FxIgor

Trading Limits in the Currency Markets

Forex trading limits in the currency markets

Forex daily trading limit is the maximum amount, either up either down, that exchange-traded security (currency pair) is allowed to fluctuate in one trading session.

The price of a security like a stock or currency that is traded will change daily depending on a number of factors like political, economic news, demand, the supply of the currency and other factors. In some cases, large dealers and traders may attempt to manipulate the price of the security to maximize their profit. Hence to curb the manipulation in the foreign exchange (forex) or other securities market and make it less volatile, limits are set by the exchange or the regulatory body. Usually, for forex, the forex trading limits are specified by the central bank for the particular currency.

After the daily trading limit is reached for the specified currency, further trading will not increase or decrease the exchange rate beyond the limit which is specified. However, it may be possible to continue trading at the exchange rate limit which has been reached. The market which has reached the trading limit is called a locked market. Alternately the market status is limit up or limit down if the upper or lower price/exchange rate limit has been reached respectively. When trading resumes, the next day, the new limits will be set, based on the previous close.

Central bank

The exchange rate for a particular currency affects the economy of the country, the exports, and imports for the country. Hence the central bank of the country is usually responsible for deciding the limits to control the volatility of the currency of the country in the forex market. In the United States, the Federal Reserve is the central bank of the country. The central bank has currency reserves, and it will ensure that the forex rate for its currency remains within the desired limit by selling or buying currencies, by altering the composition of the currency reserve.

Though these efforts of the central bank will make the currency less volatile, and reduce the manipulation of the forex rate, it could lead to overvaluation or undervaluation of the currency. Also, the limits imposed on daily trading can adversely affect the valuation of the asset, the currency. There are usually fundamental factors that affect the value of the currency, like the demand for the currency for paying for imports like crude oil. However, if limits are imposed on the forex rate by the central bank, the currency may not reach its real value, and it may become a mispriced asset.

Reasons for imposing limits

Limits reduce the impact of extreme volatility on the exchange rate for a currency. Often certain political and economic events or news can lead to panic selling or purchasing of a particular currency, resulting in a large increase or decrease in the forex rate. The exchange rate is important for the economy, since a large number of business transactions, especially the value of imports and exports, will vary depending on the currency forex rate. Hence the central bank of the country will usually try to ensure that the increase or decrease in forex rates remains within reasonable limits. This will also ensure that large companies do not manipulate the rates to maximize their profit

Disadvantages of trading limits

Some market analysts, experts and traders are of the opinion that there should be no limits on the forex rates for currencies. They believe that the market participants should determine the forex rate, price of the currency, in a free market. They also claim that these restrictions may be misused by some of the market participants to manipulate the market and make a profit. The ease of manipulating the market depends to a great extent on the trading mechanism used by the exchange, and simpler mechanisms are easier to manipulate.

Conclusion

The daily limits imposed on securities trading are important for those trading in currency and other securities. Forex traders should be aware of the limits for forex rates so that they can make the right decision and reduce the risk of forex trading. These limits help to reduce the volatility in the forex markets which have lower liquidity, and where there is more leverage. In the forex market, the central bank of the country will usually set the limit for the variations in the exchange rate for the currency of the country, since the exchange rate can affect the economy of the entire country.

What is the Best Momentum Indicator?

by Fxigor

Best momentum indicator for forex traders

Forex traders use a variety of tools to understand market conditions and take decisions accordingly. Traders use momentum indicators to understand the rate at which the price of the forex rate changes. These indicators should be used with other tools since they only consider the timeframe for the price change, not the direction of movement. Some of the other technical indicators which are used with the momentum indicators are the moving averages and trend lines for the direction of price movement and price trends.

The best momentum indicator is an indicator that most traders use and help traders to make better decisions, analyze the impact, to get a better look at the chart. Most indicators are oscillators and they do not predict market price, they just explain better price charts and technical indicators can help traders to pick the right entry and exit position for trades.

Advantages

The momentum indicators will indicate the movement of the forex rates over time, and the strength of these movements through the rates may increase or decrease. These indicators are useful since they help the analysts and traders determine the point where the market is reversing. At the reversing point, there is a divergence between the momentum and movement in forex rates.

Divergence

Divergence occurs when the forex rate is moving in a particular direction, and the momentum which was originally in the same direction is now no longer following the forex rate downwards. This indicates that the momentum indicator has diverged from the forex rate movement and the current price movement is losing momentum. Divergence is noticed when the momentum is stalling and indicates the current trend in exchange rates is likely to end soon and reverse quickly. The divergence is considered bullish if both the momentum and forex rates are diverging in an upward manner. If the momentum indicator and exchange rates were moving upward, and the indicator started moving downward, this is considered a bearish divergence.

Popular Momentum Indicators

Though there a large number of momentum indicators available, some of the popular indicators are listed below so that a trader can choose the Best momentum indicator.

Moving Average Convergence Divergence MACD

The Moving Average Convergence Divergence (abbreviated as MACD – see analysis) is a popular momentum indicator. Two moving averages are used by the MACD to produce an oscillator, deducting the longer average from the shorter average. These averages will overlap, converge and move away, indicating the momentum. While the trader or analyst may choose any period, they are typically using the exponential moving average (EMA) for a period of 26 days and 12 days. The resulting MACD line is graphed against a 9 day EMA which is used to detect when the price movement will turn. The histogram is used to determine the weakening uptrend or downtrend when the histogram is positive but moving downward, and the histogram is negative but moving upward respectively.

Relative Strength

The Relative Strength Index (RSI) (full review on our website) is another momentum indicator that is popular. Like the MACD, it is an oscillator that measures the speed of the forex rate changes. The value of the RSI fluctuates from zero to 100. A rising RSI value above 50, indicates a positive momentum, though if it increases above 70, it could indicate that traders have overinvested in the currency. Similarly, if the RSI value decreases below 50, there is a negative momentum or downtrend. However, if the RSI reading will decrease below 30, it could indicate that traders and investors have oversold the currency. Traders are using the RSI to monitor the divergence when the indicator crosses the centerline.RSI indicator can be used to calculate the strength of the currency pair.
Example of RSI bearish divergence :

Example of RSI bullish divergence:

Average Directional-index

The Average Directional Index (ADX) was created by Welles Wilder as part of his Directional Movement system. It consists of Minus (-DI) and Plus (+DI) directional indicator, ADX, which together measure both the direction, momentum of price movement. -DI and +DI are derived by comparing the consecutive lows, and the corresponding highs. The ADX is calculated from the smoothed average of the +DI and -DI. If the ADX value is more than twenty, it indicates that there is a market trend, and if ADX is less than 20, the market is considered to be directionless. The ADX only measures the strength of the trend, not its direction

Conclusion

Forex traders and analysts are using momentum indicators extensively and these are important to help them decide on the forex rates when they should buy or sell forex. However, most traders use these indicators along with other tools, which also reveal the trend direction. After the direction of the change in the forex rate is determined, these indicators are helpful since they provide information on the trends in price movement, and when these trends are changing or reversing.

While we limit our evaluation to foreign exchange only, it is reasonable to assume that the other primary asset classes included in a typical managed futures portfolio, namely, fixed income, commodities, and stock indices, would also benefit from a combination of momentum and macro/fundamental strategies.

How to Calculate Forex Gain or Loss

by Fxigor

How to Calculate Forex Gain or Loss

Compared to other financial markets the currency markets are different. Whereas for the stock investment we can say that it is just a bet that you place in a company, and a position of foreign exchange is bet on the whole currency value that is relative to other currencies.

For instance, if you’re thinking that the euro will have increased value, you; won’t simply purchase euros. You will need to look out for other currencies against which you consider that euros appreciate well. Thus, you can purchase EUR/USD, which can effectively be said as a bet that the euro appreciates well in values against the U.S. dollar.

What is Gain/Loss in Foreign Exchange?

Before moving on straight to how to calculate forex gain or loss we must firmly understand Gain/Loss in Forex. When someone sells any form of services and goods in foreign currency there is a possibility of gain or loss in foreign exchange. The total value of the foreign currency, while it gets converted to local seller currency varies depending on the exchange rate that prevails. When the currency value inclines after converting, the seller gets gain in foreign currency.

However, when the currency value declines the post-conversion process, the seller incurs a loss in foreign exchange. When it becomes impossible to find out present exchange rates while the transaction gets recognized, further the available rate of exchange is used for calculating the conversion outcome.

Forex Gains/Losses – Realized and unrealized

Gains and losses in realized and unrealized form through forex transactions vary on whether or not the entire transaction gets finished till the end of the total accounting period.

Gains/Losses – Realized and unrealized

Realized gains and losses are losses and gains that are completed. This would mean that the customer already gets settled for the invoice before the closure of the accounting period.

To take an example, let’s assume that the customer buys items that are worth $1000 through the U.S. seller and the invoice gets valuation at $1,100 on the date of the invoice. The customer than settles the invoice at 15 days post the date of sending the invoice, and the total valuation of the invoice was $1200 while it was converted to USD at the present rate of exchange.

Here in this case, the seller would have realized gains from foreign exchange of $100 ($1,200 – $1,100). Currency gain gets recorded in the income section’s income statement.

Unrealized Gains/Losses

Gains and losses that are unrealized that the seller expects to earn while the invoice gets settlement but the customer fails to pay the invoice after the closure of the accounting period. The gains and losses get calculated b seller that would get sustained when the customer pays invoice by the accounting period’s end.

Let’s suppose when the seller sends invoices worth 1,000 EUR, the valuation of the total invoice will remain at 1,100 USD as in the date of the invoice. Now, if the customer doesn’t pay invoices as of the accounting period’s last day, and the invoice gets valued at $1,000 at that time.

Upon preparing financial statements for accounting period, the whole transaction gets recorded as a $100 unrealized loss at actual payment was to be actually received. The losses or gains that were unrealized get recorded in the balance sheet in the owner’s equity section.

Foreign Exchange Gains/Losses Examples

ABC Company is a business operating from the U.S. that specializes in the manufacture of parts for motor vehicle giants Maybach and Bugatti. The company has sold its parts to distributors across France and United Kingdom. In the previous financial year, the ABC company sold spare parts of worth 100,000 EUR to France distributors and parts of worth GBP 100,000 to distributors in the United Kingdom.

While sending invoices, the value of 1 GBP was at 1.3 USD, while and 1.1 USD was for 1 EUR. Upon receiving invoice payments, one GBP got equal to 1.2 USD, while at that time one Euro value was at 1.15 U.S. Dollars.

Therefore, to know how to calculate forex gain or loss in conversions we need to apply the following:

Sales in France

= (1.15 x 100,000) – (1.1×100, 000)

= 115,000 – 110,000

= $5,000 (Foreign currency gain)

Total sales in UK

(1.2 x 100, 000) – (1.3 x 100, 000)

=120,000 – 130, 000

= -$10,000 (Foreign Currency loss)

Recording Forex Gains/Losses

While preparation of yearly financial statements, companies need to report their transactions in the home currency for making it simple for all stakeholders to know all financial reports. This would mean that all foreign currency transactions need to be converted in home currencies at current exchange rates when businesses recognize transactions.

Although, the little math applied here for how to calculate forex gain or loss would first appear daunting, but calculating losses and gains in foreign exchange is just like converting one currency to another time to time.

How Currency Futures Work ?

by Fxigor

Forex futures contracts

The foreign exchange (forex) rates for currencies are always changing depending on a number of factors, so a business trader may wish to ensure that currency is available at a specified rate in the future. Currency futures contracts are a type of forex futures contract for exchanging a particular currency to another at an exchange rate which is fixed on a specified future date. These future contracts are also called forex futures contracts or abbreviated as FX futures. Since the contract value for the future depends on the exchange rate for the currencies, futures contracts are considered to be financial derivatives.

Currency forwards are similar to forex futures in many ways. However, unlike the forwards which are customized, the contracts for futures are standardized. These futures contracts are also traded on centralized exchanges. These currency futures may be used for speculative purposes or for hedging. Since speculators holding the futures can leverage their position, and the futures contracts are extremely liquid, the speculators will prefer to use currency futures instead of currency forwards. Typically one of the currencies in the futures contract is the US dollar.

Understanding currency futures

The forex futures or currency futures are standardized contracts for specified amounts, which can be purchased or sold at the exchanges. These futures are either physically delivered or cash-settled. For the physical delivery of the future, at the date of expiry, the currencies of the amount indicated in the contract must be exchanged. The cash settlement of the futures is done daily based on market prices. Since the prices of the currencies change daily, the difference is settled paying cash till the date of expiration of the contract. The contract can be closed at any date. Forex-futures contracts have multiple components.

Foreign currency futures contract componenets

Underlying asset – this is the exchange rate which has been specified for the currencies

Expiration date – for futures that are physically delivered, it is the date when the currencies are to be exchanged. In the case of cash-settled futures, it is the last date when it will be settled.

Size – the size of a futures contract is standardized. For example, the currency contract for euros is typically standardized at 125,000 euros

Margin requirement – A margin is initially required to enter a futures contract and is called the initial margin. A maintenance margin is also usually specified. If the initial margin reduces below the maintenance margin, a margin call will take place. The trader or investor should deposit money to ensure that the margin is above the maintenance margin specified. Margins can be implemented since currency futures can be traded through clearinghouses and centralized exchanges. These margins reduce the counterparty risk when compared to currency forwards. Typically the initial margin and maintenance margin are four and two percent respectively.

How are currency futures used

Forex futures may be used for speculation or hedging like other futures. The FX futures may be purchased by a business that knows that it will require foreign currency in the future, yet does not wish to purchase the foreign currency immediately. This purchase will help the business in hedging against the volatility if any, in the currency exchange rate. On the expiration date, when the business has to purchase the currency, it will be guaranteed the exchange rate specified in the contract for the FX futures. Similarly, if the business knows that they will receive a large amount in foreign currency for payment, they may use futures for hedging.

Example – How can currency futures be used to hedge the risk ?

For example, the trader sells futures contracts on the euro (EURUSD projection down) to hedge its projected receipt because If the euro depreciates against the US dollar, the company’s projected receipt is protected.

Speculators also use currency futures to make a profit. If the speculators expect the exchange rate for a particular currency to increase, he may purchase a contract for FX futures, hoping for a profit. The speculators can afford these contracts, since the initial margin, is usually very small compared to the contract size. The speculators can leverage their position, to increase their exposure to changes in the exchange rate.

The currency futures can also be used while comparing interest rates in different countries. If there is no parity in the interest rates, the trader may implement arbitrage, using borrowed funds, and a futures contract to make a profit. Investors who are interested in hedging will prefer to use currency forwards since these can be easily customized when compare to the standardized futures contracts. In contrast, currency futures are preferred by speculators since they allow leverage and have high liquidity.

Fxpro cTrader and MT4 platform review

by Fxigor

About Fxpro :
FxPro Trading Platforms
More about fresh news read at Fxpro Review page.

The FxPro Financial Services LTD. It is duly licensed and well-regulated from CySEC. It was in 2007 when the market of the EU in terms of the financial instrument directive took effect. It enables the company that was regulated by Cyprus to give investment services in various parts of Europe provided they belong to the European Union. The company has acted as a prime bridger to the mother company and it was not able to give any form of services related to brokerage nor it was not able to hold the fund of its clients until June of 2012.

The brokerage gives the traders an option in between the MT4 and the cTrader trading platforms. The clients who are using the MT4 PF from the MetaQuotes Software were given the choice for the web-based option and some other mobile versions for trading. The firm’s platform offers ECN traders with the best price in terms of the volume weight average price or what they call the VWAP. The cTrader is very much suited with the cAlgo, which is a kind of algorithmic trading PF that enables the users to make trading robots and then be able to run them using the cTrader to make the whole process automated.

When 2013 started, the firm has joined some marketing algorithmic trading in the retail sector. They have introduced Quant, which is a form of a web-based technique for the MT4 PF that will enable the user to make their very own trading robots which they will call the advisors. This is just a drag and drop method and it can be downloaded using the EA Library of the firm. Quant when compared with the cAlgo, will be needing some sort of knowledge that is based on the C#. This will make the users come up with an automated method with the use of some technical indicators and some operators that requires logic even without coding skills.

The FxPro MT4 Download

The MetaTrader 4 or better called the MT4 has made itself established in the industry through the standards. It comes with a mixture of user interface and easy to personalize environment that is rich with features. The PF gives all the things that a trader may need to be able to chart the assets, handle their positions and even place the orders. Moreover, it has an advantage in trading infrastructure that comes with a competitive price. What is even better is that the pricing comes from the Forex Agency model execution, which is one of the most prominent mixtures in terms of online currency trading.
Please download fxpro mt4 demo

The MT5

The MetaTrader5 or better known as the MT5 is a very influential platform which comes with an all in one feature that gives you everything that you will need when it comes to trading. As it continues with the highly impressive legacy of its ancestors, the MT5 both comes with a powerful and very simple to use the feature that enables you to easily personalize the layout that will fit into your style of trading.

cTrader Review

The cTrader is a type of forex trading platform made by a company from London. It stands out from the rest of the platforms available these days due to the fact that it was made for the ECN Brokers to use. When it was launch along with the FxPro, the cTrader has become the platform of the trader’s choice. It has been created to fill in 2 jobs, 1 is to do trading and the other one is to do charting. When it comes to the look of the platform, it is simple to use and easy on the eyes of the user. It was said to be a clog friendly PF and the layout was made. Those who have made this PF made an effort to make sure that it will be simple for the users to use especially for those who have tried using the MT4, which is quite complicated to use and it will take hours for one to be able to memorize the PF.

The proper execution of trades

The left part of the PF has an upended column that has a list of all the currency pairs. You just have to click any of the pair and then the quote will just spread out thus it will enable you to put the order in an immediate manner.

Fxpro Pending orders

When it comes to taking profit and preventing losses, that can be done easily through the chart. All you need to do is to drag and drop all the boxes that may be seen when you go over the mouse through the chart. When you place new orders, you can easily do that at the new order tab too. There is no need to cancel or stop anything anymore. Losing will not be a problem anymore. The PF will auto cancel everything. But you need to be careful as well with your options. You need to make sure that every part of the order is just appropriate in size. All of the pending orders that will show off will appear on the chart, that way you can simply track the orders and the size too. You can stop the orders from generating and you can do that when you right-click the open chart and so on.

The cTrader is a type of trading platform that is based in London. It is one of the best in the Forex industry since the day it was introduced to the traders. It was the primary choice of in terms of the platform of some leading brokers that includes, Pepperstone, Admiral Markets, and even Liquid Markets. cTraders has been specially designed to fill in 2 jobs, first is the processing of trades as well as the other one is charting. It has been clean and very beautiful when it comes to the visual aspect. The layout is just so clean that is nice to perceived. The designs made sure that the whole platform is spontaneous and is simple to use.
cTrader Review video:

Execution of Trades

The left part of the platforms has an upright column that has a database of currency pairs and from bids or quotes which is close to the design of the MetaTrader’s window. You can just hit on any of the pairs & the quotes will just expand, thus it will enable you to just put some in order. Upon getting across the column, you will be able to click the option in a single or double that depends on the buy or selling of quotes. You will be able to submit a market order in an instant. The information about the executed command will come up at the upper right of the display and that is one that makes it nice too.

Pending orders

You can easily earn and stop losing. This can be attuned instantly at the chart when you use the drag and drop options that may be visible when you use your mouse at the open position on the chart. You can also do this when you put the order at the place of the new order tab. There is no need to work on it manually, You can just use the stop loss and the get profit options and then the others will be canceled in an automated manner. But you need to be very careful since you do not want to commit any mistakes at all. All of the pending orders can be found easily at the chart, there is no need to worry because you can simply monitor the orders and every transaction there may be.

Fxpro Charting

The tools meant for charting are definitely simple to use. cTrader has been offering a mufti-chart, free charts, and single charts just for their clients to have charts that can be easy to use. There is no problem with detaching the charts on its own distinct window just outside of the Platform. It is because of its neatness that it can be detached on the task-bar at the bottom-most part of the platform. Every chart has its own color settings which can be easily altered from the usual red and green on a background of black and it can be easily personalized depending on how you like it. Whenever you open up a new chart, the color settings will start with the default view. If you want a special color for your page, you can change it through the charts that you will open up. When you shut the platform down, it will open up exactly just as you closed it.

In terms of the charts, you can easily use them to enjoy the platform. The cTrader has a multicart system, free and single charts too. You can check the charts, they are arranged in a neat manner. You can easily attach or disconnect a chart to a different window just outside of the PF. This is a very simple manner and that is because detaching the chart can make its own tab at the taskbar of the screen. Every chart has a color setting that can be altered from the typical green and red colors with a black background. You can just personalize it the way you wanted. But be sure that you check on the color settings since it will always start with a default page every time you open a new chart. The platform will open the page the way you have closed it, so there is no need to worry that any unsaved changes will be removed.

Trading

When it comes to the trader, cTrader has been checked through the demo account. Those who have tested it for special executions find it easy and simple to use. This is so because the platform is especially meant with the ECN brokers, which means you can just expect the fair and very simple execution that will be an advantage on your part.

When it comes to the trader, there is a demo account that can be used. It is just so simple to use. Since the Pf was made to be used with the ECN brokers, you just have to expect that there will be a similar execution, which is actually an advantage on the part of the user. It will give you a real market workup which is good in the first place.
Some special features

The Pf was made to be used by the brokers without the no dealing desk or even real market trading. That means that when you buy and sell any form of instrument, you will make a trade with a true counterparty. There are various features being offered by the Pf to make sure that this will be put into practice for those who are interested.

Features

The platform was made for the brokers to use and it actually offers no dealing desk, but real marketing trading only. This is so for the buy and sells of the instruments to be simple and real when it comes to the counterparty. To be able to work in this type of market in a more efficient manner, the platforms actually offers some special property that a lot of traders will surely like. In fact, there are some added features that make it even better its counterpart which is the MetaTrader.
The cons

The only downside of the platform is that you cannot see the stop from the orders tab at the left part of the screen. Even if it is not inconvenient to start with, still it is not that visible to the user.

The downside

For everything there is a good and bad side, for the cTrader, there is a downside which is just minimal compared to the other PFs. It is just that you cannot enter a stop order from the orders option on the screen, but of course, you need to use the right-click to be able to stop the order from taking place. It is not a real hassle unless of course, you are actually merging order kinds and just watching the extent of the market.

Decision

In the view of an active trader, this will be simpler to use and flexible too when compared to MT4 or any other PF online. It is simple to use and there is no eyesore to catch your interest. The visuals are very sleek and you can just see that the company has invested time and energy in making it the way it is now.

Final word

In the eyes of a trader, the platform is just so easy to use. It is also flexible when it compared with MetaTrader4 or any other kind of platform that functions just the same. It is just pleasing to the eyes and there is nothing in the platform that can be an eyesore. The company has invested time, energy and money in making this platform and they have made it just perfect for everyone to use.

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