Posts Tagged ‘Euro’

Understanding The Basic Elements of Forex Trading

Thursday, March 10th, 2011

Understanding The Basic Elements of Forex Trading

The foreign exchange market is finally beginning to garner mainstream attention.  The Bank of International Settlements estimates that the average daily volume in the fx market is around $4 trillion, which makes it by far the largest financial marketplace in the world.  Surprisingly, however, many novice investors and traders have never even heard of this market.

Until the late 1990’s, the only players allowed to execute trades in the foreign exchange market were investment banks, hedge funds, and very wealthy private investors.  Since the minimum contract size was generally $1,000,000, smaller traders were effectively denied entrance into the market.

In the late 90’s, however, this all changed.  The advance of the internet and technology led several online forex brokers to open shop and begin catering to smaller investors and traders.  This led to the birth of the retail foreign exchange market.  In this article, we are going to discuss three key elements to forex trading:  Leverage, Margin, and Equity.

Leverage

The idea of leverage in the fx market has been under intense debate over the last several years.  Since the market is decentralized and worldwide, regulation was largely absent from the fx market until recently.  In 2010, the National Futures Association instituted some major changes, one of them being a cap on leverage at 50:1.  This means that an fx trader in the United States can trade on leverage at a ratio of 50:1.  Thus, if a trader has $1,000 in his account, then he is able to leverage that $1,000 into $50,000 and trade much larger positions in EUR USD.  Until the National Futures Association passed this regulation, some brokers were offering traders up to 400:1 leverage, which means that with a $1,000 account, traders were able to control a $400,000 position in the market. Note that leverage is a two-edged sword. It will increase both losses and profits.

Margin

Margin is the life of a trader.  If a trader does not have enough margin, then he cannot open a trade.  Furthermore, if a trader has an open position moving against him, he may eventually not have enough money to act as margin, which means his account would suffer a “margin call.”

Margin is the amount of money required to open a leveraged position.  For example, if Broker ABC offers 50:1 leverage, and Bob the Forex Trader wants to open a position of $100,000, then Bob has to put up $2,000 of margin.  If Bob’s trade begins to move against him to the point where his account equity becomes less than $2,000, Bob will suffer a “margin call,” which basically means that his broker will call for more margin if Bob wants to keep the position open.

Equity

Everyone knows that one of the leading causes of business failure is a lack of initial capital, and trading is no different.  If a trader opens an account with a few thousand bucks and trades heavily leveraged positions, his chances of success are nominal.

Equity is essential to trading success.  The question many new traders have is, how much money do I need to open an account?  Well, the answer to that question is different for everyone, and it largely depends on what your goals are.  If you simply want to get some trading experience, but still have a full-time job, then a person can open an account with a few thousand bucks.  However, if you are trying to generate enough capital gains to sustain a living, then the initial account balance should be much, much higher.

Leverage, Margin, and Account Equity are three essential aspects of fx trading that every trader must be familiar with.

Check out our intensive investment banking, private equity, and sales & trading courses!  The discount code Merger34299 will be activated until April 15, 2011. Feel free to e-mail thomas.r[at]leverageacademy.com with questions.


European Union Proposes $928 Billion Crisis Aversion Plan…It’s About Time!

Sunday, May 9th, 2010

After months of avoiding the debt refinancing troubles of Greece, the European Union came together this weekend in a crisis summit to address the falling Euro and credit malaise in the EU.  Describing short investors as a “wolf pack” plaguing the continent, ministers vowed to counter financial markets from causing the Greek debt crisis from spreading.  The plan offers $805 billion (600 billion) to the continent (440 billion euros from EU, 100 billion from IMF, 60 billion Euro stabilization fund) for crisis measures.  This comes after the IMF approved a 30 billion Euro bailout for Greece today.

If the IMF commits 220 billion Euros, the plan could reach $928 billion!

Why 600 billion Euros at the outset?  European economists predict that if Ireland, Portugal, and Spain eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

Let’s avoid another Lehman Brothers…

Greece

According to Reuters, “European Union finance ministers on Sunday promised to counter the “wolfpack” of the financial markets as they sought agreement on a 600 billion euro ($805 billion) plan to keep Greece’s debt crisis from spreading.

The compromise measure under discussion included loan guarantees by euro zone countries worth 440 billion euros, a 60 billion euro stabilization fund and a 100 billion euro top-up of International Monetary Fund loans, EU sources said.

Financial markets have been punishing heavily indebted euro zone members, threatening to plunge them into Greece’s plight. The safety net being assembled was meant to protect other countries with bloated budgets, such as Portugal, Spain and Ireland.

Jitters over euro zone finances have set global markets on edge, and provided a backdrop for a nearly 1,000-point drop in the Dow Jones industrial average on Thursday, whose trigger remains a mystery.

Hopes the EU package would successfully tackle the crisis helped lift the euro, which gained almost 2 percent against the U.S. dollar and 3 percent on the yen in early Asia trade. U.S. stock futures also surged at the start of trade on Sunday.

Moving swiftly to bolster Greece and instill some confidence in shaky markets, the IMF approved a 30 billion euro rescue loan as part of a broader combined EU-IMF bailout for the country totaling 110 billion euros. The IMF said 5.5 billion euros from the three-year loan would be disbursed immediately.

To secure the funds, Greece has committed to budget-cutting measures so sharp that they have already caused violent protests.

“Today’s strong action by the IMF to support Greece will contribute to the broad international effort underway to help bring stability to the euro area and secure recovery in the global economy,” IMF Managing Director Dominique Strauss-Kahn said in a statement.

‘WOLFPACK BEHAVIORS’

But whether the coordinated international actions would settle global markets, which have been roiled in recent days, remained to be seen. Policymakers around the globe have become worried about the knock-on effects should the crisis spread.

“We now see … wolfpack behaviors, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart,” Swedish Finance Minister Anders Borg told reporters in Brussels as he arrived for the EU meeting.

Britain’s finance minister Alistair Darling stressed the need to stabilize markets, while ministers from France, Spain, Finland and other euro zone states vowed to defend their shared currency.

U.S. President Barack Obama and German Chancellor Angela Merkel spoke by phone earlier on Sunday about the importance of EU members acting to build confidence in markets.

Economists estimate that if Portugal, Ireland and Spain — three other heavily indebted euro zone countries — eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

As details of the financial barriers that the EU was putting up to ward off speculators against Greece and other debt-laden countries became public, G20 finance officials held a teleconference to discuss the crisis.

Last week, fears that a euro zone debt crisis could rock banks and the global economy like the September 2008 collapse of U.S. bank Lehman Brothers swept through markets, pushing global stocks to near a three-month low. It was unclear whether the EU crisis package would stem the tide.

“All in all this is good news, but it is unlikely in itself to calm markets; it’s all too ‘slow-burner’ stuff,” said Erik Nielsen, chief European economist at Goldman Sachs. He said he expected the European Central Bank would soon need to take some type of emergency action.

EU sources said ECB governors met to discuss the crisis, but no details were available.

MARKET TURMOIL

The 16 nations that use the single currency have been criticized for contributing to market uncertainty by responding too slowly to the crisis in Greece.

An IMF board source told Reuters that some board members had shared those concerns and raised worries that the crisis could spread to other euro zone countries.

A euro zone summit last week asked for a European stabilization mechanism.

Some economists said the move was welcome, but that it would cure the symptoms, rather than the disease.

“By putting in place additional safeguards for the euro area financial system, governments finally appear to be rising to the challenge of the sovereign debt crisis,” Morgan Stanley said in a research note to clients.

“But, like the measures taken before — for the benefit of Greece — a stabilization fund is just buying time for distressed borrowers,” it said.”

Germany Agrees to Greek Bailout, Finally…As $27 Billion of Greek Loans Need to Be Refinanced

Sunday, April 11th, 2010

April 1, 2010: After months of tribulation and back and forth discussions, Germany admits that it is prepared to give Greece loans at below market rates.  Germany has been criticized for allowing the IMF, a U.S. backed institution to bail out Greece, instead of having the European Union take care of its own constituent.  Greek bonds have been trading at 400+ bps over the rate on German bonds, signaling a 17-20% chance of default.  Many feel that the bonds will not default, including PIMCO, and thus represent a great investment.  In this newest proposal, Germany would work with the IMF to give loans at below market rates, a lifeline for the nation.  Europe will provide more than 50% of the loans.  Greece needs to refinance $27 billion in loans within the next 2 months.

According to Bloomberg, “Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to subsidies as European finance ministers meet to discuss the terms of a lifeline for the debt-stricken nation, a European government official said.


The loans would be priced above the rate charged by the International Monetary Fund, which would also participate in an EU-led rescue, said the person, who spoke on condition of anonymity. Such an arrangement would satisfy German demands that Greece shouldn’t be given subsidized loans, the person said. EU finance ministers will hold a press conference after a teleconference that starts at 2 p.m. in Brussels today.

German resistance to subsidized loans threatened to hold up efforts to agree on a rescue package for Greece, whose bonds plunged last week. With German Chancellor Angela Merkel balking at the use of taxpayers’ funds, her government has said that the EU should stick to a March 25 agreement that credit to Greece should be at “non-concessional” rates.

“They have to be given some help from Europe or the IMF at concessional rates,” billionaire investors George Soros said in an interview on Bloomberg Radio yesterday in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.”

European Commission spokesman Fabio Pirotta couldn’t given an exact time for the press briefing by the eurogroup, which also includes European Central Bank President Jean-Claude Trichet. Ministers may today agree to the formula for calculating the loans, the European government official said.

Terms of Agreement

Under the terms of the March accord, Europe would provide more than half the loans and the IMF the rest, which would be triggered if Greece runs out of fund-raising options. UBS AG economists estimate Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months.

The yield on Greek 10-year bonds surged 60 basis points this past week, driving it to a record 7.364 percent on April 8. Any IMF loans to Greece may cost around 3.26 percent. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points April 8, before sliding to 398 basis points a day later.

The euro, which has dropped 6 percent against the dollar this year, rose 1 percent to $1.35 on April 9 as speculation about an aid package mounted.

German Resistance

Overcoming German resistance to subsidized loans came amid mounting speculation that that a bailout was imminent. UBS says it could come this weekend as Fitch Ratings cut Greece’s debt rating yesterday to BBB-, just one level above junk. Greek Prime Minister George Papandreou has argued that he needed below- market borrowing costs to cut EU’s-biggest budget deficit.

Papaconstantinou said April 9 that Greece still wasn’t seeking EU aid and would make good on its pledge to trim its deficit from about 13 percent last year, more than 4 times the EU limit, to 8.7 percent this year.

Greece needs to raise 11.6 billion euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency said yesterday it would offer 1.2 billion euros of six-month and one-year notes on April 12.

Greece’s long-term foreign and local currency issuer default ratings were on April 9 cut two levels to BBB-, the same level as Bulgaria and Panama, from BBB+ by Fitch Ratings. The outlook is negative, Fitch said, citing delays in agreeing to an aid package.

Confidence ‘Undermined’

“The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets,” Fitch said in an e-mailed statement.

The Athens benchmark stock index rose for the first day in four on April 9 amid speculation that an aid package would soon be agreed. It fell 5 percent this week.

EU leaders, including French President Nicolas Sarkozy and the Herman Van Rompuy, president of the 27-nation bloc, expressed their readiness to provide aid two days ago.

“A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” Sarkozy said.”

Currency Trading Guide

Wednesday, March 10th, 2010

Fantastic guide on Fibonacci retracements and currency strategies.
Currency Strategies

Break-up of the Euro?

Friday, February 19th, 2010

The founder of the Euro speaks…about Italy & Greece

[youtube]http://www.youtube.com/watch?v=00VWWb9NNhw&feature=player_embedded[/youtube]

~I.S.

Is Goldman Responsible for the Greek Credit Crisis? Please Share Your Thoughts with LA Now!

Monday, February 15th, 2010

[youtube]http://www.youtube.com/watch?v=tCe80hsx-ig[/youtube]

[poll id="2"]

Greece Outlaws Shadow Transactions

Sunday, February 14th, 2010

greece3

According to Mike Shedlock, in order to collect more tax revenue in Greece, the local government recently outlawed cash transactions greater than 1,500 Euros.  Taxes were also raised on individuals who earn more than 75,000 Euros.  The Greeks have tried lowering government wages, and lowering state capital expenditures.  However, after seeing riot after riot in the education and government services industries, the only method to raise government revenue seems to be by increasing taxes and sharply reducing economic growth, while the other EU members sit back and relax.  The Greek finance minister was quoted, saying:


“From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards”

“There’s tax relief for incomes up to 40,000 (euros)”

“Taxable income based on the new scales will include capital gains from the short-term trading of stocks”

“Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate”

“Wages of board members in unlisted state companies will fall by 50 percent”

“The budget bill for allowances and compensations will be cut by 10 percent”

According to Mike, “Everyone in Greece will quickly figure out that that the time to buy major purchases is now. So expect to see sales plunge starting January 1, 2011 as demand for everything priced above 1500 euros shifts forward.”

New 40% Tax Rate

In addition raising their sales and value added taxes, the Greek government plans to instate a 40% tax rate on high income individuals.

“The 40 percent tax rate will be applied on income levels that are lower than what is the case today, but there will also be intermediate rates that will provide relief for low and middle incomes,” Finance Minister George Papaconstantinou told Ta Nea newspaper in an interview.

He said that as a result of the tax changes, the biggest burden would be felt by a small percentage of tax payers as 95 percent of earners report incomes below 30,000 euros a year.

Retirement Age, Fuel Taxes Rise

Please consider Greece raises retirement age and fuel taxes a day ahead of nationwide civil service strike.

Prime Minister George Papandreou told a cabinet meeting that the reforms “must go ahead now … with greater speed.”

“Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions that will protect — as far as that is possible — the weaker and middle classes,” said Papandreou, who is to meet in Paris with French President Nicolas Sarkozy on Wednesday ahead of a European Union summit the following day.

The new tax bill, Papaconstantinou said, will increase the burden on the rich while easing taxation for those on low incomes. The top income bracket which will be taxed by the maximum 40 percent will be expanded to include incomes of over euro 60,000 a year, from the current euro 75,000 threshold.

Papaconstantinou said that public consultation over the tax bill continued, and that there could be changes, but that any amendments would be based on the broad principles outlined in the draft.

He confirmed plans to freeze public sector hirings and wages, while cutting bonuses or stipends by 10 percent, a move he said would trim between euro18 and euro345 euros off monthly salaries. The stipend cut will also apply to those of the prime minister, ministers and other high-ranking ministry officials.

“We all know that the civil service salary system is one full of injustices, that lacks any central logic and has evolved with successive bonus payments,” Papaconstantinou said. “We are committed to have a unified payment system.”

He also said all Greeks must collect receipts in order to qualify for the income tax-free amount of euro12,000 — an attempt to crack down on widespread tax evasion, where vendors under-declare their income by not giving receipts. Cash registers will have to be installed everywhere, including kiosks found on practically every Greek street, and food markets.

Pensions Increase

In a move that makes little economic sense in light of attempted austerity measures everywhere else, Greece to grant pension increases of 1.5 pct.

“All pensions will increase by 1.5 percent,” Finance Minister George Papaconstantinou said in a television interview.

“The government did not intend to raise the nation’s top 40 percent income tax rate as part of measures to shore up its finances,” he said.

Mike has “little faith this will work because revenue projections are sketchy and austerity measures will undoubtedly plunge Greece into a severe recession, if not depression.”

~I.S.

For more information, please visit Mish’s Global Economic Trends…

Greek CDS Spikes

Thursday, February 11th, 2010

Greek CDS

Greek CDS has been spiking for the last two weeks, as perceived sovereign risk has risen for the “Ring of Fire” or the PIGS: Portugal, Ireland, Greece, and Spain.  These countries all share two things in common, growing budget deficits and high debt ratios as a percentage of GDP.

For more information, please visit ZeroHedge…