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Are FX markets playing crazy?

25 March 2015

More than 2 months after the SNB bloodbath, things should be returning to “normal” in FX markets… but are they?

Is last week’s 1-day dip then re-bound in the EURUSD ¨normal¨? How about the speed with which the USD approaches EUR?

FX Volatility

FXVolatility

The 6 USD TRN a day FX behemoth now seems jumpier than equity markets, and that’s not “normal”.

What if these are not freak-events, but the tail of a volatility wave?

How about bond markets?

Surely things ought to be more rationale in less speculative parts of town?

1427218533

Yes, the Greek tragedy will unfold. Surely that’s part of it. But Greece is a small-ish fish in the bigger pond – it really seems as though the rest of the pond is moving too.

Bi-polar trading, anyone?

The underlying theme is interest rate expectations. No-one, least of all the Fed, really knows how the Fed will tighten US interest rates. Similarly, with QE just starting and the ECB entering unknown territory, no-one really knows where the Euro economy is headed, one month before a major milestone for Greece (and the Euro), etc.

With more than your fair share of macro-economic unknowns, who’s surprised by volatilities spiking? Plus traders take sides: check EUR-USD positioning.

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That’s the kind of psychology that delivers (and follows) 22% value gain by the dollar vs. the US main commercial counterparts. It’s not happened in the last 40 years, but you can’t rule out it all happening again next year!

This is NOT a video-game on a trading screen. EURUSD has direct impact on absolute and relative global GDP growth (how import crazy will the US go?), debt servicing costs, commodity prices, etc. etc. This is a recurring them on the Financial Times in the next  3-5 years.

Implications for brokers and independent traders

Volatility is different things to different pockets. When it spikes, institutional money (focus: return OF capital) typically retreats into risk minimisation mode. To speculative money (focus: return ON capital)  this as a boon, the kind of environment to quickly build (and burn, and build again) a great reputation.

FX mean reversion is gone for now. “Hold on and recover when the ebb flows” can get any market making b-book broker out of a hole in normal conditions, but a client B-book over-exposed one way or the other could well be deadly now. Smart b-bookers will a-book more… passing the hot cookie to their LPs.

Problem is: how much risk appetite do they have post SNB? Established LPs may (partially or totally) withdraw as volatility mounts. Flows will perhaps land with less established LPs keener to pick coins in front of steam trains than the big boys.

Altogether, spreads ought to widen for the foreseeable future… which brings us to the implications for traders.

If you haven’t learnt the lesson yet, now is the time.

  • Investor capital is your ONLY viable business model.  You’re likelier to turn 3k into a million by playing the lottery than by trading your own capital with leverage.
  • Adjust your leverage. A 1:1 leverage EURUSD trade today is 2+ times riskier than 3 or 4 months ago.
  • That’s if you consider “average” moments. Spikes could well be significantly larger!
  • Do not trade with unregulated or lightly regulated broker-dealers.
  • Check not only your broker’s solvency, but their liquidity providers’.

Darwinex

It always pays to be an FCA regulated. As does offering FSCS protection up to 50.000 GBP and only offering liquid instruments on a 100% non-market making, pure broker basis.

Plus, this is a great learning opportunity for DARWIN risk management algorithms. Several extreme events in such a short time feed the event data-base, update risk policies and sharpen management scenarios. And with FX volatility making the headlines on a regular basis, expect new entrants into the market – which is not a bad thing.

Time to upgrade your trading?

 

Last News

General Election in Japan (22 October 2017)

18 October 2017

Please note that the Japan General Election is coming up this Sunday (22 October 2017). The outcome of the election could result in market gapping in JPY pairs when market opens. Please make sure you are comfortable with the open position exposure on your Darwinex account and that you have sufficient margin cover going into the weekend […]

Please note that the Japan General Election is coming up this Sunday (22 October 2017).

The outcome of the election could result in market gapping in JPY pairs when market opens.

Please make sure you are comfortable with the open position exposure on your Darwinex account and that you have sufficient margin cover going into the weekend prior to market close at 22:00 (UK time) on Friday (20 October 2017).

As always, at info@darwinex.com we’ll be glad to assist you!

 

End of Daylight Saving Time in Europe (29 October 2017)

Please note that Daylight Saving Time ends in Europe on Sunday 29 October 2017 but our MT4 server time is NOT changing until Sunday 5 November 2017 (when Daylight Saving Time ends in the US). This means that there will be 1 week (29 October through 3 November 2017) where markets will open 1 hour earlier in GMT time […]

Please note that Daylight Saving Time ends in Europe on Sunday 29 October 2017 but our MT4 server time is NOT changing until Sunday 5 November 2017 (when Daylight Saving Time ends in the US).

This means that there will be 1 week (29 October through 3 November 2017) where markets will open 1 hour earlier in GMT time (i.e. FX market will open at 21:01 GMT instead of 22:01 GMT; commodities will open at 22:01 GMT, etc.).

Trading hours will return to normal from Sunday 5th November 2017, allowing for the daily candle to close at the end of trading in New York each day which is widely considered the end of the trading day.

As always, at info@darwinex.com we’ll be glad to assist you with any question you may have!

 

And the DarwinIA winners are…

4 October 2017

The September edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period. Puesto DARWIN September´s notional allocation 1º $FTT € 300,000.00 2º $KLV € 250,000.00 3º $XTT € 210,000.00 4º $FTAL € 170,000.00 5º $CEM € 150,000.00 […]

The September edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period.

Puesto DARWIN September´s notional allocation
$FTT € 300,000.00
$KLV € 250,000.00
$XTT € 210,000.00
$FTAL € 170,000.00
$CEM € 150,000.00
$VTJ € 140,000.00
$VQB € 130,000.00
$CLA € 120,000.00
$WPB € 110,000.00
10º $QJW € 110,000.00
11º $FGC € 110,000.00
12º $PUL € 100,000.00
13º $GTD € 100,000.00
14º $RZV € 100,000.00
15º $PGH € 90,000.00
16º $YBG € 90,000.00
17º $FEG € 90,000.00
18º $OOA € 80,000.00
19º $JZH € 80,000.00
20º $EWL € 80,000.00
21º $MBC € 70,000.00
22º $PPP € 70,000.00
23º $LZL € 70,000.00
24º $QTB € 70,000.00
25º $VNE € 60,000.00
26º $VLD € 60,000.00
27º $NIC € 60,000.00
28º $KKH € 60,000.00
29º $XMZ € 60,000.00
30º $VGC € 60,000.00
31º $XIS € 50,000.00
32º $XYP € 50,000.00
33º $RQH € 50,000.00
34º $AXF € 50,000.00
35º $YZF € 50,000.00
36º $ZMA € 50,000.00
37º $JJT € 50,000.00
38º $BAD € 40,000.00
39º $SPI € 40,000.00
40º $JKC € 40,000.00
41º $IOG € 40,000.00
42º $HIB € 40,000.00
43º $ICX € 40,000.00
44º $NLK € 40,000.00
45º $LSC € 30,000.00
46º $ELD € 30,000.00
47º $VVC € 30,000.00
48º $AWE € 30,000.00

Unofficial referendum on Catalonian independence (1 October 2017)

29 September 2017

The unofficial referendum on Catalonian independence is due on 1 October 2017 and some analysts are forecasting losses for the EUR currency as nerves over this potentially disruptive event grow. There is high uncertainty around the outcome of the unofficial referendum, which may result in market gapping in EUR pairs when market opens on Sunday. Please […]

The unofficial referendum on Catalonian independence is due on 1 October 2017 and some analysts are forecasting losses for the EUR currency as nerves over this potentially disruptive event grow.

There is high uncertainty around the outcome of the unofficial referendum, which may result in market gapping in EUR pairs when market opens on Sunday.

Please make sure you are comfortable with the open position exposure on your Darwinex account and that you have sufficient margin cover going into the weekend prior to market close at 22:00 (UK time) on Friday (29 September 2017).

As always, at info@darwinex.com we’ll be glad to assist you!

Darwinex Amended Trading Hours for German Public Holiday (3 October 2017)

28 September 2017

Please note the amended Darwinex trading hours for the upcoming Bank Holiday in Germany on 3 October 2017 (all times are in UK time).  Instrument Trading Hours  FX 22:05 Mon – 22:00 Tue   DARWINS 22:05 Mon – 22:00 Tue  COMMODITIES   Gold 23:00 Mon – 22:00 Tue Silver 23:00 Mon – 22:00 Tue Platinum 23:00 Mon – 22:00 […]

Please note the amended Darwinex trading hours for the upcoming Bank Holiday in Germany on 3 October 2017 (all times are in UK time).

 Instrument Trading Hours
 FX 22:05 Mon – 22:00 Tue
  DARWINS 22:05 Mon – 22:00 Tue
 COMMODITIES  
Gold 23:00 Mon – 22:00 Tue
Silver 23:00 Mon – 22:00 Tue
Platinum 23:00 Mon – 22:00 Tue
Palladium 23:00 Mon – 22:00 Tue
US Crude 23:00 Mon – 22:00 Tue
Natural Gas 23:00 Mon – 22:00 Tue
 INDICES  
Australia 200  23:00 Mon – 22:00 Tue
 Europe 50 23:00 Mon – 22:00 Tue
France 40 23:00 Mon – 22:00 Tue
Germany 30* Closed
Spain 35 08:00 – 19:00
Japan 225 23:00 Mon – 22:00 Tue
UK 100  23:00 Mon – 22:00 Tue
 US SPX 500 23:00 Mon – 22:00 Tue
 US Tech 100 23:00 Mon – 22:00 Tue
Wall Street 30 23:00 Mon – 22:00 Tue
*Amended Darwinex trading hours.

As always, at info@darwinex.com we’ll be happy to assist you!

General Election in New Zealand (23 September 2017)

21 September 2017

Please note that the New Zealand General Election is coming up this Saturday (23 September 2017). Voting closes at 8 am (UK time) and preliminary results begin to roll in in real-time immediately afterwards. The Electoral Commission’s target is to have 50% of polling station results available by 11 am (UK time) on election night and […]

Please note that the New Zealand General Election is coming up this Saturday (23 September 2017). Voting closes at 8 am (UK time) and preliminary results begin to roll in in real-time immediately afterwards. The Electoral Commission’s target is to have 50% of polling station results available by 11 am (UK time) on election night and 100% of results available by 12.30pm (UK time).

There is high uncertainty around the outcome of the election, which may result in market gapping in NZD pairs when market opens.

Please make sure you are comfortable with the open position exposure on your Darwinex account and that you have sufficient margin cover going into the weekend prior to market close at 22:00 (UK time) on Friday (22 September 2017).

As always, at info@darwinex.com we’ll be glad to assist you!