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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 The 6 USD TRN a day FX behemoth now seems jumpier than equity markets, and that’s […]

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?

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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?

 

Join us for our new webinar series

10 March 2015

Following on from our mini survey last week asking for your input on webinars, we’ve scheduled our first one for 20th March.  You gave us some great feedback on topics and the one that came up the most was around understanding more about how to become a DARWIN provider and manage investor capital legally on […]

Following on from our mini survey last week asking for your input on webinars, we’ve scheduled our first one for 20th March.  You gave us some great feedback on topics and the one that came up the most was around understanding more about how to become a DARWIN provider and manage investor capital legally on our exchange.

You can register for this webinar here.

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If you’d like to suggest any new topics, please add them to our UserVoice suggestions page.

 

CHF – Business as usual

16 January 2015

George Soros broke the Bank of England on September 16th, 1992. Online trading wasn’t invented back then, so no retail dealers lost money betting against smart retail traders. January 15th, 2015 , those smart enough to smell blood when central bankers pledge to “enforce the minimum exchange rate with the utmost determination“, broke the Swiss National […]

George Soros broke the Bank of England on September 16th, 1992. Online trading wasn’t invented back then, so no retail dealers lost money betting against smart retail traders.
January 15th, 2015 , those smart enough to smell blood when central bankers pledge to “enforce the minimum exchange rate with the utmost determination“, broke the Swiss National Bank. By golly, it looks as though the CHF bloodbath is a day several household names in the FX dealer space will not forget.
Darwinex was business as (almost) usual. It wasn’t fully usual because we lost a negligible amount as some customers were margined out and there was no market for them (and therefore, us) to stop their (therefore, our) losses. Then again, broadly speaking, our policy of matching all trades on exchange paid off. Yesterday, like every-day, we were only exposed to negligible counterparty risk. Which means that any the P&L for any trades closed with us was binding, and we will NEVER e-mail a customer to re-quote  ANY trade. And since we’re an FCA regulated matched principal broker, YOUR P&L and account balance is in exactly the same privileged position.
If you don’t appreciate the value in that, go ask your friends trading with unregulated dealers.
Looking forward, retail FX will never be the same after this. Hopefully this is a lesson we all, including traders and brokers, but also regulators, learn from. In our humble opinion, the days of OTC (retail) forex are possibly counted.
For our part, we’re in the process of reviewing our leverage policy – we have always recommended to limit leverage,  but now realise we should have gone one step further.

If you want to go fast … go alone

2 January 2015

If you want to go far… go together. We won’t deliver on our mission to return markets to people by ourselves. But that’s actually great: because valued partners like 50 give us daily inspiration to keep up. Thank you 50, great to be in this with you. PS: looking for a trusted trading mentor, feel […]

If you want to go far… go together.

We won’t deliver on our mission to return markets to people by ourselves.

But that’s actually great: because valued partners like 50 give us daily inspiration to keep up.

Thank you 50, great to be in this with you.

PS:

looking for a trusted trading mentor, feel free to visit his blog or watch this video. 100% trader aligned, no market making sponsored BS here!

 

 

 

X-Mas 2014 Changes

23 December 2014

We’re introducing wide-ranging change to accommodate the gradual release of the investor platform in 2015, starting today. Trader related information As we  open up for investors, trader specific information will be restricted to users who either link an MT4 account or trade a Darwinex MT4 account. The reason for this is that DARWINs are intrinsically different from […]

We’re introducing wide-ranging change to accommodate the gradual release of the investor platform in 2015, starting today.

Trader related information

As we  open up for investors, trader specific information will be restricted to users who either link an MT4 account or trade a Darwinex MT4 account. The reason for this is that DARWINs are intrinsically different from the trading strategy they’re based on, and as such the detailed diagnostic of the trading strategy is  relevant in the context of a trader trying to increase the investability of his DARWIN, but not  much less so to a DARWIN investor.

Note: demo accounts will continue to enjoy basic diagnostics (return, risk, behaviour, etc.) but will not be diagnosed for Darwinex Investment Attributes (timing, discipline, scalability, etc.) going forward.

Investable DARWINS

The new performance standard is set by investors: going forward the only public information available to unlogged users will be investable DARWINs.

This means: only live, funded accounts traded with Darwinex will be accesible to investors. Demo accounts and live accounts not executed by us will not be displayed.

DARWINs list

Alpha investor platform testers wanted

The first batch of live investor user accounts will be allowed access to the platform from January onwards. More investors will be accepted on a first-come, first-served basis. If you want to contribute to the effort (and enjoy first-come access to some seriously sexy DARWINS), feel free to comment on this blog-post.

Stay tuned…

Because this is literally the tip of the coming ice-berg!

 

Benzinga FinTech Awards

13 December 2014

Thank you for all your support in this year’s Benzinga FinTech awards. So far we’re had over 150 votes, more than enough needed to get us through to the next round.  The competition is tough though, so please keep showing your support on the link below. As part of the competition, one of our co-founders Juan […]

Thank you for all your support in this year’s Benzinga FinTech awards. So far we’re had over 150 votes, more than enough needed to get us through to the next round.  The competition is tough though, so please keep showing your support on the link below.

As part of the competition, one of our co-founders Juan was interviewed by the president of Benzinga, Kyle Bazzy. Here’s the interview:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. -- % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.