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An introduction in Forex

The great news is, it’s a journey which is as fascinating as it can be lucrative. So, let’s dive right in. The Forex market refers to the global foreign exchange market. This market is a $5 trillion per day market which runs 24 hours, 5 days a week; opening in Asia on Sunday evenings and…

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If you’re reading this, you are most likely new to the world of Forex. While it can certainly seem daunting at first, once you get used to the basics it all becomes much easier to understand.

The great news is, it’s a journey which is as fascinating as it can be lucrative. So, let’s dive right in.

First thing’s first. What is the forex market?

The Forex market refers to the global foreign exchange market. This market is a $5 trillion per day market which runs 24 hours, 5 days a week; opening in Asia on Sunday evenings and closing in America on Friday nights. The market encompasses all foreign exchange transactions which take place including families exchanging money to go on holiday, all the way up to big corporations purchasing foreign property and governments loaning each other money.

How is the Forex market structured?

Unlike stock markets, which are centralised, meaning that transactions are all recorded in one place, the Forex market is decentralised; meaning that that currency transactions take place in a wide variety of different venues.

The market is essentially comprised of two categories of participant: institutional players and retail players.

Institutional players are those such as banks as and hedge funds. Banks conduct transactions on behalf of corporate customers, charging commission on the deals they carry out, while also conducting their own trades for profit. They also deal with brokers, who pass on client flow.

Retail traders refer to individual traders who are trading privately with their own money. Traders in this category can vary in size and experience from beginner traders with very small accounts to experienced, full time traders, who trade sizeable accounts.

What drives the forex market?

The forex market is driven by two things: the force of supply and demand, and fundamentals.

Supply and demand simply refer to the level of buying and selling going on globally, which affects whether the price of a currency moves higher or lower. If more people are buying than selling the currency will appreciate in value. Similarly, if more people are selling than buying, the currency will depreciate in value.

What are fundamentals?

Fundamentals refer to economic news and central bank monetary policy. Each day, economic data points are released on a per country basis giving valuable insights into the health of the respective economy, measuring points such as: inflation, GDP, unemployment and trade levels. If the data releases are positive, it will tend to drive the price of the currency higher. If the data releases are negative, it will tend to drive the price of the currency lower.

How does central bank policy affect markets?

Central bank monetary policy refers to the actions taken by the central bank to manage the economy. These actions can be classed as either tightening or loosening.

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In a tightening scenario the bank will raise interest rates and withdraw monetary stimulus, this will typically lead to the currency appreciating as investors are drawn towards the higher yield on offer.

In a loosening scenario, a central bank will reduce rates and employ stimulus measures such as asset purchases in order to help boost spending in the economy. In this scenario, the currency will typically depreciate due to the lower yields on offer.

How do people trade the forex market?

When it comes to retail traders trading the market from home there are essentially two schools of thought on how best to trade.

The first is to use fundamentals. So, in this scenario a trader would track the economic performance of a country versus that of another, for example the UK against the US. If the UK economy seems to be performing better and central bank policy is tighter then a trader might buy GBPUSD (buying the pound against the dollar). Alternatively, if the UK seems to be underperforming against the US, then a trader might sell GBPUSD.

Alternatively, traders can used technicals to analyse the market and place trades. Technicals refers to the study of price charts and the way price moves and reacts. In this instance, traders will use elements such as support and resistance, trend lines, and indicators to measure the movement of price and create trade ideas.

Usually traders begin to learn to trade by opening a Demo Account. With a Demo account, traders can get direct experience of using the markets and acquire first-hand knowledge of the trading platform. Most brokers offer these services to traders so that they can develop and hone their skills before progressing to

Which is better?

The honest answer is both. Many traders find success with either method used individually. However, the majority of successful traders find that a combination of the two work best. For example, using economic data to measure the strength of a currency and then use technical analysis to find an entry point based on price action.

How to achieve success in forex?

The best advice for achieving and maintaining success in Forex is to take your time and always watch your risk. There is a wide range of educational material online that traders can use to boost their knowledge. From there, traders can use demo accounts to test their skills in the market, establishing a solid trading strategy before going live and trading real money. When trading live, traders should keep their risk levels conservative, risking no more than 1% per trade and always use a stop loss to ensure they are protected against adverse losses.

If you’d like to learn more about trading, simply visit Tickmill’s website where there is a wealth of information available.

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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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