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Avoiding arbitrage – the importance of web performance in forex



Avoiding arbitrage – the importance of web performance in forex

Contributed by:Alex Nam, Managing Director EMEA, CDNetworks

Speculating on foreign exchange (FX) is no longer the preserve of billionaires and fund managers. FX is the largest market in the world, and thanks to the immediate effects of currency fluctuations on the price of imports and the cost of holiday souvenirs, it’s more understandable than many other types of trading. There is also less of a barrier to entry – many types of investment or trade require a third party to be involved to actually make the transaction, or need a minimum amount of capital to be invested.

Alex Nam

Alex Nam

Forex, on the other hand, is as simple as an online auction or ecommerce purchase, and is available 24/7. Buying shares in a listed company means waiting until the exchange is open, whereas currency can be bought around the clock. It’s the biggest market in the world with over $5 trillion traded every day[i]. While 95%+ of this is currency traded by corporations and banks, the retail market, while less than 5%, is still huge.

This combination of demand and ease has led to the creation of online portals to buy and sell currency. These portals are aimed at those looking to dabble in forex, as well as those more serious about following trends and making predictions – just as online gambling has opened up betting to a wider audience than those willing to brave high street betting stores.

But these online portals run a particular risk, akin to a gambling site taking bets on a race that has already finished. Arbitrage, the practice of buying currency from one site at a particular price and then selling it instantly at a better price elsewhere, can mean big losses. With zero risk for whoever is performing these trades, and the ability to trade a lot of money at once, the potential losses can be staggering.

A delay in updating exchange rates could be ruinous if a customer takes advantage of this difference in exchange rates of competing platforms to make a profit. Thanks to the automated nature of these trades, milliseconds matter. Software is used to scan for opportunities to buy and sell and make trades automatically. A delay of a just a few milliseconds could be enough for a trader to make a huge profit – and for a forex broker to make a huge loss.

Businesses being able to offer up-to-date, accurate prices on their website is good, but for forex it’s actually vital for the survival of the business. Exchange rates change so quickly that every millisecond counts. Unfortunately, if a website is not hosted close to the user, then out-of-date data such as exchange rates can be more than just a few milliseconds out, but a few seconds.

Local delivery of content, either by hosting at a local datacentre or by caching by a content delivery network, is most often the solution to long loading times. Simply by cutting down the distance from the user to the content, the time to load a page is drastically reduced. Content can be served in milliseconds rather than seconds.

This caching of content will fix help fix issues for a website that only relies on static content, but it doesn’t help with a forex pricing engine. The constantly changing nature of these prices means that local caching is useless. Were data to be cached, the information would be instantly useless, a historical record rather than the up-to-the-second accuracy forex demands. Another complication is the fact that pricing information is often non-browser based traffic.

The answer to this again lies with content delivery networks, but it needs to be one with the capability to accelerate the engine so that the forex website displays up-to-date-pricing. Accelerating website content means accelerating the “application layer” – but speeding up a pricing engine means accelerating the “network layer”. The CDN should also, of course, accelerate static content by caching to offer an overall pleasant and fast customer experience – a fast pricing engine on a slow website is no good.

The retail forex market is likely to become more competitive in the future, and forex providers will likely feel the impact of regulation such as PSD2. As such, it’s vital that they remain competitive and protect their business from those who would exploit it, by being as real-time as possible. And, of course, have a fast, responsive website that does not frustrate users won’t hurt either!

*Previously published in Issue 8


Sterling weakens against resurgent dollar



Sterling weakens against resurgent dollar 1

LONDON (Reuters) – The British pound lost ground against a resurgent dollar on Friday, as currency traders took some risk off the table amid rising U.S. bond yields.

U.S. Federal Reserve Chair Jerome Powell failed to soothe investor concerns about a recent surge in borrowing costs as he spoke at a Wall Street Journal forum on Thursday, pushing the safe-haven dollar higher.

Sterling fell to a three-week low against the dollar, down 0.5% at $1.3825.

The pound had reached as high as $1.42 last month – its highest level since 2018 – as optimism built about Britain’s swift introduction of COVID-19 vaccines and expectations of a robust economic recovery.

“The dollar is rebounding along with longer term U.S. yields, which is triggering a reversal of trades including for the pound,” said Lee Hardman, currency economist at MUFG.

“But the fundamentals are moving in a positive direction for the pound with the vaccine rollout and growing hopes of a recovery. The pound should strengthen after this near-term correction.”

Analysts said British finance minister Rishi Sunak’s budget plan for the economy this week, which included a further extension of pandemic stimulus packages and some tax rises, could also ultimately strengthen the pound.

“This should keep fiscal policy loose, which should keep the Bank of England in a hawkish mood while expecting a robust economic recovery in the next few months. This mix should keep supporting sterling beyond $1.40,” said Gaetan Peroux at UBS.

Against the euro, the pound dipped around 0.1%, last at 86.28 pence.

(Reporting by Iain Withers, editing by Larry King)

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UK shares fall as higher bond yields weigh



UK shares fall as higher bond yields weigh 2

(Reuters) – London’s FTSE 100 fell on Friday, as a persistent rise in bond yields globally led to fears of higher inflation and borrowing costs, while energy stocks rose on higher crude oil prices.

The blue-chip FTSE 100 index fell 0.7%, with banking and mining stocks, including Prudential Plc, Lloyds banking, Rio Tinto, Anglo American, and BHP, leading declines.

Oil heavyweights BP and Royal Dutch Shell, however, gained 0.7% and 0.4%, respectively, as oil prices climbed after OPEC and its allies agreed to extend output cuts to April.

A weaker overnight finish on Wall Street following a jump in U.S. Treasury yields also spilled over to Asian equities earlier in the day.

The UK domestically focused mid-cap FTSE 250 index fell 0.7%, dragged down by consumer discretionary and financial stocks.

Equipment rental company Aggreko rose 1.2%, as it backed a 2.32 billion pound ($3.22 billion) buyout offer from private equity firms TDR Capital LLP and I Squared Capital.

London Stock Exchange Group fell 4.4%, even after announcing a 7% dividend increase as integration of its $27 billion acquisition of data and analytics company Refinitiv stepped up a gear.

(Reporting by Shivani Kumaresan in Bengaluru; Editing by Rashmi Aich)

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Dollar ascendant as Powell sticks to script; risk currencies slide



Dollar ascendant as Powell sticks to script; risk currencies slide 3

By Kevin Buckland and Sagarika Jaisinghani

TOKYO (Reuters) – The dollar hit multi-month highs against the euro and the yen on Friday after Federal Reserve Chair Jerome Powell did not express concern about a recent sell-off in bonds while sticking to his stance to keep interest rates low for a long time.

While Powell did stick with dovish rhetoric overall, he said the sell-off in Treasuries was not “disorderly” or likely to push long-term rates so high the Fed might have to intervene more forcefully, reigniting a sell-off in Treasuries.

He also reiterated a commitment to maintain ultra-easy monetary policy until the economy is “very far along the road to recovery.”

“Markets are listening to the central banks and if they are going to be on hold for a long time, that means long-term inflation is going to be higher and that’s why you’re seeing the bond and equity markets sell off,” said Commonwealth Bank of Australia currency analyst Joseph Capurso. “The currency markets are reacting to the increase in volatility in both those markets.”

The euro slipped 0.2% to a three-month low of $1.19515 following a 0.7% slump overnight.

The dollar hit an eight-month high of 108.035 yen earlier in the session before giving up much of its gains.

Japanese Finance Minister Taro Aso declined to comment on the yen’s decline when asked about how the depreciation would affect the economy.

The dollar index hit a three-month high and last stood at 91.672 in the Asian session after gaining 0.7% on Thursday

The dollar’s gains came as the benchmark 10-year Treasury yield jumped back above 1.5%, rising as high as 1.584% in Asia. Last week, it soared to a one-year peak of 1.614%.

Impending U.S. fiscal stimulus is adding fuel to expectations of higher inflation, as the accelerating roll-out of COVID-19 vaccines boosts confidence in an economic recovery.

Riskier currencies including the Australian and New Zealand dollars slid along with stocks as investor sentiment again turned sour.

“Once the bond rout comes to an end, once the volatility fades away, the commodity currencies (the Aussie and the kiwi) are going to be able to climb back up because commodity prices aren’t falling,” said Capurso at CBA.

The Aussie weakened 0.3% to $0.7705, extending Thursday’s 0.7% drop. The kiwi fell 0.2%, adding to its 0.8% slide overnight.

In the cryptocurrency market, bitcoin fell 2.3% to $47,272.65. Ether dropped 3.6% to $1,483.43.

(Reporting by Kevin Buckland; Editing by Stephen Coates and Gerry Doyle)

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