ecosystem, or would they make an exception to save the fledgling community and return the stolen ether to its rightful owners?
The debate ended in a hard fork. The result created Ethereum blockchain splintering off, taking almost the entire community along with it, and leaving behind the original core code and separate community.
The fork also reversed the transactions and returned the stolen funds to the original accounts. But those that stuck true to their “code is law” ethos remained with the original core code, known today as Ethereum Classic (ETC).
The Ethereum Classic price is correlated to the rest of the cryptocurrency market, meaning as the value of some of the larger assets goes up or down, so does the Ethereum Classic price.
Currently, the Ethereum Classic price is trading at less than ten percent of the price of Ethereum, although both the price of ETH and the price of ETC move independently.
Ethereum Classic assumes no hard fork occurred and is supported by those who believe in complete immutability of the blockchain.
How does Ethereum Classic (ETC) work?
Ethereum Classic works just like Ethereum (although the price of Ethereum Classic and the price of Ethereum are drastically different).
It’s built on proof-of-work mining and smart contracts, but it doesn’t share compatibility or updates with the Ethereum (ETH) codebase.
This means that as Ethereum (ETH) transitions away from proof-of-work and into proof-of-stake, these updates will not necessarily take place with ETC unless the community develops them concurrently and independently.
ETC devotees claim there’s nothing to stop Ethereum (ETH) from implementing another hard fork if some other hack or corruption happens in the future.
The currency of Ethiopia. Currency code (ETB)
The euro is the official single currency used by the current 19 members of the eurozone.
It came into being officially on January 1, 1999, as the common currency for an initial 11 countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
The initial countries were also joined by the sovereign microstates of San Marino, Monaco, Andorra, and the Vatican City.
Greece joined 2 years later on January 1, 2001.
Poland, Denmark, and Sweden are European Union member countries that did not adopt the euro.
From its inception in 1999, when 11 countries launched the euro, it has since grown its membership to 19 countries. Later members were Lithuania, Latvia, Slovakia, Cyprus, Slovenia, Malta, and Estonia.
After the U.S. dollar, the euro is the world’s second-largest reserve currency and the second most traded in the world.
The eurozone, the group of countries that use the euro, represents the largest GDP zone in the world, with the United States in second place.
The euro was brought into being for a number of reasons.
Among them, policy-makers wanted to integrate Europe further and also to strengthen Europe’s ability to compete as a continent on the world stage, especially with North America and Asia.
It is the LIBOR for euro denominated forwards and futures. It is used as the reference rate at which banks can borrow euro-denominated funds from each other.
When the European Monetary Union was founded, domestic rates like euro- PIBOR and euro- FIBOR were merged, thus creating one of the most liquid interbank interest rate markets.
Based on EU leaders’ proposals, a Eurobond would be a collective bond issued by the 17 member nations of the euro zone.
Since it consolidates the euro zone countries’ debt into a single bond, its credit rating would be substantially higher than that of the PIIGS nations but lower than Germany’s triple-A rating.
The creation of Eurobonds is still up for debate as more stable economies such as Germany are strongly opposed to the idea. However, other debt-ridden nations are hopeful that Eurobonds could be a longer-term solution to the euro zone debt crisis.
Eurodollars are U.S. dollars deposited in banks outside the United States.
They can’t be found in demand deposits and they can’t be created as the bank’s liabilities by offering loans.
These eurodollar deposits are transferred electronically from a bank located within the United States and are kept abroad in the form of dollars.
In general, “eurocurrencies” are time deposits in banks outside of the countries that have issued these currencies.
Any convertible currency can exist in “euro” form, which has nothing in common with the currency of the Economic and Monetary Union (“EMU”), the euro.
There is the europound, euroyen, and even euroeruo.
The Eurogroup is an informal body where the finance ministers of the eurozone discuss matters relating to their shared responsibilities related to the euro.
It is a slightly smaller version of the Economic and Financial Affairs Council (“Ecofin”), which is the configuration of the Council of the European Union comprising the finance ministers of all 27 EU member states.
The Eurogroup’s role was set out in Protocol No 14 to the Lisbon Treaty, which entered into force on 1 December 2009.
The Eurogroup has political control over the single currency.
This is in contrast to more technocratic decisions (such as setting interest rates) which are handled by the European Central Bank (ECB).
Why is the Eurogroup needed?
All Member States participate in the Economic and Monetary Union (EMU), meaning they coordinate their economic policymaking and treat economic decisions as a matter of common concern to all.
However, not all Member States have joined the euro area and adopted the single currency, the euro.
Some have chosen not to join at present, while others are still preparing their economies to meet the criteria for euro area membership.
Euro area Member States need to cooperate closely and are also subject to the single monetary policy run by the European Central Bank.
Therefore, the euro area Member States require a forum to discuss and decide on policies for the euro area.
This cannot be the Economic and Financial Affairs Council (“Ecofin”) as this comprises all Member States. And some Member States don’t use the euro.
The solution is the Eurogroup, which consists of the ministers of economy and finance of the euro area members.
The Eurogroup acts to promote economic growth and financial stability in the euro area by coordinating economic policies.
As only Ecofin can formally take decisions on economic matters, the Eurogroup meets informally on the day before Ecofin meetings, roughly once a month.
The next day, the agreements reached in the informal Eurogroup gathering are formally decided upon in the Ecofin meeting by the Eurogroup members.
What does the Eurogroup do?
Its main task is to ensure close coordination of economic policies among the euro area member states. It also aims to promote conditions for stronger economic growth.
The Eurogroup is also responsible for preparing the Euro Summit meetings and for their follow-up.
Policy coordination among the euro area countries is crucial for ensuring stability in the euro area as a whole.
The Eurogroup’s discussions, therefore, cover specific euro-related matters as well as broader issues that have an impact on the fiscal, monetary, and structural policies of the euro area member states.
It aims to identify common challenges and find common approaches to them.
It is also responsible for preparing the Euro Summit meetings and for their follow-up.
What does the Eurogroup discuss?
The Eurogroup regularly discusses:
- the economic situation and outlook in the euro area
- the budgetary policies of the euro area member states
- the macroeconomic situation in the euro area
- structural reforms that have the potential to increase growth
- matters related to maintaining financial stability in the euro area
- preparations for international meetings
- euro area enlargement
In addition, the Eurogroup may hold preliminary discussions on Council decisions that would apply only to the euro area member states.
When the Council adopts such decisions, only the ministers from the euro area member states vote at the Council.
The Eurogroup also discusses the terms of financial assistance for euro area countries experiencing severe financial difficulties.
When does the Eurogroup meet?
The Eurogroup usually meets once a month, on the eve of the Economic and Financial Affairs Council meeting.
If necessary, additional meetings or teleconferences can also be held. The meetings are informal, and the discussions are confidential.
The participants of the Eurogroup meetings are:
- the euro area ministers with responsibility for finance
- the president of the Eurogroup
- the vice president of the Commission responsible for economic and monetary affairs and the euro
- the president of the European Central Bank (ECB)
The managing director of the European Stability Mechanism is invited to participate in the meetings too. The IMF is invited to participate in discussions on the economic programs in which it is involved.
The outcome of the meeting is presented to the public by the Eurogroup president at a press conference. The Eurogroup may, in addition, issue written public statements. The president also debriefs the Ecofin Council.
The commissioner for economic and financial affairs, taxation and customs, and the president of the European Central Bank also participate in the Eurogroup meetings.
The first informal meeting of finance ministers of the euro area countries took place on 4 June 1998 at the Château de Senningen in Luxembourg.
How is the Eurogroup leader chosen?
The Eurogroup elects its president for a term of 2.5 years by a simple majority of votes.
If the president is prevented from fulfilling his or her duties, he or she is replaced by the finance minister of the country that holds the presidency of the Council.
If the presiding country is not a member of the euro area, the finance minister of the next euro area country to hold the presidency of the Council takes over.
The European Central Bank (ECB) is the central bank that oversees monetary policy of the eurozone.
The eurozone is a geographic and economic region that consists of all the European Union (EU) countries that use the euro as their national currency.
The eurozone consists of 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area.
The ECB’s main task is to maintain price stability in the eurozone and to preserve the purchasing power of the euro.
It is also responsible for the safety and soundness of the banking system and the stability of the financial system within the EU region and each member country.
Under the Treaty of Rome, the ECB was also given the mandate to oversee the conduct of foreign exchange operations, to deal with the holdings and management of the official foreign reserves of the euro area countries, and to promote the smooth operation of payment systems.
The European Central Bank was established on June 1st, 1998, and is located in Frankfurt am Main, Germany.
The Central Banking System of the Euro Area
There are a lot of different “parts” of the central banking system of the euro area.
European Central Bank
The legal basis for the single monetary policy is the Treaty on the Functioning of the European Union and the Statute of the European System of Central Banks and of the European Central Bank.
The Statute established both the ECB and the European System of Central Banks (ESCB) as of 1 June 1998.
The ECB was established as the core of the Eurosystem and the ESCB.
The ECB and the national central banks together perform the tasks they have been entrusted with. The ECB has legal personality under public international law.
Currently, the ECB’s President is Christine Lagarde and the Vice-President is Luis de Guindos.
The main decision-making body is the Governing Council, which consists of the six members of the Executive Board plus the governors of the central banks of the 19 euro area countries (the “Eurogroup”).
European System of Central Banks
The ESCB comprises the ECB and the national central banks (NCBs) of all countries that are members of the EU (known as “Member States”) whether they have adopted the euro or not.
The monetary authority of the eurozone is the Eurosystem.
The Eurosystem consists of the ECB and the NCBs of those countries that have adopted the euro.
The Eurosystem and the ESCB will co-exist as long as there are the EU Member States outside the euro area.
A Monetary Authority is an entity that manages a country's, or in this case, a region's currency and money supply, often with the objective of controlling inflation, interest rates, real GDP, or unemployment rate.
The Eurogroup is the collective term for informal meetings of the finance ministers of the euro area. The group has 19 members.
It exercises political control over the currency and related aspects of the EU’s monetary union.
The euro area consists of the EU countries that have adopted the euro.
The euro area came into being when responsibility for monetary policy was transferred from the national central banks of 11 EU Member States to the ECB in January 1999. Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015.
The creation of the euro area and of a new supranational institution, the ECB, was a milestone in the long and complex process of European integration.
What is the difference between the EU and the eurozone?
The European Union (EU) is a politico-economic union of 27 member states that are located primarily in Europe.
The EU aims to integrate across a wide set of issues: member states have a single market, ensure free movement of people, goods, services, and capital.
The member states of the EU have agreed by treaty to shared sovereignty through the institutions of the European Union in some (but by no means all) aspects of government.
The eurozone, officially called the euro area, is a monetary union of 19 of the 27 European Union (EU) member states which have adopted the euro (€) as their common currency.
The eurozone (or euro area) is a subset of the EU. It boils down to common currency.
How does the ECB affect the euro?
The European Central Bank can affect the value of the euro through changes in interest rate expectations.
When interest rates expectations rise, currencies tend to appreciate.
When interest rates expectations fall, currencies tend to depreciate.
For example, if the ECB keeps interest rates unchanged but issues forward guidance that they may raise interest rates in the future, the value of the euro tends to appreciate.
Why does the central bank change the interest rate?
The ECB lowers interest rates when it is trying to stimulate the economy.
Because low-interest rates mean a low cost of borrowing, they help to stimulate the economy by making it cheaper for people to spend on credit – potentially leading to increased business activity and reduced unemployment.
The ECB raises interest rates when it is trying to contain inflation caused by an economy “overheating”.
If growth is too fast, inflation might become too high and unstable. This makes it difficult for households and businesses to plan for the future because prices are hard to predict with confidence. This can hinder spending and slow growth.
To prevent this scenario, the ECB will raise interest rates to try and temper the rate of growth in spending, and bring inflation back under control.
How to trade ECB interest rate decisions
The table below displays the possible scenarios that come from a change in interest rate expectations. Forex traders can use this information to forecast if the currency is likely to appreciate or depreciate and how to trade it.
Notice how if the market expectations are the same as the central bank’s action, the currency impact is neutral. This is because the market already “expected” this to happen so it’s already “priced in”.
When this happens, it’s important to pay attention to the comments during the press conference and listen for any new changes in interest rate expectations. If there is, these new comments are what will move the currency.
The European Commission (“EC”) is the European Union’s politically independent executive arm.
It is alone responsible for drawing up proposals for new European legislation, and it implements the decisions of the European Parliament and the Council of the EU.
- The European Parliament is the EU’s law-making body. It is directly elected by EU voters every 5 years.
- In the Council of the EU, government ministers from each EU country meet to discuss, amend, and adopt laws, and coordinate policies. The ministers have the authority to commit their governments to the actions agreed on in the meetings.
- Together with the European Parliament, the Council is the main decision-making body of the EU.
What does the European Commission do?
Its role is to promote the general interest of the EU by proposing and enforcing legislation as well as by implementing policies and the EU budget.
Proposes new laws
Its job is to develop laws for member states and enforce them.
Based in Brussels, it’s the only EU body that can draft laws.
It employs more than 32,000 staff in total and its running costs this year are €3.6bn.
Once its proposals have the approval of the European Parliament and a council of 28 ministers from the EU states, they can become law.
The laws it proposes cover many areas.
Manages EU policies & allocates EU funding
- Sets EU spending priorities, together with the Council and Parliament
- Draws up annual budgets for approval by the Parliament and Council
- Supervises how the money is spent, under scrutiny by the Court of Auditors
Enforces EU law
Together with the Court of Justice, the EC ensures that EU law is properly applied in all the member countries.
Represents the EU internationally
The EC speaks on behalf of all EU countries in international bodies, in particular in areas of trade policy and humanitarian aid
It also negotiates international agreements for the EU.
How is the European Commission structured?
Political leadership is provided by a team of 27 Commissioners (one from each EU country) – led by the Commission President, who decides who is responsible for which policy area.
The College of Commissioners is composed of:
- The President of the Commission
- 8 Vice-Presidents
- 3 Executive Vice-Presidents
- The High Representative of the Union for Foreign Affairs and Security Policy
- 18 Commissioners, each responsible for a portfolio
The day-to-day running of Commission business is performed by its staff (lawyers, economists, etc.), organized into departments known as Directorates-General (DGs), each responsible for a specific policy area.
Appointing the President
Every five years, the 28 commissioners are replaced.
New commissioners – one from each country – and a president of the commission are put forward to be voted on by a newly-elected European Parliament.
These candidates all have to be approved by a clear majority of the parliament, which has 751 MEPs.
The candidate is put forward by national leaders in the European Council, taking account of the results of the European Parliament elections.
He or she needs the support of a majority of members of the European Parliament in order to be elected.
Selecting the team
The Presidential candidate selects potential Vice-Presidents and Commissioners based on suggestions from the EU countries.
The list of nominees has to be approved by national leaders in the European Council.
Each nominee appears before the European Parliament to explain their vision and answer questions. Parliament then votes on whether to accept the nominees as a team.
Finally, they are appointed by the European Council, by a qualified majority.
The current Commission’s term of office runs until 31 October 2024.
How does the European Commission work?
The President defines the policy direction for the Commission, which enables the Commissioners together to decide strategic objectives, and produce the annual work program.
Collective decision making
Decisions are taken based on collective responsibility. All Commissioners are equal in the decision-making process and equally accountable for these decisions. They do not have any individual decision-making powers, except when authorized in certain situations.
The Vice-Presidents act on behalf of the President and coordinate work in their area of responsibility, together with several Commissioners.
Priority projects are defined to help ensure that the College works together in a close and flexible manner.
Commissioners support Vice-Presidents in submitting proposals to the College. In general, decisions are made by consensus, but votes can also take place. In this case, decisions are taken by a simple majority, where every Commissioner has one vote.
The relevant Directorate-General (headed by a Director-General, answerable to the relevant Commissioner) then takes up the subject. This is usually done in the form of draft legislative proposals.
These are then resubmitted to the Commissioners for adoption at their weekly meeting, after which they become official, and are sent to the Council and the Parliament for the next stage in the EU legislative process.
The European Currency Unit (ECU) was an artificial “basket” currency that was used by the member states of the European Union (EU) as their internal accounting unit.
The “basket” currency was weighted according to each country’s share of EU output.
The currencies were the Belgian franc, the German mark, the Danish krone, the Spanish peseta, the French franc, the British Pound, the Greek drachma, the Irish pound, the Italian lira, the Luxembourgish franc, the Dutch guilder, and the Portuguese escudo.
The term écu is considered a word and in French is the name of ancient French coin. The ISO-4217 symbol for the ECU was “XEU”.
The ECU was conceived on March 13, 1979, by the European Economic Community (EEC), the predecessor of the European Union, as a unit of account for the currency area called the European Monetary System (EMS).
The ECU was created by the EEC with the aim of eventually making it the single currency of a unified western European economy.
The value of the ECU was used to determine the exchange rates and reserves among the members of the EMS, but it was always an accounting unit rather than a real currency.
While it wasn’t used in normal everyday transactions, it was increasingly used in commercial banking transactions. Its relative stability made it more suitable than a national currency for fixing contractual terms.
By the early 1990s, it was especially important in the international bond market, where it had become the second most widely used currency (after the U.S. dollar).
The ECU was the precursor of the new single European Union currency, the euro, which was introduced on January 1, 1999
The European Economic Area, abbreviated as EEA, consists of the Member States of the European Union (EU) and three countries of the European Free Trade Association (EFTA).
The Agreement on the EEA entered into force on 1 January 1994.
It seeks to strengthen trade and economic relations between the contracting parties and is principally concerned with the four fundamental pillars of the internal market, which are the free movement of goods, people, services and capital.
Countries that belong to the EEA include Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
The European Economic Area (EEA)
The EEA includes EU countries and also Iceland, Liechtenstein, and Norway. It allows them to be part of the EU’s single market.
Switzerland, previously participating, was neither an EU nor EEA member but was part of the single market so Swiss nationals had the same rights to live and work in EEA countries as other EEA nationals.
However, Switzerland no longer participates in the European Economic Area. Now, Croatia has submitted an application to participate.
What the EEA Does: Member Benefits
The European Economic Area is a free trade zone between the European Union and the European Free Trade Association (EFTA). Trade agreement details stipulated by the EEA include liberties on product, person, service, and money movement between countries.
In 1992, member states of the EFTA (except Switzerland) and members of the EU entered into this agreement and by doing so expanded the European internal market to Iceland, Liechtenstein, and Norway.
Today, the European Economic Area hands its organization to several divisions, including legislative, executive, judicial, and consultation, all of which include representatives from several member states of the EEA.
What the EEA Means for Citizens
Citizens of member countries in the European Economic Area can enjoy certain privileges not afforded to non-EEA countries.
According to the EFTA website:
The free movement of persons is one of the core rights guaranteed in the European Economic Area (EEA). It is perhaps the most important right for individuals, as it gives citizens of the 31 EEA countries the opportunity to live, work, establish a business, and study in any of these countries
Essentially, citizens of any member country are allowed to travel freely to other member countries, whether for short-term visits or permanent relocations.
However, these residents still retain their citizenship to their country of origin and cannot apply for citizenship of their new residence.
Additionally, EEA regulations also govern professional qualifications and social security coordination to support this free movement of people between member countries.
As both are necessary to maintaining individual countries’ economies and governments, these regulations are fundamental to effectively allow for free movement of people.
The Difference Between EEA and EU
The European Economic Area (EEA) Agreement and the European Union (EU) are not the same thing.
The EEA agreement is related to the single market and the laws relevant to it, while the EU is both economic and political.
All regulation that EEA countries have to comply with is formed by the EU, which effectively means that the EEA/EFTA countries do not have a say in forming the laws they are required to implement.
The EEA countries also have to make financial contributions to the EU, though smaller than the contributions of an EU member.
The European Financial Stability Facility (EFSF) was created by the 27 member European Union as a special purpose vehicle. Its purpose is to preserve financial stability through financial assistance to eurozone states during times of economic difficulty.
In order to raise funds to provide loans for financially troubled euro zone nations or banks, the EFSF can issue bonds or other debt instruments to the markets. These would be backed by guarantees from euro member states.
To secure these funds, the euro zone country in need must first make a request to the European Commission and the IMF. A country support program would also have to be drafted and unanimously approved by the Eurogroup.
By mid-2013, the EFSF will be replaced by the European Stability Mechanism (ESM), which is a permanent rescue funding program.
The European Free Trade Association (EFTA) is the intergovernmental organization of Iceland, Liechtenstein, Norway, and Switzerland.
EFTA was created for the promotion of free trade and economic integration to the benefit of its four Member States and the benefit of their trading partners around the globe.
EFTA was founded by the Stockholm Convention in 1960.
Relations with the EEC, later the European Community (EC) and the European Union (EU), have been at the core of EFTA activities from the beginning.
Since the beginning of the 1990s, EFTA has actively pursued trade relations with third countries in and beyond Europe.
What does the European Free Trade Association do?
The main tasks of the Association are threefold:
- Maintaining and developing the EFTA Convention, which regulates economic relations between the four EFTA States.
- Managing the Agreement on the European Economic Area (EEA Agreement), which brings together the Member States of the European Union and three of the EFTA States in a single market, also referred to as the “Internal Market”.
- Developing EFTA’s worldwide network of free trade agreements.
What countries are part of the European Free Trade Association?
The EFTA Member States are:
The four EFTA States are competitive in several sectors vital to the global economy and score among the highest in the world in competitiveness, wealth creation per inhabitant, life expectancy, and quality of life.
- Switzerland is a world leader in pharmaceuticals, biotechnology, machinery, banking, and insurance.
- Liechtenstein, like Switzerland, is highly industrialized and specialized in capital-intensive and Research & Development driven technology products.
- Iceland’s economy benefits from renewable natural resources, not least rich fishing grounds, and has increasingly diversified into other industries and services.
- Abundant natural resources also contribute significantly to Norway’s economic strength, including oil and gas exploration and production, and fisheries, as well as important service sectors such as maritime transport and energy-related services.
How does the European Free Trade Association function?
EFTA is an intergovernmental organization that acts as a free trading bloc.
It is governed by the EFTA Secretariat, which has offices in Geneva (Switzerland) and Brussels (Belgium).
Its activities are regulated by the ETFA Surveillance Authority (equivalent to the EU Commission), and the EFTA court (equivalent to the European Court of Justice).
As these bodies regulate EFTA’s activity in the EEA (of which Switzerland is not a member), Switzerland plays no part in the Surveillance Authority or the court.
Why is the European Free Trade Association important?
The four EFTA States are open, developed economies with trade figures that are substantially higher than might be expected from a total of fewer than 14 million people.
EFTA is the ninth largest trader in the world in merchandise trade and the fifth largest in trade in services.
EFTA is the third most important trading partner in goods for the EU and the second most important when it comes to services.
What’s the difference between the European Free Trade Area (EFTA) and the European Economic Area (EEA)?
The European Free Trade Area (EFTA) and the European Economic Area (EEA) are two international trading and economic organizations, separate from, but working in close conjunction with the European Union.
EFTA is made up of Norway, Liechtenstein, Iceland, and Switzerland. It provides a framework for free trade between member states, and for Free Trade Agreements (FTAs) to be made with other nations – notably the EU’s 28 member states.
The EEA binds three of the EFTA nations (Norway, Lichtenstein, and Iceland) in a SINGLE market with the EU member states.
EFTA and the EEA facilitate free trade and cooperation between member states but WITHOUT most of the political obligations and financial implications of EU membership.
The EU and the EFTA are “linked” by the EEA.
The EEA unites three of the EFTA nations (Norway, Liechtenstein, and Iceland) with the 28 EU member states in an internal market, where the economies of all the states are governed by the same basic rules.
Being a member of the EEA allows states to participate in the EU’s single market without having to become a member of the EU.
However, this means that they play no part in negotiating single market regulations.
The European Markets Infrastructure Regulation (EMIR) is an EU regulation implemented by the European Securities and Markets Authority (ESMA) that came into force on 16 August 2012.
Its primary aim is to supervise all over-the-counter (OTC) derivatives through measures to improve transparency and reduce risk in the financial system.
EMIR established three key provisions:
Derivatives should be cleared through a central counterparty. Foreign exchange derivatives include forward contracts, options, and swaps. Clearing must be approved by a competent authority authorized by ESMA.
2. Risk mitigation for non-cleared derivatives
This includes the exchange of collateral and ensuring mitigation procedures are in place. Risk-mitigation procedures are designed to measure, monitor, and mitigate the operational and credit risk arising from such contracts.
3. Reporting to Trade Repositories (TR)
All derivative contracts (without exception) must be reported to a Trade Repository on a T+1 business day (transaction date + 1 business day) basis. These reports are to include a considerable amount of information, including details such as derivative class and contract terms.
The European Parliament is the European Union’s law-making body.
It is directly elected by EU voters every 5 years.
It is a directly-elected EU body with legislative, supervisory, and budgetary responsibilities.
The European Parliament is made up of 705 MEPs (Members of the European Parliament) elected in the 27 Member States of the enlarged European Union.
What does the European Parliament do?
The Parliament has 3 main roles:
- Passing EU laws, together with the Council of the EU, based on European Commission proposals
- Deciding on international agreements
- Deciding on enlargements
- Reviewing the Commission’s work program and asking it to propose legislation
- Democratic scrutiny of all EU institutions
- Electing the Commission President and approving the Commission as a body. Possibility of voting a motion of censure, obliging the Commission to resign
- Granting discharge, i.e. approving the way EU budgets have been spent
- Examining citizens’ petitions and setting up inquiries
- Discussing monetary policy with the European Central Bank
- Questioning Commission and Council
- Election observations
- Establishing the EU budget, together with the Council
- Approving the EU’s long-term budget, the “Multiannual Financial Framework”
How is the European Parliament structured?
The number of MEPs for each country is roughly proportionate to its population, but this is by degressive proportionality: no country can have fewer than 6 or more than 96 MEPs and the total number cannot exceed 705 (704 plus the President).
MEPs are grouped by political affiliation, not by nationality.
The President represents Parliament to other EU institutions and the outside world and gives the final go-ahead to the EU budget.
How many seats does each country get in in the European Parliament?
The distribution of seats in the European Parliament has been modified following the UK’s withdrawal from the EU.
Starting February 1, 2020, the European Parliament counts 705 seats compared with 751 (the maximum allowed under the EU treaties) before the UK’s withdrawal from the EU on 31 January 2020.
Twenty-seven of the UK’s 73 seats have been redistributed to other countries, while the remaining 46 seats will be kept in reserve for potential future enlargements.
In line with the electoral act of 1976, EU countries have to notify the names to the European Parliament before the mandates can officially commence.
How does the European Parliament work?
Parliament’s work comprises two main stages:
- Committees to prepare legislation.
The Parliament numbers 20 committees and two subcommittees, each handling a particular policy area. The committees examine proposals for legislation, and MEPs and political groups can put forward amendments or propose to reject a bill. These issues are also debated within the political groups.
- Plenary sessions pass legislation.
This is when all the MEPs gather in the chamber to give a final vote on the proposed legislation and the proposed amendments. Normally held in Strasbourg for four days a month, but sometimes there are additional sessions in Brussels.
The European Stability Mechanism is a bailout fund set to be launched in July 2012 to succeed the European Financial Stability Facility (EFSF). Unlike the EFSF, which is a temporary fund, the ESM is a permanent rescue funding program with a total capacity of 500 billion EUR.
It was designed to help debt-troubled European Union] (EU) states and enhance financial stability in the region by lending money to EU governments.
The European Union (EU) is a political and economic union consisting of 27 member states.
Established in 1993, the European Union’s headquarters are currently located in Brussels, Belgium.
It functions by a three-pronged governing system including a council, a parliament, and a commission, and uses a common currency.
A monetary union was established in 1999, coming into full force in 2002, and is composed of 19 EU member states which use a common currency.
Its official currency is the euro (EUR).
More than 340 million EU citizens now use it as their currency and enjoy its benefits.
Thanks to the abolition of border controls between EU countries, people can travel freely throughout most of the continent.
All EU citizens have the right and freedom to choose in which EU country they want to study, work, or retire.
Every EU country must treat EU citizens in exactly the same way as its own citizens when it comes to matters of employment, social security, and tax.
The EU’s main economic engine is the single market. It enables most goods, services, money, and people to move freely.
The EU aims to develop this huge resource to other areas like energy, knowledge, and capital markets to ensure that Europeans can draw the maximum benefit from it.
What’s the history of the European Union?
The predecessor of the EU was created in the aftermath of World War II.
The first steps were to foster economic cooperation: the idea being that countries that trade with one another become economically interdependent and so more likely to avoid conflict.
The result was the European Economic Community (EEC), created in 1958, and initially increasing economic cooperation between six countries.
The original members came to be known as the “Inner Six“: Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany
The EEC was formed out of a previous group called the European Coal and Steel Community – which had its own start in 1951.
However, it wasn’t until 1993 that the EEC morphed into the European Union following the new Maastricht Treaty (also known as the Treaty on European Union).
Additionally, the Treaty of Lisbon, enacted in 2009, gave the European Union more broad powers that included being authorized to sign international treaties, increase border patrol, and other security and enforcement provisions.
Since then, 22 other members joined and a huge single market (also known as the “Internal Market”) has been created and continues to develop towards its full potential.
On 31 January 2020, the United Kingdom left the European Union.
What began as a purely economic union has evolved into an organization spanning policy areas, from climate, environment, and health to external relations and security, justice, and migration.
According to the European Union’s official website, the union’s purpose is to:
- promote peace,
- establish a unified economic and monetary system,
- promote inclusion and combat discrimination,
- break down barriers to trade and borders,
- encourage technological and scientific developments,
- champion environmental protection,
- promote goals like a competitive global market and social progress.
A name change from the European Economic Community (EEC) to the European Union (EU) in 1993 reflected this.
How is the European Union governed?
There are seven official EU institutions, which can be roughly grouped by their executive, legislative, judicial, and financial functions.
- European Council
- European Commission (“EC”)
- European Parliament
- Council of the European Union
- European Central Bank
- Court of Justice of the European Union (CJEU)
- European Court of Auditors (ECA)
The European Council, a grouping of the EU’s top political leaders, consists of the president or prime minister of every member state. Its summits set the union’s broad direction and settle urgent high-level questions. Its members elect a president, who can serve up to two two-and-a-half-year terms.
The European Commission, the EU’s primary executive body, wields the most day-to-day authority. It proposes laws, manages the budget, implements decisions, issues regulations, and represents the EU around the world at summits, in negotiations, and in international organizations. The members of the commission are appointed by the European Council and approved by the European Parliament.
The European Parliament is the only directly elected EU body, with representatives apportioned by each member state’s population. Unlike traditional legislatures, it can’t propose legislation, but laws can’t pass without its approval. It also negotiates and approves the EU budget and oversees the commission.
The Council of the European Union, also known as the Council of Ministers to avoid confusion, is a second legislative branch whose approval is also needed for legislation to pass. This council consists of the government ministers from all EU members, organized by policy area. For instance, all EU members’ foreign ministers meet together in one group, their agriculture ministers in another, and so on.
The Court of Justice of the European Union (CJEU) is the EU’s highest judicial authority, interpreting EU law and settling disputes. The CJEU consists of the European Court of Justice, which clarifies EU law for national courts and rules on alleged member state violations, and the General Court, which hears a broad range of cases brought by individuals and organizations against EU institutions.
The European Central Bank (ECB) manages the euro for the nineteen countries that use the currency and implements the EU’s monetary policy. It also helps regulate the EU banking system.
The European Court of Auditors (ECA) audits the EU budget, checking that funds are properly spent and reporting any fraud to Parliament, the commission, and national governments.
The offices of these institutions are located across the EU, with headquarters in Brussels, Frankfurt, Luxembourg City, and Strasbourg.
How do the institutions work with each other?
These EU institutions form a complex web of powers and mutual oversight.
First, the European Council, which sets the bloc’s overall political direction, is composed of democratically elected national leaders.
Second, the European Parliament is composed of representatives, known as Members of the European Parliament (“MEPs”), who are directly elected by the citizens of each EU member state.
The European Council and Parliament together determine the composition of the European Commission (“EC”), the council nominates its members, and Parliament must approve them.
The EC has the sole authority to propose EU laws and spending, but all EU legislation requires the approval of both Parliament and the Council of Ministers.
Additionally, the European Central Bank oversees the EU’s monetary policy.
With such a complicated structure, it’s amazing anything gets done in the EU.
Individual citizens allegedly have to say in the democratically structured union.
According to the official site, citizens have a variety of ways to contribute, including “by giving their views on EU policies during their development or suggest improvements to existing laws and policies. The European citizens’ initiative empowers citizens to have a greater say on EU policies that affect their lives. Citizens can also submit complaints and inquiries concerning the application of EU law.”
What Countries Are in the European Union?
The European Union has 27 members.
The countries comprising the European Union are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
The Schengen Area
To ensure free passage between countries, the Schengen Area was established for residents of certain countries, including some non-EU countries.
For residents in these countries, passage to and from other Schengen Area countries is much easier since visas nor passports are required.
What’s the difference between the European Union and the eurozone?
The EU is not the same thing as the eurozone.
The eurozone, which was created in 2005, is simply the collection of all the countries that use the euro.
The eurozone is the group of nineteen of the twenty-seven EU members that use the euro currency.
Their monetary policy is subject to the European Central Bank, which issues and manages the euro.
Any member country of the European Union (EU) that has adopted the euro as their national currency form a geographical and economic region known as the eurozone.
The eurozone, officially called the euro area, is a monetary union of 19 of the 27 EU member states which have adopted the euro as their common currency.
The eurozone forms one of the largest economic regions in the world.
It consists of 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
Altogether, the eurozone is almost equal to the population and Gross Domestic Product (GDP) of the U.S.
The European Central Bank (ECB) and the national central banks together constitute the Eurosystem, the central banking system of the eurozone.
The ECB exercises the sole authority to decide the printing and minting of euro notes and coins.
Politically speaking, the eurozone is collectively represented by the Eurogroup, which consists of the member nations.
An Evening Doji Star consists of a long bullish candle, followed by a Doji that gaps up, then a third bearish candle that gaps down and closes well within the body of the first candle.
An Evening Doji Star is a three candle bearish reversal pattern similar to the Evening Star.
The only difference is that the Evening Doji Star needs to be a Doji candle for the second candle.
To identify an Evening Doji Star pattern, look for the following criteria:
- The first candle should be a tall white candle in an upward price trend.
- The second candle should be a doji whose body gaps above the first and third candles. Shadows are ignored.
- The third candle is a tall black candle that closes at or below the midpoint of the first candle
This Evening Doji Star acts as a bearish reversal of the upward price trend because price rises into the pattern and breaks out downward.
A downward breakout occurs when price closes below the bottom of the three-candlestick pattern.
Since the price in the last candle is already near the low, a downward breakout is expected.
An Evening Star is a bearish reversal candlestick pattern consisting of three candles: a large bullish candlestick, a small-bodied candle, and a bearish candle.
Evening Star patterns appear at the top of a price uptrend, signifying that the uptrend is nearing its end.
The opposite of the Evening Star is the Morning Star pattern, which is viewed as a bullish reversal candlestick pattern.
To identify an Evening Star pattern, look for the following criteria:
- The Evening Star consists of three candlesticks, with the middle candlestick being a star.
- The first candlestick in the Evening Star must be an up candle (white or green) and must have a large body.
- The second candlestick is the “star”, which is a candlestick with a short body and does not touch the body of the first candlestick.
- The gap between the bodies of the two candlesticks is what makes the Doji or Spinning Top a “star”.
- The star can also form within the upper shadow of the first candlestick.
- The star is the first indication of weakness as it indicates that the buyers were unable to push the price up to close much higher than the close of the previous period.
- This weakness is confirmed by the candlestick that follows the star.
- The third candlestick must be a dark candlestick that closes well into the body of the first candlestick.
This Evening Doji Star acts as a bearish reversal of the upward price trend because price rises into the pattern and breaks out downward.
A downward breakout occurs when price closes below the bottom of the three-candlestick pattern.
Since the price in the last candle is already near the low, a downward breakout is expected.
EVM (Ethereum Virtual Machine) is a Turing complete runtime environment for Ethereum smart contracts. Every node on the Etheruem network runs the Ethereum Virtual Machine.
An exchange is a marketplace where financial instruments are traded.
The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for any securities trading on that exchange,
An exchange may be a physical location where traders meet to conduct business or an electronic platform.
They also may be referred to as a share exchange or “bourse,” depending on the geographical location.
Exchanges are located in most countries worldwide.
The more prominent exchanges include the New York Stock Exchange (NYSE), the Nasdaq, the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE), which is called Tōshō or TSE/TYO for short.
An exchange is a website or mobile application where individuals can buy and sell cryptocurrencies using fiat money, bitcoins or altcoins.
An exchange rate is the amount of one currency that is needed to buy one unit of another currency.
For example, the EUR/USD exchange rate is 1.10.
This means that it takes 1.10 U.S. dollars to buy 1 European euro.
For example, if a company needs to purchase inventory from abroad, they often have to exchange their own currency for that of the supplier in order to make payment.
The exchange rate comes directly into play to decide the quantity of the home currency that is necessary to meet the price of the supplier currency. Exchange rates are inherently volatile and prone to risk.
Types of Exchange Rates
There are two types of exchange rates:
What are fixed exchange rates?
A fixed exchange rate is where a currency of one country is “pegged” to a stronger currency.
The purpose is to maintain the weaker currency’s value within a tight range, in order to protect the currency from wild fluctuations.
Fixed exchange rates protect the valuation of a weaker currency by providing less uncertainty regarding importing and exporting prices.
This helps the central bank maintain low-interest rates and thus, low inflation rates.
The aim is to stimulate trade and the overall economy.
Countries traditionally peg their currency to the currency of their largest trading partner.
For example, many African nations have pegged their currencies to the euro. And many Latin American countries have pegged their currencies to the U.S. dollar.
What are floating exchange rates?
In contrast to fixed exchange rates, floating exchange rates are currency pairings whose price constantly changes.
Free-floating currencies are the most widely used in global commerce.
They are used almost everywhere in the “developed” world.
Floating exchange rates can change by the second, as a result of the constantly changing variable factors that influence a currency’s strength.
The strength of a currency is measured in its comparison to other currencies through exchange rates.
They fluctuate as currency value is determined by a series of supply and demand factors, including trade flows, tourism, interest rates, rates of inflation, political stability, and speculation.
For example, if interest rates are increased substantially, in Japan, demand for Japanese yen will increase as people will invest money in the Japanese currency to take advantage of the interest rate increase and make money. If interest rates fall, the opposite consequence is highly likely to occur.
Therefore, governments attempt to control various factors to ensure exchange rates are at a level that will help their respective economies grow. A delicate balance often has to be struck.
The potential loss that could be incurred from an adverse movement in exchange rates.
Measures the monthly sales of previously-owned single-family houses.
Almost eight out every 10 houses are existing homes, while the rest are newly constructed. Sales of existing homes can provide economic stimulus. Some sellers will use the profits from the sale of their existing house and buy a bigger house which usually means more spending on furniture and appliances. Other sellers will choose to simply spend their profits on discretionary items. An uptrend in existing home sales also means more commissions to real estate agents and higher revenue for mortgage lenders and moving companies.
Existing home sales is used as an indicator of consumer spending and can influence interest rates. Generally, a strong growth of existing home sales is dollar bullish. A decline of existing home sales over several months is dollar bearish since this would cause interest rates to fall which weakens demand for the dollar.
An exotic currency is a currency that is thinly traded and highly illiquid.
The label “exotic” has nothing to do with the location or size of the country or countries where the currency is used.
Trading in an exotic currency is often an inefficient and expensive process as its lack of liquidity tends to lead to higher spreads in the exchange rate.
Exotic currencies can be both convertible, such as the Mexican peso, and non-convertible, such as the Brazilian real.
Some of the most commonly traded exotic currencies are the Mexican peso (MXN), Chinese yuan (CNY), Russian rouble (RUB), Hong Kong dollar (HKD), Singapore dollar (SGD), Turkish lira (TRY), South Korean won (KRW), South African rang (ZAR), Brazilian real (BRL) and Indian rupee (INR).
Expectancy refers to the expected return per trade.
Only trading systems with positive expectancy should be traded. Otherwise, you’re just donating money to your broker (who isn’t a charity).
Here’s the formula to calculate expectancy:
E(R) = (PP x AP) – (PN x AN)
E(R): Expected Return;
PP: Probability of (+) trade;
AP: Average (+) trade;
PN: Probability of (-) trade;
AN: Average (-) trade.
The last day on which the holder of an option can exercise his right to buy or sell the underlying security.
The Exponential Moving Average (EMA) is a type of moving average (MA) that places more weight and significance on the most recent prices.
The Exponential Moving Average (EMA) is also known as the Exponential Weighted Moving Average (EWMA).
The Exponential Moving Average (EMA) is similar to the Simple Moving Average (SMA), where it measures trend direction over a period of time.
The main difference between the SMA and EMA is that the EMA applies more weight to the price data that are more current, while the SMA simply calculates an average of price.
The way that EMA is calculated allows it to follow prices more closely than a corresponding SMA.
This makes the EMA is more responsive to recent price fluctuations than the SMA.
How to Use Exponential Moving Averages (EMA)
Use the EMA to determine the current trend’s direction and trade in that direction.
- When the EMA rises, consider buying when the price falls near or just below the EMA.
- When the EMA falls, consider selling when the price rises towards or just above the EMA.
Moving averages can also indicate support and resistance areas.
- A rising EMA tends to provide support the price action
- A falling EMA tends to provide resistance to price action.
This reinforces the strategy of buying when the price is near the rising EMA and selling when the price is near the falling EMA.
Like all moving average indicators, Exponential Moving Averages are suited for trending markets.
- When the price is in a strong and sustained uptrend, the EMA line will also show an uptrend.
- When the price is in a strong and sustained downtrend, the EMA line will also show a downtrend.
- You should pay attention to both the slope (direction) of the EMA line and the momentum (rate of change) of the EMA line from one candle to the next.
Moving averages, including the EMA, are NOT designed to identify the exact top and bottoms of a trend.
Moving averages help you trade in the general direction of a trend, but with a delay in triggering entry and exit points.
When using the same period, the EMA has a shorter delay than the SMA.
How to Calculate EMA
Notice how the EMA uses the previous value of the EMA in its calculation. This means the EMA includes all the price data within its current value.
The most recent price data has the most impact on the EMA and the oldest price data has only a minimal impact.
EMA = (K x (C - P)) + P
C = Current Price P = Previous period's EMA K = Exponential smoothing constant
The smoothing constant K applies appropriate weight to the most recent price.
It uses the number of periods specified in the moving average.
Exports refer to any good, commodity or service sold to a foreign country.
In trading, exposure is a general term that can mean three things:
- The total market value of your trades at open.
- The total amount of possible risk at any given point.
- The portion of your portfolio invested in a particular market or asset.
In stock trading, your exposure would be equal to the total amount you had spent on open positions.
For example, if you bought $500 of Apple, then the total amount you can lose on your trade is $500 if Apple’s stock price goes to zero.
Leveraged trading works differently.
Your exposure can be amplified considerably beyond your initial outlay, known as your margin.
For example, some trades will only require a 10% margin. This means that you’ll be exposed 90% beyond the amount you deposit.
In these cases, profit can be multiplied but losses can exceed initial deposits.
Finally, market exposure can refer to the portion of a fund or portfolio that is invested in a particular sector or asset.
For example, a $100,000 portfolio that has $5000 invested in bitcoin would have 5% market exposure to bitcoin.
The factory orders report, produced by the U.S. Census Bureau, consists of both of the durable goods report (announced earlier) along with a report detailing the events of non-durable goods orders. The report itself tends to be rather predictable with non durable goods appearing as the only new component to the previous report.
Fading is a trading technique in which a trader assumes that a rapid upward movement is overdone and takes a short position on a possible reversal.
This technique can be very risky in trending markets because going against a strong trend reduces the probability of profitability.
This technique can be potentially rewarding in range bound markets because a strong resistance level has been established, increasing the probability of future resistance and reversals at that level.
A fakeout is a false breakout that occurs when the price moves outside of a chart pattern but then moves right back inside it.
A fakeout is also known as a “false breakout” or a “failed break“.
When price finally “breaks” out of a chart pattern, which is basically a support or resistance level, one would expect the price to keep moving in the same direction of the break.
If a support level is broken, that means that the overall price movement is downwards and traders are more likely to sell than buy.
Conversely, if a resistance level is broken, then the crowd believes that price is more likely to rise even higher and will tend to buy rather than sell.
What does in fact happen is that most breakouts FAIL.
Potential fakeouts are usually found at support and resistance levels created through trend lines, chart patterns, or previous daily highs or lows.
Fakeouts can lead to significant losses and is why stop losses should always be used to control risk.
The currency of the Falkland Islands. Currency code (FKP)
The phrase “falling knife“, also known as “catching a falling knife”, refers to the action of buying an asset which is rapidly declining in price.
While a falling knife refers to a sharp drop, there is no specific magnitude or length of the drop to label a price move as a “falling knife”.
The phrase is generally used as a caution not to jump into buying an asset while its price continues to plummet.
The Falling Three Methods pattern is a bearish continuation pattern that appears in a downtrend.
This Japanese candlestick pattern consists of at least five candlesticks but may include more.
A long black body is followed by three small body candles, each fully contained within the range of the high and low of the first candle. The fifth candle closes at a new low.
The Falling Three Methods pattern includes five candlesticks in total: two long and three short.
Or more specifically: one long, three short, one long.
To identify the Falling Three Methods pattern, look for the following criteria:
- Look for a series of five candles in a downward price trend.
- The first candlestick in this pattern is a dark bearish candlestick with a large real body.
- The first candle will be followed by three or more short white (or green) candles. The next three candlesticks have smaller rising candlesticks that are bullish and light in color. These candlesticks should not exceed the high or the low of the first candlestick.
- The short candles should be followed by another long black candle.
- This last candlestick that completes the pattern must close below the previous candlestick and close lower than the close of the first candlestick.
Since this pattern starts with a long black candle, the bears are stronger than the bulls.
After the first candle though, the price pauses for a moment (forming the three short candles in the center, within the range of the first candle).
The bulls aren’t able to push the price above the height of that first long candle, and they are overtaken by the bears.
In the end, the price is driven downward again, creating another long black candle that closes below the first candle.
The Three Methods Pattern
The Three Methods pattern consists of at least five candlesticks but may include more.
The Three Methods pattern is a trend continuation pattern that can appear in an uptrend or a downtrend.
In an uptrend, it is called the Rising Three Methods pattern. In a downtrend, it is called the Falling Three Methods pattern.
A falling wedge is a chart pattern formed by drawing two descending trend lines, one representing highs and one representing lows.
It is categorized as a bullish reversal chart pattern.
The slope of the trend line representing the highs is lower than the slope of the trend line representing the lows, indicating that the highs are decreasing more rapidly than the lows.
It takes at least five reversals (two for one trend line and three for the other trend line) to form a good Falling Wedge pattern.
The resulting shape forms a gradually narrowing wedge, giving this pattern its name.
Because the trend lines that describe the falling wedge are descending, falling wedges are occasionally falsely thought of as continuation patterns for an overall downward trend.
The seeming downward trend in price invites bearish traders to continue selling, while bullish traders continue buying which maintains the strong lower line of support.
Since the price refuses to break the lower level of support, selling pressure gradually decreases, the upper level of resistance is broken, and the price breaks out and begins a strong upward trend.
The falling wedge should be taken as a strong buy signal and an indication that a trend reversal is imminent.
A falling wedge is the opposite of a rising wedge.
Falling wedges often come after a climax trough (sometimes called a “panic”), a sudden reversal of an uptrend, often on heavy volume.
In this scenario, price within the falling wedge is usually not expected to fall below the panic value, ending up in breaking through the upper trend line.
During the pattern formation, volume is most likely to fall.
Better performance is expected in wedges with high volume at the breakout point.
Gaps before the breakout are also said to improve the performance.
In the uncommon scenario where a falling wedge is following an uptrend, the pattern shows a gradual decline in price. In most cases, the price will end up breaking through the upper line, continuing the prior trend.
Faucets are services (websites or mobile apps) that dispense rewards of a tiny fraction (drips) of cryptocurrency for visitors to claim. Faucets are used to promote coins and/or drive traffic to repeat visits.
The United States agency in charge of bank depository insurance in the US. Also known as the FDIC.
The federal funds rate is the rate at which depository institutions (banks) lend reserve balances to other banks on an overnight basis.
Reserves are excess balances held at the Federal Reserve to maintain reserve requirements.
The fed funds rate is one of the most important interest rates in the U.S. economy since it affects monetary and financial conditions, which in turn have a bearing on critical aspects of the broad economy including employment, growth, and inflation.
The Federal Open Market Committee (FOMC) that meets eight times a year, sets the fed funds rate, and uses open market operations to influence the supply of money to meet the target rate.
The FOMC, or Federal Open Market Committee, is a committee within the Federal Reserve System that makes key decisions about interest rates and the growth of the U.S. money supply.
The Federal Reserve System controls the three tools of monetary policy
- Open market operations
- Discount rate
- Reserve requirements
The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee (FOMC) is responsible for open market operations.
Open market operations refer to when the Federal Reserve buys and sells securities on the open market in order to raise or lower interest rates by regulating the supply of money.
Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate.
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
The Federal Open Market Committee (FOMC) consists of twelve members:
- The seven members of the Board of Governors of the Federal Reserve System.
- The president of the Federal Reserve Bank of New York.
- Four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
The rotating seats are filled from the following four groups of Banks.
One Bank president from each group:
- Boston, Philadelphia, and Richmond
- Cleveland and Chicago
- Atlanta, St. Louis, and Dallas
- Minneapolis, Kansas City, and San Francisco
Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee’s assessment of the economy and policy options.
The FOMC holds eight regularly scheduled meetings per year.
At these meetings, the Committee reviews economic and financial conditions determine the appropriate stance of monetary policy, and assess the risks to its long-run goals of price stability and sustainable economic growth.
The FOMC was formed in 1913 when the Federal Reserve Act of 1913 gave the Fed the responsibility for the U.S. monetary policy in response to the massive financial panic and bank runs especially during 1907.
The committee evaluates the nation’s economic and financial conditions and determines the fitting monetary policy, as mentioned, through open market operations.
One of the Fed’s main goals is to control the country’s inflation by setting inflation targets.
The committee aims to meet this target by establishing a target for the Federal funds rate (the cost that banks charge each other on overnight borrowings) as well.
The selling of government securities to banks lessens the amount of funds that they would be able to lend, effectively increasing the interest rate.
On the flip side, buying government securities from the banks increases their available funds, thus, decreasing the interest rate.
The Federal Reserve is the central bank of the United States.
The Federal Reserve often referred to as the Fed, is an independent entity that was established by Congress on December 23, 1913.
Prior to the Fed’s inception, the U.S. did not have a formal organization for examining and implementing monetary policy.
The Federal Reserve is actually a group of entities, known as the Federal Reserve System, with 12 regional central banks located in major cities across the US.
The framers of the Federal Reserve Act purposely rejected the concept of a single central bank.
Instead, they provided for a central banking “system” with three primary features:
- A central governing Board.
- A decentralized operating structure of 12 Reserve Banks.
- A combination of public and private characteristics.
The goal of the Fed is to promote sustainable economic growth, high employment rates, moderate long-term interest rates, and to preserve the purchasing power of the U.S. dollar.
It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal
- conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy
- promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad
- promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole
- fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments
- promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.
Structure of the Federal Reserve System
Although the Fed is an independent organization, it is subject to oversight by Congress.
There are three key entities in the Federal Reserve System:
- The Board of Governors
- The Federal Reserve Banks (Reserve Banks)
- The Federal Open Market Committee (FOMC)
The Board of Governors, an agency of the federal government, and made up of seven presidential appointees.
It reports to and is directly accountable to Congress, provides general guidance for the System, and oversees the Reserve Banks.
There are 12 Federal Reserve banks in the United States.
In establishing the Federal Reserve System, the United States was divided geographically into 12 Districts, each with a separately incorporated Reserve Bank.
District boundaries were based on prevailing trade regions that existed in 1913 and related economic considerations, so they do not necessarily coincide with state lines.
Each bank is responsible for a specific geographic area of the United States.
They operate independently but with supervision from the Board of Governors.
The banks generate income from:
- Earned interest on government securities.
- Services provided to banking institutions.
- Foreign currency income.
- Earned interest on loans to depository institutions.
This income is used to finance the Fed’s operations. Any surplus is deposited back into the U.S. Treasury.
The United States is the Federal Reserve’s biggest banking customer.
The bank handles all revenue generated by tax dollars and all government payments are managed through the Federal Reserve’s banks.
Additionally, the Fed sells and redeems government securities, which include bonds, notes, and Treasury bills.
The Federal Reserve banks issue all paper and coin currency and take currency out of circulation when damaged from wear and tear.
The Federal Open Market Committee, or FOMC, meets at least eight times per year to decide whether monetary policy should be modified by lowering or raising the federal funds rate, the rate at which banks lend money to one another overnight to meet loan reserve requirements.
Within the Federal Reserve System, certain responsibilities are shared between the Board of Governors in Washington, D.C., whose members are appointed by the President with the advice and consent of the Senate, and the Federal Reserve Banks and Branches, which constitute the System’s operating presence around the country.
While the Federal Reserve has frequent communication with the Executive branch and congressional officials, its decisions are made independently.
Federal Reserve and Monetary Policy
The Federal Reserve of the United States has a number of methods for influencing the American money supply. Chief among these is the power of the Fed to increase or decrease the amount of currency in circulation.[bpad unit="inline"]
The Fed can purchase or sell government securities to its primary traders, which brings additional Federal Reserve Notes into circulation or removes excess paper money from the supply.
The Fed also works with the U.S. Mint to print additional paper money, or to destroy the unneeded currency.
Another of the Fed’s financial powers is its ability to influence the short-term interest rate. The Fed does this by changing the default rate at which it loans money to fellow banks.
Since the Fed’s default rate is one of the major factors in determining the nationwide prime interest rate, the Fed’s actions can indirectly increase or decrease the yield from interest-accruing assets.
This, in turn, plays a role in determining investor behavior, and the trends of the market as a whole.
In more detail, the rate that the Fed lends money to depository institutions is called the Discount Rate.
That is set above the ”nominal rate” which is the rate that the depository institutions lend money to each other to meet reserve requirements at the Fed.
The nominal rate is what is commonly known as the Federal Funds Rate. It is set by open market operations.
Since the money supply is a factor in determining the overall trade balance between currency markets, foreign exchange traders keep a close eye on the actions of the Federal Reserve.
Fiat money refers to currencies that have minimal or no intrinsic value themselves (not backed by commodities like gold or silver) but are defined as legal tender by the government, such as banknotes and coins.
Fibonacci arcs are concentrical circles plotted at the end point of the trendline; their radii are based on Fibonacci ratios.
After the uptrend, these circles might signify support zones, while after the downtrend, they might indicate the resistance zones.
Fibonacci arcs are created by first drawing an invisible trendline between two points (usually the high and low in a given period), and then by drawing three curves that intersect this trendline at the key Fibonacci levels of 38.2%, 50%, and 61.8%.
Trading decisions are made when the price of the asset crosses through these key levels.
Fibonacci arcs are one of the four most commonly used Fibonacci studies for analyzing markets in terms of support and resistance levels.
They are used to draw circular arcs that are probable values of support and resistance based on a market range.
Fibonacci arcs are generated by first finding the low and high prices for a given market.
A line drawn between these two points becomes the radius in a large circle.
Taking one point at 0% and the other as 100%, three arcs are then drawn across this radius at the Fibonacci percentages of 38.2%, 50%, and 61.8% of the total length of the line.
The price levels at which the arcs intersect with a time index are, in theory, strong areas of support or resistance for the market.
Another popular strategy is to combine Fibonacci arcs with Fibonacci fans, drawing both studies on the same chart.
Fans of this method consider the points where both studies cross to be extremely strong areas of support and resistance.
One caveat when using Fibonacci arcs: since the arcs are literally drawn as circles across a chart, the points of intersection can vary depending on the chart’s horizontal or vertical scale.
A savvy trader will experiment with Fibonacci arcs applied to previous market data in order to determine a chart scale that seems the most effective, and then use that in future predictions of resistance and support.
With arcs, analysts choose a trend line between two extreme points in a price movement between a low and a high, and draw arcs across the chart at the levels of 38.2%, 50% and 61.8%.
As a result, they plot all the potential support or resistance levels that are likely to occur over time in the future period that is graphed on the chart.
Human behavior is not only reflected in chart patterns as large swings, small swings or trend formations. Human behavior is also expressed in peak-valley formation. Fibonacci channels make use of peak and valley formations in the market and lead to conclusions on how to safely forecast major changes in trend directions.
The secret of Fibonacci channels is to identify the correct valleys and peaks to work with. Support and resistance lines can be drawn weeks and months into the future, once the appropriate tops and bottoms in the market have been detected. Only major tops and bottoms should be considered for a base line of a Channel with one or more prominent side swings. The widest swing within a time frame of the base line is used for a trigger line.
Fibonacci channels are a method of predicting levels of support and resistance for a given market. Although Fibonacci channels fall under the general category of Fibonacci studies for technical analysis, the channels aren’t among the most popular tools used by traders today.
Fibonacci channels are variants of the more-popular Fibonacci retracement strategy, with retracement lines running diagonally rather than horizontally. To generate Fibonacci channels for a chart, a trader first creates a base channel by drawing parallel lines through a price top and price bottom.
The slope of the Fibonacci channel is determined by connecting either two bottoms or two tops, depending on the overall trend: in a downward trend two bottoms are connected, while in an upward trend the slope is generated from two tops.
Once the base channel is drawn, additional parallel lines are drawn above or below it, with the distance between lines determined by Fibonacci numbers: 0.618 times the width of the original channel, then the width of the original channel, then 1.618 times to the width and so on, multiplying each number by the golden ratio 1.618 to determine each successive width.
These Fibonacci channels determine the support and resistance levels for the market within the overall trend.
When used, Fibonacci channels are often drawn along with Fibonacci retracement charts. The points where the diagonal lines and horizontal lines cross are considered to be exceptionally strong levels of support or resistance for the market.
For channels, a peak and trough of a price movement are chosen to represent a unit width. Then, a series of parallel lines is drawn on the chart based on multiples to the unit width of 0.618, 1.00, 1.618, 2.618, 4.236, etc. The multiples represent the likely points of future support or resistance levels.
Fibonacci ellipses identify underlying structure of price moves. Fibonacci ellipses circumvent price patterns. When a price pattern changes, the shape of the ellipse circumventing the respective market price pattern changes too. We can find long and short ellipses, fat and thin ellipses and ellipses that are flat or have a steep angle. There are very few market price moves that do not follow the pattern of a Fibonacci ellipse. In general, the shape of an ellipse is defined by the ratio of major axis to minor axis. Ellipse is turned into Fibonacci Ellipse where this ratio is a member of Fibonacci series.
The strength of Fibonacci ellipses is that no matter how many waves or sub waves we find in a price pattern, we receive a solid overall picture of the total price pattern as long as it can be circumvented by a Fibonacci ellipse. It starts in the beginning of a wave A in 3-wave patterns and its width is chosen so that the beginning and the end of a wave B is tied between extreme points of minor axis of the ellipse. As long as the price stay inside the ellipse it is very likely to reach level indicated by the end of major axis at approximate time it projects onto a time scale of a graph.
Fibonacci ellipses, also known as phi-ellipses, are a lesser-known member of the general category of Fibonacci studies in technical analysis. An important difference between Fibonacci ellipses and standard Fibonacci tools is that Fibonacci ellipses are are used to determine overall market trends, rather than merely levels of support and resistance.
A Fibonacci ellipse can be drawn when three points on a chart are known: an arbitrary starting point, the first peak before a reversal in price levels, and a second point representing a second reversal back toward the direction of the overall trend. Once these three points are known, an ellipse can be drawn inscribing all three. The line bisecting this ellipse along the median can be taken as an indicator of the median price level for the overall trend, and traders consider the point where the median line crosses the far boundary of the ellipse to be an indicator of an impending market reversal.
Fibonacci extensions (or “Fib extensions”) are used to determine price targets after the prevailing trend has resumed.
Fibonacci extensions are similar to Fibonacci retracements. It is used to determine possible support and resistance levels.
Like Fibonacci retracements, Fibonacci extensions are based on the mathematical relationships, expressed as ratios, between the numbers in the Fibonacci series.
Unlike Fibonacci retracements, Fibonacci extensions seek possible support and resistance levels that are more than 100% of the previous price movement.
How is Fibonacci Extension calculated?
The key Fibonacci extension levels are found by performing various mathematical operations on the numbers in the Fibonacci series, and on the results of those operations.
- The first ratio of 161.8%, which is the “golden ratio” or the “golden mean”, is found by dividing a number in the sequence by the number that precedes it. For example: 21 ÷ 13 = 1.6154, 34 ÷ 21 = 1.6190 and 55 ÷ 34 = 1.6176.
- The 261.8% ratio is found by dividing a number in the sequence by the number that appears two places before it. For example: 34 ÷ 13 = 2.425, 55 ÷ 21 = 2.619 and 144 ÷ 55 = 2.61818. It is also the square of 1.618 (1.618 x 1.618 = 2.618).
- The 423.6% ratio is found by dividing a number in the sequence by the number that appears three places before it. For example: 55 ÷ 13 = 4.2308, 89 ÷ 21 = 4.2381 and 144 ÷ 34 = 4.2353. It is also the sum of 1.618 and 2.618 (1.618 + 2.618 = 4.236).
- In addition to these three ratios, the 127.2% extension level is also used. This level is the square root of 1.618 (√1.618 = 1.272).
How to trade Fibonacci Exensions
Fibonacci extensions are used in a similar way as Fibonacci retracements but in the opposite direction.
- Identify the dominant trend.
- Waits for the market to turn against the trend.
- Then wait for the market to start moving back in the direction of the dominant trend.
- Apply the extension ratios to the previous countertrend movement, starting from the previous low to the high in an uptrend and in the opposite direction in a downtrend.
- Horizontal lines are then drawn at these levels and are used as possible resistance levels if the dominant trend is an uptrend, or as possible support levels if the dominant trend is a downtrend.
- These levels can be used as profit targets when trading in the direction of the dominant trend.
The most significant levels are usually the 161.8% level followed by the 127.2% level.
The 261.8% level and the 423.6% levels are also significant in strong markets.
Multiple Fibonacci extensions can also be drawn starting from different lows in an uptrend or different highs in a downtrend.
The endpoints for the different extensions are the same most recent turning point and can be used with Fibonacci retracement levels of larger price swings.
This creates multiple levels with areas were two or more Fibonacci levels are in close proximity being more significant.
Fibonacci fans are a combination of trendlines plotted from a single point and distant from each other based on Fibonacci ratios.
Fibonacci fans share the main idea with Fibonacci retracements: using Fibonacci ratios in order to predict future support/resistance levels.
On an uptrend period, it is suggested that the main trendline be plotted from the bottom to top so that retracement lines are placed below it; these lines might predict potential support levels.
Conversely, on a downtrend section, the fan is plotted from the top to bottom, the retracement lines appear above the main trendline, serving as potential resistance levels.
Fibonacci fans’ name derives from the fanlike appearance of the three trend lines shown.
The Fibonacci fans are drawn using typical tops or bottoms. The three Fibonacci fans project into the future with slopes at 38.2, 50 and 61.8% (additional levels are also available). As the daily prices pass these three fans, we make predictions about future price movements based upon whether there appears to be price resistance or support at these intersection points. If the prices hold at the fan line, there is support there, if they quickly move through the fan line, then you will not see support until the next fan line is met.
Fibonacci fans are among the four most popular Fibonacci studies, used to predict levels of support and resistance in a market.
Fibonacci fans are generated by first finding the high and low of the market. An invisible vertical line running from the high price level to the low price level is drawn at the rightmost point, whether high or low.
Three lines are then drawn from the leftmost point through the invisible vertical line, crossing the line at 38.2%, 50%, and 61.8% of the total distance. (These are the classic Fibonacci study percentages, but other Fibonacci percentages are sometimes used.)
These three Fibonacci fan lines predict strong levels of support and resistance for the market in the near future.
The Fibonacci fan also predicts the range of a market for a short period of time, as prices tend to “bounce” between the lowest and highest of the three Fibonacci fan lines, occasionally hovering or rebounding from the 50% line at the middle of the projection. Several traders also use Fibonacci fans in conjunction with Fibonacci arcs.
Both Fibonacci studies are drawn on the same chart, and the points at which the projections cross are considered to be extremely strong levels of support or resistance.
With fans, an invisible vertical line is drawn through the second extreme point in a price movement and trend lines are drawn from the first extreme point to intersect the invisible vertical line at the levels of 38.2%, 50%, and 61.8%.
As with arcs, the trend lines from the “fan” of three new trend lines will project into future points on the graph where support or resistance levels will likely appear.
Fibonacci retracement (or Fib retracement) is a tool used by technical analysts to identify key support and resistance levels.
The support and resistance levels are plotted as horizontal lines and used to estimate likely reversal points during an uptrend or downtrend.
They do so by using Fibonacci ratios as percentages.
The Fib retracement tool is derived from a string of numbers identified by mathematician Leonardo Fibonacci in the 13th century.
This string is called the Fibonacci sequence.
Certain mathematical relationships between numbers in this sequence create ratios that are then plotted to a chart. These ratios are:
The above levels are seen as significant levels in where price may bounce back from or accelerate towards.
These levels can be used to identify key support and resistance levels which can be useful for planning entry or exit points (such as stop loss placement) for your trades.
While technically not a Fibonacci ratio, some traders also consider the 50% level to have some significance, as it represents the midpoint of the price range.
Fibonacci ratios outside of the 0-100% range may also be used, such as:
How to use Fibonacci Retracement
Typically, the tool is drawn by picking two extreme points within the price range, such as a high and a low.
This range is then used as the basis for further analysis.
Usually, the tool is used for mapping out levels inside of the range, but it may also provide insights into important price levels outside of the range.
Typically, this range is drawn according to the underlying trend.
So, in an uptrend, the low point would be the 1 (or 100%), while the high point would be 0 (0%).
By drawing Fib retracement lines over an uptrend, traders can get an idea of potential support levels that may be tested in case the market starts to retrace – hence the term retracement.
Conversely, during a downtrend, the low point would be 0 (0%), and the high point 1 (100%).
The retracement, in this case, refers to the movement from the bottom (a bounce).
In this context, the Fibonacci retracement tool may provide insights into potential resistance levels if the market starts to move up.
How to Trade Fibonacci Levels
Using the Fibonacci retracement tool isn’t useful for determining the overall trend in price but can help to predict levels of support and resistance within a large trend reversal.
Traders may use Fibonacci levels to determine potential entry points, stop loss levels, and take profit levels.
This can vary significantly depending on each trader’s setup, strategy, and trading style.
Some strategies involve profiting on the range between two specific Fibonacci levels.
For example, consider an uptrend followed by a retracement. Buying at the 38.2% retracement level then selling at the 23.6% level could be an interesting strategy.
Fibonacci levels are also often combined with the Elliott Wave Theory to find correlations between wave structures and potential areas of interest.
This can be a powerful strategy to predict the extent of retracements in different waves of a particular market structure.
Fibonacci is Like Santa Clause
Fibonacci numbers are found everywhere in nature, and many traders believe that they have relevance when charting financial markets.
However, as with all technical indicators, the relationship between price action, chart patterns, and indicators are NOT based on any scientific principle or physical law.
The Fibonacci retracement tool’s usefulness is dependant on the number of market participants paying attention to it.
The more people looking at the same Fibonacci levels, the stronger its predictive power.
These levels are created by picking two extreme points in a chart’s pattern and then dividing the vertical distance by the key levels predominantly used in trading of 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%.
Markets move in rhythms. An impulse wave that defines a major market trend will have a corrective wave before the next impulse wave reaches new territory.
This occurs in either bull market or bear market conditions. The most common approach to working with corrections is to relate the size of a correction to a percentage of a prior impulsive market move.
In regards to the 3-wave patterns, Fibonacci Retracement indicates how far a corrective wave B could go before wave C is born.
The first support level is the one marked by 38.2% and if price moves through it then it becomes a resistance line and a new support level shifts to Fibonacci level of 61.8%.
Fibonacci retracements are one of the four types of Fibonacci studies used for predicting levels of support and resistance.
Fibonacci retracements are used immediately after a strong price movement either up or down. An imaginary vertical line is drawn across the chart between two extreme price values, one high and one low.
Then a number of horizontal lines are drawn perpendicular to the imaginary vertical at significant Fibonacci values.
The most common number of lines is five, drawn at 0%, 38.2%, 50%, 61.8%, and 100% of the length of the line (starting from either end), but some traders have been known to use even more retracement lines than this.
Following a strong price movement in either direction, markets tend to “retrace” much of their change in price, and the levels at which this retracement reverses or pauses often correspond with the horizontal lines on the Fibonacci retracement chart.
Fibonacci spiral is created by drawing circular arcs connecting the opposite corners of squares in the Fibonacci tiling, thus the radius grows proportionally to Fibonacci ratio.
The main principle of using the Fibonacci spiral in technical analysis is setting the first radius as the distance between two significant extremum points of the chart.
If this distance is chosen properly, intersections of the spiral and the price plot are said to mark important price and time targets.
Fibonacci spirals provide the optimal link between price and time analysis and are the answer to a long search for a solution to forecasting both time and price. Each point on a spiral manifests an optimal combination of price and time. Corrections and trend changes occur at all those prominent points where the Fibonacci spiral is touched on its growth path through price and time.
You will be astonished to see that if the correct center is chosen, Fibonacci spirals pinpoint turning points in the market with an accuracy seldom before seen.
Investing based on spirals is neither a black-box approach nor an overfitted computerized trading system. It is a simple universal geometrical law applied to different sorts of products such as futures, stock index futures, stocks, or cash currencies.
The Fibonacci spiral is one of the many Fibonacci Studies] for analyzing markets in terms of support and resistance levels for the price of a given asset.
Unlike several of the other Fibonacci studies, the exact methods for calculating Fibonacci spirals are kept as something of a secret.
The basic idea behind the Fibonacci spiral is that a certain extreme point on a market chart is taken to be the center of the spiral, and then a Fibonacci spiral based on the golden ratio is drawn emanating out from that center.
Certain points along the spiral are then considered to be strong indicators of market events, such as price spikes or high levels of resistance or support.
The Advocates often tout the Fibonacci spiral as an extremely accurate method of predicting the behavior of a market based on both critical times and critical price levels, rather than simply on price levels.
Several pieces of software exist for calculating Fibonacci spirals on a computerized chart.
The secret nature of the calculations, however, makes it difficult for a prospective Fibonacci trader to assess the actual efficacy of the device.
In general, Fibonacci spirals are generated by picking a starting point and then increasing the width of points along the spiral from the center by multiplying the width by a Fibonacci ratio for every quarter turn.
In markets, this Fibonacci ratio would likely be determined by certain price levels within the market.
Fibonacci studies are geometrical representation of nature’s law and human behavior that can be applied, almost without limit, to market data series, whether cash currencies/Forex, futures, index products, stocks or mutual funds. Each shape possesses unique characteristics in determining when the battle between bulls and bears is approaching a critical phase and which side is likely to win it.
Fibonacci time projections are a combination of Fibonacci extensions and Fibonacci time ratios.
While being plotted much like the Fibonacci extensions, they feature vertical lines like Fibonacci time ratios do.
Fibonacci time projection days are days on which a price event is supposed to occur. Time projection analysis is not lagging but is of forecasting value. Trades can be entered or exited at the price change rather than after the fact. The concept is dynamic.
The distance between two turning points is seldom the same, and time projection days vary, depending on larger or smaller swing sizes of the market price pattern.
This base for drawing this shape is 2 critical points: two highs, two lows, or a low and a high. Fibonacci levels are projected into the future based on those points and at this time it is impossible to say whether those levels mark peaks or valleys.
If the price is declining or rising approaching a given Time Projection level, it is likely this level will mark an end or a pause of a particular trend. It is always recommended to combine Time Projection with other Fibonacci tools for more dependable signals.
Fibonacci time projection is one of the four most popular Fibonacci studies for technical analysis, involving the use of Fibonacci time zones. Fibonacci time zones are generated by dividing a chart into a number of time areas, based on the Fibonacci sequence.
As an example, if the base increment is taken to be an interval of one day, Fibonacci time zones would occur around 1.618 days after that day, then 2.618 days after that, then 4.236 and so on. Each interval is multiplied by the golden ratio, 1.618, in order to generate the next interval.
These Fibonacci time zones are used to predict large price events, whether reversals of a current price trend or sharp changes in price along with the trend.
Fibonacci time projection is accurate to a point, but in a few cases large price events occur significantly before or after the time predicted by the Fibonacci time projection.
Although this only describes 30% of cases, Fibonacci time projection should only be used in conjunction with other technical analysis tools, and as a guideline for trading rather than a sure-fire method of divining the future.
Fibonacci Time Zones are a series of vertical lines.
Traders use Fibonacci Time Zones to break down a certain time period into smaller ones whose lengths are consecutive Fibonacci numbers.
The end of each smaller period might signify an important change in price.
Unlike the other charting techniques, Time Zones focus on the timing, rather than the price component of price movements.
With this technique, a unit time interval is chosen as a reference, and vertical lines are plotted at Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc., where new support or resistance levels can be expected
The interpretation of Fibonacci Time Zones involves looking for significant changes in price near the vertical lines.
Fibonacci time zones are used in the Fibonacci time projection, one of the four most commonly used of the Fibonacci studies for technical analysis.
A Fibonacci time zone is generated by first taking some time interval on a market’s chart as a base increment of time, anywhere from one hour to one day.
The most useful Fibonacci time zones are generated by choosing a base interval described by the time between two market bottoms or tops.
The base interval is then multiplied by the golden ratio, 1.618, in order to determine the length of time from the end of the base interval to the first Fibonacci time zone.
Future Fibonacci time zones are generated by multiplying each successive interval between Fibonacci time zones by 1.618.
Fibonacci time zones are, in theory, the points at which large market events can be expected, from the reversal of a current price trend to a large change in price in the direction of the trend.
In practice, Fibonacci time zones do have a large measure of predictive power (something like 70%), but on occasion, large price events can occur between Fibonacci time zones, even though the time zones usually still correspond with price events of some size.
Because of this occasional inaccuracy, Fibonacci time zones and Fibonacci time projection should only be used as guidelines, and should also only be used in conjunction with other technical analysis tools.
The currency of Fiji. Currency code (FJD)
The currency of The Philippines. Currency code (PHP)
The action of completing a order to make a transaction.
The price at which an order was executed.
The Financial Conduct Authority (FCA) is a United Kingdom regulatory body that focuses on the regulation of financial services firms (retail and wholesale).
It is funded by membership fees it charges and is completely independent of the United Kingdom government.
The FCA has a crucial role in maintaining the integrity of financial markets in the UK and regulating the conduct of firms that supply financial services.
The FCA was preceded by the Financial Services Authority (FSA), which was abolished following the enactment of the Financial Services Act 2012.
The Financial Services Act 2012 introduced a regulatory framework involving the FCA, the Bank of England Financial Policy Committee, and the Prudential Regulation Authority.
Under the FCA’s remit, its powers include:
- The power to investigate organizations or individuals.
- The power to ban financial products or services for up to a year while considering a permanent ban.
- A supervisory role with banks and authorized payments institutions to ensure customer treatment is fair, to oversee the healthy competition, and to spot financial risks early in order to mitigate the chance of systemic damage.
The negative chance a firm cannot meet its financial obligations.
To strengthen the surveillance of financial markets, the G20 leaders decided in April 2009 to expand the membership of the former Financial Stability Forum (FSF) and renamed it the Financial Stability Board (FSB).
The new membership includes the G20, Hong Kong SAR, Singapore, and Spain.
The FSB is designed to help improve the functioning of financial markets, and to reduce systemic risk through enhanced information exchange and international cooperation among the authorities responsible for maintaining financial stability.
The FSF first met on April 14, 1999, at IMF headquarters, and has since then met semiannually. It was made an observer of the IMFC in September 1999.
The FSB consists of a Plenary, a Steering Committee, other committees and subgroups as needed, and a secretariat based in Basel, Switzerland.
The Plenary is the decision-making organ of the FSB.
Its members are the heads of members’ treasuries, central banks, and supervisory agencies; the chairs of the main standard-setting bodies and central bank committees; and senior representatives of international financial institutions (the Bank for International Settlements, International Monetary Fund, Organization for Economic Cooperation and Development, and World Bank).
The Steering Committee provides operational guidance between plenary meetings to carry forward the directions of the FSB.
Its composition is decided by the Plenary at the proposal of the Chair.
A firm quote is a quote displayed at which the market maker is obligated to buy or sell at the quoted price.
A firm quote includes a bid and ask price at which a market maker is willing to trade a specific quantity.
A firm quote is non-negotiable. It is a “take it or leave it” offer.
With a firm quote, the price is guaranteed. Market makers are obliged to deal at the displayed price and volume when their quotes are firm.
Rule in which positions are closed in the order they were originally opened. Also known as FIFO.
Fiscal policy, or financial policy, is the method by which governments adjusts its levels of spending and taxation to directly influence the economy. Fiscal policy goes hand in hand with monetary policy (the means by which central banks influence money supply) to achieve various economic goals.
Fiscal policy gained popularity during the 1930s after it had been advocated by British economist John Maynard Keynes. He suggested that whenever a nation is in recession, putting more money in the hands of consumers could lead to economic growth. This could be done by reducing taxes or increasing government spending.
Various Fiscal Policies
The following are the three basic financial policies: neutral, expansionary, and contractionary.
Neutral – Government spending is roughly equal to its revenue.
Expansionary – Government spending is higher than its revenue.
Contractionary – Government spending is lower than its revenue.
Effects of Fiscal Policies on Exchange Rates
The effect of financial policy on the currency is highly dependent on the economic situation. Since each country is unique and the economic environment is constantly changing, it is very hard to tell exactly how financial policy will affect exchange rates.
Let’s say a government has a budget deficit due to an expansionary financial policy. To finance the deficit, the government can work with the central bank to print fresh currency (also known as quantitative easing).
The newly printed money can be used by the government in their economic development projects. The increase in money supply can end up being inflationary and lead to the weakening in value of the domestic currency in relation to foreign currencies.
The Fisher effect describes the relationship between interest rates and inflation. According to Irving Fisher, the brains behind this amazing theory, the real interest rate is equal to the nominal interest rate minus the expected inflation.
With the real interest rate held constant, an rise in expected inflation should be accompanied by an increase in the nominal interest rate. In other words, if a central bank expects a considerable rise in price levels, they could hike rates accordingly.
Fitch Ratings is currently one of the Big Three players in the credit ratings industry.
Fitch Ratings was founded by John Knowles Fitch in 1913 when he published financial statistics in his ””The Fitch Stock and Bond Manual.”” In 1924, the Fitch Publishing Company first introduced the “AAA” to “D” ratings scale, which is currently used by the industry.
Today, Fitch Ratings provides services from its headquarters in both New York and London and its 51 offices worldwide.
A fixed exchange rate is a system in which one currency is pegged to another currency.
Most of these currencies are pegged to the U.S. dollar or the euro.
The monetary authorities’ aim, in these cases, is to keep their currency’s value stable and avoid wild exchange rate fluctuations.
There are a number of advantages to a fixed exchange rate:
When one currency is pegged to another, the dangers of fluctuation are greatly reduced. This is particularly important for countries with weaker economies for whom sudden exchange rate fluctuations could have devastating consequences. Pegging their currency to a stronger currency protects against such volatility.
Promotes foreign investment
Greater currency stability attracts investors as it guarantees that the value of their assets will not be suddenly wiped out due to exchange rate fluctuation. They are therefore more likely to invest.
Helps governments to contain inflation
A fixed exchange rate provides greater stability for import/export prices and protects against the risk of currency devaluation.
Fixing the exchange rate helps governments keep the value of their currency at a level appropriate to support the export sector. This ensures that the price of products and services remains competitive in overseas markets.
Fixed exchange rates are positive for importers and exporters because they minimize currency risk.
However, the caveat is that these fixed rates are often accompanied by currency controls that hinder international transactions.
A flag pattern is a continuation chart pattern, named due to its similarity to a flag on a flagpole.
Although it is less popular than triangles and wedges, traders consider flags to be extremely reliable chart patterns.
A flag is a relatively rapid chart formation that appears as a small channel after a steep trend, which develops in the opposite direction.
After an uptrend, it has a downward slope. After a downtrend, it has an upward slope.
The preceding trend is crucial for pattern formation.
A “flag” is composed of an explosive strong price move forming a nearly vertical line.
This is known as the ”flagpole”.
After the flagpole forms, bearish (bullish) traders, eager to capitalize on instant profits, begin selling (buying) off their holdings.
However, this doesn’t cause a rapid decline (increase) in price, as bullish (bearish) traders begin buying, hoping to capitalize on future increases (decreases) in price.
The resulting descending (ascending) trend channel resembles a downward-sloping (upward-sloping) parallelogram, giving the chart the appearance of a flag, and hence its name.
When the trend line resistance on the flag breaks, it triggers the next leg of the trend move, and the price proceeds ahead.
What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move.
Flag patterns can be bullish or bearish:
- A bullish flag is known as a Bull Flag.
- A bearish flag is known as a Bear Flag.
Breakouts happen in both directions but almost all flags are continuation patterns.
This means that Flags in an uptrend are expected to break out upward and Flags in a downtrend, are expected to break out downward.
Slang used to describe a position that creates a neutral position. A position that has been sold or bought at the same price as the buying or selling price respectively. Also known as ”square”.
The point in which a trader switches from having more long positions to more short positions.
A floating exchange rate refers to currencies that are allowed to change freely, as influenced by an open market, rather than being fixed to the value of another currency.
A floating exchange rate system determines a currency’s value in relation to other currencies.
Unlike fixed exchange rates, these currencies are in continuous fluctuation and float freely. They are unrestrained by government controls or trade limits.
Changes in factors such as interest rates, inflation, political stability, capital flows, trade flows, employment, tourism, and speculation, maintain free-floating currencies in continuous movement.
This volatility is perceived as a good thing for currency speculators, who account for the vast majority of forex trading.
For companies carrying out business in foreign currencies, however, it poses translation and currency risk that might seriously impact their profit margins.
Advantages of a floating exchange rate
Balance of payments stability
Theoretically, imbalances in the balance of payments lead to automatic changes in exchange rates. For example, a deficit in the balance of payments would trigger currency depreciation.
This would make a country’s exports cheaper in foreign markets, increasing their demand and ultimately restoring equilibrium in the balance of payments.
No restrictions on foreign exchange and capital flows
Unlike with a fixed exchange rate, there are no restrictions to trade with these currencies. Therefore, there is no need for a constant management process on the part of the government or central bank.
No need to keep large foreign currency reserves
Free-floating exchange rates do not require the central bank to keep large amounts of foreign currency reserves to defend the exchange rate. Those reserves, therefore, can be used to import capital goods to promote economic growth.
Protection against imported inflation
One of the biggest problems facing countries with fixed exchange rates is that they may import inflation via higher import prices or through the balance of payments surpluses with regard to deficit countries. Countries with free-floating exchange rates do not have that problem.
Disadvantages of a floating exchange rate
High level of exposure to exchange rate volatility
By nature, floating exchange rates are volatile and prone to sharp fluctuations. The value of a currency against another can drop precipitously in a single day.
Lack of currency control can curtail economic recovery or growth
Negative exchange rate movements for a country’s currency can create serious problems.
For example, if the Japanese yen arises against the euro, it makes exporting to the eurozone from Japan more difficult.
On the other hand, the depreciation of a currency’s value tends to increase inflation. Therefore, a government must be wary of volatility and take measures to promote a stable, growing economy.
Follow-through means fresh buying or selling interest after a directional break of a particular price level.
The lack of follow-through usually indicates a directional move will not be sustained and may reverse.
FOMC meeting refers to the 12 members of the FOMC who meet eight times a year to discuss monetary policy.
During the FOMC meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts.
FOMC meetings are key events in the financial markets and for traders, are considered one of the most important events on the economic calendar.
The Federal Open Market Committee meetings are important to forex traders because this is when the Federal Reserve, the central bank of the U.S., announces their decision on interest rates.
This announcement has a significant impact on the U.S. dollar.
What is the FOMC?
The FOMC, or Federal Open Market Committee, is the Federal Reserve System’s body for monetary policymaking.
In December 1913, the Federal Reserve System (“the Fed”) was created by President Woodrow Wilson and the US Congress to act as the Central Bank of the United States.
The Fed’s purpose is to try to achieve stable prices while maximizing employment. Generally, the FOMC enacts policy by altering short-term interest rate levels based on economic outlook changes.
Since 2009, the FOMC has also used large-scale purchases of securities (known as “QE“) to improve economic conditions and support financial recovery by lowering long-term interest rates.
The Federal Reserve controls three monetary policy tools:
- Reserve requirements
- The discount rate
- Open market operations
These tools allow the Fed to influence the supply of and demand for balances held at Federal Reserve Banks by depositary institutions and which affects the interest rate.
An FOMC rate decision has a significant effect on other economic variables, including foreign exchange rates, short-term interest rates, the price of services and goods, and even employment.
The main FOMC meetings take place eight times per year, but they hold other meetings as necessary.
The Committee publishes the minutes of these regular meetings three weeks after the policy decision’s date.
Members of the FOMC
The Federal Open Market Committee has 12 members.
Of these, seven are members of the Federal Reserve System’s Board of Governors, while the remaining five are Federal Reserve Bank presidents.
The Chair of the Board of Governors also acts as the chairman of the FOMC, by tradition.
The President of the Federal Reserve Bank of New York holds the position of Vice-Chairman for the FOMC.
The Federal Reserve Bank of New York’s seat is the only permanent position.
The other four presidents serve for one year on a three-year rotating schedule.
Every year, a new Federal Reserve Bank president is chosen from the following geographical groups:
- Richmond, Boston, and Philadelphia
- Chicago and Cleveland
- Dallas, Atlanta, and St Louis
- Kansas City, San Francisco, and Minneapolis
This system ensures that all areas of the United States are represented in the FOMC.
Even though the remaining seven presidents of the Federal Reserve Bank are not designated FOMC members, they still attend the meetings and provide their input.
In the FOMC meetings, developments in global and local financial markets are discussed, as well as financial and economic forecasts.
While all participants can share their views on the state of the economy and recommendations for monetary policy, only the designated members of the FOMC can vote on which policy will be adopted.
Why are FOMC Meetings important?
Many traders use fundamental analysis when trading the financial markets, and economic indicators play a key role in this.
The FOMC’s decisions on interest rates have a significant effect on the U.S. dollar.
Being aware of the scheduled dates for FOMC meetings and knowing whether there is a Fed meeting on the day allows you to be prepared for the crazy volatility that might occur in the markets.
You might prefer to steer clear of the market until the FOMC meeting result is published, or you might have a bias on what the Fed will do and want to stay in the market and trade this bias.
It’s not enough to be aware of the meetings though.
You also need to monitor the FOMC by reading the FOMC minutes and watching any press conferences.
These can often provide important clues regarding the possible direction of the U.S. dollar in the near future.
For example, if the FOMC states the Fed is adopting a hawkish stance, you might consider going long the USD.
if they adopt a dovish stance, you might want to go short the USD.
What is a “Hawkish Stance”?
A hawkish stance means that the Fed is attempting to keep the inflation rate in check.
While economic growth is generally a good thing, if the rate is too fast, it can cause problems.
When the economy grows too quickly, prices go up and people spend less money. The rise in prices is called inflation. If inflation rises too fast, this could lead to the economy slowing down.
To keep inflation in check, the Fed enacts various policies, one of which is to raise interest rates.
When interest rates rise, borrowing becomes more expensive. This causes consumers and businesses to borrow less, which causes them to spend less.
The key is to achieve balance so that the economy isn’t growing too quickly, but it isn’t stagnating either.
What is a “Dovish Stance”?
A dovish stance means that the Fed is attempting to prevent deflation and avoid economic contraction.
The Fed implements various policies and strategies designed to stimulate the economy and to stop prices from dropping too low.
The main approach they take is to lower interest rates.
Low interest rates encourage people to spend money and business to expand because loans are cheaper.
How Dovish or Hawkish Stances Affect Forex Traders
The Fed reveals whether its stance is either hawkish or dovish after the FOMC meeting.
Remember, a hawkish stance means the Feed wants to hike interest rates, while a dovish stance means the Fed wants to cut interest rates.
An easy to remember this is to rap to yourself, “Hawks gonna hike. Doves gonna cut.”
If the Fed announces a dovish stance, the market expects them to lower interest rates in the future.
A lower interest rate is usually bearish for the U.S. dollar.
Keep in mind though that many other factors also influence the value of a currency.
You also have to factor in interest rate differentials between other countries.
For example, if the Fed reduces interest rates but U.S. interest rates are still higher than in other countries, the U.S. dollar may not even budge.
If the Fed was dovish but wasn’t as dovish as the market expected them to be, the U.S. dollar may even go up!
In contrast, if the Fed adopts a hawkish stance, they are likely to raise interest rates.
A higher interest rate is usually bullish for the U.S. dollar.
FOMO is the acronym for “Fear Of Missing Out”.
It is the fear of missing out on the profit you might make if you don’t buy a cryptocurrency ASAP regardless of its current price.
The cryptocurrency market is driven more by emotions rather than rationality, so FOMO is a huge factor to consider when trading cryptos.
The concept was first described in 2000 by Dr. Dan Herman in an academic paper entitled “The Journal of Brand Management.”
However, the acronym FOMO was coined a couple of years later by Patrick McGinnis in an opinion piece published in 2004 on the American magazine “The Harbus.”
The concept refers to the feeling of anxiety or the idea that other people are sharing in a positive or unique experience while you are missing out.
It is a phenomenon that is quite prevalent in social media, with the feeds from others often highlighting and emphasizing the positive and rewarding parts of their lives, leading the reader to feel sad or inadequate with their own experiences.
In the context of financial markets and trading, FOMO refers to the fear that a trader or investor feel by missing out on a potentially lucrative investment or trading opportunity.
The FOMO feeling is particularly prevalent when an asset rises in value significantly over a relatively short time.
This has the potential for an individual (and the market community as a whole) to make market decisions based upon emotion (the fear of missing out) instead of logic and reasoning.
It is especially dangerous for the undisciplined retail investor, as it can often lead to a situation where trades are made for an asset that is overpriced, incurring much greater risks of financial losses.
The loss or gain on foreign investments due to a rising or falling domestic currency. A falling domestic currency means foreign investments will result in higher returns when converted back into domestic currency.
Foreign exchange is the simultaneous buying of one currency and the selling of another.
Foreign exchange can be as simple as exchanging one currency for another at currency exchange shops and kiosks in airports.
But with regard to trading, foreign exchange transactions can take place on the foreign exchange market, also known as the “forex market” or “FX market”.
When you’re making trades in the forex market, you’re buying or selling the currency of a particular country, but unlike currency exchange shops and kiosks in airports, there’s no physical exchange of money from one hand to another.
The forex market is the largest, most liquid market in the world, with daily trading volume exceeding $5 trillion.
There is no centralized location and forex transactions happen “over-the-counter” (OTC).
The foreign exchange market is an electronic network of banks, brokers, non-bank financial institutions, and individual traders (mostly trading through dealers).
It is open 24 hours a day, five days a week across major financial centers across the globe. This means that you can buy or sell currencies at any time during the day.
The largest forex trading centers are London, New York, Tokyo, Singapore, Zurich, and Hong Kong.
Currencies are traded in pairs, priced in terms of one versus the other.
For example, the euro and the U.S. dollar] (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).
Because you’re not buying anything physical, this kind of trading can be confusing.
Think of buying a currency as buying a share in a particular country.
When you buy, say, Japanese yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
Forex stands for “foreign exchange” and refers to the buying or selling of one currency in exchange for another.
While it is called “foreign” exchange, this is just a relative term. The terms “foreign” and “domestic” are relative to the person using the term.
What is foreign to someone is considered domestic to another.
“Currency exchange” would be a more appropriate term.
The forex (also known as “foreign exchange” or “FX”) market is a global marketplace where currencies are traded and where exchange rates for every currency are determined.
What is Forex (FX)?
It is a decentralized or over-the-counter (OTC) market that involves all aspects of buying, selling, and exchanging currencies.
In terms of trading volume, the forex market is the largest market in the world, with an average daily trading volume of $6.6 trillion.
Currency trading was very difficult for individuals prior to broadband internet. Most currency traders were large multinational corporations, hedge funds, or high-net-worth individuals (“HNW”) because trading currencies required a lot of capital.
Once high-speed internet became more affordable to more people, a retail market aimed at individual traders emerged, providing easy access to the foreign exchange markets.
Forex trading platforms now offer very high leverage to individual traders who can control a large trade with a small account balance.
Forex trading is the simultaneous buying of one currency and selling another.
When you trade in the forex market, you buy or sell in currency pairs.
As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits.
Retail forex traders participate in the forex market as speculators who are hoping to profit from fluctuations in currency rates.
Each currency in the pair is listed as a three-letter code.
The first two letters stand for the country (or region), and the third letter standing for the currency itself.
For example, USD stands for the US dollar and CAD for the Canadian dollar
In the USD/CAD pair, you are buying the U.S. dollar by selling the Canadian dollar.
A forward contract is a non-standardized contract between two parties, who enter into an agreement to complete a transaction sometime in the future.
The two parties agree today to buy (sell) an asset at a specific date in the future at a specific price.
The buyer of the asset assumes the “long” position of the contract; the seller of the asset assumes the “short” position.
The price that the buyer and the seller agree upon is called the delivery price.
FX Forwards can be an extremely useful tool for businesses looking to hedge their FX exposure.
However, there is often some confusion, for those encountering FX forwards for the first time, as to what these contracts are and how they are prices.
What is FX Forwards?
An outright FX forward contract is a contract where two parties agree to deliver, at a fixed future date, a specified amount of one currency in exchange for another.
The only difference from an FX spot contract is that an FX forward is settled on any pre-agreed date, which is 3 or more business days after the deal, while the FX spot is settled or delivered on a date no later than 2 business days after the deal.
Put simply, FX Forwards are contracts that establish an agreement to exchange a specified amount of currency at a predetermined future date.
In terms of the functionality of these contracts; the exchange rate for the transaction is agreed at the time the contract is entered (known as the “trade date” with the settlement date taking place a few days later.
The time which elapses between the trade date and settlement date is referred to as the “settlement convention”.
There is also a further settlement convention which elapses after the maturity date of the contract, allowing for the exchange of currencies to take place.
How does an FX Forward transaction differ from a Spot market transaction?
The main difference is that the spot market transaction operates with immediate delivery.
An FX Forward transaction agrees on delivery at a future date and as such carries different pricing to the spot market.
The difference in pricing is due to the relevant interest rate on the transaction.
There is a common misconception among those first encountering these contracts that FX Forwards denotes the price at which a currency pair is expected to be trading in the future.
However, this is not the case.
FX Forwards are merely a function of the relevant interest rates and the duration of the contract and in no way reflect any expectations of where the price is headed.
How does an FX Forward differ from FX Futures?
There is an important distinction between “forward” transactions and “futures” contracts.
Unlike futures contracts, forward contracts are not standardized. Instead, the terms and conditions of each contract are negotiated separately.
A forward contract is an individual agreement between two parties and is traded over the counter (OTC) in a network of banks and brokers.
A futures contract is a contract traded on an organized market of a standard size and settlement date, which is resalable at the market price up to the close of trading in the contract.
Think of a futures contract as a standardized forward contract traded on organized exchanges rather than negotiated and traded on an OTC basis.
Futures contracts are channeled through a clearinghouse and marked to market on a daily basis, by which counterparty credit risk is reduced significantly.
Also, the clearinghouse guarantees that a contract can be canceled simply by buying a second contract that reverses the first contract and netting out the position.
In a forward contract, however, if a holder wants to close out or reverse a position, there has to be a second contract, and if the second contract is arranged with a different counterparty from the first, there are two contracts and two counterparties, with two separate types of counterparty credit risk
How are FX Forwards Priced?
There are some lovely technical formulas which we will not bore you within this article, in the interest of everyone’s sanity. Instead, here are the key takeaways regarding FX Forwards pricing.
When you buy an FX Forward, the accrual of interest on the currency purchased, over the currency sold, can lead to profit.
This profit can then be increased if the exchange of currency at the maturity date of the transaction is advantageous.
To protect against what would essentially be “risk-free profit”, FX Forwards carry a different price which essentially considers the interest rates applicable to the currency deal in question.
FX Forward Pricing Example
For example, let’s consider the difference in hypothetical pricing of a EUR/USD 1.30 in the spot market and EUR/USD 1.32 for a 3-month forward contract.
If the ECB headline rate was 2.5% and the Fed’s headline rate was 5%, then the forward price would be 1.3082.
This accounts for the 82 USD which would be accrued in interest over the period.
Similarly, if the short-term interest rate differential is negative (the interest rate of the quote currency is lower than the base currency) then the FX Forward will trade at a discount to the spot price.
This is to mitigate against the intrinsic loss which will be incurred due to the interest rate differential.
Here’s a real-world example regarding a corporation.
Suppose a US company purchases a product from a Japanese company with a payment of 100 million yen due in 90 days. This importer owes yen for future delivery. The current price of the yen is assumed to be 100 yen per dollar.
Over the next 90 days, however, the yen might rise against the US dollar, raising the US dollar cost of the product.
This importer can avoid this FX risk by entering into a 90-day forward contract with a bank at the price of, say, 97 yen per dollar, which corresponds to the FX forward rate.
In addition to the hedging purpose as shown in this example, FX forward contracts can also be used for speculative trades that take on FX risk by betting on a rise or fall of future FX rates.
What Are the Risks With FX Forwards?
While FX Forwards are certainly an extremely useful tool for businesses looking to hedge their FX exposure, they are not without risk, as with all transactions and instruments in financial.
With FX Forwards, the main threat is credit risk.
As the transaction does not undergo immediate settlement (as with spot market transactions), there is the risk of default.
If the counterparty to the transaction is not able to fulfill their obligation (default) at the maturity date, the initial party might lose part or all of the value of their transaction.
Exchange Rate & Interest Rate Risk
It is also worth considering that as FX Forwards lock in an exchange rate and are calculated off the spot value of the time ( in conjunction with the relevant interest rate parity and the duration of the contract) the client essentially loses the ability to secure more advantageous terms.
This essentially describes interest rate risk and exchange rate risk.
For example, if the interest rates involved are altered during the course of the contract, the client is unable to benefit from any advantageous shift in rates.
Similarly, if the exchange rate shifts materially, again, the client is unable to benefit from any advantageous moves in the underlying spot price.
It is important for corporate treasuries to assess these risks when it comes to employing FX Forwards as part of their currency hedging.
A deal with a value date greater than the spot value date.
Forward guidance is a tool used by a central bank to try and influence market expectations of future levels of interest rates.
“Forward guidance” in monetary policy means providing some information about future policy settings.
The communication about the future path of policy rates is known as “forward guidance”.
This is done by central banks publicly providing their own thoughts on the state of the economy and on what their likely future course of monetary policy will be.
Instead of trying to telegraph or guess what the central bank will do next, they just straight up tell you!
An example is when central bank officials release their own interest rate forecasts, as a way to provide a guidepost for the expected path of interest rates.
In the current post-COVID19 world, forward guidance is nothing more than a central bank like the Fed or ECB saying it does not expect to raise interest rates for a period of time.
The purpose of providing “forward guidance” about the future policy to try and influence current financial and economic conditions.
Individuals and businesses will use this information to make decisions about spending and investments.
The central bank’s clear messages to the public are one tool for minimizing surprises from monetary policy that might disrupt the financial markets and cause significant fluctuations in asset prices like stocks, bonds, commodities, and currencies.
Forward guidance was popularized by Federal Reserve in the United States. The Federal Open Market Committee (FOMC) began using forward guidance in its post-meeting statements in the early 2000s.
Before increasing its target for the federal funds rate in June 2004, the FOMC used a sequence of changes in its statement language to signal that it was approaching the time at which a tightening of monetary policy was appropriate
During the Great Recession, the FOMC reduced its federal funds rate target nearly to zero and then used forward guidance by communicating that it would keep interest rates low for as long as needed in order for the economy to recover.
Nowadays, a lot of central banks do it, such as the European Central Bank (ECB) Bank of Japan (BoJ), Bank of England (BoE), Bank of Canada (BoC), Reserve Bank of Australia (RBA), Reserver Bank of New Zealand (RBNZ), and the Swiss National Bank (SNB).
What’s the Purpose of Forward Guidance?
Forward guidance and quantitative easing (large-scale asset purchases) are the two main unconventional monetary policy tools used to provide further monetary accommodation at the ZLB.
During the GFC, these tools were used together and may have worked in complementary ways.
For example, quantitative easing (“QE”) can convey information about the future path of the policy interest rate (the “signaling channel”), reinforcing the effect of forward guidance.
The credibility of forward guidance is strengthened if the central bank has also embarked in QE.
Many central banks have used forward guidance in recent years to influence interest rate expectations, particularly when rates are at the effective or zero lower bound (ZLB) or close to it.
Forward guidance is also seen as a useful tool for promoting a smooth adjustment when central banks are seeking to return policy rates to normal levels.
Beyond clarifying the central bank’s policy reaction function, forward guidance might cause market interest rates to be less sensitive to economic news if market participants take it as a firm commitment to follow a certain policy path.
But if rates are already at or close to zero, measuring this effect is a challenge: market interest rates could be less responsive to news simply because monetary policy is constrained by the ZLB.
Forms of Forward Guidance
Forward guidance can take different forms.
It can be open-ended.
For example, a central bank might announce that “Interest rates are expected to remain low for an extended period”.
It can entail more concrete conditionality in terms of timing (date-dependent).
For example, “Interest rates are expected to remain at present levels at least through the fall of next year”.
It can be in terms of economic developments (state-dependent).
For example, “Current policy is anticipated to be appropriate at least as long as the unemployment rate remains above 5.5%”.
Forward guidance can be quantitative or qualitative, depending on whether it provides specific figures or not.
Whatever its form, forward guidance can influence public perceptions about the monetary policy reaction function and policy commitment, and thereby influence market prices and economic outcomes.
The guidance could be more or less specific, but any perception that policymakers might renege on a prior commitment could undermine credibility.
This is why flexibility, and hence conditionality, is an important part of any forward guidance.
An unconditional commitment can tie a central bank’s hands too tightly.
If economic conditions warrant a deviation by the central bank from the stated path, the resulting damage to the central bank’s credibility could hurt its effectiveness over the long term.
All forms of forward guidance thus face a trade-off between the strength of the statement and flexibility.
Unequivocal statements, by specifying more restrictive conditionality (for example, a clear date or threshold when the policy rate will be changed), signal a stronger and clearer policy intention.
Thus, date-dependent forward guidance is arguably more constraining than the state-dependent variety, especially if the latter has many qualifications attached.
State-dependent guidance offers more flexibility to respond to changing economic conditions, but may have a weaker impact on expectations, especially if the criteria for policy moves are viewed as subjective or qualitative.
A key advantage of more restrictive conditionality is that it gives the central bank more influence over market prices.
In some cases, a central bank may want markets to be less sensitive to economic developments, such as during a period of heightened downside risks.
During an easing phase, this can help a central bank maintain and strengthen the degree of policy accommodation.
And in the early stages of normalization, a more restrictive approach can help pin down market expectations, making for a more gradual adjustment in financial conditions.
In this sense, some effect of forward guidance on market reactions to news may be intentional.
At the same time, restrictive conditionality could engender market complacency.
Market participants may place too much confidence in previous guidance even as circumstances change, and take on greater risk based on the wrong assumptions.
For central banks, this can make it harder to deviate from what they have previously announced for fear of creating market turbulence and damaging credibility.
And the more central banks “whisper”, the more market participants may lean in to hear and react to even small shifts in nuance.
When a change in the policy stance becomes inevitable, the market adjustment will then be all the more violent.
These considerations suggest that one way of assessing market perceptions of the central bank’s commitment to its forward guidance is to look at market reactions to economic news.
The stronger the perceived intention to adhere to a certain policy rate trajectory (more restrictive conditionality), the more muted the response of market prices to the news.
How Can Forward Guidance Affect the Economy?
Conventional monetary policy primarily influences the economy through its effects on interest rates.
Interest is what you pay for borrowing money, and what banks pay you for saving money with them.
Interest rates are shown as a percentage of the amount you borrow or save over a year. So if you put $100 into a savings account with a 1% interest rate, you’d have $101 a year later.
Different central banks have different names for their “official” interest rate.
For the U.S, it’s called the federal funds rate. For the U.K, it’s called the base rate. For Australia and New Zealand, it’s called Official Cash Rate (OCR).
A change in interest rates shifts the expectations of future monetary policy which, in turn, affect long-term interest rates.
These long-term interest rates, such as those on auto loans and mortgages, are most relevant to households’ spending decisions.
Through this channel, then, a reduction in the interest rate is able to promote spending in the economy and which increases price pressures for companies as they begin to use resources more intensively to meet the higher demand.
In the U.S, when the federal funds rate was lowered to almost 0%, it hit its “lower bound”, which is just a fancy way of saying that it can’t go any lower.
When this happens, reducing the interest rate further is no longer able to generate economic stimulus.
Basically, the conventional monetary approach stops working. And now you need an unconventional monetary approach.
This is where forward guidance comes in.
Forward guidance operates through a similar interest rate channel but does NOT require a change in the current target federal funds rate.
When the FOMC issues statements that policy rates will remain exceptionally low in the future, this reduces both components of long-term rates, the term premium, and the expected path of future interest rates.
This type of policy guidance reduces the term premium by reducing the risk of future policy rates unexpectedly increasing.
Consequently, investors buying a long-term bond will require a lower term premium, which is the additional compensation they require to bear the risk of future short-term rates differing from their expected path.
A lower term premium can stimulate the economy by lowering the credit premium on private debt, which decreases borrowing costs for businesses and households.
Forward guidance can also lower long-term interest rates by lowering the expected path of short-term interest rates.
Past policy actions suggest that when the economy slows, the Federal Reserve will lower future policy rates to stabilize the economy.
When the policy rate is at its effective lower bound, however, future policy rates can’t be lowered further.
Instead, the FOMC can issue statements about how long the target federal funds rate will remain exceptionally low.
If the announced duration of low-interest rates is longer than the public expects, a fall in the future path of interest rates then causes an immediate decline in longer-term rates.
But whether this change in policy stimulates the economy depends on how the public interprets the forward guidance.
The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate (depending on whether the currency is at a forward premium or discount).
A fractal is a structure that you can self-replicate geometrically in a smaller or miniature copy of itself indefinitely. This characteristic is called self-similarity.
Fractals can be found all over nature and in math. Some examples include: seashells, snow flakes, lightnings, broccoli, ferns, and pineapples.
Francoise Hollande is currently the 24th President of France. He was elected in 2012, ousting then President Nicolas Sarkozy. His past political experience includes serving as mayor of Tulle (2001-2008) and as President of the General Council of Corrize (2008-2012). He is a member of the Socialist political party. He built his campaign on the promise of anti-austerity and pro-growth, raising some concerns that this may cause tension between France and Germany going forward, but he has promised that he will work hand-in-hand with Germany’s Angela Merkel to help promote a better relationship between the two countries.
The normal trading activities carried out by the dealer.
The premier UK stock index, comprising a weighted average of the 100 largest companies on the London Stock Exchange.
FUD is an expression and stands for Fear, Uncertainty, and Doubt.
It is the spreading of misinformation of a cryptocurrency by uninformed sources.
Many of these sources have their own nefarious reasons for doing so. It may be to promote an alternative coin, or they may have shorted (bet on the price falling) the mentioned cryptocurrency.
Legitimate criticism of a certain cryptocurrency is a fair game and should be encouraged to motivate technical improvements.
FUD, on the other hand, is mostly slander and baseless accusations about a cryptocurrency (such as bitcoin) as a technology, the people behind it, or the people invested in it.
How can you avoid FUD?
Seek cryptocurrency news from reliable sources, who don’t have a vested interest one way or another. Also, it is important to use multiple sources to get a well-rounded perspective.
The term is also used to describe a set of negative sentiment that spreads around traders and investors when bad news comes out or when the market presents a strong bearish downtrend.
The expression “Fear, uncertainty, and doubt” dates back to the 1920s, but the acronym “FUD” started to be used around 1975.
A FUDster is an individual who is intentionally spreading FUD.
Full nodes are internet-connected computers that store a complete copy of the blockchain within a network. Full nodes also verify that the blockchain is valid and consensus rules are enforced. Due to the constantly increasing size of a blockchain, full nodes are memory-intensive. A lightweight alternative to a full node is known as a “light node”.
Fundamental analysis is a method of evaluating the intrinsic value of an asset and analyzing the factors that could influence its price in the future.
This form of analysis is based on external events and influences, as well as financial statements and industry trends.
The goal of fundamental analysis is to determine whether or not the price of an asset is overvalued or undervalued.
For stock traders, fundamental analysis involves poring over income statements and balance sheets of individual companies. But the way we define fundamental analysis differently when it’s used to trade currencies.
Fundamental analysis is a way of understanding the changes in market valuation by analyzing economic, social, and political forces that affect the supply and demand of a currency.
In forex, the idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.
Fundamental analysis involves studying economic trends and geopolitical events that might affect a currency’s price.
The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.
Although the desirability of a country’s goods or services will influence the demand for its currency, investment opportunities in the country will also be a major factor.
In particular, traders in the FX market will buy or sell currencies based on their expectations of how its exchange rate will change due to:
- Political instability in its own country or other countries.
- Uncertainties in the global market. For example, during the recent Coronavirus Crisis, demand for U.S. dollars surged as investors looked for a safe haven for their money.
- Differences in interest rates between countries. When a country’s interest rates rise, its currency appreciates as foreign investors seek higher returns than they can get in their own countries.
- Differences in economic growth between countries. For example, developing nations that have implemented successful economic reforms may experience currency appreciation as foreign investors seek new opportunities for growth.
Forex traders who utilize fundamental analysis often keep one eye focused on price action while keeping the other on financial news.
They will study the news for information on the political climate, international relations, natural disasters, and other global events.
Fundamental factors that many traders use when deciding whether to enter, stay with a trade, or exit, besides those already mentioned, include unemployment rates, inflation, fiscal policy changes, and stocks/bonds/money markets.
For example, let’s say that the U.S. dollar has been gaining strength because the U.S. economy is improving.
As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets more attractive.
In order to get their hands on these lovely assets, traders and investors have to buy some U.S. dollars first. As a result, due to higher demand, the value of the U.S. dollar will likely increase.
Fundamental Analysis (FA) vs. Technical Analysis (TA)
While fundamental analysis looks to a larger picture around the price of an asset. considering as many influencing factors as possible, technical analysis is strictly focused on historical market data and market charts.
While fundamental analysis seeks to determine the real value of a trading asset, technical analysis is used as a tool to study historical price action based on trends, chart patterns, and technical indicators.
Macroeconomic factors that affect the currency markets.
A standardized, transferable, exchange-traded contract that expires on a specified future date.
A futures commission merchant (FCM) is a company or individual that solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps, and accepts money or other assets from customers to support such orders.
The FCM is also responsible for collecting margins from customers and ensuring delivery of assets or cash, per terms stipulated in the contract.
An FCM must be registered with the National Futures Association (NFA) and must be accredited by the Commodities and Futures Trading Commission (CFTC).
If a company is soliciting or accepting orders to buy or sell retail off-exchange forex contracts and accepting money or assets from retail customers, the firm would need to be designated as a Forex Dealer Member.
A forex dealer member (FDM) is an entity that acts, or offers to act, as a counterparty to an off-exchange foreign currency transaction with a person who is not an eligible contract participant and the transaction is either:
- a futures contract, an option on a futures contract or an option contract (except options traded on a securities exchange); or
- offered or entered into, on a leveraged or margined basis, or financed by the offeror, counterparty, or person acting in concert with the offeror or counterparty on a similar basis.
How Does a Futures Commission Merchant (FCM) Work?
An FCM has to be certified by the National Futures Association (“NFA”) before being allowed to facilitate the purchase and sale of futures contracts on a futures exchange.
In addition to acting as a broker, an FCM may provide credit to investors seeking entry into futures markets. These margin accounts may hold cash and/or securities that may be exchanged for futures contracts.
For example, Joe wishes to purchase corn futures contracts for his business. Joe gets in touch with an FCM who, much like a stockbroker with stocks, acts as an intermediary by purchasing the contracts on behalf of Joe.
When the contracts reach their delivery date, a futures commission merchant also ensures that the contract is honored and the corn is delivered to Joe according to terms specified in the contract.
Why Does a Futures Commission Merchant (FCM) Matter?
An FCM is certified to assist investors wishing to enter the commodities markets.
The FCM works as an intermediary by negotiating the sale of futures contracts as well as the delivery of underlying commodities.
Much like stockbrokers, they act as intermediaries between buyers and sellers.
Futures contracts, often referred to as futures, are agreements that bind traders to buy or sell assets in the future at a specific price and date.
These financial instruments are frequently used by both hedgers and speculators as a way to potentially anticipate future price movements, either for hedging against risks or for making profits.
A futures contract specifies the number of units of an asset that will be bought or sold, as well as the price and the time at which the asset will “change hands.”
The settlement of the contract occurs when it reaches its expiration date, at which point whoever holds the futures is obligated to buy or sell the underlying asset for the agreed-upon price.
Although futures can be held until they expire, many speculators and traders prefer to buy and sell the contracts on the open market prior to their expiration. After taking a futures contract position, there are three main actions that futures traders can use for exiting their positions.
The first and most common one is offsetting, which refers to the act of closing a position by creating another of equal value and size.
The second common alternative is known as rollover. Futures traders may decide to roll over (extend) their position before the contract is over.
To do so, they first offset their position and then open a new batch of futures contracts of the same size, but with a different expiration date (further in the future).
The third option is to just wait for the expiration date and contract settlement. At settlement, all parties involved are legally obligated to exchange their assets (or cash) according to their futures contract position.
While futures contracts are a type of derivative, they differ from other familiar derivatives such as options and forwards.
Options give a trader the choice to buy an asset at a specific time, but do not require that they actually do so, while execution is a requirement in a futures contract.
Forward contracts are very similar to futures contracts but are typically informal or private agreements made between two parties, rather than contracts traded through a formal exchange.
In addition, forward contracts tend to offer traders more flexibility when it comes to customizing terms, while futures contracts are standardized and more restrictive.
Several different types of assets can be traded using futures contracts, such as fiat currencies, stocks, indexes, government-issued debt instruments, and cryptocurrencies.
Oil, precious metals, agricultural goods, and other commodities are also traded through the use of futures contracts.
Beyond the various underlying assets that futures can be based on, there are also two different ways for the contracts to be settled. In physical settlements, the underlying asset is physically delivered to the party who has agreed to buy it.
Cash settlements, by contrast, do not involve the direct transfer of the asset.
Just as with most trading instruments, futures traders often use technical analysis indicators along with fundamental analysis to get further insights about the price action of futures contracts markets.
A FX swap, or currency swap, involves two simultaneous currency purchases, one on the spot rate and the other through a forward contract.
A variety of market participants such as financial institutions and their customers (multinational companies), institutional investors who want to hedge their foreign exchange positions, and speculators use foreign exchange swaps.
FX swaps are designed to hedge against currency risk.
How does a FX swap work?
It is an agreement between two parties to exchange a given amount of one currency for an equal amount of another currency based on the current spot rate.
The two parties will then give back the original amounts swapped at a later date, at a specific forward rate.
The forward rate locks in the exchange rate at which the funds will be swapped in the future while offsetting any possible changes in the interest rates of the respective currencies.
Thus, this creates a hedge for both parties against potential fluctuations in currency exchange rates.
This is what makes forex swaps very useful for multinational and exporting companies.
FX Swap Example
A Japanese firm selling products in the U.S. might want to change U.S. dollars to yen to finance its Japanese operations, but in a month’s time, it will need dollars to pay its American suppliers.
If it changes dollars into yen now and then changes yen back into dollars in a month’s time, the dollar may appreciate against the yen, and the firm will have to pay more yen to obtain the same amount of dollars.
In order to avoid such losses, the company performs a FX swap .
It changes dollars into yen at the spot rate while simultaneously taking out a one-month forward contract for the same amount of yen.
This allows it to repatriate U.S. profits to Japan and to access the dollars it needs to meet its U.S. payment commitments in a month’s time without any currency fluctuations.
Two companies can also perform a FX swap.
A Japanese company needing U.S. dollars, and an American company that wants yen can arrange a currency swap by agreeing on the amount, maturity date, and interest rate for this exchange.
G10 stands for “The Group of Ten”, and is a group 11 industrial countries that meet on an annual basis to discuss economic, monetary and financial matters.
The eleven countries are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.
The Ministers of Finance and Central Bank Governors of the Group of Ten usually meet once a year in connection with the autumn meetings of the Interim Committee of the International Monetary Fund.
The Governors of the Group of Ten normally meet bi-monthly at the Bank for International Settlements.
The Deputies of the Group of Ten meet as needed, but usually between two and four times a year. Ad hoc committees and working parties of the Group of Ten are set up as needed.
Officially, the Group of Ten (G10) refers to the group of countries that have agreed to participate in the General Arrangements to Borrow (GAB).
This is a borrowing arrangement between member countries that can be used if the International Monetary Fund cannot fully fund or service a member country’s borrowing needs.
The GAB was established in 1962, when the governments of eight IMF members—Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, and the United States—and the central banks of two others, Germany and Sweden, agreed to make resources available to the IMF for drawings by participants and, under certain circumstances, for drawings by nonparticipants.
The G10 was strengthened in 1964 by the association of Switzerland, then a nonmember of the IMF, expanding its membership to 11, but the name of the G10 remained the same.
Following its inception, the G10 broadened its engagement with the Fund, including issuing reports that culminated in the creation of the Special Drawing Right (SDR) in 1969. T
he G10 was also the forum for discussions that led to the December 1971 Smithsonian Agreement following the collapse of the Bretton Woods system.
The following international organizations are official observers of the activities of the G10: the Bank for International Settlements (BIS), the European Commission, the IMF, and the OECD.
The Group of Fifteen (G15) was established at the Ninth Non-Aligned Summit Meeting in Belgrade, then Yugoslavia, in September 1989.
It is composed of countries from Latin America, Africa, and Asia with a common goal of enhanced growth and prosperity.
The G15 focuses on cooperation among developing countries in the areas of investment, trade, and technology.
The membership of the G15 has since expanded to 17 countries but the name has remained unchanged.
The list in G15 :
The G20 is an international forum for the governments and central bank governors from 19 countries and the European Union
The Group of Twenty, more commonly referred to as G20, is a collection of Central Bank Heads and Finance ministers to discuss important global economic issues.
The Group of Twenty (G20), a collection of twenty of the world’s largest economies formed in 1999, was conceived as a bloc that would bring together the most important industrialized and developing economies to discuss international economic and financial stability.
Its annual summit, a gathering of G20 leaders that debuted in 2008, has evolved into a major forum for discussing economics as well as other pressing global issues.
While not an official regulatory body, the G20 has formidable power when it comes to international finance. Its agenda often leads to reform, defining the path of the global economic and monetary systems.
In times of prosperity or crisis, the G20 is viewed as a pillar of the world’s financial community and a premier decision-making body.
Composition And Mission
The G20 is made up of the world’s economic superpowers, financial leaders, and developing nations.
As a whole, G20 members represent every continent (except Antarctica).
|Australia||Germany||Korea, Republic of||Turkey|
|China||Italy||Saudi Arabia||European Union|
The nations of the G20 account for around 80 percent of global economic output, nearly 75 percent of all global trade, and about two-thirds of the world’s population.
The G20 is officially made up of 19 member nations, the European Union (EU), and permanent guest country Spain.
Below is a list of the individual member nations by region:
- Africa: South Africa
- Asia: China, India, Indonesia, Japan, South Korea
- Americas: Argentina, Brazil, Canada, Mexico, United States
- Europe: France, Germany, Italy, Russia, United Kingdom, EU members
- Middle East: Saudi Arabia, Turkey
- Oceania: Australia
The G20 is not a permanent institution with a headquarters, offices, or staff.
Instead, its leadership rotates on an annual basis among its members, its decisions are made by consensus, and implementation of its agenda depends on the political will of the individual states.
Serving as a non-partisan and independent think tank, the G20’s formal mission statement is as follows:
- “Act as a facilitator and mediator for expert discourse, with a focus on innovation-driven communication.”
- “Initiate and coordinate communication between governments, business, academia, and youth, in an effort to create a sustainable win-win situation for all involved.”
History of the G20
Its creation dates back to the late 1990s and a decision to expand the existing Group of Seven (G7).
The G20 was formed in 1999, in the wake of the Asian financial crisis, to unite finance ministers and central bankers from twenty of the world’s largest established and emerging economies.
Citing a need to “broaden the dialogue on key economic and financial policy issues” while “promoting co-operation and achieve sustainable global economic growth for all,” acting G7 ministers sought to extend the reach of the group.
The result was the inclusion of the world’s most influential economies, both advanced and emerging.
One of the inspirations behind the G20’s foundation was the framework put forth by the Bretton Woods Accords.
In December 1999, acting G7 heads summoned “counterparts from a number of systemically important countries from regions around the world” to Berlin, Germany.
Their task was to engage challenges facing the international economic and financial environment, and the invitees included leading global powers and developing nations.
In addition, the meeting in Berlin featured representatives from several Bretton Woods holdovers such as the IMF and World Bank.
A decade later, at the height of the global economic crisis, the G20 was elevated to include heads of state and government.
One of the G20’s founding principles was to recognize the growing importance of developing nations and foster full integration of the global economy.
These objectives were outlined in the G20’s mandate:
- Help shape the international agenda.
- Debate economic and financial issues that lack consensus opinion.
- Prevent and resolve international financial crises.
- Strengthen financial systems through transparency.
The G20 Leaders Summit
A key function of the G20 is the annual Leaders Summit where heads of state, central bankers, and various civil and business leaders are invited to share ideas regarding global economic health.
Every year, the leaders of G20 members meet to discuss mainly economic and financial matters and coordinate policy on some other matters of mutual interest
It is held over a two-day period and is the culmination of the year’s work.
The G20 initially focused largely on broad macroeconomic policy, but it has expanded its focus.
Economic and financial coordination remains the centerpiece of each summit’s agenda, but issues such as the future of work, terrorism, and global health are recurring focuses as well.
Following the Leaders Summit, the G20 issues a formal statement regarding its official recommendations crafted throughout the year.
The inaugural Leaders Summit was held in 2008 in Washington D.C., United States. Since that time, the periodic meeting has been held in various international locations.
Future venues are announced ahead of time, in a similar fashion to those of the Olympic Games.
G20 Member nations rotate the honor of entertaining the Leaders’ Summit, and host cities are nominated by leadership of the president nation.
The annual G20 Leaders’ Summit is attended by the most powerful heads of state and business in the world.
Often, news breaking from the conference enhances the pricing volatility in equities, futures, and currency markets.
More recent summits have struggled to cope with a U.S. shift toward unilateralism under President Trump.
These gatherings have avoided using previously standard language about rejecting protectionism and promoting international cooperation.
The Group of Five (G5) encompasses five nations that have joined together for an active role in the rapidly evolving international order.
Individually and as a group, the G5 nations work to promote dialogue and understanding between developing and developed countries.
In the 21st century, the G5 was understood to be the five largest emerging economies, and these are:
- South Africa
The G8 plus the five largest emerging economies have come to be known as G8+5.
The Group of Five is a context-dependent shorthand term for a group of five nations.
The composition of the five and what is encompassed by the term is construed differently in different time frames.
Initially, the term “Group of Five” or “G5” encompassed the five leading economies of the world, but the use of the term changed over time.
It came to be used to identify the next tier of nations whose economies had expanded so substantially as to be construed in the same category as the world’s eight.
G7 stands for “Group of Seven” industrialized nations.
It used to be known as the G8 (Group of Eight) until 2014 when Russia was excluded because of its annexation of Crimea from Ukraine.
The Group of Seven is the world’s leading industrial countries: United States, Germany, Japan, France, United Kingdom, Canada, Italy.
Why was G7 created?
The G7 was created more than four decades ago as an annual gathering of political leaders to discuss and exchange ideas on a broad range of issues, including the global economy, security, and energy.
France, Italy, Japan, the United Kingdom, the United States, and West Germany formed the Group of Six in 1975. Canada joined the following year.
Russia eventually joined in 1998 and its inclusion was meant as a signal of cooperation between East and West after the Soviet Union’s collapse in 1991.
The G7 is an informal bloc and takes no mandatory decisions, so the leaders’ declarations at the end of the summit are not binding.
Which countries are members of the G7?
The group includes the United States, the United Kingdom, Germany, Canada, Japan, France, and Italy.
As a group, the G7 countries represent about 40% of global GDP and 10% of the world’s population.
The European Union has been involved in G7 work since 1977 and is represented at the summit by the President of the European Commission and the President of the European Council.
The E.U. has gradually been included in all political discussions on the agenda despite not having official member status.
Why was Russia kicked out of the G8?
Russia was kicked out of the then G8 in 2014 after it annexed Crimea from Ukraine, which was seen by leaders as a “violation of Ukraine’s sovereignty and territorial integrity”.
President Barack Obama and other world leaders announced in a joint statement, titled The Hague Declaration, in March 2014 that they would cancel that year’s planned meeting in Sochi, Russia.
What’s the difference between G7 and G20?
They have similar names and similar functions. While the G7 mainly has to do with politics, the G20 is a broader group that focuses on the global economy.
It’s also known as the “Summit on Financial Markets and the World Economy” and represents 80% of global GDP.
It gathers leaders from Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States, as well as the European Union.
Founded in 1999 after the Asian financial crisis in 1997-1998, the G20 started off as a meeting of finance ministers and central bank governors.
However, as a response to the financial crisis of 2008, the G20 was upgraded to head of state level in an inaugural summit in Washington, D.C.
The Group of Seventy-Seven (G77) was established on June 15, 1964, by the “Joint Declaration of the Seventy-Seven Developing Countries” issued at the end of the first session of the United Nations Conference on Trade and Development (UNCTAD) in Geneva.
It was formed to articulate and promote the collective economic interests of its members and to strengthen their joint negotiating capacity on all major international economic issues in the United Nations system.
The Group of 77 is the largest intergovernmental organization of developing countries in the United Nations, which provides the means for countries to articulate and promote their collective economic interests and enhance their joint negotiating capacity on all major international economic issues within the United Nations system.
The membership of the G77 has since expanded to 134 member countries but the original name has been retained because of its historical significance.
The Chairmanship rotates on a regional basis (between Africa, Asia, and Latin America and the Caribbean) and is held for one year.
|Afghanistan, IslamicRepublic of||Djibouti||Libya||São Tomé and Príncipe|
|Antigua and Barbuda||Ecuador||Malaysia||Seychelles|
|Bahrain||Equatorial Guinea||Marshall Islands||Solomon Islands|
|Mozambique||Syrian Arab Republic|
|Bosnia and Herzegovina||Guatemala||Myanmar||Tajikistan|
|India||Oman||Trinidad and Tobago|
|Central African Republic||Iraq||Panama||Uganda|
|Chad||Jamaica||Papua New Guinea||United Arab Emirates|
|Colombia||Korea, Democratic People?s||Philippines||Venezuela, República Bolivariana de|
|Congo, Dem. Rep. of||Kuwait||Rwanda||Yemen|
|Congo, Rep. of||Lao P.D.R.||St. Kitts and Nevis||Zambia|
|Costa Rica||Lebanon||St. Lucia||Zimbabwe|
|Côte d?Ivoire||Lesotho||St. Vincent and the Grenadines|
The Group of Eight (G8) refers to the group of eight highly industrialized nations that hold a summit.
The G8 summit is an annual meeting between leaders from eight of the most powerful countries in the world.
The aim is to try to foster consensus on global issues like economic growth and crisis management, global security, energy, and terrorism.
The leaders of the countries meet every year in a different member country.
The G8 is represented by the governments of Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States.
The G8 comprises its six charter members, in addition to Canada, which joined in 1976, and Russia, which became a fully participating member by 1998.
The EU is a “nonenumerated” ninth member; represented by the presidents of the European Council and European Commission, the EU participates as an equal.
While there areno formal criteria for membership, member states are expected to be democracies and have highly developed economies.
The G8, unlike the United Nations, is not a formal institution, and there is no charter or secretariat.
The presidency, a position responsible for planning ministerial meetings and the annual summit, rotates among the member states.
What’s the history behind the G8?
During the early 1970s, the United States held a series of informal meetings with financial officials from the United Kingdom, West Germany, Japan, and France to discuss economic challenges facing advanced industrial economies.
It was formed because of big worldwide money troubles in the early 1970s, which prompted the US to form something called the library group, a meeting of senior financial officials from Europe, Japan, and the U.S.
In 1975, heads of governments became involved and they agreed to meet every year.
French President Valéry Giscard d’Estaing invited the heads of state and government from these countries and Italy to Rambouillet, France for a summit to discuss the oil crisis and economic recovery.
That meeting – the first G6 Summit – released in a fifteen point declaration and agreed to hold an annual summit under a rotating presidency among the members.
The following year, Canada was invited to join the group for a summit in Puerto Rico under the presidency of the United States, forming the Group of Seven (G7) in 1976.
In 1977, the President of the European Commission was invited to attend the meeting. The President of the European Council now regularly attends as well.
Russia began to engage in separate meetings with G7 leaders in 1994 and formally joined the group in 1997 at the invitation of U.S. President Bill Clinton and U.K. Prime Minister Tony Blair.
The group then became the Group of Eight (G8).
What happens at the G8?
The G8 summit is a busy schedule of meetings, statements, and photographs for the press.
On the second day of the summit, leaders gather for an informal talk without lots of officials or the media.
In the past leaders have discussed issues such as peace in the Middle East, aid for the developing world, and how to stop terrorism.
The G8 members can agree on plans and set objectives but they can’t force anyone to agree with them.
However, the wealth and power of the G8 members mean they are often listened to by other countries.
How long does the summit last for?
The G8 summit lasts for two days.
The currency of Gambia. Currency code (GMD)
A Gann Fan is an analytical drawing tool used to indicate time and price movements from important highs and lows and identify price breakouts. The angled lines fan from the selected point. They indicate a time to price relationship that may be relatively fast or relatively slow, depending on the size of the Gann angle.
A Gann Fan is an analytical tool based upon the application of Gann Angles, a highly successful derivative technique designed by legendary stockbroker W.D. (William Delbert) Gann.
W.D. Gann believed that certain geometric patterns and angles held unique characteristics that could be used to correctly predict actions in both price and time, so indicating future instances of time and price movements from important highs and lows and so identify likely price breakouts.
Gann’s techniques specify that equal time and price intervals are used in the charts as he believed that the ideal time and price exists when those prices rise or fall at an angle that falls at 45 degrees in relation to the time axis, known as a 1×1 angle (one price unit rise for each time unit.)
Gann believed that a trendline of 1×1 or above represented a bull market and that instances below this trendline represented a bearish market.
A Gann Grid represents an intersecting series of Gann Lines over laid on a price chart; Gann’s teachings stress the importance of the 45 degree line representing a 1:1 relationship between time and price (1 unit of price to 1 unit of time). When price trades above the 45-degree line it is an indication of an up-trending market; when price trades below the 45-degree line it is an indication of a down-trending market.
The Gann Grid is a grid of lines that is used to help in indicating the trends of a specific item. The grid is built with a set of 45 degree angles. These are called Gann Lines. The goal is to show trends, each built at 45 degrees. The concept that was given by Gann says that any line that has a slope that is 45 degrees will represent a long term trendline. This can be either ascending or descending. Either way, this will show the market trend.
For those prices that hold at below the ascending line, the Gann concept says that this will predict a bull direction. If the prices hold below the descending line, it is more likely to be a bear market. When there is an intersection of the Gann lines, this shows that there is a breaking of the basic trend. When there is a further intersection of the Gann lines, this can show that there is a new trend happening. Still, it can show a fully balanced market when the prices go down to the line during the ascending trend.
A gap is an area on a chart where the price of a currency pair moves sharply up or down, with little or no trading in between.
As a result, the bar or candlestick chart shows a gap in the normal price pattern.
Gaps tend to occur unexpectedly as the perceived exchange rate between two currencies changes, due to underlying fundamental or technical factors.
Gaps do appear in the forex market, but they are significantly less common than in other markets because currencies traded 24 hours a day, five days a week.
However, gapping can occur when economic data is released that comes as a surprise to markets, or when trading resumes after the weekend or a holiday.
Although the forex market is closed to speculative trading over the weekend, the market is still open to central banks and related organizations.
This makes it possible that the opening price on a Monday morning will be different from the closing price from the previous Friday which results in a price gap.
Monday's open price is different from Friday's closing price. This difference is the gap.
If Monday's open price was higher Friday's closing price, the price gapped up.
If Monday's open price was lower than Friday's closing price, the price gapped down.
Types of Gaps
Gaps can be classified into four types:
- Common gaps simply represent an area where the price has gapped.
- Breakaway gaps occur at the end of a price pattern and signal the beginning of a new trend.
- Continuation gaps, also known as runaway gaps, occur in the middle of a price pattern and signal a rush of buyers or sellers who share a common belief in the price's future direction.
- Exhaustion gaps occur near the end of a price pattern and signal a final attempt to hit new highs or lows.
The processing fee for every transaction made in the Ethereum network. Gas is the metering unit for executions performed on the EVM. Gas units are a fixed number, depending on the computation, and paid with ether in a denomination called GWei.
A term used in the Ethereum platform that refers to the maximum amount of units of gas the user is willing to spend on a transaction. The transaction must have enough gas to cover the computational resources needed to execute the code. All unused gas is refunded at the end of the transaction.
A term used in the Ethereum platform that refers to the price you are willing to pay for a transaction. Setting a higher gas price will make miners more incentivized to prioritize and validate that particular transaction ahead of those set with a lower gas price. Gas prices are typically denominated in Gwei.
Gearing refers to trading a notional value that is greater than the amount of capital a trader is required to hold in his or her trading account.
It is expressed as a percentage or a fraction.
The first block of data that is processed and validated to form a new blockchain, often referred to as block 0 or block 1.
The currency of Georgia. Currency code (GEL)
Measures the outlook of purchasing managers in the service sector.
Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Readings above 50 generally indicate expansion, while readings below 50 suggest economic contraction.
The premier German stock index, comprising a weighted average of the 30 largest companies on the Frankfurt Stock Exchange.
The currency of Ghana. Currency code (GHC)
The currency of Gibraltar. Currency code (GIP)
Governor of the Reserve Bank of Australia since 18 September 2006.
Mr Stevens serves as Chairman of the Payments System Board, Council of Financial Regulators and Financial Markets Foundation for Children. He also serves as Director of The Anika Foundation.
23 January 1958
BEc(Hons), The University of Sydney; MA, University of Western Ontario
Globalization is the term used to describe how vastly different economies and cultures have easily integrated themselves with one another through communication, transportation, and economic policies. Through technological advances and outward-looking government policies, the interdependence of various economies with one another has drastically increased.
One of the best examples of globalization is the formation of the World Trade Organization, or WTO. Made up of 144 countries, the WTO is a worldwide institution that sets up rules and regulation to that govern international trade.
The act of buying currency, commodities, and stocks for investment.
Gold is a commodity that is commonly used in jewelry and a variety of electronic products and equipment due to its conductivity, malleability, and durability.
Gold is one of the oldest safe-haven assets.
Traders view gold as an excellent store of value because unlike national currencies, governments can’t just create more of it whenever they want to.
Of course, gold has its drawbacks as well.
The biggest problem with gold is that it is a non-yielding asset.
Gold doesn’t pay a dividend or generate earnings. It just sits there.
This is less of an issue, however, when bond yields are as low (or negative).
When traders can’t find much yield, they’re less concerned about the opportunity cost of moving their money to a non-yielding asset like gold.
The value of gold is driven by demand.
When demand is high, the value of gold goes up. When demand is low, the value of gold goes down.
An order to trade at a specific price. It remains open until trader cancels. Hence “Good ’til cancelled.” Also known as GTC.
GPU mining utilizes one or several GPU (graphics processing unit) cards for mining cryptocurrency. GPUs can process hashes much faster than CPUs, but not as fast as ASIC. GPU mining is typically reserved for mining altcoins due to the high mining difficulty of bitcoin.
Graeme Wheeler is the soon-to-be Governor of the Reserve Bank of New Zealand.
Graeme Wheeler was appointed in June 2012 and will take over Alan Bollard’s position as Governor of the RBNZ in September 25, 2012.
Wheeler’s previous positions include:
World Bank Managing Director of Operations from 2006 to 2010.
New Zealand Treasury Deputy Secretary and Treasurer of the Debt Management Office from 1993 to 1997.
New Zealand Treasury Director of Macroeconomic Policy from 1990 to 1993.
The Gravestone Doji is a Japanese candlestick in which the open and close price of the candle is at the same level or is very close to the same level.
A Doji candle that opens and closes at or near its low. The candle ends up having a long upper shadow and no body.
If it has a long upper shadow, it signals a bearish reversal. When it appears the top of an uptrend, it is considered a reversal signal.
This pattern is more bearish than a shooting star.
To identify a Gravestone Doji, look for the following criteria:
- The Gravestone Doji has a long upper shadow but no lower shadow, and it resembles an upside-down capital letter
To help you remember, think about how a real gravestone remains anchored to the ground. The horizontal line of the Gravestone pattern is fixed to the bottom.
This is different from the Dragonfly Doji where its horizontal line is fixed to the top.
A Gravestone Doji is bearish.
A Gravestone Doji signals that the price opened at the low of the session. There was a great rally during the session, and then the price closed at the low of the session.
The result is that the open, low, and close are all the same (or about the same) price.
This candlestick pattern’s presence is most significant when it appears after an uptrend, preceded by bullish candlesticks. It suggests that the uptrend may be coming to an end.
Dojis are trend reversal indicators, especially if they appear after an uptrend or downtrend. A basic Doji signifies indecision, but a Gravestone Doji implies that the market has decided to be bearish.
When you see a Gravestone Doji candlestick after a strong uptrend, it is likely that a trend reversal is going to happen.
Once you identify a Gravestone Doji, a simple strategy can be to open a short position below the low of the Doji
Your trade should only trigger the low of the Doji breaks down. If the low of the Gravestone Doji holds, the price may resume its upward trend.
Greece, officially known as the Hellenic Republic, is a country in Southern Europe. Its capital is Athens. It has been part of the euro zone since 2001.
Since the late 2009, worries of a sovereign debt crisis developed among investors. They were concerned that Greece won’t be able to meet its debt obligations due to the increase in government debt levels. This resulted in a crisis of confidence, indicated by the widening of borrowing costs and widening of bond yield spreads.
In April 2010, Greece’s debt was downgraded to junk, which led to a wide-spread panic in the financial markets. Then, in May 2, 2010, the euro zone countries together with the IMF agreed to give Greece a 110 billion EUR bailout. In February 2012, Greece was given another bailout amounting to 130 billion EUR with the condition that Greece must implement strict austerity and that Greek bondholders must agree to restructure their debt.
The term “Grexit” was created to refer to the risk of Greece leaving the euro zone during the European Debt crisis. It was derived from the combination of the words “Greece / Greek” and “exit.”
Grexit was coined by Citigroup’s Ebrahim Rahbari in February 2012 and first came out in a paper written by Rahbari and Citi Chief Economist Willem Buiter.
GDP stands for Gross Domestic Product.
GDP is the total value of the goods and services produced in a country over a specified period.
It is one of the most comprehensive and closely watched economic statistics since it is used as a gauge of our economy’s overall size and health.
When compared with prior periods, GDP tells us whether the economy is expanding by producing more goods and services, or contracting due to less output.
It also tells us how one country’s economy is performing relative to other countries’ economies around the world.
A country’s GDP takes into account all of the private and public spending and output.
It includes government spending, business and consumer consumption, investments, and net exports (calculated as total exports minus total imports). GDP is typically calculated yearly but can be for any time period.
GDP is usually reported on a quarterly basis and can have a major impact on financial markets.
The total value of goods and services produced within the borders of the United States, regardless of who owns the assets or the nationality of the labor used in producing that output.
In contrast, GNP, or Gross National Product, measures the output of the citizens of the US and the income from assets owned by US entities, regardless of where located.
The growth of output is measured in real terms, meaning increases in output due to inflation have been removed.
The first basic concept of GDP was invented at the end of the 18th century. The modern concept was developed by the American economist Simon Kuznets in 1934 and adopted as the main measure of a country’s economy at the Bretton Woods conference in 1944.
What does”Gross” stand for?
“Gross” (in “Gross Domestic Product”) indicates that products are counted regardless of their subsequent use.
A product can be used for consumption, for investment, or to replace an asset. In all cases, the product’s final “sales receipt” will be added to the total GDP figure.
In contrast, “Net” doesn’t account for products used to replace an asset (in order to offset depreciation). “Net” only shows products used for consumption or investment.
What does”Domestic” stand for? (GDP vs. GNP and GNI)
“Domestic” (in “Gross Domestic Product”) indicates that the inclusion criterion is geographical: goods and services counted are those produced within the country’s border, regardless of the nationality of the producer.
For example, the production of a Japanese-owned factory in the United States will be counted as part of the United States’ GDP.
In contrast, “National” (in “Gross National Product”) indicates that the inclusion criterion is based on citizenship (nationality): goods and services are counted when produced by a national of the country, regardless of where the production physically takes place.
In the example, the production of a Japan-owned factory in the United States will be counted as part of Japan’s GNP (Gross National Product) in addition to being counted as part of the United States’ GDP.
GNI (Gross National Income) is a metric similar to GNP, since both are based on nationality rather than geography.
The difference is that, when calculating the total value, GNI uses the income approach whereas GNP uses the production approach to calculate GDP.
Both GNP and GNI should theoretically yield the same result.
What does “Product” stand for?
“Product” (in “Gross Domestic Product“) stands for production, or economic output, of final goods and services sold on the market.
Included in GDP:
- Final goods and services sold for money. Only sales of final goods are counted because the transaction concerning a good used to make the final good. For example, the purchase of steel used to build a car is already incorporated in the final good total value (price at which the car is sold).
Not included in GDP:
- unpaid work: work performed within the family, volunteer work, etc.
- non-monetary compensated work
- goods not produced for sale in the marketplace
- bartered goods and services
- black market
- illegal activities
- transfer payments
- sales of used goods
- intermediate goods and services that are used to produce other final goods and services
Nominal (Current) GDP vs Real (Constant) GDP
Nominal GDP (or “Current GDP”) = face value of output, without any inflation adjustment
Real GDP (or “Constant GDP”) = value of output adjusted for inflation or deflation. It allows us to determine whether the value of output has changed because more is being produced or simply because prices have increased. Real GDP is used to calculate GDP growth.
Why is GDP important?
GDP is an important measurement of a country’s economic growth, health, and size, and influence the direction of the financial markets.
The pace at which our economy is growing affects business conditions and investment decisions, as well as whether workers can find jobs.
When GDP is rising, the economy is typically deemed to be doing well. Employment can be expected to increase as companies hire more workers, which means people have more money to spend. This then generates more business and keeps the cycle going.
When GDP is shrinking, the opposite occurs: businesses cut back on production and expansion, and workers are laid off.
When the GDP doesn’t grow fast enough, businesses aren’t incentivized to expand and hire more workers, which in turn feeds the stagnant or downward cycle.
Policymakers will look to GDP when contemplating decisions on interest rates, tax, and trade policies.
By monitoring trends in the overall growth rate as well as the unemployment rate and the rate of inflation, policymakers are able to assess whether the current stance of monetary policy is consistent with that primary goal.
How to Calculate GDP
GDP can be calculated in three ways: using the production, expenditure, or income approach. All methods should give the same result.
- Production approach: the sum of the “value-added” (total sales minus the value of intermediate inputs) at each stage of production.
- Expenditure approach: the sum of purchases made by final users.
- Income approach: the sum of the incomes generated by production subjects.
By far the most widely used approach is the expenditure approach where:
GDP = consumption + investment + government spending + (exports /imports)
Expenditure Components of GDP
|C IS PERSONAL CONSUMPTION EXPENDITURES||Also known as consumer spending, or the tally of all goods and services that consumers buy—from grocery items to health care coverage.|
|I IS GROSS PRIVATE INVESTMENT||Includes business spending on fixed assets such as machinery, equipment, and buildings, plus inventory investment; also incorporates consumers’ home purchases.|
|G IS GOVERNMENT PURCHASES||Comprises federal, state, and local government spending for the provisioning of goods and services—from schools and roads to national defense.|
|X-M IS EXPORTS MINUS IMPORTS||Or, net exports: the value of exports to other countries minus the value of imports into the U.S. (The dollar value of imports is subtracted to ensur|
In currency terms, the GDP level of different countries may be compared by converting their value in national currency, either by using the current currency exchange rate, where the GDP is calculated by exchange rates prevailing on the international currency markets.
This method offers better indications of that country’s international purchasing power and relative economic strength.
Another method of comparison is using the purchasing power parity exchange rate, whereby the GDP is calculated by the PPP (purchasing power parity) of each currency relative to a selected standard, i.e. the US dollar.
This method offers a view of the actual living standards of lesser developed countries as it compensates for the weaknesses of the local currencies in world markets.
GDP is usually calculated by the national statistical agency of the country following the international standard.
In the United States, GDP is measured by the Bureau of Economic Analysis within the U.S. Commerce Department.
The international standard for measuring GDP is contained in the System of National Accounts, compiled in 1993 by the International Monetary Fund (IMF), the European Commission, the Organization for Economic Cooperation and Development (OECD), the United Nations (UN), and the World Bank.
GDP Growth Rate
The GDP growth rate measures the percentage change in real GDP (GDP adjusted for inflation) from one period to another, typically as a comparison between the most recent quarter or year and the previous one.
It can be a positive or negative number (negative growth rate, indicating economic contraction).
GDP per capita
GDP per capita is calculated by dividing nominal GDP by the total population of a country.
It expresses the average economic output (or income) per person in the country.
The population number is the average (or mid-year) population for the same year as the GDP figure.
Data is typically released during the final week of the month.
The first or advance estimate is released during the final week of the month immediately following the end of a calendar quarter.
Gross domestic product added to income from investment. Also known as GNP.
The currency of Guatemala. Currency code (GTQ)
The currency of Guernsey. Currency code (GGP)
The currency of Guinea. Currency code (GNF)
Gunning refers to traders pushing to trigger known stops or technical levels in the market.
The currency of Guyana. Currency code (GYD)
GWei (Gigawei) is a denomination of ether that is used in reconciling gas cost. 1 ETH = 1000000000 (1e9) GWei. GWei is also referred to as Shannon, Nanoether, and Nano.
The currency of Haiti. Currency code (HTG)
“Halving” is an artificial, preprogrammed means to control the supply of a cryptocurrency by reducing the mining reward by half.
It “pumps the brakes” on the issuance and circulation of new units of the cryptocurrency.
For example, if miners are awarded 100 coins for validating a block, halving would cut the mining reward for 50 coins.
Halving does not happen just once, it occurs after a certain number of blocks have been mined.
Halving intervals are set forth in the cryptocurrencies source code, and they occur to control the supply.
In the case of Bitcoin, halving occurs after every 200,000 blocks have been mined.
Before the most recent halving, bitcoin miners were rewarded with 12.5 bitcoins every time their powerful network of computers solved a complex math problem.
Today, that reward has been cut in half to 6.25 bitcoins.
The next halving will limit the reward to only 3.125 bitcoin, and so on, until all 21 million bitcoins are mined.
According to Blockchain.com, about 18.4 million bitcoin were in circulation, meaning there’s only 2.6 million remaining up for grabs.
A Hammer is a single Japanese candlestick pattern.
It is black or a white candlestick that consists of a small body near the high with a little or no upper shadow and a long lower shadow (or tail).
A Hammer candlestick is considered a bullish pattern when formed during a downtrend.
A Hammer candlestick pattern hould meet the following criteria:
- The candle must have either a very short upper shadow or no upper shadow at all.
- The candle’s lower shadow must be quite tall (at least two times as height of the body).
- The candle must form after a clear downtrend.
- The candle’s body should be located at the upper end of the trading range.
- The body’s color is unimportant (though a white candle hints at a more bullish bias).
- The candle should be confirmed the following day, with the price trading above the Hammer’s body.
Don’t confuse the Hammer with the Hanging Man.
A Hanging Man looks identical but only forms at the end of an uptrend, while the Hammer forms after a downtrend.
Handles are relevant to all financial markets, but mean different things depending on the asset.
When it comes to trading, the term “handle” has two meanings, depending on which market you are referring to.
How Handle is Used in FX
In forex, it refers to the part of the quote that you see in both the buy AND sell price.
For example, if the EUR/USD has a bid of 1.1050 (sell price) and an ask of 1.1052 (buy price), the handle would be 1.10.
This is the part of the quote that is equal to both the buy and sell price.
Since most FX prices are quoted out up to five decimal places. forex traders find it more convenient to just refer to the last two decimal places when discussing the bids and asks, and exclude the handle.
How Handle is Used in Other Markets
In other markets, a handle means the whole numbers involved in a price quote, without the decimals included.
It is the portion of the quote to the left of the decimal point.
For example, if a stock is trading at $82.49, its handle is just $82.
In the stock market, a handle is also known as the “big figure” or “big fig“.
Using the handle is a faster way of referring to the price of an asset at a particular point in time.
It’s a verbal shortcut.
When traders know what the handle of the specific quote price is, it eliminated the need to say the entire full quote price when talking to other traders.
A Hanging Man is a Japanese candlestick described as having a small body, little or no upper shadow (or wick) and a lower shadow.
In order for the Hanging Man candle to be valid, the lower shadow must be at least twice the size of the candle’s body.
And the body of the candle must be at the upper end of the trading range.
The Hanging Man is composed of only one candlestick, but it must be surrounded by candles that confirm its validity.
To identify a Hanging Man candlestick pattern, look for the following criteria:
- The lower shadow should be tall, at least two times the length of the body.
- There should no upper shadow (though a very small upper shadow is okay).
- It should occur at the upper end of the trading range.
- The color of the body isn’t important, although a black body suggests more bearish results.
- Price should be in a definite uptrend before the Hanging Man occurs.
- The Hanging Man must be confirmed on the next candle either with a black candle or a gap down with a lower close.
The Hanging Man candlestick can be used to identify a short trade (bearish view) as the long shadow indicates selling pressure.
The validity of the Hanging Man candlestick is confirmed by how price behaves after the candle is formed.
If the next candle falls below the low of the Hanging Man candle, this can be a good entry to go short.
The Harami pattern consists of two candlesticks with the first candlestick being a large candlestick and the second being a small candlestick whose body is contained within the first candle’s body.
Harami means “conception” or “pregnant” in Japanese.
The first candlestick is seen as the “mother” with a large real body that completely enclosing or embodies the smaller second candlestick, creating the appearance of a pregnant mother.
The second candlestick may appear as a Spinning Top or a Doji.
The Harami candlestick pattern comes in two different forms:
- Bullish Harami: a bullish reversal pattern (which occurs after a downtrend).
- Bearish Harami: a bearish reversal pattern (which occurs after an uptrend).
When the second candlestick is a Doji, the pattern is called a Harami Cross.
To identify a general Harami pattern, look for the following criteria:
- There is a prevailing trend, whether it’s an uptrend or a downtrend.
- The first candle must continue with the trend’s direction. It will be the same color as the current trend, and it will have a long body.
- The second candle must be contained within the first candle’s body (so it opens and closes within the body of the first candle). It can be either color, and it will have a smaller body. Only the body needs to be contained within the first candle; the wicks are irrelevant.
- Price is an established downtrend.
- The first candle is a large bearish candle.
- The second candle is a smaller bullish candle.
- When the second candle opens, price gaps up after the first candle but its body is contained within the body of the first candle.
- Price is an established uptrend.
- The first candle is a large bullish candle.
- The second candle is a smaller bearish candle.
- When the second candle opens, price gaps down after the first candle but its body is contained within the body of the first candle.
The Harami is a trend reversal pattern and must appear in an existing trend.
The color of the second candlestick is not important. Usually, the second candlestick will be the opposite color of the first candlestick, but not always.
What is important is the location of the Harami within an existing trend and the direction of that trend.
This should be seen in the context of the chart.
If the Harami appears at or near a support or resistance line, or a trend line, it becomes more significant.
When the Harami appears in an uptrend it is a bearish signal.
When it appears in a downtrend it is a bullish signal.
The appearance of the Harami, and the short real body of the second candlestick, is a signal that indecision and uncertainty following a sudden surge in movement of the trend are causing the trend to lose momentum.
In an uptrend, it means that buyers have failed to follow up on the surge of activity and close the second candlestick at or near the high of the previous candlestick.
A Bullish Harami’s first candle indicates that the current downtrend is continuing and the bears are pushing the price lower.
However, the bulls then step in and the price opens higher than the previous candle’s close. The bulls are now in control and price goes up.
In a downtrend, it means that sellers have failed to close the second candlestick near the low of the previous candlestick.
A Bearish Harami’s first candle indicates that the current uptrend is continuing and the bulls are pushing the price higher.
However, the bears then step in and the price opens lower than the previous candle’s close. The bulls take profit and exit before the price closes lower for the session.
In both cases, this weakness indicates that a trend reversal may be imminent.
To analyze a specific Harami candlestick, observe the following:
- The longer the candles, the more forceful the reversal should be.
- In a Bullish Harami, the higher the second candle closes up on the black candle, the more likely it is that a reversal will occur.
- In a Bearish Harami, the lower the second candle closes down on the white candle, the more likely it is that a reversal will occur.
A Harami Cross is a reversal candlestick pattern that consists of a long candle is followed by a Doji.
For the pattern to be a valid Harami Cross, the Doji should be located within the body of the first candle
Harami means “conception” or “pregnant” in Japanese.
The first candlestick is seen as the “mother” with a large real body that completely enclosing or embodies the smaller second candlestick, creating the appearance of a pregnant mother.
The Harami Cross pattern is more significant than the Harami pattern as it contains a Doji, which is a candlestick with no or very little real body.
A Doji is formed when the close price and the high price are the same or very close.
This small body size indicates indecision and uncertainty in the market.
A Doji with long shadows has a greater significance than a Doji with short shadows.
The maximum amount that an ICO will be raising. If an ICO reaches its hard cap, they will stop collecting any more funds.
The process of radically changing the protocols on a blockchain where the developers determine that changes must be made to a cryptocurrency that will create incompatibilities between the old and new coin.
All the users or nodes must upgrade to the up-to-date version of the software.
Hardware wallets are a form of cryptocurrency cold storage. Resembling the appearance of a USB thumb drive, hardware wallets store your private keys offline from potential breaches. Not all cryptocurrencies are supported by hardware wallets.
A hash function is a mathematical process of taking a message (the input) of arbitrary length and turning it into a fixed length message digest (the output).
Hash per second (h/s) is the number of hash computations per second. It is a measurement of computing performance for mining rigs.
Hash rate (also referred to as hash power) in a PoW system is the collective measurement of computing power in a specific cryptocurrency ecosystem. Bitcoin and most PoW altcoins have their own hash rate. Hash rate is measured in a unit calls h/s (hash per second).
A hawk is someone who favors a tighter monetary policy, which means higher interest rates, with the aim of keeping inflation in check.
This is often at the expense of economic growth, as higher interest rates discourage borrowing and encourage savings.
Higher interest rates tend to have a negative impact on equities and equity indices within the affected economy, as investors sell equities in favor of bonds, which are considered lower-risk investments that now offer stronger returns due to increased rates.
This can, in turn, causes the economy’s currency to rise.
Hawks and doves are terms used by analysts and traders to categorize members of central bank committees by their probable voting direction ahead of monetary policy meetings.
Hawks are those that want to see higher interest rates, while doves are those who would prefer interest rates to remain low.
Being “hawkish” refers to the tone of language when describing an aggressive stance or viewpoint regarding a specific economic event or action.
In forex, the terms “hawkish” and “dovish” refer to the attitude of central bank officials toward managing the balance between inflation and growth.
|Hawkish||Rising inflation||Higher interest rates|
|Dovish||Slowing economic growth||Lower interest rates|
The Head and Shoulders is a chart pattern described by three peaks, the outside two are close in height and the middle is highest.
It is a bearish reversal chart pattern that begins with an uptrend with two higher highs (1 & 3) and two higher lows (2 & 4) which form the ” left shoulder” and “head”.
Point 5 makes a lower high which is lower than points 3 and 1 and this forms the “right shoulder”.
This illustrates that the upward trend is coming to an end although the reversal is confirmed when the price drops below the “neckline” at point 6 moving down pass the previous low at point 4.
The pattern is confirmed once the price breaches the neckline support (2 & 4).
It is also worth observing whether the ascent into point 3 is less steep than into point 1 and whether the ascent into point 5 is less steep than point 3.
If this does happen, it displays how the bulls are becoming less aggressive and the upward momentum is running out of steam adding to the probability of a reversal.
The Head and Shoulders chart pattern is considered by many traders and analysts to be one of the most reliable and accurate of all reversal chart patterns.
In summary, the Head and Shoulders chart pattern essentially represent:
- A rally to a new high
- Followed by a decline, then
- A marked uptrend forming a higher high
- A second decline, and
- A final rally to create another higher high but fails.
The line that connects the bottoms, often called the “neckline”, does not need to be strictly horizontal.
The slope of the neckline is also an important indicator:
- If the neckline slopes down, this signals bearishness, since price made a lower low prior to the right shoulder.
- If the neckline slopes down, this signals bullishness, since the price made a higher low prior to the right shoulder.
When a Head and Shoulders formation is seen in an uptrend, it signifies a major reversal.
The strength of this reversal, measured as the declining amount after the breakout, is proportional to the rise before pattern appears
Stronger preceding trends are prone to more dramatic reversals.
Volume is usually the highest at the left shoulder but most likely to deplete by breakout point. Conditions, where the volume is trending up, are more favorable.
A hedge is an investment or trade designed to reduce your existing exposure to risk.
The process of reducing risk via investments is called “hedging“.
A hedge is a way to reduce the risk of adverse price movements in an asset.
Most hedges take the form of a position that offsets one or more positions you have open, like a futures contract offering to sell stock that you have bought.
Hedging can come in many forms, however, like buying an asset that tends to move inversely with the asset you are holding.
A hedge that removes all risk from a position – except the cost of the hedge itself – is referred to as a perfect hedge, but most traders will only hedge against part of their position.
A hedge fund is an investment pool contributed by a limited number of partners (investors) and operated by a professional manager(s) who employ different strategies to earn an active return, or alpha, for their partners.
A hedge fund isn’t a specific type of investment. Rather, it is a pooled investment structure set up by a money manager or registered investment advisor and designed to make a return.
This pooled investment structure is often organized as either a limited partnership or a limited liability company.
A hedge fund is an unregulated investment fund and various types of money managers, including commodity trading advisers (CTAs), that share (a combination of) the following characteristics:
- Often follow a relatively broad range of investment strategies that are not subject to borrowing and leverage restrictions (with many of them using high levels of leverage).
- Often have a different regulatory treatment from that of institutional investors and typically cater to high net worth individuals or institutions.
- Often hold long and short positions in various markets, asset classes and instruments.
- Frequently use derivatives for position-taking purposes.
“Heikin Ashi” is a charting technique used to display prices that, at a glance, looks similar to a traditional Japanese candlestick chart.
The difference is the method used in how candlesticks are calculated and plotted on a chart.
They use average ranges to calculate the points of the candle, which smooths out the chart and in turn provides a clearer view of the trend of the market.
Heiken Ashi are also different from traditional Japanese candlestick charts, in that they take the prior session open and close into account for the open, which in turn removes any gaps between bars on the chart.
They are used to help filter market noise.
The Heikin Ashi chart is plotted as a candlestick chart, where the down days are represented by red bars, while the up days are represented by green bars.
How to Trade Heikin Ashi
Hollow candles represent an uptrend, with larger hollow bars indicating a stronger uptrend.
Filled candles represent a downtrend, with larger filled bars indicating a stronger downtrend.
How to Calculate Heikin Ashi
Open = (Open of previous bar+Close of previous bar)/2 High = maximum of High, Open, or Close (whichever is highest) Low = minimum of Low, Open, or Close (whichever is lowest) Close = (Open+High+Low+Close)/4
In June 2006 Henry Paulson was sworn in at the US Treasury Department as Secretary Paulson, succeeding John Snow as Treasury Secretary, and quickly emphasized the need to resolve the huge gap between America
HFT, known as High-Frequency Trading, is the process of using computer programs running complex algorithms to make trades very quickly.
HFTs employ market making, arbitrage, and/or momentum trading strategies by detecting or predicting changes in the depth and direction of institutional order flow.
HFT can be viewed as a primary form of algorithmic trading in finance.
It is the use of computer algorithms and sophisticated technological tools to rapidly trade financial securities.
High-frequency traders use proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second, dealing in very high volumes at the same time.
High-frequency traders can conduct trades in 10 milliseconds or less.
It takes between 300 to 400 milliseconds for you to blink your eye.
Automation makes all this possible. Their automated systems allow traders to scan markets for information and respond faster and than any human.
HFT executes trades with the kind of speed and volume that is physically impossible by a human.
Trades are completed in the time it would take for a human brain to process the new data appearing on a screen.
It can be used to either find the best price for a single large order or to find opportunities for profit in the market in real-time.
The algorithms behind high-frequency trading tend to be extremely complex, allowing the program to trade across several markets at once as conditions are met.
The advantage of HFT is largely down to how quickly the platform can process trades, so the focus is on the power of computers used and the location of computing programs.
By placing themselves nearby to the exchanges taking orders, HFT firms can gain millisecond advantages over their rivals.
Typically, the traders with the fastest execution speeds are more profitable than traders with slower execution speeds.
The major benefit of HFT is it has improved market liquidity and tighter bid-ask spreads.
There are two primary criticisms of HFT.
- HFT allows institutional players to gain an upper hand in trading because they are able to trade in large blocks through the use of algorithms.
- The liquidity produced by this type of trading is ephemeral. It disappears within seconds, making it impossible for traders to take advantage of it.
Accepting a purchase at the ask price or selling at the bid price.
A misspelling of ‘hold’ that stuck around to mean ‘keep’.
A cryptocurrency trader who buys a coin and does not see himself selling in the foreseeable future is called a HODLer of the coin.
If a person says in a conversation “I am hodling.” or says to you, “You should hodl!”, this person believes the coin will be profitable in the future.
The very first time the term HODL appeared on the Bitcoin talk forum was in 2013 and came from a member named GameKyuubi under the thread “I AM HODLING”.
“HODL” was originally a typo which has now popularly earned the status of a humorous backronym: “Hold on for dear life!”
The buyer of a currency.
This tracks down the number of home loans given out the in report month in Australia. It is an indicator of both the Australian housing and credit markets. It measures whether consumers are willing to take out loans to finance their home purchases. The report also indicates whether consumers have access to credit and whether they find credit expensive or not.
The currency of Honduras. Currency code (HNL)
The currency of Hong Kong. Currency code (HKD)
A horizontal channel is a chart pattern formed from two parallel trend lines drawn above and below price representing resistance and support levels
Horizontal channels, also known as horizontal trend channels, are chart patterns used in technical analysis.
Like ascending and descending channels, horizontal channels are formed by drawing trend lines for both high and low prices on a chart.
The difference between the other two is that a horizontal channel is characterized as having equal highs and lows.
If prices remain reasonably constant overall for some period of time, the slope of both trend lines used in the chart will appear horizontal, and a horizontal trend channel will be formed.
Horizontal Channel as Support and Resistance
Like all trend channels, price trades between support and resistance.
When the price is between a support level and a resistance level, without being particularly near either of them, it does not signal anything about the future price.
If the price is falling towards support, it indicates that it will reverse and rise again.
If the price is rising towards resistance, it indicates that it will reverse and fall back again.
Many traders find it “cheap” near support and “expensive” near resistance.
Horizontal Channel Breakout
A break in prices outside of either trend line represents either a buy or a sell signal to traders.
If prices break above the upper resistance trend line, a buy signal is generated.
If prices break below the lower support trend line, a sell signal is generated.
Many traders believe that a horizontal trend channel doesn’t represent a horizontal trend as such, but merely a temporary interruption in a prevailing trend in either direction.
Other traders believe that a horizontal channel represents a “calm before the storm” of a major trend reversal.
Because of this ambiguity, horizontal channels should only be used in conjunction with other technical analysis tools.
Hot potato trading is the quick passing of currency inventory imbalances (due to an exogenous shift in the demand and supply of currencies) around the inter-dealer market.
Hot storage refers to a crytocurrency wallet that is connected to the internet. Some examples of hot storages include online wallets, software wallets, and storing your cryptocurrency within an online exchange account.
The opposite of hot storage is cold storage.
A hot wallet is a cryptocurrency wallet that is connected to the internet.
Housing Starts tracks how many new single-family homes or buildings were constructed throughout the month.
For the survey, each house and every single apartment are counted as one housing start.
This indicator isn’t a huge market mover, but it has been reported by U.S. Census that the housing industry represents over 25% of investment dollars and a 5% value of the overall economy.
Housing starts are considered to be a leading indicator, meaning it detects trends in the economy looking forward.
Declining housing starts show a slowing economy, while increases in housing activity can pull an economy out of a downturn.
The currency of Hungary. Currency code (HUF)
A cryptocurrency storage and management system that is a combination of a software wallet (stored on your own computer) and a web wallet (stored on a third-party server).
The bulk of your digital currency account information is stored on the wallet host’s server, except for one important thing…your private key (the code that uniquely identifies you).
The private key is stored only on your own device.
When you make a transaction, your private key is encrypted on the way to the exchange’s server, so they never see it. This is an impressive security feature, but access to your private key also includes a password (that only you know).
If you lose or forget that password, access to your account could be denied, and you could potentially lose the money in your account forever.
Hyperinflation is a condition in which price levels increase rapidly as the nation’s currency loses its value.
In other words, hyperinflation is extremely rapid inflation.
This often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money.
Economists generally use this term to refer to episodes when the monthly inflation rate exceeds 50%.
As the money supply increases, the demand for money goes down. In effect, hyperinflation tends to result in a rapid decrease in the value of money.
Not only does hyperinflation make money worthless, it simultaneously destroys an economy.
For example, Venezuela’s hyperinflation started in 2016. Since then, the country’s economy has crashed.
During the Great Financial Crisis, Zimbabwe recorded the second-highest incidence of hyperinflation in history. The country’s inflation rate in November 2008 was an insane 79,600,000,000% (a daily inflation rate of 98%).
What causes hyperinflation?
Hyperinflation commonly occurs when there is a significant rise in money supply that is not supported by economic growth. Simply put, it is caused by dramatically increasing the amount of money in an economy.
The increase in the money supply is often caused by the government printing more money into the domestic economy. As there is more money in circulation, prices rise.
What are the effects of hyperinflation?
Hyperinflation quickly devalues the local currency as the prices of goods and services rise in conjunction with the increase in the money supply.
Such a situation, in effect, often causes the holder of the local currency to minimize their holdings and switch to more stable foreign currencies.
In an attempt to avoid paying for higher prices tomorrow due to hyperinflation, individuals typically begin hoarding durable goods such as equipment, machinery, jewelry, etc.
In situations of prolonged hyperinflation, individuals will begin to hoard perishable goods.
However, that practice causes a vicious cycle.
As prices rise, people hoard more goods, in turn, creating a higher demand for goods and further increasing prices.
If hyperinflation continues unabated, it nearly always eventually causes a major economic collapse.
Severe hyperinflation can cause the domestic economy to switch to a barter economy, with significant repercussions on business confidence.
For example, with the unemployment rate exceeding 70%, economic activities in Zimbabwe shut down and turned the domestic economy into a barter economy.
It can also destroy the financial system as banks become unwilling to lend money.
Ian Macfarlane was the Governor of the Reserve Bank of Australia from 1996 to September of 2006.
Governor since 1996, Mr. Macfarlane was one of the longest serving central bankers in the group. Educated at University of Sydney, Mr. Macfarlane worked for the RBA from 1979 up until he was replaced by Glenn Stevens, serving a variety of positions from Head of Research to Deputy Governor.
The currency of Iceland. Currency code (ISK)
Ichimoku is a complicated looking trend assistant that turns out to be much simpler than it initially appears. This Japanese indicator was created to be a standalone indicator that shows current trends, displays support/resistance levels, and indicates when a trend has likely reversed. Ichimoku roughly translates to “one glance” since it is meant to be a quick way to see how price is behaving on a chart
Ichimoku Kinko Hyo is an equilibrium chart used in technical analysis. The chart’s name means, roughly, “equilibrium chart at a glance”, which also describes its function: providing information about the equilibrium behavior of an asset with a single look. Ichimoku Kinko Hyo was developed by Goichi Hosoda and released in 1968, although the chart didn’t gain popularity in the West until the 1990s.
Ichimoku Kinko Hyo is composed of five lines. Tenkan-sen averages the highest high and lowest low and is calculated over a fairly short period of time (seven to nine periods.) Kijun-sen uses the same equation, but is calculated over twenty-two periods. Chikou Span plots the current closing price a full twenty-two periods behind. Senkou Span A averages Tenkan-sen and Kijun-sen, and is plotted twenty-six periods ahead. Senkou Span B averages the highest high and lowest low over the last forty-four periods, and is plotted twenty-two periods ahead. The space between Senkou Spans A and B is known as the Kumo.
Traders use Ichimoku Kinko Hyo to generate a variety of signals for market behavior, based on the interaction of the chart’s lines with the Kumo. Because of the comprehensiveness of the chart, traders consider it to be a very powerful tool for technical analysis. However, foreign exchange traders should be aware of the chart’s drawbacks in forex markets: since forex markets never close, no close prices are generated, and it’s unclear how the Chikou Span should be plotted. Good judgment should therefore be used both in choosing the time periods from which to generate the chart, and in deciding which price should be chosen as a forex market’s close price.
An initial coin offering or ICO is an unregulated means by which a cryptocurrency venture, typically early stage, can raise money from supporters by issuing tokens.
It is often referred to as a “crowdsale” as ICO participants may potentially earn a return on their investments (as opposed to crowdfunding, where supporters donate money to a project or cause).
The IFO Business Climate Index is a monthly survey that measures the current business conditions of German firms (manufacturing, construction, wholesale and retail industries) and their business expectations six months ahead.
Immutable means that something is unchanging over time or unable to be changed after creation.
Regarding cryptocurrencies, it means once data has been written to a blockchain no one can change it. This provides benefits for audit. As a provider of data, you can prove that your data hasn’t been altered, and as a recipient of data you can be sure that the data hasn’t been altered. These benefits are useful for databases of financial transactions.
The import prices index follows the increase or decrease in the prices paid for goods imported to a host country.
The figure is important in relation to the trade balance. Trade balance indicates the difference between exports and imports. Trade balance is one of the major compositions of a country.
Importing is a method of moving funds from a paper wallet. This method imports the paper wallet’s private key (with the cryptocurrency funds allocated to it) to your soft wallet’s private key collection. This means that while the funds are now in the soft wallet, they can also still be spent from the paper wallet’s private key. Sweeping is the more frequently used method of moving funds from a paper wallet.
Imports refer to goods and services purchased from another country. For instance, industrialized countries usually import oil from OPEC countries.
The In Neck pattern is a rare two-candlestick pattern that is created by a tall down candle, followed by a much shorter up candle that gaps down on the open but then closes slightly higher than prior candle’s close.
Since the In Neck appears in a downtrend, the candlestick pattern is considered a bearish continuation pattern.
The In Neck candlestick pattern is composed of just two candles: one black and one white.
To identify the In Neck, look for the following criteria:
- A downtrend must be in progress.
- A tall black (bearish) candle must appear.
- A smaller white (bullish) candle must follow the black candle.
- The white candle should open below the prior candle but its close should occur at or slightly above the close of the previous candle.
The In Neck pattern is very similar to the On Neck pattern, which also occurs during a downtrend and signals continuation of the current trend.
The big difference though is that with the On Neck pattern, the second candle closes slightly lower than the previous candle’s LOW.
Since the two patterns are nearly identical, make sure you can tell the difference.
The bears are in control, so price is in a downtrend.
The first candle that appears is bearish, continuing the downtrend, but the second is bullish.
The white candle gaps down and opens below the black candle but closes slightly above it, hinting that a continuation of the current trend is likely.
The Indian rupee is the official currency of the Republic of India. Its ISO code is INR, and its symbol is (₹).
The rupee is issued by the Reserve Bank of India, and its value is subdivided in 100 paise (paisa in singular).
The rupee is one of the oldest currencies on the planet. Its origin traces back to the 6th century BC, although its current name was adopted in the 16th century.
The word rupee comes from “rupiah” which means silver coin in Sanskrit.
The Indian rupee is considered a free-floating currency. However, the Reserve Bank of India manipulates its exchange rate using regular open market operations.
The bank buys and sells rupees in the FX market to limit the volatility of the exchange rate. So in reality, the rupee is a controlled currency or a “managed floating currency”.
Furthermore, customs regulations establish limits to the import and export of rupees. Foreigners are banned from importing and exporting rupees, while Indian nationals are allowed to import and export a maximum of INR 7,500 at a time. In Nepal, the possession of INR 500 and 1,000 rupee notes are forbidden.
In addition to these restrictions, the Reserve Bank of India exerts a series of currency controls. On the capital account, foreign institutional investors must abide by a set of limits on their investments in India. In the current account, however, there are no restrictions on currency conversion.
History of the Rupee
Until World War I the rupee remained pegged to the British pound and at parity level with the U.S. dollar.
The British pound was on the gold standard, and when the gold-silver ratio expanded, the colonial government’s expenses to pay their debts to England demanded larger and larger remittances of the rupee, which led to an increase of the taxes and rising dangers of social unrest.
In 1960, after a period of increasing trade deficits in India, the RBI devalued the rupee. At that moment, the value of the rupee started a continuous decline.
In 1969, one rupee was traded for 13 pence. In 1979, 6 pence, and in 1989, it was at 3 pence per rupee.
In 1991, with the rupee still pegged to a basket of currencies consisting of its principal trading partners, an economic crisis set the country on the verge of default.
In 1996, India suffered high inflation and budget deficits that forced the government to devalue the rupee again.
During the first decade of the 21st century, the rupee experienced a period of stabilization at an exchange rate between 44 to 48 rupees per dollar.
Then the Great Financial Cris hit and foreign investors withdrew large sums of cash from emerging markets.
The Indian government was forced to implement currency controls to stem further depreciation of the rupee.
An indicative quote is a price quote that is informative only.
It is a type of quote provided to a trader from a market maker that may be changed prior to a transaction.
It is a reasonable estimate of a currency pair’s current market price that is provided by a market maker upon request.
This means that the quoted price may not be available to trade on.
The market maker is not obligated to honor the quote.
The opposite of an indicative quote is a firm quote, which is guaranteed by the market maker.
Market makers might provide an indicative quote if a trader indicates the possibility of a trade, but does not indicate the volume (“size”) of the transaction.
Traders can use indicative quotes as an estimate of the current exchange rate for a particular FX trade.
For example, when asked for an indicative quote in EUR/USD, a market maker might quote 1.1040/42.
This means that the indicative bid price is 1.1040 and the indicative ask price is 1.1042.
But their actual dealing price or “firm quote” might change to 1.1042/44 without any obligation to honor the original indicative quote.
An indicative quote is also called “price indication” or just “indication“.
An exchange rate quoted as the foreign currency per unit of domestic currency. The domestic currency is always denoted as 1 while the foreign currency is variable.
The currency of Indonesia. Currency code (IDR)
Industrial Production measures the total value of output produced by manufacturers, mines, and utilities.
This data tends to react quickly to the expansions and contractions of the business cycle and can act as a leading indicator of employment and personal income data.
Industrial Production and Capacity Utilization (IPCU) is a measure of economic activity, released on a monthly basis by the United States Federal Reserve. The IPCU report for each month contains data for previous months (for example, June’s report releases information on May) about the total amount of US industrial production for that month, expressed as a percentage of the gross production for a previous baseline year. The report also gives information about percentage changes from month to month and year to year, as well as a detailed breakdown of production by industry grouping, most broadly for manufacturing, mining and utilities. The data in the report is based on employment records that detail the total hours worked by industrial-sector employees.
The report also includes a measure of capacity utilization, meaning the percentage ratio of actual production to potential production. The report presents data about average capacity over a number of years, a record of percentage change in capacity from month to month, and a breakdown of capacity measures by industry and by stage of completeness (from crude to finished materials.)
Traders consider the IPCU report important as a gauge for the future performance of assets in the marketplace. Because of this, the report can also function as a “trigger” to increase buying or selling pressure in certain industries. A capacity utilization percentage of 85% or more can also be considered a signal for imminent inflation, but the inherent difficulty of measuring industrial capacity implies that this measure shouldn’t be exclusively relied on to predict market behavior.
Definition: An index designed to measure changes in the level of output in the industrial sector of the economy. The index is grouped by both products (consumer goods, business equipment, intermediate goods, and materials) and industry (manufacturing, mining, and utilities).
Source: Board of Governors of the Federal Reserve System
Availability: Preliminary estimate released around the middle of the month for the immediately preceding month.
Reason: While the industrial sector of the economy represents only about 20 percent of GDP, because changes in GDP are heavily concentrated in the industrial sector changes in this index provide useful information on the current growth of GDP. The level of capacity utilization in the industrial sector provides information on the overall level of resource utilization in the economy which may in turn provide information on the likely future course of inflation.
The index of Industrial Production is a fixed-weight measure of the physical output of the nation’s factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up.
In addition to production, this monthly report also provides a measure of capacity utilization. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated, but given revisions to these data and the difficulties with capacity measurement, the 85% mark should be viewed cautiously. It would be appropriate to look for corroborating inflation indications from commodity prices and vendor deliveries.
Inflation is defined as the rise of the overall prices of goods and services over a certain period in time.
As the general level of prices climbs, the purchasing power for each unit of currency declines.
For example, if one U.S. dollar can buy two candy bars in 2000, and only one candy bar in 2020, you’ve just experienced inflation!
Most economists agree that inflation is caused primarily by the imbalanced growth of money supply with respect to the rate of economic expansion.
Other reasons include excessive demand for goods and services and decreased availability of supply during scarcities.
Inflation has good and bad effects depending on how people are affected.
For instance, high inflation is helpful to borrowers as it decreases the real value of money they pay to their lenders. Debt becomes cheaper.
Consumers, on the other hand, are obviously hurt by high inflation as it erodes their purchasing power.
In the forex market, the issue of inflation is very important because it is one of the primary factors central banks consider when determining interest rates.
Keeping inflation levels consistent and in check is the responsibility of a central bank, who will generally work towards an inflation target.
Inflation is usually measured using a consumer price index (CPI), which tracks the cost of a basket of consumer goods and services.
Changes in inflation can have a major impact on financial markets, as they affect purchasing power and can bring about change in a central bank’s monetary policy.
The Initial Jobless Claims is a U.S. report that measures the number of individuals who filed for state unemployment insurance for the first time during the past week.
Continuing Jobless Claims, on the other hand, measures the number of individuals who are unemployed and are currently receiving unemployment benefits.
The Initial Jobless Claims is provided by the Employment and Training Administration of the Department of Labor, and the report comes out for viewing on a weekly basis, each Thursday.
What is Initial Jobless Claims Important?
Economists and analysts seek out clues in the Initial Jobless Claims report because of its weekly frequency, and because it reflects what is going on in the job sector.
It is viewed as a coincident economic indicator based on actual reports from state agencies around the U.S.
When looking at the Continuing Jobless Claims numbers, it is important to remember that not everyone who is jobless is entitled to unemployment benefits.
How to Read It
This number can be a predictor of how the economy is doing.
A change of at least 30,000 claims up or down is considered significant. Anything less is seen as normal fluctuations.
If the number of people filing for unemployment benefits increases on a sustained basis or is relatively high, it means a large number of people are losing their jobs and applying for unemployment compensation.
If there is a significant increase in these claims, it could potentially be pointing to slowing job growth, as unemployment rises.
In such a case, investors and traders will infer that the economy is not doing well and the next NFP report may come out weak.
Alternatively, a decline in the Initial Jobless Claims is indicative of a healthy economy and future NFP reports should reflect a more positive picture.
When the number decreases significantly, it can be a sign that the economy is accelerating in job growth and is economically sound.
Most analysts will only consider this in a four-week average, as these factors can be very volatile.
With the Continuing Jobless Claims, a rise in this number has negative implications for the NFP, since it will affect consumer spending which in turn discourages economic growth.
Generally speaking, a high reading is seen as negative for the labor market while a low reading is seen as positive.
What time is it released?
Initial Jobless Claims is released weekly, on Thursdays, at 8.30 am ET.
The initial margin is the minimum amount you’ll need to put up to open a position.
It is sometimes called the required margin, entry margin, deposit margin, or just the deposit.
Initial margin can be thought of as a good faith deposit or collateral that’s needed to open a position.
Margin is NOT a fee or a transaction cost.
Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.
This portion is “used” or “locked up” for the duration of the specific trade.
Once the trade is closed, the margin is “freed” or “released” back into your account and can now be “usable” again… to open new trades.
Depending on the currency pair and forex broker, the amount of margin required to open a position VARIES.
An institutional investor is a long-term investor such as a mutual fund, a pension fund, an insurance company, a reinsurance company, or an endowment fund.
They are sometimes referred to as “real money” investors.
The foreign exchange rates that large international banks quote to other large international banks. Fat chance you’d ever get access to this rate.
The interest rate is the amount that a lender charges to a borrower for the loan of an asset, usually expressed as a percentage of the amount borrowed.
That percentage usually refers to the amount being paid each year (known as an annual percentage rate, or APR) but can be used to express payments on a more or less regular basis.
Interest rates can be either simple or compound.
Simple interest is derived just from the original loan (known as the principal).
Compound interest is calculated from the principal plus any interest accrued over the length of the loan.
So if a $100 loan has 10% compound interest, then after one year the interest would be 10% of $110 (the original $100 plus $10 in accrued interest).
Most bank interest rates are derived from the base rate set by their central bank
The base rate is the rate at which commercial banks can borrow from their central bank.
Central banks use interest rates to control inflation and spending.
By raising interest rates, the cost of borrowing and benefit from saving are both increased, so which reduces spending.
During a recession, many central banks will drop interest rates to encourage more spending.
Changes in the base rate can move markets in a major way, and so are a major event for traders.
Traders can also speculate on changes in the interest rate, either via instruments like bonds or derivatives.
In the foreign exchange market, the interest rate differential (IRD) refers to the difference in interest rates between two similar interest-bearing currencies. In the spot foreign exchange market, this pertains to the difference in interest rates in a pair.
For example, if the Australian dollar has an interest rate of 4.50% and the Japanese yen has an interest rate of 0.10%, then the interest rate differential between the two is 4.40%.
The IRD is one of the most important factors to consider when engaging in carry trade.
The interest rate parity theory helps describe the relationship between foreign exchange rates and interest rates. According to the theory of interest rate parity (IRP) the difference in national interest rates for financial securities and derivatives of similar risk and maturities should be equal to the forward rate discount or premium for the foreign currency.
This means that when an investor is choosing between whether to invest in the domestic market or in a foreign market, the returns would be approximately equal, given that the risks and maturities of the securities are similar.
What this means is that differences in national interest rates help set the forward rates at which financial securities are set.
The potential for losses arising from changes in interest rates.
Internalization refers to the process whereby a dealer seeks to match staggered offsetting client trading flows on its own books instead of immediately trading the associated inventory imbalance in the inter-dealer market.
Flow internalization refers to the practice of dealers matching trades through their own internal books, rather than trading on the open market.
For example, say a bank has Client A who wants to buy $100 million and Client B who wants to sell $100 million.
Matching them off against each other will save on brokerage costs.
If these savings are passed on to the clients, even better.
The key to being the best at internalization comes down to having enough flow to successfully m