Press review - page 450

[Sergey Golubev]

Forum on trading, automated trading systems and testing trading strategies

Press review

Sergey Golubev, 2013.07.01 07:19

Just next educational article about ECN and so on - Market Makers Vs. Electronic Communications Networks

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The foreign exchange market (forex or FX) is an unregulated global market in which trading does not occur on an exchange and does not have a physical address of doing business. Unlike equities, which are traded through exchanges worldwide, such as the New York Stock Exchange or the London Stock Exchange, foreign exchange transactions take place over-the-counter (OTC) between agreeable buyers and sellers from all over the world. This network of market participants is not centralized, therefore, the exchange rate of any currency pair at any one time can vary from one broker to another.

How Market Makers Work

Market makers "make" or set both the bid and the ask prices on their systems and display them publicly on their quote screens. They stand prepared to make transactions at these prices with their customers, who range from banks to retail forex traders. In doing this, market makers provide some liquidity to the market. As counterparties to each forex transaction in terms of pricing, market makers must take the opposite side of your trade. In other words, whenever you sell, they must buy from you, and vice versa.

The exchange rates that market makers set, are based on their own best interests. On paper, the way they generate profits for the company through their market-making activities, is with the spread that is charged to their customers. The spread is the difference between the bid and the ask price, and is often fixed by each market maker. Usually, spreads are kept fairly reasonable as a result of the stiff competition between numerous market makers. As counterparties, many of them will then try to hedge, or cover, your order by passing it on to someone else. There are also times in which market makers may decide to hold your order and trade against you.

There are two main types of market makers: retail and institutional. Institutional market makers can be banks or other large corporations that usually offer a bid/ask quote to other banks, institutions, ECNs or even retail market makers. Retail market makers are usually companies dedicated to offering retail forex trading services to individual traders.

Pros:

• The trading platform usually comes with free charting software and news feeds. (For related reading, see Forex: Demo Before You Dive In.)
• Some of them have more user-friendly trading platforms.
• Currency price movements can be less volatile, compared to currency prices quoted on ECNs, although this can be a disadvantage to scalpers.

Cons:

• Market makers can present a clear conflict of interest in order execution, because they may trade against you.
• They may display worse bid/ask prices than what you could get from another market maker or ECN.
• It is possible for market makers to manipulate currency prices to run their customers' stops or not let customers' trades reach profit objectives. Market makers may also move their currency quotes 10 to 15 pips away from other market rates.
• A huge amount of slippage can occur when news is released. Market makers' quote display and order placing systems may also "freeze" during times of high market volatility.
• Many market makers frown on scalping practices and have a tendency to put scalpers on "manual execution," which means their orders may not get filled at the prices they want.

How ECNs Work

ECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses.

Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders. (For more insight, see Direct Access Trading Systems.)

Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders on the ECN to the retail trader.

Pros:

• You can usually get better bid/ask prices because they are derived from several sources.
• It is possible to trade on prices that have very little or no spread at certain times.
• Genuine ECN brokers will not trade against you, as they will pass on your orders to a bank or another customer on the opposite side of the transaction.
• Prices may be more volatile, which will be better for scalping purposes.
• Since you are able to offer a price between the bid and ask, you can take on the role as a market maker to other traders on the ECN.

Cons:

• Many of them do not offer integrated charting and news feeds.
• Their trading platforms tend to be less user-friendly.
• It may be more difficult to calculate stop-loss and breakeven points in pips in advance, because of variable spreads between the bid and the ask prices.
• Traders have to pay commissions for each transaction.

The Bottom Line

The type of broker that you use can significantly impact your trading performance. If a broker does not execute your trades in a timely fashion at the price you want, what could have been a good trading opportunity can quickly turn into an unexpected loss; therefore, it is important that you carefully weigh the pros and cons of each broker before deciding which one to trade through.

[Sergey Golubev]

Intra-Day Fundamentals - EUR/USD, and GBP/USD : ADP Non-Farm Employment Change

2016-11-02 12:15 GMT | [USD - ADP Non-Farm Employment Change]

• past data is 202K
• forecast data is 166K
• actual data is 147K according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - ADP Non-Farm Employment Change] = Estimated change in the number of employed people during the previous month, excluding the farming industry and government.

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From official report:

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EUR/USD M5: 13 pips range price movement by ADP Non-Farm Employment Change news events

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GBP/USD M5: 32 pips range price movement by ADP Non-Farm Employment Change news events

[Sergey Golubev]

Intra-Day Fundamentals - EUR/USD, USD/CAD and NZD/USD : Federal Funds Rate and Federal Open Market Committee Statement

2016-11-02 18:00 GMT | [USD - Federal Funds Rate]

• past data is 0.50%
• forecast data is 0.50%
• actual data is 0.50% according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - Federal Funds Rate] = Interest rate at which depository institutions lend balances held at the Federal Reserve to other depository institutions overnight.

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From official report:

• "Inflation has increased somewhat since earlier this year but is still below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months."
  
• "Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."

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EUR/USD M5: 29 pips range price movement by Federal Funds Rate news events

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USD/CAD M5: 19 pips range price movement by Federal Funds Rate news events

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NZD/USD M5: 28 pips range price movement by Federal Funds Rate news events

 

[Sergey Golubev]

AUD/USD Intra-Day Fundamentals: Australia Trade Balance and 34 pips range price movement

2016-11-03 00:30 GMT | [AUD - Trade Balance]

• past data is -1.89B
• forecast data is -1.71B
• actual data is -1.23B according to the latest press release

if actual > forecast (or previous one) = good for currency (for AUD in our case)

[AUD - Trade Balance] = Difference in value between imported and exported goods and services during the reported month.

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From official report:

• "In trend terms, the balance on goods and services was a deficit of $1,784m in September 2016, a decrease of $127m (7%) on the deficit in August 2016."
• "In seasonally adjusted terms, the balance on goods and services was a deficit of $1,227m in September 2016, a decrease of $667m (35%) on the deficit in August 2016."

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AUD/USD M5: 34 pips range price movement by Australia Trade Balance news event

[Sergey Golubev]

USD/CNH Intra-Day Fundamentals: Caixin Services PMI and 34 pips range price movement

2016-11-03 01:45 GMT | [CNY - Caixin Services PMI]

• past data is 52.0
• forecast data is 52.5
• actual data is 52.4 according to the latest press release

if actual > forecast (or previous one) = good for currency (for CNY in our case)

[CNY - Caixin Services PMI] = Level of a diffusion index based on surveyed purchasing managers in the services industry.

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From official report:

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USD/CNH M5: 25 pips range price movement by Caixin Services PMI news event

 

[Sergey Golubev]

GBP/USD Intra-Day Fundamentals: Bank of England Official Rate and 72 pips range price movement

2016-11-03 01:45 GMT | [GBP - Official Bank Rate]

• past data is 0.25%
• forecast data is 0.25%
• actual data is 0.25% according to the latest press release

if actual > forecast (or previous one) = good for currency (for GBP in our case)

[GBP - Official Bank Rate] = Interest rate at which the BOE lends to financial institutions overnight.

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From official report:

• "The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 2 November 2016 the Committee voted unanimously to maintain Bank Rate at 0.25%.  The Committee voted unanimously to continue with the programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, financed by the issuance of central bank reserves.  The Committee also voted unanimously to continue with the programme of £60 billion of UK government bond purchases to take the total stock of these purchases to £435 billion, financed by the issuance of central bank reserves."

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GBP/USD M5: 72 pips range price movement by Bank of England Official Rate news event

 

[Sergey Golubev]

Quick Technical Overview - S&P 500: daily bearish reversal with 2,084 support (adapted from the article)

D1 price broke 200-day SMA to be reversed to the primary bearish market condition. The price is testing 2,084 support level to below for the bearish trend to be continuing.

• "The S&P 500 hasn’t had a positive day since last Monday, which isn’t to say the market should bounce just because it’s been down numerous consecutive days, but it certainly means, statistically, we are very likely close to at least one day up. With the election on Tuesday, and lots of uncertainty surrounding it, it is reasonable to conclude whatever bounce we get won’t be uber-powerful."
• "There are a few lines of influence intersecting in the vicinity of yesterday’s low at 2094 down to about 2085 – June, August, and October parallels (see chart). Below there the widely-watched 200-day lies at 2081. So, even though consecutive down days, in and of itself, doesn't qualify as an oversold indicator, when we have a confluence of technical events close at hand it increases the odds we will see support act as a springboard."

• If the price breaks 2,108 resistance level on close daily bar to above so the reversal of the price movement from the primary bearish to the ranging bullish market condition will be started.
  
• If daily price breaks 2,084 support level on close bar to below so the bearish trend will be continuing.
  
• If not so the price will be on ranging within the levels.
  

Resistance	Support
2,108	2,084
2,149	N/A

Trend:

D1 - bearish

[Sergey Golubev]

Intra-Day Fundamentals - EUR/USD and USD/CAD : The Institute for Supply Management Non-Manufacturing PMI

2016-11-03 14:00 GMT | [USD - ISM Non-Manufacturing PMI]

• past data is 57.1
• forecast data is 56.2
• actual data is 54.8 according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - ISM Non-Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry.

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From official report:

"The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 54.8 percent in October, 2.3 percentage points lower than the September reading of 57.1 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 57.7 percent, 2.6 percentage points lower than the September reading of 60.3 percent, reflecting growth for the 87th consecutive month, at a slower rate in October."

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EUR/USD M5: 16 pips range price movement by ISM Non-Manufacturing PMI news events

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USD/CAD M5: 17 pips range price movement by ISM Non-Manufacturing PMI news events

[Sergey Golubev]

AUD/USD Intra-Day Fundamentals: Australia Retail Sales and 34 pips range price movement

2016-11-04 00:30 GMT | [AUD - Retail Sales]

• past data is 0.5%
• forecast data is 0.4%
• actual data is 0.6% according to the latest press release

if actual > forecast (or previous one) = good for currency (for AUD in our case)

[AUD - Retail Sales] = Change in the total value of sales at the retail level.

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From official report:

• "The trend estimate rose 0.2% in September 2016. This follows a rise of 0.3% in August 2016 and a rise of 0.2% in July 2016."
• "The seasonally adjusted estimate rose 0.6% in September 2016. This follows a rise of 0.5% in August 2016 and a relatively unchanged estimate (0.0%) in July 2016."

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AUD/USD M5: 34 pips range price movement by Australia Retail Sales news event

 

[Sergey Golubev]

Trading News Events: U.S. Non-Farm Payrolls (adapted from dailyfx)

• "A 175K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless-rate may heighten the appeal of the greenback and spark a near-term pullback in EUR/USD should the report fuel speculation for an imminent Fed rate-hike."
• "Despite the 8 to 2 split within the Federal Open Market Committee (FOMC), Chair Janet Yellen and Co. appear to be following a similar path to 2015 as officials warn ‘that the case for an increase in the federal funds rate has continued to strengthen,’ and the dollar may outperform its major counterparts over the remainder of the year as the central bank takes a more collective approach in preparing U.S. households and businesses for higher borrowing-costs. However, a further reduction in the Fed’s long-run interest rate forecast may curtail the bullish outlook for the greenback as the committee argues ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months,’ and the permanent-voting members may continue to endorse a ‘gradual’ path in normalizing monetary policy as the central bank remains ‘data-dependent.’"

Bullish USD Trade: Employment Climbs 175K or Greater, Jobless Rate Narrows to 4.9%

• "Need red, five-minute candle following the print to consider a short EUR/USD position."
• "If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position."
• "Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward."
• "Move stop to entry on remaining position once initial target is hit; set reasonable limit."

Bearish USD Trade: U.S. NFP Report Falls Short of Market Forecast

• "Need green, five-minute candle to favor a long EUR/USD trade."
• "Implement same setup as the bullish dollar trade, just in the opposite direction."

Daily price is located below Ichimoku cloud in the bearish area of the chart. The price is on local uptrend as the bear market rally to be started on Monday for 1.1125 resistance level to be testing for the secondary rally to be continuing. Ascending triangle pattern was formed by the price to be crossed to above, Trend Strength indicator and Absolute Strength indicator are estimating the trend as the rally with the possible daily bullish reversal.

• If the price will break 1.1125 resistance level on close daily bar so the bear market rally will be continuing with 1.1216 re-enter target as a Senkou Span line value for the bullish reversal.
  
• If price will break 1.0892 support on close daily bar so the primary bearish trend will be resumed with 1.0850 nearest bearish daily target.
  
• If not so the price will be ranging within the levels.