GBPJPY: broken the resistance of 174.84

GBPJPY data

GBPJPY data

Overview

Yesterday there have been two important events, the non-farm-payroll and the speech of the European Central Bank boss Mario Draghi. If the US recovery appears to be well and truly on track, the Governor of the ECB said yesterday that the bank’s monetary stance would remain unchanged for the coming month. These news have had an important impact on all the major currency pairs, in particular the GBP YEN exchange rate has finally broken the persistent resistance of 174.84 that last since the beginning of 2014. The rally might reach the long term Fibonacci level of 183.9, on the other hand the new support is represented by 174.00 that will be the first signal of short term topping.

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GBPJPY

GBPJPY

Time Series GBPJPY 2012-2014

Time Series GBPJPY 2012-2014

 

In the figure on the left end side, the long up trend from 116.8 that has started in 2011, might continue the rally despite since 2013 there has been an important break and the upside momentum seemed to be finished. As a matter of fact, the bullish trend is rather unconvincing as seen in daily MACD. If that is the case, we can expect a resistance from 50% retracement of 251 to 116.83 at 194 as a top upside limit.

In the picture below, the up-trend from 147.610 has cross the previous resistance and the two lines yellow and red seem to form a bullish channel. However, this situation is not stable and there is the concrete possibility that the price come back to the past values, due to the fact that minutes from the Bank of England’s latest policy-setting meeting failed to have a lasting impact on sterling, with strategists broadly agreeing that they cast no new light on the Bank’s timetable for a first rate hike.

Long term trend

Long term trend

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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CFDs

A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract.

CFDs are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based.

You can sell (go short), allowing you to profit from falling prices, or hedge your portfolio to offset any potential loss in value of your physical investments. Moreover, with over 10,000 markets to trade, you can gain exposure to markets you may not have had access to before. We offer prices on shares, indices, currencies, commodities and more. See an example of how you can trade CFDs with City Index.

The main differences between CFD trading and Forex trading is that CFD trading involves different types of contracts covering a wide set of markets, such as indices, energy, and metals, whereas Forex offers pure currency trading. When you trade CFDs, you have the opportunity to select different contracts that vary in increment value and currency type, depending on the country in which the underlying asset originates. Forex trading is all about trading one currency against another currency and always involves trading in uniform lot sizes.

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

MetaTrader4: the platform

Here we will analyse how to utilize the MT4 platform in the event you have never used MetaTrader4. The image below shows the platform that traders use to place their trades in Forex market.

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Market Watch

1)      Market Watch

In this chart it is possible to observe in real time the “bid” and “ask” price in all the available currencies pairs.

If the new price in any selected currency is lower than the previous price quoted, then the new price will appear in red and a red arrow will appear on the left hand side. Vice versa if prices are higher than the previous price, these will appear in blue and a green arrow will appear on the left hand side of the currency pair.

In order to visualize the prices in the chart, simply drag the selected currency pair in the window dedicated to charts. A window will appear with the time series of the price related to the selected exchange rate.

If you right-click in the market watch panel, the chart properties window will open up, with the following options:

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MT4

  • New Order: opens a window in which you can buy or sell a specified amount.
  • Chart Window: it opens a chart of the currencies pair selected.
  • Tick Chart: it allows you to switch from the currencies quote panel to the tick chart of the selected pairs.
  • Hide: removes a symbol from the Market Watch.
  • Hide All: removes all symbols from the markets watch list unless they are already open or there is a pending order.
  • Symbols: displays a new window where you can choose different options and customize the quotes table as you prefer.
  • Sets: allows you to save all the pairs in the table and create a default list that can be re-called.
  • High/Low: broadens the table allowing you to view the maximum and minimum values.
  • Time: ads the time to the list of currency pairs.
  • Auto Arrange: resizes the columns automatically if you change the size of the table quotes.
  • Grid: ads/ removes the grid feature around the list of currency pairs in the Market Watch.
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Navigator

2)      Navigator

The navigation window allows you to access some of the most important applications of the MetaTrader4 (MT4) platform.

This is split in two tabs “common” and “favorites”. In the common window you can choose many options from the ones listed in the image on the left hand side.

By clicking on the + sign next to the categories you can access the different options described below:

  • Accounts: visualize the accounts; here you log in to the different accounts.
  • Indicators: the MT4 platform has a wide variety of indicator that you can use for free. To use one of it, just drag an indicator from the window on the left hand side in the graph window of the currency pair, set the details and press ok.
  • Expert Advisors: this option represents a strong point in the MT4 platform and certainly is one of the reasons why MetaTrader4 has become so famous in so short time. Many traders prefer to create programs written in MQL4 or MQL5 code  that sends commands to the platform in order to automatically execute trades without human intervention.
  • Custom Indicators:  Here you will find a list of technical indicators created by traders and are ​​available to all for free.
  • Scripts: contains some sample expert advisors. The main purpose is to test practice and to figure out how to use the mql language.

3)      Tool bar

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The tool bar menu is very useful. Let’s see how this comes in handy.  Let’s start with the fundamentals:

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New Order

: This command is used to create a new purchase order. Left-clicking with the mouse and it will open up the new order window where we buy or sell.

 

Time Frame

Time Frame

: with this option you can select the time frame you prefer. The standard time frames available are: 1 minute, 5 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month.

Candles

Candles

: You can change the different chart types by choosing one of the three icons on the left. You can change the chart, depending on whether we prefer candle stick, a continuous line or bar graph.

4)      Terminal

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In the lower panel of the platform we can find he “Terminal” that displays our transactions in real time. Each row has:

ü  the time when the operation has been carried out

ü  type (buy or sell), lots size

ü   the currency pair (symbol), the opening price

ü  Stop loss (S/L)

ü  Take profit (T/P)

ü  Price updated in real time

ü  The commission to be paid for each transaction

ü  The price to keep a position open overnight

ü  Profit or loss

At the bottom of the terminal there are other windows each with its own function.

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5) Charts

In this central part of the platform you can find price charts of the time series relative to the chosen currency on MetaTrader4.

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It is possible to study the exchange rate selected by simply dragging the Currency Market Watch and bringing in the window at the centre. In the chart above we set four different graphs so we are able to visualize more than one time series to catch profit opportunities.

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Swap & Rollover

Generally traders decide to open and close many position during the day in order to gain the maximum profit in a short time.  However if they decide to hold a position overnight, then each account is credited or debited an interest charge calculated on the full size (notional value) of the traders’ position.

This particular type of interest is called rollover fee or swap and it is automatically calculated at a certain time of the night, (considering the London time zone) usually between 10pm and 3am.

It is important to highlight that the word “swap” in this particular case has must not be confused with the well known financial term of Swap in terms of derivative contract as an instrument, although the use of the same word correctly suggest a cash flow exchange between two counterparties.

Let’s take a look at this example referred the EURUSD pair within the MT4 platform:

Suppose you have an account with EUR as base currency and you decide to open a long position on the EUR/USD pair with a transaction of 5 lots. You open a buy position for a notional of €500,000 that is equal to $679,140 and you hold the position overnight.

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market watch

 

The trader has the possibility to calculate in advance the amount of the swap fee by following these simple steps:

 

1) Right-click on the EURUSD currency and choose the   “Symbols” item on the drop-down menu. At that point a table will appear showing all the different currencies pairs and you will have to select the one of your interest; in this case we are interested in EURUSDp.

 

 

 

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2) Click on “Properties” and you will see the EURUSDp contract specification table:

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3) At this stage we have all the data we need to calculate the swap fee amount. It is important to note the fact that this method is useful for this particular case, where the “Swap type” is “in points” as reported in the contract specification table above, as another platform may use other calculation methods.

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In this particular case, we calculated the swap fee for 3 days as the position was opened on a Wednesday and this include the day itself and the weekend (please note that this is a standard practice of the Forex market); if we decide to hold the position on any other days of the week then the multiplier will be 1. The other data of the specific case are the same characteristics mentioned at the beginning of the article. In this case, the final value is negative and equal to -23.16 Euro.

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The string line is the same reported in the MetaTrader4 platform.

let’s now examine what happens if we decide to hold overnight a 5 lots long position on the NZDUSDp pair. In this case the calculation is the following:

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The reason why we set always the EURUSD , is because our MT4 account is denominated in €.

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As the swap long reported in the table above is positive, the trader will gain a rollover instead of a loss.  In this case, the final value is equal to 14.57 Euro.

 

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Pending Orders

A pending order allows traders to buy and sell securities at a fixed price in the future. This type of order is triggered when the price reaches the price level selected in the order. The order will not be filled if price does not reach this level. There are four types of pending orders available on the MetaTrader4 platform:

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  • Buy Limit - an order to purchase a currency at or below a specified price below the current market price. Limit orders must be placed on the correct side as showed in the figure below.
  • Sell Limit - an order to sell a currency at or above a specified price. The order must be placed at or above the current market price.
  • Buy Stop - an order to buy a currency at a price above the spot price. A stop order to buy is triggered only after a specified price level has been reached (stop level). Buy stop orders are placed above the market while sell stop orders are placed below the market price.
  • Sell Stop - an order to sell a currency at a price below the current market asking price. A stop order becomes active only if the pre specified price level has been reached.

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Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Market Order

market order represents the basic type of trade order and is used to buy or sell a currency pair at the preferred price. Securities are bought at the ASK price and sold at the BID price. If the trader absolutely needs to open or to close a long/short position, a market order is the quickest method of accomplishing this. The downside of using a market order is that slippage con occur (getting filled at a less favourable price). Market orders should only be used to enter trades when there is enough liquidity in the market. In illiquid markets there is a risk trading at a price that is not the selected one (slippage).

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Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Pips & Ticks

The pip represents a percentage point and it is the smallest incremental price movement a currency pair can make. It’s the last decimal point in exchange rates or currency pairs. Normally one basis point is equivalent to 0.0001 for the following currencies pairs: EUR/USD, GBD/USD, USD/CHF and equivalent to .01 in USD/JPY.

Look at the examples below:

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In the table above the last decimal point is 0.0001 for most currency pairs, and 0.01 for Yen based currency pairs. The spread for EUR/USD is 2 pips (1.3504-1.3502=0.0002) on the Admiral Markets demo. If the EUR/USD moves from 1.3502 to 1.3503, it would have moved ONE PIP.

 

Here is an example of a trade on EUR/USD:

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If you buy EUR/USD at 1.3505 and sell at 1.3525, you would have made 20 pips.

Here is an example of a trade on USD/JPY:

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If you sold USD/JPY at 88.95 and exited at 89.25, you would have lost -30 pips.

In the FX market, ticks and pips are almost synonymous. A pip is the smallest incremental price move of a currency pair. A tick is the smallest possible price change. With  brokers that quote in 4 digit, the EUR/USD has a tick size of 0.0001, which means that the smallest increment that the price can move from 1.0000 would be up to 1.0001 or down to 0.999.

 

 

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

What Is A Spread?

ECN brokers (Electronic Communication Network) collect the best price feeds from a few investment banks and aggregate these together in order to show the very best bid or offer. They charge their clients a commission instead of marking up the raw spreads, by doing so they  give clients price closer to bank’s price. Thus, the foremost advantage of trading with an ECN broker is the noticeable difference in spread.

Our company offers a wide range of products and all-round customer service in order to give our clients the opportunity to enjoy a complete and innovative trading experience.

Key to Markets NZ Ltd is fully owned by Key to Markets Limited, a UK based company, FCA regulated, which is part of a larger European group and has partners in the US, UK, Europe, Middle East and Asia.

KTM is an ECN brokerage and this is an assurance especially in moments of high volatility as the price that traders pay is a reflection of the raw spread and an ECN broker can provide tight level of spread.

What Is A Spread?

A spread is the difference between the “ask” and the “bid” price a broker quotes in a  currency pairs. Spreads are normally earned by the broker as a fee for executing an order.
Spread = ask price – bid price
Instead of charging a commission, the spread becomes the broker’s fee for executing the trade.

Let us look at a snapshot of the MT4 market watch (4 digit broker), which displays all the currencies, along with their bid and ask prices:
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By making the difference between the ask and bid column we can calculate the spread (broker fee).

Every time a trader decides to open a position with us (long or short), he has to pay a commission. Key to Markets can offer the following options:

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Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Participants in the FX market

As we mentioned before, Forex is an OTC market and there is no clearing house or exchange where orders are matched. Therefore trades are matched with various bans around the world. Geographically speaking, the major trading centres around the world are:

  1. London
  2. New york
  3. Tokyo
  4. Singapore
  5. Frankfurt
  6. Geneva
  7. Zurich
  8. Paris
  9. Hong Kong

The broker plays a central role in the Forex as he is an intermediary between the traders and the banks, which provide the liquidity to refurnish the liquidity pool.

There are two types of brokers: ECN and Market-Makers brokers.

Currency market there has no official exchange, therefore, a great importance is to be given to the relation of trust between traders and brokers who act on behalf of their client’s needs.

Key to Markets is a member of the Financial Conduct Authority (FCA) in UK and maintains high qualitative and professional standards.

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex

Pros & Cons

  • High liquidity: this point represents maybe the strongest characteristics of the currency market. In fact Forex represents the largest market in the world in which currencies are simultaneously, generating a cash flow of approximately $4 trillion each day. Liquidity means that your investment can be easily converted to cash even if you are trading big volumes.
  • Accessibility: prior to the 90’s the Forex market was restricted to financial institutions. In 1996 saw the first retail clients in the Forex markets with the creation of the first online credit platforms. In 2005 MetaQuotes created an FX platform (MetaTrader4) for small clients that went to become a very popular retail platform, making the currency market always more accessible.
  • Trading Online Platforms:

Key to Markets offers MetaTrader4 and the KTM Trader platforms. We Are an ECN (Electronic communication network) broker regulated by the FCA.

  • 24 hour non-stop trading market:

The forex market is open 24 hours 5 days a week. Trading starts when major global financial centres around the world open.

  • Leverage:

By using leverage a trader can trade big volumes with a small initial deposit. For example if we use a leverage of 500:1, by depositing  $5,000 we can trade a total amount equal to $2,500,000. Subsequently the profits and loos will reflect an investment value of $2,500,000.

  • No limit up or down:

In the Forex markets it is possible to earn both in good times and in bad times,  when the economy is not doing so well. Trading on the currencies can offer big opportunities because we can go long (buy) or short (sell). profits are in be limitless,  the losses can be huge if the investors trade without a strategy and without the necessary market knowledge.

Francesco Ciriachi

MSc Mathematical Finance; MSc Quantitative Finance; BSc Economics;

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Categories: Forex