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Sunday, September 30, 2012

Looking Ahead: October 1 through October 5, 2012

Investors kept their eyes on the situation in Spain. Economic data were mixed globally. Four central banks are on tap during the first week of October. The Reserve Bank of Australia announces on Tuesday followed by the Bank of England and the European Central Bank on Thursday and the Bank of Japan, Friday. A plethora of purchasing managers’ indexes for September will be released globally. Going into the fourth quarter, investors are looking ahead to see whether bond buying programs announced by the European Central Bank and the U.S. Federal Reserve will be reflected in improving economic data. Mainland Chinese markets will be closed for week-long holidays from Oct. 1 to Oct. 7, while the Hong Kong market will remain closed on Monday and Tuesday.

Saturday, September 29, 2012

How Your Forex Broker Makes Money

Trading forex is great - online access to your account so you can trade anywhere in the world, very high leverage which enables you to make a significant amount of money from a very small account, the trades are commission-free and even the spreads in forex are extremely tight. Given that you, the forex trader, has a number of advantages, have you ever wondered how your retail forex broker makes money? And why are there so many retail forex brokers out there? After all, forex broker advertisements are everywhere and the competition seems to be very stiff. So how, exactly, does your forex broker make money? The answer might surprise you. Your forex broker assumes that you will lose money over the long run when you trade. Given that 95% of forex traders lose money, it is a very safe assumption. Every broker has to decide whether a new account will belong to the group (95%) of traders that loses money, or the group (5%) that makes money. If I gave you a coin and said that it would land on heads 95% of the time, I think you would probably want to keep the coin so that you could use it to win some bets with your friends and 2) always assume the coin would land on heads. This is precisely what your forex broker does. Every new account is assumed to belong to "group B" - those traders that will lose money. Since 95% of the traders belong in this group, your broker is only too happy to assume that you belong in this group. After some time, if you have consistently made profits, your broker will re-assign you to "group A" - these are the lucky 5% of traders who consistently make money. After you have joined this group your broker will lump your trades with all of the rest of group A and hedge against your trades. So, for example, if all traders in group A have bought the EUR/USD your broker will place a trade in the interbank forex market to offset any profits group A make on this trade. Basically, your broker puts up with group A traders but is really interested in gaining group B accounts. This is because if a trader in group B loses $7,000 - that is, he completely blows up his $7,000 account, then the broker gets all of that money. The broker does not make money on the spread; the broker makes money on the losing accounts. This is also why brokers are constantly advertising for new customers. The brokers need "fresh blood" to keep making money, many of the traders in group B will give up on trading or move to another broker. So, the next time you see a forex broker advertisement you will know who they are really after.

Tuesday, September 25, 2012

Looking Ahead: Week of September 24 - 28

Most key sectors get updates this week. With manufacturing slowing down, investors will be looking to the latest reading on durable goods orders along with regional Fed reports from Dallas, Richmond and Kansas City. Consumer sector strength will be assessed in the personal income and spending report along with both consumer confidence and sentiment. Confirmation of recent positive housing reports will come from data on new home sales and pending existing home sales. Finally, the third estimate for second quarter GDP is released but likely will be seen as old news.

Sunday, September 16, 2012

Looking Ahead: September 17 through September 21, 2012

Stocks soared on news that the Federal Reserve is launching another round of quantitative easing. Whether profit taking will follow the beginning of this week remains to be seen. Besides the Fed action, the German Constitutional Court ruled in favor of the ESM — but with caveats. Data from China disappointed, showing weakness — especially in the country’s bilateral trade with the EU. This coming week appears to be calmer. The Bank of Japan meets. Expectations now are that the BoJ will expand its easing program, following the Fed. The major data are the flash purchasing managers’ indexes that will be released Thursday for China, Germany, France, the Eurozone and the United States. Investors also will be watching Japan’s merchandise trade data for new clues to global growth.

Sunday, September 9, 2012

Looking Ahead: Week of September 10 through 14

The consumer sector has shown recent improvement—other than for employment. The week starts off and ends with consumer updates on consumer credit and with Friday’s retail sales and consumer sentiment. Europe is largely in recession and Asia is slowing, so Tuesday’s international trade report will provide news on the latest export numbers which are key to manufacturers. Higher food and energy costs have been threatening inflation numbers and this week’s PPI and CPI reports will provide updates. Finally, the Fed meets a day later than usual and traders will be closely anticipating some form of additional monetary easing when the Fed releases its statement just after noon on Thursday. Chairman Bernanke will be explaining the forecasts and any policy move at 2:15 p.m. ET Thursday.

Monday, September 3, 2012

Looking Ahead: Week of September 3 through 7

In a holiday shortened week, the highlight is Friday's employment report for August. This could be the turning point on whether the Fed eases further at its September 12-13 FOMC meeting. The consumer sector recently has shown signs of carrying more weight in the recovery and we will get additional updates with motor vehicle sales, ADP employment, and initial jobless claims. Manufacturing has been wavering, giving more importance to this week’s ISM and Markit manufacturing surveys. Finally, the construction sector has shown improvement and the construction outlays report will indicate if this trend continues.