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The Smart Way To Make Money From Forex Trading - istockAnalyst.com (press release)
(By Dave Goodboy) If you have been following the markets for very long, then you have probably noticed all the flashy ads for foreign exchange trading, or "forex" for short. They seem to be everywhere, from the business TV channels and magazines to billboards and the Internet. I have even seen them places you wouldn't expect, like during the game on Sunday.
But did you know there's a way to profit from the massive amount of forex trading that's going on without bearing much of the excessive risk that goes along with it?
Let me explain...
Forex trading refers to the over-the-counter market in which the foreign currencies of the world are traded. It's also a rapidly-growing segment of the online trading industry.
But rather than dive into forex trading yourself, you should consider investing in the forex industry itself.
Here's what I mean...
Amazing growth...
The average daily retail trading volume has expanded at a compound annual growth rate of 37.1% from 2000 to 2009, according to a 2010 analysis by the Aite Group.
That's massive growth no matter how you cut it.
Most interestingly, even with this growth, retail forex traders still represent a tiny sliver of all retail traders. There are more than 100 million retail traders globally, but only 1.25 million who trade forex. So the market could easily continue to grow. Provided the international markets, 24 hours a day, six-day a week access, and very low access costs for the trader, this market is custom made for expansion.
Betting with the house
Despite the popularity, not surprisingly, most retail forex traders lose money. In fact, in a recent interview, Drew Niv, CEO of FXCM Inc. (NYSE: FXCM), stated that only about 20-30% of traders make a profit.
This means that at least 70% of all traders lose money in the retail forex market. These losses are primarily due to the ultra-high leverage provided to forex traders. Combine leverage with new, inexperienced traders, and it's a recipe for disaster -- at least on the trader side of things... On the business side, it's great.
Depending on the model used by the dealer, these losses may add to their bottom line. Here's how it works...
There's the direct-access model, also known as "no dealing desk," and the counterparty model. Put simply, the "no dealing desk" model matches trader's positions with other traders or banks. However, some dealers act as the counterparty to their customer's trades. This means the dealer takes the opposite side of the transaction, and if the trader losses, the dealer wins.
In addition, many dealers control their own trading platforms, which open up an entirely new avenue for profiting from traders.
Regardless of the model used, all retail forex dealers make money from the spread between the "bid" and "ask" of the different currency pairs. The dealer marks up the spread, which becomes profit. To put it bluntly, the more traders trade, the more money the dealer makes. This is why dealers encourage short-term trading by offering free technical analysis chart packages, education, news feeds and other tools to keep traders active in the market.
The dealers
There are two main U.S.-based forex dealers that are also public companies. One, I've already mentioned, is FXCM. The other is GAIN Capital Holdings (NYSE: GCAP).
FXCM claims to be a "no dealing desk" model, except for its micro-accounts where it acts as the counterparty. On the other hand, GAIN Capital Holdings acts as the counterparty for most of its retail business, according to its 10-K filing with the SEC.
Let's take a closer look at the larger of the two forex dealers, FXCM.
FXCM posted first quarter revenue of nearly $103 million, up 8% compared with the same period last year. Net income was up 4%, and most interestingly, customer equity spiked 47% from the same time last year. Active accounts jumped 22% from same time period.
The company is actively seeking new markets and acquisitions. Just recently, it purchased 50% of Lucid Markets, a private U.K.-based proprietary trading group, in an effort to make deeper inroads into the institutional forex market. Adding icing to the cake, FXCM just announced a small quarterly dividend of $0.06 per share.
Taking a look at the chart, the company is trading above both its 50 and 200-day moving average. However, the stock hit resistance in the $12.50 range, and it has since fallen back, setting up a solid buying opportunity on a pullback.
Risks to Consider: Just like in the forex market itself, there are risks in betting on the dealers. The primary risk is regulatory. Recently, the U.S. capped the amount of leverage domestic forex dealers can offer their clients. This sent many traders overseas in search of higher leverage. Although forex remains lightly regulated, tighter controls may be on their way.
Action to Take --> The recent pull back from FXCM's highs has placed the stock on my radar screen for a potential buy in the near future. My target price for this stock would be about $15.
-- Dave Goodboy
This article originally appeared on StreetAuthority
Author: Dave Goodboy
Forex focus: mattresses become a safe haven for the euro - Daily Telegraph
"We have seen an increase in the amount of people bringing any cash savings they have out of Greece (and Spain) but the bigger concern is for those who have their money tied up in assets such as property and business," says Stephen Hughes of Currencies.co.uk.
Exchange controls are not a rarity as Charles Purdy, managing director of Smart Currency Exchange, points out: "Having worked in South Africa for a number of years, exchange control was very much a part of international trade. But fund flows in the eurozone are supposed to have no such limitations. The trouble is that in times like this, with so much uncertainty surrounding the long term viability of banks in the southern states, funds are moving north to safe havens. This is very difficult to stop legally."
Simon Smith of FxPro says the numbers show the evidence of money going elsewhere: "In Switzerland, it's in the 28pc rise in FX reserves seen in May so as to defend the franc cap against the euro. In Germany, it's in the property market.
"If Greece were to exit the euro, at some point capital controls would have to be imposed, to stop money leaving the country while a new currency was introduced."
Already Europe's finance ministers have discussed imposing capital controls, putting in border checks on the movement of money and limiting withdrawals from bank cash machines.
Jeremy Cook of World First preaches calm, saying: "We're naturally going to see some deposit flight from countries that are in the spotlight, but statements that this is a new phenomenon and that people are moving their money out of the eurozone en masse are inaccurate and unhelpful.
"We are not seeing a run on banks in Greece at the moment; deposits have been walking away for the past two years, and are unlikely to come back. Spanish money is also slipping out of the country and will continue to do so without some form of backstop, but there is no need to press the panic button."
Introducing controls on the movement of money across the eurozone goes against the core principles of the union, as Alistair Cotton of Currencies Direct says. "It will be very difficult in practise for the eurozone to stop the flow of money from the weaker peripherals to the more stable German core.
"It is in Germany's interest to keep all eurozone members in the euro. Whether there is a full scale bank run in the periphery rests on the Bundesbank's tolerance for the liabilities to keep building, and at the moment they have no choice."
Forex focus is sponsored by
Doris Money, what bank called Farepak savers' cash as thousands who lost out in scandal are cheated out of justice - Daily Mail
- When firm went into administration cash was used towards repaying the bank's 31million loan
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Anger: Thousands of Farepak Christmas hamper customers were cheated out of justice yesterday
Thousands of customers who lost money in the Farepak Christmas hamper firm scandal were cheated out of justice yesterday.
As a high-profile court case against the directors of the failed firm collapsed, it emerged that bankers had referred to customers' cash as 'Doris money'.
It was also revealed that bankers, HBOS, twice refused to protect 4million saved by customers, mainly on low incomes, to buy a hamper.
The Insolvency Service abandoned its five-year Farepak investigation after extraordinary new evidence showed that HBOS turned down the option of placing the money in a trust.
This meant that when the firm collapsed into administration in 2006 the cash was used towards repaying the bank's 31million loan rather than refunded to Farepak's vulnerable customers, many of them elderly.
More than 150,000 customers who had paid regular instalments for a Christmas hamper were left on average 400 out of pocket and offered just 15p in the pound.
Hugely embarrassing emails from senior bankers at HBOS, which is now owned by Lloyds Banking Group, showed they referred to the cash from Farepak's vulnerable customers as 'Doris money'.
The new evidence will heap further pressure on Peter Cummings, known as the banker to the stars of the financial world, who was handed a 'warning notice' and punitive fine by the Financial Services Authority in April as part of its investigation into HBOS.
It has been reported that Mr Cummings, who is challenging the FSA's rebuke, had been the 'ultimate arbiter' of what happened with Farepak.
This is the second collapse of a case brought by a government department this week – the Insolvency Service falls under the responsibility of the Department of Business.
Rich pickings: When the firm went into administration in 2006 the cash was used towards repaying the bank's 31million loan not vulnerable customers
On Monday the Serious Fraud Office dropped its investigation into property tycoon Vincent Tchenguiz.
On Farepak, lawyers representing the Insolvency Service had asked Mr Justice Peter Smith in the High Court to disqualify its former bosses from being company directors, accusing them of 'unfit conduct'.
The former bosses, including Sir Clive Thompson, an ex-president of the Confederation of British Industry, contested the disqualification applications.
But yesterday the government's companies watchdog abandoned its bid to penalise the directors after the new evidence emerged that included the fact that they had twice tried to protect the cash of customers.
Business Secretary Vince Cable said he felt 'huge' sympathy for 'those who lost out' and would reflect on the decision by the Insolvency Service.
A spokesman for Lloyds Banking Group said: 'As this matter is subject to ongoing legal proceedings, it would be inappropriate to comment.
'We have assisted the relevant authorities at all times during their investigation of European Home Retail plc and Farepak and the conduct of their directors.'
FOREX-Dollar extends gains vs yen to 5-week high - Reuters
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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Forex Flash: Spanish bond auction and Banks stress test release today - Rabobank - FXStreet.com
MONEY MARKETS-Euribor slips as ECB cut expectations grow - Reuters
* Euribor, euro Libor both fall, seen sinking further
* ECB rate cut expectations stoked by Coeure comments
LONDON/FRANKFURT, June 21 (Reuters) - A growing conviction that the European Central Bank will cut interest rates pushed interbank borrowing costs lower on Thursday, with markets pricing in a slide to record lows.
Three-month Euribor rates, traditionally the main gauge of bank-to-bank lending and a proxy for the direction in which the ECB's refinancing rate is headed, eased to 0.655 percent from 0.657 percent.
The interbank market is awash with cash injected by the ECB, depressing Euribor rates to within 2 basis points of their lows but analysts expect rate cut speculation to drive rates lower before the next policy meeting on July 5.
The euro zone's struggling economy is putting additional stress on countries struggling with a debt crisis that currently threatens Spain's ability to raise funds from the market and is piling pressure on the ECB to act.
"I can't see the world changing sufficiently to derail market belief that the ECB will provide another cut," said Eric Wand, strategist at Lloyds Bank in London.
"Put it this way, if the ECB stays where it is, the market would take it pretty badly. It seems like a cut is in the offing."
The euro-denominated Euribor rates pushed lower after fresh hints from ECB policymakers that the bank's deposit rate could be cut, a move that would open up room for a further drop in market rates. Banks will only lend in the open market if borrowers are prepared to pay more than the ECB.
ECB Executive Board member Benoit Coeure said on Wednesday in an interview with the Financial Times that rate cuts remained an option and would probably be discussed at the next meeting, but that any move would not be a cure-all.
Euribor futures edged higher with contracts dated out to the end of the year rising by around two ticks. Prices imply Euribor falling below the record of 63.4 bps by next month, reaching as low as 51 bps by December.
Three-month euro Libor, fixed by a smaller panel of banks based in London, also fell to set a new low at 0.56479 percent.
Technical analysis by Futurestechs showed the outlook for the March 2013 contract, currently trading at 98.465, was bullish and protected by solid support around 9 9 .34 - a rising trendline between recent lows.
Expectations of a cut to the ECB deposit rate - the amount of interest paid on cash parked overnight at the bank - were reflected in the market for fixed-term Eonia.
Lending at a fixed-term Eonia rate for anything longer than two months requires offering a price below the 25 basis points currently on offer at the ECB. The three-month Eonia rate was last at 21 bps.
2006 ....its now 2012, 06 years to finaly get no justice in the end, and are any of the legal costs down to the tax payers ??
- pat, cleveland, 21/6/2012 17:52
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