1) What are Managed Futures?
Managed futures are the systematic or discretionary trading of futures contracts by professional Commodity Trading Advisors (CTAs) who trade in global futures and options markets, as either buyers or sellers of contracts representing real assets such as gold, silver, wheat, corn, coffee, sugar and heating oil, as well as financial assets such as government bonds, equity market indices and currencies. The CTA makes all trading decisions on behalf of the client through a revocable power of attorney.
Click Here for more information about Managed Futures Broker PFGBEST
2) What is a CTA?
A CTA is a Commodity Trading Advisor. A CTA is an individual or organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts or commodity options. Providing advice indirectly includes exercising trading authority over a customer´s account as well as giving advice through written publications or other media. Registration with the National Futures Association is required unless:
- You have provided advice to 15 or fewer persons during the past 12 months and do not generally hold yourself out to the public as a CTA or
- You are in one of a number of businesses or professions listed in the Commodity Exchange Act or are registered in another capacity and your advice is solely incidental to your principal business or profession
3) How do Managed Futures compare to stocks and bonds?
Generally speaking, because managed futures have little correlation to stock and bond markets, it is quite difficult to make a comparison. It may be common practice for investors to dissect the individual elements of their portfolio and expect them to compete with one another over every time period. However, effective and prudent asset allocation would suggest that:
- Managed futures cannot be looked at in isolation from the rest of the portfolio, nor should they be examined in relation to the stock market.
- It is very important to ensure investors have a balanced approach to investing, to understand the rationale behind allocating portions of assets to different investment classes, styles or instruments, and that they always keep their long–term goals in mind.
- Different instruments within their portfolio should complement each other, not compete with each other. It is important to remember that different investments derive profitability from a variety of economic and market scenarios, and that investments will not all perform at the same time. Otherwise, all investments would make money together and all would lose money together.
4) How are Managed Futures used in an investment portfolio?
With prudent allocation, managed futures may help reduce the overall risk of a portfolio. A prudent investor should ensure that at least a portion of their portfolio is allocated to an alternative asset class that has the potential to perform well when other portions of the portfolio may be underperforming. Other potential benefits of managed futures may include:
- Historically competitive returns over the longer term
- Returns independent of traditional stock and bond markets
- Access to global markets
- The unique implementation of traditional and non–traditional trading styles
- Potential exposure to as many as one hundred and fifty markets globally
- Liquidity and no lock–ups. The contracts in which the CTAs trade typically have a high degree of liquidity. If suitable to a client´s objectives, devoting five to fifteen percent of a typical portfolio to alternative investments has been shown to increase returns and lower volatility. Because alternative investments may not react in the same way as stocks and bonds to market conditions, they may be used to diversify investments over different asset classes, resulting in less volatility and less risk. The other attractive feature of the PFGBEST Managed Futures product is that there are no lock–up of funds or penalties for early withdrawals.
5) How can diversification through using managed futures help reduce risk?
During times of market volatility or declining stock and bond markets, managed futures may be an important part of your portfolio. The PFGBEST blended portfolios are customized structured products, which over time are designed to provide investors with exposure to a set of strategies with little correlation to the stock and bond markets. In the event of a major, sustained downturn of the equity or fixed income markets, managed futures may potentially provide some protection for a client´s overall portfolio. Increasingly sophisticated institutional investors such as pension funds, endowments, foundations, and family offices are allocating larger portions of their portfolios away from equity and fixed income into alternative investments. Managed futures are a sub–class of alternative investments.
6) Who Regulates Commodity Trading Advisors (CTAs)
Commodity Trading Advisors are regulated by the Commodity Futures Trading Commission (CFTC) and by the National Futures Association (NFA), the congressionally authorized self–regulatory organization of the futures industry. All trading advisors must be registered with the CFTC and those who manage customer accounts must be members of the NFA. Advisors´ Disclosure Documents are required to be submitted to the NFA for review in advance of distribution to prospective investors. On an ongoing basis, the NFA audits Disclosure Documents (particularly performance information), promotional materials, and trading activities. Many CTAs update their performance data on a monthly basis. Violations of CFTC or NFA rules can result in financial penalties, suspension or complete cessation of trading privileges and other penalties
If you would like to speak with a managed futures broker, then please contact Mr. Karl Heit in the PFGBEST Camarillo Branch at 800-656-0443.
there is a substantial risk of loss in trading
Online Foreign Exchange Options Trading is an Important Niche
For Leveraging PFGBEST Systems that
Aggregate Multibank Liquidity for FX Clients
NEW YORK and CHICAGO (May 7, 2012) – FX Bridge Technologies Corp., a leading provider of foreign exchange and CFD technology solutions, today announced that PFGBEST, a leading US forex and fx options broker, has licensed FX Bridge’s trading platform to provide online FX options trading to its client base.
PFGBEST, through the FX Bridge platform, enhances its offering to institutional and retail FX clients by expanding its suite of products that include direct access to interbank liquidity. PFGBEST created the Typhoon system for straight-through processing of foreign exchange transactions and it is a model in the industry for global FX liquidity aggregation.
FREE FOREX OPTIONS DEMO
“Building a world-class options forex platform with proven technology and access to interbank liquidity enables PFGBEST clients to expand their portfolio of trading and risk management strategies in foreign exchange, the world’s largest market,” said Russ Wasendorf, President and COO, PFGBEST. “This initiative is consistent with our continuous goal to be a leading global broker providing excellent service, technology and products to clients.”
The PFGBEST FX options platform will be provided by FX Bridge Technologies Corp. It provides access to live interbank prices, supports same-account trading and margining of spot FX and FX options, and extensive modeling and optimization tools to enable traders to select and deploy a host of FX options trading strategies.
“We are pleased to join with PFGBEST, one of the largest non-clearing U.S. Futures Commission Merchants (FCMs) to offer a state-of-the-art FX options trading platform,” said Stephen Best, CEO, FX Bridge. “Clearly this move underscores PFGBEST’s commitment to providing a robust and sustainable trading product array, and will help expand the firm’s reputation of excellence in liquidity aggregation in cash foreign exchange.”
About PFGBEST
PFGBEST is among the largest non-clearing U.S. FCMs, with customers, affiliates and offices in more than 80 countries. PFGBEST specializes in sustainable investing practices through electronic trading, futures, foreign exchange, options, managed accounts, full-service and discount brokerage, precious metals, and investor research. The company is also committed to market education, offering numerous free webinars each week attended by hundreds of people wishing to further their knowledge and skills in trading. The company is celebrating its 20th year as a registered FCM.
Learn more about PFGBEST and by visiting www.pfgbestdirect.net
About FX Bridge Technologies Corp.
FX Bridge Technologies Corporation is a leading developer of foreign exchange trading software solutions and services to brokers and banks worldwide. The firm provides innovative spot FX, FX options and contract for differences (CFD) trading platforms and related integration services as well as liquidity and prime broker credit solutions to leading FX brokers and banks. Its flagship ProTrader Plus™ platform supports spot FX, FX options and CFDs in a single customer account, enabling cross-margining credit efficiencies as well as a comprehensive array of trading and risk management strategies. For more information about FX Bridge, please visit the firm’s website at www.fxbridge.com.
Media Contacts:
Patricia Campbell, PFGBEST, 312-775-3411, pcampbell@PFGBEST.com
Peter Burton, FX Bridge, 732-546-3700, pburton@fxbridge.com
there is a substantial risk of loss in trading
If you are looking for range bar charts and using MT4, then I have created a free range bar chart that can be downloaded here.
The advantage of this range bar is that it works as an indicator instead of a script making it much more usable. Here are some of the major differences between using a range bar chart script and using the MT4 Range Bar Chart Indicator:
A normal Range Bar script requires :
- One feeder chart per range bar chart per pair
- - If you wanted to open say 3 range bar charts for EU and 3 for AU you would end up with 6 open 1 minute charts, and 6 open range bar charts. This gets messy fast and if you change any of those 1 minute charts to any other time frame the range bar charts stop updating.
- The feeder chart must be a 1 minute chart.
- The offline charts are created with scripts and so each time you restart MT4 you must restart each script and configure the parameters.
- The scripts run in a loop and keep the range bar charts working by continuously sending window messages to them. This degrades CPU performance quickly when multiple range bar charts are active
My Range Bars require:
- Only one feeder chart per pair - one feeder chart can drive many range bar charts
- The feeder chart can be set to any MT4 time frame.
- The offline charts are created via an indicator and so the settings are remembered each time you restart MT4, no reconfiguration is needed.
- My version runs as an MT4 indicator, that means the range bar charts only update when there is a price tick, not in a continuous loop, so the performance is much nicer.
Why consider using Range Bars?
Range bars are a good way to chart forex and futures especially in today’s 24 hour trading markets. The main reason is that range bars are price dependent and do not take into account time the way traditional charts do. This eliminates extended sideways markets due to lack of volume traded. This typically occurs in the off hours for a market and the result will be many bars on a chart that are really insignificant. A range bar on the other hand will display a bar based on the specified price range you choose. The result, some believe, is that it displays a much more accurate price picture of the market.
How are Range Bars calculated?
A range bar must have a range price defined like 10, 20, etc. To create a new range bar, there must be an opening price outside the high or low range of the previous bar and the previous bar will then close on the high or low.
Chart below shows a Range Bar chart
there is a substantial risk of loss in trading
CHICAGO, April 11, 2012 /PRNewswire/ -- CME Group, the world's leading and most diverse derivatives marketplace, today announced it will amend its benchmark New York Harbor Heating Oil futures contract specifications, lowering its sulfur specifications to 15 parts per million (ppm) from 2,000 ppm and expand the listed months an additional three years beginning with its May 2013 contract. These contracts are listed by and subject to the rules of NYMEX.
"These revisions to our benchmark heating oil contract are reflective of customer feedback and our desire to help market participants make a smooth transition to new lower-sulfur diesel standards for heating oil ahead of changes in environmental regulations in the Northeastern U.S.," said Gary Morsches, Managing Director, Global Energy at CME Group. "Not only will these modifications be beneficial to our customers, they will enhance liquidity by establishing a forward market beyond the currently listed April 2013 contract."
Following the transition to lower sulfur specifications, the Heating Oil contract will serve as a dual-use price benchmark for both the heating oil and on-road diesel markets. It will also more closely match diesel specifications in international markets, including the European ultra-low sulfur diesel market.
Pending all relevant regulatory review periods, these amendments will be effective April 30.
As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the world's leading central counterparty clearing providers, which offers clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort®. These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets.
CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other trademarks are the property of their respective owners. Further information about CME Group (NASDAQ: CME) and its products can be found at www.cmegroup.com.
CME-G
SOURCE CME Group
there is a substantial risk of loss in trading
Why Do Forex Traders have a hard time finding the right FX Broker?
What are the different types of Foreign Exchange trading environments that are offered by Forex Brokers? It is of primary importance for every trader to understand the type of trading environment his or her Forex trading account is in. Here are a few different types of trading environments you will find in the FX market:
What is a Dealing Desk Environment?
A Dealing Desk Environment is where your FX Broker takes the opposite side of all your trades. When you win, they lose and when you lose, they win. When your broker is trading against you, does he have your best interest at heart or might there be a conflict of interest? This is a fair question to ask, because the answer may make you look in another direction.
What is an ECN?
An ECN is where your FX Broker has created an anonymous trading protocol which entails a no re-quote model (basically rejected trades by the banks or their liquidity providers.) You should consider why your trades can get rejected and not filled. ECN brokers enable high frequency black box trading which gives a negative perception to the banks, therefore the banks pull back from providing their best pricing. This model doesn’t always allow traders to get the right fills for their trades, since the banks don’t offer their best pricing. Thus, traders are not getting Real Forex Direct Market Access! The worst part is that with this model your FX Broker can at any moment decide to take the opposite side of your trade and become the dealing desk against you. Certainly this model does not work in the traders’ best interest either. Even the National Futures Association (NFA) says that ECN providers cannot take in retail accounts. (I would add a link to where they say that.)
What is Straight-Through Processing (STP)?
This is where your FX Broker passes through all your trades to banks or liquidity providers that have agreed to provide continuously updated bids and offers on FX pairs. Usually your FX Broker will charge a commission and/or add to the spread for this service. However, you should always ask the FX broker about the number of bank(s) and/or liquidity provider(s) they use? Therefore, the question is whether you would get better or more competitive pricing, if your broker has more banks and liquidity providers providing bids and offers.
What is DMA (Direct Market Access)?
The Direct Market Access (DMA) for forex is an innovation that allows the forex trader to forgo the traditional trader and broker relationship. With DMA you are connected to multiple liquidity streams for your execution environment. With multiple banks and or liquidity providers there is competitive pricing even in volatile or low volume trading sessions. This is a low latency forex environment where usually the execution servers are co-located with the banks and liquidity providers in the DMA network.
Why you should consider our Typhoon FX Aggregator
PFGBEST is a forex broker who has adapted our technology to create a 12 tier-one bank DMA called Typhoon. Typhoon is a FOREX DMA that provides STP in a non-dealing desk environment. Our execution environment is located at Equinix’s NY4 fiber optic campus with the banks to provide low-latency FX trading. We have created Typhoon to be scalable from the Institutional trader down to the retail trader.
One of the major advantages is that we currently provide a FX environment that has trader anonymity. There is no customer ID that the banks can see to identify who you are. You can plug into Typhoon either through our existing trading platforms like BESTDirect, TradeVec, MT4, NinjaTrader or you can plug in Typhoon to your current system through our API which utilizes standard, bank-like API/FIX protocols.
If you would like to see current pricing please contact us at 800-656-0443 or sign up by clicking below
Here are 7 questions you should ask yourself:
1) Could your trade execution time be faster (looking for low latency)?
2) Are you frustrated with your FX Broker?
3) Are you concerned that you may not be trading directly with banks, but rather with your broker? Does your broker have a dealing desk that takes the opposite side of your trades and they don’t tell you?
4) Are you concerned that your FX Broker is Stop-Hunting (add a quick explanation here) your trades in your account?
5) Are you constantly getting requoted when you place a trade?
6) Are you having a hard time exiting from a losing position because you feel that you are locked in?
7) Are your brokers’ FX servers located in the same location the banks servers are? If not, ask why not.
If after thinking about these questions, you are interested in taking a look at other types of FX Environments, we would love to give you a peek at our spot FX prices and answer any questions that you might have for us!
By Ricardo Menjivar
800-656-0443
rmenjivar@pfgbestdirect.net
Futures & Forex Broker for PFGBEST !
Ricardo has been trading FX for over 10 years. He started out by attending those Forex seminars that made it seem like FX trading was really easy. Countless books, seminars, webinars and trading systems later, Ricardo has brought that knowledge to PFGBEST Camarillo to help give great service to his fellow forex traders.
there is a substantial risk of loss in trading
If you are looking to test or connect your NinjaTrader application live to PFGBEST, you first need a valid account. A valid account can be a PFGBEST Demo Account or a live account. PFGBEST is a futures and forex broker.
To open a NinjaTrader demo account for PFGBEST, click here.
You will receive account logon credentials from PFGBEST that contains the following trading account information:
- Account Number
- Access Key
- Order server IP address and port number
Quotes server IP address and port number
- Historical minute data server IP address and port number
- Historical tick data IP address and port number
- Link to the NinjaTrader PFGBEST API 6.5 or 7.0 (note the 6.4 bit version is currently not supported)
Install the PFGBEST NT file on your computer. Once the NinjaTrader is installed, start up the program. Once NinjaTrader is running go to the menu area in the upper left hand corner and select Tools>>Account Connections. Follow these steps to connect PFGBEST data to NinjaTrader.
In the Account Connection Setup Window Select the Add.. button on the right.
This opens up the Create a New Connection wizard. To continue click the Next> button.
There will be a white space area for you to create a unique connection name
In the provider area select PFG
In the backup datafeed connection you can Select a backup feed or leave it as <None>
Finally, check the button on the left of Use PFG servers in the Historical Data area
Select the Next> button to proceed.
This will progress the wizard to the PFG account information area where you will need to have the information that was emailed to you by PFGBEST. If you do not have this, contact your assigned broker or call the technical service desk at 888-274-2916.
Here are the steps required to fill in the NinjaTrader PFG Account information section:
In the first space enter your account number
Then below this enter your Access key
Block ID disregard; that is leave blank
In the Order server area you need to enter the IP address that was supplied to you
Finally, if you plan to trade Forex, check the box to the left of Trade Currencies (FX) (See below for more information)
Press the Next> button followed by the Finish button to complete configuring your PFGBEST account.
To connect your NinjaTrader to PFG Data, go to the menu in the upper left hand of the NinjaTrader Control Center window and select the menu File>> Connect and select your account.
Important Notes
During your first connection to the PFGBEST servers, you may have to allow the PFG client application access to the internet. Your firewall should prompt you for permission
OCO (one cancels other) orders for PFGBEST on NinjaTrader are locally simulated on your PC. The bottom line is that if you need an OCO order working, you can use your PFGBEST information to connect to PFGBEST’s BESTDirect 8 platform and link orders to create an OCO. Using BEST Direct 8 will allow you to have your OCO reside on PFG’s servers.
Notes on trading Forex with NinjaTrader.
To connect to the PFGBEST Typhoon FX aggregator you must configure the FX quote currencies (FX).
Go to the window menu, select Tools >> Options and then the Data Tab and set the Quote currencies (FX) in TenthPip, as PFGBEST forex quotes fractional pips or five decimals out.
Also, it is important to know that Stop Limit orders are not supported for FX trading.
PFGBEST is a US Based Futures Broker, Forex Broker and Precious Metals Dealer.
there is a substantial risk of loss in trading
PFGBEST, a US based Forex Broker has added to its MT4 platform the Scandinavian currencies Norwegian Krone NOK and the Swedish Krona SEK. There will be four Scandinavian currency pairs available on the MT4 platform USDNOK, USDSEK, EURNOK and EURSEK. Currently the interest rate for the NOK is 1.50% and the interest rate for the SEK is 1.50%
PFGBEST has also added further MT4 features Trade from your iPhone and Dynamic Hedging
Trade from your iPhone or iPad
You will find the PFGBEST servers for the MT4 listed on the app. The MT4 app will allow you to trade both demo accounts and live forex accounts.
PFGBEST will now allow forex traders platform hedging capability on the MT4. Clients will be allowed to carry offsetting positions on the platform, while continuing to offset in a First-In, First-Out (FIFO) manner via BARS. NFA has approved for PFGBEST to do so, to solve any limitations that had existed for ExpertAdvisors and other automated systems. To compensate for differing pip values when converting P/L, daily balance updates will be done to the platform to keep balances in line.
PFGBEST is a US Based and regulated MT4 forex broker that offers a DMA, STP, non-dealing desk trading environment utilizing its proprietary Typhoon FX aggregator to bring the forex trader competitive pricing with 12 tier one fx banks providing bids and offers.
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Futures and Forex Market Trading Schedule for Good Friday
Thursday, April 5
CME Group (Floor)
Regular Close
NYMEX (Floor)
Regular Close
GLOBEX
1:55 pm Close: Lumber, Dairy and Livestock products
*All other products regular close
ICE
Regular Close
EUREX
Regular Close
OneChicago
Regular Close
NYSE
Regular Close
Nadex
Regular Close
Forex
Regular Close
Friday, April 6
CME Group (Floor)
Closed: Equity, Commodity, GSCI, Weather and Real Estate products
10:00 am Close: Foreign Exchange and Interest Rate products
NYMEX (Floor)
Closed
GLOBEX
Closed: NYMEX/COMEX/DME, Agricultural, GSCI, Dow Jones UBS ER, Weather, Real Estate, Lumber, KOSPI 200 and Green Exchange products
8:15 am Close: Equity products
10:15 am Close: Interest Rate and Foreign Exchange products
ICE
Closed: Soft and Open Outcry products
8:15 am Close: Index products
10:15 am Close: Financial products
EUREX
Closed
OneChicago
Closed
NYSE
Closed
Nadex
Closed
Forex
Regular Close
Sunday, April 8
CME Group (Floor)
Closed
*Regular open Monday, April 9th
NYMEX (Floor)
Closed
*Regular open Monday, April 9th
GLOBEX
Regular Open
ICE
Regular Open
*Exception: Cocoa, Coffee and Sugar products will open at 6:30 am on Monday, April 9th
EUREX
Closed
*Closed for trading in all Derivatives on Monday, April 9th
OneChicago
Closed
*Regular open Monday, April 9th
NYSE
Closed
*Regular open Monday, April 9th
Nadex
Regular Open
Forex
Regular Open
*All times listed in Central Time
The above calendar is compiled from sources believed to be reliable. PFGBEST assumes no responsibility for any errors or omissions. It is meant as an alert to events that may affect trading strategies and is not necessarily complete. The closing times for certain contracts may have been rescheduled.
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PFGBEST is one of the largest non–clearing U.S. futures commission merchants. PFGBEST offers online trading platforms like NinjaTrader,MT4, TradeVec and BestDirect among other products.Contact us for more details.
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there is a substantial risk of loss in trading
Support/Resistance Levels
Definition
Support and resistance levels are simply price levels at which price movement should stop and reverse direction. Support/resistance (S/R) levels are price levels which tend to act as a floor or a ceiling to future price movements.
A support level is a price level below the current market price at which buying interest should be able to overcome selling pressure and thus keep the price from going any lower. Conversely, a resistance level is a price level above the current market price at which selling pressure should be strong enough to overcome buying pressure and thus keep the price from going any higher. In addition to acting as reversal points, S/R levels have several other basic characteristics. One is that S/R levels reverse roles once they are penetrated. For example, when the market price falls below a support level, that former support level will then become a resistance level when the market later trades back up to that level. As an illustration, if the S&P 500 index falls below a support level of 1075, then the 1075 level will reverse roles and become an overhead resistance level.
Another characteristic is that S/R levels vary in strength, leading to certain prices levels being designated as major or minor S/R levels. For example, a 10-year high on a weekly bar chart would be a much more important resistance level than a minor 2-week trendline intersection point.
Rationale for Support and Resistance
Edwards and Magee in their book, Technical Analysis of Stock Trends (Chapter 13), set forth the view that S/R areas are established primarily at high-volume, heavily-traded price levels at which many buyers bought and many sellers sold the market. Edwards and Magee theorize that traders wish to "scratch" their losing trades and that high-volume trading areas will therefore act as S/R areas because there will be many investors with losing trades in that area who will want to scratch their trades. For example, if a stock trades heavily in the $20/share area and then sells off sharply, investors who bought the stock in the $20 area will want to sell their stock at that same $20 level if and when the market rallies back up to that point. Their selling will therefore tend to cap the market at $20.
While Edwards & Magee's theory provides a rationale for high-volume S/R areas, the theory is somewhat limited in that it does not explain how specific price levels (such as major high/lows) also act as S/R levels even though very little volume occurs at those levels. Furthermore, Edwards & Magee's book was written for the cash stock market and the theory was postulated for the behavior of longer-term stock market participants. As a
result the theory is not as relevant for the fast-paced futures and options markets of today where highly-leveraged
traders don't have the luxury of waiting for the markets to come back so they can scratch their trades. Edwards & Magee's theory is more applicable to longer-term position trading in the stock market.
A more general theory of S/R levels is that S/R levels work simply because so many market participants agree on the importance of these levels. These S/R levels therefore become self-fulfilling prophecies. For example, if the majority of key traders believe that the May 1998 high of 9312 on the Dow Industrials index is important,1 then it is important. Thus if the Dow Industrials index rallies back up to 9312, traders who are long will tend to take profits just under that level and traders who are bearish will tend to enter new shorts just under that level. This selling will cause the market to stop just short of the resistance level itself.
Assuming this theory is correct, a trader should not be looking for secret or obscure S/R levels, but should instead be looking for the common S/R levels being watched by the key traders. Of course, there is a strong feeling among most traders that any widespread method of analyzing the markets is not likely to be useful simply because it is too widely used and thus becomes a "following the herd" technique.
One way to filter the use of S/R levels is to look for sustained penetration of a S/R level; i.e., at least a close beyond the level, not simply a one or two tick intra-day penetration. Perhaps even a several day close beyond that level should be considered. A sustained penetration has a better likelihood of being correct, although one does forego some profit opportunity by waiting for a stronger signal.
If you would like to learn more about Support/Resistance or other Technical Indicators then download this eBook
there is a substantial risk of loss in trading
By James Brown VP of Institutional Forex PFGBEST
As interest rates globally have converged at very low levels, foreign exchange markets have experienced a decline in volatility, and, as we will investigate here, a decline in volumes.
The Dollar
The U.S. dollar (USD) rally which began in late August hit a wall in January. Having rallied 11% off its low, the USD has fallen since mid-January. U.S. economic fundamentals have been showing signs of improvement (the Purchasing Managers’ Index, called PMI, employment, retail sales, etc.) since the second half of 2011. On this optimism, the markets naturally began to price in a near-term U.S. Federal Reserve Board (Fed) rate hike. The FOMC and the Fed dashed those expectations in late January, when they pledged to keep rates low through late 2014 and left the door open for more bond purchases (a scenario called Quantitative Easing, or QE.)
More specifically, Fed Chairman Bernanke said in January that the Fed “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation.”
The 10-year U.S. Treasury yield quickly slid to 1.82% from close to 2% after the meeting, and the 5-year Treasury traded to a record low of 71 basis points on January 31.
In general, the USD recovery may have forced the Fed’s hand into considering a third round of QE, as it threatened the fragile U.S. recovery. U.S. export growth, which had risen 30% since late 2009, began slowing, and that impacted U.S. GDP growth in the process. The rising USD on the back of the weak Euro made the Fed uncomfortable, given the importance of exports in the U.S. recovery.
Fast forward to February 28, 2012: Fed Chairman Bernanke before Congress gave no hint that the central bank was planning more bond purchases. Hee said the economy was better than they had expected. In this end result, the USD has stabilized and seems to have found a base for the time being. March’s FOMC meeting also failed to mention more bond purchases, and that drove Treasury yields higher. The 10-year Treasury traded up exceeding 2% to a high of 2.32% on March 19. Could a renewed USD rally be in the cards?
A Race To The Bottom
Interestingly, many central banks around the world have embarked on a similar policy as the Fed, committing to new rounds of QE and looser monetary policy. With rates in America, the UK, Switzerland, and Japan near zero, and rates close to zero in the Euro zone, the world’s central banks have been hinting that they could be further expanding their balance sheets (buying troubled assets) if growth remains anemic. The Bank of England (BOE) was very specific in their intentions in late January and the Bank of Japan (BOJ) implemented a new round of asset purchases in February.
When central banks expand their balance sheets, they revert to purchasing troubled assets from banks; that adds liquidity to the markets, and in turn, lowers the value of their currencies. Weaker currencies make countries’ exports less expensive in the world markets, giving them a competitive advantage.
Monetary stimulus also appears imminent in the emerging economies as well. China has been concerned about slower growth in their economy. Out of that concern, it lowered its Reserve Ration Requirement (RRR) in late 2011 and early 2012. The RRR is a tool used to by the People’s Bank of China (PBOC) to increase the pace of lending by its largest banks. Some think a new round of cuts in the RRR could come in the next few weeks if inflation continues to cool and growth slows.
Brazil is another case in point. It has been in tightening mode for the past year to fight off inflation related to higher food and energy costs. But, in late 2011, Brazil changed course and lowered rates as economic growth and inflation have slowed. The Brazilian economy has been hampered by the strong Real currency, which has cut into their export market. The Central Bank of Brazil (Banco Central do Brasil) cut the SELIC rate to 9.75% from 10.5% on March 7, exceeding market expectations by 25 basis points. The Real promptly weakened on the news. The Central Bank has also considered imposing a tax on financial transactions to stem the flow of hot money coming into the country which is largely responsible for the strength of the Real. Foreign investors have moved money to Brazil to take advantage of the attractive rates in a yield-starved global economy.
Interest rates have converged as countries try to gain a competitive advantage. Here are a few examples.
- In the U.S.: QE3 is not likely, but the Fed will commit more if growth and employment continue to lag.
- The Swiss National Bank drew a line in the sand versus the Euro at 1.20 level; they are printing to take the pressure off the Swiss franc (CHF).
- The European Central Bank’s (ECB) Long-Term Refinancing Operation is a form of stealth QE. The ECB allotted 529.5 billion Euro to banks in late February.
- The BOJ upped asset purchases to 30 trillion yen (JPY) and set a 1% inflation target to weaken the JPY.
- The BOE left asset purchases steady at 325 billion pounds on March 8.
- Brazil recently cut the SELIC rate to weaken the Real, and as reported here, there could be more to come.
FX Trading Volumes Are Drying Up
As both central bank official rates and bond yields have converged in many economies, trading volumes in the FX markets have declined, and tighter trading ranges have ensued, with sharp drops in volatility. To make matters worse, many central banks have signaled that rates are likely to stay low for a prolonged period of time. Historically, when rates converge as they have, they rarely stay low for a prolonged period of time, let alone for the three years the Fed signaled in late 2011. Rate convergence as we have seen, coupled with the duration, take away much of the rationale for movements in the FX markets. In fact, interest rate differentials are largely the reason why currencies move in the first place.
In the charts below, note the sharp drop in volatility as interest rates have converged close to zero percent around the world.
Expectations Going Forward
The FX markets are likely to remain status quo for months to come if the central banks remain committed to their near zero interest rate policies to stimulate growth and weaken their currencies.
The Volker Rule (which is part of the larger Dodd-Frank Act) could also be affecting FX volumes as the rule attempts to limit risky trading by banks that benefit from federal deposit insurance and other government protections. Such rules could already be impacting speculative trading and proprietary trading operations at these institutions as they wait for a final ruling this summer.
Taking the proprietary element away from the banks reduces liquidity in the market as it limits the banks’ ability to lay off risk, especially on large orders that sometimes need to be held. Major banks and trading institutions have been spinning off parts of their proprietary operations ahead of the final ruling which should come as early as July 21.
Lastly, from a historical perspective, one has to wonder if we are setting up for a repeat of the Bond malaise in 1994 after the Fed unexpectedly raised rates from 3% to 6% to fend off a spike in inflation after holding rates at 3% for over a year and a half. If we compare 1994 to the current environment, the situation could play out similarly, but the damage from such an event now would be enormous given the sheer size of QE. Such an event is scary to contemplate, and one has to be concerned what will happen when the Fed and other central banks of the world begin to reign in the monetary levers.
Interestingly, the 1994 Fed move ushered in a sustained period of strength for the USD starting in 1995, until 2002 when it began to weaken again.
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There is a substantial risk of loss in trading commodity futures, options, and off-exchange foreign currency products. Past performance is not indicative of future results.
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there is a substantial risk of loss in trading