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THE RISE OF RETAIL FOREX

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Mario-Singh

BY: Mario Sant Singh, Director of Market Development, FXPRIMUS

Mario-Singh

Mario Singh

With an average of $4.3 trillion exchanged per day, the Foreign Exchange (Forex) market is the largest and the most actively traded market in the world.

That extraordinary daily turnover, is equivalent to more than 12 times the average daily turnover of global equity markets, more than 50 times the average daily turnover of the NYSE, more than $500 a day for every man, woman, and child on earth, and represents an annual turnover more than 10 times world GDP, with the spot market accounting for over one-third of daily turnover.

I believe the key to spreading awareness about forex trading is through education. As investors acquire the knowledge, their interest on forex trading will naturally be piqued. Couple that with proper coaching and guidance during their learning phase, traders will come to realize the wealth potential of trading the forex market.

Retail forex trading has grown tremendously in the past decade. As the global economies faltered in the wake of the Global Financial Crisis, interest rose in investment in the forex market as people saw it as another avenue for portfolio diversification.

Thirty-seven percent of total turnover in Forex worldwide, are spot transactions – which are mostly traded by retail traders, who are everyday people like many of FXPRIMUS’ clients. Half of the US$1 trillion growth in Forex trading in the last period surveyed for the Bank of International Settlements (BIS) – from 2007-2010 – was in spot transactions, testifying to the spectacular popular growth of retail Forex trading worldwide in recent years.

In Asia particularly, investors flushed with liquidity are increasingly looking at the forex market as a viable means to leverage and grow their wealth. This is evident in the mushrooming of forex education providers in the region.

Society is also getting more tech-savvy, with more people using smartphones like the Blackberry and iPhone. These two factors alone have given rise to a tremendous interest in online Forex trading. Today, you can access the trading platform on the laptop and virtually any smartphone.

Unprecedented Liquidity and Sovereign Debt Levels
More than anything else, the Forex market is a trader’s market. It’s a market that’s open around the clock six days a week, enabling traders to act on news and events as they happen. It’s a market where half-billion-dollar trades can be executed in a matter of seconds and may not even move prices noticeably.

With a potent combination of unprecedented liquidity and sovereign debt levels in the world today, the world of Forex is also in a constant state of flux.

Not only does it inherently fluctuate in response to outside factors, but new regulations, new tools and technologies, as well as new trade strategies, are constantly revolutionising the industry. A good trader will have a handle on all of these factors and be able to use them in his or her favour because smart and successful trading is not all about tools and gadgets, but about a deeper understanding of the industry and the markets.

An Australia-based retail Forex trader became the world’s top-performing retail FX Trader in October 2012 in terms of percentage return on initial investment, by earning a 4,186.00% return on investment in 30 days, exceeding the returns of 2,523 traders in 26 countries who participated in a worldwide online trading contest run by FXPRIMUS. From an average deposit of $2,114.55, the top 20 traders in the firm’s contest achieved average returns of 506.7%.

Such a result is possible – although not typical – in trading the Forex Market, where a trader can go Long or Short at any time –giving maximum flexibility to ride an ongoing trend or to cut losses fast and take advantage of a change in market direction.

‘Win Big or Lose Big’

The assumption for many is that Forex is a market to “win big or lose big.”

However, this is not true. While leverage allows you to make large profits from a relatively small initial investment, proper risk management helps traders protect their downside. Great traders never risk more than 3% of their capital per trade. Once retail traders practice this rule, they can literally have their cake and eat it – be in a position to amplify gains and limit losses.

The benchmark for a trader is to be consistently profitable. If a trader makes a 6% return on capital every month, that’s a 100% return in a year with compound interest – a realistic and achievable return.

As investors acquire knowledge, their interest in Forex trading will naturally be piqued. Couple that with proper coaching and guidance during their learning phase, and traders come to realise the wealth potential of trading the forex market.

Taking the high public interest of Forex trading into account, I believe that it is crucial to equip and expose investors with proper education, based on 3 keys to profitable forex trading:

A. Strategies
Retail traders must have a proven set of rules to tell them when to enter, when to exit and when to stay out of the market.

B. Money Management
Retail traders must practice strict money management by controlling their risk for every single trade. Great traders do not risk more than 3% of their capital per trade. This prevents them from blowing up their capital in a short period of time when they experience a string of losses.

C. State Of Mind
Retail traders must be disciplined and not let emotions rule them when it comes to trading. In order to do so, one of the most effective ways is to have a trading plan and follow it diligently.

Mentoring and Coaching the Way Forward

I also strongly believe that mentoring and coaching are the best ways for retail traders to learn how to trade successfully. If they learn from another successful trader who has already walked the path that they are seeking, it will greatly shorten their learning curve.

Because less experienced and beginner traders are just as important to FXPRIMUS as money managers and white label partners, we offer retail traders world-class education with unparalleled content in terms of tutorial videos and 1-on-1 coaching for clients at all levels, as we want our clients to succeed. All traders who open and fund a live account receive 60 days free access to FXPRIMUS Coach, conducted by FXPRIMUS Training & Education division’s team of professional coaches.

Even new Forex traders get a level of trade execution, training and education, service quality and fund safety that are normally reserved only for large, sophisticated investors. FXPRIMUS Coach is a revolutionary service, in that it allows clients who sign up for it to receive access to an exclusive live 1-on-1 chat service where they can ask and receive trading advice or inquire about specific technical indicators. They can even ask about how certain economic events will impact the markets. The tool has already proven invaluable to beginners looking to break into Forex markets.

New traders can open a free 60-day practice account and practice with virtual money using live streaming buy and sell rates. During the 60 days, new traders receive free new trader coaching, video training for beginners and more from our professional coaching team.

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Cryptocurrencies: the new gold?

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Cryptocurrencies: the new gold? 1

By Gerald Moser, Chief Market Strategist, Barclays Private Bank

Time to add to a portfolio?

There has been a lot of talk about bitcoin, and cryptocurrencies in general, being a “digital” gold. Similar to gold, there is a finite amount, it is not backed by any sovereign and no single-entity controls its production. But for bitcoin to be considered in a portfolio and to become an investable asset, similar to gold, the asset would need to improve the risk/return profile of that portfolio. This seems a tall order.

While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost “uninvestable” from a portfolio perspective. With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.

Cryptocurrencies: the new gold? 2

Poor diversifier

And while bitcoin’s correlation measures are relatively supportive, it seems to falter when diversification is most needed, such as during sharp downturns in financial markets. Looking at weekly return correlations since 2016 shows that bitcoin is not strongly correlated with any assets (see below). It is however only second to US high yield in its correlation with equities. US Treasuries, gold and US investment grade were better diversifiers than bitcoin when it comes to equities.

Source: Bloomberg, Barclays Private Bank

Source: Bloomberg, Barclays Private Bank

Furthermore, looking at global equity corrections since 2015 (see below), it is noticeable that bitcoin has performed even worse than equities over the last three corrections. And while gold and fixed income provided some relief during those corrections, bitcoin compounded the loss that investors would have incurred from equities exposure.

Source: Bloomberg, Barclays Private Bank

Source: Bloomberg, Barclays Private Bank

The fact that cryptocurrencies also fluctuate alongside equities suggests that investment in bitcoin is more akin to a bubble phenomenon rather than a rational, long-term investment decision. The performance of the cryptocurrency has been mostly driven by retail investors joining a seemingly unsustainable rally rather than institutional money investing on a long-term basis.

Several studies around market structure have shown that emerging markets with high retail/low institutional participation are more unstable and more likely subject to financial bubbles than mature markets with institutional participation. And while more leading financial houses seem to be taking an interest in cryptocurrencies, the market’s behaviour suggests that the level of institutional involvement is still limited. Another issue is around its concentration: about 2% of bitcoin accounts control 95% of all bitcoins.

In summary, difficulty to forecast return, lack of diversification and high volatility makes it hard to consider bitcoin as a standalone asset in a diversified portfolio for long-term investors.

An inflation hedge?

Another point widely quoted in favour of cryptocurrencies is that they provide an inflation hedge. This might be a valid point, if inflation stems from fiat currency debasement. As mentioned above, a currency’s worth comes from the trust economic agents have in it. If unsustainable amounts of debt and large money creation shatter belief in sovereign-backed currencies through spiralling inflation, cryptocurrencies could be seen as an alternative.

Regardless of its price, bitcoin’s production is set on a precise schedule and cannot be changed. If oil or copper prices go up, there is an incentive to produce more. This is not the case for cryptocurrencies. In a very specific and highly hypothetical scenario of all fiat currency collapsing, this could be positive. But other real assets such as precious metals, inflation-linked bonds or real estate usually provide a hedge against inflation.

Other considerations

Bitcoin’s technology should theoretically make it extremely secure. As there is no intermediary, each transaction is reviewed by a large number of participants which can all certify the transaction. However, there have been frauds and thefts from exchanges. Another point to consider is the risk of “losing” bitcoins. According to the cryptocurrency data firm Chainanalysis, around 20% of the existing 18.5m bitcoins are lost or stranded in wallets, with no mean of being recovered. As there is no intermediary, there is no backup for a lost bitcoin.

From a sustainability point of view, adding cryptocurrencies to a portfolio will make it less green. Mining and exchanging them is highly energy intensive. According to estimates published by Alex de Vries, data scientist at the Dutch Central Bank, the bitcoin mining network possibly consumed as much in 2018 as the electricity consumed by a country like Switzerland. This translates to an average carbon footprint per transaction in the range of 230-360kg of CO2. In comparison, the average carbon footprint of a VISA transaction is 0.4g of CO2.

Beyond energy use, the mining process generates a large amount of electronic waste (e-waste). As mining requires a growing amount of computational power, the study estimates that mining equipment becomes obsolete every 18 months. The study suggests that the bitcoin industry generates an annual amount of e-waste similar to a country like Luxembourg.

Cryptocurrencies are here to stay

Innovation in digital assets continues rapidly and will likely drive increased participation, both from retail and institutional investors. The underlying blockchain technology behind bitcoin was meant to disrupt a few different industries. While results have not lived up to the initial hype, more sectors are investigating the use of the technology.

And with Facebook announcing a stablecoin, or a cryptocurrency pegged to a basket of different fiat currencies, central banks have accelerated the movement towards central bank digital currencies. Those could improve payment systems resilience and facilitate cross-border payments.

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Energy stocks drag down FTSE 100, IG Group slides

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Energy stocks drag down FTSE 100, IG Group slides 3

By Shivani Kumaresan

(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.

The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.

Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]

“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.

“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”

The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.

IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.

Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.

Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)

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Wall Street bounce, upbeat earnings lift European stocks

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Wall Street bounce, upbeat earnings lift European stocks 4

By Amal S and Sruthi Shankar

(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.

The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.

All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.

Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.

Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.

Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.

The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.

“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.

The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.

“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.

Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.

Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.

Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)

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