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USD Starts to Consolidate as Global Forex Market Takes Stock

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USD Starts to Consolidate as Global Forex Market Takes Stock
  • USD bullish pattern begins to slow
  • Data and prospect still remains very positive
  • 225,000 non-farm payroll jobs added in January

The USD had shown strength to a certain degree over the closing days of last week in a global forex market that has been dogged with fear in recent days and weeks. With many of these traders now deciding to take some of their profits, the market has started to consolidate gains on currency pairs around the world. This is true of the USD/CHF, USD/JPY, and many other benchmark major forex currency pairs across the market.

What has caused the USD forex market consolidation?

This is a consolidation that had begun just prior to the beginning of the weekend and came after the U.S. had posted better than expected job data. This kind of movement is common across markets particularly when traders have gotten ahead of the projected good news and then look to take their profits on its release. This is precisely what seems to have happened here.

With nothing in particular of huge significance on the US economic calendar for Monday, it may also be a case that traders Stateside see little to gain at the beginning of this week and have adopted a risk-averse approach. This similar approach in Europe has seen several indices slide alongside the 10-years US Treasury bond which has fallen by almost 2%.

New increases still remain very possible

Despite the consolidation, almost every piece of data coming from the USD forex market and wider economy to start the week points in only on direction. This direction is upward. Not least of this can be related to the very good jobs data release. A greater than expected increase on US Non-Farm Payrolls of 225,000 along with another better than expected wage rise number at 3.1% are all excellent. Although this was accompanied by an unemployment increase, that number also remains keenly low at 3.6%.

USD still a global go to currency in times of need

Another huge factor that can continue to bring the market into the USD is the ongoing Coronavirus situation that has now spread around the world. This is good news for nobody and has in fact greatly dented the global economy. With that said though, this, and other types of crisis situations will ultimately serve in bolstering global “safe-haven” currencies.

This likely means the most to the Japanese Yen, the JPY is well-known as the number-one currency that traders flock to in times of difficulty. The USD though is a close second in this area and well above any of the other major forex currencies in terms of trust score among traders. Expect further gains on the USD side of these markets if the virus continues to spread after the Chinese return to work following an extended Lunar New Year Holiday

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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.

Forex

What is Leverage in Forex?

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Regardless whether you are a brand new trader in the forex market or someone with extensive experience, you will have certainly encountered one thing on your journey. Leverage. If you are new to forex trading then you may wonder exactly what is meant by this, how you can utilize it, and what kind of leverage is available from your forex broker. Since every top forex broker around the world offers some kind of leverage, we will cover the main points of leveraged trading here. This should help you make the best decision for your trading future when selecting your next broker.

The Basics of Leverage in Forex Trading

In its most simplistic form, leverage is simply money borrowed from a source that can increase the size of position or amount of capital that is available to you. In this case, the source that you are borrowing money from in the form of leverage, is your broker.

The amount of leverage that you can benefit from will depend primarily on two factors:

  • Where your broker is based and regulated.
  • Which assets you want to apply leverage to from your broker.

These are two of the most important factors when looking at how much leverage may be available to you as a standard forex trader. Here we will take a closer look at how much leverage you can expect to receive.

Typical Amounts of Leverage Available in Forex Trading

This varies around the world and between different brokers, but can go up to as much as 100:1 or more with certain brokers. Forex trading leverage is most commonly expressed in this ratio format and indicates in our example that with a $1 balance of your own funds, you could open positions worth as much as $100.

As mentioned, the leverage available will depend heavily on where the broker is regulated. The most prominent example of this is within the EU. Due to ESMA (European Securities and Markets Authority) regulations, all brokers are restricted to offering a maximum leverage of 30:1 regardless of the market traded. Effectively, this means that you can only borrow a maximum of 30 times your capital balance to trade with. The idea here is to protect traders from becoming excessively involved in leveraged trading where losses can mount quickly.

This is typically more than enough leverage and is usually only available within the major forex currency markets which are often viewed as less volatile. With a 30:1 leverage and a deposit of $100, you could hypothetically open positions to the value of $3,000.

In other markets such as minor forex currency pairs, CFDs, and cryptocurrency trading, the leverage available can be considerably lower anywhere from 1:1 (no leverage), through 5:1, 10:1, 20:1 depending on the risk of the market.

If you happen to be a more experienced trader, then of course the broker may be more likely to approve a higher leverage, and for traders who can open professional trading accounts, these limitations can be stretched further.

The Benefits of Leverage in Forex Trading

The key benefit and reason why many traders employ leverage when they are trading forex is the potential profitability.

Forex trading is a huge volume trading market, the biggest in the world of trading. If you have looked at our recent article on forex lot size, then you will know that the typically standard lot size is 100,000 currency units. This can mean a cost of $100,000 to trade just one standard lot.

So, instead of putting a full $100,000 or more on the line, many forex traders will use leverage. Utilizing the maximum EU broker leverage of 30:1, you could then trade with up to $100,000.

This effectively means that through increasing your leverage, you can also increase your purchasing or trading power to take more advantage over changes in the market.

Risk management can also be a second area where, if well-considered, can definitely benefit from utilizing leverage in forex. As mentioned above, you will not want to risk your entire balance on just a few trades in the forex market, instead, you can use leverage to only commit a small percentage of your balance yet still fill the position.

The Cost and Risks of Using Leverage

When you do decide to utilize the leverage on offer from your broker, besides the positive potential and benefits that we have mentioned, there are naturally some costs and risks involved.

Thinking of the costs first, your margin will go up depending upon both the size of the positions you open, and also how those positions move while they are open. Taking a look at our recent article on margin in forex trading will help you to gain a deeper understanding of how the margin works but it is certainly something to keep an eye on when using leverage.

The main risk when dealing with leverage is connected to the increased size of your positions. This means that when the market moves the size of your profits or losses can be greatly amplified. On the positive side, this of course can mean you make money quicker when the market moves in your favor. On the other hand though, you can also rack up quick losses.

Choosing the best forex broker who also provides negative balance protection, and employing an astute risk management plan that you stick by are two things you can do that will help you successfully manage your trading on leverage.

Final Thoughts – How Much Leverage Should I Use?

So, you have opened your forex trading account and been approved for leverage from your broker. The common temptation is to use as much as possible. In reality though, you need to do an impartial assessment of your position and not engage more in leverage than you can afford to lose. Particularly if you are a new trader, the recommendation would be to start small with the leverage and continue learning as much as possible through any educational content provided to help improve your knowledge and skill as a trader.

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GBP Forex Market Remains Sluggish Post-Brexit

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GBP Forex Market Remains Sluggish Post-Brexit
  • GBP/USD Trading remains stagnant almost one-week later
  • Further rocky road ahead as tough negotiations expected
  • Lowest point of year to date reached with further expected

After a long, contentious period of wrangling, Britain finally exited the European Union on January 31st at 11pm. This brought the curtain down on 47 years of membership with promises of forward movement from UK leader Boris Johnson. Negotiations are now set to begin on how the post-Brexit era will play out in many important areas including trade and freedom of movement. This has not gone unnoticed within the market, the GBP/USD market falling below the significant psychological benchmark of 1.30.

No significant progress since exit

As we set up for the beginning of talks on how the post-Brexit reality will look, and be implemented from all sides, there has been a lot of conjecture. This has certainly not provided any solid direction for the market as both sides look to impose their will on how the future landscape will look.

It is undoubted that the lack of positive progress in the market will also have been greatly hampered by the widespread  Coronavirus outbreak. As this continues to spread, markets around the world, particularly in Asia, have been in panic mode. With China being one of the dominant powers in world economic terms, this has certainly had a domino effect. With that said, plans to introduce a stimulus from the Chinese government have worked to steady the ship a certain amount.

Tough negotiations likely to take time

From their publicly stated positions, it would appear that UK PM Johnson, and EU Chief Negotiator Michel Barnier are still some distance apart in their view of how a Britain – EU relationship is going to look. In reality, these talks taking place over the next several months until December will hold the key in shaping the future landscape.

Boris Johnson though remains steadfast in his belief that the UK will not be following the rules of the EU when it comes to trade agreements and has proposed a “Canada style” free-trade agreement with the bloc. The EU on the other hand have referred to this as “ambitious”, and also commented on the need for a “level playing field”. All of this points to a difficult negotiation period ahead and possibly turbulent time for the GBP throughout, particularly if little compromise can be found.

Forex market somewhat bearish moving into the weekend

As we complete the first full Brexit week and move into the weekend, GBP/USD markets remain low. They have reached their lowest point of the year to date and lowest since Christmas Eve.

Traders will be hoping that Monday brings some more positive news on the geopolitical front, though that seems unlikely with the China virus crisis rumbling on and the UK seemingly in no mood to budge from its view on EU trade and relations moving forward.

 

 

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Chinese Economy Suffers along with Wider Forex Market amid Virus Fears

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Chinese Economy Suffers along with Wider Forex Market amid Virus Fears
  • Chinese stocks suffered their worst losses in several years
  • Markets gripped by Coronavirus fears
  • Government plans to inject $173 billion to stimulate market

As markets opened for trading in China for the first time since an extended Lunar New Year break, the fear recent weeks took hold. This fears have been built up by the spreading Corona virus which has now killed more than 300 people and continued to spread far beyond its Wuhan epicenter. Today marks the first time that the markets have been able to express their sentiment since the January 24th closure, and it does not make for pleasant viewing.

Almost $500 Billion in Value Wiped Out

The Chinese stock market can be a volatile place at the best of times, but with losses at $445 billion and counting since the market reopened, these are some of the most turbulent times in many years. This is due in the most part to the fact that the cases of Coronavirus have run rampant during the holiday break.

Stock markets have plummeted with the worst days in Shanghai seen since 2015 and in Shenzhen for more than a decade in terms of single day loss figures. The forex market too has been impacted heavily by the downturn.

RMB Forex Trading Down

Chinese RMB currency trading is heavily restricted. Due to that, it can often be difficult to get a true picture of the value the currency really has. What we can say though is that the RMB, both in onshore, and offshore trading, has lost more than 1.5% onshore since market opening today. This slides it below the benchmark 7 to 1 US Dollar.

As one of the country’s biggest trading partners, Australia, and the Australian Dollar are often viewed as a proxy by analysts looking to gain more insight into the Chinese economic situation. In this case then, bad news too as the Australian Dollar continued to slip toward a 10-year low point. All the signs at the moment being quite negative for China and Asian markets in general.

Stimulus on the Horizon

Economists have predicted that the Chinese economy could shed as much as 2% this quarter. That would be a huge blow to one of the world’s largest and most dominant economies that many already believe is struggling in silence. To help negate that risk, Beijing have committed to a huge market cash injection of $173 billion. This should help tide the market over and provide the much needed support to banks so that they can continue lending and the economy continue slowing.

As the Coronavirus toll rumbles on with no end in sight though, the true extent of the economic problems it will cause remains to be seen. For now, the global forex market along with stock markets across Asia and the world, wait in hope for some light at the end of the tunnel.

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Chinese Economy Suffers along with Wider Forex Market amid Virus Fears
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Chinese Economy Suffers along with Wider Forex Market amid Virus Fears
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- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
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- 0.01 Min Lot
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- Over 50 Currencies
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- Daily Market Analysis

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