Thursday, 30 April 2015

How Brokers Work

Newsletter 14

Basic Trading Concepts Defined

When most people hear the word “broker,” an inaccurate image often swims into their minds. They imagine a professional individual sitting in a bank, buying and selling stocks for his or her clients. While you can still find broker services that give their clients investment advice and manage their portfolios, when we talk about brokers, we are referring to online brokers.

Online brokers serve as an intermediary between you and the market exchanges in return for a commission.

There has been a record-breaking increase in online brokers opening their doors to retail investors. And you will find that there are two main types of brokers: those who put your order directly in the market exchange, and those who take the other side of the trade. Some brokers will offer both options, so it is your choice as to which one suits you.

It will not be easy to find out which model the broker uses, as sometimes they use hybrid models or complicated algorithms. The best way is to ask them directly, look at the minimum account requirements, see if they offer price depth, and know what type of commission model they have.


Online Brokers

An online broker serves as an intermediary between you and the market exchanges in return for a commission.

Electronic Communication Broker (ECN) / Non Dealing Desk

Electronic Communication Brokers offer direct market access by using automated systems that match buy and sell orders with other market participants. They match your trade with a counterpart that can be anyone from retail investors to banks, to brokers and other financial institutions.

It is important to understand that trading directly with the exchange and skipping the online broker is practically impossible as a retail investor. It requires a large amount of capital, and the individual trading needs to be a regulated broker-dealer who is connected to the clearing firm. As this is rarely the case with most people who want to trade, the broker is the intermediary who places orders in the exchange.

ECN Brokers offer direct market access, and they do this by using automated systems that match buy and sell orders with other market participants.


DMA and One-Touch DMA

There are two types of direct market access: True DMA and One-Touch DMA. The main difference is that there is no last look—no human intervention—with True DMA. When you place a trade using True DMA, the broker’s computer places your trade automatically to the exchange. When a broker uses One-Touch DMA, an actual person has to click a button for your trade to get placed on the exchange.

As you have probably worked out, when using One-Touch DMA, your trade can incur a loss of speed when trying to open or close a trade with your broker. So, why doesn’t every trader use True DMA, you may be asking? Some countries do not allow the use of True DMA—they make it obligatory that a human checks the trade before placing it on the exchange (due to fraud or not enough funds to cover the position, for example).

There are two types of direct market access: True DMA and One-Touch DMA. There is no human intervention when a trade is placed on the exchange through True DMA. There is with One-Touch DMA.

These types of brokers usually offer a win/win business model. If the trader is consistently profiting from the financial markets, he will trade regularly. This is beneficial for the broker, as he receives the trader’s commission per transaction.


So how does it work?

Client places sell trade on broker platform

Client places buy trade on broker platform

Broker sends the order to the exchange

Broker sends the order to the exchange

Trade is placed on exchange

Let’s take an example of a local market place:

  1. You want to buy a boat directly from the boat manufacturer, but only employees can buy boats from the manufacturer.
  2. You happen to know someone who works there. He agrees to buy a boat for you but with the condition that you pay him a fee for his services.
  3. You agree, and he buys the boat for you for $200,000. You pay him a $6,000 fee.
  4. After a few months, the boat suddenly goes up in price.
  5. As a smart entrepreneur, you think you can make a profit by selling your boat at a higher price.
  6. You call your friend again, and he says that he knows someone who will buy your boat. You agree on a fee for him again.
  1. The friend sells your boat for $270,000, and you pay him a $6,000 fee.

In the analogy above, you can see that the employee in the boat-manufacturing company can be seen as a broker, and the fee can be seen as the broker’s commission.



o Lower transaction costs due to no human intervention.

o Lower spreads, because the spreads vary and brokers do not touch the spreads. This allows you to trade the spread. (The spread is the difference between the sell price and the buy price.)

o Quicker executions on trades, as they don’t have to go through an intermediary.

o Less chance of human errors and issues.

o Most brokers offer anonymity. This assists bigger traders, as no one can see their strategies, and others cannot anticipate their trades and take the opposing side.

o Price depth is usually available (level 2 prices).

o Transparent broker commissions. When you are trading DMA, the broker will usually charge you a separate commission. This increases transparency.



o There is no fixed spread, and it is more difficult to calculate an exact exit, as the spread varies.

o Less margin is generally available.

o Bigger trading account is needed.

o Limited financial products are available.

o Education is not usually offered by these types of brokers.


To be continued on Monday.

Reference: Jack Maverick

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Stocks slip, euro near two-month high as US economy loses steam

163768d1372333664-trading-floor-pictures-trading-floor-work 10

(Reuters) - Asian stocks stumbled on Thursday while the euro held near two-month highs against the dollar after surprisingly downbeat first-quarter economic growth in the United States - a key export destination for many of the region's economies.

Spreadbetters expected the equity markets to stabilize a little in Europe, forecasting Britain's FTSE, Germany's DAX and France's CAC to open flat to slightly firmer.

The disappointing news on the world's biggest economy comes on top of a worrying slowdown in China and persistent worries about Europe as Greece scrambles to avoid bankruptcy.

New Zealand's central bank said early in the day that it could cut interest rates if domestic momentum weakened.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1 percent with South Korean, Australian, Chinese and Hong Kong shares suffering losses.

Japan's Nikkei slumped 2.6 percent, extending losses after the Bank of Japan kept monetary policy unchanged. The decision had been expected, but disappointed some participants who had bet it may ramp up its already massive stimulus program.

The drop in Asian equities followed Wednesday's slide in U.S and European stocks, with Germany's DAX - which hit a record high earlier this month - tumbling 3.2 percent on the euro's surge.

"Risk has been building in the markets for weeks - the mass stock market trading account openings in China, the rally in Europe as the ECB ploughs on with its 65 billion euro a month QE program," said Evan Lucas, market strategist at IG in Melbourne.

The U.S. economy grew just 0.2 percent in the first quarter, down sharply from the previous quarter's 2.2 percent growth. The disappointing data further dimmed already faint prospects for an interest rate hike in June by the Federal Reserve.

"If the U.S. was the main source of the slowdown in Asian export growth in the first quarter, we should see growth start to accelerate," analysts at ING wrote.

But some economists note that trade-reliant Asian economies are more sensitive now to growth trends in China than those in the United States.

The euro was down 0.2 percent at $1.1107 after surging to a near two-month high of $1.1188 in the wake of the U.S. data. A rise in euro zone debt yields also helped the euro. German Bund yields posted their biggest daily rise in two years overnight on waning deflation fears and improved prospects for a Greek debt deal.

The common currency shed some of its gains after investors focused on the Fed's monetary policy statement attributing the winter slowdown in U.S. economic growth partly to transitory factors.

The Fed, however, took a gloomier view of the labor market after its two-day policy meeting ended late Wednesday.

"All in all, the FOMC statement gave a balanced assessment of the current economic slowdown and the Committee remains very much in a data-dependent mode. However, the balanced and cautious tone in the statement is a far cry from the optimism and (over)confidence that we have seen in previous statements," economists at Rabobank wrote in a note to clients.

The dollar was down 0.4 percent at 118.61 yen after the BOJ held off from further easing.

The New Zealand dollar sank 0.8 percent to $0.7617 after the Reserve Bank of New Zealand stood pat on monetary policy and said it would cut rates if warranted.

The kiwi's retreat nudged the Australian dollar down 0.1 percent to $0.7997 after it marched to a three-month peak of $0.8077 overnight on the dollar's broad weakness.

In commodities, U.S. crude was steady after jumping to a four-month high overnight when the first crude stock draw in five months at the Cushing, Oklahoma, hub suggested the oil glut may be starting to wane. The contract was little changed at $58.57 a barrel.

Reference: Shinichi Saoshiro

Wednesday, 29 April 2015

Discover Some Fundamentals of Successful Trading

Newsletter 13

Basic Trading Concepts Defined

Trading, or speculating on the markets, is the best business in existence if you treat it like a business, not gambling or as a hobby.

And to make a success of trading requires that you apply the same diligence you would apply to building any other kind of business, such as proper preparation. This includes investing in your education as well as planning.

Many fail to make a success of trading because they take unnecessary chances, such as trading from 'insider information', 'tips', or guessing. Trading this way nearly always results in the trader having to grapple with hope and fear.

A fundamental truth about the markets is that they will either be trending in one direction or another, or moving sideways. A market can move sideways for long periods of time, sometimes for weeks, months and even years. However, when a market breaks out of a sideways pattern that had persisted for a long period of time, this usually results in prices continuing for a good length of time in the direction of the breakout in what is known as a trend.


Swing Bottoms

A market that is making higher swing bottoms and higher swing tops is a market that is bullish. One should look only to buy when the market is making higher bottoms and higher tops, no matter how high it has travelled. You should never look to sell a market because many consider it 'too high'. The market is never 'too high', and more often than not will continue to move higher.

A market that is making lower swing tops and bottoms is a market that is bearish. One should look to sell when the market is making lower tops and bottoms. The market is never 'too low', and you should not buy just because many consider the market is too low. More often than not, it will continue to move lower.

In order to discover the trend, you need to learn to read charts. You can draw them yourself on graph paper, or you can take advantage of the many charting programs available today for the computer. If you use computer charts, you can then apply various indicators on your charts that come with most charting programs.



Using charts, you can look at the different time frames and note the major tops and bottoms of prior years, months and weeks. This can help you see where the market is currently trading, and whether the market is currently trending up, down or sideways.

The probability of success in trading is highest when you focus on trading with the main trend. If you use price charts before taking a trade, you can see if price is making higher or lower tops and bottoms. It is important that you remove guessing from your trading.

Reference: Rick J. Ratchford

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Fed meeting seen as chance to nudge markets on rate hike timing

The facade of the U.S. Federal Reserve building is reflected on wet marble during the early morning hours in Washington, July 31, 2013. REUTERS/Jonathan Ernst

(Reuters) - As the Federal Reserve's policy-setting committee wraps up its third meeting of the year, a critical task awaits the U.S. central bank: narrowing the wide gap between how it and the markets view the path of interest rates.

The Fed previously ruled out raising rates at the end of its two-day meeting on Wednesday, and the chances of a hike at the June meeting, while still on the table, have steadily decreased amid a drum-beat of weak first-quarter economic data.

The central bank says its decision on when to raise rates will be data-dependent and made on a meeting-by-meeting basis, a stance that it may reaffirm on Wednesday.

Economists say September is more likely than June for the Fed's so-called "lift-off." It has kept rates near zero since late 2008 as part of its effort to spur the recovery from the financial crisis.

Futures traders see an even later time horizon, meaning they have little trust in the Fed's message that it's moving ahead with plans for what would be the first rate hike since June 2006.

The Fed faces a dilemma this week, according to Bank of America: accommodate market expectations of a later lift-off, or "update their communications to nudge the market in the Fed's direction." Bank of America's rates and currencies team said on Monday it expects the Fed to lean more to the latter option.

Futures traders put the odds of a September hike at only 25 percent, according to CME Group's FedWatch. The Fed's median federal funds rate estimate in December is 0.625 percent, nearly double where futures contracts show the rate that month.

The Fed could nudge investors on Wednesday by striking a more hawkish tone on inflation.

Stubbornly low inflation has been among the factors holding back the Fed's lift-off plans, but U.S. consumer prices ticked higher for a second straight month in March due in part to a rebound in energy prices.

Fed officials say the factors behind low inflation - a drop in the cost of oil and a rising U.S. dollar - are transitory, and believe prices will rise once those swings level off.

"A September lift-off is the marginal favourite, but June and July are possibilities if it becomes clear quickly that the first-quarter slowdown was a temporary weather-related blip rather than something more serious," Capital Economics said in a research note on Monday.

Employers added just 126,000 workers last month, the fewest since December 2013, breaking a 12-month streak of gains above 200,000. Manufacturing, housing and consumer spending data also have pointed to weakness.

The U.S. Commerce Department is scheduled to issue its first snapshot of first-quarter GDP at 8:30 a.m. EDT (1230 GMT) on Wednesday, with economists polled by Reuters expecting an anemic 1 percent annual rate of growth.

At the core of the Fed's struggle is whether to view the inflation rebound as a key step forward, or to view the overall economic data as a sign the markets are not yet ready to have the monetary policy stimulus punch bowl taken away.

JP Morgan predicted in a note last week that the meeting will be "relatively uneventful" and that the third paragraph in the Fed's policy statement, where it gives its rate guidance, would remain mostly the same as March, when the central bank said lift-off was dependent on further improvement in the labor market and "reasonable confidence that inflation will move back toward 2 percent over the medium-term."

Reference: Michael Flaherty and Howard Schneider

Tuesday, 28 April 2015

No Bank of England rate rise until early 2016

A man walks past the Bank of England in London March 5, 2015.  REUTERS/Suzanne Plunkett

(Reuters) - The Bank of England will wait until early 2016 before raising interest rates, but with economic growth forecast to stay steady and inflation below target, even then it is a close call, according to a Reuters poll of economists.

Not long ago, the BoE was expected to be the first major central bank to begin hiking rates from near zero, where they have held for more than half a decade.

But predictions for the timing of when BoE Governor Mark Carney and the Monetary Policy Committee will finally raise rates have steadily moved further into the future.

The poll of nearly 60 economists taken over the past week suggested the first move would come in early 2016, the same as an April 1 poll, but the contributors only attached a median 60 percent likelihood of a first move by the end of next March.

As recently as October, that first rate hike was expected to have already been delivered. But minutes published earlier on Wednesday showed all nine members of the bank's Monetary Policy Council voted to leave rates on hold this month.

By the middle of next year, there was a 75 percent chance the Bank will have hiked rates and an 85 percent chance by the end of 2016. But that leaves some expecting the Bank not to move at all until the year after.

"We expect inflation to remain below target through the end of 2016, and with the UK economy slowing, possibly faster than some are expecting, it is hard to envisage a rate rise before 2017," said Oliver Jones, economist at Fathom.

Even those who expect an earlier move do not envisage rates rising quickly. Governor Carney has repeatedly stressed policy tightening will be gradual.

Median forecasts from the poll suggest Bank Rate will sit at 1.25 percent at the end of next year and a still historically low 2.00 percent at the end of 2017.

While the British economy has outpaced many of its peers in recent years, tumbling oil prices have sent inflation down to zero, and even lower in the euro zone, Britain's biggest trading partner.

The BoE targets inflation at 2 percent. Very few economists expect it to be back there before June 2016, the end of the forecast horizon. The median forecast shows inflation averaging only 1.7 percent next year, reaching target by 2017.

British gross domestic product grew by 0.6 percent in the three months to December and is expected to expand around the same per quarter through to the middle of next year.

Britons go the polls on May 7 in what is likely to be one of the closest-fought national elections in decades.

Reference: Jonathan Cable

Asian shares edge off seven-year highs as Fed awaited

People walk past a panel displaying the benchmark Hang Seng Index during afternoon trading outside a bank in Hong Kong April 15, 2015.   REUTERS/Bobby Yip

(Reuters) - Asian stocks pulled back from a seven-year peak scaled on Tuesday as sentiment gave way to caution ahead of the Federal Reserve's policy two-day meeting scheduled to start later in the session.

The dollar clawed back some of its losses against the euro which rose overnight on optimism for progress in debt-laden Greece's ongoing negotiations with creditors.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down about 0.3 percent after earlier touching its highest level since January 2008.

Japan's Nikkei stock index .N225 advanced 0.3 percent as on hopes of better shareholder returns after index heavyweight Fanuc Corp (6954.T) doubled its dividend payout ratio. [.T]

"Heading into another peak earnings week, investors have focused on companies' efforts to raise shareholder returns," said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

On Monday, Wall Street ended lower after the benchmark S&P 500 index .SPX hit a record intraday high before reversing course, tempered by caution ahead the Fed meeting. After markets closed, Apple Inc (AAPL.O) beat Wall Street's revenue and profit forecasts.

Analysts expected no change in policy stance from the two-day Federal Open Market Committee meeting starting later on Tuesday, as recent domestic data have been weaker than forecast and a strong dollar has crimped export activities.

Market expectations for an interest rate increase have been pushed further down the road, with few investors now expecting a rate hike in June and most predicting a move later this year.

The euro was in focus overnight, climbing to a three-week peak of $1.0927 EUR=, well off its 12-year nadir of $1.0457 plumbed in mid-March. It last stood at $1.0879, down about 0.1 percent on the day.

Greek Prime Minister Alexis Tsipras on Monday reshuffled his team handling talks with European and IMF lenders, a move widely seen as an effort to relegate embattled Finance Minister Yanis Varoufakis to a less active role in negotiations.

Tsipras also said the government's top priority as it faces dwindling coffers of cash was to pay wages and pensions, and added that defaulting on debt was not an option either.

"The market has become used to potentially negative Greek headlines and less responsive to them. It will give more attention when payment deadlines loom closer or should Greece actually have a difficult time making payments," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The firmer euro helped knock the dollar index .DXY to a three-week low of 96.467 on Monday. The index last traded at 96.777, nearly flat on the day.

Against its Japanese counterpart, the greenback bought 119.07 yen JPY=, up slightly on the day, with that currency pair seen rangebound ahead of a Japanese public holiday on Wednesday and the Bank of Japan's regular policy meeting on Thursday.

The BOJ is widely expected to hold policy steady, but there is a slim possibility that policymakers may opt to ease further if the cut to this fiscal year's inflation forecast is unexpectedly big, or if they feel the slowdown in inflation is damaging enough to warrant pre-emptive action.

In commodities trading, crude oil extended its losses made on Monday as ample global supply blunted support from the conflict in Yemen and the falling number of U.S. rigs drilling for oil.

Weekly U.S. crude inventory data is also expected to show another high, and Saudi Arabia pledged to supply more oil to China if needed, which kept traders cautious after prices reached 2015 peaks last week.

Brent LCOc1 was down about 1.1 percent at $64.12 a barrel, while U.S. crude CLc1 shed about 1.4 percent to $56.20.

Reference: Lisa Twaronite

Monday, 27 April 2015

How to Follow the Trend for your Time Frame

Forex-Currency-Trading 11

Basic Trading Concepts Defined

The call to "follow the trend!" is not something new. The logic is solid.

Markets that are trending tend to continue for some time in that direction. So by trading in the direction of the predominant trend, you immediately increase the probability for profit by some measure.

However, when it comes to market trends, it is all relative. For example, you could look at a monthly price chart and see that the trend is currently bullish. Yet, if you look at a daily chart, it could be in a very strong bear trend.

Therefore, what is the trend? Is it bullish or is it bearish?

At any given time, the trend will be both bullish and bearish, depending on the time-frame being monitored.

So how do you trade with the trend if several time-frames are in a bull trend and several time-frames are in a bear trend?


Time Frame

The best way to trade trends is to decide first on the time-frame you want to use for your entry and exit decisions.

For example, if you want to enter and exit trades based on the daily time-frame chart, you should then determine the trend using either a 3-day chart (where each price bar is made up of 3 trading days) or a weekly chart (where each price bar is made up of a price bar is made up of a complete week, Monday to Friday).

Use the weekly chart to determine whether weekly prices are in a bullish or bearish phase, then only trade in that direction using the daily price chart.

I have left off specifics about trend determination or entry/exit signals because that is for another lesson.

Suppose that you want to enter and exit trade signals based on a 10-minute or 15-minute chart. You might want to use the 60-minute chart to determine your trend first.

Roughly, whatever time-frame you decide to use as your trade entry/exit time-frame, look at a time-frame that is 3-6 times greater for your trend and only take trade signals that get you in with that trend.

The time-frame you choose to trade from should be based first on how much risk you can initially handle per trade. If you have a large account, you can handle the risk associated with trading the higher-time frames.

Those with smaller accounts will naturally need to stick with lower-time frames in order to minimize risk exposure. Once you have this decided, use the formula suggested above to pick the higher-time frame to base your trend on.

Avoid trading against the trend of the time-frame chosen for trend determination and you will improve your probability for trading success.

Reference: Copyright ©ProfitMax Trading Inc. - Futures Trading Market Forecast

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More central banks meet, but ability to pilot economies in doubt

A man walks past the Bank of Japan building on a rainy day in Tokyo, February 18, 2015.  REUTERS/Thomas Peter

(Reuters) - Most central banks have been easing policy since the start of the year and are set to do more, but it still isn't clear whether that new activism, which has pushed stock markets to record highs, will help the global economy much.

Several meet this week to set policy, including the U.S. Federal Reserve, the Bank of Japan and Sweden's Riksbank, which all have turned to government bond purchases as stimulus after running out of interest rates to cut.

Yet recent easing -- and the halving of oil prices, which was meant to be a windfall for consumers -- have not changed the global outlook much, according to Reuters polls of hundreds of economists published last week.

The Fed shut its quantitative easing (QE) program just over six months ago. But it seems likely it will be forced to wait until later this year, instead of June as was expected a short time ago, before raising rates from record lows.

A disappointing start to the year from another punishing winter and trade disruption at West Coast ports, together with a rally in the dollar that is now restraining inflation and U.S. exports, is chiming a familiar refrain: low rates for longer.

Few expect the Fed to use its two-day meeting as a launching pad for what will eventually be the first interest rate hike in nearly a decade. Wages and inflation still are not rising significantly and even hiring has had a setback.

Many, however, expect the central bank to make it clear in its policy statement on Wednesday that it is inclined to take the first solid opportunity it can find to set extraordinarily accommodative interest rate policy back on a more normal path.

"Further labor market progress, moving to a 'more balanced' outlook and gaining confidence in the inflation outlook would send clear smoke signals that lift-off is only shortly ahead," wrote analysts at BNP Paribas in a note to clients.

What does not appear any more balanced is the global growth picture, nor does trading behavior in world financial markets. Just this week, Wall Street re-captured its record high on the Nasdaq struck during the last technology stock boom.

German stocks have soared more than 20 percent this year in anticipation of European Central Bank sovereign bond purchases, which began last month and have hammered the euro and bond yields about as much as they have boosted share prices.

The euro zone outlook certainly has brightened over the last several months. But the still-modest growth will not bring down high unemployment, and the risk remains real Greece, which is running out of cash to pay its debts, may be forced to default. [ECILT/EU]

ECB data due next week will show whether private lending by euro zone banks to companies is really on the up.

In Japan, where the central bank has been printing money for about a decade and a half to escape deflation, questions about the effectiveness of further aggressive monetary easing there will be on full display.

Two years after the authorities ramped up stimulus in a multi-trillion yen volley to boost inflation, the economy has escaped a self-imposed recession via a sales tax hike and is now left with a price outlook very similar to 2013.

"Wage and price-setting behavior have changed little since the program was launched," wrote Mark Williams, Chief Asia Economist at Capital Economics, an independent consultancy.

The BOJ is likely to trim its inflation forecast for the current fiscal year, according to sources familiar with its thinking. Further stimulus is still likely, but not until later this year, perhaps in October.

Sweden's Riksbank, which has slashed its main policy rate to below zero and is conducting asset purchases to ward off deflation but also has solid growth and soaring house prices and household debt to contend with.

If that were not enough to at least give the impression to outside observers that central bankers are not entirely in control of the economies they oversee, Brazil's central bank meets next week facing a completely different dilemma.

While most other banks are cutting, including its peers in emerging markets like China and India, Brazil's central bank is grappling with an economy in recession and runaway inflation.

Brazil's rate-setting Copom, according to the latest Reuters poll, is expected to raise by another 50 basis points to 13.25 percent, already one of the highest key interest rates in the world. [BR/INT]

Reference: Ross Finley

Friday, 24 April 2015

The Importance of a Trading Plan

IMG_1606 euros

Basic Trading Concepts Defined

Write it BEFORE you take the trade!

When most traders think of making profits in trading and investing, they usually focus on methods of market timing or what to do based on certain news releases.

While market timing is extremely important for the purpose of minimizing risk exposure while maximizing profit potential, it will not help the trader or investor that goes about taking trades without a well thought-out plan.

One of the most common problems traders face is that of HOPE.

Now, I am not saying that there is a problem with having hope. Who does not 'hope' that their trade will come out profitable?

However, what often occurs is that a trade does not start off as expected, and the trader is then put in a position where a decision needs to be made, only to be completely controlled by HOPE.  All reasoning goes out the window once the trade starts moving against the position, and the 'plan-less' trader is then holding onto the position due to HOPE.

Without a proper trading plan BEFORE the trade is executed, discipline is often the first to go.

When the decision was made to take a trade, there had to be a good reason for it.  The trader saw something in the charts or perhaps in the news (for those that dare to use such unreliable information) that suggested taking a position would likely result in a good profit.  This would also be the time to decide what is to be expected from the trade and what to do if the market does not provide what is expected.


All this MUST be done BEFORE the trade is executed

The disciplined trader would have all this written down.  The items to list would be the ENTRY price zone, the price objective if there is one (not all trades need an objective if there is a plan on how to trail the trade with a stop-loss order), and what conditions would signal an immediate exit from the trade, such as price breaking below a certain price level.

Where the plan really shines is during the early stages of the trade, when the market has yet to move deep enough into profit territory to warrant a tightening of the stop-loss.

During the initial stages of a trade, the risk of loss is at its highest.  The trader 'with a trading plan' knows this and has already determined at what price point the trade would be considered operating outside of initial expectation.  The trader would prudently place a stop-loss order at that level and under no circumstances ever remove it other than to move it further into the direction of profit.

Without the trading plan and the discipline to stick to it, the trader can find the trade moving into the exit price zone only to start 'hoping' that it is going to be brief and that the market will soon turn around and all will be right with the world.

Most times, this does not happen!  The trade continues deeper and deeper into losing territory, and the trader simply cannot accept such a loss so continues to 'hope' that it cannot continue for long and holds on rather than exits.  Eventually the pain becomes too much and the trade is finally exited (unless the account is wiped out, which makes the exit automatic), only to then see the market finally turn around.  This is very devastating to the trader's psyche!

If you are going to trade, you must accept manageable losses as part of the process.  You must be willing to write down your trading plan with your exit strategy clearly laid out. You must be willing to follow that plan that you wrote 'with a clear head' to a tee, with no exceptions.

One of the best lessons I have ever learned in my 30 years of trading came from writing and following (or not) my trading plans. I learned where the weaknesses were in my plans and had something I could look at and improve upon.  It helped me build stronger 'will' and determination, pumping up my discipline muscles along the way.

So if you have a trading method that you believe is good for making profits, having the habit of making a trading plan and following it will tell you sooner than later whether your belief is well-founded or that it needs to be tweaked.  A trading plan is really that good!

Reference: Rick J. Ratchford

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Wall Street opens down on data, company forecasts

Traders work on the floor of the New York Stock Exchange April 20, 2015. REUTERS/Brendan McDermid

(Reuters) - U.S. stocks opened lower on Thursday, pressured by soft data out of Europe and China, while companies such as Procter & Gamble (PG.N) and 3M (MMM.N) joined others in issuing disappointing forecasts.

The Dow Jones industrial average .DJI fell 19.65 points, or 0.11 percent, to 18,018.62, the S&P 500 .SPX lost 3.58 points, or 0.17 percent, to 2,104.38 and the Nasdaq Composite .IXIC dropped 14.47 points, or 0.29 percent, to 5,020.70.

Business activity slowed more than any forecaster expected in the euro zone this month while manufacturing in Asia's top two economies hit the brakes, suggesting the global recovery path is less clear than policymakers are predicting.

The sudden drop in the euro zone flash composite Markit Purchasing Managers' Index (PMI) was driven by sharply slower growth in manufacturing orders in Germany and France, suggesting recent optimism about the euro zone may be overdone.

This marks the first major euro zone indicator that has disappointed all forecasts in quite some time, and comes just a month after the European Central Bank began purchasing government bonds to stimulate the economy.

The euro zone composite PMI fell to 53.5 from 54.0, below both the 54.4 consensus and the lowest forecast in a Reuters poll. The 50-point mark separates growth and contraction.

Factory order growth slowed particularly in France, but also in major goods exporter Germany, and the euro zone's No. 1 economy, suggesting more subdued activity ahead.

Both the flash manufacturing and services PMIs for France and Germany fell below the lowest forecast. For the euro zone, only the service PMI didn't.

"There is a clear risk that the composite PMI falls further as concerns about the situation in Greece and a possible euro exit intensify, raising the threat of a renewed economic slowdown in the euro zone," said Jessica Hinds, European economist at Capital Economics.

Other economists said the smaller euro zone economies that were hit so hard by crisis are still likely to report improvement in the months ahead.

"Country data so far available suggest that the periphery did comparatively well, with a good probability that the PMIs there may show resilience when they (are) published in early May," noted Marco Valli, economist at Unicredit.

In Britain, whose economy has performed better than the euro zone over the past several years, retail sales fell unexpectedly in March, hit by the biggest slump in fuel sales in just under three years, separate data showed on Thursday.


In China, where the government has been engineering a rebalancing of its economy away from relying too much on exporting manufactured goods towards domestic spending, the flash PMI fell to a one-year low of 49.2 from 49.6.

Economists polled by Reuters had expected it to remain steady.

Nomura analysts said the data underscored their call for two more 50 basis point cuts in the reserve requirement ratio for Chinese banks as well as three more 25 basis point interest rate cuts over the remainder of the year.

The People's Bank of China slashed its requirement for the amount of cash that banks must hold as reserves by a full percentage point on Sunday.

Hopes of yet more stimulus have helped sparked a massive rally in the local share market. The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen has risen over 30 percent so far this year.

Japan's PMI also slid, to 49.7 from 50.3 in April, as new orders continued to shrink and manufacturing production fell for the first time since July 2014. The data showed an increase factory hiring, however.

At next week's policy review, the Bank of Japan is expected to hold off on expanding its already massive monetary stimulus but may lower its inflation forecasts.

In the United States, the pace of expansion in manufacturing is expected to have moderated slightly, but it still growing at a faster pace than in Europe. Markit's flash U.S. manufacturing PMI is expected to ease slightly to 55.5 from 55.7 in March.

Reference: Ross Finley and Ian Chua

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Thursday, 23 April 2015

Why Is Paper Trading Important?

forex picture 1

Basic Trading Concepts Defined

Once in a while, I get questions like this from new traders as well as seasoned traders (who never really paper traded in the past). When I reply, I would almost always encourage them to paper trade but they usually disagree. Their argument is quite simple - if the objective of trading the financial market is for wealth, then surely trading a live account is the way to go because you can never make money just by paper trading.

Believe it or not, you can make more money by starting your trading career with paper trading only. Yes, I kid you not. With that, I hope I can shade some light about the importance of paper trading and I hope to influence you to do the same.

Note: With the rise of modern technology, the term Paper Trading is meant to represent any form of system testing. This includes any demo trading, back testing and forward testing that you may use.


Technical Vs Psychology?

Here's a simple question, when you start learning to trade, what is most important to you? Technical knowledge (either fundamental or technical analysis) or Trading Psychology?

My guess is that many would say technical knowledge. Because most new traders would assume it is. Meanwhile, a minority would think that learning the psychology is important.

If you picked either of them, you are (both) right. Why? Because both of them are important. In fact, you need both as one cannot do without the other.

However, many traders still struggle to become successful traders. I believe that's because many fail to priorities both the areas properly. Well, if you're not convinced, please read on.


Technical Is Important

As mentioned, if you think that learning the technical is important, you are absolutely right. Unfortunately, I find that some of you would also start trading real money immediately. Some of you seem to have this "try and see" or "let's learn by getting our hands dirty" mentality.

Of course, 'getting your hands dirty' is crucial but I don't think you need to use money to get your hands dirty when learning the technical. Agree? For those who don't, you might even suggest that traders will not understand their emotions unless they start trading real money.

VoilĂ ... (This is usually the part where I'm most excited.)

As a new trader, if you really want to learn and understand the technical know-how of trading, then stop worrying about how your emotions will pan out. Instead, stay focus on learning the technical until you are a master at it. Until then, put your emotions aside and the only way to do that is to use a demo account.

You see, many new traders contradict themselves by telling the world that learning the technical is important. Yet, they would also put real money at risk to understand their own emotions. While this is not impossible, it has been shown in the past that many have failed to learn both at the same time because emotions usually override our rational mind. When that happens, many new traders struggle to tell the root of a failed trade. In other words, they cannot identify if it's their psychology or is it their system that is working against them?

Furthermore, many would end up breaking their trading rules because the irrational mind (emotions) is acting on their behalf. But if these new traders break their trading rules all the time, they won't have enough sample trades to determine if their system is profitable at all. Not only have they messed up their system beliefs, they have also messed up their own confidence.

Thus, traders end up going in circles.


Psychology Is Important Too

Working on Psychology is important too.

However, I'll be brutally honest here, although learning about trading psychology is more important than learning the technical, it is difficult to master your trading psychology without having sound technical knowledge.

Some of you might be scratching your heads now wondering what I'm talking about. As the owner of this trading psychology website, I truly think that trading psychology is the most important element in your trading career. However, many people cannot truly appreciate trading psychology unless they have traded the financial market in the past.

This is just like riding the roller coaster. When you ride the roller coaster, you feel the adrenaline, the rise, the drop, the fun and the rush of the ride. However, in order to build the ride (a.k.a. the system), lots of work has been put into the engineering design (trading plan) as well as the safety features (risk management) before the structure of the ride is even built (live trading account).

Unfortunately, many traders want to enjoy the ride before even having a fail-safe design. That's like riding the roller coaster with a few missing nut.

See the problem?

Paper Trading is the Solution

This is one of the main reasons why paper trading is important. You want to separate the Technical knowledge from the Psychology of trading. More importantly, you want to manage them independently without the influence of one over another.

On top of that, you cannot ignore the fact that trading real money is a very emotional activity. While money is a very unique asset, it is also an asset that can make or break your trading. Hence, why would you want to trade real money at the very start?

Every time I explain this to traders, they tend to ignore me because - while their instincts know that paper trading is the right thing to do - their pride, ego, stubbornness is trying to rationalize why they should continue doing what they are doing. Trust me, even I struggled to revert back to paper trading when I came to this realization.

Hence, here are some proposals that you might find helpful:

  • Paper Trade New Systems

trade them. Do so until you are consistently profitable (on paper).

Some of you find this challenging because you don't pay enough attention to the trade when there's no real money at risk. However, while many are not aware of it, this is only true if you don't set yourself a target. For example, if you have a new system, make sure to set yourself a target (say 5% gain or 10 winning trades) before you move them to a live account. This way, there is motivation to perform and that will keep your interested.

  • Start a 2nd but Smaller Account

Instead of shrinking your trading account, why not move a portion of money to a new or sub account. Most brokers can accommodate clients having 2 or more trading accounts at the same time.

Once you've done so, use this account to trade systems that are only marginally profitable while you find ways to improve these systems. This is part of money management because you are now trading with reduced risk. Also, put any new systems (after having successfully paper traded them) in this account too. Do not increase the risk of any new systems until they are consistently profitable in this sub account.



As you can see, it's pretty easy for new traders to get confuse between managing their trading system over managing their emotions. This is probably one of the biggest challenges that new and seasoned traders need to overcome.

In order to overcome these problems, we need to separate the two elements and manage them independently. Like it or not, by paper or demo trading, we are able to achieve that and, hence, traders who have paper traded in the past will likely to become more successful traders in the longer term.

Reference: Alwin Ng

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Fed eyes ability of asset managers to repay in a panic

A detail from the front of the United States Federal Reserve Board building is shown in Washington October 28, 2014.  REUTERS/Gary Cameron

(Reuters) - Sections of the U.S. financial system that may be vulnerable to investor panic are raising concerns inside the Federal Reserve, as policymakers preparing for the first interest-rate hike in nearly a decade seek to ensure that the market is ready and able to handle it whenever it happens.

The Fed is particularly worried about whether the booming asset management industry can withstand a run of redemptions in a financial crisis.

Chief among the Fed's concerns, increasingly voiced in public remarks, is that certain funds held by individuals and institutions will not have the underlying assets sufficient to back investors cashing out in a panic. The lack of liquidity would expose investors and the economy to sharp price swings.

Bond inventories at primary dealers have plunged due to bank regulations. The amount of Treasury securities in circulation also has dropped after the Fed's three rounds of bond purchases.

The fall in liquidity across portions of the bond market comes amid a jump in volatility, making it more important for Fed officials to telegraph their tightening plans well ahead of time.

The Fed's nightmare scenario is in surprising markets, exposing investors to the liquidity risks it fears, and causing a spike in borrowing costs that hurts economic growth.

"Some open-ended mutual funds offer daily withdrawal privileges but invest in assets that take longer to sell and settle," Fed Vice Chair Stanley Fischer said in a speech last month. Fed Governor Daniel Tarullo and Atlanta Fed President Dennis Lockhart have offered similar warnings about liquidity in the last few months.

Asset managers have said they are systemically safe. But Fed officials have noted a surge in asset management inflows and concentration. One example is fixed income exchange-traded-fund assets, which reached $246 billion in 2013 from their inception in 2002, according to Greenwich Associates.

New York Fed President William Dudley has warned that investors are less inclined to hold liquid assets as memories of the 2008 crisis fade.

The Fed could slow or delay rate hikes "if financial conditions were to tighten a lot," Dudley said this week. Still, the Fed will be as clear as possible. "I'll be very surprised if, whenever normalization occurs, it will be a big surprise to anyone - if we're doing our job properly," he added.


The Fed has kept interest rates near zero since Dec. 2008 and embarked on three rounds of large scale bond purchases to stimulate the U.S. economic recovery following the 2007-9 financial crisis.

While the Fed could hike rates in June, the economy's weak winter performance has pushed expectations of a hike more toward September. Futures traders are betting on a move as late as December.

    That disconnect sets up a potential collision if the central bank hikes faster than expected, a collision that could send ripples across the asset management industry.

    "Part of what's going on is (investors are) not being convinced that we're going to raise interest rates," Loretta Mester, president of the Cleveland Fed, told economists last week.

Bond markets are still susceptible to another "taper tantrum" such as the one that happened in 2013 when then Fed Chairman Ben Bernanke caught investors off guard by suggesting the central bank could trim bond purchases earlier than the market expected.

Deutsche Bank pointed out in an April note that the volume of primary transactions in the Treasury market has dropped relative to the overall scale of the notes held by the public, though it also said the bank does not see "broad market impairment."

"But liquid markets could quickly turn illiquid in response to a shift in Fed policy or some other shock, which could amplify any adverse market response, as occurred during the taper tantrum," according to the note.

Reference: Michael Flaherty and Jonathan Spicer

Wednesday, 22 April 2015

Top Three Stop Loss Methods


Basic Trading Concepts Defined

Stop losses enable traders to calculate their risk per trade and maximize profit. They are orders placed by traders that will close the open position if the trade moves in the wrong direction. For example, a stop may be placed to sell if the price drops, if a trader was long EURUSD.

Stop loss methods can be roughly categorized into two different types: Trailing Stops and Fixed Stops, while there are two commonly used types of Trailing Stop. Read on to find out more about the three most commonly used methods, their advantages and disadvantages, and how you can make them work for you.


1. Fixed Stop

What it does:

A fixed stops enables a trader to place their stop when they open their position. The stop can then be left until the position (trade) is closed, either manually by the trader, or because the stop loss or profit target was hit.

Why it’s a must-have:

This type of stop loss is helpful as it allows you to know your exact risk per trade. It also gives the trade room to move around, and hopefully turn in your direction. This will prevent you from being stopped out too early and losing profit.

How best to use it:

Fixed stops are most useful for traders placing large position trades. Here, the trade will be closed out manually with market profit targets, but knowing your exact risk at the outset is still useful. They are useful for traders who find themselves in the right direction of a trade, but notice their stops get taken out too quickly. Fixed stop losses can help you get back in the money.


2. Manual Trailing Stop Loss

What it does:

A manual trailing stop loss allows traders to make risk reward on their chart. Instead of using profit targets, the stop loss will only be moved when a key target is hit. Instead of using fixed stops, traders are able to put the stop slightly below a recent swing low if they are long, or above a recent swing high if they are short.

Why it’s a must-have:

Manual trailing stop losses still give the trade room to move, but allow you to lock in profit.

How best to use it:

Typically, when using manual trailing stop losses, traders will wait for their 2nd profit to be hit before moving their stop up one level. This gives the trade room to run while also allowing traders to maintain a good risk reward structure. It also makes it possible to lock in profit on quick movers.


3. Automatic Trailing Stop Loss

What it does:

An automatic trailing stop loss is an automatic order set up on a trading platform with fixed rules. The traders sets the stop loss distance and step size in pips, and the stop loss will move for every step size movement up (if long) or down (if short).

Why it’s a must-have:

It maintains your stop level and provides a fixed risk profile.

How best to use it:

Automatic trailing stop losses are typically less flexible than other methods. It is usually best used where a fixed risk profile is required. It lacks the ability to consider how price is moving, and therefore can place stops at levels that may be easy to take out to early. It does not give the trade much room to run in comparison with other methods. Often, traders have a good amount of knowledge and strong risk reward, but are so strict on stop losses that they forget to use the same skills they are using for entry for stop loss placement in reverse. Here, it may be best to take a step back and try a different method, to give your trade more room to move.

Reference: Sam Evans

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Morgan Stanley posts highest profit since financial crisis

The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015.    REUTERS/Mike Segar

(Reuters) - Wall Street investment bank Morgan Stanley reported its most profitable quarter since the financial crisis on Monday, boosted by higher revenue from trading bonds and equities.

The bank's trading business, like those of its main rivals, got a boost in the quarter after the Swiss central bank scrapped a cap on the franc, the European Central Bank announced its quantitative easing program and the U.S. Federal Reserve took steps toward tightening monetary policy.

Global stocks also generally performed strongly.

Morgan Stanley capped a mostly strong quarter for the big U.S. banks with its 60 percent rise in net profit, followed by Goldman Sachs Group Inc, whose profit jumped 41 percent.

"We did not dial up risk to generate these earnings," Chief Executive James Gorman said on a call to discuss what he described as the bank's "strongest quarter in many years."

Morgan Stanley is focusing less on bond markets and more on managing money for the rich as a way to free up capital and meet stricter regulatory rules imposed since the financial crisis.

Net income applicable to the bank's common shareholders rose to $2.31 billion, or $1.18 per share, in the quarter, from $1.45 billion, or 74 cents per share, a year earlier.

It was the bank's most profitable quarter since the second quarter of 2007, according to Thomson Reuters data.

Morgan Stanley's shares were up 0.4 percent at $36.91 in early trading after being up as much as about 2.6 percent before the opening bell.

The bank achieved an adjusted average return-on-equity of 10.1 percent, above the 10 percent minimum set by Gorman as the bank focuses more on returns than revenue.

Excluding items, the Morgan Stanley reported earnings of $1.14 per share.

Adjusted earnings according to calculations by Thomson Reuters I/B/E/S worked out to 85 cents per share. On that basis, analysts had expected per-share earnings of 78 cents.

Net revenue excluding items rose 10.3 percent to $9.78 billion, beating the average estimate of $9.17 billion.

Revenue from wealth management rose 6.2 percent to $3.83 billion, accounting for 39 percent of total revenue. Pre-tax income from the business rose 24.6 percent to $855 million for a margin of 22 percent, within the expected year-end range.

Adjusted revenue from equities sales and trading rose by a third to $2.27 billion - a strong performance, but not enough to beat Goldman Sachs Group Inc's $2.32 billion.

Excluding special items, revenue from trading fixed-income securities and currencies (FIC) rose 15 percent to $1.90 billion, the highest in three years.

Goldman and JPMorgan Chase & Co also reported higher revenue from the business.

The wealth unit's contribution to revenue jumped to nearly 45 percent last year from less than 20 percent in 2006.

In the same period, FIC revenue fell to about 12 percent of revenue from more than a third.

Expenses for compensation and benefits rose 5 percent in the quarter.

Reference: Anil D'Silva and Avik Das

Tuesday, 21 April 2015

Investors look to earnings for market direction

A Wall Street sign is pictured in front of the New York Stock Exchange, open during Winter Storm Juno, in the Manhattan borough of New York January 27, 2015.  REUTERS/Carlo Allegri

(Reuters) - Investors attempting to determine whether U.S. equities will rebound from Friday's selloff or continue to sink will look to a deluge of earnings next week for a clearer picture of the economy.

The S&P dropped 1.1 percent on Friday, its biggest decline since March 25. Equities lost ground after industrials Honeywell International and General Electric took hits from the strong dollar, while concerns over new trading regulations in China and Greece's place in the euro zone dented sentiment.

Since hitting a high of 2,119.59 on Feb. 25, the S&P has held in a range of about 80 points. Investors have grown concerned about the impact of a strong dollar on quarterly results, even as they remain leery of missing out on any rally.

"Our markets will get kind of quiet again as we wait for some of those earnings and what is going to happen on the 24th with Greece," said Keith Bliss, senior vice-president at Cuttone & Co in New York. Euro zone finance ministers meet April 24 to try to reach a deal for Greek debt repayments.

Next week is among the busiest of the earnings season, with results expected from companies including Inc, General Motors, Boeing and Morgan Stanley. The results could help investors gauge the impact of the rise in the greenback and assess the strength of the economy after a string of lackluster economic reports.

"Most companies have been able to beat on the bottom line and miss on the top line, and that has been the story now for quite a while," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey, referring to companies' ability to beat profit estimates while falling short of sales expectations.

"Their ability to make numbers keeps their stocks from really selling off, but their inability to show top line growth keeps their stocks from really taking off."

According to Thomson Reuters data, of the 59 companies in the S&P 500 that have posted earnings to date, 74.6 percent have topped profit expectations, above the 70 percent beat rate for the past four quarters and 63 percent rate since 1994.

Early returns on revenue have been disappointing, however, as 45.8 of companies have topped estimates, well short of the 58 percent rate for the past four quarters and 61 percent rate since 2002.

"Next week you get everybody, you get a much better picture of what corporate America looks like in the first quarter," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

Although earnings season is typically choppy for stocks, traders in the options market do not seem to be raising many red flags about volatility for companies set to report results.

There are a few exceptions. DuPont, facing activist pressure to add board seats and split the company, is expected to show more volatility than usual. So is United Technologies Corp.

Both companies' share prices typically move about 1 percent in reaction to earnings; this season, options activity is suggesting a move of about 2.3 percent for United Technologies and 2.7 percent for DuPont.

    Shares of typically-volatile Internet giants, Facebook Inc and Google Inc, could move 6.5 percent and 4.3 percent, respectively, based on their options activity. Those are below the average moves seen in these shares after earnings.

Reference: Chuck Mikolajczak

Goldman reports highest profit in five years as trading picks up

new-york-stock-exchange-zendesk-large-5 17
(Reuters) - Goldman Sachs Group Inc (GS.N) reported its best quarterly profit in five years on Thursday, notching up big gains from trading bonds and currencies as global markets fluctuated during the first three months of the year.
Trading got a boost after the Swiss central bank scrapped a cap on the franc, the European Central Bank announced its quantitative easing program, and the U.S. Federal Reserve moved to tighten monetary policy.
That resulted in choppy trading that investment banks such as Goldman feed off. The bank's total trading revenue rose 23 percent to $5.46 billion in the quarter ended March 31.
Goldman's shares, which hit their highest since May 2008 on Wednesday, were down 0.3 percent at $200.53 in afternoon trading amid questions about whether the results were sustainable.
"Investors almost always discount trading and investment results because they’re so volatile," said Michael Wong, an analyst with Morningstar, who also noted the lack of clarity on Goldman's plans to return capital to shareholders.
"Retaining potentially excess capital, when it doesn’t seem to be for opportunistic purposes, makes someone wonder how much excess capital Goldman truly has or whether it's retaining capital for a potential negative contingency," Wong said.
Goldman has been more committed to trading fixed-income, currencies and commodities (FICC) than some rivals, which are abandoning the business in the face of new capital rules and a slump in client activity.
FICC revenue rose 10 percent to $3.13 billion in the first quarter, after falling 29 percent in the fourth quarter.
Total net revenue rose 14 percent to $10.62 billion.
Goldman said higher net revenue from trading currencies and interest rate products was partially offset by lower net revenue from credit products, commodities and mortgages.
"Given more normalized markets and higher levels of client activity, we remain encouraged about the prospects for continued growth," Chief Executive Lloyd Blankfein said in a statement.
The bank posted a bigger gain from trading in the quarter than JPMorgan Chase & Co (JPM.N). Bank of America Corp (BAC.N) and Citigroup Inc (C.N) reported declines. Morgan Stanley (MS.N) reports earnings on Monday.
Goldman's investment banking revenue rose 7.1 percent to $1.91 billion, the highest since 2007.
Net income applicable to common shareholders rose 41 percent to $2.75 billion, or $5.94 per share, beating the average estimate of $4.26, according to Thomson Reuters I/B/E/S.
"Overall, GS posted very strong results which show the strength of (its) business model," analysts at Keefe, Bruyette & Woods said in a note.
Goldman's return on equity was 14.7 percent in the quarter, compared with 10.9 percent a year earlier.
Compensation and benefit expenses rose 11.2 percent but were down slightly as a percentage of net revenue.
Total operating expenses rose 6 percent to $6.68 billion.
Reference: Sweta Singh and Lauren Tara LaCapra

Monday, 20 April 2015

China March FDI stays robust at $12.4 billion, outbound flows up 29.6 percent in first quarter

Customers select goods at a supermarket in Lianyungang, Jiangsu province February 9, 2015.  REUTERS/Stringer

Foreign direct investment (FDI) in China rose 2.2 percent on the year in March, while outbound flows posted a milder rise, as foreign corporate investors remain undeterred by weakening domestic economic performance.

That brings inbound FDI up 11.3 percent to $34.88 billion for the first quarter.

The data follows a series of disappointing data releases , highlighting flagging domestic fixed asset investment, including in property, and slowing industrial activity.

Foreign investment projects take time to conceive and implement, making FDI a lagging indicator of general confidence, but they have remained strong in recent months nevertheless.

Exceptionally strong growth in FDI inflows in the first two months of the year, including a nearly 874-percent jump for Saudi Arabia and a 367-percent gain for France, were due to one-off deals, commerce ministry spokesman Shen Danyang said in March.

In contrast, March trade data released on Monday was extremely weak, with exports falling 15 percent on the year, the worst performance for March since 2009, in the depths of the financial crisis.

Some analysts have posited a continued seasonal effect from this year's very late Lunar New Year holiday, which fell on February 19th, making it the first in late February since 2007. Chinese economic activity usually recedes during the holiday as factories shut down and workers travel back to their home towns and villages.

Outbound investment for the first three months of the year combined rose 29.6 percent from the same period in 2014 to $25.79.

The government has been encouraging Chinese firms to invest abroad to make them more competitive internationally, utilize surplus capacity, and help slow the rapid build-up of foreign exchange reserves.

Inbound FDI in China rose just 1.7 percent in 2014, the slackest pace since 2012. That weak performance accentuated a cooling economy which is spurring more Chinese firms to plough money into overseas assets - a trend that could soon overtake inbound investment.

Last year, China drew a record $119.6 billion of FDI, while outbound investment rose 14.1 percent to a new high of $102.9 billion

Reference: Judy Hua

IMF nations point to exchange rate, geopolitical risks

Finance Ministers and bank governors gather for a group photo of the International Monetary and Financial Committee (IMFC) governors, during the IMF and World Bank's 2015 Annual Spring Meetings, in Washington, April 18, 2015.   REUTERS/Mike Theiler

(Reuters) - The International Monetary Fund's member nations on Saturday warned of risks to the global economy from exchange rate shifts and geopolitical tensions as they took note of "moderate" global growth and "uneven prospects."

While economies in developed countries have strengthened, some emerging nations are being hit by weaker commodity prices and exports, the IMF's steering committee noted in a communique.

With the United States poised to hike interest rates, the panel - speaking for the Fund's 188 member nations - said moves toward "policy normalization" needed to be effectively communicated to reduce adverse impacts on other economies.

It also said the "possibility of lower growth potential" was becoming an important global challenge, a topic the panel's chairman said was central to talks on Saturday.

"I came out of this meeting with a sense of optimism," the chairman, Mexican Finance Minister Agustin Carstens, said.

"The fact that a lot of the discussion basically rotated around how to increase growth ... and not only discussing risks - I think that was a very good sign."

The spring meetings of the IMF and World Bank, which conclude on Sunday, have taken place amid growing concerns cash-strapped Greece will fail to reach agreement with its European Union and IMF creditors on reforms that would unlock bailout cash and stave off default.

At the same time, risks of a stronger dollar and low commodity prices have hit emerging markets as China's blistering economic growth has slowed.

Low inflation remains a concern for many developed economies despite signs the European Central Bank's quantitative easing program has boosted Europe's ailing economy, and the communique called for easy monetary policies to be maintained where needed.

"Global imbalances are reduced from previous years, but a further rebalancing of demand is still needed," the communique said. That appeared to echo U.S. concerns over Germany's huge current account surplus.

In the United States, the central bank's moves toward a rate hike have sent the dollar soaring, and officials from nations around the globe warned of the risk of financial and economic disruptions as the path of major central banks diverge.

Canadian Finance Minister Joe Oliver said in a statement to the IMF panel that "among the most significant downside risks (was) the potential for financial instability associated with asynchronous monetary policy in systemic economies."

While there has been little sign at the meetings of a renewed flare-up in the "currency wars" despite a surge in the value of the dollar against the euro and yen, China's growing economic clout has overshadowed the talks.

Beijing has touted its own development bank, a rival to the established Washington-based institutions, and is pushing to include the yuan in the IMF's currency basket to reflect its economic might.

Reference: David Chance and Anna Yukhananov

Friday, 17 April 2015

How To Trade Forex Successfully-What The Pros Don’t Tell You


Basic Trading Concepts Defined

How to trade forex successfully online must be one important factor in every traders training or study in the pursuit for financial freedom through online forex trading. It is not just enough for you to know about currencies but the key to your making a lot of cash or income from it, is the need to know how to trade forex successfully.

Here are some tips that help you

.Demo Trade: One of the most overlooked part of many peoples training or study especially newbie's is that they only demo trade for a short period of time or don't demo trade enough and they feel they are equipped enough to go live. But before they know it all their money is lost to the market. In order to trade forex successfully online you must demo trade online for at least three months and make sure you are making positive returns in your account before you think of going live. Even after you have gone live you are expected to still trade once in a while on your demo account like most wise traders do. They do this to test out new strategies on demo account that they feel may make them more profit instead of using their real money or they sharpen their skills more.

Trading Strategy

How to trade forex successfully without a trading strategy is like you are playing pool or gambling with your hard earned money. There is no way you can succeed with forex trading online without a trading strategy. All professional traders the world over all have a trading strategy or plan they strictly follow in other to succeed online. If you don't have a trading strategy you can develop one or you can use other known winning strategies to trade.

Money Management

Good Money Management: This is one factor that greatly differentiates between the winners and the looser in forex trading online. If you want to know how to trade forex successfully online one important skill you should learn properly is the use of good money management in all your trades. Having good money management helps you to safe guard your capital, and also makes sure you see another trading day. Simply put, all successful traders know and apply a stop loss and take profit in all their trading positions or in every trade, so if you too want to win you too must implement this skill in your trading position always.


This is the number one catalyst for success in currency trading. You can have the best and most perfect currency trading strategy, or the best money management skill but lack discipline, you are no doubt going to lose your investment in no time. Being discipline in your trading the forex will ensure you are in control of you trades. Traders that are not discipline give in to fear and worry during their trading session instead of allowing discipline to be the final judge of their trades. Simply put if you are in any position in the market and you have set your stop loss, even when you see the market is going against you as it normally does before going for its target don't be tempted to pull out of the trade only to see it going your way after you have pulled out. Traders that are like this will not go far in their trades.
How to trade forex successfully should be the utmost thing in every traders mind, because learning is not enough if you don't practice what you have learnt and develop all this traits listed above before you think of going live to trade the forex.
According to Statistics More Than 95% Of Traders Lose Their Money Online World Wide. Don't Be One Of Them,..

Reference: goarticles

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Fed may allow banks to use muni bonds to meet liquidity rules: WSJ

The United States Federal Reserve Board building is shown behind security barriers in Washington October 28, 2014.     REUTERS/Gary Cameron

(Reuters) - The U.S. Federal Reserve may allow big banks to use some municipal bonds to meet new liquidity rules that ensure they have enough cash during a credit crunch, the Wall Street Journal reported, citing people familiar with the matter.

The Fed had excluded debt issued by cities and states when it approved liquidity rules for large banks in September, part of a global effort to make banks such as JPMorgan Chase and Citigroup more resilient in a financial crisis.

Fed officials had at that time said they did not think the rule would have significant implications for the $3.7 trillion municipal bond market. The Fed had also said it planned to propose allowing certain high-liquid municipal securities to count as a sellable asset at a later date, after further review.

U.S. cities and states have been urging the Fed, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to classify muni bonds as highly liquid if they are investment grade and have demonstrated reliable liquidity during times of economic stress.

However, the plan under discussion falls short of including all investment-grade municipal bonds, the Journal said.

The exact criteria for the kind of municipal bonds that would count under the rule has not been set, but a key focus will be the ability of a bank to sell the bonds in a fairly short time frame, the newspaper said.

The other regulators - the OCC and the FDIC, do not plan to follow the Fed, the newspaper said.

Reuters could not immediately reach the regulators for comment outside regular U.S. business hours.

The U.S. municipal bond market grew to $3.652 trillion during the fourth quarter, with banks picking up $41.1 billion, up from the prior quarter's $34.5 billion, according to data released by the Fed in March.

Reference: Supriya Kurane

Thursday, 16 April 2015

Binary Trading on Forex Options – The Money Market explained


Basic Trading Concepts Defined

Binary Trading on Forex Options – The Money Market explained.

The forex market is the biggest and most liquid market in the world and offers great opportunities of high returns for those who trade in it.
Historically speaking, small time investors were not able to trade in the forex market, the minimum transaction sizes and strict financial requirements being too high for smaller investors to consider, leaving forex trading to banks and major currency dealers. As such, they were the only ones who could take full advantage of the incredible liquidity of this market. Fortunately for us nowadays, new technology has allowed the barriers to be broken down for smaller traders to grab a piece of the action.

Binary Option Traders

This is obviously great news for binary option traders who can now take full advantage of these high yield return forex options and with the bonus of trading with smaller amounts within short-term expirations.
Let's take a closer look into the forex, the motherboard of forex options trading and learn a little more about this exciting market that is unlike any other market you might trade in. Forex, also known as the FX market or the foreign exchange market runs 24 hours a day, five days a week and connects the world with financial transactions, allowing banks and other institutions to easily buy and sell foreign currencies.

The exchange rate of currencies rises and falls according to the state of the market so a currency's value will rise if the market's demand for it exceeds the available supply and will fall if the demand is lower than it.
So when you trade binary forex options, you can purchase Call or Put options on leading currency pairs such as the US dollar against the Euro. The difference when trading in the forex is that you are predicting one currency's rise or fall against another's, rather than the rise or fall of a single stock or commodity which comes with other trading.


As currencies always trade against one another, if one currency isn't doing well it means that the opposite currency is doing that much better giving headway to a profitable outcome. So if you do your research and follow the market, you could put yourself in a good position to strike while the iron is hot and come away in the money.
The forex reflects how much of one currency is needed to purchase a unit of the other currency. So let's take the Euro (EUR) against the British pound (GBP) for example i.e. EUR/GBP. The first currency (in this case the EUR) is known as the base currency and the second one the quote currency.

Base Currency

The stronger the base currency, the higher the number of the quote currency (i.e. It will take more GBP to buy Euros). The way the expiry level of the pair is calculated is the total of the ASK value and the BID value divided by two and rounded up or down at the fifth decimal digit.
Here's an example of how trading in binary forex options is a safe bet when investing in the forex. Let's imagine that you decide to trade on the EUR/GBP after reading some news the other day that the Euro is expected to fall. So you predict that the EUR will continue to fall against the GBP and purchase a PUT option of $200 on a one hour expiration option which currently stands at 0.83570.
If the pair expires even 0.001 below the strike price then you will walk away with $340 ($200 your original bid and $140 profit). To cover your back further you could hedge the trade with a CALL option alongside the PUT option. So if the pair was to expire above the strike price you will not be at a complete loss.

Further information on the calculation of the profit can be found in the definition of Binary Option in Wikipedia:

Reference: Trading made easy.

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Asia stocks follow global surge, dollar on defensive


(Reuters) - Most Asian share markets took cues from a global surge in equities and rose on Thursday, while weak U.S. economic data sent the dollar lower.

Spreadbetters expected Britain's FTSE .FTSE to open slightly higher, while Germany's DAX .GDAXI and France's CAC .FCHI were seen starting little changed.

Lackluster economic indicators have been kind to risk assets this week, with Wednesday's weak Chinese data further boosting expectations of monetary stimulus by Beijing while soft U.S. data have also helped by dampening prospects of an early rate hike by the Federal Reserve.

A bounce by crude oil has given an additional lift to stocks by shoring up energy-sector shares.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 1.1 percent. South Korean, Australian, Chinese and Malaysian stocks gained, while Japan's Nikkei .N225 lost 0.1 percent on a stronger yen.

Wall Street shares posted sizable gains overnight on several strong corporate earnings results and the pan-European Eurofirst 300 index of leading shares .FTEU3 climbed to a 14-year high after the European Central Bank affirmed its loose policy stance.

In currencies, the region's big mover was the Aussie, lifted to a three-week high as stronger-than-expected Australian employment numbers reduced the odds of an interest rate cut in the next few months.

The Australian dollar was up 1 percent at $0.7755 AUD=D4 after a potential sign the labor market was not as weak as many had assumed. ECONAU

"There's less probability of the Reserve Bank of Australia cutting in May, but we're sticking with our call that the RBA needs to cut the cash rate because there are still a lot of other moving parts out there that aren't good," said Stephen Walters, chief economist at JPMorgan in Sydney.

"The currency is up quite a bit after this number, inflation next week is probably going to be quite low, business confidence is low, consumer confidence is low, iron ore prices are plunging so the case (to cut) is still there, it just makes it slightly less likely."

The U.S. dollar was on the defensive against the euro and yen after dropping the previous day on weak U.S. industrial output and New York state manufacturing activity data. The soft indicators fed uncertainty over the timing of the Federal Reserve's next interest rate hike.

The euro rose 0.1 percent to $1.0686 EUR=, adding to overnight gains. The dollar, which neared 121 yen at the start of the week, was up 0.2 percent at 119.33 JPY= after slipping to 118.79 overnight.

The market will look to U.S. housing data later in the day for further dollar incentives.

"Even if the actual number is in line with expectations, it will be enough to reinforce the view that the U.S. economic slowdown during winter was a temporary one, and thus support the dollar," said Masafumi Yamamoto, senior strategist at Monex Securities in Tokyo.

"If the dollar is to rise, it will gain more against the euro and Australian dollar rather than the yen as Japanese authorities have not exactly welcomed a further weakening," he said.

The Canadian dollar stood a head taller than its peers, jumping to a three-month high of C$1.2251 per USD CAD=D4 after the Bank of Canada surprised the markets by indicating no further easings were imminent.

A surge in crude oil also supported commodity currencies such as the Canadian dollar. Crude rallied overnight after government data showed oil inventories in the United States rose less than expected last week. [O/R]

Brent crude LCOc1 rose as high as $63.10 a barrel, highest since December 2014. U.S. crude CLc1 was up 0.1 percent at $56.44 a barrel after jumping nearly 6 percent on Wednesday.

Reference: Shinichi Saoshiro

Wednesday, 15 April 2015

20 Rules for Success from Warren Buffet.


Basic Trading Concepts Defined

Whenever I hear Warren Buffett speaks or read his annual letters to the shareholders at Berkshire Hathaway, there are always words of wisdom to be found. After all, he is the Oracle of Omaha, one of the most successful businessmen of the 20th century, and consistently rated as one of the wealthiest people in the world. Warren Buffett has continually shared bits and pieces of his investment philosophy through a lifetime of memorable quotes where he uses simple, jargon-free language when referring to business and investments. There's much to learn from the quotes and quips by the legendary billionaire investor, which have exerted great influence over my own investment strategies as well.

Numerous greats including Steve Jobs, Bill Gates, and Warren Buffett have attributed their success to focus. Many people have long to-do lists and work on becoming more productive, when in fact, having a not-do list is more important if you want to do great things.

In this blog post, we have compiled 20 of the best insightful quotes from Warren Buffett.

1. "Rule No.1: Never lose money.

2. Rule No.2: “Never forget rule 1.” + " 2. "Risk comes from not knowing what you're doing."

3. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

4. "Be fearful when others are greedy. Be greedy when others are fearful."

5. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

6. "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."

7. "Price is what you pay. Value is what you get."

8. "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."

9. "You only have to do a very few things right in your life so long as you don't do too many things wrong."

10. "I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."

11. "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well."

12. "Someone's sitting in the shade today because someone planted a tree a long time ago."

13. "If a business does well, the stock eventually follows."

14. "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."

15. "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

16. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."

17. "We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely."

18. "The investor of today does not profit from yesterday's growth."

19. "If past history was all there was to the game, the richest people would be librarians."

20. “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” –

Reference: Kelvin Wong

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