GBPUSD Trading Range
By Laetitia Vaval | October 16, 2007
The GPBUSD pair has been trading in a range (2.0250-2.0450) since the end of September. I’ve decided to try to profit from this trading pattern. I bought one lot at 2.0300. My upside is 150 pips (limit set at 2.0440). I set my limit price at 2.0230, 70 pips below since that is under the trading range and if the GBP reached that level it would probably mean that the range has been broken and that my earlier ”analysis” is no longer valid.
Tags: gbp, pips, trading, USD
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GBP/USD a Buy?
By DailyFX Updates | October 8, 2007
According to our Speculative Sentiment Report from last Thursday, the SSI for the GBP/USD flipped from negative to positive. In the past, when retail was long but flipped to net short, the GBP/USD has rallied in the following days. Based upon this information, now may be a good time to buy the GBP/USD for a quick bounce.
Latest Speculative Sentiment Report
Tags: dailyfx, forex analysis, gbp, ssi
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FXCM’s Response to NFA Regulatory Changes
By Drew Niv | September 28, 2007
Questions provided by FXStreet
1 - What is your opinion on the recent NFA regulatory changes? How do you view the implementation of these new measures for FDMs?We believe the NFA pending regulatory changes will lead to a consolidation of the retail forex industry and this consolidation will benefit FXCM, since we easily meet the new proposed regulations.The proposed regulations will require that firms have at least $5 million in net capital. However, the requirement for brokers with large amounts of customer capital could be substantially higher. Based on the most current CFTC financial data we estimate that as many as 20 firms would not be able to meet this requirement if enforced today. The forex industry in the long term should benefit from having a smaller number of better capitalized brokers. In essence, a broker with more firm capital is less likely to make imprudent decisions that would put its funds and its customer funds at risk.Although these new regulations are good for the industry, the resulting short-term changes may be difficult for clients whose brokers do not meet the new requirements. We hope that the NFA will make every effort to facilitate an orderly transition as brokers make new arrangements to enable their clients to trade through firms that meet the new requirements. 2 - The new proposal also calls for the use of proper and uniform accounting methods and tightens internal controls. Do you think this measure could affect your company’s business in some way?
No. FXCM’s accounting practices should not be affected by the new proposed regulations. Our own business standards led us several years ago to adopt similar practices to those specified in the new proposed regulation.
For the last six years, FXCM has been audited by major accounting firms which audit public traded companies. Our financial statements comply with international GAAP standards. To live up to these higher standards, we have had to maintain a highly trained and professional staff of accountants and internal auditors. We believe only a large firm, such as FXCM, can make the type of investment in financial integrity which will now be required of all FDMs by the new proposed standards. 3 - Do you consider these measures could be a breath of fresh air that could result in more investors joining the FX Market?Yes. The FX market has been growing at an incredibly fast pace. However, its momentum could be slowed if one or more brokers became insolvent. These new proposed rules significantly reduce the probability of that happening. Thus, the proposed new rules help protect the future of the industry.My personal opinion is that the emerging credit crisis will have a major impact on equity markets. As profitability in trading stocks becomes more difficult, there will be a mass of traders into forex. We do not want those traders’ first opinion of forex trading to be of an industry in need of regulation.4 -
FXCM is in discussions with several small and mid-sized FDMs who are concerned about their ability to meet the new proposed requirements. We are interested in purchasing the client accounts of these firms, or finding a mutually beneficial relationship with them.
The FXCM Group is uniquely positioned to accept and service the books from other brokers. We have 1) A global footprint with offices in the Americas, Asia and Europe; 2) A staff of over 500, capable of handling the migration of a large number of clients; 3) over $120 million in group capital(unaudited) to fulfill the capital requirement associated with servicing these new clients.
A forex broker seeking a potential buy or an IB relationship, must first of all consider the buyer’s ability to pay. Brokers may have thousands of clients trading many millions of dollars; in such an instance, the buyer may be obligated to rebate millions of dollars to them. The brokerage firms must satisfy themselves that the buyer can afford to do that – and in fact, that it has been routinely doing that for years.
Also: The broker must be assured that the buying firm can potentially absorb thousands of new clients, service them well and, in order to continue to receive revenue from their trading, keep them as clients.
In my opinion, the most important reason that some FDMs are considering a relationship with FXCM involves trust. In blunt terms, I believe FXCM can always be trusted to pay the firm’s owners the revenue their accounts earn – in full and on time. FXCM has been working with Introducing Brokers for over eight years. In fact, our very first Introducing Broker continues to refer business to us.
Our No Dealing Desk business model is ideally suited to processing a large Introducing Broker book of business. Under our No Dealing Desk system, our monthly revenues, in the form of pip markups, are an exclusive reflection of trade volume: if we do X volume, we book X pips. And the revenues of our IBs move in perfect concert with our own, since they may be rebated an exact percentage of total volume.
The revenues of a market-making broker, on the other hand, are not only dependent on volume, but may vary significantly depending on the quality and effectiveness of the broker’s traders as well as market volatility. Therefore, if the FDM allies with a market maker, and that market maker suffers a losing month, yet still owes a volume rebate to the IB, the IB may encounter difficulties in collecting everything it is owed.
6- How do you see the M&A market in the Forex industry? Do you expect important corporative movements in the next months?
The M&A market in forex is particularly tough for several reasons.
- No common standards – for software platform, accounting standards, back office procedures. It makes integrating an acquisition much more difficult than a firm in the equity industry, for example, where standards are shared.
- Recent market volatility meant rising volumes and profits for most firms. August was one of the best months in FXCM Group’s history – we had over half a trillion in trading volume – and we suspect that other firms also did very well. This recent success, I believe, will make owners of smaller brokers reluctant to sell. As a founder of a forex firm, I completely understand their feelings and their attitude. It is very tough to exit now. However, as the new proposed regulations come closer to enactment there may be a major re-assessment.
- Many private equity firms and venture capitalists are eager to fund profitable forex firms. But they are in search of the fastest and surest payout, and will tend to ignore all but the largest and most competitive forex firms on the market. Furthermore, they realize that even those large FDMs have been put in a weak – and perhaps ultimately desperate — bargaining position by the new proposed regulations, and will negotiate accordingly. If past is precedent, at contract time the deal may become much more one-sided and full of pitfalls for the forex broker owner. Private equity firms are expert at negotiating terms that are extremely profitable for them but costly for the business owner.
The illusion of private equity firms lining up to invest in the business may give the owner false hope that buckets of cash are theirs for the taking. I believe that once the FDM owner is discouraged by the private equity experience, actual M&A activity between forex brokers will intensify.
7 - For many, the very business model of Forex brokerage firms that needs to be decided is whether or not such brokerage houses can take opposite trading positions to those held by their customers, i.e., trading ‘against them’, which contradicts traders’ well-being. What is your company position on this? How do you hedge your customers’ trades?We believe that No Dealing Desk model is best for both trader and broker, and FXCM is totally committed to it. Over 99.9% of our business is conducted on this model.
FXCM was primarily a market maker until the end of 2006, when we took a 180 degree turn to the agency execution model. So we know the market-making business. Currently, many of our competitors believe that because volatility has returned, market making is the more profitable business model. That is true — in the short term. Long-term, however, the no dealing desk system is better, in my opinion, for both the broker and the client, for several reasons.
- Better Execution During News Events & Market Volatility. It seems that in the past few years clients have become much more focused on trading news events — those turbulent times when it is most difficult to make prices. By aggregating large bids and asks from the large banks, we solved that problem, and the proof is that since we inaugurated no dealing desk our trading volume during news events has grown immensely. Market makers, however, have an especially tough time during news trading, because if they honor all prices they will lose money. (When we were market-making we certainly lost money during the big market moving news events.) Remember too that the market-maker’s prices are removed from the real market, and so they must protect themselves by offering created prices. We avoid the problem by having some of the world’s largest banks streaming their prices through us.
- Lower Spreads. We can now review our policies relating to prices and markups above the best bid/offer we get from the banks, and we’ve introduced fractional pips to further tighten spreads. In the next few months we plan to continue cutting the cost of trading pairs across the board. And we have launched numerous incentive programs to provide additional discounts to high-frequency traders.
- Greater
Opportunity to Scalp the Market. Many traders favor short-term scalping strategies. For scalping to be profitable for the client, the market maker must lose. So either the market maker takes the loss or disallows the strategy. With no dealing desk we are able to accommodate scalpers – but of course we clearly warn them of the risks involved. - Aligned Broker-Trader Interests. The no dealing desk strategy has aligned FXCM’s interests with those of our customers. Since it is in our interest for them to trade more, we want them to increase their profits and account sizes. We have studied which trading behavior is most profitable for the retail trader, and have discovered that most retail clients are less successful when they trade pairs with large swings – especially GBP/USD. They are much more profitable with the quieter, range-bound pairs like EUR/CHF, EUR/ GBP and AUD/NZD. To give our clients an extra incentive to trade the more successful pairs, we have been aggressively reducing our markups on these pairs to make their spreads the tightest of all the currencies we offer.
- Easier Implementation of Programmed Trading. We can now accommodate more black box traders, both those with high-frequency systems and those with break out systems. The change to no dealing desk allows us to service a large new group of traders who never thought of trading through us when we were market-makers.
8 - Would you like to add something else?
The major reason for the proposed regulations is that the NFA and the industry realize that we must provide more funds security to forex traders. The new proposals are a major step forward, but I think we all realize they don’t go far enough.
I am proud to say that FXCM is in the vanguard of the movement to convince the US Congress to pass legislation extending funds segregation to the forex industry. In fact, we have even established a Political Action Committee to support and coordinate the actions of this Safety of Funds initiative, and we have convinced three other large FCMs to add their names to our petitions. We are urging every firm in our industry to join us in this effort.
FXCM already has the ability to offer our clients segregated forex accounts. Thanks to our British subsidiary, accounts with Forex Capital Markets LTD (FXCM-UK) are fully segregated in accordance with
Tags: dollar, forex, forex broker, forex industry, forex market, forex trading, fractional pips, fxcm, gbp, market volatility, nfa
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DailyFX Forex Radio - US Dollar Weakness May Continue, but is Canadian Dollar Strength Overdone?
By DailyFX Radio | September 25, 2007
· US Dollar sets record levels against Euro, but Canadian dollar shows early signs of weakness
· Will the dollar continue lower on upcoming US Durable Goods data?
· Be sure to view the rest of the week’s event risk on the DailyFX Weekly Calendar
To discuss these or any other FX topics with the DailyFX analysts, check out the Forum
Click Link to Listen to our Evening DailyFX Radio PodCast:
http://media.dailyfx.com/podcasts/FXRadioPM092507.mp3
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Tags: dailyfx, dollar, gbp
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DailyFX Forex Radio - Can the Dollar Continue Short Term Bounce?
By DailyFX Radio | September 24, 2007
· US Dollar sees little relief, but buck could see bounce through short term
· Will the euro rally or dive on upcoming economic data?
· Be sure to view the rest of the week’s event risk on the DailyFX Weekly Calendar
To discuss these or any other FX topics with the DailyFX analysts, check out the Forum
Click Link to Listen to our Evening DailyFX Radio PodCast:
http://media.dailyfx.com/podcasts/FXRadioPM092407.mp3
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Tags: dailyfx, dollar, gbp
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DailyFX Forex Radio - Canadian May Break Parity, Greenback to See Little Relief
By DailyFX Radio | September 20, 2007
· US Dollar sees little relief, downward momentum shows few signs of slowing
· Canadian Retail Sales could send the Loonie past parity
· Be sure to view the rest of the week’s event risk on the DailyFX Weekly Calendar
To discuss these or any other FX topics with the DailyFX analysts, check out the Forum
Click Link to Listen to our Evening DailyFX Radio PodCast:
http://media.dailyfx.com/podcasts/FXRadioPM092007.mp3
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Tags: dailyfx, dollar, dow, gbp
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Morning Trade
By Laetitia Vaval | September 20, 2007
This morning I decided to range trade the GBPUSD. At around 9AM - the range was about 2.0047 - 2.0113. I got long at 2.00754 (had a stop at 2.0020) and exited my position 2.00845 a 9.1 pip gain. Got back in again at 2.0975 and out at 2.01155 - an 18pip. I traded the pair a few more times throughout the mornign and all in all was very profitable, but here again I could have made a lot more profit had I not been sitting in front of the computer the whole time. I kept looking at the 1-minute chart and second guessing my decision. Had i entered, a stop and a limit and walked away, I could have made over 700dollars in profits since my target price was 2.0136 which was hit a little bit later.
Also, I am short the USDCAD. I am going to hold this trade overnight since Canadian Retail Sales will be released at 8:30Am EST tomorrow morning. The odds of a positive surprise are pretty high since Canadian Wholesale sales were released this morning (+2.0% vs +0.5% expected), and wholsesale sales can generally be interpreted as an early indicator of positive retail sales.
Tags: cad, currency trading, dollar, forex, forex trading, gbp
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DailyFX Forex Radio - UK Retail Sales Key to Pound Performance, Can Bernanke Boost the Dollar?
By DailyFX Radio | September 19, 2007
· US Dollar likely to continue declines through short term
· UK retail sales data could send the GBPUSD towards 1.9900
· Be sure to view the rest of the week’s event risk on the DailyFX Weekly Calendar
To discuss these or any other FX topics with the DailyFX analysts, check out the ForumClick Link to Listen to our Evening DailyFX Radio PodCast:
http://media.dailyfx.com/podcasts/FXRadioPM091907.mp3
Want to hear our PodCasts daily? Subscribe to them for free on
Tags: dailyfx, dollar, gbp
Topics: DailyFX Radio Podcasts | 1 Comment »
Trading The Pound
By Laetitia Vaval | September 17, 2007
Today, I decided to mostly focus on the Sterling and more precisely on the GBPUSD in light of the recent financial turmoil Great Britain has been facing. One of Britain’s largest mortgage lender, Northern Rock has seen its customers rush to branches to withdraw their money as response to the bank’s financial trouble. At 7:37AM EST I decided to get long ( I had a very short term frame — about an hour or so max): I got long at 1.9987 and held the position for 16 pip up to 2.0003 and sold my lot there, expecting to see a reversal and watch the pound trade down in light of the recent economic events. However, it traded up further up to about 2.00294.
Finally, the GBPUSD broke down and traded down very rapidly all the way down to about 1.9913. I sold one lot at 2.0012. I made one major mistake, i bought my lot about 20pips lower, and seeing that it kept trading down sold it again, then bought it back again 20 pips lower. All in all the GBP traded down about 100pips over a very short period of time. However, I failed to make all the potential profits I could have made, and got in and out, in and out of a trade again, wasting tens if not hundreds of dollars by paying the spread several times and by selling off several pips lower than where i had just bought back.
On the chart above, you can see the GBPUSD drop about 100pips between 9:30 and 11:30ish.
Tags: dollar, dow, forex, forextrading, gbp, wall street warriors
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Trading when economic data is released
By Laetitia Vaval | September 13, 2007
Today, I’m going to write a little bit about having a position open when major economic data is released. As I wrote on my previous thread, I opened a long position in the GBPUSD yesterday and decided to keep my position overnight. By doing so I made a major mistake: I didn’t check the economic calendar on DailyFx and therefore was not aware that the UK was releasing its RICS House Price Balance for the month of August at 23:01GMT. This indicator measures the costs of homes in the U.K. and was estimated to come out at 10.0%. A rise in house prices usually reflects an overall strong housing market and strong economy. However, this number came out at -1.8% much below expectations and even showed a decrease in the cost of homes — an indicator of an overall weak economy.
Of course the GBPUSD reacted to this disapointing news and dipped about 30pips below the level it was trading at before the release. Having placed my stop at 2.027, I was stopped out at 19:34 EST. The fact that I was not aware of this important overnight news release didn’t allow me to adjust my stop price since I should have foreshadowed that the GBPUSD would be fluctuating greatly following the release. So as I wrote earlier, I was stopped out at 2.027 — a 46pip loss. Of course, the pound traded back up slowly and peaked at 2.03440 mid-day today.
This mistake is in some way very valuable because it taught me to check which indicators will be released overnight, the consequences they may have on the positions I am holding and how to make the necessary adjustements to avoid big losses.
Today, I am trading the EURUSD and the USDJPY, and have to take into consideration that major economic releases will be coming out tonight regarding both the US and Japan. At 8:30 EST tomorrow morning, Advance Retail Sales - a major market moving indicator — will be released and could trigger a rather large move for the EURUSD if not in line with the 0.5% expectations for August. Japan will also be releasing some relatively important data overnight regarding Industrial Production — which could have a market moving impact on the USDJPY.
I’m going to hold my EURUSD position overnight, as I am looking to keep it for a longer period of time. I’m going to make sure I place a large enough stop, so that I do not get stopped out of my position if the US economic numbers come out better than expected. I’m going to place my stop at 1.3777 which was a good support level on 09/10/07.
Tags: dailyfx, dow, economic release, eurusd, gbp, housing market, pips, retail sales, wall street warriors
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