The dollar fell to a record low against the euro on Monday and a six-week low against the yen, hurt by continuing worries about the U.S. subprime mortgage sector and some unwinding of yen carry trades.
The yen seesawed, sliding broadly in early Asian trading and hitting record lows against the euro in a move that traders attributed to speculative buying of sterling against the yen.
But the Japanese currency later rebounded to hit a six-week peak against the dollar of 120.80 yen on electronic trading platform EBS, the yen's highest level since early June.
The yen extended its gains after rallying on Friday, when a fall in U.S. equities dampened investors' appetite for risk and prompted them to unwind some bets against the low-yielding currency.
"It seems like there is some risk reduction taking place, I guess some unwinding of yen carry trades," said Yuji Matsuura, joint general manager for Aozora Bank's forex and derivatives trading group.
"There was a strange move around 4 a.m. to 5 a.m. this morning," said Matsuura, referring to the yen's early morning fall. "But after that, the market has been persistently selling dollars and euros against the yen.
Carry trades involve the selling of low-yielding currencies such as the yen to invest in higher-yielding currencies and assets.
The euro stood at $1.3830 as of 0201 GMT, hovering near a record high of $1.3846 struck earlier on Monday on EBS.
The euro fell around 0.3 percent against the yen to 167.20 yen, having pared its gains after surging to a record high of 169.05 yen on EBS early on Monday.
Defaults on subprime mortgages, made to borrowers with weak credit, and mounting losses on bonds backed by such debt have rattled financial markets and soured general dollar sentiment.
YEN SEESAWS
The dollar fell 0.3 percent to 120.90 yen, holding near its six-week low.
The dollar had jumped to around 122.20 yen in early Asian trading, but later gave up its gains.
Traders said the yen's initial slide this morning may have partly been due to newspaper polls published on Monday that showed that Japanese Prime Minister Shinzo Abe's ruling camp looked set to lose a July 29 upper house election after falling further behind the opposition. For details, click on [ID:nT147358]
Rather than any concrete factors, however, the yen's early morning fall probably had more to do with the way traders' positions were tilted than anything else, market players said.
"This a bit unusual but I think the market may have been long the yen at least in the short term, and that there was an attempt to trigger some stop-loss position unwinding," said a trader for a major Japanese bank.
The currency matching system of news and information provider Reuters Group Plc suffered a temporary outage on Monday, forcing some traders to switch to alternative venues or trade over the phone.
The outage hobbled trading in currencies primarily traded over the Reuters platform, which include the British pound, and the Australian, New Zealand and Canadian dollars.
"People do seem to be having some problems," said a trader at a North American bank in Tokyo. "The market is a bit slow this morning for a variety of reasons, including this and the fact that the yen made some strange moves this morning." (Additional reporting by Chikako Mogi and Eric Burroughs)
Thursday, July 26, 2007
Friday, July 20, 2007
Forex broker firms
Their function includes meeting of the buyer and the seller of a foreign currency and realization between them conversion or credit-depositary operation. For the intermediary broker firms raise the broker commission in the form of percent from the sum of the transaction.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Wednesday, July 18, 2007
Mid-caps are likely to be more profitable options
The Sensex finally set a new all-time intra-day high, crossing its previous best of 14724 on July 2 by 21 points. The previous high was reached on February 9 (14723.88, intra-day). The fact that the Sensex took five months to get back there shows that there has been an uptrend, albeit a sluggish one.
However, the Sensex is not representative of the market in this case. The CNX Midcap index took only three months to clear its February 9 intra-day high, and is already 10% above that level.
Most global markets are also going through sluggish rallies. Their behaviour is significant, as global market trends are proving to be a larger influence on our stocks than local factors. This is not surprising, as FII activity has been typically equivalent to more than half the day’s volume on the NSE.
With FIIs following a global investment policy, events like the Sensex touching a new all-time high would have little or no impact on their actions in our market. So, even though the new high would have a large impact on the day’s news, the Sensex itself would be more likely to continue moving in the same manner as it has been doing recently. Global markets have been in a persistent bull run all year.
The only development that appears to occasionally spook the rally is the fear of an interest rate hike in the US. We could thus see a global correction (and following it one here as well) as and when the Fed actually raises the US rate.
So, for the moment we will probably see the main indices (the Sensex and the Nifty) making unspectacular progress, but setting new highs all the same. The mid-cap index has some momentum on its side, suggesting that the more profitable opportunities are in the mid-caps while the rally lasts.
The rally has ensured that the market’s intermediate (mid-term) trend has remained up since early May. The levels below which it could end currently stand at 14407 for the Sensex, 4236 for the Nifty, and 5809 for CNX Midcap.
With the indices making new highs, the market’s long-term trend is clearly up – which is the same as saying that we are in a bull market.
The bull market would end if the Sensex were to close below its last intermediate bottom of 13550. The equivalent danger levels are 3980 for the Nifty and 4655 for the CNX Midcap.
However, the Sensex is not representative of the market in this case. The CNX Midcap index took only three months to clear its February 9 intra-day high, and is already 10% above that level.
Most global markets are also going through sluggish rallies. Their behaviour is significant, as global market trends are proving to be a larger influence on our stocks than local factors. This is not surprising, as FII activity has been typically equivalent to more than half the day’s volume on the NSE.
With FIIs following a global investment policy, events like the Sensex touching a new all-time high would have little or no impact on their actions in our market. So, even though the new high would have a large impact on the day’s news, the Sensex itself would be more likely to continue moving in the same manner as it has been doing recently. Global markets have been in a persistent bull run all year.
The only development that appears to occasionally spook the rally is the fear of an interest rate hike in the US. We could thus see a global correction (and following it one here as well) as and when the Fed actually raises the US rate.
So, for the moment we will probably see the main indices (the Sensex and the Nifty) making unspectacular progress, but setting new highs all the same. The mid-cap index has some momentum on its side, suggesting that the more profitable opportunities are in the mid-caps while the rally lasts.
The rally has ensured that the market’s intermediate (mid-term) trend has remained up since early May. The levels below which it could end currently stand at 14407 for the Sensex, 4236 for the Nifty, and 5809 for CNX Midcap.
With the indices making new highs, the market’s long-term trend is clearly up – which is the same as saying that we are in a bull market.
The bull market would end if the Sensex were to close below its last intermediate bottom of 13550. The equivalent danger levels are 3980 for the Nifty and 4655 for the CNX Midcap.
Tuesday, July 10, 2007
July 11 (Bloomberg) -- The yen retreated from a one-month high against the dollar as Japanese individual investors took advantage of a 1.4 percent rally yesterday to sell the currency and buy higher-yielding assets.
Japan's yen also pared gains against the Canadian dollar on speculation the Bank of Japan will keep its overnight lending rate at 0.5 percent tomorrow, encouraging so-called carry trades. The yen surged yesterday as U.S. stocks slumped, raising concern global fund managers will pare riskier holdings.
``The yen-selling needs of retail investors are strong,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``After the 1 1/2-yen fall in the U.S. currency yesterday, they're eager to buy the dollar on dips.''
The yen traded at 121.72 per dollar at 11:09 a.m. in Tokyo from as high as 120.99 and from 121.74 late in New York yesterday. Japan's currency traded at 167.19 per euro from as high as 166.61. The yen may decline to 122.00 against the dollar and 167.60 per euro today, Muramatsu said.
BOJ Governor Toshihiko Fukui and his colleagues will keep the key overnight lending rate unchanged at the conclusion of a two-day meeting starting today, according to all 43 economists surveyed by Bloomberg News. The bank last raised the rate in February.
Of 34 economists surveyed, 21 said the central bank will raise the rate to 0.75 percent in August and eight said it will act in September. Three of the remaining five predicted October, one said November and the other said the rate will stay at 0.5 percent this year.
Moms and Pops
Yen sales by Japanese mom-and-pop investors last week exceeded professional traders' bets against the currency on the Chicago Mercantile Exchange.
Net short positions on the yen against the dollar, or wagers the currency will fall, reached $1.1 billion among traders using borrowed funds on July 3, according to Tokyo Financial Exchange. Based on estimates of the exchange's 5.8 market share by the Bank of Japan, the total position of individual investors is about $19.77 billion, compared with $15.83 billion of bets on July 3 by traders on Chicago's market.
The dollar fell to a record low against the euro on speculation the housing market slump will worsen. The dollar yesterday fell to an all-time low of 77.7103 against the currencies of seven trading partners, according to a Fed index published on its Web site.
Subprime Spillover
The U.S. currency yesterday sank against the Swiss franc, British pound and Danish krone after Standard & Poor's warned it may cut ratings on $12 billion of bonds backed by subprime mortgages, diminishing the appeal of dollar-denominated assets. Futures contracts show traders forecast the Federal Reserve will keep borrowing costs on hold through year-end.
The dollar traded at $1.3735 after dropping as low as $1.3784 per euro today.
``There's a real risk we start to see the subprime issue spill over into confidence and consumption,'' said Robert Rennie, chief currency strategist a Westpac Banking Corp. in Sydney. ``We are already seeing warning signs in gloomy retailer earnings forecasts. This will continue to weigh on the dollar,'' to 120 yen by Sept. 30 and 118 yen by year-end, he said.
The Fed held benchmark borrowing costs at 5.25 percent on June 28 for an eighth meeting. The European Central Bank may lift its key refinancing rate from a six-year high of 4 percent by September, according to interest-rate futures.
Japan's Foreign Reserve
Japan, the largest overseas holder of U.S. Treasuries, should invest $700 billion of its currency reserves in higher- yielding assets such as stocks and corporate bonds, said Takatoshi Ito, an adviser to the prime minister.
The reserves should be managed by a special fund that will gradually diversify into euros, Australian dollars and emerging market currencies, he said in an interview in Tokyo. Ito said that the Ministry of Finance, which expanded its currency reserves by selling yen in 2003 and 2004, has essentially borrowed the funds from the Japanese people.
``Foreign currency reserves are assets that belong to our citizens,'' Ito said. ``The government has borrowed the money from the people and it is engaged in a kind of carry trade. So it has to show some higher return on the investment.''
Japan's yen also pared gains against the Canadian dollar on speculation the Bank of Japan will keep its overnight lending rate at 0.5 percent tomorrow, encouraging so-called carry trades. The yen surged yesterday as U.S. stocks slumped, raising concern global fund managers will pare riskier holdings.
``The yen-selling needs of retail investors are strong,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``After the 1 1/2-yen fall in the U.S. currency yesterday, they're eager to buy the dollar on dips.''
The yen traded at 121.72 per dollar at 11:09 a.m. in Tokyo from as high as 120.99 and from 121.74 late in New York yesterday. Japan's currency traded at 167.19 per euro from as high as 166.61. The yen may decline to 122.00 against the dollar and 167.60 per euro today, Muramatsu said.
BOJ Governor Toshihiko Fukui and his colleagues will keep the key overnight lending rate unchanged at the conclusion of a two-day meeting starting today, according to all 43 economists surveyed by Bloomberg News. The bank last raised the rate in February.
Of 34 economists surveyed, 21 said the central bank will raise the rate to 0.75 percent in August and eight said it will act in September. Three of the remaining five predicted October, one said November and the other said the rate will stay at 0.5 percent this year.
Moms and Pops
Yen sales by Japanese mom-and-pop investors last week exceeded professional traders' bets against the currency on the Chicago Mercantile Exchange.
Net short positions on the yen against the dollar, or wagers the currency will fall, reached $1.1 billion among traders using borrowed funds on July 3, according to Tokyo Financial Exchange. Based on estimates of the exchange's 5.8 market share by the Bank of Japan, the total position of individual investors is about $19.77 billion, compared with $15.83 billion of bets on July 3 by traders on Chicago's market.
The dollar fell to a record low against the euro on speculation the housing market slump will worsen. The dollar yesterday fell to an all-time low of 77.7103 against the currencies of seven trading partners, according to a Fed index published on its Web site.
Subprime Spillover
The U.S. currency yesterday sank against the Swiss franc, British pound and Danish krone after Standard & Poor's warned it may cut ratings on $12 billion of bonds backed by subprime mortgages, diminishing the appeal of dollar-denominated assets. Futures contracts show traders forecast the Federal Reserve will keep borrowing costs on hold through year-end.
The dollar traded at $1.3735 after dropping as low as $1.3784 per euro today.
``There's a real risk we start to see the subprime issue spill over into confidence and consumption,'' said Robert Rennie, chief currency strategist a Westpac Banking Corp. in Sydney. ``We are already seeing warning signs in gloomy retailer earnings forecasts. This will continue to weigh on the dollar,'' to 120 yen by Sept. 30 and 118 yen by year-end, he said.
The Fed held benchmark borrowing costs at 5.25 percent on June 28 for an eighth meeting. The European Central Bank may lift its key refinancing rate from a six-year high of 4 percent by September, according to interest-rate futures.
Japan's Foreign Reserve
Japan, the largest overseas holder of U.S. Treasuries, should invest $700 billion of its currency reserves in higher- yielding assets such as stocks and corporate bonds, said Takatoshi Ito, an adviser to the prime minister.
The reserves should be managed by a special fund that will gradually diversify into euros, Australian dollars and emerging market currencies, he said in an interview in Tokyo. Ito said that the Ministry of Finance, which expanded its currency reserves by selling yen in 2003 and 2004, has essentially borrowed the funds from the Japanese people.
``Foreign currency reserves are assets that belong to our citizens,'' Ito said. ``The government has borrowed the money from the people and it is engaged in a kind of carry trade. So it has to show some higher return on the investment.''
Subscribe to:
Posts (Atom)