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What is a Pip in Forex Trading?

Forex Trading

If you are interested in Forex and read analysis or commentary pieces, you will likely have come across mention of the term pip or pips. This is because a pip is a very common term in Forex trading. But what is a pip?

This article is going to answer that question, explaining the meaning of a pip and how useful a concept it is when trading Forex. So to find out what a pip is in trading Forex, just read on!

Pip Definition

A pip is an incremental price movement, with a specific value dependent on the market in question. Put simply, it is a standard unit for measuring how much an exchange rate has changed in value.

Originally, a pip was effectively the smallest increment in which an FX price would move, though with the advent of more precise methods of pricing, this original definition no longer holds true. Traditionally, FX prices were quoted to a set number of decimal places – most commonly, four decimal places – and, originally, a pip was a one-point movement in the final decimal place quoted. Many brokers now quote Forex prices to an extra decimal place; however, meaning that a pip is frequently no longer the final decimal place in a quote.

It remains a standardised value across all brokers and platforms, making it very useful as a measure that allows traders to always communicate in the same terms without confusion. Without such a specific unit, there would be a risk of comparing apples to oranges, when talking in generic terms such as points or ticks.

How much is a pip?

For most currency pairs, one pip is a movement in the fourth decimal place. The most notable exceptions are those FX pairs involving the Japanese yen. For pairs involving the JPY, one pip is a movement in the second decimal place.

The following table shows Forex pips values for some common currency pairs:

Forex Pair

One pip

Sample price

Lot size

Forex pip value (1 lot)

EUR/USD

0.0001

1.16671

EUR 100,000

USD 10

GBP/USD

0.0001

1.31114

GBP 100,000

USD 10

USD/JPY

0.01

113.553

USD 100,000

JPY 1000

USD/CAD

0.0001

1.27326

USD 100,000

CAD 10

USD/CHF

0.0001

0.99543

USD 100,000

CHF 10

AUD/USD

0.0001

0.76260

AUD 100,000

USD 10

NZD/USD

0.0001

0.69008

NZD 100,000

USD 10

Multiplying your position size by one pip will let you answer the question of how much is a pip worth. Let's say you are looking to trade the EUR/USD and you decide to buy one lot. One lot is worth EUR 100,000. One pip is 0.0001 for EUR/USD. The currency value of one pip for one lot is therefore 100,000 x 0.0001 = $10.

Let's say you buy the EUR/USD at 1.16650 and later close your position by selling one lot at 1.16660. The difference between the two is:

1.16660 - 1.16650 = 0.00010

In other words, the difference is 1 pip. You will have made $10. If we work through these sample numbers from a different angle, we can further illustrate what a pip is in trading.

Trading Pips Explained

You opened your position at 1.16650, and you bought one contract. This is buying EUR 100,000. Notionally, you are selling dollars to purchase the Euros. The value of the Dollars that you are notionally selling is naturally dictated by the exchange rate.

EUR 100,000 x 1.16650 USD/EUR = USD 116,650

You closed your position by selling one contract at 1.16660. Notionally, you are selling the Euros and buying the Dollars.

EUR 100,000 x 1.16660 USD/EUR = USD 116,660

That means you originally sold $166,650 and ended up with $166,660, for a profit of $10. From this, we can see that a one-pip movement in your favour made you $10.

In fact, this trading pips value is consistent across all FX pairs that are quoted to four decimal places – a movement of one pip in the exchange rate is worth 10 units of the quote currency (i.e., the second-named currency) if you are dealing in a size of one lot (which is always 100,000 units of the base currency, i.e., the first-named currency). A move of 10 pips is worth 100 units of the quote currency. A move of 100 pips is worth 1,000 units of the quote currency, and so on.

What about currencies that are not quoted to four decimal places?

The most notable currency here is the Japanese yen. Currency pairs involving the yen were traditionally quoted to two decimal places and FX pips for such pairs are therefore governed by the second decimal place. So let's take a look at how to calculate pips with the USD/JPY.

If you sell one lot of the USD/JPY, a downward move of one FX pip in the price will make you 1,000 yen. Let's work through an example to see why.

The USD/JPY Currency Pip Example

Let's say you sell two lots of the USD/JPY at 113.607. One lot of the USD/JPY is USD 100,000. You are therefore selling 2 x USD 100,000 = USD 200,000 in order to buy 2 x 100,000 x 113.607 = JPY 22,721,400.

The price moves against you and you decide to cut your losses. You close out at 114.107. One pip for the USD/JPY is a movement in the second decimal place. The price has moved against you by 0.50, which is therefore 50 pips.

You closed your position by buying 2 lots of the USD/JPY at 114.107. To buy back $200,000 of USD at this rate costs 2 x 100,000 x 114.107 = JPY 22,821,400.

This is JPY 100,000 more than your original sale of dollars gave you, so that you have a shortfall of JPY 100,000.

Losing JPY 100,000 for a 50-pip movement means that for each pip you lost 100,000/50 = JPY 2,000. Since you sold 2 lots, this is a pip value of Y1,000 per lot.

If your account is denominated in a currency that is different to the quote currency, it will affect the pip value. You can use our Trading Calculator to very easily work out pip values.

What does Pip Stand For?

Some say that the term "pip" originally stemmed from Percentage-In-Point, but this may be a case of false etymology. Others claim it stands for Price Interest Point.

Whatever the origin of the term, pips allow currency traders to talk about small changes in exchange rates in readily understandable terms. This is similar to how its cousin – the basis point (or bip) – allows easier discussion of small changes in interest rates. This gives us the most basic answer to what pips are useful for – it is much easier to say cable has risen 55 pips, for example, than to say it's gone up by 0.0055.

Let's look at how FX prices appear in MetaTrader 4 to further illustrate what is a Forex pip.

Forex Pips: Prices in MT4

The image below shows an Order screen for the GBP/USD in MetaTrader 4:

Image source: MetaTrader 4 platform, pricing from Admiral Markets, GBP/USD order ticket, 13 November 2017

The quote shown in the image is 1.31190/1.31208. We can see that the figures for the last decimal place are smaller than the other numbers. This is to show that these are fractional pips. The difference between the bid and offer is 1.8 pips. If you instantaneously bought and sold at this quote, the pip cost would be 1.8.

If you look at the screenshot below of a different order ticket, you can see that I have selected Modify Order as the Type:

Image source: MetaTrader 4 platform, pricing from Admiral Markets, GBP/USD order ticket, 13 November 2017.

Note that the Modify Order part of the window has dropdown menus that allow you to select quickly levels that are a certain number of points away. There is therefore an important distinction to be made between points and pips. The points in these dropdowns are referring to the fifth decimal place, in other words, fractional pips that are one tenth of a pip. If you select 50 points here, you will be choosing an order level that is just 5 pips away, for example.

A really good way to familiarise yourself with the pips in Forex prices is to play around with the MT4 platform using a Demo Trading Account. This allows you to view and trade on live market prices but with zero risk because you are only trading with virtual funds when you use a demo account.

CFD Pips

If you are interested in trading shares, you may be wondering if there is such a thing as a pip in stock trading. Really, there is no usage of pips when it comes to trading shares as there are already ready-made terms for communicating price changes: namely, pence and cents.

For example, the image below shows an order ticket for IBM:

Image source: MetaTrader 4 platform, pricing from Admiral Markets, IBM order ticket, 13 November 2017

The whole numbers in the quote represent the price in USD and the decimal numbers represent cents. This is readily understood and familiar to your average person. There is therefore no need to introduce a further term, such as pips, though sometimes market jargon may include the generic term tick to represent a movement of the smallest increment possible – in this case, one cent.

Whatever you are looking to trade, whether it is CFDs in Forex or shares, you will want to be using the best platform available. This is why you should try out using MetaTrader Supreme Edition. MTSE is a cutting-edge plug-in for MetaTrader 4 & MetaTrader 5 – if you're using MT's latest version – that offers a much wider selection of indicators and trading tools than the standard version.

What Are Pips in Forex: Summary

You should now have the answer to the question of what a pip is in trading. Being conversant with the unit of measurement for changes in FX rates is an essential first step on the path to becoming a proficient trader. We therefore hope this article has given you a sound footing from whence to continue your journey. If you enjoyed this discussion of FX pips in investing, why not take a look at our article on What Are The Best Currency Pairs to Trade.


Forex OCO orders trading explained

Forex Trading

Leaving an order to deal at a certain price away from the current level of the market can be a convenient way to trade Forex. It can help to enforce discipline on your trading, as well as saving you the trouble of monitoring the market as you wait for the right price.

While you may already be conversant with using simple orders to trade, you might also be interested in what is known as a one-cancels-other order or OCO order. An OCO order is a slightly more advanced type of order. This article is going to explain how they work and explore what kind of scenarios they are suited to. Of course, if you do want to brush up on basic orders, why not take a look at our Stop-loss And Take-profit article.

What is an OCO order?

An OCO order is, in fact, a pair of orders that are linked together with a kind of order management. This order management ensures only one of the orders is ever executed. As the name suggests, if either of the two orders is executed, it automatically cancels the remaining order.

This differs from plain vanilla stop or limit orders which are discrete instructions to buy or sell the market if certain price conditions are met. Such orders are not linked to the outcome of any other order and continue to operate until executed, cancelled or until expiry (such as a day order). OCO orders are useful because it can help 'clean up' orders that are no longer wanted.

Let's talk about how you can use OCO orders in MT4.

OCO orders in MT4

OCO orders are not included in MT4 as a default. If you would like to use them, you need to download an Expert Advisor (EA) in order to add the functionality to the platform. An EA is an automated process that allows you to place trades according to specific rules.

If you perform a web search for OCO orders, you will find there is a dearth of highly recommended EAs out there for this purpose. I always prefer to have functionality like this come from a reliable source, though, which is why MetaTrader 4 Supreme Edition (MT4SE) is so handy.

MT4SE is a free, custom plugin that offers a wide selection of EAs and indicators, all of which have been handpicked and crafted by industry professionals. This means you can rely on them to work in an expert fashion. Among the EAs provided with MT4SE are OCO orders.

Access to the OCO functionality in MT4SE is via the mini terminal, a special feature that makes opening and managing positions easier. The mini terminal includes order templates that make it simple to place a wider variety of orders, including OCO orders.

So, let's take a look at how it works.

Placing Forex OCO orders with MT4SE

The first thing you need to do is install MetaTrader 4 Special Edition. Once you have done that, you will be able to see all the additional indicators and EAs in MT4's Navigator. From these, you just need to select Admiral - Mini Terminal, as shown in the image below:

To open the menu for placing orders, click on the orange icon in the top right hand corner of the mini terminal. Ensure the Allow automated trading setting is activated, as this is required for EAs to function. There are two types of OCO orders available with MT4SE.

These are:

OCO breakout OCO reversion.

Which one suits you best will depends on you Forex OCO strategy of preference.

OCO breakout

You would use this order template if you expect the price to breakout clearly in one direction but are unsure if it will be up or down. The order template therefore places two Stop levels — one to buy above the current price and one to sell below the current price.

If the market trends up, you will be buying into the rising market. If the market trends down, you will sell into a falling market. This therefore allows you to capitalise on a big market movement without having to predict the direction.

In the image above you can see I have selected OCO breakout for the Order type and selected a stop to buy and a stop to sell with an entry price 50 pips away for each. If the market rises 50 pips, the stop order to buy will be executed and the sell stop will be cancelled. Conversely, if the market falls 50 pips, the stop order to sell will be executed and the buy stop will be cancelled.

Scenarios in which you could use such a strategy might include the release of economic figures or during an important press conference. Basically, times at which you judge a major price move as likely, but when there is uncertainty over which way that move will be. Our Economic Calendar can help you identify impactful events on the horizon.

OCO reversionThis is similar to the OCO breakout, but uses a pair of limit orders instead of stops. Rather than trying to catch a significant move in one direction, you are instead trying to profit from moves that are overdone and about to pull back.

In the image above you can see I have selected OCO reversion and chosen to place my two limit orders 60 pips either side of the current price. Now, if the market rises 60 pips, my sell limit will be executed and my buy limit will be cancelled. If the market instead falls 60 pips, my buy limit will be executed and my sell limit cancelled.

I have also this time chosen to add a stop-loss and a take-profit to my position if executed, both being 50 pips from my entry price.

You might use this type of Forex OCO order when you think you have identified price levels that are likely to result in a reversion to the mean. In other words, trying to place the entry price for your limit orders at resistance levels and hoping the price will rebound from these points.

To appreciate the advantage of an OCO order over simply using two separate, discrete orders, consider a scenario where you are looking for a breakout. Let's say that you are expecting a sharp move in EUR/USD over a forthcoming announcement from the Fed.

You decide you would like to place a stop order to buy 80 pips above and the market and a stop order to sell 80 pips below the market. Now you could just do this as two separate orders, or you could choose to do it all using the OCO breakout template. The disadvantage of the former, is that if the sharp move happens, you are still left with the other order left working. If you no longer want that order — and you probably don't — you would have to go to the trouble of manually cancelling it. With the OCO order, it is neatly removed for you automatically so that you don't have to worry about getting a subsequent fill in the remaining order.

OCO trading: in summary

As we have seen, OCO orders allow you to place two orders simultaneously, of which only one can ever be executed. We ran through some basics scenarios in which these might be useful, but for more strategy ideas why not read our article on The Best Forex Strategies That Work.

You may find that OCO orders dovetail more conveniently with certain strategies than others; the best way to discover what really works best for you is to give it a go. The good news is that our Demo Trading Account is the perfect, risk-free environment to familiarise yourself with how OCO orders work and to try your ideas out. Whatever strategy you choose, we wish you the best of luck.


Being Consistently Profitable in Forex & CFD Trading - a Myth or Reality?

Forex Trading

The majority of retail traders struggle to find out how to be consistently profitable in Forex and CFD. This article discusses whether or not it's actually possible to make regular profits trading Forex and CFDs.

First of all, a trader must create or adjust their trading strategies to fit their personality, trading schedule and risk appetite. Every strategy should be historically back-tested before use and its average effectiveness should be measured. You must also be aware that historic performance is not an accurate representation of future performance and therefore does not guarantee anything.

Secondly, a trader must develop a certain mentality to be able to follow his or her strategy consistently. This second part will be the prevailing topic of this article, because failing to understand it is the very reason so many quit Forex and CFD trading after losing their funds.

Chasing Profits Often Causes Losses

Some people can obsess over profits, which can lead to their downfall. Chasing money is one of the main obstacles in learning how to be consistently profitable in Forex and CFD trading. To avoid this, a good place to start is to forget any unrealistic goals and targets. The notion of making large amounts of money off a few swift trades is extremely unlikely.

Trading too flippantly and over-confidently can be what causes you to lose your initial investment. Intraday novice traders who follow short-term price action are exposed to this way of thinking. The turnover in this group of traders is high and they can lose their capital in a matter of a few months or even less.

You don't want to be part of this statistic.

Basically, many veteran traders live with the sentiment of "to make money you need to forget about making money". By setting the money goal high, a trader places himself under a lot of emotional pressure, which results in one of the biggest mistakes possible – overtrading. We'll return to this later.

As an alternative to focusing on making profit, try focusing on learning trading strategies and research what trading tools are available to you. See which techniques seem to have sound logic and think about how they can be used in your strategy.

You should also invest your time in studying how markets behave and learning how the industry functions – this is crucial. The biggest takeaway from this article should be – never stop learning. The markets are constantly changing and if you want consistency, you need to be able to keep up and adapt to these changes.

Overtrading Is Deceptively Dangerous

Overtrading is another word for curve bending or market chasing and it's caused by a faulty mindset, as described above. Overtrading is a result of seeing opportunities on the market not because they are actually there but because a trader wants them to be there. Traders may or may not realise this and that is where the deception comes into play.

There are two kinds of overtrading – trading too often and trading too much. First, let's deal with trading too often.

In his speech titled How to stay out of debt, Warren Buffett said you need discipline when investing:

"You have to wait until you see the fat pitch to swing at, because investing is a no called strike game. In baseball, you have to swing at pitches you don't necessarily like. In business you don't have to swing at anything.

You can just sit there… and if you don't like the prices you don't have to swing day after day, after day, after day, and there are no called strikes. You can simply wait for that one time in a month when you like the price, when you really know what you are doing, and then you swing.

And you only need a couple of swings."

If you overlay that same principle to Forex and CFD trading, it is still sound. The bottom line is, the trader doesn't need to make a lot of trades, just making the right ones is enough. By the time you come to trading with a Live account, you should have a strategy with preset specific conditions for entering trades. Simply follow your own strategy – and don't trade when you shouldn't.

The other part of overtrading is trading too much. A lot of people say that frivolous leveraging is to blame. Well, is it? Forex and CFD brokers often offer significant leverage on their trading accounts.

In theory, this was originally to give traders the chance to make reasonable profits from small investments, thus enabling more people to see value in trading and use it as a service that brokers provide.

In practice, however, taking high leverage is still common for beginner traders who are tempted by maximising their potential profits, but instead maximise their actual loss.

Yet the devil is in the detail.

High leverage is not intrinsically a bad thing. It does allow a trader to deal with larger volumes, which results in them having less free margin to play with in case of a drawdown. Higher volumes mean more pip value – the engine of profit and loss.

However, it is the trader's choice to trade an unreasonably high volume that makes an account more susceptible to margin calls. As for the leverage itself – if anything, it's there to help a trader who should already understand how leverage works and respect it.

The lesson here is to:

ensure you know and understand the risks of trading before starting; avoid overtrading and always test new trading systems and strategies in a risk free trading environment.

Nobody Makes Profits All the Time

How does a Forex and CFD trader make profits consistently? Truth be told, it can't be done. Closing every trade in profit is simply a trading urban myth.

If we are talking about how to be consistently profitable in Forex and CFD trading in the long term, some professional intraday traders may be consistently profitable on a daily basis, but not even they can show a trading report that that doesn't include regular losses.

If you are a sore loser, you may struggle with Forex and CFD trading. Successful traders with decades of experience confess to less than 40% of all their trades being profitable. Some go as low as 20%.

The trick is that those that are profitable yield enough to cover the losses and make profit. Keep in mind that this is common for long-term, trend-following traders. It takes a lot of mental fortitude to admit miscalculations in your decision making (if your strategy allows it) and to close a losing trade early with a small loss.

Conversely, it takes about as much fortitude to trust yourself and not close a winning trade too early. You need to be patient.

Be Organised

A lot has been said about trading discipline, but very little about organisation. Everything starts with your trading routine. You need a strict plan that will cover most of your trading activity and will help you reduce the random factor to an absolute minimum.

A lot of beginner traders develop negative trading habits. For example, they overtrade once, get lucky, carry on and end up wiping out their account.

Once such a trader has made a profit this way once, they have reinforced a negative trading habit that proves nearly impossible to break. How can that person be organised and trade carefully when overtrading has worked so well for them already?

Reinforcing proper trading habits may help you to be profitable in Forex and CFD trading - but, again, this is not a cast iron fact – like everything in the world of trading.

In conclusion, below is a cheat sheet which may help you:

Let go of your expectations; Pick a trading strategy that you like; Make sure it has strict conditions for entering and exiting trades; Backtest it until you trust itl Stick to it, remembering that it did prove profitable in your tests; Do not overtrade under any circumstance; Record everything in a diary to analyse your trades; Gauge your long-term progress rather than short-term success or failure; Use a feature-rich trading platform to enhance your trading decisions.


Remember, the short-term is unimportant. What happens on average and in the long run is what you should focus on.

One last tip – try not to slouch when trading. Research shows that people who slouch are less advanced at solving logical problems than those who sit straight.


Essential Guide to Different Types of Bonds

Forex Trading

Bonds are a fixed-income product that provide a way of raising long-term funds for various bodies and institutions. Though there are various types of bond, which we will discuss in this article, all bonds work in the same basic way, fundamentally.

Bonds are a type of debt. In other words, they are effectively an IOU ( I Owe You, which is effectively a pay promise made by the bond issuer to the bond holder as per terms of the Bond Instrument). The bond issuer takes on the debt and the person that buys the debt, the bondholder, is the one providing funds. The bond issuer can then use those funds to finance whatever spending plan they wish. In return, they pay a fixed interest on the debt at regular intervals for the life of the bond. At the end of the term of the debt, the bond is said to mature, at which point the issuer repays the original sum of the debt (known as the principal).

The transaction where new debt is issued to buyers is known as the primary market, but this only comprises a part of the whole bond market. The bond market also has a secondary market, in which the bonds issued previously are traded between buyers and sellers as debt securities. The bond market is vast, far exceeding the stock market in terms of value.


The largest issuers of debt are governments. Governments issue long-term government bonds in order to help finance expenditures needed to support their countries. Other major issuers of fixed income debt include banks and corporations. We will discuss both government bonds and corporate bonds below.

Bonds are not the only type of debt security, of course. Other types include debentures, notes, and commercial paper. Generally speaking, bonds tend to have longer terms than these other debt securities.

Before we look at some common types of bond, let's first quickly summarise some key terms that we use when talking about bonds:

Principal – the amount of debt that the issuer has taken on, and on which they pay interest to the bondholder. Maturity – the maturity date defines when the principal has to be repaid to the bondholder. Coupon – the interest rate paid by the issuer to the bondholder. Yield – gauges the rate of return an investor would receive from a bond. This can be calculated in more than one way, but most simply it is the annual interest amount divided by the prevailing market price of the bond. Current market price – bonds will vary in price over the course of their term as they trade on the secondary market.

There is an intimate relationship between interest rates and bond. As bonds pay out a fixed sum periodically, they become more attractive when interest rates fall and less attractive when rates rise. Bond market prices may therefore vary from the issue price and are often used as a proxy for medium- to long-term interest rate expectations. Naturally, the price of a certain of type of bond will also be affected if perceptions change regarding the creditworthiness of the issuer (see also the section on bond ratings below).

Common Types of Bond

In this section, we are going to discuss four different types of bond. These are:

Corporate bonds Government bonds Municipal bonds Supranational bonds Corporate Bonds

Companies can raise funds through two main avenues: floating shares or by issuing debt in the form of corporate bonds. There are many reasons that a corporation may wish to raise money by such means, including mergers and acquisitions activity, and funding the cost of expansion.

Raising capital comes with a cost, of course. In the case of shares, the company gives up a share of voting rights and, usually, a dividend. With debt, the company incurs interest costs. While a company may issue debt with a wide range of maturities, corporate bonds usually refers to corporate debt with a term of at least a year. Short-term debt is instead called corporate paper.

The secondary market in corporate bonds is most commonly transacted over-the-counter (OTC), though some corporate bonds are exchange-traded.

Government Bonds

Government bonds are a type of sovereign debt. Government bonds typically have maturities of medium or long time-frames, anywhere from a couple of years up to several decades. This is as opposed to forms of short-term sovereign debt, such as treasury bills (T-bills).

Major government bonds have very liquid exchange-traded futures contracts available, meaning they are an easy type of bond for individuals to trade.

Here is a list of some major government bonds:

US T-bonds (also called the long bond; they have long maturities, ranging from 20 to 30 years); US T-notes (medium-term US debt, with maturities ranging from 2 to 10 years); UK Gilts (there are medium- and long-term versions of the gilt, both UK government debt); German bund (long-term German debt with terms of 8.5 to 10.5 years); German schatz (also known as the short bund, German debt with maturities of around 2 years); German BOBL (Bundesobligationen, medium-term German debt, with terms of 4.5 to 5.5 years); Italian government bonds (also known as BTP, Buoni del Tesoro Poliannuali, medium- to long-term Italian treasury bonds with maturities ranging from 3 years up to 30 years).

Though the liquidity and risk is dependent on the government in question, as a general rule, government bonds tend to be liquid and are perceived as low-risk, particularly for countries with large, established economies, such as the G7 nations.

It's worth noting, though, that there is always some risk attached. For example, Russia has the twelfth largest economy in the world (as measured by the IMFand World Bank in 2016), yet defaulted on its domestic debt in the late 1990s and declared a debt moratorium on its foreign debt (that is, delayed meeting its financial obligations) when it found itself in economic strife.

Municipal Bonds

Municipal bonds are are a type of sub-sovereign bond. In the United States, the bonds issued by the Federal government are Treasury notes and bonds, as mentioned above. Below the Federal level, smaller branches of government also issue debt in order to fund their capital spending programmes. Debt securities issued by a local government entity or agency, such as states, cities, counties, and even schools and publicly-owned airports, are called municipal bonds or muni bonds. The municipal bond market is large, valued at several trillion dollar. In the US, the interest accrued on such debt is usually exempt from Federal tax and sometimes may be exempt from state tax also.

Supranational Bonds

A supranational bond is a long-term form of debt that transcends the boundaries of a single country. These are very similar to government bonds, and tend to have a high credit rating. A good example of supranational bonds are those issued by the European Investment Bank, a long-term lending institution owned by the member states of the European Union (EU).

Bond Ratings

As we have established, a bondholder is effectively loaning out money to the bond issuer. Now, when it comes to lending money, one of the key things you need to know is how trustworthy the borrower is. This is where bond ratings come in. Companies such as Moody's and Standard & Poors provide credit ratings services that aim to help investors make a judgement on how likely a debt issuer is to fulfill its payment obligations.

The highest rating is AAA. Bonds that are rated BBB or higher are said to be of investment grade. Bonds that are rated BB or lower are designated as high yield, also commonly known as junk bond status. A bond that has a junk bond status is considered to be at greater risk of default. This depresses the attractiveness of the debt, all things being equal; consequently the issuer of the debt is forced to set the coupon at a higher rate in order to attract funds.

Trading with Bonds

As mentioned earlier, when discussing the market price of bonds, the value of a bond is strongly tied to interest rates. This makes bond futures a good way to trade if you have a view on the future performance of interest rates or if you are looking to hedge your exposure to interest rate risk. We offer CFDs on bond futures and 10-year T-note futures, so that you have the convenience of trading bond futures as well as Forex (FX) through MT4.

Just like FX prices, the bond market can be moved substantially by economic news. If you are looking to stay on top of what is affecting the financial markets, it helps to have all the tools you need readily at hand as part of your trading platform. This is why you might like to try the free download of MetaTrader Supreme Edition. MT4SE is a plugin for MetaTrader that greatly expands the indicators and other trading tools in the platform.



The image below shows our economic calendar which is part of MT4SE's Mini Terminal feature:

Image source: MT4SE platform, 12 December 2017

Whichever product you are looking to trade, be it bonds, shares, or FX, a great way to start is by trying it out in a risk-free environment. Our Demo Trading Account allows you to trade with virtual funds, so that you have zero risk until you are confident in your trading strategy and ready to trade for real.


We sincerely hope you found this introductory discussion of the different types of bond to be of use. You might also want to have a look at our article on The Russian Financial Crisis.


How to master the Keltner channel indicator with MT4

Forex Trading

You'll find that a lot of popular trading strategies revolve around dynamic channel indicators.

Dynamic bands – also known as channels or envelopes – are a great example of such dynamic trading indicators.

The core idea is simple. Even better, it's effective.

Before we delve deeper into the subject, let us explain the basic premise behind the Keltner Channels.

What is the Keltner Channel?

The indicator named by Chester W. Keltner is a volatility based envelope that measures price movements in relation to lower and upper moving average bands. Chester Keltner was a commodity trader, who first outlined the theory in the 1960s.

A volatility channel, or envelope, places the bands in such a way that it also serves as a measure of a Forex currency pair or stock volatility. Keltner Channels are a combination of an exponential moving average and the Average True Range indicator.

The theory behind the Keltner Channel in a nutshell is:

We need to plot the bands a certain distance away from an average of the market price; The bands are far enough away from each other that they represent a significant market move; If the market moves through those bands, there is an above-average chance that we may see prices continue to trend in that direction.

Variations tend to revolve around the specifics of where you place the bands. The basic calculation is:

Middle Line: 20-day exponential moving average Upper Channel Line: 20-day EMA + (2 x ATR(10)) Lower Channel Line: 20-day EMA - (2 x ATR(10)

Keltner Channels are less known than Bollinger Bands®, but they were conceived much earlier. In fact, Keltner Channels work just as effectively as any other volatility channel.

This article will discuss how Keltner Channels work and how to use them in MetaTrader 4 as we are proud to present probably the best Keltner Channel indicator on the market – Admiral Keltner that is available in our MT4 Supreme Edition.

Trading with Forex Keltner Channels

We can very broadly divide traders into two camps:

Trend followers, Counter-trenders.

Basically, both parties want to know if the market is stuck in a range or if it is trending. Usually, the price will either:

break out and form a new trend; fail to break out and bounce back from where it came.

It means you can use the Keltner Channel indicator to easily see levels offering good trading opportunities. For that reason, the indicator shows three channel lines – upper, lower, and central. The upper and lower lines help us eyeball potential breakouts, while the centreline serves as a median point.

Downloading the Keltner Channel Indicator with MetaTrader 4

MetaTrader 4 comes with a comprehensive selection of built-in indicators, but this is just the tip of an iceberg. There a huge number of custom indicators that you can potentially use, which are developed by users within the vast MT4 community.

The Admiral Keltner indicator is an improved version over the existing, standard Keltner indicator. You can download it easily as it is a part of the award-winning MT4 Supreme Edition. Once you download the indicator, this is how you place it on any chart you want.

Source: GBP/USD H4 Chart, Aug 14, 2017, Admiral Markets Platform

The Keltner Channel download will appear on your indicator list the next time you restart your MetaTrader 4.

Admiral Keltner Settings

Source: Admiral Keltner Indicator, Admiral Markets Platform

These are the default Keltner Channel settings. The moving average type is EMA (Exponential Moving Average), and the rest of the available settings here is what differs Admiral Keltner from other Keltner Channels indicators on the market. For most of the volatility band strategies, you should be using the formulation that features Average True Range; also, the centreline is the 20-period exponential moving average, which quite a few Keltner indicators fail to show.

The EMA period can be set to anything you need. For day trading, usually 15 to 40 EMA is typical. The multiplier can be adjusted based on the market you are trading. While 2.0 is a common setting, you may find that 1.6 or 2.4 provide you with better information for the exact market you trade. Have in mind that the higher the multiplier, the wider the channel and vice versa. The smaller the multiplier, the narrower the channel.

Source: GBP/USD H4 Chart, Aug 14, 2017, Admiral Markets Platform

Basic Trading with Admiral Keltner Channels

Breakout strategies use volatility channels in a very simple manner. This tends to be:

buy breakouts above the upper volatility channel, sell breakouts below the lower volatility channel.

The middle band is used as the stop-loss. Profit targets are defined by Admiral Pivot that should be set to H1 or D1 time frame. Breakouts are usually traded on M15 timeframe. Keep in mind that Admiral Pivot is also a standard MT4SE indicator.

Source: Admiral Keltner Indicator, Admiral Markets Platform

The chart below shows possible entries based on a candle close above or below the Admiral Keltner indicator. Due to potential false breakouts, the best option is to use breakouts with an additional filters, such as the Stochastic, MACD, CCI, or RSI.

Source: GBP/USD M15 Chart, Aug 9-14, 2017, Admiral Markets Platform, Admiral Pivot (D1)

Scalping Trading Strategy with the Admiral Keltner Indicator

Let's now have a look at the advanced Forex scalping strategy that should be traded on 1-minute timeframes. The strategy is suitable for extreme scalpers and for traders who enjoy the excitement of day trading volatility on extremely short-time frames.

Time Frame: M1

Indicators:

Admiral Keltner (22,10,1.0) Admiral Pivot (M15) EMA 445 set on close (Red) EMA 89 set on close (Green) MACD (5,34,5) and MACD (25,170,25)

Pairs to trade:

EUR/USD GBP/USD USD/CHF AUD/USD EUR/JPY GBP/JPY

Source: GBP/USD M1 Chart, Aug 14, 2017, Admiral Markets Platform, Admiral Pivot (H1)

Buy trade:

Green EMA above Red EMA; Both MACDs above the 0 line (histograms are pointed up); The candle needs to touch or come very close to either Green or Red EMA, then bounce; The price needs to close above the Keltner Channel.

Source: EUR/JPY M1 Chart, Aug 14, 2017, Admiral Markets Platform

Sell trade:

Green EMA below Red EMA; Both MACDs below the 0 line (histograms are pointed down); The candle needs to touch or come very close to either Green or Red EMA then bounce; The price needs to close below the Keltner Channel.

Source: AUD/USD M1 Chart, Aug 14, 2017, Admiral Markets Platform

Stop-Loss and Targets:

Stop-loss is placed 15 pips + the spread. The target is 5-15 pips, or Admiral Pivot set to M15.

Source: GBP/JPY M1 Chart, Aug 14, 2017, Admiral Markets Platform

Tips for Using Keltner Channels Use a backup or confirming indicator in order to avoid false signals. Use one leading and one lagging indicator They should agree with each other no matter what. Don't use Keltner Channels with another volatility breakout indicator, except for Bollinger Bands ®. The Bollinger Bands ® with Admiral Keltner Breakout Strategy is another good strategy. Start by experimenting with what combination works best for you on a Demo Trading Account for this purpose. Other Volatility Based Indicators

Other similar indicators to Keltner Channels are:

The Average True Range (ATR Indicator) that is another excellent tool for price range projections; The Bollinger Band ® that is one of the better-known volatility channel methods; Take a look at our guide on the Donchian Channel indicator.

Feel free to browse our rundown of the most important Forex indicators or go ahead and test them risk-free on our Demo Account.

Cheers and happy trading,

Nenad Kerkez

How to read Forex charts

Forex Trading

It is no secret that Forex trading can be performed more efficiently if you possess the necessary tools. When you have a certain amount of experience and proficiency in currency trading, it would be a good decision to discuss the tools which Forex traders regularly utilise. Owing to the leverage and the fast paced nature available in FX trading, a lot of Forex traders do not hold particular positions for a very long time period. For instance, FX day traders can commence a huge number of trades within a single day and may not actually hold them for longer than a few minutes each. In the situation where a Forex trader deals with such small time horizons, viewing a chart and applying technical analysis are convenient tools. That is because a chart, as well as associated patterns can define a wealth of information in the simplest terms. The purpose of this article is to get you acquainted with certain charts and guide you on how to read Forex charts. We will look at candlestick charts, trends and 'head and shoulders'.

The way to read candlestick charts

The candlestick chart is a variant of charts that have been used for approximately 300 years and it reveals more information than a traditional line chart. The candlestick is just a thin vertical line that represents the range of the trading period. In turn, a wide bar on this vertical line represents the distinction between the open and close.

In addition, the daily candlestick line consists of the currency's value at open, low, high and close of a peculiar day. The wide part of the candlestick has a specific name - the real body. The real body illustrates the range between the open and close of that day's trading. When the real body is either filled in or black, it implies that the close was lower than the open. If the real body is empty, it implies exactly the opposite - the close was actually higher than the open. By understanding this, you will understand better how to learn to read Forex charts.

What is above and below the real body are called shadows. As a matter of fact, chartists have always regarded these as the wicks of the candle and it is the shadows which represent the high and low prices of the day's trading. When you observe the upper shadow, or the top wick on a down day being short, the open that day was actually closer to the high of the day. When there is a short upper shadow on an up day, this tells us that the close was near the high. In fact, the relationship between the day's open, close, low and high identify the true look of the daily candlestick.

When you see a series of candlesticks, you are capable of seeing another significant concept of Forex charting - the trend.

The approach of understanding trends

When a group of data points are plotted on a chart, you might start seeing a general direction in which a currency pair is moving towards. As you understand, there can be different instances or circumstances. In some of them the trend is quite easily defined, while in others it is much more complicated to determine a trend. Trends are usually inclined to operate in a series of steadily moving highs and lows. Therefore, an uptrend is actually a sequence of escalating highs and lows. In turn, a downtrend is a succession of descending lows and highs.

Generally there are three types of trends - downtrends, uptrends and also sideways or horizontal trends. Knowing them is an important part of Forex trading chart analysis. Some chartists perceive a sideways trend as not actually being a trend on its own, but rather a deprivation of a well-determined trend in each direction.

Just as there are three trend directions, there are three classifications of the trend in the context of time duration in which a trend is taking place. The trend of any direction can be categorised as either a long-term trend, an intermediate trend and a short-term trend. The short-term trends are in fact a combination of elements of both major (long) and medium trends.

What trendlines actually mean

As for this part of Forex chart analysis, trendlines demonstrate a particular charting technique in which a line is added in order to show the trend in a currency pair. Frankly speaking, drawing a trendline is just as easy as drawing a straight line that follows an overall trend. Additionally, trendlines can be used to define trend reversals.

An upward trendline is actually drawn at the lows of an uptrend. Likewise, a downtrend trendline is drawn at the highs of the downward trend.

It is essential to comprehend and detect trends so that you are able to trade and profit from the overall direction in which a particular currency pair is heading, rather than lose money by unwisely acting against them.

Understanding 'head and shoulders' and how to read them

The head and shoulders pattern is one of the most widely used and reliable chart patterns - and you can observe it when looking at your online Forex trading charts. The ordinary head and shoulders top pattern is actually a signal, where a currency pair is set to fall as soon as the pattern is fully complete and is frequently formed at the peak of an upward trend. Furthemore, a second version known as the head and shoulders bottom, notifies that a security's price is set to rise and generally forms during a downward trend. In either instance, this chart pattern indicates a forthcoming reversal, so this implies that a currency pair is likely to move against the preceding trend.

The neckline meaning

Both of the head and shoulders patterns have a similar construction in that there are four main parts to this chart pattern - i.e. two shoulders, a head and a neckline. The patterns are actually confirmed when the neckline is broken, later than the formation of the second shoulder. The head and shoulders are a series of peaks and troughs. In turn, the neckline is a level of either support or resistance. Knowing all that is a good supplement to your knowledge of how to analyse Forex charts. For instance, an upward trend is seen as a period of consecutive rising peaks and rising troughs. On the other hand, a downward trend is a period of descending peaks and troughs. All in all, the head and shoulders pattern demonstrates a weakening in a trend where there is a decline in the peaks and troughs.

The head and shoulders top

This pattern has four key sequential steps for it to complete itself and consequently signal the reversal.

The left shoulder formation takes place when the security achieves a new high and then retraces to a new low. The head formation of this pattern relatively to one of your Forex charts online, happens when the security reaches the higher high and then descends back near the low formed in the left shoulder. The right shoulder formation formed with a high that is relatively lower than the high formed in the head. It is again followed by a fall back to the left shoulder's low. When the price descends below the neckline, or when the price descends under the support line formed at the level of the lows achieved at every of the three lows (mentioned above). The head and shoulders bottom

As you understand, this is the opposite of the head and shoulders top as it determines that the currency pair tends to make a move upwards.

We will present four steps to this pattern, which you can see if you look at your online Forex charts.

The left shoulder formation takes place when the price originally descends to a new low and then eventually rallies to a high. The head formation happens when the price heads to a low that is under the previously mentioned low of the shoulder, followed by a particular return to the foregoing high. This step back to the preceding high creates the neckline for this chart pattern. The right shoulder formation. This is commonly a sell-off that is quite less severe than the one from the preceding head. And yes, this is followed by a return to the neckline accordingly. The currency pair breaks above the neckline. The pattern is complete when the price heads above the neckline originated by the foregoing heads and shoulders. The actual breaking of the neckline and the potential return movement

After the neckline is broken, the currency pair should be moving in a new direction. You are able to observe that if you look at your Forex chart online. Exactly at this point, the majority of traders following the pattern would enter into a particular position.

Nonetheless, there is one possible scenario where this may not occur and the currency pair eventually returns back to the preceding trend. A throwback move occurs when the price breaks through the neckline, setting either a new high or low, but then goes back to the neckline.

Since it can be an issue to observe a currency pair return to its original trend, it may not be a serious concern. In fact, the throwback could be a successful test of the new level of either resistance or support. This would eventually help to amplify the pattern and further confirm its new trend. A certain amount of patience is needed to wait for the pattern to play out and to not close the position out too hastily - prior to the pattern making its bigger moves. Now you know how to read a Forex chart.

Conclusion

We have made this guide in order to uncover some of the core technical analysis tools which are utilised by Forex traders. Candlestick charts are widely applied as they can expose a wealth of data in a blink of an eye. Discovering a currency pair's trend may be a good indicator of where it can go in the near future. In addition, chart patterns can be used to predict and then confirm upcoming trends. For instance, the head and shoulders pattern can define that a particular currency pair will be experiencing a reversal in its trend. As you can see, understanding Forex charts, as well chart patterns is a considerable part of FX trading.

How to read candlestick charts

Forex Trading

There are a lot of different Forex charts. However, there is a specific type which traders around the globe find useful - candlestick charts. What do they represent? A candlestick chart is a financial chart that is applied to describe the price moves of a currency, security or derivative. With the ability to be used in various time frames, the candlestick represents four key pieces of information for the time frame in question - the open and the close, as well as the high and the low. It goes without saying that Forex candlesticks charts are frequently utilised in the technical analysis of currency price patterns.

Let's begin with a short history of candlesticks. The Japanese first started using technical analysis in order to trade rice in the 17th century. Whilst this early version of technical analysis was comparatively different from the US version initiated by the pioneer of American technical analysis, Charles Dow in 1900, most of the guiding principles were very much alike. What is a candlestick chart? Let's outline some crucial facts to give you a basic idea.

The 'what' (meaning price action) is more significant than the 'why' (i.e earnings, news, etc). All the present and available information is reflected in the price. Sellers and buyers actually move markets based on anticipations and emotions such as fear and greed. Markets tend to fluctuate. The real price might not reflect the underlying value.

Steve Nison, who introduced candlesticks to the western world, outlined that so called candlestick charting first came to light sometime after 1850. A considerable amount of credit for the development of candlestick and charting goes to a legendary rice trader who was known under the name of Homma from Sakata town. It is most likely that his innovative ideas were consequently modified and then refined over many years of trading, ultimately resulting in the system or model of candlestick charting we encounter everyday as Forex traders. In this article we will explore the art of reading candlestick charts properly - and explore how to understand them so that they can assist you in your Forex trading.

What do candlestick charts represent in currency trading?

As specified earlier, candlesticks are a way of presenting the price action over an established period of time. Moreover, they can provide useful information like the market sentiment, or possible reversals in the selected markets by demonstrating the price move in a particular manner. Understanding this is a good starting point of how to use candlestick charts in trading.

When you trade something, especially Forex, you will apply price charts to observe price moves in the markets. If we compare line charts and candlestick charts, you will see some vivid distinctions. The line chart is a very easy method of demonstrating the price movement. It displays the information with a simple line using a series of data points. It is the kind of the chart that you might be used to seeing in different magazines and newspapers, which present the price motion of stocks and shares.

By understanding candlestick charts, one should know that they represent price movement, though made up not with a simple line but of individual candlesticks. Forex traders prefer to read candlestick charts owing to the fact that they include considerably more information than a line chart and can be much more useful in making prudent trading decisions. A line chart uncomplicated and shows price moves in a line, whilst candlestick charts presents more information within each individual candlestick.

At the beginning of this article, we mentioned that candlestick charts are used in various time frames. Technically, if we set the candlestick chart to a 30 minute time period, then each candle will actually form over 30 minutes. Similarly, if the chart is established in a 15 minute time period, then every candle will take 15 minutes to form.

Let us use an example from the candlestick charting for dummies category. Imagine that we have two charts showing the price action for the EUR/USD currency pair. With 30 minute candles, you will see two big candles in the shaded area. This shows the exact identical period as if we had the five minute chart with its 12 shaded candles. This leads us to the point that if the time period is established for 30 minutes, then every individual candle will take exactly 30 minutes to complete the formation.

Let's get deeper into candlestick chart analysis. The two charts are representing the price action of the identical asset. Only the 30 minute time frame shows the price action over a considerably longer period than the five minute chart. Thus, a five minute chart means that every candlestick will take five minutes to form. However, with the 30 minute chart, you will gain a much broader time scale of the particular price action.

The structure of candlestick charts

If you take a look at a candlestick chart, you will see a figure in the shape of a rectangular box. This is what is known as the body and it is the widest part of the candlestick. This is the first step of how to read candlestick charts. This body demonstrates the open and the close of the specific period. This implies that if the chart is a one hour chart, then every candlestick body will demonstrate the opening price for that one hour period, as well as the closing price for that one hour period.

In addition, the wicks at the bottom and at the top of the candlestick present the lowest and the highest prices reached during that one hour period of time. In fact, a chart that represents the open, high, close and low price for a given period is actually referred to as an OHLC Forex chart.

Furthermore, different colours of the body tell you whether the candlestick is bullish (meaning it rises) or bearish (meaning it falls). People can set the colour of the candlestick according to their personal preferences with the help of trading software.

How can you form technical analysis candlestick patterns? Logically, if the candlestick is bullish, then the opening price is most often at the bottom and the closing price is nearly always at the top. If the candlestick is bearish, then the opening price is invariably at the top and the closing price is always at the bottom. Using various colours provide a good way for you to immediately tell whether they are bullish or bearish.

Let's put this theory into the practice with another example, which will help show how to analyse candlestick charts. Imagine the candlestick has a period of one day, so it took one day for the candle to form. The EUR/USD currency pair will serve as an example once more. In our case, the bearish color is orange and the bullish is blue.

Imagine that you have the following candle: it is bearish as it has an orange color. This means that over the course of one day the price of the EUR/USD pair dropped. Moreover, there were more sellers than buyers throughout that day. The price was actually lower at the close of the day than when it opened. If it started with a price of 1.38269, then at the end of the day it hypothetically could be at 1.34488. The wicks will indicate the highest price of the day and lowest.

This example simply shows the OHLC for that particular day. If you wanted to see the price movement in more detail, then you would just go to a lower time frame. By using the example of Forex candlestick analysis above, in order to find out more about what occurred during the course that day, you could go to a one hour time frame Forex chart.

This chart would demonstrate candlesticks that more accurately show the price move throughout that particular day. If you want to get more detailed information about the price behavior, then going to a 15 minute or a five minute time frame would be a wise decision.

We have one more example of candlestick technical analysis with the same currency pair. Imagine that we have the candlestick being bullish, as it is blue. This tells us that during an hour the price of the EUR/USD increased. Moreover, there were more buyers than sellers during that hour. The price was much higher at the close of the hour than when it actually opened. For instance, the price at the beginning of the hour opened at 1.3009, although at the end of the hour the price closed at 1.3171. Again the wicks indicate the highest and the lowest price of the EUR/USD during that hour.

Conclusion

As you can see, candlestick charts can really facilitate the trading process. They are a very comfortable structure to work with and you shouldn't have any difficulties in applying them on a daily basis. How to interpret candlestick charts? Simple. An ordinary candlestick can show you much more information than a line chart, as you have all the necessary price information displayed, even the bullishness and the bearishness of the market.

A brief history of the euro to dollar currency pair

Forex Trading

Euro versus the US dollar (USD) is the most popular currency pair by traded volume in the world.

It's so established today, that it's easy to forget that fewer than 20 years ago, the pair didn't even exist.

This article is going to take a brief look at euro to USD history.

We'll take a look at the origins of the FX pair…

...before investigating how central bank action and other factors have affected its Forex historical data.

So, let's first talk about how the euro began.

Genesis of a currency

When I first came to the Forex markets in the the late 90s, things were different from the way they are today.

Back then, the German deutschmark against the US dollar was one of the big pairs, along with the French franc versus US dollar.

It didn't take long before the course of currency conversion history changed, though…

...because on 1 January 1999, the euro came into existence.

The journey leading to the euro began decades before.

There were earlier versions of euro, in the form of internal accounting units for the European Community members:

These were:

the European unit of account the European currency unit (ECU).

These were not true currencies, however.

Instead, they were baskets of certain EC currencies, designed to aid stability in European exchange rates.

Thus they helped pave the way for a single currency.

Now, the ECU basket of EC currencies had a slightly different composition to those that would comprise the euro.

Despite this difference in composition, the ECU played a crucial role in the historical exchange rate of the euro.

This is because the value of one euro was set as the value of one ECU at its inception on 1 January 1999.

This made the original euro dollar exchange rate 1.1686.

Though the euro wouldn't become a physical currency until 2002…

...the euro launch at the beginning of 1999 tied the ratio of these eurozone currencies together.

Thus, the French franc, German deutschmark, Spanish pesata, Italian lira, etc. ceased to have separate, floating historical FX rates after this point.

Instead, they were effectively pegged to the value of the euro until they were completely folded into the shared currency we know today.

Many saw the euro in its early days as a contender to usurp the dollar's unofficial title as global reserve currency.

While this could yet happen, the dollar still retains its crown by some margin.

So what has affected the history of EUR/USD?

While the short-term ebb and flow of the euro to dollar exchange rate can be influenced by a huge number of factors…

...the long-term performance of the currency pair has been driven by fundamentals.

Naturally, these are the same factors affecting currency rates as a general rule, no matter which FX pair you look at.

Two important factors that affect exchange rates in general are:

the strength of the underlying economy monetary policy implemented by the pertinent central bank.

Of course, the latter is very much tied to the former.

As the timeframes shorten, speculation starts to come into focus more and more.

Therefore, expectations over central bank policy also have a major impact.

If we look at the US dollar to euro exchange rate history, we can see some clear examples.

Many of these occurred after one of the biggest reductions in the euro vs USD history:

...the global financial crisis that began in 2007.

The stresses placed by this event on economies around the world forced a sequence of extraordinary responses from central banks.

But here's a key part of the puzzle:

...the response wasn't uniform.

The divergence in policy between the US Federal Reserve and the European Central Bank (ECB) in particular was pronounced.

How did they differ?

The Fed made early and aggressive moves to stimulate the US economy with three different tranches of quantitative easing (QE).

In contrast, the ECB resisted QE for an extended period.

When it finally began purchasing sovereign bonds as a stimulus measure, it was several years behind the Fed.

Why did they differ?

The Fed has a dual mandate:

to foster maximum employment to stabilise prices.

In contrast, the ECB's stated primary objective is solely price stability.

This disparity in policy consequently led to some interesting effects on the euro-dollar exchange rate.

In fact, for an extended period, the most important EUR/USD Forex news stories tended to be about Fed stimulus.

Another major issue facing the euro was the eurozone sovereign debt crisis.

Certain member states had crippling amounts of national debt.

The uniform nature of monetary policy for the shared currency posed a thorny problem:

...you cannot tailor measures to the specific needs of different nations with a one-size-fits-all monetary policy.

This led to some questioning whether the single currency would even survive.

Let's look at the specifics of the euro against the dollar over the period in question.

Here's a weekly EUR/USD chart going back to 2007:

I've marked some of the key events for the period on the chart, so that we can see how they affected the dollar euro exchange rate history.

Euro dollar exchange rate history since 2007

The labelled events in this EUR/USD history are as follows:


Date

Event

Effect

1

18 September 2007

Fed cuts Fed funds rate by 50 basis points

Euro strengthened against dollar

2

16 December 2008

Fed cuts rates to near zero

Euro strengthened against dollar

3

19 October 2009

The newly-elected Greek government revises deficit forecasts from 6.7% of GDP to 12.7% of GDP

Euro weakens against dollar

4

1 June 2011

Moody's downgrades Greek debt by seven notches to junk status

Euro weakens against dollar

5

18 December 2013

Fed announces 'tapering' of stimulus will begin in January 2014

Euro weakens against dollar into February 2014

6

14 July 2014

ECB president Mario Draghi prepares the market for QE, saying it ' falls squarely in our mandate.'

Euro weakens against dollar

7

22 January 2015

ECB introduces full blown QE

Euro weakens against dollar

The EUR/USD historical data shows a reasonably clear response to each of these events.

Having looked at the currency rate by date and established that euro to dollar history is clearly influenced by central bank action…

...how do we gain insights into what that action might be?

For instance, the better our forecast for Fed action, the better our ability to roughly forecast EUR/USD.

Needless to say, this is more easily said than done.

A smart way of testing your forecasts without risking money, though, is our demo trading account.

Here's the good news:

...one of the upshots of the financial crisis was increased communication from the Fed.

The central bank is reasonably explicit about which metrics inform its decision making.

A key yardstick is the labour market, because of the Fed's mandate to pursue maximum employment.

This is a reason why the monthly employment situation report is one of the most closely watched indicators in the Forex Calendar.

The report contains monthly non-farm payroll (NFP) data.

One of the reasons the data is so closely followed is that it has historically shown a strong correlation to US GDP growth.

GDP data is released quarterly and hence far less frequently and with greater delay than the payroll data.

The Fed therefore uses the non-farm payrolls as a proxy for the health of the economy.

A strong economy, with a tight labour market, is likely to increase inflationary pressures.

This has implications for the price stability side of the Fed's dual mandate.

To reduce a complex subject to simple terms:

the weaker the payroll report, the more likely the Fed is to loosen the monetary policy the stronger the payroll report, the more likely the Fed is to tighten the monetary policy.

A tighter policy means greater returns on dollar deposits and should, in theory, increase the attractiveness of the dollar.

Therefore, a tighter policy is bullish for the dollar, all other factors affecting exchange rate being equal.

In reality, the FX rate history for EUR/USD can be more complex than this.

That is because all other factors are rarely equal.

Bear in mind, it is often the outcome of the data with respect to expectations that drives short-term direction.

Let's look at a daily euro to dollar chart covering part of 2016:

The red lines mark the release dates of the employment situation report.

The first line marks the report released in June, which contained May's employment data.

Payroll growth in the May report was extremely weak, reported as 38,000 against the expectations for growth of over 150,000.

We can see a big jump in the EUR/USD exchange rate coinciding with the report, reflecting dollar weakness.

Similarly, the July report containing June's data was stronger than expected.

Here, we can see EUR/USD dipping in the ensuing days, reflecting dollar strength.

Few as these examples are, the evidence of the historical foreign exchange rates seems to underscore the effect of payrolls on the dollar.

Another interesting thing shown by this euro to dollar chart is the volatility.

I've plotted Average True Range (ATR), a measure of volatility, beneath the chart.

You can read more about volatility and ATR in our article on the most volatile currency pairs.

The release of non-farm payrolls is generally accepted as being a time of brisk price movements.

Looking at the ATR levels, you might argue there are minor upward blips in volatility on each day of the NFP report…

...but it's not clear that there is any large impact on the historical currency exchange rate on these days.

ATR is one of the standard indicators that comes with MetaTrader 4.

If you're interested in getting access to an even wider selection of custom-made indicators, you should consider MetaTrader 4 Supreme Edition.

It's a custom-made plugin for MetaTrader 4 and it's available free.

International trade and foreign exchange rates

When the value of a country's imports exceeds its exports, it is known as a trade deficit.

Running a long-term trade deficit should lead to a flow of wealth out of the country…

...and, theoretically, a decline in the value of the currency.

However, the US has been running huge trade deficits for an extended period.

Despite this, the euro to dollar exchange rate history shows no evidence to back up the idea of a declining dollar.

An explanation for this is that the extensive use of the dollar as a reserve currency:

this means demand has been high enough to counter such depreciation.

A final word on the euros to dollars history

Of course, the dollar to euro history is as complex as you care to make it.

We have touched upon some key areas…

...but there are many more factors that affect historical foreign exchange rates.

There are various geopolitical risks, such as war and elections…

...as well as economic variables, such as output levels and the demand and supply of money.

If you are interested in reading a bit more on the flash crash, why not take a look at our articles on the history of GBP/EUR or GBP/USD currency pairs.

Put the Pedal to the Metal with the Accelerator Oscillator

Forex Trading

It's a well-known market maxim that the trend is your friend. It follows that the earlier you can successfully identify a trend, the more profit you'll be able to squeeze out of it. To this end, an early warning system would be a useful tool. The Accelerator Oscillator is designed to be an indicator that attempts to provide early signals of change in the force driving the market.

The Accelerator Oscillator is one of several popular indicators developed by the well-known technical analyst Bill Williams. Williams maintained that the direction of momentum will always change before the price, so that looking at momentum instead of just the price gives a timing advantage. The Acceleration Indicator seeks to go one step further and detect early changes in momentum – that is, when momentum is accelerating or decelerating.

So, Williams contended that before the trend in the price changes, the direction of momentum will change and that even before this, there will be an acceleration change in momentum. The Accelerator Indicator (also known as the Acceleration/Deceleration Indicator) was the tool he developed to gauge this change. Let's look at the calculation method to see how it works.

Calculating the Acceleration Oscillator

The Acceleration Oscillator is derived from the Awesome Oscillator (AO), another of Bill Williams' indicators. The Awesome Oscillator compares a 5-period time frame to a 34-period time frame, in order to gain an insight into market momentum. Specifically, the AO is the 34-period simple moving average (SMA) of the median price subtracted from the 5-period SMA of the median price.

The Acceleration Oscillator is derived from the Awesome Oscillator, by subtracting a 5-period SMA of the AO from the AO. This is summarised by the following equation:

Acceleration Oscillator = AO - SMA5(AO)

Naturally, keeping tabs of the value of the Acceleration Oscillator, as a derivative of another indicator that itself uses multiple moving averages, would be irksome in the extreme by way of manual calculations. The good news is, of course, that manual calculations are not needed, because MetaTrader 4 will take care of it all for you. Let's now take a look at how the Accelerator Oscillator features in MetaTrader 4.

Using the Accelerator Oscillator in MetaTrader 4

Using the Acceleration Oscillator in MetaTrader 4 is straightforward as it comes as one of the standard indicators bundled with the platform. The standard indicators in MetaTrader 4 are sorted into the four broad categories of Trend, Oscillators, Volumes, and Bill Williams. Although it is an oscillator, the Accelerator Oscillator is classified in MT4 as being a Bill Williams indicator first and foremost. Therefore, it's in the Bill Williams folder that you'll find it. In fact, it is the first listed item in that folder within MT4's Navigator as shown in the image below:

Double-clicking on Accelerator Oscillator launches a dialogue window as shown above. As you can see, there isn't a great deal for you to configure there. The main choice is simply the look and feel of the histogram, with a choice of colours and line thickness.

The default colours are:

Green for an up-value – i.e., increasing acceleration; Red for a down-value – i.e., increasing deceleration.

You can see how the indicator appears, with defaults applied, in the image below of an hourly GBP/USD chart. The Accelerator Oscillator Forex chart appears as a separate histogram beneath the main chart.

Notice how the sharpest rise in the price on the chart corresponds to successive green bars above the zero line of the Accelerator Oscillator? Also, pay attention to how the uptrend continues after this point. In the middle of the chart, when the price first begins to decline, we get successive red bars in the Accelerator Oscillator below the zero line. See how a general downtrend persists after this point.

Some of the key trading rules for using the Accelerator Indicator revolve around just these kinds of patterns. Let's look at using the Accelerator Oscillator trading strategy in a bit more detail.

Accelerator Oscillator Trading Strategy

In Williams' words, "the zero line is the place where the momentum is balanced with the acceleration". What does this mean? Well, when the indicator is above the zero line, meaning it is easier for acceleration to continue to increase. Conversely, when the indicator is below zero, it is easier for deceleration to increase.

Unlike the Awesome Indicator, crossing the zero line is not a trading signal in itself, but it does mean a change in the pattern we need to see in order to be confident of placing a trade.

The simplest use of the indicator is really very easy to follow. Positive values are a sign of bullishness in the market. Similarly, negative values suggest bearishness in the market. Williams stressed that with the Accelerator Oscillator, you must not buy if you are seeing a red bar and you must not sell if you are seeing a green bar. You also need to keep an eye on both the colour of the indicator and whether the values are above or below zero.

Here is a simple summary of the rules for the Accelerator Oscillator strategy, as originally instructed by Bill Williams:

If you are buying above zero or selling below zero, the momentum is with you. You only need two successive bars of agreement to open a trade. That is, two green columns in a row above zero is a buy signal. Two red columns in a row below the zero line is a sell signal.

If you are buying with the indicator below the zero line, or selling above the zero line, the momentum is against you. This requires extra confirmation and consequently you should look for three successive bars to open a trade. That is, three consecutive red bars are required to sell above the zero line. Likewise, three consecutive green bars are required to buy below the zero line.

Williams himself suggested using the Alligator Indicator as the biggest arbiter of whether to trade or not. The Awesome Oscillator and the Accelerator Oscillator can then operate as more sensitive tools for providing specific signals within the big picture indication painted by the Alligator Indicator.

Of course, your options for improving the performance of this indicator aren't restricted to combinations with other Bill Williams indicators. Potentially any indicator may offer a helping hand to your Accelerator Oscillator strategy, so it's worth gaining access to as wide selection as you can. If you are looking to maximise your options in this area, you'll likely benefit from upgrading to MetaTrader 4 Supreme Edition. MT4SE is a custom plug-in, compiled and developed by professionals, to offer a much more comprehensive suite of trading tools and indicators. It's available as a free download, so why not give it a try?

Some Final Words on the Accelerator Oscillator Indicator

Bill Williams designed the Accelerator Oscillator to provide the earliest indications possible to changes in the trend, and he claimed it gives traders a significant advantage in the market. Of course, the only way to build any true confidence, not to mention proficiency, in a strategy is for each individual to give it a try. Our Demo Trading Account allows you to do this with true market prices, but without risking any money while you are still building your confidence up.


We hope you have found this introduction to the Accelerator Indicator useful. As well as developing a selection of popular indicators, Bill Williams was also a dispenser of general pearls of wisdom for trading the markets. He was keen to stress that indicators are just half of the story and that using the right tools needs to be backed up with the right attitude. If you're interested in reading more on this, why not take a look at our article on Trading Psychology.


What is CFD trading: contracts for difference explained

Forex Trading

If Forex trading is not a suitable investment option - there are of course some alternatives. One of these is CFD, which stands for contract for difference. A CFD is basically an agreement to exchange the difference in the value of a particular asset from the time the contract is opened, until the time at which it is closed. What is interesting to note is that with a CFD, you never really own the particular asset or instrument you have chosen to trade, but you can still benefit if the market moves in your direction. Technically, this is because a CFD is a so-called derivative product that has a value primarily based on an underlying asset. If you want to trade CFD, there are a lot of brokers that can accommodate you, and they have different platforms designed especially for CFD trading.

The purpose of this article is to explain how do contracts for difference work and the terms associated with this type of trading.

The way CFD trading works

By trading CFD, you can potentially profit if a market moves either up or down. If you strongly believe an asset's price is going to rise you then open a buy position, which is often referred to as going long. If you think the asset's price is going to fall, then you open a sell position, which is referred to as going short. The actual performance of the market doesn't just govern whether you make profit/loss, but also how much.

For example, if you think a specific market will rise you buy a CFD to trade it. This is the answer to how do CFDs work. Your profit will be considerably greater the further the market rises, and your losses greater the further it declines. The converse rule applies if you back a market to fail, so you will make more the further the market drops and lose more the further the market rises.

It is no secret that with different brokers you can trade CFDs on a huge range of markets, incorporating indices, shares, Forex, commodities and much more. For instance, trading a share CFD is in many ways much alike to traditional share trading, but with extra advantages in cost and convenience. You can also trade markets like stock indices through CFDs, which are not accessible to trade directly. You should however take into consideration that CFDs are a leveraged product and can result in losses that surpass your initial deposit on your CFD trading account.

Let's take a look at the buy and sell price. We would like to exemplify a two way price on each market, in the same way you see in the underlying market. First of all this encompasses the bid price (which is the first to be given) and the offer price (which is the second to be given). The difference between those prices is known as the spread. If you believe a market is set to rise, you buy at the offer (or higher) price, and if you believe the market is set to fall, you sell at the bid (or lower) price.

How do you calculate profit and loss on your CFD account? It's actually very simple. The number of shares (or contracts in our case) you select to trade is completely up to you, as long as you meet the minimum size permitted for any specific market. You must remember that the value of one contract varies for different markets. For example, one contract of FTSE 100 is worth £10 per each point of movement in the underlying index. Therefore if you are going long on one contract on the FTSE 100 and the index rises by one point, that results in a £10 profit for you. In the same manner, let's presume one full contract of EUR/USD is worth $10 per each point of movement in that FX pair. If you are going short on one contract on EUR/USD and the price rises by one point, it ends up as a $10 loss for you.

Expiry in CFD

Most CFD trades do not expire. If you wish to close out a position you simply place a trade identical in value in the opposite direction.

Let's use an example to make an introduction to CFD trading. Imagine that you have bought 100 shares of BP as a CFD. The price begins to fall so you decide that you would rather close the position before losing too much. In order to do that you would just sell 100 BP shares as a CFD.

Of course it is not always like that and there are a lot of exceptions. Some brokers may offer forward contracts on different commodities which expire at particular dates in the future. Knowing this is important in order to better understand online CFD trading. That being said, you do not have to wait until the expiry date to be released from your forward contract - instead you can trade out at any given time. There is no supplemental funding needed for forward contracts, because the value is priced into the spread.

What are the main reasons for trading CFDs?

CFD trading has plenty of brokers who are eager to provide you with a great deal of benefits, seemingly more than there are for other types of trading. Let's focus on the main advantages that can be enjoyed on CFD accounts.

The first advantage that comes to mind is the direct market access (DMA). Some providers offer DMA, allowing you to trade directly into the underlying order book of equity exchanges throughout the world.

With so many different brokers, you have access to a wide range of markets, particularly shares, options, Forex CFD, commodities and interest rates. Knowing that you never own the underlying market, you can trade on markets that would otherwise be untradeable, e.g cash index products. The markets we have mentioned are the most popular and common markets where you can trade CFDs. However, the full list is vast, encompassing a growing number of ETFs and ETCs, not to mention the consequences of economic and political data releases.

The list of benefits is far from over. It is very easy to benefit from falling markets as well as rising ones when trading CFDs, unlike the majority of traditional forms of trading. Do not forget that you can usually have low commission rates on the contract value on some share CFDs.

If you prefer short-term trading, then we have good news for you. CFD is fully suited to short-term trading. As you can trade CFDs on margin, you can capitalise on short-term market volatility without having to put up a large starting investment.

CFD trading can be unlimited. That means you can access trading opportunities 24/7 with different brokers. This is called round-the-clock trading, which means you can even open and close positions when the underlying market is closed. Furthermore trading CFDs has no fixed time period. Whilst some markets have expiry dates built into the trade, share CFDs do not. In turn, this implies that you can close your share CFD positions at any time you wish.

CFD trading can be executed extremely quickly, however this does depend on the broker you use. Some brokers offer trading platforms where you can open and close positions in the blink of an eye. To make CFD trading explained, you should know that on a good platform prices are live and that different automated systems can handle most transactions immediately.

It is important to outline that you can use leverage when trading CFDs. This means you only have to put up a fraction of the value of a position to open each trade, permitting you to free up some of your capital for other important uses. You should remember that even though there is an actual purchase involved when trading contracts for difference, you still get exposure to the markets you are currently trading on.

What are the risks of trading CFD?

The main risk with CFDs is market risk. If the market moves against you, the value of your position will reduce. This is no different to the risks you run with most traditional forms of trading. What is CFD trading? CFDs are leveraged products and this can substantially increase the risk of larger losses.

Conclusion

Trading CFDs can be a good money maker. That being said, as with all types of trading, you should ensure you have a good knowledge of the markets and all of its aspects to maximise the chances of profitability.

Read also:

https://admiralmarkets.com/education/articles/forex-basics/learn-cfd-trading-how-to-trade-cfds-for-a-living

https://admiralmarkets.com/education/articles/forex-basics/cfd-trading-tips-and-tricks

https://admiralmarkets.com/education/articles/trading-software/what-is-the-best-cfd-trading-platform

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