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Oil Prices Spike Amid Iran Retaliation as Forex Market Calms

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Oil Prices Spike Amid Iran Retaliation as Forex Market Calms
  • Crude oil prices remain at a high after Iranian missile attack
  • USD forex trading markets have generally regained stability
  • Markets remain poised for Presidential statement on Wednesday

The beginning of 2020 has seen a speedy escalation of geopolitical tensions between the U.S and Iran. Marked by the assassination of miltary leader Qasem Soleimani on January 3rd by the United States in Iraq, the latest twist in the tale just hours ago has seen Iranian retaliation. This has come in the form of a targeted attack on 2 air bases in Iraq which are home to American troops. This briefly rocked the USD forex market and has impacted global oil prices significantly.

Surge in oil prices to record highs

During early trading, the prices of crude oil increased sharply to around the $69 mark at the time of writing. This represents their highest point in more than six-months and should be widely expected given the importance of the region when it comes to the global oil industry and markets.

The fear within markets is that one of the busiest oil shipping passages in the world, the Strait of Hormuz, could be disrupted if the current situation between the two nations continues to deteriorate. Market uncertainty is also not helped by the fact that the next moves of the U.S. in relation to today’s missile strike remain unknown.

USD/JPY and forex market beginning to regain composure 

The global forex market also felt reverberations from the Iranian retaliation earlier today. In particular the safe-haven status of the Japanese Yen, well-known among forex margin traders, rang true yet again as many engaged in a flood of risk aversion trading in the immediate aftermath of the missile attack. This led the pair to trade at 3-month lows below 108.00.

At the present moment, traders appear to have calmed and this market has returned to the mid-108 range. The gold market, another safe-haven favorite, has also dropped back slightly but is still holding on to some of it’s gains from earlier in the day. Major forex currency pairs and indices from around the world are also licking their wounds and making a slow recovery during the early trading across Europe. The Euro, British Pound, and Swiss Franc have all found their composure and return to a somewhat normal trading range for the day.

Next moves awaited with anticipation around the world

Many commentators have referred to this as the biggest outside threat and test of President Trump’s reign to date. The fact that no immediate announcement was made in haste, may have done something to help the global markets return to calmer waters.

With the promise of a Wednesday morning US Eastern Time announcement to address the crisis though, is sure to bring with it another rollercoaster day and an amount of uncertainty moving toward the weekend. Considering the current climate and decision making process, there is no educated way to guess how that announcement may play out and what it will bring for the forex market and the nation.

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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GBP/USD Forex Market Continues to Show Weakness

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GBP/USD Forex Market Continues to Show Weakness
  • The pair continues its fourth consecutive day of losses
  • Iran tensions still at the forefront of concerns
  • Further hit by weak UK GDP figures release

The current tumultuous fortune of the British Pound has continued on Monday with the currency further slipping in value against the US Dollar. At the time of writing, the pair sit at a very low ebb having sunk below $1.30. This marks the fourth consecutive losing day for the pair as fears in the market continue to mount. Geopolitical as well as economic concerns have all converged in something of a perfect storm for the GBP forex market of late.

Yet another down day for Sterling

Put bluntly, the GBP forex market had been desperate to stay above the milestone $1.30 mark following three consecutive days of loss-making. The early trading on Monday however, all pointed in one direction. This was, unfortunately, the wrong one for the pound as it slipped further.

It seems that in recent days, even the relative weakness of the US Dollar on the other side of the trade has gone unnoticed by the market. After the Americans had posted weak employment data and a declining wage growth figure of 0.1% on Friday, many may have expected the Pound to pick up the slack. This has not been the case though. Instead it has retreated below what could be a psychologically significant point in the coming period.

Iran relations a key factor

Following the Iranian retaliation on US bases in Iraq last week, there has been global uncertainty surrounding the stability in the Middle East. This has applied pressure to both the global oil price and to major forex markets. As a key ally of the United States, the UK has no escaped from this situation.

This has furthered heaped pressure on a GBP forex market that has seen more than its fair share or geopolitical hurdles in recent months thanks to the ongoing Brexit debacle. These concerns, despite a short-term lift following the resounding conservative election victory, just will not shift. Irish Deputy Leader Simon Coveney has become the latest to express doubt that the December 31st transitional deadline to completely leave the European Union.

Poor GDP figures the final straw for the Pound

A miserable Monday for GBP trading was compounded as early as 10 am GMT when poorer than expected November GDP numbers were released for the British economy. These showed that while the overall economy had grown, the GDP had fallen 0.3% in November. Analysts have been disappointed by these figures which were not expected to show any losses from the nation’s GDP.

All of these factors have given rise to increased talk of an imminent interest rate cut from the Bank of England. This would certainly help to provide some much-needed positivity and hopefully swing market sentiment back to the positive side as we head forward into 2020.

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What is Margin in Forex?

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What is Margin in Forex?

When you first get involved in forex trading, there will be a variety of terms that you could come across. One of these terms is “margin”. Far from being intimidating, the margin is simply the amount of money you must contribute to open a new trade (position).

Forex trading typically involves dealing in large amounts of currency in terms of “lots”. 1 standard USD lot, for example, is $100,000. You do not need to put down the whole amount from your own capital, this is where the margin comes into play. Here we will go into more detail about exactly what the margin is, how margin trading within forex works, and some things you should look out for.

 

Do Forex Brokers Profit from the Margin?

This is a common misconception among some new forex traders. The margin is not a fee of any sort, and the top forex brokers in the industry do not make any kind of profit from the margin in that respect.

All the margin with any forex broker does is to ensure that a certain amount of your own funds are set aside to help cover the cost of any losses you may make on a position you have opened. This margin is effectively the key to enjoying the leverage in forex that your broker provides.

Analyzing the situation on a deeper level, while the forex broker does not directly profit from the margin, they do indirectly benefit from providing you this opportunity to engage in margin trading. This is something we can take a look at in the following section with the provision of some simple to follow examples.

 

How a Broker Benefits from the Margin

Although not directly profiting from the margin, brokers are able to derive some indirect benefits. The first of these is that simply put, the margin makes it easier for you as a trader to get involved in the forex market. While there are still risks involved of course, the more a broker can encourage you to trade by making it as easy as possible, the more you are likely to engage.

The second key reason that sees brokers garner indirect benefit from the margin is the fact that when you are trading more, and with larger amounts, they can gain additional commissions and perhaps profit from markups on the forex spread and that of other markets beyond forex too which they likely provide trading in.

In summary then, the main benefit for a broker when it comes to the margin in forex is that you will trade more in terms of both frequency and volume.

 

Knowing and Understanding the Margin Level of Your Broker

As mentioned, the margin is the amount of your available funds that will be held against your open trades. As you open more positions, this amount continues to increase. These funds that are then essentially locked-in by the broker to secure your position are known as your used margin, while the funds still available can be referred to as available margin, or available equity.

We can then use both of these numbers together in the following formula to calculate your current margin level:

Equity/Used Margin x 100 = Margin Level.

As a forex trader, it becomes very important to know this number id you are engaging in margin trading. This is since most top forex brokers will require your margin level to be at least 100% or more in order to avoid a margin call situation. Therefore, you should ensure to keep an eye on this as you are opening new positions.

 

Example:

If you deposit $1,000 in a forex trading account and continue to open 1 position, a typical broker may require $50 in margin (This can be as low as $33 with CySEC regulated brokers, and even as low as $2 with some others). Following the calculation above:

Equity ($1,000)/Used Margin ($50) x 100 = 2000% (Margin Level)

In this case, then you are still well within a healthy margin level, open just a few more small trades though, and this number can change quickly.

 

What is a Margin Call?

The first important point to note here is that many top forex brokers have what they often refer to as “negative balance protection”. This means that before you even get to the situation of having a margin call, your positions may be automatically closed by the broker.

A margin call happens when your margin level drops below 100%. What this essentially means is that you no longer have enough funds in your account to cover the margin requirements on your open positions.

In this case, you will typically be presented with a couple of options, you could close some of your open positions, or you could deposit more funds to your account. In either case, this is probably a situation that you would prefer to avoid through careful risk management.

 

The Pros and Cons of Margin Trading

Margin trading can open great possibilities for you as a forex trader to engage in markets to a much higher level than you could with just your own funds. It also means that you can work well to diversify your portfolio with a number of investments in various markets. Beyond this, margin trading means you can always be in a position to make a move in the forex market if you spot an opportunity.

It is well worth remembering though, that as the largest trading market in the world by volume, the forex market can move incredibly fast. Measured in pips, these movements may seem small, and insignificant. If you are engaged in margin trading though, you should remember that your position is very much amplified. This means that even small movements in the asset price, cold mean big changes in your position.

The very best advice you can heed is to take the opportunity that a margin presents, but remain mindful and have a strong risk management strategy in place.

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Major Forex Pairs Hit Highs As US Dollar Struggles

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Major Forex Pairs Hit Highs As US Dollar Struggles
  • EUR/USD took particular advantage of Greenback weakness
  • GBP/USD forex pair also staved off Brexit fears to remain high
  • USD heading for 2020 showing few positive signs

Weak trading for the US Dollar across the board leaves us looking at a seemingly difficult start to 2020 for USD led forex pairs. There has been little in the way of positive activity across the globe on Dollar-led pairs. The USD/CAD has threatened a 2-month low alongside a host of others. Although difficult to pinpoint an exact cause, many traders are bound to have geopolitical concerns at the forefront of their mind heading for new year.

Euro battles to a high finish

The Euro has defied the odds to approach the end of 2019 at its highest point since August. After months, even a full year of toil, the currency has prevailed with strength to close above 1.12. This marks the sixth consecutive gain from trading sessions of the currency.

This growth, while it still has no recovered the positions from 12 months ago, has surprised many forecasters in the market. They had predicted a weak ending to the year, particularly since much of the data coming from the Eurozone lately has not been great. The result here, goes a long way to showing the importance of market sentiment though, with traders clearly picking up on the positive momentum of late.

Sterling also benefits from USD weakness

Another unlikely string performer as we approach the close of the year is the British Pound. The ongoing Brexit debacle has done its best to batter the pound throughout the year. While market confidence has certainly been shaky at times, there is no doubt the ship has been steadied by the conservative victory.

This, combined today with something of a concession from European Commission President Ursula von der Leyen, that the deadline for post-Brexit trade talks may need to be extended. In the broader picture, this has helped to ease tension among investors of the UK plummeting out of the bloc with no trade deal whatsoever. These factors have ultimately contributed to a fifth consecutive session gain for the GBP.

Embattled USD forex market fights back slightly

The USD had shown weakness of late. This is mainly due to the positive news that the US-China trade deal looks a step closer to being done. While seen as generally positive in economic terms, the USD forex market has been negatively impacted by this news. That is largely due to the fact many had sought out the USD as a safe haven currency.

With a reducing need for this protection, Dollar-led forex markets have started to retract, though a small fightback was mounted today. Despite this recovery, it still looks more than likely that the USD will head in to 2020 posting some of the lowest numbers in many years. The US Dollar Index gains for the year have been just 0.6%. This is the lowest number in 6 years. Hopes will be high that 2020 can bring much more growth for the Greenback.

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